Investment in Viking
|12 Months Ended|
Dec. 31, 2018
|Organization, Consolidation and Presentation of Financial Statements [Abstract]|
|Investment in Viking||Investment in Viking
Our current ownership in Viking is approximately 8.8% and we account it as investment in an available-for-sale security due to the fact that 1) we do not have the ability to exercise significant influence over Viking, 2) we are not involved in Viking's ongoing operations, and 3) Viking does not rely on us to provide technology products, expertise, support or services. Our investment in Viking is measured at fair value, with changes in fair value recognized in net income.
Our ownership in Viking was 17.6% and 30.3% as of December 31, 2017 and 2016, respectively. As a result of Viking's public stock offerings, we recorded a dilution gain of $2.7 million and a dilution loss of $10.7 million for the years ended December 31, 2017 and 2016, respectively. These amounts were recognized in Loss from Viking in our consolidated statement of operations. Our equity ownership interest in Viking decreased during the first quarter of 2018 to approximately 12.4% due to Viking's financing events in February 2018. As a result, in February 2018, we concluded that we did not exert significant influence over Viking and discontinued accounting for our investment in Viking under the equity method. Viking is considered a related party as we maintain a seat on Viking's board of directors.
Ligand and Viking were previously parties to a Loan and Security Agreement, dated May 21, 2014 (as amended by the First Amendment to Loan and Security Agreement, dated April 8, 2015, and the Second Amendment to Loan and Security Agreement, dated January 22, 2016, the “Loan and Security Agreement”), pursuant to which we loaned $2.5 million to Viking. Such debt was evidenced by a Senior Convertible Promissory Note (the “Convertible Note”). Pursuant to the terms of the Loan and Security Agreement, upon the consummation of the Follow-On Public Offering on April 13, 2016, Viking repaid us $1.5 million, which payment was composed of $0.3 million in cash, with the remaining balance paid in Viking’s equity securities, resulting in the issuance of 960,000 shares of common stock to us in the Follow-On Public Offering. Such payment was applied, first, to accrued and unpaid interest on the Convertible Note and, second, to the unpaid principal amount of the Convertible Note. On July 15, 2017, Viking repaid an additional $0.2 million in cash. Such payment was applied, first, to accrued and unpaid interest on the Convertible Note and, second, to the unpaid principal amount of the Convertible Note. On May 23, 2018, the Convertible Note was repurchased in full by Viking for $3.9 million in cash. As of December 31, 2018, the Convertible Note and Loan and Security Agreement are no longer outstanding.
We also have outstanding warrants to purchase 1.5 million shares of Viking's common stock at an exercise price of $1.50 per share. We recorded the warrants in other current assets in our consolidated balance sheets at fair value of $9.3 million and $3.9 million at December 31, 2018 and 2017, respectively. For the years ended December 31, 2018, 2017 and 2016, a gain of $5.4 million, $3.2 million and $0.3 million on the fair market value of the warrants, respectively, was included within other income. See further discussion in “Note (4), Fair Value Measurement.”
Prior to the adoption of ASU 2016-01, we reviewed our investment in Viking on a regular basis and assess whether events, changes in circumstances or the passage of time, in management's judgment, indicate that a loss in the market value of the investment may be other than temporary. This might include, but would not necessarily be limited to, the period of time during which the carrying value of our investment is significantly above the observed market value, a deterioration in Viking's financial condition, or an adverse event relating to its lead clinical programs.Based on a sustained low Viking common stock unit price during the year ended December 31, 2016, we determined that an other than temporary decrease in the value of our investment in Viking had occurred. We wrote down the value of our investment in Viking to its estimated fair value which resulted in impairment charges of $7.4 million for the year ended December 31, 2016. Subsequent to the adoption of ASU 2016-01, we no longer account for our investment in Viking under the equity method; instead, it is measured at fair value, with changes in fair value recognized in net income.
The entire disclosure for a variable interest entity (VIE), including but not limited to, judgments and assumptions in determining whether to consolidate and in identifying the primary beneficiary, gain (loss) recognized on the initial consolidation of the VIE, terms of arrangements, amounts and classification of the VIE's assets and liabilities, and the entity's maximum exposure to loss.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef