LIGAND PHARMACEUTICALS INC

Previous wording

On March 23, 2022, we entered into the Merger Agreement, by and among our company, Avista Public Acquisition Corp. II (New OmniAb) and OmniAb, Inc., a Delaware corporation and then wholly-owned subsidiary of our company (OmniAb), and Orwell Merger Sub Inc. (Merger Sub), pursuant to which New OmniAb combined with OmniAb, our then-antibody discovery business (the OmniAb Business), in a Reverse Morris Trust transaction. Pursuant to the Separation Agreement, we transferred the OmniAb Business, including certain of our related subsidiaries, to OmniAb and, in connection therewith, distributed (the Distribution) to Ligand stockholders 100% of the common stock of OmniAb. Immediately following the Distribution on November 1, 2022, in accordance with and subject to the terms and conditions of the Merger Agreement, 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 New OmniAb. 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 October 31, 2022. As a result, OmniAb's historical financial results through the Separation are reflected in our consolidated financial statements as discontinued operations.

Current wording

On March 23, 2022, we entered into (i) an Agreement and Plan of Merger (the “OmniAb Merger Agreement”), among Ligand, OmniAb, Avista Public Acquisition Corp. II, a Cayman Islands exempted company (“APAC”), and Orwell Merger Sub, Inc., a wholly owned subsidiary of APAC (“Merger Sub”), and (ii) a Separation and Distribution Agreement (the “OmniAb Separation and Distribution Agreement”), among Ligand, OmniAb and APAC. Prior to the effective time of the OmniAb Merger (defined below), APAC migrated to and domesticated as a Delaware corporation (“New OmniAb”) in accordance with the terms and conditions of the OmniAb Merger Agreement. Pursuant to the OmniAb Separation and Distribution Agreement, we, prior to the effective time of the OmniAb Merger (i) transferred our then-antibody discovery business (the “OmniAb Business”), including certain of our related subsidiaries, to OmniAb (the “OmniAb Separation”) and (ii) in connection therewith, distributed 100% of OmniAb’s common stock held by Ligand to Ligand stockholders (the “OmniAb Distribution”). We also contributed to OmniAb cash and certain specific assets and liabilities constituting the OmniAb Business. Following the OmniAb Separation and the OmniAb Distribution, on November 1, 2022, in accordance with and subject to the terms and conditions of the OmniAb Merger Agreement, Merger Sub merged with and into OmniAb, with OmniAb continuing as the surviving company and wholly-owned subsidiary of New OmniAb on and after the effective time of the merger (the “OmniAb Merger”). In addition, New OmniAb changed its corporate name to “OmniAb, Inc.” concurrently upon the effectiveness of the OmniAb Merger.

Previous wording

•Results of Operations. Detailed discussion of our revenue and expenses from continuing operations for years ended December 31, 2023, 2022 and 2021.

Current wording

•Results of Operations. Detailed discussion of our revenue and expenses for twelve months ended December 31, 2024 and 2023. A comparison of our results of operations for twelve months ended December 31, 2024 and 2023 can be found under “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report.

Previous wording

Royalty revenue is a function of our partners' product sales and the applicable royalty rate. Kyprolis royalty rate is under a tiered royalty rate structure with the highest being 3.0%. Evomela has a contractually fixed royalty rate of 20%. Teriparatide injection has a tiered gross profit share 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 in the low single digits. Contract revenue includes service revenue, license fees and development, regulatory and sales based milestone payments.

Current wording

Revenue from intangible royalty assets is a function of our partners' product sales and the applicable royalty rate. Kyprolis royalty rate is under a tiered royalty rate structure with the highest being 3%. Evomela has a contractually fixed royalty rate of 20%. Teriparatide injection has a tiered gross profit share between 25% and 40% on sales that have been adjusted for certain deductible items as defined in the respective license agreement. The Rylaze and Vaxnuevance royalty rates are in the low single digits. Filspari has a fixed royalty rate of 9%.

Previous wording

The following table represents royalty revenue by program:

Current wording

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

Previous wording

Total operating costs and expenses for 2023 decreased by $71.7 million or 37% compared with 2022.

Current wording

Total operating costs and expenses for 2024 increased by $68.2 million or 56% compared with 2023.

Previous wording

At any one time, we are working on multiple programs. As such, we generally do not track our R&D expenses on a specific program basis. Our R&D expenses decreased by $11.5 million in 2023 compared to 2022, with the decrease primarily due to lower share-based compensation and employee-related expenses, partially offset by an increase in R&D expenses due to the Novan acquisition.

Current wording

At any one time, we are working on multiple programs. As such, we generally do not track our R&D expenses on a specific program basis. Our R&D expenses decreased by $3.1 million in 2024 compared to 2023, with the decrease primarily attributable to lower employee related expenses and lab supplies resulting from the Pelican spin-off in September 2023. The decrease was partially offset by additional costs associated with incubating the Pelthos business.

Previous wording

The gain on sale of Pelican in the amount of $2.1 million for 2023 represents the excess of the fair value of 1) our investment in Primrose Bio and other economic rights; 2) the carrying amount of Pelican business assets and liabilities together with allocated goodwill as of September 18, 2023, the date of sale; and 3) $15.0 million consideration paid.

Current wording

The gain on sale of Pelican in the amount of $2.1 million for 2023 represents the excess of the fair value of 1) our investment in Primrose Bio and other economic rights; 2) the carrying amount of Pelican business assets and liabilities together with allocated goodwill as of September 18, 2023, the date of sale; and 3) $15 million consideration paid.

Previous wording

The fluctuation in the gain (loss) from short-term investments is primarily driven by the realized gain of $44.4 million from the sales of 5.0 million shares of Viking common stock in 2023, compared to no Viking shares sold in 2022. In addition, the fluctuation is driven by the changes in the fair value of our ownership in Viking common stock (an unrealized gain of $2.6 million in 2023 as compared to an unrealized gain of $32.2 million in 2022).

Current wording

The increase in the gain (loss) from short-term investments of $28.7 million is primarily driven by the realized gain of $60.0 million from the sale of 0.7 million shares of Viking common stock in 2024, compared to the $44.4 million realized gain from the sales of 5.0 million shares of Viking common shares in 2023. In addition, the increase was driven by changes in the fair value of our ownership in Viking common stock (an unrealized gain of $9.0 million in 2024 compared to an unrealized gain of $2.6 million in 2023) and a $7.1 million net gain on the arrangements we executed and exercised in 2024 to hedge against the fluctuation in Viking's share price.

Previous wording

Interest income consists primarily of interest earned on our short-term investments. The year over year increase in 2023 is primarily due to the significant interest rate increases by the federal reserve during 2023.

Current wording

Interest income consists primarily of interest earned on our short-term investments and remained relatively steady in 2024 compared to 2023.

Previous wording

Interest expense includes the 0.75% coupon cash interest expense in addition to the non-cash accretion of discount (including the amortization of debt issuance costs) 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 cash. The decrease in interest expense was primarily due to the zero debt outstanding balance after May 2023 compared to 2022. See additional information in “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note (8), Debt.”

Current wording

Interest expense in 2024 consists primarily of a royalty and milestone payments purchase agreement, entered by Novan in 2019, and assumed as part of the Novan acquisition in September 2023. Interest expense in 2023 consists primarily of the 0.75% coupon cash interest expense in addition to the non-cash accretion of discount (including the amortization of debt issuance costs) 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 cash. See additional information in “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note (10), Debt.”

Previous wording

Our effective tax rate for 2023 and 2022 was 15% and 114%, respectively. Our tax rate is affected by recurring items, such as the U.S. federal and state statutory tax rates and the relative amounts of income we earn in those jurisdictions, which we expect to be fairly consistent in the near term. It is also affected by discrete items that may occur in any given year, but are not consistent from year to year. In 2023, the variance from the U.S. federal statutory rate of 21% was primarily attributable to the decrease in unrecognized tax benefits. In 2022, the variance from the U.S. federal statutory rate of 21% was primarily due to limitations on the deductibility of stock-based compensation for certain officers and a discrete tax expense of $24.8 million related to the valuation allowance established during the fourth quarter of 2022 against deferred tax assets for California research and development credits and net operating losses. Beginning in 2022, the Tax Cuts and Jobs Act of 2017 requires taxpayers to capitalize and amortize R&D expenditures over five years for domestic research and fifteen years for foreign research pursuant to Section 174 of the Internal Revenue Code of 1986, as amended. We recorded an increase of $4.7 million to our current federal income tax expense and deferred tax assets for continuing operations during 2022 due to the capitalization of R&D under Section 174.

Current wording

Our effective tax rate for 2024 and 2023 was 260% and 15%, respectively. Our tax rate is affected by recurring items, such as the U.S. federal and state statutory tax rates and the relative amounts of income we earn in those jurisdictions, which we expect to be fairly consistent in the near term. It is also affected by discrete items that may occur in any given year, but are not consistent from year to year. In 2024, the variance from the U.S. federal statutory rate of 21% was primarily attributable to increase in foreign includable income and non-deductible stock based compensation. In 2023, the variance from the U.S. federal statutory rate of 21% was primarily due the decrease in unrecognized tax benefits. The items below also had an impact on the difference between our statutory U.S. rate.

Previous wording

•$5.9 million (16.3%) increase from Section 162(m) limitation

Current wording

•$3.9 million (155.6%) increase from Section 162(m) limitation

Previous wording

•$2.4 million (6.7%) decrease from the foreign-derived intangible income deduction

Current wording

•$0.8 million (33.0%) decrease from the foreign-derived intangible income deduction

Previous wording

•$1.2 million (1.9%) decrease from stock based compensaiton

Current wording

•$1.2 million (1.9%) decrease from stock based compensation

Previous wording

At December 31, 2023, we had approximately $170.3 million in cash, cash equivalents, and short-term investments. Cash and cash equivalents and short-term investments decreased by $41.6 million from 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 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.

Current wording

At December 31, 2024, we had approximately $256.2 million in cash, cash equivalents, and short-term investments. Cash and cash equivalents and short-term investments decreased by $85.9 million from 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 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.

Previous wording

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, 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 1.7 million shares of common stock in Viking.

Current wording

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, 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 1.0 million shares of common stock in Viking.

Previous wording

On September 30, 2022, we entered into an At-The-Market Equity Offering Sales Agreement (Sales Agreement) with Stifel, Nicolaus & Company, Incorporated (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 (ATM Offering). The shelf registration statement relating to such shares included a prospectus covering the offering, issuance and sale of up to $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. As of December 31, 2023 we have not issued any shares of common stock in the ATM Offering.

Current wording

On September 30, 2022, we 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 million in “at the market” offerings through the Agent (the “ATM Offering”). The shelf registration statement relating to such shares included a prospectus covering the offering, issuance and sale of up to $100 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. During 2024, we issued 360,325 shares of common stock in the ATM Offering, generating net proceeds of $37.4 million, net of commissions and other transaction costs.

Previous wording

We are obligated to make payments to operating leases, including rental commitments on leases that have not yet commenced. For information on these obligations, see detail in“Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note (7), Leases.”

Current wording

We are obligated to make payments under operating leases, including rental commitments on leases that have not yet commenced. For information on these obligations, see detail in“Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note (9), Leases.”

Previous wording

We also have commitments under our supply agreement with Hovione for Captisol purchases. The total purchase obligation as of December 31, 2023 was $28.8 million, of which $8.6 million is expected to be paid within a year and the remaining amount is expected to be paid between 1 to 3 years.

Current wording

We also have commitments under our supply agreement with Hovione for Captisol purchases. The total purchase obligation as of December 31, 2024 was $21.6 million, of which $9.0 million is expected to be paid within a year and the remaining amount is expected to be paid between 1 to 3 years.

Previous wording

In September 2019, our Board of Directors approved a stock repurchase program authorizing the repurchase of up to $500.0 million of our common stock from time to time over a period of up to three years. Our $500.0 million stock repurchase program expired in September 2022. In April 2023, our Board of Directors 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 these 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. See “Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchase of Equity Securities.”

Current wording

In April 2023, our Board approved a stock repurchase program authorizing, but not requiring, the repurchase of up to $50 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 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 million of our common stock remained available as of December 31, 2024. See “Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchase of Equity Securities.”

Previous wording

On October 12, 2023, we entered into a $75 million 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 (each as defined in the Credit Agreement) entered into 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 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 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 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.

Current wording

On October 12, 2023, we entered into a $75 million 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 (each as defined in the Credit Agreement) entered into 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 million. Borrowings under the Revolving Credit Facility accrue interest at a rate equal to either Term SOFR 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 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 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.

Previous wording

As of December 31, 2023, we had $74.5 million in available borrowing under the Revolving Credit Facility, after utilizing $0.5 million for a letter of credit. The maturity date of the Revolving Credit Facility is October 12, 2026.

Current wording

As of December 31, 2024, we had $124.4 million in available borrowing under the Revolving Credit Facility, after utilizing $0.6 million for letter of credit. The maturity date of the Revolving Credit Facility, as amended, is October 12, 2026. As of December 31, 2024, there were no events of default or violation of any covenants under our financing obligations.

Previous wording

As of December 31, 2023, we had $3.2 million in fair value of contingent consideration liabilities associated with the acquisitions to be settled in future periods.

Current wording

As of December 31, 2024, we had $3.7 million in fair value of contingent consideration liabilities associated with the acquisitions to be settled in future periods.

Previous wording

In 2023, we generated cash from operations primarily from collections on our trade receivables. We used cash for investing activities primarily for the purchases of commercial license rights, Novan acquisition and investment in Primrose Bio, partially offset by cash from the sale and maturity of short-term investments including Viking shares. During the year, we used cash for financing activities, including the repayment of the remaining $76.9 million principal amount upon maturity of the 2023 Notes and $0.3 million accrued interest in cash.

Current wording

In 2023, we generated cash from operations primarily from revenue and other operating income. We used cash for investing activities primarily for the purchases of financial royalty assets, the Novan acquisition and our investment in Primrose Bio, partially offset by cash from the sale and maturity of short-term investments including Viking shares. During the year, we used cash for financing activities, including the repayment of the remaining $76.9 million principal amount upon maturity of the 2023 Notes and $0.3 million accrued interest in cash.

Previous wording

In 2022, we generated cash from operations primarily from collections on our trade receivables. We generated cash from investing activities primarily from the sale and maturity of short-term investments. During the year, we used cash for financing activities, including the payments related to the extinguishment of certain 2023 Notes.

Current wording

In 2022, we generated cash from operations primarily from revenue and other operating income. We generated cash from investing activities primarily from the sale and maturity of short-term investments. During the year, we used cash for financing activities, including the payments related to the extinguishment of certain 2023 Notes.