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Basis of Presentation and Summary of Significant Accounting Policies | 9 Months Ended
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Sep. 30, 2024
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
Basis of Presentation and Summary of Significant Accounting Policies | Basis of Presentation and Summary of Significant Accounting Policies Business We are a biopharmaceutical company enabling scientific advancement through supporting the clinical development of high-value medicines. We do this by providing financing, licensing our technologies or both. We operate in one reportable segment: development and licensing of biopharmaceutical assets. Basis of Presentation Our unaudited condensed consolidated financial statements include the financial statements of Ligand and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. We have included all adjustments, consisting only of normal recurring adjustments, which we considered necessary for a fair presentation of our financial results. These unaudited condensed consolidated financial statements and accompanying notes should be read together with the audited consolidated financial statements included in our 2023 Annual Report. Interim financial results are not necessarily indicative of the results that may be expected for the full year. Reclassification Certain reclassifications have been made to the previously issued audited consolidated financial statements to conform with the current period presentation. Specifically, within the consolidated balance sheet as of December 31, 2023, our commercial license and other economic rights line has been reclassified to long-term portion of financial royalty assets, net, and to other assets, and a portion of other investments has been reclassified from other assets. Moreover, noncurrent derivative assets as of December 31, 2023, have been reclassified from other assets. In addition, within the unaudited condensed consolidated statement of operations for the three and nine months ended September 30, 2023, royalties have been reclassified to revenue from intangible royalty assets, and a portion of the contract revenue has been reclassified to income from financial royalty assets. Discontinued Operations The Company determined that the spin-off of the OmniAb Business in November 2022 met the criteria for classification as a discontinued operation in accordance with ASC Subtopic 205-20, Discontinued Operations (“ASC 205-20”). Accordingly, the accompanying condensed consolidated financial statements have been updated to present the results of all discontinued operations reported as a separate component of loss in the condensed consolidated statements of operations and comprehensive loss (see Note 5, Spin-off of OmniAb). All disclosures have been adjusted to reflect continuing operations. Significant Accounting Policies We have described our significant accounting policies in Note 1, Basis of Presentation and Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements in our 2023 Annual Report. Use of Estimates The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and the accompanying notes. Actual results may differ from those estimates. Revenue and Other Income Our revenue is generated primarily from royalties on sales of products commercialized by our partners, Captisol material sales, income from financial royalty assets, and contract revenue for license fees, technical, regulatory and sales-based milestone payments. Other operating income is primarily related to milestone income received for financial royalty assets that have been fully amortized or where there is no underlying asset recognized on the consolidated balance sheets. We apply the following five-step model in accordance with ASC 606, Revenue from Contracts with Customers, in order to determine the revenue: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. Revenue from Intangible Royalty Assets We receive royalty revenue from intangible royalty assets on sales by our partners of products covered by patents that we or our partners own under contractual agreements. We do not have future performance obligations under these license arrangements. We generally satisfy our obligation to grant intellectual property rights on the effective date of the contract. However, we apply the royalty recognition constraint required under the guidance for sales-based royalties which requires a royalty to be recorded no sooner than when the underlying sale occurs. Therefore, royalties on sales of products commercialized by our partners are recognized in the quarter the product is sold. Our partners generally report sales information to us on a one quarter lag. Thus, we estimate the expected royalty proceeds based on an analysis of historical experience and interim data provided by our partners including their publicly announced sales. Differences between actual and estimated royalty revenues, which have not been material, are adjusted in the period in which they become known, typically the following quarter. Income from Financial Royalty Assets Effective January 1, 2024, we introduced a new line item “income from financial royalty assets”, which was included in “contract revenue” in prior periods. Accordingly, the prior year period amounts have been reclassified to align with the current period presentation. We recognize income from financial royalty assets when there is a reasonable expectation about the timing and amount of cash flows expected to be collected. Income is calculated by multiplying the carrying value of the financial royalty asset by the periodic effective interest rate. We account for financial royalty assets related to developmental pipeline or recently commercialized products on a non-accrual basis. Developmental pipeline products are non-commercialized, non-approved products that require FDA or other regulatory approval, and thus have uncertain cash flows. Newly commercialized products typically do not have an established reliable sales pattern, and thus have uncertain cash flows. Captisol Sales Revenue from Captisol sales is recognized when control of Captisol material is transferred or intellectual property license rights are granted to our customers in an amount that reflects the consideration we expect to receive from our customers in exchange for those products or rights. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. For Captisol material or intellectual property license rights, we consider our performance obligation satisfied once we have transferred control of the product or granted the intellectual property rights, meaning the customer has the ability to use and obtain the benefit of the Captisol material or intellectual property license right. We recognize revenue for satisfied performance obligations only when we determine there are no uncertainties regarding payment terms or transfer of control. Sales tax and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. We have elected to recognize the cost of freight and shipping when control over Captisol material has transferred to the customer as an expense in cost of Captisol. We expense incremental costs of obtaining a contract when incurred if the expected amortization period of the asset that we would have recognized is one year or less or the amount is immaterial. We did not incur any incremental costs of obtaining a contract during the periods reported. Contract Revenue and Other Income Our contracts with customers often include variable consideration in the form of contingent milestone payments. We include contingent milestone payments in the estimated transaction price when it is probable a significant reversal in the amount of cumulative revenue recognized will not occur. These estimates are based on historical experience, anticipated results and our best judgment at the time. If the contingent milestone payment is based on sales, we apply the royalty recognition constraint and record revenue when the underlying sale has taken place. Significant judgments must be made in determining the transaction price for our sales of intellectual property. Because of the risk that products in development with our partners will not reach development milestones or receive regulatory approval, we generally recognize any contingent payments that would be due to us upon the development milestone or regulatory approval. Some customer contracts are sublicenses which require that we make payments to an upstream licensor related to license fees, milestones and royalties which we receive from customers. In such cases, we evaluate the determination of gross revenue as a principal versus net revenue as an agent reporting based on each individual agreement. Other income is primarily related to milestone income received for financial royalty assets that have been fully amortized or where there is no underlying asset recognized on the consolidated balance sheets. Deferred Revenue Depending on the terms of the arrangement, we may also defer a portion of the consideration received because we have to satisfy a future obligation. The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on the consolidated balance sheet. Except for royalty revenue and certain service revenue, we generally receive payment at the point we satisfy our obligation or soon after. Any fees billed in advance of being earned are recorded as deferred revenue. During the three and nine months ended September 30, 2024, the amount recognized as revenue that was previously deferred was $0.2 million and $1.2 million, respectively. During the three and nine months ended September 30, 2023, the amount recognized as revenue that was previously deferred was immaterial. Disaggregation of Revenue The following table represents disaggregation of royalties, Captisol and contract revenue and other income (in thousands):
| Three months ended |  | Nine months ended
| September 30, |  | September 30,
| 2024 |  | 2023 |  | 2024 |  | 2023
Royalties |  |  |  |  |  |  |
Kyprolis | $ | 11,599 |  |  | $ | 10,537 |  |  | $ | 27,229 |  |  | $ | 24,862 |
Evomela | 1,747 |  |  | 2,497 |  |  | 5,877 |  |  | 7,404 |
Teriparatide injection | 2,376 |  |  | 2,800 |  |  | 6,520 |  |  | 9,913 |
Rylaze | 3,886 |  |  | 3,678 |  |  | 10,070 |  |  | 9,315 |
Filspari | 3,206 |  |  | 1,122 |  |  | 7,402 |  |  | 1,707 |
Vaxneuvance | 1,466 |  |  | 1,313 |  |  | 3,962 |  |  | 2,990 |
Other | 2,272 |  |  | 1,916 |  |  | 6,452 |  |  | 5,256 |
Revenue from intangible royalty assets | 26,552 |  |  | 23,863 |  |  | 67,512 |  |  | 61,447 |
Income from financial royalty assets | 5,157 |  |  | 25 |  | 6,454 |  |  | 1,026 |
| 31,709 |  |  | 23,888 |  |  | 73,966 |  |  | 62,473 |
Captisol | 6,255 |  |  | 8,608 |  |  | 22,967 |  |  | 24,450 |
Contract revenue and other income |  |  |  |  |  |  |
Milestone and other | 13,848 |  |  | 372 |  |  | 25,444 |  |  | 16,290 |
Other income | — |  |  | — |  |  | 1,944 |  |  | — |
Contract revenue and other income | 13,848 |  |  | 372 |  |  | 27,388 |  |  | 16,290 |
Total | $ | 51,812 |  |  | $ | 32,868 |  |  | $ | 124,321 |  |  | $ | 103,213 |
Short-term Investments Our short-term investments consist of the following at September 30, 2024 and December 31, 2023 (in thousands):
September 30, 2024 | Amortized cost |  |  | Gross unrealized gains |  |  | Gross unrealized losses |  |  | Estimated fair value
Bond fund | $ | 39,512 |  |  |  | $ | — |  |  |  | $ | (265) |  |  |  | $ | 39,247 |
U.S. government securities | 19,051 |  |  |  | 31 |  |  |  | — |  |  |  | 19,082 |
Bank deposits | 12,280 |  |  |  | 21 |  |  |  | — |  |  |  | 12,301 |
Corporate bonds | 10,969 |  |  |  | 30 |  |  |  | (3) |  |  |  | 10,996 |
Commercial paper | 10,591 |  |  |  | 5 |  |  |  | (1) |  |  |  | 10,595 |
Corporate equity securities | 6,551 |  |  |  | — |  |  |  | (6,058) |  |  |  | 493 |
| $ | 98,954 |  |  |  | $ | 87 |  |  |  | $ | (6,327) |  |  |  | 92,714 |
Viking common stock |  |  |  |  |  |  |  |  |  | 63,310 |
Total short-term investments |  |  |  |  |  |  |  |  |  | $ | 156,024 |
December 31, 2023 |  |  |  |  |  |  |  |  |  |
Bond fund | $ | 63,763 |  |  |  | $ | — |  |  |  | $ | (537) |  |  |  | $ | 63,226 |
Bank deposits | 17,165 |  |  |  | 12 |  |  |  | (1) |  |  |  | 17,176 |
Corporate bonds | 14,850 |  |  |  | 40 |  |  |  | (2) |  |  |  | 14,888 |
Commercial paper | 11,578 |  |  |  | 9 |  |  |  | (1) |  |  |  | 11,586 |
U.S. government securities | 6,736 |  |  |  | 18 |  |  |  | (3) |  |  |  | 6,751 |
Municipal bonds | 1,007 |  |  |  | — |  |  |  | (4) |  |  |  | 1,003 |
Corporate equity securities | 5,775 |  |  |  | — |  |  |  | (5,235) |  |  |  | 540 |
| $ | 120,874 |  |  |  | $ | 79 |  |  |  | $ | (5,783) |  |  |  | 115,170 |
Viking common stock |  |  |  |  |  |  |  |  |  | 32,185 |
Total short-term investments |  |  |  |  |  |  |  |  |  | $ | 147,355 |
During the nine months ended September 30, 2024, we sold 0.7 million shares of Viking common stock and recognized a realized gain of $60.0 million in total. We did not sell Viking common stock during the three months ended September 30, 2024. During the nine months ended September 30, 2023, we sold 4.5 million shares of Viking common stock and recognized a realized gain of $37.2 million in total. During the three months ended September 30, 2023, there were no sales of Viking common stock. Gain (loss) from short-term investments in our condensed consolidated statements of operations includes both realized and unrealized gain (loss) from our short-term investments in public equity and warrant securities. Allowances are recorded for available-for-sale debt securities with unrealized losses. This limits the amount of credit losses that can be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and requires the reversal of previously recognized credit losses if fair value increases. The provisions of the credit losses standard did not have a material impact on our available-for-sale debt securities during the three and nine months ended September 30, 2024 and 2023. The following table summarizes our available-for-sale debt securities by contractual maturity (in thousands):
| September 30, 2024
| Amortized Cost |  | Fair Value
Within one year | $ | 91,072 |  |  | $ | 91,152 |
After one year through five years | 4,647 |  |  | 4,655 |
Total | $ | 95,719 |  |  | $ | 95,807 |
Our investment policy is capital preservation and we only invest in U.S.-dollar denominated investments. We held a total of 32 investments which were in an unrealized loss position with a total of $0.01 million unrealized losses as of September 30, 2024. We believe that we will collect the principal and interest due on our debt securities that have an amortized cost in excess of fair value. The unrealized losses are largely due to changes in interest rates and not to unfavorable changes in the credit quality associated with these securities that impacted our assessment on collectability of principal and interest. In July 2024, we sold certain securities before the recovery of the amortized cost basis to fund the Apeiron acquisition. Accordingly, we wrote down the amortized cost of $0.05 million during the nine months ended September 30, 2024. We do not intend to sell these securities and it is not more-likely-than-not that we will be required to sell these securities before the recovery of the amortized cost basis as of September 30, 2024. Accordingly, there was no credit loss recognized for the three months ended September 30, 2024. There were no credit losses recognized for the three and nine months ended September 30, 2023. Accounts Receivable and Allowance for Credit Losses Our accounts receivable arise primarily from sales on credit to customers. We establish an allowance for credit losses to present the net amount of accounts receivable expected to be collected. The allowance is determined by using the loss-rate method, which requires an estimation of loss rates based upon historical loss experience adjusted for factors that are relevant to determining the expected collectability of accounts receivable. Some of these factors include macroeconomic conditions that correlate with historical loss experience, delinquency trends, aging behavior of receivables and credit and liquidity quality indicators for industry groups, customer classes or individual customers. During the three and nine months ended September 30, 2024, we considered the current and expected economic and market conditions and concluded a decrease of $0.01 million and a decrease of $0.13 million in the allowance for credit losses, respectively. During the three and nine months ended September 30, 2023, we considered the current and expected economic and market conditions and concluded an increase of $0.10 million and an increase of $0.14 million in the allowance for credit losses, respectively. Inventory Inventory, which consists of finished goods (Captisol), is stated at the lower of cost or net realizable value. We determine cost using the specific identification method. We analyze our inventory levels periodically and write down inventory to net realizable value if it has become obsolete, has a cost basis in excess of its expected net realizable value or is in excess of expected requirements. There was a $0.1 million and $0.2 million write-down recorded against inventory for the three and nine months ended September 30, 2024, respectively. There was no write-down recorded against inventory for the three and nine months ended September 30, 2023. In addition to finished goods, as of September 30, 2024 and December 31, 2023, inventory included prepayments of $3.3 million and $4.6 million, respectively, to our supplier for Captisol. Goodwill and Other Identifiable Intangible Assets Goodwill and other identifiable intangible assets consist of the following (in thousands):
| September 30, |  | December 31,
| 2024 |  | 2023
Indefinite-lived intangible assets |  |  |
Goodwill | $ | 105,250 |  |  | $ | 103,370 |
Definite lived intangible assets |  |  |
Complete technology | 39,249 |  |  | 42,911 |
Less: accumulated amortization | (19,072) |  |  | (20,894) |
Trade name | 2,642 |  |  | 2,642 |
Less: accumulated amortization | (1,810) |  |  | (1,710) |
Customer relationships | 29,600 |  |  | 29,600 |
Less: accumulated amortization | (20,280) |  |  | (19,161) |
Contractual relationships | 360,000 |  |  | 360,000 |
Less: accumulated amortization | (115,424) |  |  | (93,782) |
Total goodwill and other identifiable intangible assets, net | $ | 380,155 |  |  | $ | 402,976 |
Financial Royalty Assets, net (formerly known as Commercial License Rights) Financial royalty assets represent a portfolio of future milestone and royalty payment rights acquired that are passive in nature (i.e., we do not own the intellectual property or have the right to commercialize the underlying products). Although a financial royalty asset does not have the contractual terms typical of a loan (such as contractual principal and interest), we account for financial royalty assets under ASC 310, Receivables. Our financial royalty assets are classified similar to loans receivable and are measured at amortized cost using the prospective effective interest method described in ASC 835-30 Imputation of Interest. The effective interest rate is calculated by forecasting the expected cash flows to be received over the life of the asset relative to the initial invested amount. The effective interest rate is recalculated in each reporting period as the difference between expected cash flows and actual cash flows are realized and as there are changes to expected future cash flows. The gross carrying value of a financial royalty asset is made up of the opening balance, or net purchase price for a new financial royalty asset, which is increased by accrued interest income (except for assets under the non-accrual method) and decreased by cash receipts in the period to arrive at the ending balance. We evaluate financial royalty assets for recoverability on an individual basis by comparing the effective interest rate at each reporting date to that of the prior period. If the effective interest rate is lower for the current period than the prior period, and if the gross cash flows have declined (expected and collected), we record provision expense for the change in expected cash flows. The provision is measured as the difference between the financial royalty asset’s amortized cost basis and the net present value of the expected future cash flows, calculated using the prior period’s effective interest rate. In addition to the above allowance, we recognize an allowance for current expected credit losses under ASC 326, Financial Instruments – Credit Losses on our financial royalty assets. The credit rating, which is primarily based on publicly available data and updated quarterly, is the primary credit quality indicator used to determine the credit loss provision. The carrying value of financial royalty assets is presented net of the cumulative allowance for changes in expected future cash flows and expected credit losses. The initial amount and subsequent revisions in allowances for changes in expected future cash flows and expected credit losses are recorded as part of general and administrative expenses on the condensed consolidated statements of operations. When we are reasonably certain that a part of a financial royalty asset’s net carrying value (or all of it) is not recoverable, we recognize a permanent impairment which is recorded in a financial royalty asset impairment on the condensed consolidated statements of operations. To the extent there was an allowance previously recorded for this asset, the amount of such impairment is written off against the allowance at the time that such a determination is made. Any future recoveries from such impairment are recognized when cash is collected in a respective period earnings. The current portion of financial royalty assets represents an estimation for current quarter royalty receipts which are collected during the subsequent quarter. This portion is presented in other current assets on our consolidated balance sheets, net of the allowance for expected credit losses. For additional information, see Note 6, Financial Royalty Assets, net (formerly known as Commercial License Rights). Derivative Assets Derivative assets include instruments used for risk-management purposes, and other instruments. Derivative assets which are not used for risk management purposes, include: (a) acquired rights in future milestone and royalty payments from Agenus Partnered Programs (as defined below), (b) Agenus Warrant (as defined below), (c) option to invest up to $25 million to milestone and royalty rights which expires on June 30, 2025 ("Upsize Option"), and (d) rights to receive from Primrose Bio 50% of milestones on two contracts previously entered into by Primordial Genetics. In addition, we have entered into a collar arrangement to hedge against the fluctuation risk in Viking's share price (the “Viking Share Collar”). However, because the Viking stock investment is remeasured at fair value through earnings under ASC 321, the Viking Share Collar is not eligible for hedge accounting, but is considered as an economic hedge. All derivatives are measured at fair value on the consolidated balance sheets. Derivative assets consist of the following (in thousands):
| September 30, |  | December 31,
| 2024 |  | 2023
Agenus Upsize Option (expires on 6/30/25) | $ | 3,815 |  |  | $ | — |
Viking shares collar | 7,318 |  |  | — |
Total current derivative assets | $ | 11,133 |  |  | $ | — |
Primrose mRNA | $ | 2,921 |  |  | $ | 3,531 |
Agenus Partner Programs | 14,099 |  |  | — |
Agenus Warrant (5 years contractual term) | 2,226 |  |  | — |
Total noncurrent derivative assets | $ | 19,246 |  |  | $ | 3,531 |
A change in the fair value of the Viking Shares Collar that amounted to $(7.9) million and $7.3 million during the three and nine months ended September 30, 2024, respectively, are included in gain (loss) from short-term investments within the condensed consolidated statements of operations. A change in the fair value of Agenus Partner Programs that amounted to $(7.2) million during the three and nine months ended September 30, 2024 is included in fair value adjustments to partner program derivatives within the condensed consolidated statements of operations. A change in the fair value of other derivatives that amounted to $(8.0) million and $(6.8) million during the three and nine months ended September 30, 2024, respectively, are recognized in other non-operating expense, net within the condensed consolidated statements of operations. We acquired the Primrose mRNA derivative on September 18, 2023 with the sale of Pelican business and investment in Primrose Bio transaction. A change in the fair value of the Primrose mRNA derivative that amounted to $(0.6) million during the three and nine months ended September 30, 2024 is included in fair value adjustments to partner program derivatives within the condensed consolidated statements of operations. We did not have any other derivative instruments during the three and nine months ended September 30, 2023. Equity Method Investment Investments that we do not consolidate but in which we have significant influence over the operating and financial policies of the investee are classified as equity method investments and are accounted for using the equity method of accounting. In applying the equity method of accounting, investments are initially recorded at cost and are subsequently adjusted based on our proportionate share of net income or loss of the investee, net of any distributions received from the investee and any impairment. Other Investments Other investments represent our investments in equity securities of third parties in which we do not have control or significant influence. Our equity securities investments do not have a readily determinable or estimable fair value and are measured using the measurement alternative, which is cost less impairment, if any, and adjustments resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. The amount of such impairment or adjustment recognized during the period is presented in other non-operating income (expense) in our condensed consolidated statements of operations. Other investments consist of the following (in thousands):
| September 30, |  | December 31,
| 2024 |  | 2023
Equity securities in Primrose Bio | $ | 6,712 |  |  | $ | 32,726 |
InvIOs investment | 4,196 |  |  | — |
Neuritek warrants | — |  |  | 3,000 |
Palvella Series C preferred stock | 1,000 |  |  | 1,000 |
Total other investments | $ | 11,908 |  |  | $ | 36,726 |
During the three months ended September 30, 2024, we recognized a full impairment for our investment in Neuritek warrants. Other Assets and Other Current Assets Other assets include economic rights related to the 2023 expansion of our strategic partnership with Palvella to accelerate Phase 3 development of QTORIN rapamycin for the treatment of Microcystic Lymphatic Malformations (“Microcystic LMs”). According to the terms of the second amendment to our development funding and royalties agreement with Palvella (the “Palvella Second Amendment”). Palvella received an upfront payment of $5 million from Ligand. In return for the upfront payment, among other contractual changes, the tiered royalty payable by Palvella to Ligand was increased to between 8.0% and 9.8% based on annual aggregate worldwide net sales of QTORIN rapamycin. We are not obligated to provide additional funding to Palvella for development or commercialization of QTORIN. We determined the economic rights related to Palvella should be characterized as a funded research and development arrangement, because the contract designated the funds usage for research and development activities, and thus we account for them in accordance with ASC 730-20, Research and Development Arrangement. We reduce our asset as the funds are expended by Palvella. As of September 30, 2024, of the $5 million upfront funding related to the Palvella Second Amendment, $0.7 million of the funding to Palvella was expended. Our CEO and director, Todd Davis, is a director of Palvella. Mr. Davis recused himself from both board's consideration of the agreement between us and Palvella, including any financial analysis, the terms of the Palvella Second Amendment and the vote to approve the Palvella Second Amendment and the related transactions. In June 2024, we funded Palvella $2.5 million in exchange for a convertible note with a maturity of three years, which is included in other assets in the condensed consolidated balance sheets. Other current assets primarily include $2.3 million Employee Retention Credit, $6.6 million current portion of financial royalty assets (disclosed in Note 6, Financial Royalty Assets, net), $2.2 million prepaid expenses, and inventory (raw materials and work in process related to the manufacturing of finished goods) for the preparation of commercial supplies of ZELSUVMI™ by Pelthos Therapeutics, a wholly owned subsidiary of Ligand. For additional information on ZELSUVMI, see Note 4, Acquisitions. Below is a summary of the inventory included in other current assets (in thousands):
| September 30, |  | December 31,
| 2024 |  | 2023
Raw materials | $ | 2,495 |  |  | $ | 420 |
Work in process | 260 |  |  | 195 |
Total Pelthos inventory in other current assets | $ | 2,755 |  |  | $ | 615 |
Accrued Liabilities Accrued liabilities consist of the following (in thousands):
| September 30, |  | December 31,
| 2024 |  | 2023
Compensation | $ | 3,830 |  |  | $ | 4,682 |
Subcontractor | 1,756 |  |  | 1,756 |
Professional fees | 3,296 |  |  | 2,394 |
Customer deposit | 621 |  |  | 621 |
Supplier | 276 |  |  | 303 |
Royalties owed to third parties | 2,989 |  |  | 900 |
Amounts owed to former licensees | — |  |  | 45 |
Other | 2,832 |  |  | 1,766 |
Total accrued liabilities | $ | 15,600 |  |  | $ | 12,467 |
Contingent Liabilities In connection with the acquisition of CyDex in January 2011, we recorded a contingent liability for amounts potentially due to holders of the CyDex CVRs and former license holders. The liability is periodically assessed based on events and circumstances related to the underlying milestones, royalties and material sales. In connection with the acquisition of Metabasis in January 2010, we issued Metabasis stockholders four tradable CVRs for each Metabasis share. The fair values of the CVRs are remeasured at each reporting date through the term of the related agreement. Any change in fair value is recorded in other non-operating expense, net within our condensed consolidated statement of operations. For additional information, see Note 7, Fair Value Measurements. Other Long-Term Liabilities Other long-term liabilities consist of the following (in thousands):
| September 30, |  | December 31,
| 2024 |  | 2023
Unrecognized tax benefits | $ | 14,481 |  |  | $ | 14,039 |
Novan (Pelthos) contract liability | 15,324 |  |  | 13,700 |
Other long-term liabilities | 69 |  |  | 19 |
| $ | 29,874 |  |  | $ | 27,758 |
Share-Based Compensation Share-based compensation expense for awards to employees and non-employee directors is a non-cash expense and is recognized on a straight-line basis over the vesting period. The following table summarizes share-based compensation expense recorded as components of research and development expenses and general and administrative expenses for the periods indicated (in thousands):
| Three months ended |  | Nine months ended
| September 30, |  | September 30,
| 2024 |  | 2023 |  | 2024 |  | 2023
SBC - Research and development expenses | $ | 982 |  |  | $ | 1,639 |  |  | $ | 2,588 |  |  | $ | 5,362 |
SBC - General and administrative expenses | 14,189 |  |  | 5,245 |  |  | 30,977 |  |  | 14,660 |
| $ | 15,171 |  |  | $ | 6,884 |  |  | $ | 33,565 |  |  | $ | 20,022 |
The increase in share-based compensation for the three and nine months ended September 30, 2024 as compared to the prior periods are primarily due to the one-time stock compensation expense associated with the anticipated departure of our former President and Chief Operating Officer (“COO”) during the third quarter of 2024 and the new hires in 2024. The fair value for options that were awarded to employees and directors was estimated at the date of grant using the Black-Scholes option valuation model with the following weighted-average assumptions:
| Three months ended |  | Nine months ended
| September 30, |  | September 30,
| 2024 |  | 2023 |  | 2024 |  | 2023
Risk-free interest rate | 4.4% |  | 4.3% |  | 4.3% |  | 4.1%
Dividend yield | — |  | — |  | — |  | —
Expected volatility | 44.7% |  | 44.7% |  | 44.7% |  | 51.5%
Expected term (years) | 4.7 |  | 5.2 |  | 4.7 |  | 5.3
A limited amount of performance-based restricted stock units (“PSUs”) contain a market condition based on our relative total shareholder return ranked on a percentile basis against the Nasdaq Biotechnology Index over a three-year performance period, with a range of 0% to 200% of the target amount granted to be issued under the award. Share-based compensation cost for these PSUs is measured using the Monte-Carlo simulation valuation model and is not adjusted for the achievement, or lack thereof, of the performance conditions. Net (Loss) Income Per Share Basic net (loss) income per share is calculated by dividing net (loss) income by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed based on the sum of the weighted average number of common shares and potentially dilutive common shares outstanding during the period. Diluted net loss per share is computed based on the sum of the weighted average number of common shares outstanding during the period. Potentially dilutive common shares consist of shares issuable under the 2023 Notes, stock options and restricted stock. Although we paid off the 2023 Notes in May 2023, it would have a dilutive impact when the average market price of our common stock exceeds the maximum conversion price during the nine months ended September 30, 2023. It was our intent and policy to settle conversions through combination settlement, which involved payment in cash equal to the principal portion and delivery of shares of common stock for the excess of the conversion value over the principal portion. Potentially dilutive common shares from stock options and restricted stock are determined using the average share price for each period under the treasury stock method. In addition, the following amounts are assumed to be used to repurchase shares: proceeds from exercise of stock options and the average amount of unrecognized compensation expense for the awards. For additional information, see Note 10, Stockholders’ Equity. In accordance with ASC 260, Earnings per Share, if a company had a discontinuing operation, the company uses income from continuing operations, adjusted for preferred dividends and similar adjustments, as its control number to determine whether potential common shares are dilutive. The following table presents the calculation of weighted average shares used to calculate basic and diluted earnings per share (in thousands):
| Three months ended |  | Nine months ended
| September 30, |  | September 30,
| 2024 |  | 2023 |  | 2024 |  | 2023
Weighted average shares outstanding: | 18,419 |  |  | 17,380 |  |  | 18,061 |  |  | 17,241 |
Dilutive potential common shares: |  |  |  |  |  |  |
Restricted stock | — |  |  | — |  |  | 173 |  |  | 82 |
Stock options | — |  |  | — |  |  | 340 |  |  | 302 |
2023 Notes | — |  |  | — |  |  | — |  |  | 159 |
Shares used to compute diluted income (loss) per share | 18,419 |  |  | 17,380 |  |  | 18,574 |  |  | 17,784 |
Potentially dilutive shares excluded from calculation due to anti-dilutive effect | 1,099 |  |  | 4,762 |  |  | 1,815 |  |  | 4,663 |
For the three months ended September 30, 2024, due to the net loss for the period, the 0.7 million weighted average incremental options and restricted stock awards were anti-dilutive. For the three months ended September 30, 2023, due to the net loss for the period, the 0.3 million weighted average incremental options and restricted stock awards were anti-dilutive. Foreign Currency Translation The Euro is the functional currency of Apeiron and the corresponding financial statements have been translated into U.S. Dollars in accordance with ASC 830-30, Translation of Financial Statements. Assets and liabilities are translated at end-of-period rates while revenues and expenses are translated at average rates in effect during the period in which the activity took place. Equity is translated at historical rates and the resulting cumulative translation adjustments are included as a component of accumulated other comprehensive income (loss). Accounting Standards Not Yet Adopted In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The update, among other things, requires disclosure of certain significant segment expenses. We will adopt the updated accounting guidance in our Annual Report on Form 10-K for the year ending December 31, 2024. We do not expect the adoption of the new accounting guidance will have a material impact to our consolidated financial statements. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The update requires a public business entity to disclose, on an annual basis, a tabular rate reconciliation using both percentages and currency amounts, broken out into specified categories with certain reconciling items further broken out by nature and jurisdiction to the extent those items exceed a specified threshold. In addition, all entities are required to disclose income taxes paid, net of refunds received disaggregated by federal, state/local, and foreign and by jurisdiction if the amount is at least 5% of total income tax payments, net of refunds received. Adoption of the ASU allows for either the prospective or retrospective application of the amendment and is effective for annual periods beginning after December 15, 2024, with early adoption permitted. We have not yet completed the assessment of the impact of ASU 2023-09 on our consolidated financial statements. In November 2024, the FASB issued ASU No. 2024-03, Income Statement—Reporting Comprehensive Income (Subtopic 220-40): Expense Disaggregation Disclosures. This update requires entities to disaggregate operating expenses into specific categories, such as salaries and wages, depreciation, and amortization, to provide enhanced transparency into the nature and function of expenses. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, with early adoption permitted. ASU 2024-03 may be applied retrospectively or prospectively. We are currently evaluating the new guidance to determine the impact it may have on our consolidated financial statements and related disclosures. We do not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material impact on our consolidated financial statements or disclosures.

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