lgnd-20210630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________________________________________________________________

FORM 10-Q

________________________________________________________________________________________


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

For the quarterly period ended June 30, 2021


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

For the Transition Period From ______ to ______ .

Commission File Number: 001-33093

LIGAND PHARMACEUTICALS INCORPORATED

(Exact name of registrant as specified in its charter)


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

5980 Horton Street, Suite 405
Emeryville
CA			94608
(Address of principal executive offices)			(Zip Code)

(858) 550-7500

(Registrant's Telephone Number, Including Area Code)

3911 Sorrento Valley Boulevard, Suite 110

San Diego, CA 92121

(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 July 30, 2021, the registrant had 16,676,532 shares of common stock outstanding.

LIGAND PHARMACEUTICALS INCORPORATED

QUARTERLY REPORT

FORM 10-Q

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	ITEM 1. Condensed Consolidated Financial Statements (unaudited)	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations	5
	Condensed Consolidated Statements of Comprehensive Income (Loss)	6
	Condensed Consolidated Statements of Stockholders' Equity	7
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Condensed Consolidated Financial Statements	10
	ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	25
	ITEM 3. Quantitative and Qualitative Disclosures about Market Risk	32
	ITEM 4. Controls and Procedures	32
PART II. OTHER INFORMATION
	ITEM 1. Legal Proceedings	32
	ITEM 1A. Risk Factors	32
	ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	36
	ITEM 3. Defaults Upon Senior Securities	36
	ITEM 4. Mine Safety Disclosures	36
	ITEM 5. Other Information	36
	ITEM 6. Exhibits	37
	SIGNATURE	37


GLOSSARY OF TERMS AND ABBREVIATIONS
Abbreviation			Definition
2020 Annual Report			Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 24, 2021
2023 Notes			$750.0 million aggregate principal amount of convertible senior unsecured notes due 2023
Ab Initio			Ab Initio Biotherapeutics, Inc.
Amgen			Amgen, Inc.
ANDA			Abbreviated New Drug Application
ASC			Accounting Standards Codification
ASU			Accounting Standards Update
Aziyo			Aziyo Med, LLC
CE			Captisol-enabled
Company			Ligand Pharmaceuticals Incorporated, including subsidiaries
CorMatrix			CorMatrix Cardiovascular, Inc.
CVR			Contingent value right
Crystal			Crystal Bioscience, Inc.
CStone Pharmaceuticals			CStone Pharmaceuticals (Suzhou) Co., Ltd.
CyDex			CyDex Pharmaceuticals, Inc.
Dianomi Therapeutics			Dianomi Therapeutics, Inc.
ESPP			Employee Stock Purchase Plan, as amended and restated
FASB			Financial Accounting Standards Board
FDA			Food and Drug Administration
GAAP			Generally accepted accounting principles in the United States
Gilead			Gilead Sciences, Inc.
GRA			Glucagon receptor antagonist
Icagen			Icagen, Inc.
IND			Investigational New Drug
Ligand			Ligand Pharmaceuticals Incorporated, including subsidiaries
Metabasis			Metabasis Therapeutics, Inc.
NDA			New Drug Application
Pfenex			Pfenex Inc.
Pfenex CVR			Contingent value rights agreement, dated September 30, 2020, by and between Ligand and Pfenex
Pfizer			Pfizer Inc.
Q2 2020			The Company's fiscal quarter ended June 30, 2020
Q2 2021			The Company's fiscal quarter ended June 30, 2021
SBC			Share-based compensation expense
SEC			Securities and Exchange Commission
Selexis			Selexis, SA
sNDA			Supplemental New Drug Application
Taurus			Taurus Biosciences, LLC
Teva			Teva Pharmaceuticals USA, Inc., Teva Pharmaceutical Industries Ltd. and Actavis, LLC, collectively
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

(Unaudited)

(in thousands, except par value)


	June 30, 2021		December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	21,863	$	47,619
Short-term investments	279,972		363,567
Accounts receivable, net	58,156		56,847
Inventory	39,946		26,487
Income taxes receivable	4,694		2,217
Other current assets	6,270		3,822
Total current assets	410,901		500,559
Deferred income taxes, net	27,882		24,320
Intangible assets, net	572,006		595,330
Goodwill	190,517		189,662
Commercial license and other economic rights, net	10,638		10,979
Property and equipment, net	17,628		14,434
Operating lease right-of-use assets	6,500		6,892
Financing lease right-of-use assets	17,383		15,842
Other assets	2,828		4,267
Total assets	$	1,256,283	$	1,362,285
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	17,273	$	3,784
Accrued liabilities	10,107		18,530
Current contingent liabilities	5,650		39,884
Deferred revenue	17,147		29,435
Current operating lease liabilities	2,275		1,885
Current financing lease liabilities	45		6,593
Total current liabilities	52,497		100,111
2023 convertible senior notes, net	315,318		442,293
Long-term contingent liabilities	9,121		9,249
Deferred income taxes, net	60,053		64,598
Long-term operating lease liabilities	4,771		5,643
Other long-term liabilities	28,006		30,866
Total liabilities	469,766		652,760
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000 shares authorized; zero issued and outstanding at June 30, 2021 and December 31, 2020	—		—
Common stock, $0.001 par value; 60,000 shares authorized; 16,676 and 16,080 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively	17		16
Additional paid-in capital	346,578		318,358
Accumulated other comprehensive loss	(861)		(801)
Retained earnings	440,783		391,952
Total stockholders' equity	786,517		709,525
Total liabilities and stockholders' equity	$	1,256,283	$	1,362,285

See accompanying notes to unaudited condensed consolidated financial statements.

LIGAND PHARMACEUTICALS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share amounts)


	Three months ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Revenues:
Royalties	$	8,616	$	7,181	$	15,728	$	13,746
Captisol	62,509		24,468		93,781		45,577
Contract revenue	13,550		9,771		30,316		15,258
Total revenues	84,675		41,420		139,825		74,581
Operating costs and expenses:
Cost of Captisol	30,593		7,644		38,746		12,327
Amortization of intangibles	11,779		3,875		23,565		7,410
Research and development	15,953		12,732		33,832		24,623
General and administrative	14,711		10,069		27,028		19,333
Other operating income	(34,100)		—		(33,800)		—
Total operating costs and expenses	38,936		34,320		89,371		63,693
Income from operations	45,739		7,100		50,454		10,888
Other income (expense):
Gain (loss) from short-term investments	(6,864)		23,460		6,197		(7,281)
Interest income	233		1,969		529		6,699
Interest expense	(4,883)		(6,213)		(10,714)		(14,761)
Other income (expense), net	(924)		1,803		(7,401)		2,159
Total other income (loss), net	(12,438)		21,019		(11,389)		(13,184)
Income (loss) before income taxes	33,301		28,119		39,065		(2,296)
Income tax benefit (expense)	(2,576)		(6,033)		9,766		251
Net income (loss)	$	30,725	$	22,086	$	48,831	$	(2,045)

Basic net income (loss) per share	$	1.84	$	1.38	$	2.95	$	(0.13)
Shares used in basic per share calculations	16,659		16,055		16,548		16,292

Diluted net income (loss) per share	$	1.79	$	1.32	$	2.84	$	(0.13)
Shares used in diluted per share calculations	17,172		16,694		17,210		16,292

See accompanying notes to unaudited condensed consolidated financial statements.

LIGAND PHARMACEUTICALS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(in thousands)


	Three months ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Net income (loss):	$	30,725	$	22,086	$	48,831	$	(2,045)
Unrealized net gain (loss) on available-for-sale securities, net of tax	(5)		2,742		(60)		(30)
Foreign currency translation	—		(185)		—		(2,064)

Comprehensive income (loss)	$	30,720	$	24,643	$	48,771	$	(4,139)

See accompanying notes to unaudited condensed consolidated financial statements.

LIGAND PHARMACEUTICALS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

(in thousands)


	Common Stock			Additional paid in capital		Accumulated other comprehensive loss		Retained earnings		Total stockholders' equity
	Shares	Amount
Balance at January 1, 2021	16,080	$	16	$	318,358	$	(801)	$	391,952	$	709,525
Issuance of common stock under employee stock compensation plans, net	572	1		20,580		—		—		20,581
Share-based compensation	—	—		8,405		—		—		8,405
Unrealized net loss on available-for-sale securities, net of deferred tax	—	—		—		(55)		—		(55)
Reacquisition of equity due to 2023 debt extinguishment, net of tax	—	—		(9,086)		—		—		(9,086)
Warrant and bond hedge unwind transactions	—	—		396		—		—		396
Tax effect for 2023 Notes transactions				(2,032)						(2,032)
Net income	—	—		—		—		18,106		18,106
Balance at March 31, 2021	16,652	$	17	$	336,621	$	(856)	$	410,058	$	745,840
Issuance of common stock under employee stock compensation plans, net	24	—		1,103		—		—		1,103
Share-based compensation	—	—		10,216		—		—		10,216
Unrealized net loss on available-for-sale securities, net of deferred tax	—	—		—		(5)		—		(5)
Reacquisition of equity due to 2023 debt extinguishment, net of tax				(1,073)						(1,073)
Tax effect for 2023 Notes transactions				(289)						(289)
Net income	—	—		—		—		30,725		30,725
Balance at June 30, 2021	16,676	$	17	$	346,578	$	(861)	$	440,783	$	786,517


	Common Stock			Additional paid in capital		Accumulated other comprehensive loss		Retained earnings (Accumulated deficit)		Total stockholders' equity
	Shares	Amount
Balance at January 1, 2020	16,823	$	17	$	367,326	$	(216)	$	400,105	$	767,232
Issuance of common stock under employee stock compensation plans, net	105	—		(1,008)		—		—		(1,008)
Share-based compensation	—	—		5,653		—		—		5,653
Repurchase of common stock	(878)	(1)		(73,286)		—		—		(73,287)
Unrealized net loss on available-for-sale securities, net of deferred tax	—	—		—		(2,772)		—		(2,772)
Foreign currency translation adjustment	—	—		—		(1,879)		—		(1,879)
Reacquisition of equity due to 2023 debt extinguishment, net of tax	—	—		(2,745)		—		—		(2,745)
Cumulative-effect adjustment from adoption of ASU 2016-13, net of tax								(5,167)		(5,167)
Net loss	—	—		—		—		(24,131)		(24,131)
Balance at March 31, 2020	16,050	$	16	$	295,940	$	(4,867)	$	370,807	$	661,896
Issuance of common stock under employee stock compensation plans, net	21	—		1,128		—		—		1,128
Share-based compensation	—	—		7,359		—		—		7,359
Unrealized net gain on available-for-sale securities, net of deferred tax	—	—		—		2,742		—		2,742
Foreign currency translation adjustment	—	—		—		(185)		—		(185)
Adjustment on reacquisition of equity due to 2023 debt extinguishment, net of tax	—	—		(23)		—		—		(23)
Net income	—	—		—		—		22,086		22,086
Balance at June 30, 2020	16,071	$	16	$	304,404	$	(2,310)	$	392,893	$	695,003

See accompanying notes to unaudited condensed consolidated financial statements.

LIGAND PHARMACEUTICALS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)


	Six months ended
	June 30,
	2021		2020
Cash flows from operating activities:
Net income (loss)	$	48,831	$	(2,045)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Change in estimated fair value of contingent liabilities	(33,502)		(371)
Depreciation and amortization of intangible assets	25,179		7,869
Amortization of premium (discount) on investments, net	109		1,198
Amortization of debt discount and issuance fees	9,073		12,442
Amortization of commercial license and other economic rights	206		2,733
Loss (gain) on debt extinguishment	7,175		(659)
Share-based compensation	18,621		13,012
Deferred income taxes	(9,766)		(8,890)
Loss (gain) from short-term investments	(6,197)		7,281
Other	595		(1,499)
Changes in operating assets and liabilities:
Accounts receivable, net	(2,659)		(11,466)
Inventory	(2,326)		6,977
Accounts payable and accrued liabilities	(4,340)		2,909
Income tax receivable and payable	(2,477)		8,673
Deferred revenue	(14,605)		7,268
Other assets and liabilities	(2,786)		(4,128)
Net cash provided by operating activities	31,131		41,304

Cash flows from investing activities:
Purchase of short-term investments	(96,136)		(336,726)
Proceeds from sale of short-term investments	150,648		179,431
Proceeds from maturity of short-term investments	34,600		452,405
Cash paid for acquisition, net of cash acquired	—		(15,140)

Purchase of property and equipment	(4,794)		(791)
Other	135		2,600
Net cash provided by investing activities	84,453		281,779

Cash flows from financing activities:
Repurchase of 2023 Notes	(153,381)		(203,210)
Payments under financing lease obligations	(9,188)		(1,134)
Proceeds from convertible bond hedge settlement	16,855		—
Payments to convertible bond holders for warrant purchases	(16,459)		—
Net proceeds from stock option exercises and ESPP	27,584		1,550
Taxes paid related to net share settlement of equity awards	(5,901)		(1,429)
Share repurchase	—		(73,287)
Payments to CVR Holders	(1,050)		(1,800)

Net cash used in financing activities	(141,540)		(279,310)
Effect of exchange rate changes on cash	—		(160)
Net increase (decrease) in cash, cash equivalents and restricted cash	(25,956)		43,613
Cash, cash equivalents and restricted cash at beginning of period	47,963		72,273
Cash, cash equivalents and restricted cash at end of period	$	22,007	$	115,886


Supplemental disclosure of cash flow information:
Interest paid	$	1,737	$	2,531
Taxes paid	$	3,552	$	—
Restricted cash in other current assets	$	144	$	730

Supplemental schedule of non-cash activity:



Accrued fixed asset purchases	$	359	$	292

Accrued inventory purchases	$	12,695	$	3,553

Unrealized loss on AFS investments	$	(60)	$	(38)

See accompanying notes to unaudited condensed consolidated financial statements.

LIGAND PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

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 2020 Annual Report. Interim financial results are not necessarily indicative of the results that may be expected for the full year.

Reclassifications

Certain amounts in the prior period condensed consolidated financial statements have been reclassified to conform with the current period presentation. Specifically, “contract revenue” and “service revenue” presented in the condensed consolidated statement of operations for the three and six months ended June 30, 2021 have been combined into “contract revenue” in the condensed consolidated statement of operations to conform with the current period presentation.

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 2020 Annual Report.

Use of Estimates

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.

Impact of COVID-19 Pandemic

The current COVID-19 worldwide pandemic has presented substantial public health and economic challenges and is affecting our employees and partners, patients, communities and business operations, as well as the U.S. and global economy and financial markets. International and U.S. governmental authorities in impacted regions have taken actions in an effort to slow the spread of COVID-19, including issuing varying forms of “stay-at-home” orders, and restricting business functions outside of one’s home. In response, we have restricted in-person access to our executive offices, our administrative employees are mostly working remotely, and we have limited the number of staff in our research and development laboratories and other facilities. The continued spread of the COVID-19 pandemic and the measures taken by the governments of countries have affected, and could continue to affect, our business and the business of our partners, including future disruptions to our supply chain and the manufacture or shipment of drug substance and finished drug product for Captisol, delays by us or our partners in the initiation or enrollment of patients in clinical trials, discontinuations by patients enrolled in clinical trials, difficulties launching or commercializing products and other related activities, which could delay ongoing clinical trials, increase development costs, reduce royalty revenues and have a material adverse effect on our business, financial condition and results of operations. Several of our partners have reported that their operations have been impacted including delays in research and development programs and deprioritizing clinical trials in favor of treating patients who have contracted the virus or to prevent the spread of the virus. This may lead to clinical trial protocol deviations or to discontinuation of treatment for patients who are currently enrolled in the clinical trials being conducted by us or our partners. In addition, certain of our partners have reported negative impacts on product sales which will impact our royalty revenues.

Some of our partners are working to develop drugs to treat COVID-19. For example, we are supplying Captisol to partners, including Gilead and the Gilead consortium (a consortium of manufacturing partners that Gilead is working with to bring efforts together to help maximize global supply) for remdesivir, the first FDA-approved treatment for COVID-19 for the

treatment of patients with COVID-19 requiring hospitalization. In addition, certain of our OmniAb partners have initiated antibody discovery programs for the potential treatment of COVID-19.

The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, the businesses of our partners, our results of operations and our financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact, including the timing and extent of governments reopening or further restricting activities, the emergence and spread of COVID-19 variants, and the economic impact on local, regional, national and international markets.

Accounting Standards Not Yet 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. The new guidance simplifies accounting for convertible instruments by removing major separation models required under current GAAP. This standard removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. This standard is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020 and adoption must be as of the beginning of the Company’s annual fiscal year. We are currently evaluating the impact of this standard on our consolidated financial statements and related disclosures. We intend to adopt this standard on January 1, 2022.

We do not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material impact on our condensed consolidated financial statements or disclosures.

Revenue

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.

Royalties

We receive royalty revenue on sales by our partners of products covered by patents that we own. 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 sales-based royalty to be recorded when 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 are adjusted for in the period in which they become known, typically the following quarter.

Contract Revenue

Our contract revenue includes service revenue, license fees and future contingent milestone based payments. We recognize service revenue for contracted R&D services performed for our customers over time. We measure our progress using an input method 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 we estimate it will take us to complete the activities, or costs we 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 estimates and use 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.

We include contingent milestone based payments in the estimated transaction price when there is a basis to reasonably estimate the amount of the payment. These estimates are based on historical experience, anticipated results and our best judgment at the time. If the contingent milestone based payment is sales-based, 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 based milestones or receive regulatory approval, we generally recognize any contingent payments that would be due to us upon or after the development milestone or regulatory approval.

Captisol Sales

We recognize revenue when control of Captisol material is transferred to our customers in an amount that reflects the consideration we expect to receive from our customers in exchange for those products. This process involves identifying the contract with a customer, determining the performance obligations in the contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing revenue when the performance obligations have been satisfied. 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. We consider a performance obligation satisfied once we have transferred control of the product, 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. We have elected to recognize the cost for freight and shipping when or after control over Captisol material has transferred to the customer as an expense in cost of Captisol. Sales tax and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. 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.

Deferred Revenue

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. We use an observable price to determine the stand-alone selling price for separate performance obligations or a cost plus margin approach when one is not available.

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 a contract asset balance. Any fees billed in advance of being earned are recorded as deferred revenue. During the three and six months ended June 30, 2021, the amount recognized as revenue that was previously deferred was $10.3 million, and $16.1 million, respectively. During the three and six months ended June 30, 2020, the amount recognized as revenue that was previously deferred was $2.0 million and $2.4 million, respectively.

Disaggregation of Revenue

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


		Three months ended				Six months ended
		June 30,				June 30,
		2021		2020		2021		2020
Royalties
	Kyprolis	$	5,440	$	5,481	$	9,727	$	9,886
	Evomela	2,193		1,199		4,526		2,775
	Other	983		501		1,475		1,085
		$	8,616	$	7,181	$	15,728	$	13,746

Captisol		$	62,509	$	24,468	$	93,781	$	45,577

Contract revenue
	Service Revenue	$	7,360	$	4,582	$	12,822	$	7,939
	License Fees	1,050		660		2,093		1,635
	Milestone	3,600		3,472		12,017		3,806
	Other	1,540		1,057		3,384		1,878
		$	13,550	$	9,771	$	30,316	$	15,258

Total		$	84,675	$	41,420	$	139,825	$	74,581

Short-term Investments

Our short-term investments consist of the following at June 30, 2021 and December 31, 2020 (in thousands):


	June 30, 2021						December 31, 2020
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value		Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value

Bank deposits	$	33,560	$	13	$	(2)		$	33,571	$	84,120	$	35	$	(1)	$	84,154
Corporate bonds	25,965		62		(2)			26,025		30,512		99		(1)		30,610
Agency bonds	2,500		—		(1)			2,499		4,499		2		—		4,501
Commercial paper	19,258		12		—			19,270		45,459		27		(1)		45,485
Corporate equity securities	5,807		172		(310)			5,669		4,466		360		(1,388)		3,438
Mutual fund	151,949		53		—			152,002		151,512		386		—		151,898
Treasury bill	—		—		—			—		3,999		—		—		3,999
Warrants	—		713		—			713		—		393		—		393
	$	239,039	$	1,025	$	(315)		$	239,749	$	324,567	$	1,302	$	(1,391)	$	324,478
Viking common stock								40,223								32,763
Viking warrants								—								6,326
Total short-term investments								$	279,972							$	363,567

During the six months ended June 30, 2021, we exercised all outstanding Viking warrants to purchase 1.5 million shares of Viking's common stock at an exercise price of $1.50 per share. As of June 30, 2021, we have zero Viking warrants outstanding.

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 six months ended June 30, 2021.

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


	June 30, 2021
	Amortized Cost		Fair Value
Within one year	$	57,997	$	58,050
After one year through five years	23,286		23,316
Total	$	81,283	$	81,366

Our investment policy is capital preservation and we only invested in U.S.-dollar denominated investments. We held a total of seven positions which were in an unrealized loss position as of June 30, 2021. 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, 2021.

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 six months ended June 30, 2021, we considered the current and expected future economic and market conditions including, but not limited to, the anticipated unfavorable impacts of the COVID-19 pandemic on our business and recorded an adjustment of $0.04 million and $0.1 million of allowance for credit losses, respectively, as of June 30, 2021.

Inventory

Inventory, which consists of prepaid inventory and 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.

As of June 30, 2021, we have made advanced payments for inventory from our supplier of Captisol totaling $50.2 million. We have applied credits for such inventory purchases of $15.8 million and will utilize the remaining advanced payments to offset a portion of the purchase price for future Captisol purchases.

Goodwill and Other Identifiable Intangible Assets

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


	June 30,		December 31,
	2021		2020
Indefinite-lived intangible assets
Goodwill	$	190,517	$	189,662
Definite lived intangible assets
Complete technology	277,980		277,740
Less: accumulated amortization	(71,276)		(63,600)
Trade name	2,642		2,642
Less: accumulated amortization	(1,378)		(1,312)
Customer relationships	40,700		40,700
Less: accumulated amortization	(16,932)		(15,597)
Contractual relationships	362,000		362,000
Less: accumulated amortization	(21,730)		(7,243)
Total goodwill and other identifiable intangible assets, net	$	762,523	$	784,992

Commercial License and Other Economic Rights

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


	June 30, 2021						December 31, 2020
	Gross		Adjustments(1)		Net		Gross		Adjustments(2)		Net
Aziyo and CorMatrix	$	17,696	$	(9,470)	$	8,226	$	17,696	$	(9,588)	$	8,108
Selexis and Dianomi	10,602		(8,190)		2,412		10,602		(7,731)		2,871
Total	$	28,298	$	(17,660)	$	10,638	$	28,298	$	(17,319)	$	10,979

(1) Amounts represent accumulated amortization to principal of $11.7 million and credit loss adjustments of $6.0 million as of June 30, 2021.

(2) Amounts represent accumulated amortization to principal of $11.3 million and credit loss adjustments of $6.0 million as of December 31, 2020.

Commercial license and other economics rights represent a portfolio of future milestone and royalty payment rights acquired from Selexis in April 2013 and April 2015, CorMatrix in May 2016, and Dianomi in January 2019. Commercial license rights acquired are accounted for as financial assets and other economic rights are accounted for as funded research and development as further discussed below and in Note 1, Basis of Presentation and Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements in our 2020 Annual Report.

In May 2017, we entered into a Royalty Agreement with Aziyo pursuant to which we will receive royalties from certain marketed products that Aziyo acquired from CorMatrix. We account for the Aziyo commercial license right as a financial asset,

and in accordance with ASC 310, Receivables, we amortize the commercial license right using the effective interest method whereby we forecast expected cash flows over the term of the arrangement to arrive at an annualized effective interest. The annual effective interest associated with the forecasted cash flows from the Royalty Agreement with Aziyo as of June 30, 2021 is 23%. Revenue is calculated by multiplying the carrying value of the commercial license right by the effective interest. The payments received during the six months ended June 30, 2021 were accordingly allocated between revenue and the amortization of the commercial license rights.

Prior to 2020, we accounted for commercial license rights related to developmental pipeline products such as Selexis and Dianomi on a non-accrual basis. We continue to account for commercial license rights related to Dianomi on a non-accrual basis as of June 30, 2021, but starting in 2020, given the expected cash flow from the Selexis program, we started to account for the Selexis commercial license right as a financial asset in accordance with ASC 310, and amortize the commercial license right using the effective interest method whereby we forecast expected cash flows over the term of the arrangement to arrive at an annualized effective interest. The annual effective interest associated with the forecasted cash flows from the royalty agreement with Selexis as of June 30, 2021 is 21%. Revenue is calculated by multiplying the carrying value of the commercial license right by the effective interest. The payments received during the six months ended June 30, 2021 were accordingly allocated between revenue and the amortization of the commercial license rights.

We recorded a $5.5 million pre-tax reserve for credit losses upon adoption of the credit losses standard (ASU 2016-13) on January 1, 2020. 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 six months ended June 30, 2021, we further considered the current and expected future economic and market conditions surrounding novel coronavirus (COVID-19) pandemic and concluded no further adjustment was needed on the allowance for credit losses as of June 30, 2021.

Accrued Liabilities

Accrued liabilities consist of the following (in thousands):


	June 30,		December 31,
	2021		2020
Compensation	$	3,684	$	8,810
Professional fees	977		977
Amounts owed to former licensees	446		421
Royalties owed to third parties	52		693
Return reserve	105		687
Acquisition related liabilities	1,500		1,500
Subcontractor	—		733
Supplier	681		604
Accrued interest	295		464
Other	2,367		3,641
Total accrued liabilities	$	10,107	$	18,530

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 until the last tranche vests. 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				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
SBC - Research and development expenses	$	4,556	$	3,019	$	8,495	$	5,416
SBC - General and administrative expenses	5,660		4,340		10,126		7,596
	$	10,216	$	7,359	$	18,621	$	13,012

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		Six months ended
	June 30,		June 30,
	2021	2020	2021	2020
Risk-free interest rate	0.9%	0.4%	0.5%	1.1%
Dividend yield	—	—	—	—
Expected volatility	54%	69%	62%	55%
Expected term	5.5	5.1