In April 2025, we entered into a definitive merger agreement to combine our wholly owned subsidiaries, Pelthos Therapeutics Inc. and LNHC, Inc. (collectively “Pelthos”) with CHRO Merger Sub Inc., a wholly owned subsidiary of Channel Therapeutics Corporation (“Channel”). On July 1, 2025, our wholly owned subsidiary, LNHC, Inc. was merged with CHRO Merger Sub Inc. and became a wholly owned subsidiary of Channel. The combined company now operates under the name Pelthos Therapeutics Inc. (“Pelthos”) (such transaction, the “Pelthos Transaction”).

Our CEO and director, Todd Davis, was also a director on Channel’s board of directors. Mr. Davis did not participate in and recused himself from both boards’ consideration and approval of the Pelthos Transaction, which was in the case of the Company approved by an authorized special transaction committee of the Board. Upon the consummation of the Pelthos

Transaction, Mr. Davis and Richard Baxter (our Senior Vice President of Investment Operations) were appointed to Pelthos’ board of directors.

As LNHC, Inc. has the input, process and output elements defined in ASC 805, Business Combinations, we concluded the sale qualifies as a sale of business, and as such, as of July 1, 2025, we derecognized all assets and liabilities of LNHC, Inc and did not include its operations for the three months ended September 30, 2025, in our condensed consolidated statement of operations. Pelthos is considered a related party to Ligand due to Ligand’s significant equity interest and ongoing contractual arrangements, although Ligand does not control Pelthos and is not the primary beneficiary under ASC 810.

Concurrent with the Pelthos Transaction, Ligand invested $18.0 million into Pelthos, out of which $12.7 million were invested by Ligand prior to July 1, 2025 in a form of intercompany loan. On July 1, 2025, this intercompany loan was cancelled, and Ligand contributed the remaining balance of $5.3 million to Pelthos.

Ligand received Pelthos Series A Convertible preferred shares and Pelthos common shares in connection with the Pelthos Transaction. We assessed Ligand’s consolidation requirements for these investments under ASC 810, Consolidation, and concluded that Ligand is not required to consolidate Pelthos.

As further discussed in Note 1, Basis of Presentation and Summary of Significant Accounting Policies, we recorded Pelthos Series A Convertible preferred shares and Pelthos common shares in other investments and equity method investments, respectively, within our condensed consolidated balance sheet, and elected to subsequently measure them using the fair value option, with the change in fair value for these investments being recorded to gain (loss) from change in fair value of equity-method investments and other investments in our condensed consolidated statements of operations.


	Pelthos Series A preferred shares		Pelthos common shares		Total
Fair value on July 1, 2025	$	43,192	$	18,900	$	62,092
Change in fair value for the three months ended September 30, 2025	52,786		23,100		75,886
Fair value on September 30, 2025	$	95,978	$	42,000	$	137,978

As a result of the Pelthos Transaction, on July 1, 2025, Ligand recognized income in the amount of $53.1 million which was recorded to contract revenue and other income in our condensed consolidated statements of operations for the three and nine months ended September 30, 2025. The amount of income from Pelthos Transaction represents the excess of the fair value of 1) our investment in Pelthos Series A Convertible preferred shares and Pelthos common shares ($62.1 million in total); 2) the carrying amount of LNHC, Inc. assets and liabilities as of July 1, 2025, the date of sale; and 3) $5.3 million cash consideration paid to Pelthos.


	July 1, 2025
Cash and cash equivalents	$	2,817
Accounts receivable, net	48
Other current assets	7,910
Property and equipment, net	11,091
Intangible assets, net	8,501
Goodwill	3,709
Operating lease right-of-use assets	3,625
Other assets	4,812
Accounts payable	(993)
Accrued liabilities	(3,894)
Deferred revenue	(2,835)
Operating lease liabilities	(3,566)
Short-term bridge loan	(6,963)
Deferred income taxes, net	(3,069)
Other long-term liabilities	(17,441)
Net assets sold	3,752
Cash consideration paid	5,268
Net assets sold and cash consideration paid	$	9,020


Equity method investment (common shares)	$	18,900
Other investment (Series A preferred shares)	43,192
Total consideration received	62,092
Net assets sold and cash consideration paid	9,020
Gain from Pelthos Transaction	$	53,072

On July 10, 2025, Pelthos commercially launched Zelsuvmi. Ligand earned a $5 million milestone payment from Pelthos following the commercial launch of Zelsuvmi which was recorded in contract revenue and other income in our condensed consolidated statements of operations for the three and nine months ended September 30, 2025. We are also entitled to a 13% royalty on worldwide sales of Zelsuvmi, excluding Japan, and up to an additional $5 million in commercial sales milestones.