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.

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

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 2, Spin-off of OmniAb). All disclosures have been adjusted to reflect continuing operations.

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. In general, for R&D services, which has not been significant, we recognize revenue over time and 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.

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, which has not been significant.


	Three months ended				Six months ended
	June 30,				June 30,
	2023		2022		2023		2022
Royalties
Kyprolis	$	8,097	$	7,127	$	14,325	$	11,749
Evomela	2,357		2,394		4,907		5,095
Teriparatide injection	3,613		5,502		7,113		8,413
Rylaze	3,028		2,317		5,637		3,966
Other	3,335		480		5,602		2,029
	$	20,430	$	17,820	$	37,584	$	31,252

Captisol
Captisol - Core	$	5,220	$	3,325	$	15,842	$	9,551
Captisol - COVID(1)	—		26,220		—		32,116
	$	5,220	$	29,545	$	15,842	$	41,667

Contract revenue
License Fees	508		558		622		2,639
Milestone	—		—		15,300		5,993
Other	208		2,203		997		5,091
	$	716	$	2,761	$	16,919	$	13,723
Total	$	26,366	$	50,126	$	70,345	$	86,642

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



June 30, 2023	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Bank deposits	$	36,327	$	7	$	(22)	$	36,312
Bond fund	83,695		—		(808)		82,887
Commercial paper	18,582		1		(8)		18,575
Corporate bonds	6,197		1		(39)		6,159
Corporate equity securities	5,775		—		(3,436)		2,339

Municipal bonds	1,016		—		(10)		1,006
US government securities	6,916		1		(17)		6,900
Warrants	—		278		—		278
	$	158,508	$	288	$	(4,340)	$	154,456
Viking common stock							36,140
Total short-term investments							$	190,596

December 31, 2022
Bank deposits	$	5,012	$	2	$	(34)	$	4,980
Bond fund	81,815		—		(1050)		80,765
Commercial paper	7,211		3		—		7,214
Corporate bonds	6,701		13		(58)		6,656

Corporate equity securities	5,807		262		(4,239)		1,830
U.S. government securities	2,232		—		(70)		2,162
Warrants	—		135		—		135
	$	108,778	$	415	$	(5,451)	$	103,742
Viking common stock							63,122
Total short-term investments							$	166,864

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 six months ended June 30, 2023.

Our investment policy is capital preservation and we only invest in U.S.-dollar denominated investments. We held a total of 65 investments which were in an unrealized loss position with a total of $0.1 million unrealized losses as of June 30, 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 six months ended June 30, 2023.

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 six months ended June 30, 2023, we considered the current and expected future economic and market conditions and concluded a decrease of $0.09 million and an increase of $0.05 million of allowance for credit losses, respectively.

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 recorded against inventory for the three and six months ended June 30, 2023 and 2022. In addition to finished goods, as of June 30, 2023 inventory consists of Captisol prepayments of $5.3 million, and as of December 31, 2022 inventory consists of Captisol prepayments of $5.9 million.


	June 30,		December 31,
	2023		2022
Indefinite-lived intangible assets
Goodwill	$	105,673	$	105,673
Definite lived intangible assets
Complete technology	55,211		55,211
Less: accumulated amortization	(24,339)		(22,560)
Trade name	2,642		2,642
Less: accumulated amortization	(1,644)		(1,577)
Customer relationships	29,600		29,600
Less: accumulated amortization	(18,416)		(17,670)
Contractual relationships	362,000		362,000
Less: accumulated amortization	(79,677)		(65,191)
Total goodwill and other identifiable intangible assets, net	$	431,050	$	448,128

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


	June 30, 2023						December 31, 2022
	Gross		Adjustments(1)		Net		Gross		Adjustments(2)		Net
Aziyo and CorMatrix	$	17,696	$	(8,691)	$	9,005	$	17,696	$	(9,538)	$	8,158
Selexis and Dianomi	10,602		(8,824)		1,778		10,602		(8,578)		2,024
Total	$	28,298	$	(17,515)	$	10,783	$	28,298	$	(18,116)	$	10,182

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 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 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 six months ended June 30, 2023, we further considered the current and expected future economic and market conditions and concluded no further adjustment was needed on the allowance for credit losses as of June 30, 2023.

Accrued liabilities consist of the following (in thousands):


	June 30,		December 31,
	2023		2022
Compensation	$	2,343	$	6,201
Subcontractor	1,756		1,756
Professional fees	807		662
Customer deposit	621		621
Supplier	268		634
Royalties owed to third parties	180		12
Amounts owed to former licensees	45		3,989



Other	1,271		1,806
Total accrued liabilities	$	7,291	$	15,681

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):

A limited amount of performance-based restricted stock units (PSUs) contain a market condition based on our relative total shareholder return ranked on a percentile basis against the NASDAQ Biotechnology Index over a three year performance period, with a range of 0% to 200% of the target amount granted to be issued under the award. Share-based compensation cost for these PSUs is measured using the Monte-Carlo simulation valuation model and is not adjusted for the achievement, or lack thereof, of the performance conditions.

Basic net income (loss) per share is calculated by dividing net (loss) income by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed based on the sum of the weighted average number of common shares and potentially dilutive common shares outstanding during the period. Diluted net loss per share is computed based on the sum of the weighted average number of common shares outstanding during the period.

Potentially dilutive common shares consist of shares issuable under the 2023 Notes, stock options and restricted stock. Although we paid off the 2023 Notes in May 2023, it wound have a dilutive impact when the average market price of our common stock exceeds the maximum conversion price during the three and six months ended June 30, 2023. It was our intent and policy to settle conversions through combination settlement, which involved payment in cash equal to the principal portion and delivery of shares of common stock for the excess of the conversion value over the principal portion. Potentially dilutive common shares from stock options and restricted stock are determined using the average share price for each period under the treasury stock method. In addition, the following amounts are assumed to be used to repurchase shares: proceeds from exercise of stock options and the average amount of unrecognized compensation expense for the awards. See Note 4, Debt and Note 6, Stockholders’ Equity.

In accordance with ASC 260, Earnings per Share, if a company had a discontinuing operation, the company uses income from continuing operations, adjusted for preferred dividends and similar adjustments, as its control number to determine whether potential common shares are dilutive. The following table presents the calculation of weighted average shares used to calculate basic and diluted earnings per share (in thousands):


	Three months ended		Six months ended
	June 30,		June 30,
	2023	2022	2023	2022
Weighted average shares outstanding:	17,276	16,868	17,170	16,846
Dilutive potential common shares:
Restricted stock	83	26	85	—
Stock options	371	164	356	—
2023 convertible senior notes	—	—	240	—
Shares used to compute diluted income per share	17,730	17,058	17,851	16,846
Potentially dilutive shares excluded from calculation due to anti-dilutive effect	4,862	6,794		6,400