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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________________________________________________
FORM 10-Q
________________________________________________________________________________________

☒ | Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2024
or

☐ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period From ______ to ______ .
Commission File Number: 001-33093
LIGAND PHARMACEUTICALS INCORPORATED
(Exact name of registrant as specified in its charter)

Delaware | 77-0160744
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.)
555 Heritage Drive, Suite 200 |
Jupiter |
Florida | 33458
(Address of principal executive offices) | (Zip Code)

(858) 550-7500
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:

Title of each class: | Trading symbol: | Name of each exchange on which registered:
Common Stock, par value $0.001 per share | LGND | The Nasdaq Global Market

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

and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)

Large Accelerated Filer | ☒ |  | Accelerated Filer | ☐
Non-Accelerated Filer | ☐ |  | Smaller Reporting Company | ☐
Emerging Growth Company | ☐ |  |  |

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 5, 2024, the registrant had 18,895,373 shares of common stock outstanding.

LIGAND PHARMACEUTICALS INCORPORATED
QUARTERLY REPORT
FORM 10-Q
TABLE OF CONTENTS

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

2

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

Cautionary Note Regarding Forward-Looking Statements:
You should read the following report together with the more detailed information regarding our company, our common stock and our financial statements and notes to those statements appearing elsewhere in this document.
This report contains forward-looking statements that involve a number of risks and uncertainties. Although our forward-looking statements reflect the good faith judgment of our management, these statements can only be based on facts and factors currently known by us. Consequently, these forward-looking statements are inherently subject to risks and uncertainties, and actual results and outcomes may differ materially from results and outcomes discussed in the forward-looking statements.
Forward-looking statements can be identified by the use of forward-looking words such as “believes,” “expects,” “may,” “will,” “plan,” “intends,” “estimates,” “would,” “continue,” “seeks,” “pro forma,” or “anticipates,” or other similar words (including their use in the negative), or by discussions of future matters such as those related to our future results of operations and financial position, royalties and milestones under license agreements, Captisol material sales, product development, and product regulatory filings and approvals, and the timing thereof, the anticipated benefits from the Apeiron transaction, Ligand's status as a high-growth company, as well as other statements that are not historical.
The cautionary statements made in this report are intended to be applicable to all related forward-looking statements wherever they may appear in this report. We urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Except as required by law, we assume no obligation to update our forward-looking statements, even if new information becomes available in the future. This caution is made under the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended.
3

PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
LIGAND PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except par value)

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

See accompanying notes to unaudited condensed consolidated financial statements.
4

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

| Three months ended |  | Nine months ended
| September 30, |  | September 30,
| 2024 |  | 2023 |  | 2024 |  | 2023
Revenues and other income: |  |  |  |  |  |  |
Revenue from intangible royalty assets | $ | 26,552 |  |  | $ | 23,863 |  |  | $ | 67,512 |  |  | $ | 61,447 |
Income from financial royalty assets | 5,157 |  |  | 25 |  |  | 6,454 |  |  | 1,026 |
Royalties | 31,709 |  |  | 23,888 |  |  | 73,966 |  |  | 62,473 |
Captisol | 6,255 |  |  | 8,608 |  |  | 22,967 |  |  | 24,450 |
Contract revenue and other income | 13,848 |  |  | 372 |  |  | 27,388 |  |  | 16,290 |
Total revenues and other income | 51,812 |  |  | 32,868 |  |  | 124,321 |  |  | 103,213 |
Operating costs and expenses: |  |  |  |  |  |  |
Cost of Captisol | 2,449 |  |  | 3,485 |  |  | 8,237 |  |  | 8,871 |
Amortization of intangibles | 8,258 |  |  | 8,238 |  |  | 24,701 |  |  | 25,316 |
Research and development | 5,675 |  |  | 5,532 |  |  | 17,000 |  |  | 19,049 |
General and administrative | 24,475 |  |  | 14,656 |  |  | 53,049 |  |  | 36,798 |
Financial royalty assets impairment | — |  |  | — |  |  | 26,491 |  |  | — |
Fair value adjustments to partner program derivatives | 7,812 |  |  | — |  |  | 7,812 |  |  | — |
Total operating costs and expenses | 48,669 |  |  | 31,911 |  |  | 137,290 |  |  | 90,034 |
Gain on sale of Pelican | — |  |  | (2,121) |  |  | — |  |  | (2,121) |
Operating income (loss) from continuing operations | 3,143 |  |  | 3,078 |  |  | (12,969) |  |  | 15,300 |
Non-operating income and expenses: |  |  |  |  |  |  |
Gain (loss) from short-term investments | 2,407 |  |  | (13,184) |  |  | 98,923 |  |  | 30,340 |
Interest income | 1,347 |  |  | 2,263 |  |  | 6,124 |  |  | 6,018 |
Interest expense | (741) |  |  | (1) |  |  | (2,154) |  |  | (525) |
Other non-operating expense, net | (12,495) |  |  | (4,300) |  |  | (48,206) |  |  | (4,570) |
Total non-operating (expenses) income, net | (9,482) |  |  | (15,222) |  |  | 54,687 |  |  | 31,263 |
(Loss) income before income taxes from continuing operations | (6,339) |  |  | (12,144) |  |  | 41,718 |  |  | 46,563 |
Income tax benefit (expense) | (833) |  |  | 1,871 |  |  | (14,662) |  |  | (10,932) |
Net (loss) income from continuing operations | (7,172) |  |  | (10,273) |  |  | 27,056 |  |  | 35,631 |
Net loss from discontinued operations | — |  |  | — |  |  | — |  |  | (1,665) |
Net (loss) income | $ | (7,172) |  |  | $ | (10,273) |  |  | $ | 27,056 |  |  | $ | 33,966 |
Basic net (loss) income from continuing operations per share | $ | (0.39) |  |  | $ | (0.59) |  |  | $ | 1.50 |  |  | $ | 2.07 |
Basic net loss from discontinued operations per share | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (0.10) |
Basic net (loss) income per share | $ | (0.39) |  |  | $ | (0.59) |  |  | $ | 1.50 |  |  | $ | 1.97 |
Shares used in basic per share calculation | 18,419 |  |  | 17,380 |  |  | 18,061 |  |  | 17,241 |
Diluted net (loss) income from continuing operations per share | $ | (0.39) |  |  | $ | (0.59) |  |  | $ | 1.46 |  |  | $ | 2.00 |
Diluted net loss from discontinued operations per share | $ | — |  |  | $ | — |  |  | — |  |  | $ | (0.09) |
Diluted net (loss) income per share | $ | (0.39) |  |  | $ | (0.59) |  |  | 1.46 |  |  | $ | 1.91 |
Shares used in diluted per share calculation | 18,419 |  |  | 17,380 |  |  | 18,574 |  |  | 17,784 |

See accompanying notes to unaudited condensed consolidated financial statements.
5

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

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

See accompanying notes to unaudited condensed consolidated financial statements.
6

LIGAND PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(in thousands)

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

7

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

See accompanying notes to unaudited condensed consolidated financial statements.
8

LIGAND PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)

| Nine months ended
| September 30,
| 2024 |  | 2023
Cash flows from operating activities: |  |  |
Net income | $ | 27,056 |  |  | $ | 33,966 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |
Change in estimated fair value of contingent liabilities | 993 |  |  | 132 |
Depreciation and amortization of intangible assets | 26,612 |  |  | 27,605 |
Amortization of premium on investments, net | (725) |  |  | (938) |
Amortization of debt discount and issuance fees | 314 |  |  | 159 |
Non-cash income from financial royalty assets | (4,687) |  |  | (883) |
CECL adjustment to financial royalty assets | (3,463) |  |  | 3,190 |
Impairment loss of financial royalty assets | 26,491 |  |  | 924 |
Loss on derivative assets | 14,655 |  |  | — |
Gain on sale of Pelican | — |  |  | (2,121) |
Losses from equity method investment in Primrose Bio | 11,576 |  |  | — |
Fair value adjustment to Primrose Bio securities investments | 25,788 |  |  | — |
Share-based compensation | 33,565 |  |  | 20,022 |
Deferred income taxes | (3,108) |  |  | 6,761 |
Gain from short-term investments | (98,923) |  |  | (30,340) |
Lease amortization expense | 1,555 |  |  | 1,231 |
Other | 3,123 |  |  | 215 |
Changes in operating assets and liabilities, net of acquisitions: |  |  |
Accounts receivable | (794) |  |  | (5,436) |
Inventory | 7,053 |  |  | (11,577) |
Accounts payable and accrued liabilities | 2,617 |  |  | (7,461) |
Income tax receivable and payable | (607) |  |  | 5,818 |
Deferred revenue | (1,172) |  |  | 226 |
Other assets and liabilities | 657 |  |  | 19 |
Net cash provided by operating activities | 68,576 |  |  | 41,512 |
Cash flows from investing activities: |  |  |
Acquisition of financial royalty assets | (17,819) |  |  | — |
Proceeds from financial royalty assets | 4,892 |  |  | 349 |
Purchase of short-term investments | (133,629) |  |  | (107,262) |
Proceeds from sale of short-term investments | 189,563 |  |  | 96,318 |
Proceeds from maturity of short-term investments | 27,751 |  |  | 37,941 |
Cash paid for investment in Primrose Bio | (998) |  |  | (15,235) |
Cash paid for Palvella notes receivable | (2,500) |  |  | — |
Cash paid for Novan acquisition, net of restricted cash received | — |  |  | (10,405) |
Cash paid for the Agenus transaction | (75,000) |  |  | — |
Cash paid for Apeiron acquisition, net of cash received | (91,996) |  |  | — |
Cash paid for InvIOs investment | (4,196) |  |  | — |
Purchase of property and equipment | (1,109) |  |  | (3,104) |
Net cash (used in) provided by investing activities | (105,041) |  |  | (1,398) |
Cash flows from financing activities: |  |  |
Proceeds from ATM sales, net of commissions and fees | 34,030 |  |  | — |
Repayment at maturity/repurchase of 2023 Notes | — |  |  | (76,854) |
Payments under finance lease obligations | (19) |  |  | (40) |
Net proceeds from stock option exercises and ESPP | 46,251 |  |  | 15,922 |
Taxes paid related to net share settlement of equity awards | (3,201) |  |  | (4,290) |
Cash paid for debt issuance costs | (308) |  |  | — |
Net cash provided by (used in) financing activities | 76,753 |  |  | (65,262) |
Effect of exchange rate changes on cash and cash equivalents | 377 |  |  | — |
Net increase in cash and cash equivalents | 40,665 |  |  | (25,148) |
Cash and cash equivalents at beginning of period | 22,954 |  |  | 45,006 |
Cash and cash equivalents at end of period | $ | 63,619 |  |  | $ | 19,858 |

9

Supplemental disclosure of cash flow information: |  |  |
Interest paid | $ | 262 |  |  | $ | 288 |
Taxes paid | $ | 17,346 |  |  | $ | 10 |
Restricted cash in other assets | $ | — |  |  | $ | 583 |
Acquisitions: |  |  |
Fair value of tangible assets acquired, net of cash and restricted cash received | $ | 8,965 |  |  | $ | 17,887 |
Goodwill | — |  |  | 3,709 |
Financial royalty assets | 106,156 |  |  | — |
Intangible assets | — |  |  | 10,700 |
Liabilities assumed | (23,125) |  |  | (21,891) |
Net cash paid for acquisitions | $ | 91,996 |  |  | $ | 10,405 |
Supplemental schedule of non-cash activity: |  |  |
Accrued Primrose transaction costs | $ | — |  |  | $ | 1,013 |
Addition of right-of-use assets and lease liabilities | $ | 1,769 |  |  | $ | — |
Accrued fixed asset purchases | $ | 289 |  |  | $ | 409 |
Accrued debt issuance costs | $ | 8 |  |  | $ | — |
Unrealized gain on AFS investments, net of tax | $ | 3 |  |  | $ | 40 |

See accompanying notes to unaudited condensed consolidated financial statements.
10

LIGAND PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Unless the context requires otherwise, references in this report to “Ligand,” “we,” “us,” the “Company,” and “our” refer to Ligand Pharmaceuticals Incorporated and its consolidated subsidiaries.
1. Basis of Presentation and Summary of Significant Accounting Policies
Business
We are a biopharmaceutical company enabling scientific advancement through supporting the clinical development of high-value medicines. We do this by providing financing, licensing our technologies or both. We operate in one reportable segment: development and licensing of biopharmaceutical assets.
Basis of Presentation
Our unaudited condensed consolidated financial statements include the financial statements of Ligand and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. We have included all adjustments, consisting only of normal recurring adjustments, which we considered necessary for a fair presentation of our financial results. These unaudited condensed consolidated financial statements and accompanying notes should be read together with the audited consolidated financial statements included in our 2023 Annual Report. Interim financial results are not necessarily indicative of the results that may be expected for the full year.
Reclassification
Certain reclassifications have been made to the previously issued audited consolidated financial statements to conform with the current period presentation. Specifically, within the consolidated balance sheet as of December 31, 2023, our commercial license and other economic rights line has been reclassified to long-term portion of financial royalty assets, net, and to other assets, and a portion of other investments has been reclassified from other assets. Moreover, noncurrent derivative assets as of December 31, 2023, have been reclassified from other assets.
In addition, within the unaudited condensed consolidated statement of operations for the three and nine months ended September 30, 2023, royalties have been reclassified to revenue from intangible royalty assets, and a portion of the contract revenue has been reclassified to income from financial royalty assets.
Discontinued Operations
The Company determined that the spin-off of the OmniAb Business in November 2022 met the criteria for classification as a discontinued operation in accordance with ASC Subtopic 205-20, Discontinued Operations (“ASC 205-20”). Accordingly, the accompanying condensed consolidated financial statements have been updated to present the results of all discontinued operations reported as a separate component of loss in the condensed consolidated statements of operations and comprehensive loss (see Note 5, Spin-off of OmniAb). All disclosures have been adjusted to reflect continuing operations.
Significant Accounting Policies
We have described our significant accounting policies in Note 1, Basis of Presentation and Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements in our 2023 Annual Report.
Use of Estimates
The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and the accompanying notes. Actual results may differ from those estimates.
Revenue and Other Income
Our revenue is generated primarily from royalties on sales of products commercialized by our partners, Captisol material sales, income from financial royalty assets, and contract revenue for license fees, technical, regulatory and sales-based milestone payments. Other operating income is primarily related to milestone income received for financial royalty assets that have been fully amortized or where there is no underlying asset recognized on the consolidated balance sheets.
We apply the following five-step model in accordance with ASC 606, Revenue from Contracts with Customers, in order to determine the revenue: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.
Revenue from Intangible Royalty Assets
11

We receive royalty revenue from intangible royalty assets on sales by our partners of products covered by patents that we or our partners own under contractual agreements. We do not have future performance obligations under these license arrangements. We generally satisfy our obligation to grant intellectual property rights on the effective date of the contract. However, we apply the royalty recognition constraint required under the guidance for sales-based royalties which requires a royalty to be recorded no sooner than when the underlying sale occurs. Therefore, royalties on sales of products commercialized by our partners are recognized in the quarter the product is sold. Our partners generally report sales information to us on a one quarter lag. Thus, we estimate the expected royalty proceeds based on an analysis of historical experience and interim data provided by our partners including their publicly announced sales. Differences between actual and estimated royalty revenues, which have not been material, are adjusted in the period in which they become known, typically the following quarter.
Income from Financial Royalty Assets
Effective January 1, 2024, we introduced a new line item “income from financial royalty assets”, which was included in “contract revenue” in prior periods. Accordingly, the prior year period amounts have been reclassified to align with the current period presentation.
We recognize income from financial royalty assets when there is a reasonable expectation about the timing and amount of cash flows expected to be collected. Income is calculated by multiplying the carrying value of the financial royalty asset by the periodic effective interest rate.
We account for financial royalty assets related to developmental pipeline or recently commercialized products on a non-accrual basis. Developmental pipeline products are non-commercialized, non-approved products that require FDA or other regulatory approval, and thus have uncertain cash flows. Newly commercialized products typically do not have an established reliable sales pattern, and thus have uncertain cash flows.
Captisol Sales
Revenue from Captisol sales is recognized when control of Captisol material is transferred or intellectual property license rights are granted to our customers in an amount that reflects the consideration we expect to receive from our customers in exchange for those products or rights. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. For Captisol material or intellectual property license rights, we consider our performance obligation satisfied once we have transferred control of the product or granted the intellectual property rights, meaning the customer has the ability to use and obtain the benefit of the Captisol material or intellectual property license right. We recognize revenue for satisfied performance obligations only when we determine there are no uncertainties regarding payment terms or transfer of control. Sales tax and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. We have elected to recognize the cost of freight and shipping when control over Captisol material has transferred to the customer as an expense in cost of Captisol. We expense incremental costs of obtaining a contract when incurred if the expected amortization period of the asset that we would have recognized is one year or less or the amount is immaterial. We did not incur any incremental costs of obtaining a contract during the periods reported.
Contract Revenue and Other Income
Our contracts with customers often include variable consideration in the form of contingent milestone payments. We include contingent milestone payments in the estimated transaction price when it is probable a significant reversal in the amount of cumulative revenue recognized will not occur. These estimates are based on historical experience, anticipated results and our best judgment at the time. If the contingent milestone payment is based on sales, we apply the royalty recognition constraint and record revenue when the underlying sale has taken place. Significant judgments must be made in determining the transaction price for our sales of intellectual property. Because of the risk that products in development with our partners will not reach development milestones or receive regulatory approval, we generally recognize any contingent payments that would be due to us upon the development milestone or regulatory approval.
Some customer contracts are sublicenses which require that we make payments to an upstream licensor related to license fees, milestones and royalties which we receive from customers. In such cases, we evaluate the determination of gross revenue as a principal versus net revenue as an agent reporting based on each individual agreement.
Other income is primarily related to milestone income received for financial royalty assets that have been fully amortized or where there is no underlying asset recognized on the consolidated balance sheets.
Deferred Revenue
Depending on the terms of the arrangement, we may also defer a portion of the consideration received because we have to satisfy a future obligation. The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on the consolidated balance sheet. Except for royalty revenue and certain service revenue, we generally receive payment at the point we satisfy our obligation or soon after. Any fees billed in advance of being earned are recorded as deferred revenue. During the three and nine months ended September 30, 2024, the amount recognized as revenue that was previously deferred was $0.2 million and $1.2
12

million, respectively. During the three and nine months ended September 30, 2023, the amount recognized as revenue that was previously deferred was immaterial.
Disaggregation of Revenue
The following table represents disaggregation of royalties, Captisol and contract revenue and other income (in thousands):

| Three months ended |  | Nine months ended
| September 30, |  | September 30,
| 2024 |  | 2023 |  | 2024 |  | 2023
Royalties |  |  |  |  |  |  |
Kyprolis | $ | 11,599 |  |  | $ | 10,537 |  |  | $ | 27,229 |  |  | $ | 24,862 |
Evomela | 1,747 |  |  | 2,497 |  |  | 5,877 |  |  | 7,404 |
Teriparatide injection | 2,376 |  |  | 2,800 |  |  | 6,520 |  |  | 9,913 |
Rylaze | 3,886 |  |  | 3,678 |  |  | 10,070 |  |  | 9,315 |
Filspari | 3,206 |  |  | 1,122 |  |  | 7,402 |  |  | 1,707 |
Vaxneuvance | 1,466 |  |  | 1,313 |  |  | 3,962 |  |  | 2,990 |
Other | 2,272 |  |  | 1,916 |  |  | 6,452 |  |  | 5,256 |
Revenue from intangible royalty assets | 26,552 |  |  | 23,863 |  |  | 67,512 |  |  | 61,447 |
Income from financial royalty assets | 5,157 |  |  | 25 |  | 6,454 |  |  | 1,026 |
| 31,709 |  |  | 23,888 |  |  | 73,966 |  |  | 62,473 |
Captisol | 6,255 |  |  | 8,608 |  |  | 22,967 |  |  | 24,450 |
Contract revenue and other income |  |  |  |  |  |  |
Milestone and other | 13,848 |  |  | 372 |  |  | 25,444 |  |  | 16,290 |
Other income | — |  |  | — |  |  | 1,944 |  |  | — |
Contract revenue and other income | 13,848 |  |  | 372 |  |  | 27,388 |  |  | 16,290 |
Total | $ | 51,812 |  |  | $ | 32,868 |  |  | $ | 124,321 |  |  | $ | 103,213 |

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

September 30, 2024 | Amortized cost |  |  | Gross unrealized gains |  |  | Gross unrealized losses |  |  | Estimated fair value
Bond fund | $ | 39,512 |  |  |  | $ | — |  |  |  | $ | (265) |  |  |  | $ | 39,247 |
U.S. government securities | 19,051 |  |  |  | 31 |  |  |  | — |  |  |  | 19,082 |
Bank deposits | 12,280 |  |  |  | 21 |  |  |  | — |  |  |  | 12,301 |
Corporate bonds | 10,969 |  |  |  | 30 |  |  |  | (3) |  |  |  | 10,996 |
Commercial paper | 10,591 |  |  |  | 5 |  |  |  | (1) |  |  |  | 10,595 |
Corporate equity securities | 6,551 |  |  |  | — |  |  |  | (6,058) |  |  |  | 493 |
| $ | 98,954 |  |  |  | $ | 87 |  |  |  | $ | (6,327) |  |  |  | 92,714 |
Viking common stock |  |  |  |  |  |  |  |  |  | 63,310 |
Total short-term investments |  |  |  |  |  |  |  |  |  | $ | 156,024 |
December 31, 2023 |  |  |  |  |  |  |  |  |  |
Bond fund | $ | 63,763 |  |  |  | $ | — |  |  |  | $ | (537) |  |  |  | $ | 63,226 |
Bank deposits | 17,165 |  |  |  | 12 |  |  |  | (1) |  |  |  | 17,176 |
Corporate bonds | 14,850 |  |  |  | 40 |  |  |  | (2) |  |  |  | 14,888 |
Commercial paper | 11,578 |  |  |  | 9 |  |  |  | (1) |  |  |  | 11,586 |
U.S. government securities | 6,736 |  |  |  | 18 |  |  |  | (3) |  |  |  | 6,751 |
Municipal bonds | 1,007 |  |  |  | — |  |  |  | (4) |  |  |  | 1,003 |
Corporate equity securities | 5,775 |  |  |  | — |  |  |  | (5,235) |  |  |  | 540 |
| $ | 120,874 |  |  |  | $ | 79 |  |  |  | $ | (5,783) |  |  |  | 115,170 |
Viking common stock |  |  |  |  |  |  |  |  |  | 32,185 |
Total short-term investments |  |  |  |  |  |  |  |  |  | $ | 147,355 |

13

During the nine months ended September 30, 2024, we sold 0.7 million shares of Viking common stock and recognized a realized gain of $60.0 million in total. We did not sell Viking common stock during the three months ended September 30, 2024. During the nine months ended September 30, 2023, we sold 4.5 million shares of Viking common stock and recognized a realized gain of $37.2 million in total. During the three months ended September 30, 2023, there were no sales of Viking common stock.
Gain (loss) from short-term investments in our condensed consolidated statements of operations includes both realized and unrealized gain (loss) from our short-term investments in public equity and warrant securities.
Allowances are recorded for available-for-sale debt securities with unrealized losses. This limits the amount of credit losses that can be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and requires the reversal of previously recognized credit losses if fair value increases. The provisions of the credit losses standard did not have a material impact on our available-for-sale debt securities during the three and nine months ended September 30, 2024 and 2023.
The following table summarizes our available-for-sale debt securities by contractual maturity (in thousands):

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

Our investment policy is capital preservation and we only invest in U.S.-dollar denominated investments. We held a total of 32 investments which were in an unrealized loss position with a total of $0.01 million unrealized losses as of September 30, 2024. We believe that we will collect the principal and interest due on our debt securities that have an amortized cost in excess of fair value. The unrealized losses are largely due to changes in interest rates and not to unfavorable changes in the credit quality associated with these securities that impacted our assessment on collectability of principal and interest. In July 2024, we sold certain securities before the recovery of the amortized cost basis to fund the Apeiron acquisition. Accordingly, we wrote down the amortized cost of $0.05 million during the nine months ended September 30, 2024. We do not intend to sell these securities and it is not more-likely-than-not that we will be required to sell these securities before the recovery of the amortized cost basis as of September 30, 2024. Accordingly, there was no credit loss recognized for the three months ended September 30, 2024. There were no credit losses recognized for the three and nine months ended September 30, 2023.
Accounts Receivable and Allowance for Credit Losses
Our accounts receivable arise primarily from sales on credit to customers. We establish an allowance for credit losses to present the net amount of accounts receivable expected to be collected. The allowance is determined by using the loss-rate method, which requires an estimation of loss rates based upon historical loss experience adjusted for factors that are relevant to determining the expected collectability of accounts receivable. Some of these factors include macroeconomic conditions that correlate with historical loss experience, delinquency trends, aging behavior of receivables and credit and liquidity quality indicators for industry groups, customer classes or individual customers. During the three and nine months ended September 30, 2024, we considered the current and expected economic and market conditions and concluded a decrease of $0.01 million and a decrease of $0.13 million in the allowance for credit losses, respectively. During the three and nine months ended September 30, 2023, we considered the current and expected economic and market conditions and concluded an increase of $0.10 million and an increase of $0.14 million in the allowance for credit losses, respectively.
Inventory
Inventory, which consists of finished goods (Captisol), is stated at the lower of cost or net realizable value. We determine cost using the specific identification method.
We analyze our inventory levels periodically and write down inventory to net realizable value if it has become obsolete, has a cost basis in excess of its expected net realizable value or is in excess of expected requirements. There was a $0.1 million and $0.2 million write-down recorded against inventory for the three and nine months ended September 30, 2024, respectively. There was no write-down recorded against inventory for the three and nine months ended September 30, 2023. In addition to finished goods, as of September 30, 2024 and December 31, 2023, inventory included prepayments of $3.3 million and $4.6 million, respectively, to our supplier for Captisol.
14

Goodwill and Other Identifiable Intangible Assets
Goodwill and other identifiable intangible assets consist of the following (in thousands):

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

Financial Royalty Assets, net (formerly known as Commercial License Rights)
Financial royalty assets represent a portfolio of future milestone and royalty payment rights acquired that are passive in nature (i.e., we do not own the intellectual property or have the right to commercialize the underlying products).
Although a financial royalty asset does not have the contractual terms typical of a loan (such as contractual principal and interest), we account for financial royalty assets under ASC 310, Receivables. Our financial royalty assets are classified similar to loans receivable and are measured at amortized cost using the prospective effective interest method described in ASC 835-30 Imputation of Interest.
The effective interest rate is calculated by forecasting the expected cash flows to be received over the life of the asset relative to the initial invested amount. The effective interest rate is recalculated in each reporting period as the difference between expected cash flows and actual cash flows are realized and as there are changes to expected future cash flows.
The gross carrying value of a financial royalty asset is made up of the opening balance, or net purchase price for a new financial royalty asset, which is increased by accrued interest income (except for assets under the non-accrual method) and decreased by cash receipts in the period to arrive at the ending balance.
We evaluate financial royalty assets for recoverability on an individual basis by comparing the effective interest rate at each reporting date to that of the prior period. If the effective interest rate is lower for the current period than the prior period, and if the gross cash flows have declined (expected and collected), we record provision expense for the change in expected cash flows. The provision is measured as the difference between the financial royalty asset’s amortized cost basis and the net present value of the expected future cash flows, calculated using the prior period’s effective interest rate.
In addition to the above allowance, we recognize an allowance for current expected credit losses under ASC 326, Financial Instruments – Credit Losses on our financial royalty assets. The credit rating, which is primarily based on publicly available data and updated quarterly, is the primary credit quality indicator used to determine the credit loss provision.
The carrying value of financial royalty assets is presented net of the cumulative allowance for changes in expected future cash flows and expected credit losses. The initial amount and subsequent revisions in allowances for changes in expected future cash flows and expected credit losses are recorded as part of general and administrative expenses on the condensed consolidated statements of operations.
When we are reasonably certain that a part of a financial royalty asset’s net carrying value (or all of it) is not recoverable, we recognize a permanent impairment which is recorded in a financial royalty asset impairment on the condensed consolidated statements of operations. To the extent there was an allowance previously recorded for this asset, the amount of such impairment is written off against the allowance at the time that such a determination is made. Any future recoveries from such impairment are recognized when cash is collected in a respective period earnings.
The current portion of financial royalty assets represents an estimation for current quarter royalty receipts which are collected during the subsequent quarter. This portion is presented in other current assets on our consolidated balance sheets, net of the allowance for expected credit losses.
For additional information, see Note 6, Financial Royalty Assets, net (formerly known as Commercial License Rights).
Derivative Assets
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Derivative assets include instruments used for risk-management purposes, and other instruments. Derivative assets which are not used for risk management purposes, include: (a) acquired rights in future milestone and royalty payments from Agenus Partnered Programs (as defined below), (b) Agenus Warrant (as defined below), (c) option to invest up to $25 million to milestone and royalty rights which expires on June 30, 2025 ("Upsize Option"), and (d) rights to receive from Primrose Bio 50% of milestones on two contracts previously entered into by Primordial Genetics.
In addition, we have entered into a collar arrangement to hedge against the fluctuation risk in Viking's share price (the “Viking Share Collar”). However, because the Viking stock investment is remeasured at fair value through earnings under ASC 321, the Viking Share Collar is not eligible for hedge accounting, but is considered as an economic hedge. All derivatives are measured at fair value on the consolidated balance sheets.
Derivative assets consist of the following (in thousands):

| September 30, |  | December 31,
| 2024 |  | 2023
Agenus Upsize Option (expires on 6/30/25) | $ | 3,815 |  |  | $ | — |
Viking shares collar | 7,318 |  |  | — |
Total current derivative assets | $ | 11,133 |  |  | $ | — |
Primrose mRNA | $ | 2,921 |  |  | $ | 3,531 |
Agenus Partner Programs | 14,099 |  |  | — |
Agenus Warrant (5 years contractual term) | 2,226 |  |  | — |
Total noncurrent derivative assets | $ | 19,246 |  |  | $ | 3,531 |

A change in the fair value of the Viking Shares Collar that amounted to $(7.9) million and $7.3 million during the three and nine months ended September 30, 2024, respectively, are included in gain (loss) from short-term investments within the condensed consolidated statements of operations. A change in the fair value of Agenus Partner Programs that amounted to $(7.2) million during the three and nine months ended September 30, 2024 is included in fair value adjustments to partner program derivatives within the condensed consolidated statements of operations. A change in the fair value of other derivatives that amounted to $(8.0) million and $(6.8) million during the three and nine months ended September 30, 2024, respectively, are recognized in other non-operating expense, net within the condensed consolidated statements of operations. We acquired the Primrose mRNA derivative on September 18, 2023 with the sale of Pelican business and investment in Primrose Bio transaction. A change in the fair value of the Primrose mRNA derivative that amounted to $(0.6) million during the three and nine months ended September 30, 2024 is included in fair value adjustments to partner program derivatives within the condensed consolidated statements of operations. We did not have any other derivative instruments during the three and nine months ended September 30, 2023.
Equity Method Investment
Investments that we do not consolidate but in which we have significant influence over the operating and financial policies of the investee are classified as equity method investments and are accounted for using the equity method of accounting.
In applying the equity method of accounting, investments are initially recorded at cost and are subsequently adjusted based on our proportionate share of net income or loss of the investee, net of any distributions received from the investee and any impairment.
Other Investments
Other investments represent our investments in equity securities of third parties in which we do not have control or significant influence. Our equity securities investments do not have a readily determinable or estimable fair value and are measured using the measurement alternative, which is cost less impairment, if any, and adjustments resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. The amount of such impairment or adjustment recognized during the period is presented in other non-operating income (expense) in our condensed consolidated statements of operations.
Other investments consist of the following (in thousands):
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| September 30, |  | December 31,
| 2024 |  | 2023
Equity securities in Primrose Bio | $ | 6,712 |  |  | $ | 32,726 |
InvIOs investment | 4,196 |  |  | — |
Neuritek warrants | — |  |  | 3,000 |
Palvella Series C preferred stock | 1,000 |  |  | 1,000 |
Total other investments | $ | 11,908 |  |  | $ | 36,726 |

During the three months ended September 30, 2024, we recognized a full impairment for our investment in Neuritek warrants.
Other Assets and Other Current Assets
Other assets include economic rights related to the 2023 expansion of our strategic partnership with Palvella to accelerate Phase 3 development of QTORIN rapamycin for the treatment of Microcystic Lymphatic Malformations (“Microcystic LMs”). According to the terms of the second amendment to our development funding and royalties agreement with Palvella (the “Palvella Second Amendment”). Palvella received an upfront payment of $5 million from Ligand. In return for the upfront payment, among other contractual changes, the tiered royalty payable by Palvella to Ligand was increased to between 8.0% and 9.8% based on annual aggregate worldwide net sales of QTORIN rapamycin. We are not obligated to provide additional funding to Palvella for development or commercialization of QTORIN.
We determined the economic rights related to Palvella should be characterized as a funded research and development arrangement, because the contract designated the funds usage for research and development activities, and thus we account for them in accordance with ASC 730-20, Research and Development Arrangement. We reduce our asset as the funds are expended by Palvella. As of September 30, 2024, of the $5 million upfront funding related to the Palvella Second Amendment, $0.7 million of the funding to Palvella was expended. Our CEO and director, Todd Davis, is a director of Palvella. Mr. Davis recused himself from both board's consideration of the agreement between us and Palvella, including any financial analysis, the terms of the Palvella Second Amendment and the vote to approve the Palvella Second Amendment and the related transactions.
In June 2024, we funded Palvella $2.5 million in exchange for a convertible note with a maturity of three years, which is included in other assets in the condensed consolidated balance sheets.
Other current assets primarily include $2.3 million Employee Retention Credit, $6.6 million current portion of financial royalty assets (disclosed in Note 6, Financial Royalty Assets, net), $2.2 million prepaid expenses, and inventory (raw materials and work in process related to the manufacturing of finished goods) for the preparation of commercial supplies of ZELSUVMI™ by Pelthos Therapeutics, a wholly owned subsidiary of Ligand. For additional information on ZELSUVMI, see Note 4, Acquisitions. Below is a summary of the inventory included in other current assets (in thousands):

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

Accrued Liabilities
Accrued liabilities consist of the following (in thousands):

| September 30, |  | December 31,
| 2024 |  | 2023
Compensation | $ | 3,830 |  |  | $ | 4,682 |
Subcontractor | 1,756 |  |  | 1,756 |
Professional fees | 3,296 |  |  | 2,394 |
Customer deposit | 621 |  |  | 621 |
Supplier | 276 |  |  | 303 |
Royalties owed to third parties | 2,989 |  |  | 900 |
Amounts owed to former licensees | — |  |  | 45 |
Other | 2,832 |  |  | 1,766 |
Total accrued liabilities | $ | 15,600 |  |  | $ | 12,467 |

Contingent Liabilities
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In connection with the acquisition of CyDex in January 2011, we recorded a contingent liability for amounts potentially due to holders of the CyDex CVRs and former license holders. The liability is periodically assessed based on events and circumstances related to the underlying milestones, royalties and material sales.
In connection with the acquisition of Metabasis in January 2010, we issued Metabasis stockholders four tradable CVRs for each Metabasis share. The fair values of the CVRs are remeasured at each reporting date through the term of the related agreement.
Any change in fair value is recorded in other non-operating expense, net within our condensed consolidated statement of operations. For additional information, see Note 7, Fair Value Measurements.
Other Long-Term Liabilities
Other long-term liabilities consist of the following (in thousands):

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

Share-Based Compensation
Share-based compensation expense for awards to employees and non-employee directors is a non-cash expense and is recognized on a straight-line basis over the vesting period. The following table summarizes share-based compensation expense recorded as components of research and development expenses and general and administrative expenses for the periods indicated (in thousands):

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

The increase in share-based compensation for the three and nine months ended September 30, 2024 as compared to the prior periods are primarily due to the one-time stock compensation expense associated with the anticipated departure of our former President and Chief Operating Officer (“COO”) during the third quarter of 2024 and the new hires in 2024.
The fair value for options that were awarded to employees and directors was estimated at the date of grant using the Black-Scholes option valuation model with the following weighted-average assumptions:

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

A limited amount of performance-based restricted stock units (“PSUs”) contain a market condition based on our relative total shareholder return ranked on a percentile basis against the Nasdaq Biotechnology Index over a three-year performance period, with a range of 0% to 200% of the target amount granted to be issued under the award. Share-based compensation cost for these PSUs is measured using the Monte-Carlo simulation valuation model and is not adjusted for the achievement, or lack thereof, of the performance conditions.
Net (Loss) Income Per Share
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Basic net (loss) income per share is calculated by dividing net (loss) income by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed based on the sum of the weighted average number of common shares and potentially dilutive common shares outstanding during the period. Diluted net loss per share is computed based on the sum of the weighted average number of common shares outstanding during the period.
Potentially dilutive common shares consist of shares issuable under the 2023 Notes, stock options and restricted stock. Although we paid off the 2023 Notes in May 2023, it would have a dilutive impact when the average market price of our common stock exceeds the maximum conversion price during the nine months ended September 30, 2023. It was our intent and policy to settle conversions through combination settlement, which involved payment in cash equal to the principal portion and delivery of shares of common stock for the excess of the conversion value over the principal portion. Potentially dilutive common shares from stock options and restricted stock are determined using the average share price for each period under the treasury stock method. In addition, the following amounts are assumed to be used to repurchase shares: proceeds from exercise of stock options and the average amount of unrecognized compensation expense for the awards. For additional information, see Note 10, Stockholders’ Equity.
In accordance with ASC 260, Earnings per Share, if a company had a discontinuing operation, the company uses income from continuing operations, adjusted for preferred dividends and similar adjustments, as its control number to determine whether potential common shares are dilutive. The following table presents the calculation of weighted average shares used to calculate basic and diluted earnings per share (in thousands):

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

For the three months ended September 30, 2024, due to the net loss for the period, the 0.7 million weighted average incremental options and restricted stock awards were anti-dilutive. For the three months ended September 30, 2023, due to the net loss for the period, the 0.3 million weighted average incremental options and restricted stock awards were anti-dilutive.
Foreign Currency Translation
The Euro is the functional currency of Apeiron and the corresponding financial statements have been translated into U.S. Dollars in accordance with ASC 830-30, Translation of Financial Statements. Assets and liabilities are translated at end-of-period rates while revenues and expenses are translated at average rates in effect during the period in which the activity took place. Equity is translated at historical rates and the resulting cumulative translation adjustments are included as a component of accumulated other comprehensive income (loss).
Accounting Standards Not Yet Adopted
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The update, among other things, requires disclosure of certain significant segment expenses. We will adopt the updated accounting guidance in our Annual Report on Form 10-K for the year ending December 31, 2024. We do not expect the adoption of the new accounting guidance will have a material impact to our consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The update requires a public business entity to disclose, on an annual basis, a tabular rate reconciliation using both percentages and currency amounts, broken out into specified categories with certain reconciling items further broken out by nature and jurisdiction to the extent those items exceed a specified threshold. In addition, all entities are required to disclose income taxes paid, net of refunds received disaggregated by federal, state/local, and foreign and by jurisdiction if the amount is at least 5% of total income tax payments, net of refunds received. Adoption of the ASU allows for either the prospective or retrospective application of the amendment and is effective for annual periods beginning after December 15, 2024, with early adoption permitted. We have not yet completed the assessment of the impact of ASU 2023-09 on our consolidated financial statements.
In November 2024, the FASB issued ASU No. 2024-03, Income Statement—Reporting Comprehensive Income (Subtopic 220-40): Expense Disaggregation Disclosures. This update requires entities to disaggregate operating expenses into specific categories, such as salaries and wages, depreciation, and amortization, to provide enhanced transparency into the nature and
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function of expenses. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, with early adoption permitted. ASU 2024-03 may be applied retrospectively or prospectively. We are currently evaluating the new guidance to determine the impact it may have on our consolidated financial statements and related disclosures.
We do not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material impact on our consolidated financial statements or disclosures.
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2. Agenus Transaction
On May 29, 2024, we closed the transactions pursuant to the $75 million purchase and sale agreement (the “Agenus Agreement”), dated May 6, 2024, among us and Agenus Inc., Agenus Royalty Fund, LLC, and Agenus Holdings 2024, LLC (collectively, “Agenus”). Under the terms of the Agenus Agreement, we received (i) 18.75% of the licensed royalties and 31.875% of the future licensed milestones paid to Agenus on six-partnered oncology programs, including BMS-986442 (Bristol Myers Squibb), AGEN2373 (Gilead Sciences), INCAGN2385 and INCAGN2390 (Incyte), MK-4830 (Merck), and UGN-301 (UroGen Pharma) (collectively referred as “Agenus Partnered Programs”), and (ii) a synthetic 2.625% royalty on future global net sales of Agenus’ novel immuno-oncology botensilimab in combination with balstilimab (“BOT/BAL”) program, collectively subject to certain events which may adjust the royalty and milestone percentages paid to us. In addition, we received the option to commit an additional $25 million in the same assets on a pro rata basis which expires on June 30, 2025 (“Upsize Option”). We have also agreed to allow Agenus to raise up to an additional $100 million bringing the total syndicated purchase price up to an aggregate of $200 million. As part of the Agenus Agreement, Agenus will grant us security over certain assets related to the programs included in the Agenus Agreement, subject to certain customary exceptions.
In connection with entry into the Agenus Agreement, Agenus issued us a 5-year warrant (“Agenus Warrant”) to purchase 867,052 shares of its common stock, at an exercise price equal to $17.30.
We accounted for all Agenus Partnered Programs, Agenus Warrant and Upsize Option as derivative assets. Upsize Option was presented within current derivative assets line (as it expires on June 30, 2025), and the other derivatives were presented in noncurrent derivative assets line in our condensed consolidated balance sheet. Agenus Partnered Programs are recognized as derivative assets under ASC 815, Derivatives and Hedging, as they have different underlyings (milestone payments and royalties). The commercial milestones and royalties are dependent on the development milestones and the commercial milestone and royalties underlyings are not determined to be predominate. The derivative assets were recorded at fair value as of May 29, 2024, and are marked to fair value at each subsequent reporting period.
The fair value of Agenus Partnered Programs derivative assets is determined as a present value of expected future cash flows adjusted for the level of risk appropriate for a respective program stage. During the three months ended September 30, 2024, certain Agenus partners discontinued development of their partnered programs. These programs may be relicensed at a later date, and Ligand would retain its economic interest upon any relicense activity.
The fair value of Agenus Warrant is determined using a Black-Scholes model. The following assumptions were used as of May 29, 2024, and September 30, 2024, respectively: expected term of 4.0 years and 3.7 years, volatility of 84% and 99%, risk-free rate of 4.7% and 3.6%, Agenus Stock price of $15.03 and $5.48.
The fair value of the Upsize Option was determined using the binomial option pricing model under which we assessed and considered the possible upwards and downwards scenarios through the expiration date of the Upsize Option.
See Note 7, Fair Value Measurements, for additional information on the Agenus Partnered Program derivative assets, Agenus Warrant, and Upsize Option.
We accounted for the acquired BOT/BAL rights as a financial royalty asset which is currently put under the non-accrual method as management cannot reliably estimate future cash flows from this program. The amount of BOT/BAL financial royalty asset was determined as a residual value from the $75 million aggregate investment amount, less fair value of all acquired derivative assets as of May 29, 2024.
3. Sale of Pelican Business and Investment in Primrose Bio
On September 18, 2023, we entered into a merger agreement, pursuant to which our subsidiary, Pelican Technology Holdings, Inc. (“Pelican”) became a wholly owned subsidiary of Primrose Bio. Primrose Bio is a private company focused on synthetic biology. Pelican has developed technology related to PET (protein expression technology) and PelicCRM197 (vaccine material), and has property and equipment, as well as leased property in San Diego, CA. As part of the transaction, we received 2,146,957 common shares, 4,278,293 preferred shares and 474,746 restricted shares of Primrose Bio. Simultaneous with the merger, we entered into a purchase and sale agreement with Primrose Bio and contributed $15 million in exchange for 50% of potential development milestones and certain commercial milestones from two contracts previously entered into by Primordial Genetics. In addition, starting January 1, 2025, we will receive 25% of sales revenue of PeliCRM197 above $3 million and 35% of all PeliCRM197 licensing revenue in perpetuity.
We retained contractual relationships utilizing the Pelican Expression Technology, including the commercial royalty rights to Jazz’s Rylaze, Merck’s Vaxneuvance and V116 vaccines, Alvogen’s Teriparatide, Serum Institute of India’s vaccine programs, including Pneumosil and MenFive vaccines, among others.
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We determined that the sale of Pelican meets the definition of a deconsolidation of a business. Net assets sold together with allocated goodwill and cash consideration paid were as follows (in thousands):

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

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

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

Goodwill allocated to the selling business based on the relative fair value of the Pelican business and Ligand that was written off was $4.1 million, resulting in a $2.1 million gain on sale of Pelican recorded to income (loss) from operations for the three and nine months ended September 30, 2023.
Transaction costs of $1.2 million were allocated to the equity method investment and equity securities based on the relative fair value.
As described above, we will receive 25% of sales revenue of PeliCRM197 above $3 million and 35% of all PeliCRM197 licensing revenue in perpetuity. The considerations are under the loss recovery model and they will be measured based on the gain contingency model under ASC 450, Contingencies, and thus, will be recognized as the underlying contingencies are resolved.
In addition, we will receive 50% of potential development milestones and certain commercial milestones from two contracts previously entered into by Primordial Genetics. The considerations were recognized as derivative assets with a fair value of $3.2 million, at the disposition date, which was included in noncurrent derivative assets in our condensed consolidated balance sheet. They are recognized as derivative assets under ASC 815, Derivatives and Hedging, as they have two underlyings (development and commercial milestones) and (i) the commercial milestones are dependent on the development milestones and (ii) the commercial milestone underlying is not determined to be predominate. The derivative assets were recorded at fair value as of September 18, 2023, and will be marketed to fair value at each reporting period going forward. During the three and nine months ended September 30, 2024, a loss of $0.6 million was recorded to market the derivative assets to fair value and was included in fair value adjustments to partner program derivatives in our condensed consolidated statement of operations. For additional information, see Note 7, Fair Value Measurements.
Investments in Primrose Bio
We account for our common stock investment in Primrose Bio under the equity method as we have the ability to exercise significant influence over Primrose Bio's operating and financial results. In applying the equity method, we record the investment at fair value. Our proportionate share of net loss of Primrose Bio is recorded in our condensed consolidated statements of operations. Our equity method investments are reviewed for indicators of impairment at each reporting period and are written down to fair value if there is evidence of a loss in value that is other-than-temporary. In June 2024, Primrose Bio received an equity investment from an equity firm. In July 2024, Primrose Bio raised additional funds from another equity firm. As a result, we recognized an impairment loss on our equity method investment in the amount of $5.8 million during the nine months ended September 30, 2024. There was no impairment to our equity method investment during the three months ended September 30, 2024. Our share of the net loss of Primrose Bio for the three and nine months ended September 30, 2024 was $1.2 million and $5.8 million, respectively, which reduced Ligand's equity method investment accordingly. Any income or loss
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from our equity method investments (including the impairment) is presented in other non-operating income (expense) in our condensed consolidated statement of operations.
We determined that the Series A preferred stock and reserve stock investment in Primrose Bio did not have a readily determinable fair value and therefore elected the measurement alternative in ASC 321 to subsequently record the investment at cost, less any impairments, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. When fair value becomes determinable, from observable price changes in orderly transactions, our investment will be marked to fair value. Our investment in Series A preferred stock and reserve stock has been reduced by $0.03 million and $25.79 million during the three and nine months ended September 30, 2024 in connection with the above mentioned equity funding received by Primrose Bio in June and July 2024.
Former President and Chief Operating Officer Matt Korenberg served as a board member of Primrose Bio beginning in Q4 2023. His employment with Ligand concluded in October 2024, after which Lauren Hay, Vice President of Strategic Planning & Investment Analytics, succeeded him as a board member of Primrose Bio.
4. Acquisitions
Apeiron
On July 15, 2024, we acquired all the outstanding shares of Biologics AG (“Apeiron”), including the royalty rights to QARZIBA® (dinutuximab beta) for the treatment of high-risk neuroblastoma (the “Apeiron Acquisition”) for $100.5 million base consideration. We funded the Apeiron Acquisition from our available cash on hand.
In addition to base consideration, we would also pay Apeiron shareholders an additional consideration based on future commercial and regulatory events, including up to $28.0 million if QARZIBA royalties exceed certain predetermined thresholds by either 2030 or 2034, and pay additional earn-outs on specific future events, primarily related to QARZIBA regulatory approval and commercialization in the USA.
We evaluated this acquisition in accordance with ASC 805, Business Combinations, to discern whether the assets and operations of Apeiron met the definition of a business. We accounted for this transaction as an asset acquisition.
We incurred $4.9 million of transaction costs related to the Apeiron Acquisition, which were included in the amount of total purchase consideration. Financial assets acquired and liabilities assumed in the Apeiron Acquisition were recognized at their fair values. The remaining assets acquired were recognized on a relative fair value basis.
The amount of purchase consideration was allocated to the acquisition date fair values of acquired assets and assumed liabilities as follows (in thousands):

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

Contract assets acquired are accounted for as a financial royalty asset, similar to loans receivable and are measured at amortized cost using the prospective effective interest method described in ASC 835-30. The acquired contracts assets include QARZIBA and other development phase contract assets.
As QARZIBA is a commercial phase program, we are able to reasonably estimate future cash flows and, as such, we recognize income from QARZIBA financial royalty assets starting from the Apeiron Acquisition effective date, which is calculated by multiplying the carrying value of the financial royalty asset by the periodic effective interest rate. As described in Note 1, Basis of Presentation and Significant Accounting Policies, the effective interest rate is calculated by forecasting the expected cash flows to be received over the life of the asset relative to the initial invested amount. The effective interest rate is recalculated in each reporting period as the differences between expected cash flows and actual cash flows are realized and as there are changes to expected future cash flows. We account for other Apeiron development phase financial royalty assets on a non-accrual basis as there is a higher level of uncertainty over the related expected cash flows.
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For tax purposes this transaction is treated as a stock purchase. As a result, we will not obtain a tax stepped-up basis in Apeiron’s underlying assets and will assume the carryover tax basis. As part of the tax purchase price accounting, deferred tax liabilities of $18.1 million have been recorded to reflect the difference between the book and tax basis of the acquired assets.
We account for the earnout liabilities in the Apeiron Acquisition in accordance with ASC450, Contingencies, and will recognize respective liability when the contingency is resolved, and the liability becomes payable. No earnout liability is recognized as of the acquisition date, and as of September 30, 2024.
In conjunction with the Apeiron Acquisition, we have also invested $4.2 million (including $0.2 million transaction costs) in InvIOs Holding AG ("InvIOs") common shares, a privately held spin-off of Apeiron. This investment was part of an €8 million (approximately $8.8 million) round with other investors which would help finance the research and development of three innovative early-stage immuno-oncology assets. Apeiron has previously outlicensed these assets to InvIOs and is entitled to future royalties and milestone payments.
As the result of this investment, we did not obtain control or significant influence in InvIOs. We determined that common stock of InvIOs did not have a readily determinable fair value and therefore elected the measurement alternative in ASC 321 to subsequently record the investment at cost, less any impairments, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. When fair value becomes determinable, from observable price changes in orderly transactions, our investment will be marked to fair value.
Novan
On September 27, 2023, we closed the transaction to acquire certain assets of Novan, Inc. (“Novan”) pursuant to the agreement we entered into with Novan on July 17, 2023 for $15.0 million in cash (which agreement contemplated Novan filing for bankruptcy relief) and provide up to $15.0 million in debtor-in-possession (“DIP”) financing inclusive of a $3.0 million bridge loan funded on the same day. Novan filed for Chapter 11 reorganization on July 17, 2023. On September 27, 2023, the bankruptcy court approved our $12.2 million bid to purchase from Novan its lead product candidate berdazimer gel, 10.3%, all other assets related to the NITRICIL technology platform and the rights to one commercial stage asset. The remaining commercial assets of Novan were to be sold to other parties pursuant to the bankruptcy court's order. The approved $12.2 million bid was credited to the $15.0 million DIP financing, with the balance of $2.8 million and accrued interest repaid to us.
The Novan acquisition was accounted for as a business combination. We recorded $3.1 million of acquisition-related costs for legal, due diligence and other costs in connection with the acquisition within operating expenses in our condensed consolidated statement of operations for the year ended December 31, 2023.
We have finalized purchase accounting for the Novan acquisition. The following table sets forth an allocation of the purchase price to the identifiable tangible and intangible assets acquired and liabilities assumed, with the excess recorded to goodwill (in thousands):

Restricted cash | $ | 583 |
Property and equipment, net | 13,054 |
Operating lease right-of-use asset | 3,683 |
Other assets | 137 |
Deferred tax asset | 1,013 |
Intangible assets acquired | 10,700 |
Goodwill | 3,709 |
Deferred revenue | (4,508) |
Operating lease liabilities | (3,683) |
Other liabilities | (13,700) |
Cash paid for Novan, including restricted cash received | 10,988 |
DIP loan fees and interest | 1,162 |
Total consideration | $ | 12,150 |

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None of the goodwill is deductible for tax purposes. Acquired intangible assets of $10.7 million are related to core technology. 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 29%. The fair value of the core technology is being amortized on a straight-line basis over the estimated useful life of 15 years.
Acquired other liabilities of $13.7 million were related to a royalty and milestone payments purchase agreement, entered by Novan in 2019 and assumed as part of the acquisition, which previously provided Novan $25.0 million of funding used primarily in the clinical development of berdazimer gel, 10.3%. Pursuant to the purchase agreement, Novan will pay ongoing quarterly payments, calculated based on an applicable percentage per product of any upfront fees, milestone payments, royalty payments or equivalent payments received by Novan pursuant to any out-license agreement, net of any upfront fees, milestone payments, royalty payments or equivalent payments paid by Novan to third parties pursuant to any agreements under which Novan has in-licensed intellectual property with respect to such products. If Novan decides to commercialize any product on its own following regulatory approval, as opposed to commercializing through an out-license agreement or other third-party arrangement, Novan will be obligated to pay a low single digits royalty on net sales of such products. This contract liability was fair valued based on the discounted cash flow method that estimated the present value of the potential royalties, milestones, and collaboration revenue streams derived from the related programs mentioned above, by applying a discount rate of 14% (revenue risk-adjusted discount rate).
On April 3, 2024, we announced the creation of Pelthos Therapeutics to focus on the commercialization of innovative, safe, and efficacious therapeutic products for patients suffering from conditions with limited treatment options. ZELSUVMI (berdazimer topical gel, 10.3%), its first product, is the FDA-approved prescription medicine for the treatment of the highly transmissible molluscum contagiosum (molluscum) viral skin infection in adults and pediatric patients one year of age and older. ZELSUVMI received a Novel Drug designation from the FDA in January 2024 to treat molluscum viral skin infection. ZELSUVMI was developed using Pelthos' proprietary nitric oxide-based NITRICIL™ technology platform. The rights to ZELSUVMI and all assets related to the NITRICIL technology platform were acquired from Novan in September 2023 in the Novan acquisition described above.
5. Spin-off of OmniAb
On March 23, 2022, we entered into the Separation Agreement to separate our OmniAb Business and the Merger Agreement, pursuant to which APAC would combine with OmniAb, and acquire Ligand's OmniAb Business, in a Reverse Morris Trust transaction (collectively, the “Transactions”).
After the closing date of the Transactions on November 1, 2022, the historical financial results of OmniAb have been reflected in our consolidated financial statements as discontinued operations under GAAP for all periods presented through the date of the Distribution. Pursuant to the Transaction Agreements, Ligand contributed to OmniAb cash and certain specific assets and liabilities constituting the OmniAb Business. Pursuant to the Distribution, Ligand distributed on a pro rata basis to its shareholders as of October 26, 2022 shares of the common stock of OmniAb representing 100% of Ligand’s interest in OmniAb. Immediately following the Distribution, Merger Sub merged with and into OmniAb, with OmniAb continuing as the surviving company in the merger and as a wholly owned subsidiary of New OmniAb. The entire transaction was completed on November 1, 2022, and following the merger, New OmniAb is an independent, publicly traded company whose common stock trades on Nasdaq under the symbol “OABI.” After the Distribution, we do not beneficially own any shares of common stock in OmniAb and no longer consolidate OmniAb into our financial results for periods ending after November 1, 2022.
Discontinued operations
In connection with the merger, the Company determined its antibody discovery business qualified for discontinued operations accounting treatment in accordance with ASC 205-20. We recognized a $1.7 million tax provision adjustment related to deferred taxes, during the nine months ended September 30, 2023, that was attributable to the discontinued operations.
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6. Financial Royalty Assets, net (formerly known as Commercial License Rights)
Financial royalty assets consist of the following (in thousands):

|  | September 30, 2024 |  | December 31, 2023
|  | Gross carrying value(2) |  | Allowance (1) |  | Net carrying value (2) |  | Gross carrying value |  | Allowance (1) |  | Net carrying value
Apeiron |  | $ | 113,371 |  |  | $ | (735) |  |  | $ | 112,636 |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Agenus (Bot/Bal) |  | 40,815 |  |  | (408) |  |  | 40,407 |  |  | — |  |  | — |  |  | — |
Elutia (CorMatrix) |  | 10,032 |  |  | (2,607) |  |  | 7,425 |  |  | 13,304 |  |  | (7,490) |  |  | 5,814 |
Selexis |  | 242 |  |  | (58) |  |  | 184 |  |  | 940 |  |  | (179) |  |  | 761 |
Ovid (Soticlestat) |  | 4,122 |  |  | (41) |  |  | 4,081 |  |  | 30,310 |  |  | (303) |  |  | 30,007 |
Tolerance Therapeutics (TZIELD) |  | 25,698 |  |  | (101) |  |  | 25,597 |  |  | 25,810 |  |  | (101) |  |  | 25,709 |
Ensifentrine inventors |  | 16,018 |  |  | (481) |  |  | 15,537 |  |  | — |  |  | — |  |  | — |
Total financial royalty assets, net |  | $ | 210,298 |  |  | $ | (4,431) |  |  | $ | 205,867 |  |  | $ | 70,364 |  |  | $ | (8,073) |  |  | $ | 62,291 |

(1) The amounts of allowance include cumulated allowance for changes in expected cash flows and cumulated allowance for current expected credit losses.
(2) The amounts include $6.6 million current portion of financial royalty assets which represents an estimation for current quarter royalty receipts that are collected during the subsequent quarter. This portion is presented in other current assets on our condensed consolidated balance sheet as of September 30, 2024.
Financial royalty assets represent a portfolio of future milestone and royalty payment rights acquired in the Apeiron Acquistion in July 2024, from Agenus in May 2024, Selexis, S.A. (“Selexis”) in April 2013 and May 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, Ovid Therapeutics Inc. (“Ovid”) in October 2023, Tolerance Therapeutics, Inc. (“Tolerance Therapeutics”) in November 2023, and from certain ensifentrine inventors in March and August 2024.
During the nine months ended September 30, 2024, we recorded a $26.2 million impairment loss for Ovid (Soticlestat) financial royalty asset and a $0.3 million impairment loss for Selexis financial royalty asset. There was no impairment loss for the three months ended September 30, 2024. During the three and nine months ended September 30, 2023, we recorded a $0.9 million impairment loss for Selexis financial royalty asset as a result of reduced programs.
Apeiron financial royalty assets
As discussed in Note 4, Acquisitions, we acquired certain financial royalty assets within the Apeiron Acquisition, including QARZIBA and certain InvIOs programs. As QARZIBA is a commercial phase program, we are able to reasonably estimate future cash flows and, as such, we recognized income from QARZIBA financial royalty assets starting from the Apeiron Acquisition effective date. We accounted for the InvIOs financial royalty assets using the non-accrual method until we are able to reliably estimate future cash flows.
Elutia Agreement
In 2016, Ligand entered into a purchase agreement to acquire certain financial royalty assets from CorMatrix. In 2017, CorMatrix sold its marketed products to Elutia where Elutia assumed the Ligand royalty obligation. In 2017, we amended the terms of the royalty agreement with Elutia where we received $10 million to buydown the royalty rates on the products CorMatrix sold to Elutia (the “CorMatrix Asset Sale”). Per the amended agreement with Elutia, we will receive a 5% royalty, with certain annual minimum payments, on the products Elutia acquired in the CorMatrix Asset Sale and up to $10 million of milestones tied to cumulative net sales of these products. The royalty agreement will terminate on May 31, 2027.
During 2023, due to Elutia's nonpayment of the minimum payments under the amended royalty agreement over several quarters, we placed the Elutia asset on the non-accrual method. In January 2024, we executed an amendment to our agreement with Elutia which will allow us to reliably estimate future cash flows. As such, the Elutia asset was switched from the non-accrual method to the effective interest method during the first quarter of 2024. We further considered the current and expected future economic and market conditions, current company performance and recent payments received from Elutia. During the three and nine months ended September 30, 2024 we recorded a reduction of $0.3 million and $4.9 million, respectively, to Elutia allowance of expected credit loss. The credit loss adjustments were recorded as a gain in general and administrative expense in our condensed consolidated statement of operations for the three and nine months ended September 30, 2024. During the three and nine months ended September 30, 2023 we recorded an increase of $3.2 million to Elutia allowance of expected credit loss.
Soticlestat Agreement
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.
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In June 2024, Takeda announced topline results of the phase 3 clinical trial of soticlestat, missing its primary endpoint to reduce convulsive seizure frequency compared to placebo in patients with Dravet syndrome, and missing its primary endpoint to reduce major Motor Drop seizure frequency compared to a placebo in patients with Lennox-Gastaut syndrome. As a result, in the nine months ended September 30, 2024, we recognized an impairment over the soticlestat financial royalty asset of $26.2 million. The fair value of the soticlestat financial royalty asset was determined using a discounted cash flow approach, utilizing the mostly-likely cash flows which considered the probability of success for the underlying clinical program and discount rate of 17% which contemplates the underlying credit and business risk of the partnered program. As of September 30, 2024, management continues to account for the soticlestat financial royalty asset using the non-accrual method until we are able to reliably estimate future cash flows.
TZIELD Agreement
In November 2023, we acquired Tolerance Therapeutics for $20 million in cash. Tolerance Therapeutics is a holding company, owned by the inventors of TZIELD (teplizumab), and is owed a royalty of less than 1% on worldwide net sales of TZIELD. TZIELD is marketed by Sanofi, starting in 2023. For tax purposes this transaction was treated as a stock deal, so there is no step-up in basis and tax attributes. Therefore, a deferred tax liability (DTL) of $5.5 million was recognized on the book basis and tax basis difference and recorded to the book value of the Tolerance financial royalty asset. Due to the early stages of TZIELD's commercialization, management has placed the investment on the non-accrual method until we are able to reliably estimate future cash flows.
Ensifentrine Inventors Agreements
In March and August 2024, we acquired future milestone and royalty rights related to ensifentrine from certain ensifentrine inventors for a total of $3.8 million and $13.6 million, respectively. On June 26, 2024, Verona Pharma plc (Nasdaq: VRNA) received FDA approval for ensifentrine for the maintenance treatment of patients with chronic obstructive pulmonary disease (“COPD”). During three months ended September 30, 2024, Verona started commercial sales of ensifentrine (marketed as Ohtuvayre TM) in the U.S. Due to the early stages of Ohtuvayre's commercialization, management has placed the investment on the non-accrual method until we are able to reliably estimate future cash flows.
7. Fair Value Measurements
Assets and Liabilities Measured on a Recurring Basis
The following table presents the hierarchy for our assets and liabilities measured at fair value (in thousands):

|  | September 30, 2024 |  | December 31, 2023
|  | Level 1 |  | Level 2 |  | Level 3 |  | Total |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Short-term investments, excluding Viking(1) |  | $ | 19,575 |  |  | $ | 73,139 |  |  | $ | — |  |  | $ | 92,714 |  |  | $ | 7,291 |  |  | $ | 107,879 |  |  | $ | — |  |  | $ | 115,170 |
Investment in Viking common stock |  | 63,310 |  |  | — |  |  | — |  |  | 63,310 |  |  | 32,185 |  |  | — |  |  | — |  |  | 32,185 |
Derivative assets(2) |  | — |  |  | — |  |  | 30,379 |  |  | 30,379 |  |  | — |  |  | — |  |  | 3,531 |  |  | 3,531 |
Total assets |  | $ | 82,885 |  |  | $ | 73,139 |  |  | $ | 30,379 |  |  | $ | 186,403 |  |  | $ | 39,476 |  |  | $ | 107,879 |  |  | $ | 3,531 |  |  | $ | 150,886 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Contingent liabilities - CyDex |  | $ | — |  |  | $ | — |  |  | $ | 223 |  |  | $ | 223 |  |  | $ | — |  |  | $ | — |  |  | $ | 320 |  |  | $ | 320 |
Contingent liabilities - Metabasis(3) |  | — |  |  | 3,768 |  |  | — |  |  | 3,768 |  |  | — |  |  | 2,878 |  |  | — |  |  | 2,878 |
Total liabilities |  | $ | — |  |  | $ | 3,768 |  |  | $ | 223 |  |  | $ | 3,991 |  |  | $ | — |  |  | $ | 2,878 |  |  | $ | 320 |  |  | $ | 3,198 |

(1) Excluding our investment in Viking, corporate equity securities, and US government securities, 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 bond 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 had investment in warrants resulting from Seelos Therapeutics Inc. milestone payments that were settled in shares during the first quarter of 2019 and were at level 3 of the fair value hierarchy, based on Black-Scholes value estimated by management on the last day of the period. This investment in warrants expired in January 2024.
(2) Derivative assets include instruments used for risk-management purposes, and other instruments. Derivative assets which are not used for risk management purposes include: (a) acquired rights in future milestone and royalty payments from Agenus Partnered Programs, (b) Agenus Warrant, (c) Upsize Option, (d) Viking Share Collar (e) and rights to receive from Primrose Bio 50% of milestones on two contracts previously entered into by Primordial Genetics. The considerations were recognized as derivative assets included under current derivative assets and noncurrent derivative assets in our condensed consolidated balance sheet. They are recognized as derivative assets under ASC 815, Derivatives and Hedging. The fair value of the Agenus Partnered Programs and the Primrose Bio derivative assets was determined using a discounted cash flow approach, utilizing the mostly-likely cash flows which considered the probability of success for the underlying clinical programs. The discount rate used contemplates the underlying credit and business risk of the partnered programs. At
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September 30, 2024, the discount rates used range between 15% and 25%. At December 31, 2023, the discount rate used was 25%. The fair value of the Agenus Warrant and Viking Share Collar was determined using a Black-Scholes-Merton model. The fair value of the Upsize Option was determined using a binomial option pricing model.
(3) 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 different 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 million of development, regulatory and commercial milestones and tiered royalties on potential future sales including a $10 million payment upon initiation of a Phase 3 clinical trial. During the three and nine months ended September 30, 2024, we adjusted the balance of the Metabasis CVR liability by decreasing $0.2 million and increasing $0.9 million, respectively, to mark to market. During the three and nine months ended September 30, 2023, we adjusted the balance of the Metabasis CVR liability by decreasing $0.1 million and increasing $0.002 million, respectively, to mark to market.
A reconciliation of the level 3 financial instruments as of September 30, 2024 is as follows (in thousands):

Assets |
Fair value of level 3 financial instruments as of December 31, 2023 | $ | 3,531 |
Additions to derivative assets | 34,185 |
Fair value adjustments to derivative assets | (7,337) |
Fair value of level 3 financial instruments as of September 30, 2024 | $ | 30,379 |
Liabilities |
Fair value of level 3 financial instruments as of December 31, 2023 | $ | 320 |
Payments to CVR holders and other contingent payments | (200) |
Fair value adjustments to contingent liabilities | 103 |
Fair value of level 3 financial instruments as of September 30, 2024 | $ | 223 |

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, intangible assets with estimated useful lives and long-lived assets.
We evaluate goodwill 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 evaluate intangible assets with estimated useful lives whenever circumstances occur indicating that intangible assets may not be recoverable An impairment evaluation is based on an undiscounted cash flow analysis at the lowest level at which cash flows of the long-lived assets are largely independent of other groups of assets and liabilities.
There was no impairment of our goodwill, intangible assets, or long-lived assets recorded during the three and nine months ended September 30, 2024 and 2023.
Fair Value of Financial Instruments
Our cash and cash equivalents, accounts receivable, other current assets, financial royalty assets, accounts payable, accrued liabilities, deferred revenue, current operating lease liabilities, current finance lease liabilities and Novan (Pelthos) other long-term 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.
8. Debt
Revolving Credit Facility
On October 12, 2023, we entered into a $75 million revolving credit facility (the “Revolving Credit Facility”) with Citibank, N.A. as the Administrative Agent (as defined in the Credit Agreement). We, our material domestic subsidiaries, as Guarantors (as defined in the Credit Agreement), and the Lenders (as defined in the Credit Agreement) entered into a credit agreement (the “Credit Agreement”) with the Administrative Agent, under which the Lenders, the Swingline Lender and the L/C Issuer (each as defined in the Credit Agreement) agreed to make revolving loans, swingline loans and other financial accommodations to us (including the issuance of letters of credit) in an aggregate amount of up to $75 million. Borrowings
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under the Revolving Credit Facility accrue interest at a rate equal to either Term Secured Overnight Financing Rate (“Term SOFR”) or a specified base rate plus an applicable margin linked to our leverage ratio, ranging from 1.75% to 2.50% per annum for Term SOFR loans and 0.75% to 1.50% per annum for base rate loans. The Revolving Credit Facility is subject to a commitment fee payable on the unused Revolving Credit Facility commitments ranging from 0.30% to 0.45%, depending on our leverage ratio. During the term of the Revolving Credit Facility, we may borrow, repay and re-borrow amounts available under the Revolving Credit Facility, subject to voluntary reductions of the swing line, letter of credit and revolving credit commitments.
Borrowings under the Revolving Credit Facility are secured by certain of our collateral and that of the Guarantors. In specified circumstances, additional guarantors are required to be added to the Credit Agreement. The Credit Agreement contains customary affirmative and negative covenants, including certain financial maintenance covenants, and events of default applicable to us. In the event of violation of the representations, warranties and covenants made in the Credit Agreement, we may not be able to utilize the Revolving Credit Facility or repayment of amounts owed thereunder could be accelerated.
Amendment to Revolving Credit Facility
On July 8, 2024, we entered into the first amendment (the “Amendment”) to the Credit Agreement, which amends the Credit Agreement to, among other things, increase the aggregate revolving credit facility amount from $75 million to $125 million.
As of September 30, 2024, we had $124.4 million in available borrowing under the Revolving Credit Facility, after utilizing $0.6 million for letter of credit. The maturity date of the Revolving Credit Facility, as amended, is October 12, 2026.
As of September 30, 2024, there were no events of default or violation of any covenants under our financing obligations.
9. Income Tax
Our effective tax rate may vary from the U.S. federal statutory tax rate due to the change in the mix of earnings in various foreign and state jurisdictions with different statutory rates, the use of previously unbenefited tax loss carryforwards to reduce foreign taxes, benefits related to tax credits, and the tax impact of non-deductible expenses, stock award activities and other permanent differences between income before income taxes and taxable income. The effective tax rate for the three months ended September 30, 2024 and 2023 was (13.1)% and 15.4%, respectively, and the nine months ended September 30, 2024 and 2023 was 35.1% and 23.5%, respectively. The variance from the U.S. federal statutory tax rate of 21% for the three and nine months ended September 30, 2024 was primarily due to Internal Revenue Code Section 162(m) limitation on deduction for officer compensation, other non-deductible items, and income from foreign operations, which were partially offset by the foreign derived intangible income tax benefit. The variance from the U.S. federal statutory tax rate of 21% for the three and nine months ended September 30, 2023 was primarily due to Internal Revenue Code Section 162(m) limitation on deduction for officer compensation, non-deductible incentive stock option (ISO) related stock compensation expense, which were partially offset by foreign derived intangible income tax benefit during the period.
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10. Stockholders’ Equity
We grant options and awards to employees and non-employee directors pursuant to a stockholder approved stock incentive plan, which is described in further detail in Note 10, Stockholders’ Equity, of the Notes to Consolidated Financial Statements in our 2023 Annual Report.
In June 2024, our stockholders approved the amendment and restatement of the Ligand Pharmaceuticals Incorporated 2002 Stock Incentive Plan, which increased the shares available for issuance by 1.3 million.
The following is a summary of our stock option and restricted stock activity and related information:

| Stock Options |  | Restricted Stock Awards
| Shares |  | Weighted-Average Exercise Price |  | Shares |  | Weighted-Average Grant Date Fair Value
Balance as of December 31, 2023 | 2,640,458 |  |  | $ | 65.70 |  |  | 350,905 |  |  | $ | 81.22 |
Granted | 743,117 |  |  | $ | 85.71 |  |  | 318,588 |  |  | $ | 85.23 |
Options exercised/RSUs vested | (784,467) |  |  | $ | 59.07 |  |  | (126,793) |  |  | $ | 85.55 |
Forfeited | (57,161) |  |  | $ | 70.71 |  |  | (42,870) |  |  | $ | 72.32 |
Balance as of September 30, 2024 | 2,541,947 |  |  | $ | 73.48 |  |  | 499,830 |  |  | $ | 83.44 |

As of September 30, 2024, outstanding options to purchase 1.4 million shares were exercisable with a weighted average exercise price per share of $70.27.
Employee Stock Purchase Plan
The price at which common stock is purchased under the Amended Employee Stock Purchase Plan, or ESPP, is equal to 85% of the fair market value of the common stock on the first or last day of the offering period, whichever is lower. As of September 30, 2024, 26,244 shares were available for future purchases under the ESPP.
At-the-Market Equity Offering Program
On September 30, 2022, we filed a registration statement on Form S-3 (the “Shelf Registration Statement”), which became automatically effective upon filing, covering the offering of common stock, preferred stock, debt securities, warrants and units.
On September 30, 2022, we also entered into an At-The-Market Equity Offering Sales Agreement (the “Sales Agreement”) with Stifel, Nicolaus & Company, Incorporated (the “Agent”), under which we may, from time to time, sell shares of our common stock having an aggregate offering price of up to $100 million in “at the market” offerings through the Agent (the “ATM Offering”). The Shelf Registration Statement included a prospectus covering the offering, issuance and sale of up to $100 million of our common stock from time to time through the ATM Offering. The shares to be sold under the Sales Agreement may be issued and sold pursuant to the Shelf Registration Statement. During the three and nine months ended September 30, 2024, we issued 334,325 shares of common stock in the ATM Offering, generating proceeds of $34.3 million, net of commissions and other transaction costs.
Share Repurchases
In April 2023, our Board of Directors (the “Board”) has approved a stock repurchase program authorizing, but not requiring, the repurchase of up to $50 million of our common stock from time to time through April 2026. We expect to acquire shares, if at all, primarily through open-market transactions in accordance with all applicable requirements of Rule 10b-18 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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. Authorization to repurchase $50 million of our common stock remained available as of September 30, 2024.
11. 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.
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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 us and no individualized factual allegations have been advanced against us in any of the three filed complaints. We reject all claims raised in the complaints and intend to vigorously defend against these matters.
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 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.
Operating Leases
During the nine months ended September 30, 2024, we entered into a lease agreement for our office located in Boston, Massachusetts, which resulted in a $1.6 million increase in both operating lease assets and operating lease liabilities at lease commencement.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Caution: This discussion and analysis may contain predictions, estimates and other forward-looking statements that involve a number of risks and uncertainties, including those discussed in Part II, Item 1A. Risk Factors. This outlook represents our current judgment on the future direction of our business. These statements include those related to our future results of operations and financial position, Captisol-related revenues and Kyprolis and other product royalty revenues and milestones under license agreements, product development, and product regulatory filings and approvals, and the timing thereof. Actual events or results may differ materially from our expectations. For example, there can be no assurance that our revenues or expenses will meet any expectations or follow any trend(s), that we will be able to retain our key employees or that we will be able to enter into any strategic partnerships or other transactions. We cannot assure you that we will receive expected Kyprolis, Captisol and other product revenues to support our ongoing business or that our internal or partnered pipeline products will progress in their development, gain marketing approval or achieve success in the market. In addition, ongoing or future arbitration, litigation or disputes with third parties may have a material adverse effect on us. Such risks and uncertainties, and others, could cause actual results to differ materially from any future performance suggested. We undertake no obligation to make any revisions to these forward-looking statements to reflect events or circumstances arising after the date of this quarterly report. This caution is made under the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
We use our trademarks, trade names and services marks in this report as well as trademarks, trade names and service marks that are the property of other organizations. Solely for convenience, trademarks and trade names referred to in this report appear without the ® and ™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or that the applicable owner will not assert its rights, to these trade marks and trade names.
References to “Ligand Pharmaceuticals Incorporated,” “Ligand,” the “Company,” “we” or “our” include Ligand Pharmaceuticals Incorporated and our wholly-owned subsidiaries.
Overview
We are a biopharmaceutical company enabling scientific advancement through supporting the clinical development of high-value medicines. We do this by providing financing, licensing our technologies or both. Our business model seeks to generate value for stockholders by creating a diversified portfolio of biopharmaceutical 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 and diversified manner. Our business model focuses on funding programs in mid- to late-stage drug development in return for economic rights, purchasing royalty rights in development stage or commercial biopharmaceutical products and licensing our technology to help partners discover and develop medicines. We partner with other pharmaceutical companies to leverage what they do best (late-stage development, regulatory management and commercialization) in order to generate our revenue. Our Captisol platform technology is a chemically modified cyclodextrin with a structure designed to optimize the solubility and stability of drugs. We have established multiple alliances, licenses and other business relationships with the world’s leading biopharmaceutical companies including Amgen, Merck, Pfizer, Jazz, Takeda, Gilead Sciences, Baxter International and Agenus.
Our revenue is generated primarily from royalties on sales of products commercialized by our partners, Captisol material sales, and contract revenue for license fees, regulatory and sales based milestone payments. Other operating income is primarily related to milestone income received for financial royalty assets that have been fully amortized or where there is no underlying asset recognized on the consolidated balance sheets. Also, we selectively pursue acquisitions and drug development funding opportunities that address high unmet clinical needs to bring in new assets, pipelines, and technologies to aid in generating additional potential new incremental revenue streams.
Business Updates
We will host an investor and analyst day in Boston on December 10, 2024. CEO Todd Davis and other members of Ligand’s senior management team will provide an overview of our business model and investment selection process, review the progress of the portfolio including near-term partner milestones, and introduce 2025 guidance.
During Q3 2024, we sold 334,325 shares of our common stock pursuant to an At-The-Market (ATM) Equity Offering, generating net proceeds of $34.3 million. We have the ability to issue an additional $65 million under the current ATM plan.
Portfolio Updates
FILSPARI
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On September 5, 2024, Travere Therapeutics announced it received full FDA approval for FILSPARI for the treatment of IgA Nephropathy (IgAN) in adults. The FDA decision expands patient access to the first and only non-immunosuppressive therapy approved for the treatment of this rare progressive kidney disease.
On October 17, 2024, Travere Therapeutics and CSL Vifor announced that Swissmedic granted temporary marketing authorization for FILSPARI for the treatment of adults with primary IgAN with a urine protein excretion ≥1.0 g/day (or urine protein-to-creatinine ratio ≥0.75 g/g). The Swissmedic approval was supported by results from the pivotal Phase 3 PROTECT Study of FILSPARI in IgA nephropathy (IgAN) and follows full marketing approval by the U.S. FDA in September 2024 and conditional marketing authorization by the European Medicines Agency in April 2024.
On October 26, 2024, Travere Therapeutics presented new data further demonstrating the clinical benefit of FILSPARI in IgAN and reinforcing its potential in focal segmental glomerulosclerosis (FSGS) at the American Society of Nephrology Kidney Week 2024. Presentations included new data from the SPARTAN Study which showed that nearly 60% of patients with IgAN achieved complete remission when using FILSPARI as a first-line treatment. In addition, presentations took place on the SPARTACUS Study, PROTECT open-label extension, and real-world evidence highlighting the initial safety and efficacy data of FILSPARI in IgAN in combination treatment with a SGLT2 inhibitor. A late-breaking presentation demonstrated sparsentan delivered rapid and sustained proteinuria reduction and long-term kidney health benefits in a subset of patients with genetic, often treatment resistant, FSGS.
Ohtuvayre
On November 4, 2024, Verona Pharma provided an update on the commercial launch of Ohtuvayre in the U.S. reporting net sales of $5.6 million and October net sales that exceeded total third quarter sales. Additionally, through October Verona Pharma reported more than 2,200 unique prescribers and more than 5,000 prescriptions were filled across a broad COPD population.
In September, 2024, Verona's Pharma development partner in Greater China, Nuance Pharma (private), completed enrollment in its pivotal Phase 3 clinical trial evaluating Ohtuvayre for the maintenance treatment of COPD in China. Results from the trial are expected in 2025.
Other Portfolio Updates
On October 23, 2024, Merck (NYSE: MRK) announced that the U.S. Centers for Disease Control and Prevention’s Advisory Committee on Immunization Practices (ACIP) voted to update the adult age-based pneumococcal vaccination guidelines and has recommended CAPVAXIVE (Pneumococcal 21-valent Conjugate Vaccine) for pneumococcal vaccination in adults 50 years of age and older. Additionally, ACIP shared clinical decision-making has also recommended a supplemental dose of CAPVAXIVE for adults 65 years of age and older who have completed their vaccine series with both PCV13 (pneumococcal 13-valent conjugate vaccine) and PPSV23 (pneumococcal 23-valent polysaccharide vaccine).
On October 9, 2024, Viking Therapeutics announced positive data from the company's Phase 1b clinical trial of VK0214, a novel small molecule agonist of the thyroid hormone receptor beta (TRβ), in patients with X-linked adrenoleukodystrophy. Results from this study showed VK0214 to be safe and well-tolerated following once-daily dosing over the 28-day study period. In addition, significant reductions were observed in plasma levels of very long-chain fatty acids (VLCFAs) and other lipids, as compared to placebo. Ligand is entitled to a 3.5-7.5% royalty on future net sales of VK0214, as well as clinical, regulatory, and commercial milestones.
On July 1, 2024, Palvella Therapeutics (private) initiated SELVA, a 24-week, pivotal Phase 3, single-arm, baseline-controlled clinical trial of QTORIN™ rapamycin for the treatment of microcystic lymphatic malformations (MLM). The study’s primary and key secondary endpoints are clinician-reported outcomes and the study will enroll 40 subjects at leading vascular anomaly centers across the U.S.
Results of Operations
Revenue and Other Income
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(Dollars in thousands) | Q3 2024 |  | Q3 2023 |  | Change |  | % Change |  | YTD 2024 |  | YTD 2023 |  | Change |  | % Change
Revenue from intangible royalty assets | $ | 26,552 |  |  | $ | 23,863 |  |  | $ | 2,689 |  |  | 11 | % |  | $ | 67,512 |  |  | $ | 61,447 |  |  | $ | 6,065 |  |  | 10 | %
Income from financial royalty assets | 5,157 |  |  | 25 |  |  | 5,132 |  |  | 20,528 | % |  | 6,454 |  |  | 1,026 |  |  | 5,428 |  |  | 529 | %
Royalties | 31,709 |  |  | 23,888 |  |  | 7,821 |  |  | 33 | % |  | 73,966 |  |  | 62,473 |  |  | 11,493 |  |  | 18 | %
Captisol | 6,255 |  |  | 8,608 |  |  | (2,353) |  |  | (27) | % |  | 22,967 |  |  | 24,450 |  |  | (1,483) |  |  | (6) | %
Contract revenue and other income | 13,848 |  |  | 372 |  |  | 13,476 |  |  | 3,623 | % |  | 27,388 |  |  | 16,290 |  |  | 11,098 |  |  | 68 | %
Total revenue and other income | $ | 51,812 |  |  | $ | 32,868 |  |  | $ | 18,944 |  |  | 58 | % |  | $ | 124,321 |  |  | $ | 103,213 |  |  | $ | 21,108 |  |  | 20 | %

Q3 2024 vs. Q3 2023
Total revenue and other income increased by $18.9 million, or 58%, to $51.8 million in Q3 2024 compared to $32.9 million in Q3 2023. Royalties increased by $7.8 million, or 33%, to $31.7 million in Q3 2024 compared to $23.9 million in Q3 2023, primarily due to income from QARZIBA financial royalty asset acquired in Q324 and an increase in FILSPARI sales. Captisol sales decreased by $2.4 million, or 27%, to $6.3 million in Q3 2024 compared to $8.6 million in Q3 2023, primarily due to the timing of customer orders. Contract revenue and other income increased by $13.5 million, or 3,623%, to $13.8 million in Q3 2024 compared to $0.4 million in Q3 2023, primarily due to a commercial milestone tied to Verona's Ohtuvayre in Q3 2024.
YTD 2024 vs. YTD 2023
Total revenue and other income increased by $21.1 million, or 20%, to $124.3 million in YTD 2024 compared to $103.2 million in YTD 2023. Royalties increased by $11.5 million, or 18%, to $74.0 million in YTD 2024 compared to $62.5 million in YTD 2023, primarily due to income from QARZIBA financial royalty asset acquired in Q324 and an increase in FILSPARI sales. Captisol sales decreased by $1.5 million, or 6%, to $23.0 million in YTD 2024 compared to $24.5 million in YTD 2023, primarily due to the timing of customer orders. Contract revenue and other income increased by $11.1 million, or 68%, to $27.4 million in YTD 2024 compared to $16.3 million in YTD 2023, primarily due to a commercial milestone tied to Verona's Ohtuvayre in Q3 2024.
Revenue from intangible royalty assets is a function of our partners’ product sales and the applicable royalty rate. Kyprolis royalty rates are under a tiered royalty rate structure with the highest tier being 3%. Evomela has a fixed royalty rate of 20%. Teriparatide injection has a tiered royalty between 25% and 40% on sales that have been adjusted for certain deductible items as defined in the respective license agreement. The Rylaze and Vaxneuvance royalty rates are in the low single digits. Filspari has a fixed royalty rate of 9%.
The following table represents revenue from intangible royalty assets by program (in millions):

(in millions) | Q3 2024 Estimated Partner Product Sales | Effective Royalty Rate | Q3 2024 Royalty Revenue |  | Q3 2023 Estimated Partner Product Sales | Effective Royalty Rate | Q3 2023 Royalty Revenue
Kyprolis | $ | 405.4 |  | 2.9 | % | $ | 11.6 |  |  | $ | 375.9 |  | 2.8 | % | $ | 10.5 |
Evomela | 8.5 |  | 20.0 | % | 1.7 |  |  | 12.5 |  | 20.0 | % | 2.5 |
Teriparatide injection(a) | 8.6 |  | 27.9 | % | 2.4 |  |  | 11.0 |  | 25.5 | % | 2.8 |
Rylaze | 98.8 |  | 3.9 | % | 3.9 |  |  | 104.9 |  | 3.5 | % | 3.7 |
Filspari | 35.6 |  | 9.0 | % | 3.2 |  |  | 12.2 |  | 9.0 | % | 1.1 |
Vaxneuvance | 239.0 |  | 0.6 | % | 1.5 |  |  | 214.0 |  | 0.6 | % | 1.3 |
Other | 145.9 |  | 1.6 | % | 2.3 |  |  | 75.2 |  | 2.7 | % | 2.0 |
Total | $ | 941.8 |  |  | $ | 26.6 |  |  | $ | 805.7 |  |  | $ | 23.9 |

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(in millions) | YTD 2024 Estimated Partner Product Sales | Effective Royalty Rate | YTD 2024 Royalty Revenue |  | YTD 2023 Estimated Partner Product Sales | Effective Royalty Rate | YTD 2023 Royalty Revenue
Kyprolis | $ | 1,213.7 |  | 2.2 | % | $ | 27.2 |  |  | $ | 1,123.3 |  | 2.2 | % | $ | 24.9 |
Evomela | 29.5 |  | 20.0 | % | 5.9 |  |  | 37.0 |  | 20.0 | % | 7.4 |
Teriparatide injection(a) | 24.3 |  | 26.7 | % | 6.5 |  |  | 34.2 |  | 28.9 | % | 9.9 |
Rylaze | 309.4 |  | 3.3 | % | 10.1 |  |  | 292.5 |  | 3.2 | % | 9.3 |
Filspari | 82.2 |  | 9.0 | % | 7.4 |  |  | 18.9 |  | 9.0 | % | 1.7 |
Vaxneuvance | 636.9 |  | 0.6 | % | 4.0 |  |  | 482.4 |  | 0.6 | % | 3.0 |
Other | 322.5 |  | 2.0 | % | 6.4 |  |  | 210.1 |  | 2.5 | % | 5.3 |
Total | $ | 2,618.5 |  |  | $ | 67.5 |  |  | $ | 2,198.4 |  |  | $ | 61.5 |

(a) We receive tiered profit sharing of 25% on quarterly profits less than $3.75 million, 35% on quarterly profits greater than $3.75 million but less than $7.5 million and 40% on quarterly profits greater than $7.5 million.
Contract revenue includes service revenue, license fees and development, regulatory and sales based milestone payments.
Operating Costs and Expenses

(Dollars in thousands) | Q3 2024 |  | % of Revenue |  | Q3 2023 |  | % of Revenue |  | YTD 2024 |  | % of Revenue |  | YTD 2023 |  | % of Revenue
Cost of Captisol | $ | 2,449 |  |  |  |  | $ | 3,485 |  |  |  |  | $ | 8,237 |  |  |  |  | $ | 8,871 |  |  |
Amortization of intangibles | 8,258 |  |  |  |  | 8,238 |  |  |  |  | 24,701 |  |  |  |  | 25,316 |  |  |
Research and development | 5,675 |  |  |  |  | 5,532 |  |  |  |  | 17,000 |  |  |  |  | 19,049 |  |  |
General and administrative | 24,475 |  |  |  |  | 14,656 |  |  |  |  | 53,049 |  |  |  |  | 36,798 |  |  |
Financial royalty assets impairment | — |  |  |  |  | — |  |  |  |  | 26,491 |  |  |  |  | — |  |  |
Fair value adjustments to partner program derivatives | 7,812 |  |  |  |  | — |  |  |  |  | 7,812 |  |  |  |  | — |  |  |
Total operating costs and expenses | $ | 48,669 |  |  | 94% |  | $ | 31,911 |  |  | 97% |  | $ | 137,290 |  |  | 110% |  | $ | 90,034 |  |  | 87%

Q3 2024 vs. Q3 2023
Total operating costs and expenses increased by $16.8 million, or 53%, to $48.7 million in Q3 2024 compared to $31.9 million in Q3 2023, primarily due to the fair value adjustment to partner program derivatives and a Q3 2024 stock compensation award modification.
Cost of Captisol decreased by $1.0 million, or 30%, to $2.4 million in Q3 2024 compared to $3.5 million in Q3 2023, with the decrease primarily due to the lower Captisol sales this quarter.
Amortization of intangibles remained steady at $8.3 million in Q3 2024 compared to $8.2 million in Q3 2023.
At any one time, we are working on multiple R&D programs. As such, we generally do not track our R&D expenses on a specific program basis. Research and development expense was $5.7 million for Q3 2024, compared with $5.5 million for Q3 2023.
General and administrative expense was $24.5 million for Q3 2024, compared to $14.7 million for Q3 2023, with the increase primarily due to a one-time stock compensation expense associated with the anticipated departure of our former President and COO and an increase in G&A expenses related to the acquisition of Novan (Pelthos) in September 2023.
Fair value adjustment to partner program derivatives was $7.8 million for Q3 2024 primarily due to certain Agenus partners discontinuing development of their partnered programs. These programs may be relicensed at a later date, and Ligand would retain its economic interest upon any relicense activity.
YTD 2024 vs. YTD 2023
Total operating costs and expenses increased by $47.3 million, or 52%, to $137.3 million in YTD 2024 compared to $90.0 million in YTD 2023, primarily due to the increase in financial royalty asset impairment of $26.5 million, the stock compensation award modifications, and the fair value adjustment to partner program derivatives.
Cost of Captisol decreased by $0.6 million, or 7%, to $8.2 million in YTD 2024 compared to $8.9 million in YTD 2023, with the decrease primarily due to the lower Captisol sales in YTD 2024.
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Amortization of intangibles decreased slightly by $0.6 million, or 2%, to $24.7 million in YTD 2024 compared to $25.3 million in YTD 2023.
At any one time, we are working on multiple R&D programs. As such, we generally do not track our R&D expenses on a specific program basis. Research and development expense was $17.0 million for YTD 2024, compared with $19.0 million for YTD 2023, with the decrease primarily due to the sale of the Pelican business in September 2023, partially offset by the increase in R&D expenses related to the acquisition of Novan (Pelthos) in September 2023.
General and administrative expense was $53.0 million for YTD 2024, compared to $36.8 million for YTD 2023, with the increase primarily due to a one-time stock compensation expense associated with the anticipated departure of our former President and COO and an increase in G&A expenses related to the acquisition of Novan (Pelthos) in September 2023.
Financial royalty asset impairment was $26.5 million for YTD 2024 primarily due to the impairment loss related to Takeda's soticlestat missing its phase 3 clinical trial primary endpoint of reducing the frequency of convulsive seizures for patients with Dravet Syndrome.
Fair value adjustment to partner program derivatives was $7.8 million for YTD 2024 primarily due to certain Agenus partners discontinuing development of their partnered programs. These programs may be relicensed at a later date, and Ligand would retain its economic interest upon any relicense activity.
Gain on Sale of Pelican
The gain on sale of Pelican in amount of $2.1 million for the three and nine months ended September 30, 2023 represents the excess of the fair value of 1) our investments in Primrose Bio and other economic rights; and 2) the carrying amount of Pelican business assets and liabilities together with allocated goodwill as of September 18, 2023, the date of sale; and 3) $15 million cash consideration paid.
Non-operating Income and Expenses

(Dollars in thousands) | Q3 2024 |  | Q3 2023 |  | Change |  | YTD 2024 |  | YTD 2023 |  | Change
Gain (loss) from short-term investments | $ | 2,407 |  |  | $ | (13,184) |  |  | $ | 15,591 |  |  | $ | 98,923 |  |  | $ | 30,340 |  |  | $ | 68,583 |
Interest income | 1,347 |  |  | 2,263 |  |  | (916) |  |  | 6,124 |  |  | 6,018 |  |  | 106 |
Interest expense | (741) |  |  | (1) |  |  | (740) |  |  | (2,154) |  |  | (525) |  |  | (1,629) |
Other non-operating expense, net | (12,495) |  |  | (4,300) |  |  | (8,195) |  |  | (48,206) |  |  | (4,570) |  |  | (43,636) |
Total non-operating income and expenses, net | $ | (9,482) |  |  | $ | (15,222) |  |  | $ | 5,740 |  |  | $ | 54,687 |  |  | $ | 31,263 |  |  | $ | 23,424 |

Q3 2024 vs. Q3 2023
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, the collar arrangement we executed in Q2 2024 to hedge against the fluctuation in Viking's share price, and other equity security investments. The gain from short-term investments was $2.4 million in Q3 2024 as compared to the loss from short-term investments of $13.2 million in Q3 2023. In Q3 2024, we recorded an unrealized gain on Viking shares of $10.3 million compared to an unrealized loss of $11.5 million in Q3 2023. In Q3 2024, the fair value adjustment to the collar agreement was a loss of $7.9 million. We did not have a comparable collar agreement in Q3 2023.
Interest income consists primarily of interest earned on our short-term investments. The decrease over the prior year was due to the decrease in average investment balances in Q3 2024 compared to Q3 2023.
In Q3 2024, interest expense consists primarily of a royalty and milestone payments purchase agreement, entered by Novan (Pelthos) in 2019, and assumed as part of the acquisition in September 2023. The increase in interest expense in Q3 2024 was primarily driven by the $0.5 million interest expense related to the Novan (Pelthos) royalty and milestone payments purchase agreement.
Other non-operating expense, net, primarily consists of mark-to-market adjustments on derivatives (other than the collar arrangement and the partner program derivatives) and CVRs. Other non-operating expense, net, in Q3 2024 increased by $8.2 million as compared to Q3 2023, primarily due to the loss from change in fair value of derivative assets in Q3 2024.
YTD 2024 vs. YTD 2023
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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, the collar arrangement we executed in Q2 2024 to hedge against the fluctuation in Viking's share price, and other equity security investments. The gain from short-term investments was $98.9 million in YTD 2024 as compared to $30.3 million in YTD 2023. In YTD 2024, we recorded a realized gain on the sales of Viking shares of $60.0 million compared to $37.2 million in YTD 2023. Additionally, we recorded an unrealized gain on Viking shares of $32.1 million in YTD 2024 compared to an unrealized loss of $6.3 million in YTD 2023. In YTD 2024, the fair value adjustment to the collar agreement was a net gain of $7.3 million. We did not have a comparable collar agreement in YTD 2023.
Interest income consists primarily of interest earned on our short-term investments.
Interest expense consists primarily of the 0.75% coupon cash interest expense and the non-cash accretion of discount (including the amortization of debt issuance cost) on our 2023 Notes along with a royalty and milestone payments purchase agreement, entered by Novan (Pelthos) in 2019, and assumed as part of the acquisition in September 2023. In May 2023, the 2023 Notes matured and we repaid the remaining $76.9 million principal amount upon maturity of the 2023 Notes and $0.3 million accrued interest in cash. The increase in interest expense in YTD 2024 was primarily driven by the $1.6 million interest expense related to the Novan (Pelthos) royalty and milestone payments purchase agreement.
Other non-operating expense, net, primarily consists of fair value adjustments to Primrose Bio investments, equity method loss related to Primrose Bio, and mark-to-market adjustments on derivatives (other than the collar arrangement and the partner program derivatives) and CVRs. Other non-operating expense, net, in YTD 2024 increased by $43.6 million as compared to YTD 2023, primarily due to the revaluation of Primrose investments, the equity method loss related to Primrose Bio, and the loss from change in fair value of derivative assets in YTD 2024.
Income Tax Expense

(Dollars in thousands) | Q3 2024 |  | Q3 2023 |  | Change |  | YTD 2024 |  | YTD 2023 |  | Change
Loss (income) before income taxes | $ | (6,339) |  |  | $ | (12,144) |  |  | $ | 5,805 |  |  | $ | 41,718 |  |  | $ | 46,563 |  |  | $ | (4,845) |
Income tax benefit (expense) | (833) |  |  | 1,871 |  |  | (2,704) |  |  | (14,662) |  |  | (10,932) |  |  | (3,730) |
Loss (income) from operations | $ | (7,172) |  |  | $ | (10,273) |  |  | $ | 3,101 |  |  | $ | 27,056 |  |  | $ | 35,631 |  |  | $ | (8,575) |
Effective tax rate | (13.1) | % |  | 15.4 | % |  |  |  | 35.1 | % |  | 23.5 | % |  |

We compute our income tax provision by applying the estimated annual effective tax rate to income from operations and adding the effects of any discrete income tax items specific to the period. The effective tax rate for the three months ended September 30, 2024 and 2023 was (13.1)% and 15.4%, respectively. The effective tax rate for the nine months ended September 30, 2024 and 2023 was 35.1% and 23.5%, respectively. The variance from the U.S. federal statutory tax rate of 21% for the three and nine months ended September 30, 2024 was primarily due to section162(m) limitation on deduction for officer compensation, other non-deductible items, and income from foreign operations, which were partially offset by the foreign derived intangible income deduction. The variance from the U.S. federal tax rate of 21% for the three and nine months ended September 30, 2023 was primarily due to the Internal Revenue Code Section 162(m) limitation on deduction for officer compensation, non-deductible incentive stock option (ISO) related stock compensation expense, which were partially offset by foreign derived intangible income tax benefit during the period.
Net Loss from Discontinued Operations
Net loss from discontinued operations for Q3 2024 and Q3 2023 was zero. Net loss from discontinued operations for YTD 2024 and YTD 2023 was zero and $1.7 million, respectively. See additional information in “Item 1. Condensed Consolidated Financial Statements —Notes to Condensed Consolidated Financial Statements—Note 5, Spin-off of OmniAb.”
Liquidity and Capital Resources
As of September 30, 2024, our cash, cash equivalents, and short-term investments totaled $219.6 million, which increased by $49.3 million from the end of 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 short-term investments, 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.
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, bond 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
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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 1.0 million shares of common stock in Viking.
On September 30, 2022, we entered into an At-The-Market Equity Offering Sales Agreement (the “Sales Agreement”) with Stifel, Nicolaus & Company, Incorporated (the “Agent”), under which we may, from time to time, sell shares of our common stock having an aggregate offering price of up to $100 million in “at the market” offerings through the Agent. Sales of the shares of common stock, if any, will be made at prevailing market prices at the time of sale, or as otherwise agreed with the Agent. Shares of our common stock may be issued and sold pursuant to the Sales Agreement under the registration statement on Form S-3 we filed on September 30, 2022. During the three and nine months ended September 30, 2024, we issued 334,325 shares of common stock in the ATM Offering, generating proceeds of $34.3 million, net of commissions and other transaction costs.
Our Board has approved a stock repurchase program authorizing, but not requiring, the repurchase of up to $50 million of our common stock from time to time through April 2026. We expect to acquire shares, if at all, primarily through open-market transactions in accordance with all applicable requirements of Rule 10b-18 of the Exchange Act. 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. Authorization to repurchase $50 million of our common stock remained available as of September 30, 2024.
On October 12, 2023, we entered into the $75 million Revolving Credit Facility, under which the Lenders, the Swingline Lender and the L/C Issuer (each as defined in the Credit Agreement) agreed to make loans and other financial accommodations to us in an aggregate amount of up to $75 million. Borrowings under the Revolving Credit Facility accrue interest at a rate equal to either Term SOFR Rate or a specified base rate plus an applicable margin linked to our leverage ratio, ranging from 1.75% to 2.50% per annum for Term SOFR Rate loans and 0.75% to 1.50% per annum for base rate loans. The Revolving Credit Facility is subject to a commitment fee payable on the unused Revolving Credit Facility commitments ranging from 0.30% to 0.45%, depending on our leverage ratio. During the term of the Revolving Credit Facility, we may borrow, repay and re-borrow amounts available under the Revolving Credit Facility, subject to voluntary reductions of the swing line, letter of credit and revolving credit commitments.
On July 8, 2024, we entered into the first Amendment to the Revolving Credit Facility which amends the Credit Agreement to, among other things, increase the aggregate revolving credit facility amount from $75 million to $125 million.
Borrowings under the Credit Agreement are secured by certain of our collateral and that of the Guarantors. In specified circumstances, additional guarantors are required to be added. The Credit Agreement contains customary affirmative and negative covenants, including certain financial maintenance covenants, and events of default applicable to us. In the event of violation of the representations, warranties and covenants made in the Credit Agreement, we may not be able to utilize the Revolving Credit Facility or repayment of amounts owed thereunder could be accelerated.
As of September 30, 2024, we had $124.4 million in available borrowing under the Revolving Credit Facility, after utilizing $0.6 million for letter of credit. The maturity date of the Revolving Credit Facility is October 12, 2026.
We believe that our existing funds, cash generated from operations and existing sources of and access to financing are adequate to fund our need for working capital, capital expenditures, 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 September 30, 2024, we had $4.0 million in fair value of contingent consideration liabilities associated with prior acquisitions to be settled in future periods.
Cash Flow Summary

(Dollars in thousands) | YTD 2024 |  | YTD 2023
Net cash provided by (used in): |  |  |
Operating activities | $ | 68,576 |  |  | $ | 41,512 |
Investing activities | $ | (105,041) |  |  | $ | (1,398) |
Financing activities | $ | 76,753 |  |  | $ | (65,262) |

During the nine months ended September 30, 2024, we generated cash from operations primarily due to net income. We used cash in investing activities primarily for Apeiron acquisition, Agenus acquisition, and purchases of short-term investments, financial royalty assets and Palvella notes receivable, partially offset by cash from sale and maturity of short-term investments including Viking shares. We generated cash from financing activities primarily due to net proceeds from the sales of shares of common stock in the ATM Offering, and net proceeds from stock options exercises and ESPP.
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During the nine months ended September 30, 2023, we generated cash from operations primarily due to net income. We used cash in investing activities primarily for Novan acquisition and investment in Primrose Bio, partially offset by cash from sale and maturity of short-term investments including Viking shares. We used cash in financing activities primarily for repayment of the 2023 Notes upon maturity, partially offset by net proceeds from stock options exercises and ESPP.
Critical Accounting Policies and Estimates
Certain of our policies require the application of management judgment in making estimates and assumptions that affect the amounts reported in our consolidated financial statements and the disclosures made in the accompanying notes. Those estimates and assumptions are based on historical experience and various other factors deemed applicable and reasonable under the circumstances. The use of judgment in determining such estimates and assumptions is by nature, subject to a degree of uncertainty. Accordingly, actual results could differ materially from the estimates made. There have been no material changes in our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our 2023 Annual Report.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There were no material changes to our market risks in the nine months ended September 30, 2024, when compared to the disclosures in Item 7A of our 2023 Annual Report.
Item 4. Controls and Procedures
We 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) of the Exchange Act. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures as of September 30, 2024 were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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 us and no individualized factual allegations have been advanced against us in any of the three filed complaints. We reject all claims raised in the complaints and intend to vigorously defend against these matters.
On August 22, 2024, CyDex Pharmaceuticals, Inc. filed a Verified Complaint in the Delaware Court of Chancery against Bexson Biomedical, Inc. (Bexson), asserting claims for declaratory relief and breach of contract arising out of a Captisol In Vivo Agreement (In Vivo Agreement) between the parties, pursuant to which CyDex provided Bexson with research-grade Captisol and related confidential and proprietary information for a potential new formulation of ketamine being developed by Bexson. CyDex alleges that Bexson breached its obligations under the In Vivo Agreement, including by misusing confidential information and materials provided by CyDex and by using CyDex’s confidential information and materials to file patent applications that purport to cover formulations that are “not ketamine.” CyDex also asserts that Bexson failed to return and destroy Cydex’s confidential information and materials as required by the Agreement. CyDex seeks relief including specific performance of certain co-ownership provisions of the Agreement and disgorgement from Bexson for any benefits obtained in violation of the In Vivo Agreement. On September 27, 2024, Bexson moved to dismiss the Verified Complaint.
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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 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.
Item 1A. Risk Factors
We do not believe that there have been any material changes to the risk factors disclosed in Part I, Item 1A of our 2023 Annual Report. The risk factors described in our 2023 Annual Report are not the only risks we face. Factors we currently do not know, factors that we currently consider immaterial or factors that are not specific to us, such as general economic and political conditions, may also materially adversely affect our business or our consolidated operating results, financial condition or cash flows.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Rule 10b5-1 Trading Arrangements
From time to time, our officers (as defined in Rule 16a–1(f) of the Exchange Act) and directors may enter into Rule 10b5-1 or non-Rule 10b5-1 trading arrangements (as each such term is defined in Item 408 of Regulation S-K). During the three months ended September 30, 2024, none of our officers or directors adopted, modified or terminated any such trading arrangements.
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Item 6. Exhibits

|  | Incorporated by Reference |
Exhibit Number | Description of Exhibit | Form | File Number | Date of Filing | Exhibit Number | Filed Herewith
2.1† | Agreement on the Acquisition of Stocks in Apeiron Biologics AG entered on July 8, 2024, between Ligand Pharmaceuticals Incorporated and the sellers. | 10-Q | 001-33093 | 8/07/2024 | 2.1 |
3.1 | Fifth Amended and Restated Bylaws of the Company | 8-K | 001-33093 | 4/19/2024 | 3.1 |
10.1 | First Amendment to Credit Agreement, dated as of July 8, 2024, among Ligand Pharmaceuticals Incorporated, certain of its subsidiaries, as Guarantors, the Lenders, and Citibank, N.A., as Administrative Agent, Swingline Lender and L/C Issuer. | 10-Q | 001-33093 | 8/07/2024 | 10.1 |
10.2 | Severance Agreement and General Release dated as of August 2, 2024, between Ligand Pharmaceuticals Incorporated and Mr. Korenberg. |  |  |  |  | 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
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 Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, formatted in iXBRL (inline eXtensible Business Reporting Language): (i) Consolidated Condensed Balance Sheets, (ii) Consolidated Condensed Statements of Operations, (iii) Consolidated Condensed Statement of Comprehensive Income, (iv) Consolidated Condensed Statements of Stockholders' Equity, (v) Consolidated Condensed Statements of Cash Flows, and (vi) the Notes to Consolidated Condensed Financial Statements. |  |  |  |  | X
104 | The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, formatted in Inline XBRL and contained in Exhibit 101. |  |  |  |  | X

* These certifications are deemed not filed for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall they be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act.
† Certain portions of this exhibit (indicated by asterisks) have been omitted because they are both not material and are the type that Ligand treats as private or confidential.
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SIGNATURES
Pursuant to the requirements 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.

Date: | November 8, 2024 |  | By: | /s/ Octavio Espinoza
|  |  |  | Octavio Espinoza
|  |  |  | Chief Financial Officer
|  |  |  | Duly Authorized Officer and Principal Financial Officer

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