SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________________________________________________________________


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

~~5980 Horton Street, Suite 405~~

~~Emeryville, CA 94608~~

~~(Former Name or Former Address, if Changed Since Last Report)~~

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 ~~4, 2022,~~6, 2023, the registrant had ~~16,893,579~~17,435,958 shares of common stock outstanding.

LIGAND PHARMACEUTICALS INCORPORATED


GLOSSARY OF TERMS AND ABBREVIATIONS
Abbreviation			Definition
~~2021~~2022 Annual Report			Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, filed with the SEC on February 28, ~~2022~~2023
2023 Notes			$750.0 million aggregate principal amount of convertible senior unsecured notes due 2023
APAC			Avista Public Acquisition Corp. II ~~(after~~(prior to its domestication in Delaware ~~known as~~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
~~Crystal~~			~~Crystal Bioscience, Inc.~~
CyDex			CyDex Pharmaceuticals, Inc.
~~EMA~~			~~European Medicines Agency~~
ESPP			Employee Stock Purchase Plan, as amended and restated
FASB			Financial Accounting Standards Board
GAAP			Generally accepted accounting principles in the United States
~~Icagen~~			~~Icagen, LLC~~
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
Pfenex			Pfenex Inc.
~~Q3 2021~~			~~The Company's fiscal quarter ended September 30, 2021~~
Q3 2022			The Company's fiscal quarter ended September 30, 2022
Q3 2023			The Company's fiscal quarter ended September 30, 2023
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.
~~xCella~~			~~xCella Biosciences, Inc.~~
YTD			Year-to-date

PART I - FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

LIGAND PHARMACEUTICALS INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)


		September 30, 2022		December 31, 2021			September 30, 2023		December 31, 2022
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	4,116	$	19,522	Cash and cash equivalents	$	19,275	$	45,006
Short-term investments	Short-term investments	117,291		321,586		Short-term investments	171,227		166,864
Accounts receivable, net	Accounts receivable, net	65,168		85,453		Accounts receivable, net	36,003		30,424
Inventory	Inventory	22,326		27,326		Inventory	25,392		13,294
Income taxes receivable	Income taxes receivable	785		6,193		Income taxes receivable	—		4,614
Other current assets	Other current assets	10,746		4,671		Other current assets	2,097		3,399
Total current assets	Total current assets	220,432		464,751		Total current assets	253,994		263,601
Deferred income taxes, net	Deferred income taxes, net	35,500		34,482		Deferred income taxes, net	8,530		8,530
Intangible assets, net	Intangible assets, net	517,025		551,040		Intangible assets, net	314,843		342,455
Goodwill	Goodwill	181,206		181,206		Goodwill	103,770		105,673
Commercial license rights, net	Commercial license rights, net	10,193		10,110		Commercial license rights, net	6,602		10,182
Property and equipment, net	Property and equipment, net	33,418		20,511		Property and equipment, net	16,178		12,482
Operating lease right-of-use assets	Operating lease right-of-use assets	32,108		16,542		Operating lease right-of-use assets	6,235		10,914
Financing lease right-of-use assets	Financing lease right-of-use assets	14,444		16,207		Financing lease right-of-use assets	3,566		4,095
Equity method investment in Primrose Bio						Equity method investment in Primrose Bio	13,985		—
Equity securities in Primrose Bio						Equity securities in Primrose Bio	33,097		—
Other assets	Other assets	6,279		2,741		Other assets	8,426		4,736
Total assets	Total assets	$	1,050,605	$	1,297,590	Total assets	$	769,226	$	762,668
LIABILITIES AND STOCKHOLDERS' EQUITY	LIABILITIES AND STOCKHOLDERS' EQUITY					LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	15,887	$	8,403	Accounts payable	$	2,475	$	5,307
Accrued liabilities	Accrued liabilities	19,338		17,579		Accrued liabilities	10,635		15,681
Income taxes payable	Income taxes payable	9,703		—		Income taxes payable	1,204		—
Current contingent liabilities		1,773		2,588
Deferred revenue		9,547		10,996
Current operating lease liabilities	Current operating lease liabilities	2,345		2,053		Current operating lease liabilities	497		670
Current financing lease liabilities		48		46
2023 convertible senior notes, net	2023 convertible senior notes, net	76,600		—		2023 convertible senior notes, net	—		76,695
Other current liabilities						Other current liabilities	916		457

Total current liabilities	Total current liabilities	135,241		41,665		Total current liabilities	15,727		98,810
2023 convertible senior notes, net		—		320,717
Long-term contingent liabilities	Long-term contingent liabilities	6,855		8,483		Long-term contingent liabilities	3,515		3,456
Deferred income taxes, net	Deferred income taxes, net	29,832		59,095		Deferred income taxes, net	32,586		30,615
Long-term operating lease liabilities	Long-term operating lease liabilities	34,893		15,494		Long-term operating lease liabilities	5,832		10,336
Long-term deferred revenue		5,537		9,270

Other long-term liabilities	Other long-term liabilities	21,949		21,707		Other long-term liabilities	43,670		21,966

Total liabilities	Total liabilities	234,307		476,431		Total liabilities	101,330		165,183
Commitments and contingencies	Commitments and contingencies					Commitments and contingencies
Stockholders' equity:	Stockholders' equity:					Stockholders' equity:
Preferred stock, $0.001 par value; 5,000 shares authorized; zero issued and outstanding at September 30, 2022 and December 31, 2021		—		—
Common stock, $0.001 par value; 60,000 shares authorized; 16,894 and 16,767 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively		17		17
Preferred stock, $0.001 par value; 5,000 shares authorized; zero issued and outstanding at September 30, 2023 and December 31, 2022						Preferred stock, $0.001 par value; 5,000 shares authorized; zero issued and outstanding at September 30, 2023 and December 31, 2022	—		—
Common stock, $0.001 par value; 60,000 shares authorized; 17,421 and 16,951 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively						Common stock, $0.001 par value; 60,000 shares authorized; 17,421 and 16,951 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively	18		17
Additional paid-in capital	Additional paid-in capital	348,994		372,969		Additional paid-in capital	183,994		147,590
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(1,060)		(917)		Accumulated other comprehensive loss	(944)		(984)
Retained earnings	Retained earnings	468,347		449,090		Retained earnings	484,828		450,862
Total stockholders' equity	Total stockholders' equity	816,298		821,159		Total stockholders' equity	667,896		597,485
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	1,050,605	$	1,297,590	Total liabilities and stockholders' equity	$	769,226	$	762,668

LIGAND PHARMACEUTICALS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)


		Three months ended				Nine months ended					Three months ended				Nine months ended
		September 30,				September 30,					September 30,				September 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Revenues:	Revenues:									Revenues:
Royalties	Royalties	$	19,837	$	15,648	$	51,491	$	31,376	Royalties	$	23,863	$	19,255	$	61,447	$	50,507
Captisol	Captisol	35,949		35,093		77,616		128,875		Captisol	8,608		35,949		24,450		77,616
Contract revenue	Contract revenue	10,302		14,094		40,093		44,409		Contract revenue	397		4,017		17,316		17,740
Total revenues	Total revenues	66,088		64,835		169,200		204,660		Total revenues	32,868		59,221		103,213		145,863
Operating costs and expenses:	Operating costs and expenses:									Operating costs and expenses:
Cost of Captisol	Cost of Captisol	14,153		11,446		31,213		50,192		Cost of Captisol	3,485		14,153		8,871		31,213
Amortization of intangibles	Amortization of intangibles	11,818		11,827		35,455		35,391		Amortization of intangibles	8,238		8,568		25,316		25,698
Research and development	Research and development	22,036		16,938		61,461		50,769		Research and development	5,532		9,239		19,049		26,885
General and administrative	General and administrative	17,445		12,718		50,210		39,747		General and administrative	14,656		14,920		36,798		38,931
Other operating income		—		(3,800)		—		(37,600)
Total operating costs and expenses	Total operating costs and expenses	65,452		49,129		178,339		138,499		Total operating costs and expenses	31,911		46,880		90,034		122,727
Income (loss) from operations		636		15,706		(9,139)		66,161
Gain on sale of Pelican										Gain on sale of Pelican	(2,121)		—		(2,121)		—
Operating income from continuing operations										Operating income from continuing operations	3,078		12,341		15,300		23,136
Other income (expense):	Other income (expense):									Other income (expense):
Gain (loss) from short-term investments	Gain (loss) from short-term investments	(923)		1,937		(15,709)		8,135		Gain (loss) from short-term investments	(13,184)		(923)		30,340		(15,709)
Interest income	Interest income	591		169		1,023		698		Interest income	2,263		591		6,018		1,023
Interest expense	Interest expense	(332)		(4,439)		(1,559)		(15,154)		Interest expense	(1)		(332)		(525)		(1,559)
Other income (expense), net		885		1,886		5,465		(5,516)
Total other expense, net		221		(447)		(10,780)		(11,837)
Income (loss) before income taxes		857		15,259		(19,919)		54,324
Other (loss) income, net										Other (loss) income, net	(4,300)		677		(4,570)		4,980
Total other income (expense), net										Total other income (expense), net	(15,222)		13		31,263		(11,265)
Income (loss) before income taxes from continuing operations										Income (loss) before income taxes from continuing operations	(12,144)		12,354		46,563		11,871
Income tax benefit (expense)	Income tax benefit (expense)	(453)		(1,536)		4,043		8,230		Income tax benefit (expense)	1,871		(2,709)		(10,932)		(2,556)
Net income (loss) from continuing operations										Net income (loss) from continuing operations	(10,273)		9,645		35,631		9,315
Net loss from discontinued operations										Net loss from discontinued operations	—		(9,241)		(1,665)		(25,191)
Net income (loss)	Net income (loss)	$	404	$	13,723	$	(15,876)	$	62,554	Net income (loss)	$	(10,273)	$	404	$	33,966	$	(15,876)

Basic net income from continuing operations per share										Basic net income from continuing operations per share	$	(0.59)	$	0.57	$	2.07	$	0.55
Basic net loss from discontinued operations per share										Basic net loss from discontinued operations per share	$	—	$	(0.55)	$	(0.10)	$	(1.49)
Basic net income (loss) per share	Basic net income (loss) per share	$	0.02	$	0.82	$	(0.94)	$	3.77	Basic net income (loss) per share	$	(0.59)	$	0.02	$	1.97	$	(0.94)
Shares used in basic per share calculations		16,888		16,688		16,860		16,595
Shares used in basic per share calculation										Shares used in basic per share calculation	17,380		16,888		17,241		16,860

Diluted net income from continuing operations per share										Diluted net income from continuing operations per share	$	(0.59)	$	0.56	$	2.00	$	0.54
Diluted net loss from discontinued operations per share										Diluted net loss from discontinued operations per share	$	—	$	(0.54)	(0.09)		$	(1.47)
Diluted net income (loss) per share	Diluted net income (loss) per share	$	0.02	$	0.80	$	(0.94)	$	3.64	Diluted net income (loss) per share	$	(0.59)	$	0.02	1.91		$	(0.93)
Shares used in diluted per share calculations		17,132		17,142		16,860		17,187
Shares used in diluted per share calculation										Shares used in diluted per share calculation	17,380		17,132		17,784		17,128

LIGAND PHARMACEUTICALS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

LIGAND PHARMACEUTICALS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

LIGAND PHARMACEUTICALS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)
Nine months ended
September 30,
2022 2021
Cash flows from operating activities:
Net (loss) income $ (15,876) $ 62,554
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Change in estimated fair value of contingent liabilities (1,378) (39,377)
Depreciation and amortization of intangible assets 40,399 37,902
Amortization of premium on investments, net 75 145
Amortization of debt discount and issuance fees 639 12,863
Amortization of commercial license rights (163) 96
Loss (gain) on debt extinguishment (4,192) 7,303
Share-based compensation 31,140 28,375
Deferred income taxes (25,570) (8,229)
Loss (gain) from short-term investments 15,709 (8,135)
Lease amortization expense 4,535 3,349
Other (45) 658
Changes in operating assets and liabilities:
     Accounts receivable, net 20,550 (8,838)
     Inventory 10,702 (3,103)
     Accounts payable and accrued liabilities (405) (3,635)
     Income tax receivable and payable 15,111 (4,167)
     Deferred revenue (5,182) (20,696)
     Other assets and liabilities (1,671) (5,909)
                Net cash provided by operating activities 84,378 51,156
Cash flows from investing activities:
Purchase of short-term investments (39,052) (116,898)
Proceeds from sale of short-term investments 202,552 152,465
Proceeds from maturity of short-term investments 24,830 37,100
Cash paid for equity method investment (750) —
Purchase of property and equipment (15,792) (6,566)
Payments to CVR Holders (960) —
Other 80 135
               Net cash provided by investing activities 170,908 66,236
Cash flows from financing activities:
Repurchase of 2023 Notes (260,949) (155,760)
Payments under financing lease obligations (42) (9,188)
Proceeds from convertible bond hedge settlement 202 18,938
Payments to convertible bond holders for warrant purchases — (18,446)
Net proceeds from stock option exercises and ESPP 1,831 29,484
Taxes paid related to net share settlement of equity awards (6,018) (5,903)
Payments to CVR Holders (1,545) (1,050)
Payments for OmniAb transaction costs (4,171) —
               Net cash used in financing activities (270,692) (141,925)
Net decrease in cash, cash equivalents and restricted cash (15,406) (24,533)
Cash, cash equivalents and restricted cash at beginning of period 19,522 47,963
Cash, cash equivalents and restricted cash at end of period $ 4,116 $ 23,430
Supplemental disclosure of cash flow information:
Interest paid $ 1,139 $ 1,740
Taxes paid $ 6,630 $ 3,720
Supplemental schedule of non-cash activity:
Accrued fixed asset purchases $ 3,626 $ 557
Accrued inventory purchases $ 7,676 $ 4,968
Unrealized loss on AFS investments $ (143) $ (74)


	Nine months ended
	September 30,
	2023		2022
Cash flows from operating activities:
Net income (loss)	$	33,966	$	(15,876)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Change in estimated fair value of contingent liabilities	132		(1,378)
Depreciation and amortization of intangible assets	27,605		40,399
Amortization of premium on investments, net	(938)		75
Amortization of debt discount and issuance fees	159		639
Amortization of commercial license rights	(883)		(163)
CECL adjustment to commercial license rights	3,190		—
Impairment loss of commercial license rights	924		—
Gain on sale of Pelican	(2,121)		—
Gain on debt extinguishment	—		(4,192)
Share-based compensation	20,022		31,140
Deferred income taxes	6,761		(25,570)
(Gain) loss from short-term investments	(30,340)		15,709
Lease amortization expense	1,231		4,535
Other	215		(45)
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable, net	(5,436)		20,550
Inventory	(11,577)		10,702
Accounts payable and accrued liabilities	(7,461)		(405)
Income tax receivable and payable	5,818		15,111
Deferred revenue	226		(5,182)
Other current assets	918		(17)
Other assets and liabilities	(899)		(1,654)
Net cash provided by operating activities	41,512		84,378

Cash flows from investing activities:
Purchase of short-term investments	(107,262)		(39,052)
Proceeds from sale of short-term investments	96,318		202,552
Proceeds from maturity of short-term investments	37,941		24,830
Cash paid for equity method investment - Nucorion	—		(750)
Cash paid for investment in Primrose Bio	(15,235)		—
Cash paid for Novan acquisition, net of restricted cash received	(10,405)		—
Purchase of property and equipment	(3,104)		(15,792)
Payments to CVR Holders	—		(960)
Proceeds from commercial license rights	349		—

Other	—		80
Net cash (used in) provided by investing activities	(1,398)		170,908

Cash flows from financing activities:
Repayment at maturity/repurchase of 2023 Notes	(76,854)		(260,949)

Proceeds from convertible bond hedge settlement	—		202

Net proceeds from stock option exercises and ESPP	15,922		1,831
Taxes paid related to net share settlement of equity awards	(4,290)		(6,018)
Payments to CVR Holders	—		(1,545)
Payments for OmniAb transaction costs	—		(4,171)
Other	(40)		(42)
Net cash used in financing activities	(65,262)		(270,692)
Net decrease in cash, cash equivalents and restricted cash	(25,148)		(15,406)
Cash, cash equivalents and restricted cash at beginning of period	45,006		19,522
Cash, cash equivalents and restricted cash at end of period	$	19,858	$	4,116


Supplemental disclosure of cash flow information:
Interest paid	$	288	$	1,139
Taxes paid	$	10	$	6,630
Restricted cash in other assets	$	583	$	—
Acquisition:
Fair value of tangible assets acquired, net of cash and restricted cash received	$	17,101	—
Goodwill	2,229		—
Intangible assets	17,600		—
Liabilities assumed	(26,525)		—
Net cash paid for Novan	$	10,405	—

Supplemental schedule of non-cash activity:



Accrued Primrose transaction costs	$	1,013	$	—
Accrued fixed asset purchases	$	409	$	3,626
Accrued inventory purchases	$	521	$	7,676

Unrealized gain (loss) on AFS investments, net of tax	$	40	$	(143)

See accompanying notes to unaudited condensed consolidated financial statements.

LIGAND PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

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

On November 1, 2022, we completed the separation (the “Separation”) of our antibody discovery business and certain related assets and liabilities (the “OmniAb Business”) through a spin-off of OmniAb to Ligand’s shareholders of record as of October 26, 2022 on a pro rata basis (the “Distribution”) and merger (the “Merger”) of OmniAb with a wholly owned subsidiary of a separate public company, OmniAb, Inc. (formerly known as Avista Public Acquisition Corp. II (“New OmniAb”)), in a Reverse Morris Trust transaction pursuant to the Agreement and Plan of Merger, dated as of March 23, 2022 (the “Merger Agreement”), and the Separation and Distribution Agreement, dated as of March 23, 2022 (the “Separation Agreement”) (the Merger Agreement and Separation Agreement, collectively with the other related transaction documents, the “Transaction Agreements”). Pursuant to the Transaction Agreements, Ligand contributed to OmniAb cash and certain assets and liabilities constituting the OmniAb Business, including but not limited to the equity interests of Ab Initio Biotherapeutics, Inc., Crystal Bioscience, Inc., Icagen, LLC, Taurus Biosciences, LLC and xCella Biosciences, Inc.

After the spin-off of our OmniAb antibody discovery business, Ligand is a revenue-generating biopharmaceutical company focused on developing or acquiring technologies that help pharmaceutical companies discover and develop medicines. We operate in one business segment: development and licensing of biopharmaceutical assets.

Basis of Presentation

Our 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 ~~2021~~2022 Annual Report. Interim financial results are not necessarily indicative of the results that may be expected for the full year.

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 4, 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 ~~2021~~2022 Annual Report.

The preparation of condensed consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and the accompanying notes. Actual results may differ from those estimates.

~~Reclassifications~~

Certain amounts in the prior period condensed consolidated financial statements have been reclassified to conform with the current period presentation. Specifically, “long-term deferred revenue” has been added to the condensed consolidated balance sheet, separated from “other long-term liabilities” in our prior period presentation.

~~Accounting Standards Updates, Recently Adopted~~

~~In August 2020, the FASB issued ASU 2020-06,~~ Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). The guidance simplifies the complexity associated with applying U.S. GAAP for certain financial instruments with characteristics of liabilities and equity. More specifically, the amendments focus on the guidance for convertible instruments and derivative scope exception for contracts in an entity’s own equity. Consequently, a convertible debt instrument, such as the Company’s 2023 Notes, will be accounted for as a single liability measured at its amortized cost, if no other features require bifurcation and recognition as derivatives. The new guidance also requires the if-converted method to be applied for all convertible instruments and requires additional disclosures. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

We adopted this guidance effective January 1, 2022 under the modified retrospective approach and the comparative information has not been restated and continues to be presented according to accounting standards in effect for those periods. The cumulative effect of the change was recognized as an adjustment to the opening balance of retained earnings at the date of adoption and our 2023 Notes are no longer bifurcated into separate liability and equity components. The principal amount of the 2023 Notes is classified as a single liability measured at amortized cost in the condensed consolidated balance sheet for the period ended September 30, 2022. Upon adoption of ASU 2020-06 on January 1 2022, we recorded an adjustment to the 2023 Notes liability component, deferred tax liabilities, additional paid-in-capital and retained earnings. This adjustment was calculated based on the carrying amount of the 2023 Notes as if it had always been treated as a single liability measured at amortized cost. Furthermore, we recorded an adjustment to the debt issuance costs contra liability and equity (additional paid-in-capital) components under the same premise, as if debt issuance costs had always been treated as a contra liability only. Under this transition method, the cumulative effect of the accounting change increased the carrying amount of the 2023 Notes by $20.4 million, reduced deferred tax liabilities by $4.4 million, reduced additional paid-in capital by $51.1 million and increased retained earnings by $35.1 million. The net balance of the 2023 Notes at January 1, 2022 was $341.1 million which included an unamortized discount of $2.2 million.

Our revenue is generated primarily from royalties on sales of products commercialized by our partners, Captisol material sales, and contract revenue for services, license fees and development, regulatory and sales based milestone payments.

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.

We receive royalty revenue 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 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.

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.

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.

Depending on the terms of the arrangement, we may also defer a portion of the consideration received if we have to satisfy a future obligation, which typically occurs with our contracts for R&D services.

~~For~~ In general, for R&D services, which has not been significant, we recognize revenue over time and we measure our progress using an input method. The input methods we use are based on the effort we expend or costs we incur toward the satisfaction of our performance obligation. We estimate the amount of effort we expend, including the time it will take us to complete the activities, or the costs we may incur in a given period, relative to the estimated total effort or costs to satisfy the performance obligation. This results in a percentage that we multiply by the transaction price to determine the amount of revenue we recognize each period. This approach requires us to make numerous estimates and use significant judgement. If our estimates or judgements change over the course of the collaboration, they may affect the timing and amount of revenue that we recognize in the current and future periods.

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.

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. Therefore, we do not generally carry any contract asset balance. Any fees billed in advance of being earned are recorded as deferred ~~revenue. During the three months ended September 30, 2022 and 2021, the amount recognized as~~ revenue, that was previously deferred was $4.1 million, and $7.7 million, respectively. During the nine months ended September 30, 2022 and 2021, the amount recognized as revenue that was previously deferred was $8.8 million, and $22.8 million, respectively.

which has not been significant.

Disaggregation of Revenue

The following table represents disaggregation of royalties, Captisol and contract revenue (in thousands):

Three months ended Nine months ended
September 30, September 30,
2022 2021 2022 2021
Royalties
Kyprolis $ 9,123 $ 8,821 $ 20,872 $ 18,548
Evomela 3,123 2,665 8,218 7,191
Teriparatide injection 4,071 2,567 12,484 2,831
Rylaze 2,099 600 6,065 600
Other 1,421 995 3,852 2,206
$ 19,837 $ 15,648 $ 51,491 $ 31,376
Captisol
Captisol - Core $ 3,582 $ 5,374 $ 13,133 $ 16,310
Captisol - COVID(1)
32,367 29,719 64,483 112,565
$ 35,949 $ 35,093 $ 77,616 $ 128,875
Contract revenue
Service Revenue $ 4,975 $ 4,828 $ 15,574 $ 17,650
License Fees 460 200 5,154 2,293
Milestone 3,658 7,419 14,022 19,436
Other 1,209 1,647 5,343 5,030
$ 10,302 $ 14,094 $ 40,093 $ 44,409
Total $ 66,088 $ 64,835 $ 169,200 $ 204,660


	Three months ended				Nine months ended
	September 30,				September 30,
	2023		2022		2023		2022
Royalties
Kyprolis	$	10,537	$	9,123	$	24,862	$	20,872
Evomela	2,497		3,123		7,404		8,218
Teriparatide injection	2,800		4,071		9,913		12,484
Rylaze	3,678		2,099		9,315		6,065
Other	4,351		839		9,953		2,868
	$	23,863	$	19,255	$	61,447	$	50,507

Captisol
Captisol - Core	$	8,608	$	3,582	$	24,450	$	13,133
Captisol - COVID(1)	—		32,367		—		64,483
	$	8,608	$	35,949	$	24,450	$	77,616

Contract revenue
Service revenue	263		90		534		1,047

Milestone	—		2,658		15,300		8,651
Other	134		1,269		1,482		8,042
	$	397	$	4,017	$	17,316	$	17,740
Total	$	32,868	$	59,221	$	103,213	$	145,863

(1) Captisol - COVID represents revenue on Captisol supplied for use in formulation with remdesivir, an antiviral treatment for COVID-19.

Short-term Investments

Our short-term investments consist of the following at September 30, ~~2022~~2023 and December 31, ~~2021~~2022 (in thousands):


		Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
September 30, 2022
September 30, 2023										September 30, 2023	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Bank deposits	Bank deposits	$	2,506	$	—	$	(53)	$	2,453	Bank deposits	$	28,972	$	11	$	(11)	$	28,972
Bond fund										Bond fund	84,811		—		(808)		84,003
Commercial paper										Commercial paper	18,935		—		(4)		18,931
Corporate bonds	Corporate bonds	4,887		—		(107)		4,780		Corporate bonds	8,077		1		(35)		8,043
Corporate equity securities										Corporate equity securities	5,775		—		(4,903)		872

Corporate equity securities		5,807		312		(3,615)		2,504
Mutual fund		88,115		—		(1,203)		86,912
Municipal bonds										Municipal bonds	1,027		—		(6)		1,021
US government securities	US government securities	2,229		—		(84)		2,145		US government securities	4,702		—		(19)		4,683
Warrants	Warrants	—		232		—		232		Warrants	—		22		—		22
		$	103,544	$	544	$	(5,062)	$	99,026		$	152,299	$	34	$	(5,786)	$	146,547
Viking common stock	Viking common stock							18,265		Viking common stock							24,680
Total short-term investments	Total short-term investments							$	117,291	Total short-term investments							$	171,227

December 31, 2021
December 31, 2022										December 31, 2022
Bank deposits	Bank deposits	$	63,389	$	13	$	(21)	$	63,381	Bank deposits	$	5,012	$	2	$	(34)	$	4,980
Bond fund										Bond fund	81,815		—		(1050)		80,765
Commercial paper										Commercial paper	7,211		3		—		7,214
Corporate bonds	Corporate bonds	29,308		17		(38)		29,287		Corporate bonds	6,701		13		(58)		6,656

Commercial paper		36,008		2		(12)		35,998
Corporate equity securities	Corporate equity securities	5,807		402		(2,027)		4,182		Corporate equity securities	5,807		262		(4,239)		1,830
Mutual fund		152,136		—		(249)		151,887
U.S. government securities	U.S. government securities	5,577		—		(23)		5,554		U.S. government securities	2,232		—		(70)		2,162
Warrants	Warrants	—		408		—		408		Warrants	—		135		—		135
		$	292,225	$	842	$	(2,370)	$	290,697		$	108,778	$	415	$	(5,451)	$	103,742
Viking common stock	Viking common stock							30,889		Viking common stock							63,122
Total short-term investments	Total short-term investments							$	321,586	Total short-term investments							$	166,864

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, ~~2022.~~

The following table summarizes our available-for-sale debt securities by contractual maturity (in thousands):

Our investment policy is capital preservation and we only invest in U.S.-dollar denominated investments. We held a total of ~~8 positions~~48 investments which were in an unrealized loss position with a total of $0.1 million unrealized losses as of September 30, ~~2022.~~2023. 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. 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. Accordingly, no credit losses were recognized for the three and nine months ended September 30, ~~2022.~~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, ~~2022,~~2023, we considered the current and expected future economic and market conditions ~~including, but not limited to, the anticipated unfavorable impacts~~and concluded an increase of ~~the COVID-19 pandemic on our business and recorded an adjustment of $(0.1)~~$0.1 million and ~~$(0.3)~~an increase of $0.1 million of allowance for credit losses, ~~respectively, as of September 30, 2022.~~

Inventory, which consists of finished goods, is stated at the lower of cost or net realizable value. We determine cost using the ~~first-in, first-out method or 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 were no write-downs ~~related to obsolete~~recorded against inventory ~~recorded~~ for the three and nine months ended September 30, ~~2022~~2023 and ~~2021. As~~2022. In addition to finished goods, as of September 30, 2023 inventory consists of Captisol prepayments of $4.7 million, and as of December 31, 2022 inventory consists of Captisol prepayments of ~~$7.4 million, and as of December 31, 2021 inventory consists of Captisol prepayments of $24.6~~$5.9 million.

Goodwill and Other Identifiable Intangible Assets

Goodwill and other identifiable intangible assets consist of the following (in thousands):

Prior to 2022, we only had one reporting unit and reportable segment. In connection with the announcement in March 2022 of our intention to separate the OmniAb business pursuant to a distribution to Ligand’s stockholders of Ligand’s shares in OmniAb followed by a merger with APAC, management concluded that we had two reporting units and reportable segments - the OmniAb business and the Ligand core business. See Note 2, ~~Segment Information~~, for additional information. We performed a fair value analysis utilizing a combination of income approach and market approach to determine the fair value of each segment in order to appropriately allocate the goodwill between the segments as of the announcement date. The following table presents our allocation of goodwill balance by segment (in thousands):


	~~Fair Value~~
~~Goodwill~~
~~Ligand core business~~	$	~~105,673~~
~~OmniAb business~~	~~75,533~~
	$	~~181,206~~

Commercial License Rights

Commercial license rights consist of the following (in thousands):


		September 30, 2022						December 31, 2021							September 30, 2023						December 31, 2022
		Gross		Adjustments(1)		Net		Gross		Adjustments(2)		Net			Gross		Adjustments(1)		Net		Gross		Adjustments(2)		Net
Aziyo and CorMatrix		$	17,696	$	(9,455)	$	8,241	$	17,696	$	(9,461)	$	8,235
Elutia and CorMatrix														Elutia and CorMatrix	$	17,696	$	(11,881)	$	5,815	$	17,696	$	(9,538)	$	8,158
Selexis and Dianomi	Selexis and Dianomi	10,602		(8,650)		1,952		10,602		(8,727)		1,875		Selexis and Dianomi	10,602		(9,815)		787		10,602		(8,578)		2,024
Total	Total	$	28,298	$	(18,105)	$	10,193	$	28,298	$	(18,188)	$	10,110	Total	$	28,298	$	(21,696)	$	6,602	$	28,298	$	(18,116)	$	10,182

(1) Amounts represent accumulated amortization to principal of $11.1 million, credit loss adjustments of $9.7 million and impairment of $0.9 million as of September 30, 2023.

(2) Amounts represent accumulated amortization to principal of $11.6 million and credit loss adjustments of $6.5 million as of ~~September 30, 2022.~~

~~(2) Amounts represent accumulated amortization to principal of $11.7 million and credit loss adjustments of $6.5 million as of~~ December 31, ~~2021.~~2022.

Commercial license rights represent a portfolio of future milestone and royalty payment rights acquired from Selexis, S.A. (Selexis) in April 2013 and April 2015, CorMatrix Cardiovascular, Inc. (CorMatrix) in May 2016, which was later acquired by Aziyo (Aziyo changed its corporate name to Elutia Inc. ("Elutia") in September 2023) in 2017, and Dianomi Therapeutics, Inc. in January 2019. Commercial license rights acquired are accounted for as financial assets in accordance with ASC 310, Receivables, as further discussed in Note 1, Basis of Presentation and Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements in our ~~2021~~2022 Annual Report.

We estimated the credit losses at the individual asset level by considering the performance against the programs, the company operating performance and the macroeconomic forecast. In addition, we have judgmentally applied credit loss risk factors to the future expected payments with consideration given to the timing of the payment. Given the higher inherent credit risk associated with longer term receivables, we applied a lower risk factor to the earlier years and progressively higher risk factors to the later years. During the three and nine months ended September 30, ~~2022,~~2023, we further considered the current and expected future economic and market conditions ~~surrounding the novel coronavirus (COVID-19) pandemic~~ and ~~concluded no further~~recorded a $3.2 million credit loss adjustment ~~was needed~~to Elutia commercial license rights based on the ~~allowance for credit losses as~~assessment of current company performance and nonpayment by Elutia in recent quarters. Management is in process of modifying the payment terms with Elutia and has placed the loan on the non-accrual method during the three months ended September 30, ~~2022.~~2023, instead of the effective interest method until we are able to reliably estimate future cash flows. During the three months ended September 30, 2023 we did not recognized revenue related to the Elutia commercial license right. During the nine months ended September 30, 2023 we recognized $0.8 million of revenue related to the Elutia commercial license right.

In addition, we recorded a $0.9 million impairment loss for Selexis commercial license rights during the three and nine months ended September 30, 2023 as a result of recently reduced programs.

Accrued liabilities consist of the following (in thousands):
September 30, December 31,
2022 2021
Compensation $ 6,229 $ 6,532
Professional fees 2,848 2,046
Amounts owed to former licensees 4,042 630
Return reserve — 2,420
Acquisition related liabilities — 1,000
Subcontractor 1,756 1,759
Other 4,463 3,192
Total accrued liabilities $ 19,338 $ 17,579


	September 30,		December 31,
	2023		2022
Compensation	$	2,890	$	6,201
Subcontractor	1,966		1,756
Professional fees	3,229		662
Customer deposit	621		621
Supplier	303		634
Royalties owed to third parties	—		12
Amounts owed to former licensees	45		3,989



Other	1,581		1,806
Total accrued liabilities	$	10,635	$	15,681

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,
	2023		2022(a)		2023		2022(a)
SBC - Research and development expenses	$	1,639	$	3,277	$	5,362	$	7,920
SBC - General and administrative expenses	5,245		5,830		14,660		15,297
	$	6,884	$	9,107	$	20,022	$	23,217

Three months ended Nine months ended
September 30, September 30,
2022 2021 2022 2021
SBC - Research and development expenses $ 6,104 $ 4,480 $ 14,519 $ 12,975
SBC - General and administrative expenses 6,493 5,274 16,621 15,400
$ 12,597 $ 9,754 $ 31,140 $ 28,375

(a) Prior period amounts have been retrospectively adjusted to reflect the effects of the Separation.

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,
	2023	2022	2023	2022
Risk-free interest rate	4.3%	2.8%	4.1%	2.9%
Dividend yield	—	—	—	—
Expected volatility	44.7%	50.0%	51.5%	50.0%
Expected term (years)	5.2	4.9	5.3	4.8

Three months ended Nine months ended
September 30, September 30,
2022 2021 2022 2021
Risk-free interest rate 2.8% 0.8% 2.9% 0.5%
Dividend yield — — — —
Expected volatility 50% 48% 50% 61%
Expected term (years) 4.9 4.9 4.8 5.0

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~~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 Income (Loss) ~~Income~~ Per Share

Basic net income (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. ~~The~~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.~~price during the nine months ended September 30, 2023. It iswas our intent and policy to settle conversions through combination settlement, which ~~involves~~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. See Note ~~4, Convertible Senior Notes~~6, Debt and Note 6,8, 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):

For the three months ended September 30, ~~2022, 0.6 million of potentially dilutive shares in connection with the adoption of ASU 2020-06 were anti-dilutive. Under the new standard, we are required to reflect the dilutive effect of the~~ 2023, ~~Notes by application of the if-converted method.~~

~~For the nine months ended September 30, 2022,~~ due to the net loss for the period, all of the 0.3 million weighted average equity awards were anti-dilutive.

2. Sale of Pelican Business and ~~1.1 million~~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 ~~potentially dilutive~~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, ~~in connection~~4,278,293 preferred shares and 474,746 restricted shares of Primrose Bio. Simultaneous with the ~~adoption~~merger, we entered into a Purchase and Sale Agreement with Primrose Bio and contributed $15.0 million in exchange for 50.0% of ~~ASU 2020-06~~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 $3.0 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.

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 ~~anti-dilutive.~~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
Financing 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 $3.0 million and 35% of all PeliCRM197 licensing revenue in perpetuity. The considerations were recognized as contingent consideration 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 50.0% 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 under other long-term asset 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 are recorded at fair value as of September 18, 2023, and will be marketed to fair value at each reporting period going forward.

Investment in Primrose Bio

We received 2,146,957 common shares, 4,278,293 preferred shares and 474,746 restricted shares of Primrose Bio in consideration for the sale of Pelican. We apply the equity method to investments in common stock and to other investments in entities that have risk and reward characteristics that are substantially similar to an investment in the investee’s common stock. Since the preferred stock and restricted share investment in Primrose Bio has a substantive liquidation preference, it is not substantially similar to the common stock investment and is therefore recorded as an equity security under ASC 321, Investments - Equity Securities.

We account for our common stock investment in Primrose Bio under the equity method as we have the ability to exercise significant influence over its operating and financial results. In applying the equity method, we record the investment at fair value. Ligand's proportionate share of net loss of Primrose Bio is recorded in our condensed consolidated statements of operations for the three and nine months ended September 30, 2023. 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. Our share of the net losses of Primrose Bio since the divestiture date for the quarter ended September 30, 2023 was $0.07 million; which reduced Ligand's equity method investment accordingly.

We determined that the Series A preferred 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. There have been no observable price changes or impairments identified since September 18, 2023.

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 will be sold to other parties. 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 acquisition was accounted for as business combination. We recorded $3.3 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 nine months ended September 30, 2023.

The following table sets forth an allocation of the preliminary purchase price to the identifiable tangible and intangible assets acquired and liabilities assumed, with the excess recorded to goodwill (in thousands):

~~2. Segment Information~~


Restricted Cash	$	583
Property and equipment, net	13,054
Right-of-use asset	3,683
Other assets	364
Intangible assets acquired	17,600
Goodwill	2,229
Deferred revenue	(2,342)
Lease liabilities	(3,683)
Other liabilities	(20,500)
Cash paid for Novan, including restricted cash received	10,988
DIP loan fees and interest	1,162
Total consideration	$	12,150

~~ASC 280,~~ ~~Segment reporting, establishes annual~~Acquired intangible assets of $17.6 million 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 ~~interim reporting standards~~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 $20.5 million 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 9.6% (our estimated rate of borrowing).

The estimated fair values of assets acquired, liabilities assumed and purchased intangibles are provisional. Specifically, the provisional amounts include estimated projections on the completion of the clinical development process and projected revenue related to commercializing products based on the underlying technology. The accounting for ~~an enterprise’s operating segments~~these amounts falls within the measurement period and, ~~related disclosures~~therefore, we may adjust these provisional amounts to reflect new information obtained about ~~its products, services, geographic areas~~facts and ~~major customers. An operating segment is defined~~circumstances that existed as ~~a component~~ of ~~an enterprise that engages in business activities from which it may earn revenue and incur expenses, and for which discrete financial information is regularly evaluated by~~ the ~~chief operating decision maker in deciding how to allocate resources and assess performance.~~acquisition date.

We are a biopharmaceutical company focused on developing or acquiring technologies that help pharmaceutical companies discover and develop medicines. Our operating segments are identified in the same manner as they are reported internally and used by our chief operating decision maker for the purpose

4. Spin-off of ~~evaluating performance and allocating resources. Historically, we have disclosed one reportable segment.~~ 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 ~~the~~Ligand's OmniAb Business, in a Reverse Morris Trust transaction (collectively, the “Transactions”). Immediately prior to the Merger and pursuant to the Separation Agreement, we, among other things, would transfer the OmniAb Business, including but not limited to the equity interests of Ab Initio Biotherapeutics, Inc., Crystal Bioscience, Inc., Icagen, LLC, Taurus Biosciences, LLC and xCella Biosciences, Inc. to OmniAb (the “Reorganization”) and, in connection therewith, would distribute (the “Distribution”) to Ligand stockholders 100% of the common stock of OmniAb. Immediately following the Distribution, Merger Sub would merge with and into OmniAb (the “Merger”), with OmniAb continuing as the surviving company in the Merger and as a wholly owned subsidiary of APAC. The entire transaction was completed on November 1, 2022. See Note 9, ~~Subsequent Event, for additional information.~~

In connection with the execution of the Merger Agreement, we made organizational changes to better align our organizational structure with our strategy and operations, and management ~~has~~ reorganized the reportable segments to better reflect how the business is evaluated by the chief operating decision maker. Beginning in the first quarter of 2022, we operated the following two reportable segments: (1) OmniAb ~~business~~Business and (2) Ligand core business. The OmniAb ~~business~~Business segment iswas focused on enabling the discovery of therapeutic candidates for our partners by pairing antibody repertoires generated from our proprietary transgenic animals with our OmniAb ~~business~~Business platform screening tools. The Ligand core business segment is a biopharmaceutical business focused on developing or acquiring technologies that help pharmaceutical companies deliver and develop medicines.

After the closing date of the Transactions on November 1, 2022, the historical financial results of OmniAb ~~will be~~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

~~Our chief operating decision maker relies~~surviving company in the Merger and as a wholly owned subsidiary of New OmniAb. The entire transaction was completed on ~~internal management reporting processes~~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 ~~provide~~was attributable to the discontinued operations. There was no revenue or expenses attributable to the discontinued operations during the three months ended September 30, 2023. The following table summarizes revenue and ~~operating income by reportable segment~~expenses of the discontinued operations for ~~making financial decisions~~the three and allocating resources. Segment operating income (loss) represents income (loss) before income taxes, interest income, interest expense, other income (expense), net, unallocated share-based compensation, and unallocated corporate overhead. Our management does not evaluate, manage or measure performance of segments using asset information; accordingly, asset information by segment is not prepared or disclosed.nine months ended September 30, 2022 (in thousands):


	Three months ended September 30, 2022		Nine months ended September 30, 2022
Revenues:
Royalties	$	582	$	984
Contract revenue	6,285		22,353
Total revenues	6,867		23,337
Operating costs and expenses:
Amortization of intangibles	3,250		9,757
Research and development	12,797		34,576
General and administrative	2,525		11,279
Total operating costs and expenses	18,572		55,612
Loss from operations	(11,705)		(32,275)
Other income (expense):
Other income (expense), net	208		485
Total other income (expense), net	208		485
Loss before income tax	(11,497)		(31,790)
Income tax (expense) benefit	2,256		6,599
Net loss	$	(9,241)	$	(25,191)

The following table ~~provides a reconciliation~~summarizes the significant non-cash items, capital expenditures of ~~revenue~~the discontinued operations, and ~~operating income by reportable segment to~~financing activities that are included in the consolidated ~~results and was derived from each segment’s internal financial information as used~~statements of cash flows for ~~corporate management purposes~~the nine months ended September 30, 2022 (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
OmniAb business revenue
  Royalties $ 582 $ — $ 984 $ —
  Contract 6,285 5,140 22,353 19,520
Total OmniAb business revenue 6,867 5,140 23,337 19,520
Ligand core business revenue
  Royalties 19,255 15,648 50,507 $ 31,376
  Captisol - Core 3,582 5,374 13,133 16,310
  Captisol - COVID 32,367 29,719 64,483 112,565
  Contract 4,017 8,954 17,740 24,889
Total Ligand core business revenue 59,221 59,695 145,863 185,140
     Total revenue $ 66,088 $ 64,835 $ 169,200 $ 204,660
Segment operating income (loss)
OmniAb business $ (11,721) $ (9,177) $ (26,905) $ (21,587)
Ligand core business 22,022 32,620 49,050 112,601
Total segment operating income 10,301 23,443 22,145 91,014
Unallocated corporate items
Shared-based compensation 6,462 5,811 17,255 16,429
Other corporate expenses 3,203 1,926 14,029 8,424
  Total unallocated corporate items 9,665 7,737 31,284 24,853
Income (loss) from operations $ 636 $ 15,706 $ (9,139) $ 66,161


	Nine months ended
	September 30, 2022
Operating activities:
Change in fair value of contingent consideration	$	(486)
Depreciation and amortization	12,070
Stock-based compensation expense	7,923

Investing activities:

Purchase of property, plant and equipment	(12,415)
Payments to CVR Holders	(960)

Financing activities:
Payments to CVR Holders	$	(1,545)

Supplemental cash flow disclosures:
Purchases of property, plant and equipment included in accounts payable and accrued expenses	$	3,458

3.5. 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, 2022 December 31, 2021
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Assets:
Short-term investments, excluding Viking(1)
$ 4,649 $ 94,145 $ 232 $ 99,026 $ 9,735 $ 280,553 $ 409 $ 290,697
Investment in Viking common stock 18,265 — — 18,265 30,889 — — 30,889
Total assets $ 22,914 $ 94,145 $ 232 $ 117,291 $ 40,624 $ 280,553 $ 409 $ 321,586
Liabilities:
CyDex contingent liabilities $ — $ — $ 308 $ 308 $ — $ — $ 349 $ 349
Metabasis contingent liabilities(2)
— 2,507 — 2,507 — 3,358 — 3,358
Icagen contingent liabilities(3)
— — 5,333 5,333 — — 7,364 7,364
xCella contingent liabilities(4)
— — 480 480 — — — —
Amounts owed to former licensor 73 — — 73 86 — — 86
Total liabilities $ 73 $ 2,507 $ 6,121 $ 8,701 $ 86 $ 3,358 $ 7,713 $ 11,157


	September 30, 2023								December 31, 2022
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Short-term investments, excluding Viking(1)	$	5,555	$	140,970	$	22	$	146,547	$	3,992	$	99,615	$	135	$	103,742
Investment in Viking common stock	24,680		—		—		24,680		63,122		—		—		63,122
Derivative assets(3)	—		—		3,281		3,281		—		—		—		—
Total assets	$	30,235	$	140,970	$	3,303	$	174,508	$	67,114	$	99,615	$	135	$	166,864
Liabilities:
CyDex contingent liabilities	$	—	$	—	$	164	$	164	$	—	$	—	$	84	$	84
Metabasis contingent liabilities(2)	—		3,431		—		3,431		—		3,429		—		3,429
Amounts owed to former licensor	—		—		—		—		44		—		—		44
Total liabilities	$	—	$	3,431	$	164	$	3,595	$	44	$	3,429	$	84	$	3,557

1.Excluding our investment in Viking, 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 ~~mutual~~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 have investment in warrants resulting from Seelos Therapeutics Inc. milestone payments that were settled in shares during the first quarter of 2019 and are at level 3 of the fair value hierarchy, based on Black-Scholes value estimated by management on the last day of the period.

2.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~~$375.0 million of development, regulatory and commercial milestones and tiered royalties on potential future sales including a ~~$10~~$10.0 million payment upon initiation of a Phase 3 clinical trial. During the three and nine months ended September 30, ~~2022,~~2023, we adjusted the balance of the Metabasis CVR liability by decreasing $0.1 million and ~~$(0.9)~~increasing $0.002 million to mark to market, respectively.

3.In connection with the Purchase and Sale Agreement with Primrose Bio, we will receive 50.0% of potential development milestones and certain commercial milestones from two contracts previously entered into by Primordial Genetics. The considerations were recognized as derivative assets included under other long-term asset 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 fair value of ~~Icagen contingent liabilities~~the derivative assets was determined using a ~~probability weighted income approach. Most~~discounted cash flow approach using a discount rate inline with the stages of the contingent payments are based on certain revenue milestones as defined in the asset purchase agreement with Icagen. The fair value is subjective and is affected by changes in inputs to the valuation model including management’s estimates regarding the timing and probability of achievement of certain developmental and regulatory milestones. Changes in these estimates may materially affect the fair value. During the nine months ended September 30, 2022, we paid $1.5 million contingent liability based on revenue milestones to former Icagen shareholders, respectively. During the three and nine months ended September 30, 2022, we adjusted the balance of the Icagen CVR liability $(0.2) million and $(0.5) million to mark to market, respectively.

4.The fair value of xCella contingent liabilities is determined when it is probable that the earnout liability will occur and the amount can be reasonably estimated. We concluded that no earnout liability would be recognized at the acquisition date in September 2020. During the three and nine months ended September 30, 2022, we paid $1.0 million contingent liabilities to former xCella shareholders. During the three and nine months ended September 30, 2022, we recorded $0.5 million and $1.4 million of earnout liability to be allocated to the cost of the acquired assets due to contingencies being met as part of the acquisition agreement, respectively.

underlying contracts.

A reconciliation of the level 3 ~~financial instruments~~liabilities as of September 30, ~~2022~~2023 is as follows (in thousands):


Fair value of level 3 financial instruments as of December 31, ~~2021~~2022	$	~~7,713~~84
Payments to CVR holders and other contingent payments	~~(2,505)~~(50)
Fair value adjustments to contingent liabilities	~~(527)~~130
~~Contingent liabilities from xCella asset acquisition~~	~~1,440~~
Fair value of level 3 financial instruments as of September 30, ~~2022~~2023	$	~~6,121~~164

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, indefinite-lived intangible assets and long-lived assets.

We evaluate goodwill and indefinite-lived intangible assets 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 determine the fair value of our indefinite-lived intangible assets using the income approach based on Level 3 inputs.

~~In connection with~~Other than a reduction in goodwill resulting from the ~~organizational changes to the Company’s reportable segments, we re-allocated goodwill between the two identified reporting units (OmniAb~~sale of Pelican business disclosed in Note 2, Sale of Pelican Business and ~~Ligand core business). We performed~~Investment in Primrose Bio, and a ~~goodwill~~$0.9 million impairment ~~analysis immediately before and after the allocation of goodwill and concluded no impairment. At September 30, 2022, there were no indicators of impairment at either~~loss for Selexis commercial license rights based on fair value of the ~~reporting units.~~

~~At September 30, 2022,~~program disclosed in Note 1, Basis of Presentation and Summary of Significant Accounting Policies, there ~~were~~was no ~~indicators of~~ impairment of our goodwill, indefinite-lived ~~intangible~~ assets, or long-lived ~~assets.~~assets recorded during the three and nine months ended September 30, 2023 and September 30, 2022.

~~4. Convertible Senior Notes~~

6. Debt

0.75% Convertible Senior Notes due 2023

In May 2018, we issued $750.0 million aggregate principal amount of 2023 Notes, bearing cash interest at a rate of 0.75% ~~convertible senior notes.~~per year, payable semi-annually. The net proceeds from the offering, after deducting the initial purchasers' discount and offering expenses, were approximately $733.1 million. The 2023 Notes will be convertible into cash, shares of common stock, or a combination of cash and shares of common stock, at our election, based on an initial conversion rate, subject to adjustment, of 4.0244 shares per $1,000 principal amount of the 2023 Notes which represents an initial conversion price of approximately $248.48 per share. The maximum conversion rate of the 2023 Notes is 5.2317 per $1,000 principal amount of the 2023 Notes which represents a maximum conversion price of approximately $191.14.

~~Holders of the 2023 Notes may convert the notes at any time prior to the close of business on the business day immediately preceding November 15, 2022, under any of the following circumstances:~~

(1) during any fiscal quarter (and only during such fiscal quarter) commencing after September 30, 2018, if, for at least 20 trading days (whether or not consecutive) during the 30 consecutive trading day period ending on the last trading day of the immediately preceding fiscal quarter, the last reported sale price of our common stock on such trading day is greater than 130% of the conversion price on such trading day;

(2) during the five business day period immediately following any 10 consecutive trading day period, in which the trading price per $1,000 principal amount of notes was less than 98% of the product of the last reported sale price of our common stock on such trading day and the conversion rate on each such trading day; or

~~(3) upon the occurrence of certain specified corporate events as specified in the indenture governing the notes (the“Indenture”).~~

~~In advance of the Distribution of the shares of common stock of OmniAb to Ligand’s shareholders on November 1, 2022, a notice of convertibility was delivered to the holders of the 2023 Notes.No holders exercised their right to convert their 2023 Notes during the applicable period for conversion.~~The conversion rate for the 2023 Notes will be adjusted in accordance with the requirements of the Indenture based on calculations determined with reference to a valuation period of the first 10 consecutive trading days after, and including, the ex-dvidend date of the spin-off (as determined in the Indenture).

The notes will have a dilutive effect to the extent the average market price per share of common stock for a given reporting period exceeds the conversion price of $248.48 (not accounting for the anticipated adjustment in the conversion rate). In connection with the issuance of the 2023 Notes, we incurred $16.9 million of issuance costs, which primarily consisted of underwriting, legal and other professional fees, and is being amortized to interest expense using the effective interest method over the five year expected life of the 2023 ~~Notes, and the~~Notes. The effective interest rate ~~as of September 30, 2022 is 0.5%. During~~for the ~~three~~nine months ended September 30, ~~2022 we recognized a total of $0.3 million in interest expense which includes $0.2 million in contractual interest expense and $0.1 million in amortized issuance costs.~~2023 is 0.5%. During the nine months ended September 30, ~~2022~~2023 we recognized a total of ~~$1.5~~$0.6 million in interest expense which includes ~~$0.9~~$0.4 million in contractual interest expense and ~~$0.6~~$0.2 million in amortized issuance costs.

It is our intent and policy to settle conversions through combination settlement, which essentially involves 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.

~~During 2021, we repurchased $152.0 million in principal of~~On May 15, 2023, the 2023 Notes ~~for $156.0~~maturity date, we paid the remaining $76.9 million ~~in cash, including~~principal amount and $0.3 million accrued interest ~~of $0.3 million. After the repurchases, approximately $343.3 million~~ in ~~principal amount of the 2023 Notes were outstanding as of December 31, 2021.~~

During the three months ended September 30, 2022, we repurchased $38.6 million in principal amount of the 2023 Notes for $37.7 million in cash, including accrued interest of $0.1 million. We accounted for the repurchase as a debt extinguishment, which resulted in a gain of $0.9 million reflected in other income (expense), net, in our condensed consolidated statement of operations for the three months ended September 30, 2022, and a $0.1 million reduction in debt discount.

During the nine months ended September 30, 2022, we repurchased $266.4 million in principal amount of the 2023 Notes for $261.4 million in cash, including accrued interest of $0.5 million. We accounted for the repurchase as a debt extinguishment, which resulted in a gain of $4.2 million reflected in other income (expense), net, in our condensed consolidated statement of operations for the nine months ended September 30, 2022, and a $1.3 million reduction in debt discount.

cash.

Convertible Bond Hedge and Warrant Transactions

In conjunction with the 2023 Notes, in May 2018, we entered into convertible bond hedges and sold warrants covering 3,018,327 shares of our common stock to minimize the impact of potential dilution to our common stock and/or offset the cash payments we ~~are~~were required to make in excess of the principal amount upon conversion of the 2023 Notes. The convertible bond hedges have an exercise price of ~~$248.48~~$206.65 per share and ~~are~~were exercisable when and if the 2023 Notes ~~are~~were converted. We paid $140.3 million for these convertible bond hedges. If upon conversion of the 2023 Notes, the price of our common stock ishad been above the exercise price of the convertible bond hedges, the counterparties ~~will deliver~~would have delivered shares of common stock and/or cash with an aggregate value approximately equal to the difference between the price of common stock at the conversion date and

the exercise price, multiplied by the number of shares of common stock related to the convertible bond hedge transaction being exercised. The convertible bond hedges and warrants described below are separate transactions entered into by us and are not part of the terms of the 2023 Notes. Holders of the 2023 Notes and warrants ~~will~~did not have any rights with respect to the convertible bond hedges.

Concurrently with the convertible bond hedge transactions, we entered into warrant transactions whereby we sold warrants covering approximately 3,018,327 shares of common stock with an exercise price of approximately $315.38 per share, subject to certain adjustments. We received $90.0 million for these warrants. The warrants have various expiration dates ranging from August 15, 2023 to February 6, 2024. The warrants will have a dilutive effect to the extent the market price per share of common stock exceeds the applicable exercise price of the warrants, as measured under the terms of the warrant transactions. The common stock issuable upon exercise of the warrants will be in unregistered shares, and we do not have the obligation and do not intend to file any registration statement with the SEC registering the issuance of the shares under the warrants.

In January 2021, in connection with the repurchases of approximately $20.3 million in principal of the 2023 Notes for approximately $19.1 million in cash, including accrued interest of $0.1 million, during the quarter ended December 31, 2020, we entered into amendments with Barclays Bank PLC, Deutsche Bank AG, London Branch, and Goldman Sachs & Co. LLC to the convertible note hedges transactions we initially entered into in connection with the issuance of the 2023 Notes. The amendments provide that the options under the convertible note hedges corresponding to such repurchased 2023 Notes will remain outstanding notwithstanding such repurchase.

During the year ended December 31, 2021, in connection with the repurchases of $152.0 million in principal of the 2023 Notes for $156.0 million in cash, including accrued interest of $0.3 million, we entered into Warrant Early Unwind Agreements and Bond Hedge Unwind Agreements with Barclays Bank PLC, Deutsche Bank AG, and Goldman Sachs & Co. LLC to unwind a portion of the convertible note hedges transactions we initially entered into in connection with the issuance of the 2023 Notes. We paid $18.4 million as part of the Warrant Early Unwind Agreements reducing the number of shares covered by the warrants from 3,018,327 to 2,559,254. We received $18.9 million as part of the Bond Hedge Early Unwind Agreements reducing the number of options under the convertible bond hedges to 598,021 as of December 31, 2021. These unwind transactions resulted in a $0.5 million net increase in additional paid-in-capital in our condensed consolidated balance sheet as of December 31, 2021.

In August 2022, in connection with the repurchases of $227.8 million in principal of the 2023 Notes for $223.7 million in cash, including accrued interest of $0.4 million made during the six months ended June 30, 2022, we entered into Bond Hedge Unwind Agreements with Barclays Bank PLC, Deutsche Bank AG, and Goldman Sachs & Co. LLC to unwind a portion of the convertible note hedges transactions we initially entered into in connection with the issuance of the 2023 Notes. We received $0.2 million as part of these Bond Hedge Early Unwind Agreements reducing the number of options under the convertible bond hedges to 370,219 as of September 30, 2022. This transaction resulted in a $0.2 million net increase in additional paid-in-capital in our condensed consolidated balance sheet as of September 30, 2022.

~~The following table summarizes information about the 2023 Notes (in thousands):~~
September 30, 2022
December 31, 2021(1)
Principal amount of the 2023 Notes outstanding $ 76,854 $ 343,301
Unamortized discount (including unamortized debt issuance cost) (254) (22,584)
Total long-term portion of notes payable $ 76,600 $ 320,717
Fair value of the 2023 Notes outstanding (Level 2) $ 74,395 $ 341,801

~~(1) - Balances as of December 31, 2021 reported before the adoption of ASU 2020-06.~~

5.7. 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 state jurisdictions with different statutory rates, 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 continuing operations for the three and nine months ended September 30, 2023 and 2022 was 15.4% and ~~2021 was 52.9% and 10.1%~~21.9%, and ~~20.3%~~23.5% and ~~(15.1)%~~21.5%, respectively. 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. The variance from the U.S. federal statutory tax rate of 21% for the three and nine months ended September 30, 2022 was primarily due ~~primarily~~ to the tax deductions related to foreign derived intangible income tax ~~credit~~benefit as well as the research and development tax credits, which were partially offset by Section 162(m) limitation ~~non-deductible ISO related stock compensation expense and recognition of non-refundable foreign taxes paid~~ during the period. The variance from the U.S. federal tax rate of 21% for the three and nine months ended September 30, 2021 was significantly impacted by tax benefits related to (1) a $3.8 million and $37.6 million Pfenex CVR adjustment recorded during the respective period, due to the lower probability of achieving the specific development and regulatory milestone by December 31, 2021 as defined by the Pfenex CVR, and (2) net excess tax windfalls from share-based compensation resulting from increased stock option exercise

~~activity.~~

6.8. 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 9, Stockholders’ Equity, of the Notes to Consolidated Financial Statements in our ~~2021~~2022 Annual Report.

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, 2021 2,199,598 $ 106.00 264,143 $ 138.21
Granted 852,475 $ 91.39 260,577 $ 89.99
Options exercised/RSUs vested (34,941) $ 38.56 (136,448) $ 120.77
Forfeited (36,529) $ 76.26 (2,059) $ 121.79
Balance as of September 30, 2022 2,980,603 $ 102.98 386,213 $ 111.93


	Stock Options			Restricted Stock Awards
	Shares	Weighted-Average Exercise Price		Shares	Weighted-Average Grant Date Fair Value
Balance as of December 31, 2022	2,991,473	$	61.31	348,453	$	75.60
Granted	518,332	$	73.21	203,752	$	83.39
Options exercised/RSUs vested	(362,926)	$	44.03	(169,854)	$	75.26
Forfeited	(338,742)	$	65.09	(15,980)	$	63.69
Balance as of September 30, 2023	2,808,137	$	65.29	366,371	$	80.61

As of September 30, ~~2022,~~2023, outstanding options to purchase ~~1.7~~1.8 million shares were exercisable with a weighted average exercise price per share of ~~$102.23.~~

$64.22.

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, ~~2022, 38,007~~2023, 32,363 shares were available for future purchases under the ESPP.

~~Share Repurchases~~

On September 11, 2019, our Board of Directors approved a stock repurchase program authorizing, but not obligating, the repurchase of up to $500.0 million of our common stock from time to time over the next three years. We expect to acquire shares primarily through open-market transactions and may enter into Rule 10b5-1 trading plans, to facilitate open-market repurchases. 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. We did not have any share repurchases during the three and nine months ended September 30, 2022. Authorization to repurchase $248.8 million of our common stock remained available as of September 30, 2022.

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 $100.0 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 ~~$100.0~~

$100.0 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. To date, we have not issued any shares of common stock in the ATM Offering.

Share Repurchases

Our Board of Directors has approved a stock repurchase program authorizing, but not requiring, the repurchase of up to $50.0 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 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 $50.0 million of our common stock remained available as of September 30, 2023.

7.9. Commitment and ~~Contingencies:~~ 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.

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 the Company and no individualized factual allegations have been advanced against us in any of the ~~three~~3 complaints. We reject all claims raised in the complaints and intend to vigorously defend these matters.

CyDex, a wholly owned subsidiary of Ligand, and Baxter Healthcare Corp. (“Baxter”) are parties to a license agreement relating to Ligand’s Captisol® technology and, more specifically, relating to Captisol®-enabled Nexterone® (amiodarone HCl premixed injection). CyDex contended that Baxter has not paid all of the royalties due to CyDex under the terms of the license agreement and Baxter contends that it has overpaid royalties for several years. On April 6, 2021, Baxter initiated an arbitration with AAA pursuant to the arbitration provision of the license agreement. On April 21, 2021, CyDex filed an answering statement and counterdemand. On December 2, 2021, Baxter filed an Amended Notice of Arbitration Demand seeking a declaration limiting the “royalty term” of the license agreement to “the later of i) the expiration of the licensed [p]atent; or ii) when there are no longer any CyDex patents listed in the Orange Book for [Nexterone®].” Baxter later clarified its position, and asserted that royalties should have ceased being due upon the May 4, 2022 expiry of CyDex’s U.S. Patent No. 6,869,939. The parties conducted a three-day arbitration hearing May 24-26, 2022. In a September 9, 2022 Final Award, the Tribunal ruled in CyDex’s favor by (1) denying Baxter’s request for a partial refund of previously paid royalties, (2) granting CyDex’s request for underpaid royalties, and (3) concluding that “[g]oing forward Baxter shall pay CyDex” a royalty consistent with CyDex’s construction of the license agreement until, at least, the March 13, 2029 expiry of CyDex’s U.S. Patent No. 7,635,773.

On April 22, 2022, Pfenex Inc. (“Pfenex”), a wholly owned subsidiary of Ligand, received a notice of alleged breach from Beijing Kangchen Biological Technology Co., Ltd. (“Kangchen”) with respect to a Development and License Agreement between Pfenex and Kangchen (“License Agreement”) pertaining to the development and commercialization of teriparatide in certain Southeast Asian countries. The allegations in the notice focused on the activities of Pfenex and other parties. On June 16, 2022, we rejected all claims raised by Kangchen in the notice. On June 24, 2022, Kangchen served Pfenex a notice of termination of the License Agreement and demanded initiation of the dispute resolution process in accordance with the License Agreement. On June 29, 2022, we again rejected all claims raised by Kangchen in the notice of termination and agreed to engage in the applicable dispute resolution process, including good faith negotiations between the parties. On October 20, 2022, we agreed to make a single lump sum payment to Kangchen in connection with a termination agreement that, among other things, terminates the License Agreement and releases all claims between the parties arising from the License Agreement. We anticipate that the termination agreement between Pfenex and Kangchen will go into effect the fourth quarter of 2022.

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 ~~the~~ 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, 2023, we entered into an amendment to the lease agreement for our headquarters office located in San Diego, California, which resulted in a $1.1 million increase in both operating lease assets and operating lease liabilities at lease commencement.

~~8. Leases~~10. Subsequent Events

Revolving Credit Facility

On October 12, 2023, we entered into a $75.0 million revolving credit facility (the “Revolving Credit Facility”) with Citibank, N.A. as the Administrative Agent. We, ~~lease certain office facilities~~our material domestic subsidiaries, as Guarantors (as defined in the Credit Agreement), and ~~equipment primarily~~the Lenders (as defined in the Credit Agreement) entered into a credit agreement (the “Credit Agreement”) with the Administrative Agent, under ~~various operating leases. Our leases have remaining contractual terms~~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 ~~ten years, some~~$75.0 million. At our option, 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 ~~which include options~~the Revolving Credit Facility, we may borrow, repay and re-borrow amounts available under the Revolving Credit Facility, subject to ~~extend~~voluntary reductions of the ~~leases for up~~swing line, letter of credit and revolving credit commitments.

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 ~~five years. Our lease agreements do~~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 ~~contain any material residual value guarantees, material restrictive covenants,~~be able to utilize the Revolving Credit Facility or ~~material termination options. Our operating~~repayment of amounts owed thereunder could be accelerated.

2325

~~lease costs are primarily related to facility leases for administration offices and research and development facilities, and our finance leases are primarily related to our right to use~~As of the ~~equipment~~date of this filing, no amounts have been borrowed under the ~~agreement with Hovione, our third-party manufacturer, to exclusively manufacture Captisol.~~

Lease assets and lease liabilities are recognized at the commencement of an arrangement where it is determined at inception that a lease exists. Lease assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are initially recognized based on the present value of lease payments over the lease term calculated using our incremental borrowing rate generally applicable to the locationRevolving Credit Facility. The maturity date of the ~~lease asset, unless the implicit rate~~Revolving Credit Facility is ~~readily determinable. Lease assets also include any upfront lease payments made and adjusted for lease incentives and other items as prescribed by ASC Topic 842,~~ ~~Leases. Lease terms include options to extend or terminate the lease when it is reasonably certain that those options will be exercised.~~October 12, 2026.

Ovid Therapeutics

In addition to base rent, certain of our operating leases require variable payments, such as insurance and common area maintenance. These variable lease costs, other than those dependent upon an index or rate, are expensed when the obligation for those payments is incurred. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and the expense for these short-term leases and for operating leases is recognized on a straight-line basis over the lease term.

~~The depreciable life of lease assets and leasehold improvements is limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.~~

~~Operating and Finance Lease Assets and Liabilities (in thousands):~~

Assets September 30, 2022 December 31, 2021
Operating lease assets $ 32,108 $ 16,542
Finance lease assets 14,444 16,207
Total lease assets $ 46,552 $ 32,749
Liabilities
Current operating lease liabilities $ 2,345 $ 2,053
Current finance lease liabilities 48 46
2,393 2,099
Long-term operating lease liabilities 34,893 15,494
Long-term finance lease liabilities 14 58
Total lease liabilities $ 37,300 $ 17,651

~~During the three and nine months ended September 30, 2022,~~On October 18, 2023, we entered into ~~several lease agreements~~an agreement with Ovid Therapeutics Inc. (“Ovid”) to acquire a 13% interest in all royalties and ~~amendments, which resulted~~milestones owed to Ovid related to the potential approval and commercialization of soticlestat. We have paid Ovid $30.0 million, less certain reimbursable expenses, to acquire these royalty and milestone interests.

Tolerance

On October 31, 2023, we acquired Tolerance Therapeutics, Inc. (“Tolerance Therapeutics”) for $20.0 million in ~~an increase in lease assets~~cash. Tolerance Therapeutics is a holding company, owned by the inventors of ~~$8.3 million and $18.4 million, and liabilities~~TZIELD (teplizumab-mzwv), that is owed a royalty of ~~$8.5 million and $21.7 million, respectively.~~

~~Maturity of Operating and Finance Lease Liabilities as of September 30, 2022 (in thousands):~~

Maturity Dates Operating Leases
Remaining three months ending December 31, 2022 $ 1,306
2023 4,842
2024 4,735
2025 4,939
2026 5,242
2027 5,381
Thereafter 22,317
Total lease payments 48,762
Less estimated tenant improvement allowance: (1,030)
Less imputed interest (10,494)
Present value of lease liabilities $ 37,238

less than 1% on worldwide net sales on TZIELD.

~~9. Subsequent Event~~

~~On November, 1, 2022, Ligand completed the Transactions. Pursuant to the Distribution, Ligand distributed on a pro rata basis to its shareholders as of the close of business on October~~ 26 2022 shares of the common stock of OmniAb representing 100% of Ligand’s interest in OmniAb. The Distribution was immediately followed by the Merger, pursuant to which OmniAb merged with Merger Sub, with OmniAb continuing as the surviving entity and becoming a wholly owned subsidiary of APAC. Prior to the Distribution and Merger, OmniAb changed its name to OmniAb Operations, Inc. and APAC changed its name to OmniAb, Inc. Following the Merger, OmniAb, Inc. is an independent, publicly traded company whose common stock trades on NASDAQ under the symbol “OABI.”

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 ~~manufacturing capacity, our~~ Kyprolis and other product royalty revenues ~~the impact of COVID-19, product returns,~~and milestones under license agreements, product development, and product regulatory filings and approvals, and the ~~potential separation of the OmniAb Business.~~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 ~~or the~~(the Exchange ~~Act.~~

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

~~Prior to~~We are a biopharmaceutical company enabling scientific advancement through supporting the completion on November 1, 2022 of the expected tax-free spin-off of our subsidiary OmniAb (further discussed below), our business included OmniAb’s antibody discovery business. OmniAb’s discovery platform provides pharmaceutical industry partners access to diverse antibody repertoires and high-throughput screening technologies to enable discovery of next-generation therapeutics. At the heart of the OmniAb platform is the Biological Intelligence™ (BI) of its proprietary transgenic animals, including OmniRat, OmniChicken and OmniMouse that have been genetically modified to generate antibodies with human sequences to facilitateclinical development of ~~human~~ therapeutic candidates. OmniFlic (transgenic rat) and OmniClic (transgenic chicken) address industry needs for bispecific antibody applications though a common light chain approach, and OmniTaur features unique structural attributes of cow antibodies for complex targets. The OmniAb suite ofWe do this by providing financing, licensing our technologies span from BI-powered repertoire generation to cutting edge antibody discovery and optimization offering a highly efficient and customizable end-to-end solution for the growing discovery needs of the global pharmaceutical industry.

~~After the spin-off of our OmniAb antibody discovery business, Ligand is a revenue-generating biopharmaceutical company focused on developing~~ or ~~acquiring technologies that help pharmaceutical companies discover and develop medicines.~~both. Our business model ~~creates~~generates value for stockholders by ~~providing~~creating a diversified portfolio of biotech and pharmaceutical 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 ~~and lower-risk business than a typical biotech company.~~manner. Our business model is based on ~~doing what we do best: drug discovery, early-stage~~funding programs in mid- to late-stage drug development ~~product reformulation~~in return for economic rights and ~~partnering.~~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) ~~ultimately~~in order to generate our revenue. Our ~~Captisol~~Captisol® platform technology is a ~~patent-protected,~~ chemically modified cyclodextrin with a structure designed to optimize the solubility and stability of drugs. Our Pelican Expression Technology is a robust, validated, cost-effective and scalable platform for recombinant protein production that is especially well-suited for complex, large-scale protein production where traditional systems are not. We have established multiple alliances, licenses and other business relationships with the world’s leading pharmaceutical companies including Amgen, Merck, Pfizer, ~~Sanofi,~~Jazz, Takeda, Gilead Sciences and Baxter International.

Our revenue consists of three primary elements: royalties from commercialized products, ~~sale~~sales of Captisol material, and contract revenue from license, milestone and other service payments. ~~In addition to discovering and developing our own proprietary drugs, we~~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 revenue streams.

~~Update on the~~ OmniAb Separation ~~Process~~

and Spin-Off

On ~~November 1,~~March 23, 2022, ~~Ligand completed (the “Closing”)~~we entered into the ~~separation (the “Separation”) of its antibody~~Merger Agreement, by and among our company, APAC (which later became New OmniAb), OmniAb and Merger Sub, pursuant to which New OmniAb combined with OmniAb, our then-antibody discovery business, and certain related assets and liabilities (the “OmniAb Business”) through a spin-off of OmniAb to Ligand’s shareholders of record as of October 26, 2022 (the “Record Date”) on a pro rata basis (the “Distribution”) and merger (the “Merger”) of OmniAb with a wholly owned subsidiary of APAC in a Reverse Morris Trust ~~transaction (collectively, the “Transactions”) pursuant~~transaction. Pursuant to ~~the Merger Agreement and~~ the Separation Agreement, (collectively with the other related transaction documents, the “Transaction Agreements”). The day prior to the Closing, OmniAb was renamed OmniAb Operations, Inc. and APAC was renamed OmniAb, Inc. (“New OmniAb”). Pursuant to the Transaction Agreements, Ligand contributed to OmniAb cash and certain assets and liabilities constitutingwe transferred the OmniAb Business, including certain of our related subsidiaries, ~~of Ligand,~~ to OmniAb and, in connection therewith, distributed (the ~~“Contribution”). In consideration for the Contribution, OmniAb issued~~Distribution) to Ligand ~~additional shares~~stockholders 100% of ~~OmniAb~~the common stock ~~such that~~of OmniAb. Immediately following the ~~number of shares of OmniAb common stock then outstanding equaled the number of shares of OmniAb common stock necessary to effect the Distribution. Pursuant~~Distribution on November 1, 2022, in accordance with and subject to the ~~Distribution, Ligand shareholders as~~terms and conditions of ~~the Record Date received one share of OmniAb common stock for each share of Ligand common stock held as of such date. Pursuant to~~ the Merger Agreement, ~~each share~~Merger Sub merged with and into OmniAb (the Merger), with OmniAb continuing as the surviving company in the Merger and as a wholly-owned subsidiary of ~~OmniAb~~New OmniAb. After the Distribution, we do not beneficially own any shares of common stock ~~was thereafter exchanged~~in OmniAb and no longer consolidate OmniAb into our financial results for ~~the right to receive 4.90007 shares~~periods ending after October 31, 2022. As a result, OmniAb's historical financial results were reflected in our consolidated financial statements as discontinued operations.

Sale of New OmniAb common stock and 0.75842 shares of New OmniAb common stock subject to price-based earnout triggers (the “Earnout Shares”). The Earnout Shares will vest based upon the achievement of certain volume-weighted average trading prices (VWAP) for shares of OmniAb for any 20 trading days over a consecutive 30 trading-day period during the five-year period following the Closing, with (i) fifty percent of such Earnout Shares vesting upon achievement of a VWAP of $12.50 per share of OmniAb common stock or upon the occurrence of a change of control transaction that will result in the holders of OmniAb common stock receiving a price per share in excess of $12.50, and (ii) the remaining fifty percent of the Earnout Shares vesting upon achievement of a VWAP of $15.00 per share of OmniAb common stock or upon the occurrence of a change of control transaction that will result in the holders of OmniAb common stock receiving a price per share in excess of $15.00. The Earnout Shares are not transferable until the vesting condition for the applicable tranche of Earnout Shares has been achieved. Upon the closing of the Transactions, the ownership of the outstanding stock of New OmniAb (including the Earnout Shares) was as follows: Ligand’s existing shareholders held approximatelyPelican Business

~~85.0%, APAC’s existing public shareholders held approximately 1.1% and the sponsor and related parties of APAC held approximately 13.9%. Fractional shares of New OmniAb common stock were not issued~~On September 18, 2023, we entered into a merger agreement pursuant to ~~the Merger. Instead, shareholders received cash in lieu~~which our subsidiary, Pelican Technology Holdings, Inc. (“Pelican”) became a wholly owned subsidiary of ~~any fractional share (other than with respect to Earnout Shares)~~Primrose Bio, Inc. (“Primrose Bio”, formerly known as Primordial Genetics, Inc.).

As part of the ~~Closing, OmniAb expected~~transaction, we retained the existing commercial royalties related to ~~have approximately $95~~the Pelican Expression Technology and own 49.9% of Primrose Bio. Simultaneous with the merger, we entered into a Purchase and Sale Agreement with Primrose Bio and acquired 50% of certain future development and commercial milestones from two contracts previously entered into by Primordial Genetics for $15.0 million. In addition, starting January 1, 2025, we will receive 25% of proceeds above $3.0 million derived from sales of ~~net cash. The transaction is expected to be tax-free to Ligand~~PeliCRM197 and ~~its shareholders for U.S. federal income tax purposes.~~

~~On November 2, 2022, OmniAb began regular-way trading on NASDAQ under the ticker symbol “OABI.” Ligand continues to trade under the ticker symbol “LGND.”~~

35% of proceeds from PeliCRM197 licensing revenue in perpetuity.

Business Updates

As aforementioned, on September 18, 2023, we spun-out and merged our Pelican subsidiary with Primordial Genetics to form Primrose Bio. We retained existing license agreements and royalty rights from the Pelican Expression Technology, including economic rights to Jazz’s Rylaze, Merck’s Vaxneuvance and V116 vaccines, Alvogen’s Teriparatide, Serum Institute of India’s Pneumosil and MenFive vaccines, among others. Additionally, we maintain a 49.9% equity interest in Primrose Bio and economic rights to future programs including two contracts previously entered into by Primordial Genetics and an economic interest in future revenue generated from PeliCRM197. The Primrose Bio technologies create a novel way of enhancing biological productivity to enable the next generation of therapeutics. These technologies are designed to create and express some of the largest sets of genetic diversity available in the industry, to enable customers to discover new biological molecules and cells with levels of productivity that were previously unachievable, economically prohibitive, or otherwise inaccessible.

~~Travere Therapeutics announced that~~On September 27, 2023, we acquired certain assets of Novan Inc. for $12.2 million. As part of the ~~previously assigned~~transaction, we acquired the NDA-stage berdazimer gel 10.3% program, all the assets related to the NITRICIL delivery technology platform, and the rights to the Sitavig program. Berdazimer gel 10.3% remains on track for a PDUFA ~~target action~~goal date of ~~November 17, 2022~~January 5, 2024, as the first potential at-home treatment for ~~its NDA under Subpart H for accelerated approval of sparsentan for the treatment of IgA nephropathy (IgAN)~~molluscum contagiosum. The Novan team is ~~expected~~preparing to be extended by three months and is now February 17, 2023. Travere subsequently announced the European Medicines Agency has accepted for review the Conditional Marketing Authorization for sparsentan for IgAN in Europe with a review decision expectedcommercialize berdazimer gel 10.3% in the second half of ~~2023.~~2024. We are incubating the business to prepare for a spin-out or strategic partnering.

On October 18, 2023, we invested $30 million to acquire 13% of Ovid Therapeutics’ interest in the royalties and milestones owed to Ovid Therapeutics Inc. on soticlestat, a program Takeda Pharmaceutical Company is developing in two pivotal Phase 3 trials in Lennox-Gastaut and Dravet syndromes, respectively, both rare disease conditions. Under the terms of the 2021 agreement between Ovid and Takeda, Ovid is eligible to receive regulatory and commercial milestone payments of up to $660 million, as well as tiered royalties on global net sales of soticlestat at percentages ranging from the low double-digits up to 20%. If soticlestat is approved. Our 13% purchase entitles us to receive up to $86 million in regulatory and commercial milestones, and tiered royalties up to 2.6%.

~~Verona Pharma~~On October 31, 2023, we acquired Tolerance Therapeutics, a private company which owns a less than 1% royalty on worldwide net sales of TZIELD (teplizumab-mzwv). We invested $20 million to acquire Tolerance Therapeutics and expect it to be immediately accretive to our royalty revenue. TZIELD is the first disease-modifying therapy in type 1 diabetes (“T1D”). It is a CD3-directed antibody indicated to delay the onset of Stage 3 T1D in adults and in children ages 8 years and older with Stage 2 T1D. TZIELD was granted Breakthrough Therapy Designation in 2019 and was approved by the U.S. Food and Drug Administration in November 2022. TZIELD is marketed by Sanofi S.A. following its acquisition of Provention Bio, Inc., in 2023 for $2.9 billion. Sanofi recently announced ~~positive top-line~~new data from TZIELD’s PROTECT Phase 3 trial which showed TZIELD’s potential to slow the progression of Stage 3 T1D in newly diagnosed children and adolescents. TZIELD met the study’s primary endpoint, significantly slowing the decline of C-peptide levels, compared to placebo.

Portfolio Updates

On November 7, 2023, Travere Therapeutics (Nasdaq: TVTX) announced that 430 new patient start forms (PSFs) were received in the third quarter and a total of 990 PSFs have been received since the accelerated approval of FILSPARI was obtained in the first quarter of 2023. Additionally, Travere previously announced topline two-year confirmatory secondary endpoint results from the pivotal Phase 3 PROTECT Study of FILSPARI versus irbesartan in IgA nephropathy (“IgAN”). FILSPARI demonstrated long-term kidney function preservation and achieved a clinically meaningful difference in estimated glomerular filtration rate (eGFR) total and chronic slope versus irbesartan, narrowly missing statistical significance in eGFR total slope while achieving statistical significance in eGFR chronic slope for purposes of regulatory review in the EU. All topline efficacy endpoints favored FILSPARI and patients treated with FILSPARI over two years exhibited one of the slowest annual rates of kidney function decline seen in a clinical trial of IgAN patients. Travere will engage with regulators and expects to submit a supplemental New Drug Application (“sNDA”) in the first half of 2024 for full approval in the U.S.

On October 26, 2023, Merck (NYSE: MRK) announced third quarter 2023 Vaxneuvance sales of $214 million. Merck previously reported Vaxneuvance sales of $168 million and $106 million in the second and first quarter of 2023, respectively. Additionally, Merck previously announced its Phase 3 ~~ENHANCE-2~~clinical trial ~~evaluating ensifentrine~~of V116, an investigational 21-valent pneumococcal

conjugate vaccine, met key immunogenicity and safety endpoints in two Phase 3 trials. If approved, V116 would be the first pneumococcal conjugate vaccine specifically designed for adults. Results from the STRIDE-3 trial demonstrated statistically significant immune responses compared to PCV20 (pneumococcal 20-valent conjugate vaccine) in vaccine-naïve adults for serotypes common to both vaccines. Positive immune responses were also observed for serotypes unique to V116. Additionally, results from STRIDE-6 demonstrated that V116 was immunogenic for all 21 pneumococcal serotypes in the vaccine among adults who previously received a pneumococcal vaccine at least one year prior to the study. In both studies, V116 had a safety profile comparable to the comparator in the studies.

Jazz Pharmaceuticals (Nasdaq: JAZZ) announced that the European Commission has granted marketing authorization for Enrylaze® for use as a component of a multi-agent chemotherapeutic regimen for the treatment of ~~chronic obstructive pulmonary disease (COPD). The trial successfully met its primary~~acute lymphoblastic leukemia and ~~secondary endpoints evaluating lung function,~~lymphoblastic lymphoma in adult and ~~significantly reduced the rate~~pediatric patients (1 month and ~~risk of COPD exacerbations. Ensifentrine was well tolerated with safety results similar~~older) who developed hypersensitivity or silent inactivation to ~~placebo. Verona subsequently announced additional analyses demonstrating ensifentrine reduced exacerbation rates across all subgroups~~E. coli-derived asparaginase. Enrylaze, approved as Rylaze in the ~~Phase 3 ENHANCE-2 trial.~~US and Canada, is a new Erwinia-derived asparaginase developed using the Pfenex Expression Technology with a safety profile consistent with that of other asparaginase preparations. Enrylaze may be given by either intravenous infusion or intramuscular injection and is dosed on either alternate days (every 48 hours) or via a Monday/Wednesday/Friday dosing schedule. The use of the Pfenex Expression Technology to manufacture Enrylaze delivers a scalable supply, able to meet global demand, and a ready-to-use solution that avoids the need for reconstitution in the clinic.

~~Merck~~Verona Pharma plc (Nasdaq: VRNA) announced that the ~~European Medicines Agency~~FDA has ~~recommended~~accepted for review its NDA seeking approval of ~~VAXNEUVANCE for active immunization~~ensifentrine for the ~~prevention~~maintenance treatment of ~~invasive disease, pneumonia and acute otitis media caused by Streptococcus pneumoniae in individuals from 6 weeks to less than 18 years~~patients with COPD. The FDA has assigned a PDUFA date of ~~age. VAXNEUVANCE is a 15-valent pneumococcal vaccine utilizing Ligand’s CRM197 vaccine carrier protein~~June 26, 2024, and is not currently ~~authorized for use~~planning to hold an advisory committee meeting to discuss the application.

Anebulo Pharmaceuticals Inc. (Nasdaq: ANEB) announced positive feedback from the FDA following a Type B meeting in ~~the European Union for individuals 18 years of age and older and is approved in the United States for individuals 6 weeks of age and older. In July 2022 Merck started~~July. The FDA indicated that a ~~broad Phase 3 program for V116, their investigational 21-valent pneumococcal conjugate vaccine utilizing Ligand’s CRM197 vaccine carrier protein.~~

~~Sermonix Pharmaceuticals announced results of its ELAINE 1 Phase 2~~single well-controlled study of ~~lasofoxifene vs. fulvestrant~~ANEB-001 in ~~postmenopausal women~~Acute Cannabinoid Intoxication patients presenting to the emergency department combined with locally advanced or metastatic ER+/HER2- breast cancer and an ESR1 mutation. Median progression-free survival was 6.04 months for lasofoxifene vs. 4.04 months for fulvestrant (p=0.138). Objective response rate was 13.2% for lasofoxifene vs. 2.9% for fulvestrant, (p=0.12), with 1 complete response and 4 partial responsesa larger THC challenge study in the lasofoxifene arm vs. no complete responses and 1 partial response in the fulvestrant arm. While the study was not powered for statistical significance, all endpoints numerically favored lasofoxifene.

~~As of September 30, 2022, over 60 partners have access~~volunteers could potentially provide substantial evidence to OmniAb-derived antibodies and more than 270 programs are being actively pursued or commercialized by OmniAb's partners. As of September 30, 2022, the platform has generated 25 clinical- or commercial- stage OmniAb-derived antibodies.support a NDA.

Results of Operations

Revenue


(Dollars in thousands)	Q3 2023		Q3 2022(a)		Change		% Change		YTD 2023		YTD 2022(a)		Change		% Change
Royalties	$	23,863	$	19,255	$	4,608	24	%	$	61,447	$	50,507	$	10,940	22	%
Captisol - Core	8,608		3,582		5,026		140	%	24,450		13,133		11,317		86	%
Captisol - COVID	—		32,367		(32,367)		(100)	%	—		64,483		(64,483)		(100)	%
Contract revenue	397		4,017		(3,620)		(90)	%	17,316		17,740		(424)		(2)	%
Total revenue	$	32,868	$	59,221	$	(26,353)	(44)	%	$	103,213	$	145,863	$	(42,650)	(29)	%

(Dollars in thousands) Q3 2022 Q3 2021 Change % Change YTD 2022 YTD 2021 Change % Change
Royalties $ 19,837 15,648 $ 4,189 27 % $ 51,491 $ 31,376 $ 20,115 64 %
Captisol - Core 3,582 5,374 (1,792) (33) % 13,133 16,310 (3,177) (19) %
Captisol - COVID 32,367 29,719 2,648 9 % 64,483 112,565 (48,082) (43) %
Contract revenue 10,302 14,094 (3,792) (27) % 40,093 44,409 (4,316) (10) %
Total revenue $ 66,088 $ 64,835 $ 1,253 2 % $ 169,200 $ 204,660 $ (35,460) (17) %

(a) Prior period amounts have been retrospectively adjusted to reflect the effects of the Separation.

Q3 ~~2022~~2023 vs. Q3 ~~2021~~

2022

Total revenue ~~increased~~decreased by ~~$1.3~~$26.4 million, or 2%44%, to ~~$66.1~~$32.9 million in Q3 ~~2022~~2023 compared to ~~$64.8~~$59.2 million in Q3 ~~2021 primarily due~~2022. Captisol sales related to ~~the $4.2 million increase~~COVID-19 in ~~royalties~~Q3 2022 were $32.4 million. We did not have any COVID-19 related Captisol sales in Q3 2023. Royalty revenue ~~which was driven~~increased by ~~Kyprolis and sales of products using the Pelican platform. Contract revenue decreased by $3.8~~$4.6 million, or ~~27%~~24%, to ~~$10.3~~$23.9 million in Q3 2023 compared to $19.3 million in Q3 2022 primarily due to the ~~achievement~~increase of ~~significant milestones tied to~~Kyprolis sales and sales of drugs using the Pelican ~~platform in Q3 2021.~~platform. Core Captisol sales increased by $5.0 million, or 140%, to $8.6 million in Q3 2023 primarily due to the timing of customer orders. Contract revenue decreased by ~~$1.8~~$3.6 million, or ~~33%~~90%, to ~~$3.6~~$0.4 million in Q3 2023 compared to $4.0 million in Q3 2022 primarily due to the decreased service revenue and timing of ~~customer orders.~~CRM197 sales from the Pelican business.

YTD 2023 vs. YTD 2022

Total revenue decreased by $42.7 million, or 29%, to $103.2 million in YTD 2023 compared to $145.9 million in YTD 2022 primarily due to no Captisol sales related to COVID-19 ~~were $32.4 million~~ in ~~Q3 2022,~~YTD 2023, compared ~~with $29.7~~to $64.5 million for the same period in ~~2021 with the increase related to the demand for the pandemic-related treatment.~~

~~Revenues attributable to the Ligand core business segment and OmniAb business segment were $59.2 million and $6.9 million, and $59.7 million and $5.1 million, respectively, for Q3 2022 and Q3 2021.~~

~~YTD 2022 vs. YTD 2021~~

~~Total~~2022. Royalty revenue ~~decreased~~increased by ~~$35.5~~$10.9 million, or ~~17%~~22%, to ~~$169.2~~$61.4 million in YTD ~~2022~~2023 compared to ~~$204.7~~$50.5 million in YTD ~~2021~~2023 primarily due to the ~~$48.1 million decrease in sales~~increase of COVID-related Captisol that is used in formulation with remdesivir. Captisol sales related to COVID-19 were $64.5 million for the nine months ended September 30, 2022, compared with $112.6 million for the same period in 2021. The lower sales were due to reduced demand for the pandemic-related treatment. Royalties increased in YTD 2022 by $20.1 million compared to YTD 2021, with the increase primarily due to Kyprolis and sales of ~~products~~drugs using the Pelican platform. Core Captisol sales ~~decreased~~increased by ~~$3.2~~$11.3 million, or ~~19%~~86%, to ~~$13.1~~$24.5 million in YTD ~~2022 compared to YTD 2021 primarily due to timing of customer orders. Contract revenue decreased by $4.3 million, or 10%, to $40.1 million in YTD 2022 compared to YTD 2021~~2023 primarily due to the ~~achievement~~timing of ~~significant milestones tied to the Pelican platform in YTD 2021.~~

Revenues attributable to the Ligand core business segment and OmniAb business segment were $145.9 million and $23.3 million, and $185.1 million and $19.5 million, respectively, for YTD 2022 and YTD 2021.

customer orders.

Royalty revenue 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 ~~3.0%~~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 royalty rate is ~~tiered between 3% and 5%.~~in the low single digits. Contract revenue includes service revenue, license fees and development, regulatory and sales based milestone payments.

The following table represents royalty revenue by program (in millions):


(in millions)	(in millions)	Q3 2022 Estimated Partner Product Sales		Effective Royalty Rate		Q3 2022 Royalty Revenue		Q3 2021 Estimated Partner Product Sales		Effective Royalty Rate		Q3 2021 Royalty Revenue		(in millions)	Q3 2023 Estimated Partner Product Sales		Effective Royalty Rate		Q3 2023 Royalty Revenue		Q3 2022 Estimated Partner Product Sales(a)		Effective Royalty Rate(a)		Q3 2022 Royalty Revenue(a)
Kyprolis	Kyprolis	$	336.8	2.7	%	$	9.1	$	312.3	2.8	%	$	8.8	Kyprolis	$	375.9	2.8	%	$	10.5	$	328.1	2.8	%	$	9.1
Evomela	Evomela	15.6		20.0	%	3.1		13.3		20.0	%	2.7		Evomela	12.5		20.0	%	2.5		15.5		20.0	%	3.1
Teriparatide injection(1)		11.7		34.9	%	4.1		6.9		37.3	%	2.6
Teriparatide injection(b)														Teriparatide injection(b)	11.0		25.5	%	2.8		12.8		32.0	%	4.1
Rylaze	Rylaze	70.0		3.0	%	2.1		20.7		2.9	%	0.6		Rylaze	104.9		3.5	%	3.7		73.5		2.9	%	2.1
Other	Other	49.5		2.9	%	1.4		43.6		2.1	%	0.9		Other	301.4		1.5	%	4.4		50.7		1.8	%	0.9
Total	Total	$	483.6			$	19.8	$	396.8			$	15.6	Total	$	805.7			$	23.9	$	480.6			$	19.3

(in millions)	(in millions)	YTD 2022 Estimated Partner Product Sales		Effective Royalty Rate		YTD 2022 Royalty Revenue		YTD 2021 Estimated Partner Product Sales		Effective Royalty Rate		YTD 2021 Royalty Revenue		(in millions)	YTD 2023 Estimated Partner Product Sales		Effective Royalty Rate		YTD 2023 Royalty Revenue		YTD 2022 Estimated Partner Product Sales(a)		Effective Royalty Rate(a)		YTD 2022 Royalty Revenue(a)
Kyprolis	Kyprolis	$	980.4	2.1	%	$	20.9	$	877.2	2.1	%	$	18.5	Kyprolis	$	1,123.3	2.2	%	$	24.9	$	956.7	2.2	%	$	20.9
Evomela	Evomela	41.1		20.0	%	8.2		36.0		20.0	%	7.2		Evomela	37.0		20.0	%	7.4		41.0		20.0	%	8.2
Teriparatide injection(1)	Teriparatide injection(1)	36.5		34.2	%	12.5		7.9		35.6	%	2.8		Teriparatide injection(1)	34.2		28.9	%	9.9		37.6		33.2	%	12.5
Rylaze	Rylaze	197.2		3.1	%	6.1		20.7		2.9	%	0.6		Rylaze	292.5		3.2	%	9.3		200.7		3.0	%	6.1
Other	Other	174.4		2.2	%	3.8		114.3		2.0	%	2.3		Other	711.4		1.4	%	9.9		177.4		1.6	%	2.8
Total	Total	$	1,429.6			$	51.5	$	1,056.1			$	31.4	Total	$	2,198.4			$	61.4	$	1,413.4			$	50.5

~~(1) -~~(a) Prior period amounts have been retrospectively adjusted to reflect the effects of the Separation.

(b) Teriparatide injection sales have been adjusted for certain deductible items as defined in the respective license agreement.

Operating Costs and Expenses

(a) Prior period amounts have been retrospectively adjusted to reflect the effects of the Separation.

Q3 ~~2022~~2023 vs. Q3 ~~2021~~

Total operating costs and expenses ~~increased~~decreased by ~~$16.3~~$15.0 million, or ~~33%~~32%, to ~~$65.5~~$31.9 million in Q3 ~~2022~~2023 compared to ~~$49.1~~$46.9 million in Q3 ~~2021.~~

Cost of Captisol ~~increased~~decreased by ~~$2.7~~$10.7 million, or ~~24%~~75%, to $3.5 million in Q3 2023 compared to $14.2 million in Q3 2022, ~~compared to $11.4 million in Q3 2021,~~ with the ~~increase~~decrease primarily due to ~~higher total sales of Captisol and a shift in~~ the ~~mix of~~lower Captisol sales this ~~quarter away from clinical use customers. All of the cost of Captisol is attributable to the Ligand core business segment.~~

Amortization of intangibles ~~remained steady~~decreased by $0.3 million, or 4%, to $8.2 million in Q3 2023 compared to $8.6 million in Q3 2022 ~~compared~~with the decrease primarily due to the ~~same period in 2021 as there have been no significant changes to~~cessation of amortization of certain Pelican intangibles resulting from the ~~gross balance~~sale of ~~intangible assets over these periods. Amortization of intangibles were $8.6 million and $3.2 million for~~ the ~~Ligand core business segment and OmniAb business segment during both Q3 2022 and Q3 2021, respectively.~~

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 ~~$22.0~~$5.5 million for Q3 ~~2022,~~2023, compared with ~~$16.9~~$9.2 million for the same period of 2021, with the increase primarily due to continued investment in the OmniAb business including facilities and headcount related expenditures associated with the spin-off. Excluding $0.9 million in unallocated corporate items, R&D expenses were $8.1 million and $13.0 million for the Ligand core business segment and OmniAb business segment during Q3 2022, respectively. Excluding $0.9 million in unallocated corporate items, R&D expenses were $6.4 million and $9.6 million, for the Ligand core business segment and OmniAb business segment during Q3 2021, respectively.

General and administrative expense was $17.4 million for Q3 2022, compared to $12.7 million for the same period in 2021, with the increase primarily due to legal expenses and headcount related expenditures. Excluding $8.7 million in unallocated corporate items, general and administrative expenses were $6.3 million and $2.4 million for the Ligand core business segment and OmniAb business segment during Q3 2022, respectively. Excluding $6.8 million in unallocated corporate items, general and administrative expenses were $4.4 million and $1.5 million for the Ligand core business segment and OmniAb business segment during Q3 2021, respectively.

~~There was no other operating income for Q3 2022, compared with $3.8 million for Q3 2021, which represented a non-cash valuation adjustment related to eliminating the remaining Pfenex CVR liability.~~

~~YTD 2022 vs. YTD 2021~~

Total operating costs and expenses increased by $39.8 million, or 29%, to $178.3 million in YTD 2022 compared to $138.5 million in YTD 2021 primarily attributable to the a non-cash valuation adjustment of $37.6 million recorded in YTD 2021, which represented a non-cash valuation adjustment related to eliminating the Pfenex CVR liability.

~~Cost of Captisol decreased by $19.0 million, or 38%, to $31.2 million in YTD 2022 compared to $50.2 million in YTD 2021,~~ with the decrease primarily due to lower ~~total sales of Captisol. All of the cost of Captisol is attributable~~share-based compensation, employee-related expenses and depreciation expense related to ~~the Ligand core business segment.~~Pelican assets.

~~Amortization of intangibles remained steady in YTD 2022~~General and administrative expense was $14.7 million for Q3 2023, compared to ~~YTD 2021 as there have been no significant changes to the gross balance of intangible assets over these periods. Amortization of intangibles were $25.7 million and $9.8~~$14.9 million for the ~~Ligand core business segment and OmniAb business segment~~same period in 2022.

YTD 2023 vs. YTD 2022 ~~respectively, and $25.9 million and $9.5 million in YTD 2021, respectively.~~

Total operating costs and expenses decreased by $32.7 million, or 27%, to $90.0 million in YTD 2023 compared to $122.7 million in YTD 2022.

Cost of Captisol decreased by $22.3 million, or 72%, to $8.9 million in YTD 2023 compared to $31.2 million in YTD 2022, with the decrease primarily due to the lower Captisol sales in YTD 2023.

Amortization of intangibles decreased by $0.4 million, or 1%, to $25.3 million in YTD 2023 compared to $25.7 million in YTD 2022 with the decrease primarily due to the cessation of amortization of certain Pelican intangibles resulting from the sale of the Pelican business.

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 ~~expenses were $61.5~~expense was $19.0 million infor YTD ~~2022,~~2023, compared with ~~$50.8~~$26.9 million ~~in YTD 2021,~~for the same period of 2022, with the ~~increase~~decrease primarily due to ~~continued investment in the OmniAb business which includes facilities~~lower share-based compensation, employee-related expenses and headcount related expenditures associated with the spin-off of OmniAb. Excluding $2.6 million in unallocated corporate items, R&D expenses were $23.9 million and $35.0 million for the Ligand core business segment and OmniAb business segment in YTD 2022, respectively. Excluding $2.7 million in unallocated corporate items, R&D expenses were $20.8 million and $27.3 million, for the Ligand core business segment and OmniAb business segment in YTD 2021, respectively.

lab supply expenses.

General and administrative ~~expenses increased by $10.5~~expense was $36.8 million ~~or 26%, to $50.2 million in~~for YTD ~~2022~~2023, compared to ~~$39.7~~$38.9 million for the same period in ~~YTD 2021, with~~2022, which remained steady period over period.

Gain on Sale of Pelican

The gain on sale of Pelican in amount of $2.1 million for the ~~increase primarily due to $5.0 million in transaction costs in connection with the spin-off of OmniAb~~three and ~~other headcount related expenditures and additional legal expenses incurred during the~~ nine months ended September 30, ~~2022. Excluding $28.7~~2023 represents the excess of the fair value of 1) our investment 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 $15 million in unallocated corporate items, general and administrative expenses were $16.0 million and $5.5 million for the Ligand core business segment and OmniAb business segment in YTD 2022, respectively. Excluding $22.2 million in unallocated corporate items, general and administrative expenses were $13.1 million and $4.4 million for the Ligand core business segment and OmniAb business segment in YTD 2021, respectively.

There was no other operating income in YTD 2022, compared with $37.6 million in YTD 2021, which represented a non-cash valuation adjustment to reduce the Pfenex CVR liability due to an expected lower probability of achieving the required milestone under the Pfenex CVR Agreement.

cash consideration paid.

Other Income (Expense)

(a) Prior period amounts have been retrospectively adjusted to reflect the effects of the Separation.

Q3 ~~2022~~2023 vs. Q3 ~~2021~~

Interest income consists primarily of interest earned on our short-term investments. The increase over the prior year was due to the increase in interest ~~rate, partially offset by the decrease in our short-term investment balance.~~

Interest expense ~~includes~~consists primarily of the 0.75% coupon cash interest expense ~~in addition to~~and the non-cash accretion of discount (including the amortization of debt issuance cost) on our 2023 Notes. In May 2023, the 2023 Notes matured, and we paid the remaining $76.9 million principal amount and $0.3 million accrued interest in ~~both Q3 2022 and Q3 2021.~~cash. The decrease in interest expense was primarily due to the ~~adoption of ASU 2020-06 which significantly reduced the debt discount balance subject to amortization. See~~ ~~Note 1, Basis of Presentation and Summary of Significant Accounting Policies~~ ~~for detail on ASU 2020-06 adoption. In addition, we carried a lower average~~zero debt outstanding balance in Q3 ~~2022~~2023 as compared to Q3 ~~2021. During Q3 2022, we repurchased $38.6 million in principal amount of the 2023 Notes.~~2022. See Note ~~4, Convertible Senior Notes.~~6, Debt.

Other income (expense), net, in Q3 ~~2022~~2023 decreased by ~~$1.0~~$5.0 million as compared to Q3 ~~2021,~~2022, primarily due to the Elutia commercial license right current expected credit loss (CECL) adjustment of $3.2 million and a Selexis commercial license right impairment loss of $0.9 million in Q3 2023 compared to a $0.9 million gain on extinguishment of debt during Q3 ~~2022 compared to a $2.0 million reduction in fair value adjustment of~~

~~Metabasis and Icagen CVRs during Q3 2021.~~2022. See~~Note 3, Fair Value Measurements~~ ~~and~~ Note ~~4, Convertible Senior Notes.~~

YTD ~~2022~~2023 vs. YTD ~~2021~~

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 and other equity security investments, ~~contributing~~which contributed an unrealized loss of $6.9 million in YTD 2023 as compared to an unrealized loss of $15.4 million in YTD ~~2022, as~~2022. In addition, during YTD 2023 we sold 4.5 million shares of Viking contributing to realized gains of $37.2 million, compared to ~~an unrealized gain of $2.4 million and a realized gain of $5.7 million~~no Viking shares sold in YTD ~~2021.~~

Interest expense ~~includes~~consists primarily of the 0.75% coupon cash interest expense ~~in addition to~~and the non-cash accretion of discount (including the amortization of debt issuance cost) on our 2023 Notes in both YTD ~~2022~~2023 and YTD ~~2021.~~2022. The decrease in interest expense was primarily due to the ~~adoption of ASU 2020-06 which significantly reduced the debt discount balance subject to amortization. See~~ ~~Note 1, Basis of Presentation and Summary of Significant Accounting Policies~~ ~~for detail on ASU 2020-06 adoption. In addition, we carried a~~ lower average debt outstanding balance ~~during~~in YTD ~~2022~~2023 as compared to YTD ~~2021. During YTD 2022, we repurchased $266.4 million in principal amount of the 2023 Notes.~~2022. See Note ~~4, Convertible Senior Notes.~~6, Debt.

Other income (expense), net, in YTD ~~2022 increased~~2023 decreased by ~~$11.0~~$9.6 million as compared to YTD ~~2021,~~2022, primarily due to the Elutia commercial license right CECL adjustment of $3.2 million and a Selexis commercial license right impairment loss of $0.9 million in YTD 2023 compared to a $4.2 million gain on extinguishment of debt ~~and $1.4 million gain for the fair value adjustment of Metabasis, Icagen and CyDex CVRs~~ during YTD ~~2022 compared to a $7.3 million loss on extinguishment of debt, which was partially offset by $1.8 million gain for the fair value adjustment of Metabasis, Icagen and CyDex CVRs during YTD 2021.~~2022. See~~Note 3, Fair Value Measurements~~ ~~and~~ Note ~~4, Convertible Senior Notes.~~

Income Tax Benefit (Expense)

(a) Prior period amounts have been retrospectively adjusted to reflect the effects of the Separation.

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 and nine months ended September 30, 2023 and 2022 was 15.4% and ~~2021 was 52.9% and 10.1%~~21.9%, and ~~20.3%~~23.5% and ~~(15.1)%~~21.5%, respectively. 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 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. The variance from the U.S. federal tax rate of 21% for the three and nine months ended September 30, 2022 was primarily due ~~primarily~~ to the tax deductions related to foreign derived intangible income tax ~~credit~~benefit as well as the research and development tax credits, which were partially offset by Section 162(m) limitation ~~and non-deductible ISO related stock compensation expense~~ during the period. ~~The variance~~

Net Loss from ~~the U.S. federal statutory tax rate of 21%~~Discontinued Operations

Net loss from discontinued operations for ~~the three~~Q3 2023 and ~~nine months ended September 30, 2021~~Q3 2022 was ~~significantly impacted by tax benefits related to (1) a $3.8~~zero and $9.2 million, respectively. Net loss from discontinued operations for YTD 2023 and YTD 2022 was $1.7 million and ~~$37.6~~$25.2 million, ~~Pfenex CVR adjustment recorded during the respective period due~~respectively. See additional information in “Item 1. Condensed Consolidated Financial Statements —Notes to ~~the lower probability~~Condensed Consolidated Financial Statements—Note (4), Spin-off of achieving the specific development and regulatory milestone by December 31, 2021 as defined by the Pfenex CVR, and (2) net excess tax windfalls from share-based compensation resulting from increased stock option exercise activity.

Liquidity and Capital Resources

As of September 30, ~~2022,~~2023, our cash, cash equivalents, and short-term investments totaled ~~$121.4~~$190.5 million, which decreased by ~~$219.7~~$21.4 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, ~~mutual~~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 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 ~~6.7~~2.2 million shares of common stock in Viking.

In May 2018, we issued an aggregate principal amount of $750.0 million of the 2023 Notes. During the nine months ended September 30, 2022, we repurchased $266.4 million in principal amount of the 2023 Notes for $261.4 million in cash, including accrued interest of $0.5 million. After the repurchases, $76.9 million in principal amount of the 2023 Notes remain outstanding. We may continue to use cash on hand to repurchase additional 2023 Notes through open-market transactions, including through Rule 10b5-1 trading plans to facilitate open-market repurchases, or otherwise, from time to time. The timing and amount of repurchase transactions will be determined by management based on the evaluation of market conditions, trading price of the 2023 Notes, legal requirements and other factors. The 2023 Notes were not convertible as of September 30, 2022. It is our intent and policy to settle conversions through combination settlement, which essentially involves 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. See~~ ~~Note 4, Convertible Senior Notes.~~ ~~In advance of the Distribution of the shares of common stock of OmniAb to Ligand’s shareholders on November 1, 2022, a notice of convertibility was delivered to the holders of the 2023 Notes.No holders exercised their right to convert their 2023 Notes during the applicable period for conversion.~~The conversion rate for the 2023 Notes will be adjusted in accordance with the requirements of the Indenture based on calculations determined with reference to a valuation period of the first 10 consecutive trading days after, and including, the ex-dvidend date of the spin-off (as determined in the Indenture).

On September 30, 2022, we entered into ~~the~~an At-The-Market Equity Offering Sales Agreement (the Sales Agreement) with ~~the Agent,~~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 $100.0 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. The Agent will receive a commission from the Company of up to 3.0% of the gross proceeds of any shares of common stock sold under the Sales Agreement. The shares will be issued pursuant to our shelf registration statement on Form S-3 (File No. 333-267678), including the ~~sales agreement~~Sales Agreement prospectus contained therein, which automatically became effective upon filing with the SEC on September 30, 2022.

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 $50.0 million of our common stock remained available as of September 30, 2023.

On October 12, 2023, we entered into a $75.0 million revolving credit facility (the Revolving Credit Facility) with Citibank, N.A. as the Administrative Agent. 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 loans and other financial accommodations to us in an aggregate amount of up to $75.0 million. At our option, 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 0.300% to 0.450%, 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 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 the date of this report, no amounts have been borrowed under the Revolving Credit Facility. 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, ~~2022,~~2023, we had ~~$8.6~~$3.6 million in fair value of contingent consideration liabilities associated with prior acquisitions to be settled in future periods.


Delaware			77-0160744
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

3911 Sorrento Valley Boulevard, Suite 110
San Diego
CA			92121
(Address of principal executive offices)			(Zip Code)


PART I. FINANCIAL INFORMATION
	ITEM 1. Condensed Consolidated Financial Statements (unaudited)	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations	54
	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	1011
	ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	2627
	ITEM 3. Quantitative and Qualitative Disclosures about Market Risk	3334
	ITEM 4. Controls and Procedures	3334
PART II. OTHER INFORMATION
	ITEM 1. Legal Proceedings	34
	ITEM 1A. Risk Factors	34
	ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	3635
	ITEM 3. Defaults Upon Senior Securities	3635
	ITEM 4. Mine Safety Disclosures	3635
	ITEM 5. Other Information	3635
	ITEM 6. Exhibits	3837
	SIGNATURE	3837


		September 30, 2022					September 30, 2023
		Amortized Cost		Fair Value			Amortized Cost		Fair Value
Within one year	Within one year	$	8,659	$	8,458	Within one year	$	71,095	$	71,070
After one year through five years	After one year through five years	982		939		After one year through five years	6,966		6,927
Total	Total	$	9,641	$	9,397	Total	$	78,061	$	77,997


		September 30,		December 31,			September 30,		December 31,
		2022		2021			2023		2022
Indefinite-lived intangible assets	Indefinite-lived intangible assets					Indefinite-lived intangible assets
Goodwill	Goodwill	$	181,206	$	181,206	Goodwill	$	103,770	$	105,673
Definite lived intangible assets	Definite lived intangible assets					Definite lived intangible assets
Complete technology	Complete technology	282,057		280,617		Complete technology	49,810		55,211
Less: accumulated amortization	Less: accumulated amortization	(90,611)		(78,991)		Less: accumulated amortization	(20,176)		(22,560)
Trade name	Trade name	2,642		2,642		Trade name	2,642		2,642
Less: accumulated amortization	Less: accumulated amortization	(1,544)		(1,444)		Less: accumulated amortization	(1,677)		(1,577)
Customer relationships	Customer relationships	40,700		40,700		Customer relationships	29,600		29,600
Less: accumulated amortization	Less: accumulated amortization	(20,272)		(18,267)		Less: accumulated amortization	(18,788)		(17,670)
Contractual relationships	Contractual relationships	362,000		362,000		Contractual relationships	360,000		362,000
Less: accumulated amortization	Less: accumulated amortization	(57,947)		(36,217)		Less: accumulated amortization	(86,568)		(65,191)
Total goodwill and other identifiable intangible assets, net	Total goodwill and other identifiable intangible assets, net	$	698,231	$	732,246	Total goodwill and other identifiable intangible assets, net	$	418,613	$	448,128


		Incorporated by Reference
Exhibit Number	Description of Exhibit	Form	File Number	Date of Filing	Exhibit Number	Filed Herewith
2.1*	Agreement and Plan of Merger, dated as of March, 23, 2022, by and among Avista Public Acquisition Corp. II, Ligand Pharmaceuticals Incorporated, OmniAb, Inc. and Orwell Merger Sub Inc.	8-K	001-33093	March 24, 2022	2.1
2.2*	Separation and Distribution Agreement, dated as of March 23, 2022, by and among Avista Public Acquisition Corp. II, Ligand Pharmaceuticals Incorporated and OmniAb, Inc.	8-K	001-33093	March 24, 2022	2.2
2.3	Sponsor Insider Agreement, dated March 23, 2022, by and among OmniAb, Inc., Avista Public Acquisition Corp. II and the other parties signatory thereto	8-K	001-33093	March 24, 2022	2.3
2.4	Amended and Restated Forward Purchase Agreement, dated March 23, 2022, by and among Avista Public Acquisition Corp. II, Avista Acquisition LP II and OmniAb, Inc.	8-K	001-33093	March 24, 2022	2.4
3.1	Amended and Restated Certificate of Incorporation of the Company	S-4	333-58823	July 9, 1998	3.1
3.2	Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, dated June 14, 2000	10-K	0-20720	March 29, 2001	3.5
3.3	Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, dated June 30, 2004	10-Q	0-20720	August 5, 2004	3.6
3.4	Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, dated November 17, 2010	8-K	001-33093	November 19, 2010	3.1
3.5	Certificate of Amendment of the Amended and Restated Certification of Incorporation of the Company, dated June 19, 2018	S-8	333-233130	August 8, 2019	3.6
3.6	Fourth Amended and Restated Bylaws of the Company	8-K	001-33093	October 30, 2020	3.1
4.1	Specimen stock certificate for shares of the common stock of the Company	10-K	001-33093	March 1, 2018	4.1
4.2	Indenture, dated as of May 22, 2018, between the Company and Wilmington Trust, National Association, as trustee, including the form of 0.75% Convertible Senior Notes due 2023	8-K	001-33093	May 22, 2018	4.1
10.1	Amended and Restated Employee Matters Agreement, dated as of August 18, 2022, by and among Ligand Pharmaceuticals Incorporated, OmniAb Operations, Inc. (f/k/a OmniAb, Inc.), OmniAb, Inc. (f/k/a Avista Public Acquisition Corp. II) and Orwell Merger Sub Inc.					X
10.2	Tax Matters Agreement, dated as of November 1, 2022, by and among OmniAb, Inc.(f/k/a Avista Public Acquisition Corp. II) Ligand Pharmaceuticals Incorporated and OmniAb Operations, Inc. (f/k/a OmniAb, Inc.)	8-K	001-33093	November 4, 2022	10.1
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


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


		Common Stock			Additional paid in capital		Accumulated other comprehensive loss		Retained earnings		Total stockholders' equity			Common Stock			Additional paid in capital		Accumulated other comprehensive income (loss)		Retained earnings		Total stockholders' equity
		Shares	Amount											Shares	Amount
Balance at December 31, 2021		16,767	$	17	$	372,969	$	(917)	$	449,090	$	821,159
ASU 2020-06 adoption, net of tax (Note 1)		—	—		(51,130)		—		35,133		(15,997)
Balance at December 31, 2022													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	Issuance of common stock under employee stock compensation plans, net of shares withheld for payroll taxes	94	—		(5,515)		—		—		(5,515)		Issuance of common stock under employee stock compensation plans, net of shares withheld for payroll taxes	183	—		(762)		—		—		(762)
Share-based compensation	Share-based compensation	—	—		9,044		—		—		9,044		Share-based compensation	—	—		5,931		—		—		5,931
Unrealized net loss on available-for-sale securities, net of deferred tax		—	—		—		(114)		—		(114)

Net loss		—	—		—		—		(15,385)		(15,385)
Balance at March 31, 2022		16,861	$	17	$	325,368	$	(1,031)	$	468,838	$	793,192
Unrealized net gain on available-for-sale securities, net of tax													Unrealized net gain on available-for-sale securities, net of tax	—	—		—		49		—		49
Final distribution of OmniAb													Final distribution of OmniAb	—	—		1,665		—				1,665
Net income													Net income	—	—		—		—		41,949		41,949
Balance at March 31, 2023													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	Issuance of common stock under employee stock compensation plans, net of shares withheld for payroll taxes	21	—		604		—		—		604		Issuance of common stock under employee stock compensation plans, net of shares withheld for payroll taxes	218	—		9,110		—		—		9,110
Share-based compensation	Share-based compensation	—	—		9,499		—		—		9,499		Share-based compensation	—	—		7,207		—		—		7,207
Unrealized net loss on available-for-sale securities, net of deferred tax		—	—		—		(35)		—		(35)
Unrealized net loss on available-for-sale securities, net of tax													Unrealized net loss on available-for-sale securities, net of tax	—	—		—		(32)		—		(32)

Net loss		—	—		—		—		(895)		(895)
Balance at June 30, 2022		16,882	$	17	$	335,471	$	(1,066)	$	467,943	$	802,365
Net income													Net income	—	—		—		—		2,290		2,290
Balance at June 30, 2023													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	Issuance of common stock under employee stock compensation plans, net of shares withheld for payroll taxes	12	—		724		—		—		724		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	Share-based compensation	—	—		12,597		—		—		12,597		Share-based compensation	—	—		6,884		—		—		6,884
Unrealized net gain on available-for-sale securities, net of deferred tax		—	—		—		6		—		6
Warrant and bond hedge unwind transactions		—	—		202		—		—		202
Unrealized net gain on available-for-sale securities, net of tax													Unrealized net gain on available-for-sale securities, net of tax	—	—		—		23		—		23

Net income		—	—		—		—		404		404
Balance at September 30, 2022		16,894	$	17	$	348,994	$	(1,060)	$	468,347	$	816,298
Tax return to provision													Tax return to provision	—	—		3,085		—		—		3,085
Net loss													Net loss	—	—		—		—		(10,273)		(10,273)
Balance at September 30, 2023													Balance at September 30, 2023	17,421	$	18	$	183,994	$	(944)	$	484,828	$	667,896


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
OmniAb business revenue
Royalties	$	582	$	—	$	984	$	—
Contract	6,285		5,140		22,353		19,520
Total OmniAb business revenue	6,867		5,140		23,337		19,520
Ligand core business revenue
Royalties	19,255		15,648		50,507		$	31,376
Captisol - Core	3,582		5,374		13,133		16,310
Captisol - COVID	32,367		29,719		64,483		112,565
Contract	4,017		8,954		17,740		24,889
Total Ligand core business revenue	59,221		59,695		145,863		185,140
Total revenue	$	66,088	$	64,835	$	169,200	$	204,660

Segment operating income (loss)
OmniAb business	$	(11,721)	$	(9,177)	$	(26,905)	$	(21,587)
Ligand core business	22,022		32,620		49,050		112,601
Total segment operating income	10,301		23,443		22,145		91,014

Unallocated corporate items
Shared-based compensation	6,462		5,811		17,255		16,429
Other corporate expenses	3,203		1,926		14,029		8,424
Total unallocated corporate items	9,665		7,737		31,284		24,853
Income (loss) from operations	$	636	$	15,706	$	(9,139)	$	66,161


	September 30, 2022		December 31, 2021(1)
Principal amount of the 2023 Notes outstanding	$	76,854	$	343,301
Unamortized discount (including unamortized debt issuance cost)	(254)		(22,584)
Total long-term portion of notes payable	$	76,600	$	320,717


Fair value of the 2023 Notes outstanding (Level 2)	$	74,395	$	341,801


Maturity Dates	Operating Leases
Remaining three months ending December 31, 2022	$	1,306
2023	4,842
2024	4,735
2025	4,939
2026	5,242
2027	5,381
Thereafter	22,317
Total lease payments	48,762
Less estimated tenant improvement allowance:	(1,030)
Less imputed interest	(10,494)
Present value of lease liabilities	$	37,238


(Dollars in thousands)	Q3 2022		Q3 2021		Change		% Change		YTD 2022		YTD 2021		Change		% Change
Royalties	$	19,837	15,648		$	4,189	27	%	$	51,491	$	31,376	$	20,115	64	%
Captisol - Core	3,582		5,374		(1,792)		(33)	%	13,133		16,310		(3,177)		(19)	%
Captisol - COVID	32,367		29,719		2,648		9	%	64,483		112,565		(48,082)		(43)	%
Contract revenue	10,302		14,094		(3,792)		(27)	%	40,093		44,409		(4,316)		(10)	%
Total revenue	$	66,088	$	64,835	$	1,253	2	%	$	169,200	$	204,660	$	(35,460)	(17)	%