Financial Royalty Assets, net (formerly known as Commercial License Rights)

9 Months Ended

Sep. 30, 2024

Organization, Consolidation and Presentation of Financial Statements [Abstract]

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.

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 OhtuvayreTM) 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.