Annual report pursuant to Section 13 and 15(d)

Spin-off of OmniAb

Spin-off of OmniAb

12 Months Ended

Dec. 31, 2022

Discontinued Operations and Disposal Groups [Abstract]

On March 23, 2022, we entered into the Separation Agreement to separate our OmniAb Business and the Merger Agreement, pursuant to which Avista Public Acquisition Corp. II (“APAC”) would combine with OmniAb, and acquire Ligand's OmniAb Business, in a Reverse Morris Trust transaction (collectively, the “Transactions”). 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 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 and (2) Ligand core business. The OmniAb business segment is 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 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. 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. We reassigned goodwill using a relative fair value allocation method, which resulted in goodwill of a $105.7 million and $75.5 million being allocated to Ligand core business and OminAb business, respectively.

After the closing date of the Transactions on November 1, 2022, the historical financial results of OmniAb 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, Orwell Merger Sub Inc., a wholly-owned subsidiary of APAC, merged with and into OmniAb, with OmniAb continuing as the surviving company in the Merger and as a wholly owned subsidiary of New OmniAb. The entire transaction was completed on 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.

The transfer of assets and liabilities to OmniAb was effected through a contribution in accordance with the Merger Agreement, as summarized below (in thousands):


	As of November 1, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	1,842
Other current assets	9,019
Total current assets	10,861
Intangible assets, net	165,422
Goodwill	75,533
Property and equipment, net	19,921
Operating lease assets	21,290
Other assets	1,449
Total assets	$	294,476
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current contingent liabilities	$	1,569
Deferred revenue	8,582
Current operating lease liabilities	1,610
Current finance lease liabilities	1
Total current liabilities	11,762
Long-term contingent liabilities	4,175
Deferred income taxes, net	18,978
Long-term operating lease liabilities	24,823
Other long-term liabilities	5,006
Total liabilities	64,744
Net assets transferred to OmniAb	$	229,732

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. The following table summarizes revenue and expenses of the discontinued operations for the years ended December 31, 2022, 2021 and 2020 (in thousands):


	Year Ended December 31,
	2022		2021		2020
Revenues:
Royalties	$	1,289	$	—	$	—
Contract revenue	25,275		35,589		22,857
Total revenues	26,564		35,589		22,857
Operating costs and expenses:
Amortization of intangibles	10,847		12,945		11,800
Research and development	38,466		36,907		18,889
General and administrative	13,383		10,693		3,823
Total operating costs and expenses	62,696		60,545		34,512
Loss from operations	(36,132)		(24,956)		(11,655)
Other income (expense):
Gain from short-term investments	—		1,266		1,900
Interest expense	—		(7)		(5)
Other income (expense), net	554		(1,210)		(2,070)
Total other expense, net	554		49		(175)
Loss before income tax	(35,578)		(24,907)		(11,830)
Income tax benefit	7,436		5,692		2,247
Net loss	$	(28,142)	$	(19,215)	$	(9,583)

There were no assets and liabilities related to discontinued operations as of December 31, 2022, as all balances were transferred to OmniAb upon Separation. The following table summarizes the assets and liabilities of the discontinued operations as of December 31, 2021 (in thousands):


	December 31, 2021
ASSETS
Current assets:
Other current assets	$	1,100
Total current assets of discontinued operations	1,100
Intangible assets, net	174,349
Goodwill	75,533
Property and equipment, net	7,320
Operating lease assets	13,332
Finance lease assets	6
Other assets	243
Total assets of discontinued operations	$	271,883
LIABILITIES
Current liabilities:
Current contingent liabilities	$	2,538
Deferred revenue	10,342
Current operating lease liabilities	685
Current finance lease liabilities	1
Total current liabilities of discontinued operations	13,566
Long-term contingent liabilities	4,826
Deferred income taxes, net	28,239
Long-term operating lease liabilities	13,238
Other long-term liabilities	9,225
Total liabilities of discontinued operations	$	69,094

The following table summarizes the significant non-cash items, capital expenditures of the discontinued operations, and financing activities that are included in the consolidated statements of cash flows for the years ended December 31, 2022, 2021 and 2020 (in thousands):


	Year Ended December 31,
	2022		2021		2020
Operating activities:
Change in fair value of contingent consideration	$	(554)	$	1,210	$	2,070
Depreciation and amortization	13,218		14,553		12,503
Stock-based compensation expense	9,404		9,457		5,602

Investing activities:
Cash paid for acquisition, net of cash acquired	$	—	$	—	$	(27,127)
Purchase of property, plant and equipment	(5,572)		(4,070)		(1,753)
Payments to CVR Holders	(960)		(720)		—

Financing activities:
Payments to CVR Holders	$	(1,545)	$	(1,050)	$	(2,325)

Supplemental cash flow disclosures:
Purchases of property, plant and equipment included in accounts payable and accrued expenses	$	2,310	$	1,231	$	—