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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 September 30, 2021
or
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

lgnd-20210930_g1.jpg

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
CA94608
(Address of principal executive offices)(Zip Code)
(858) 550-7500
(Registrant's Telephone Number, Including Area Code)

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 FilerSmaller 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 November 5, 2021, the registrant had 16,711,641 shares of common stock outstanding.





LIGAND PHARMACEUTICALS INCORPORATED
QUARTERLY REPORT

FORM 10-Q

TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
PART II. OTHER INFORMATION


2



GLOSSARY OF TERMS AND ABBREVIATIONS
AbbreviationDefinition
2020 Annual ReportAnnual 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 InitioAb Initio Biotherapeutics, Inc.
AmgenAmgen, Inc.
ANDAAbbreviated New Drug Application
ASCAccounting Standards Codification
ASUAccounting Standards Update
CECaptisol-enabled
CompanyLigand Pharmaceuticals Incorporated, including subsidiaries
CVRContingent value right
CrystalCrystal Bioscience, Inc.
CStone PharmaceuticalsCStone Pharmaceuticals (Suzhou) Co., Ltd.
CyDexCyDex Pharmaceuticals, Inc.
ESPPEmployee Stock Purchase Plan, as amended and restated
FASBFinancial Accounting Standards Board
FDAFood and Drug Administration
GAAPGenerally accepted accounting principles in the United States
GileadGilead Sciences, Inc.
IcagenIcagen, Inc.
INDInvestigational New Drug
LigandLigand Pharmaceuticals Incorporated, including subsidiaries
MetabasisMetabasis Therapeutics, Inc.
NDANew Drug Application
PfenexPfenex Inc.
Pfenex CVRContingent value rights agreement, dated September 30, 2020, by and between Ligand and Pfenex
PfizerPfizer Inc.
Q3 2020The Company's fiscal quarter ended September 30, 2020
Q3 2021The Company's fiscal quarter ended September 30, 2021
SBCShare-based compensation expense
SECSecurities and Exchange Commission
sNDASupplemental New Drug Application
TaurusTaurus Biosciences, LLC
TevaTeva Pharmaceuticals USA, Inc., Teva Pharmaceutical Industries Ltd. and Actavis, LLC, collectively
TravereTravere Therapeutics, Inc.
VikingViking Therapeutics, Inc.
xCella
xCella Biosciences, Inc.
YTDYear-to-date

3



PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements

LIGAND PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except par value)
September 30, 2021December 31, 2020
ASSETS
Current assets:
   Cash and cash equivalents$23,430 $47,619 
   Short-term investments299,781 363,567 
   Accounts receivable, net64,336 56,847 
   Inventory32,996 26,487 
   Income taxes receivable6,378 2,217 
   Other current assets5,161 3,822 
      Total current assets432,082 500,559 
Deferred income taxes, net26,728 24,320 
Intangible assets, net562,372 595,330 
Goodwill190,183 189,662 
Commercial license and other economic rights, net10,748 10,979 
Property and equipment, net18,702 14,434 
Operating lease right-of-use assets12,951 6,892 
Financing lease right-of-use assets16,795 15,842 
Other assets3,095 4,267 
      Total assets$1,273,656 $1,362,285 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable $7,233 $3,784 
   Accrued liabilities12,237 18,530 
   Current contingent liabilities2,594 39,884 
   Deferred revenue12,007 29,435 
   Current operating lease liabilities2,181 1,885 
   Current financing lease liabilities45 6,593 
      Total current liabilities36,297 100,111 
2023 convertible senior notes, net316,889 442,293 
Long-term contingent liabilities6,782 9,249 
Deferred income taxes, net63,026 64,598 
Long-term operating lease liabilities11,467 5,643 
Other long-term liabilities27,129 30,866 
      Total liabilities461,590 652,760 
Commitments and contingencies
Stockholders' equity:
   Preferred stock, $0.001 par value; 5,000 shares authorized; zero issued and outstanding at September 30, 2021 and December 31, 2020
  
   Common stock, $0.001 par value; 60,000 shares authorized; 16,707 and 16,080 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively
17 16 
   Additional paid-in capital358,418 318,358 
   Accumulated other comprehensive loss(875)(801)
   Retained earnings 454,506 391,952 
      Total stockholders' equity812,066 709,525 
      Total liabilities and stockholders' equity$1,273,656 $1,362,285 

See accompanying notes to unaudited condensed consolidated financial statements.

4








LIGAND PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
Three months endedNine months ended
September 30,September 30,
2021202020212020
Revenues:
   Royalties$15,648 $9,005 $31,376 $22,751 
   Captisol35,093 23,389 128,875 68,966 
   Contract revenue14,094 9,454 44,409 24,712 
Total revenues64,835 41,848 204,660 116,429 
Operating costs and expenses:
   Cost of Captisol11,446 6,353 50,192 18,680 
   Amortization of intangibles11,827 3,875 35,391 11,285 
   Research and development16,938 12,853 50,769 37,476 
   General and administrative12,718 15,020 39,747 34,353 
   Other operating income(3,800) (37,600) 
Total operating costs and expenses49,129 38,101 138,499 101,794 
Income from operations15,706 3,747 66,161 14,635 
Other income (expense):
   Gain (loss) from short-term investments1,937 (9,862)8,135 (17,143)
   Interest income169 991 698 7,690 
   Interest expense(4,439)(6,269)(15,154)(21,030)
   Other income (expense), net1,886 (219)(5,516)1,940 
Total other income (loss), net(447)(15,359)(11,837)(28,543)
Income (loss) before income taxes15,259 (11,612)54,324 (13,908)
Income tax benefit (expense)(1,536)4,911 8,230 5,162 
Net income (loss)$13,723 $(6,701)$62,554 $(8,746)
     Basic net income (loss) per share$0.82 $(0.42)$3.77 $(0.54)
     Shares used in basic per share calculations16,688 16,082 16,595 16,222 
     Diluted net income (loss) per share$0.80 $(0.42)$3.64 $(0.54)
     Shares used in diluted per share calculations17,142 16,082 17,187 16,222 


See accompanying notes to unaudited condensed consolidated financial statements.
5






LIGAND PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands)
Three months endedNine months ended
September 30,September 30,
2021202020212020
Net income (loss):$13,723 $(6,701)$62,554 $(8,746)
Unrealized net loss on available-for-sale securities, net of tax(14)(54)(74)(84)
Foreign currency translation 923  (1,141)
Comprehensive income (loss)$13,709 $(5,832)$62,480 $(9,971)

See accompanying notes to unaudited condensed consolidated financial statements.

6



LIGAND PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(in thousands)
Common StockAdditional paid in capitalAccumulated other comprehensive lossRetained earningsTotal stockholders' equity
SharesAmount
Balance at January 1, 202116,080 $16 $318,358 $(801)$391,952 $709,525 
Issuance of common stock under employee stock compensation plans, net572 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, 202116,652 $17 $336,621 $(856)$410,058 $745,840 
Issuance of common stock under employee stock compensation plans, net24 — 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, 202116,676 $17 $346,578 $(861)$440,783 $786,517 
Issuance of common stock under employee stock compensation plans, net31 — 1,898 — — 1,898 
Share-based compensation— — 9,754 — — 9,754 
Unrealized net loss on available-for-sale securities, net of deferred tax— — — (14)— (14)
Reacquisition of equity due to 2023 debt extinguishment, net of tax
— — (32)— — (32)
Warrant and bond hedge unwind transactions— — 96 — — 96 
Tax effect for 2023 Notes transactions— — 124  — 124 
Net income— — — — 13,723 13,723 
Balance at September 30, 202116,707 $17 $358,418 $(875)$454,506 $812,066 


7



Common StockAdditional paid in capitalAccumulated other comprehensive lossRetained earnings (Accumulated deficit)Total stockholders' equity
SharesAmount
Balance at January 1, 202016,823 $17 $367,326 $(216)$400,105 $767,232 
Issuance of common stock under employee stock compensation plans, net105 — (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, 202016,050 $16 $295,940 $(4,867)$370,807 $661,896 
Issuance of common stock under employee stock compensation plans, net21 — 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, 202016,071 $16 $304,404 $(2,310)$392,893 $695,003 
Issuance of common stock under employee stock compensation plans, net20 — 910 — — 910 
Share-based compensation— — 7,740 — — 7,740 
Unrealized net loss on available-for-sale securities, net of deferred tax— — — (54)— (54)
Foreign currency translation adjustment— — — 923 — 923 
Other— — 3 — — 3 
Net loss— — — — (6,701)(6,701)
Balance at September 30, 202016,091 $16 $313,057 $(1,441)$386,192 $697,824 

See accompanying notes to unaudited condensed consolidated financial statements.
8



LIGAND PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (in thousands)
Nine months ended
September 30,
20212020
Cash flows from operating activities:
Net income (loss)$62,554 $(8,746)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Change in estimated fair value of contingent liabilities(39,377)(397)
Depreciation and amortization of intangible assets37,902 12,645 
Amortization of premium on investments, net145 1,507 
Amortization of debt discount and issuance fees12,863 17,743 
Amortization of commercial license and other economic rights96 2,505 
Loss (gain) on debt extinguishment7,303 (659)
Share-based compensation28,375 20,752 
Deferred income taxes(8,229)(19,311)
Loss (gain) from short-term investments(8,135)17,143 
Other658 (1,525)
Changes in operating assets and liabilities, net of acquisitions:
     Accounts receivable, net(8,838)(5,080)
     Inventory(3,103)(4,914)
     Accounts payable and accrued liabilities (3,635)9,639 
     Income tax receivable and payable(4,167)12,026 
     Deferred revenue(20,696)5,603 
     Operating lease liabilities 6,120 (226)
     Other assets and liabilities (8,680)(4,656)
                Net cash provided by operating activities51,156 54,049 
Cash flows from investing activities:
Purchase of short-term investments(116,898)(337,016)
Proceeds from sale of short-term investments152,465 389,296 
Proceeds from maturity of short-term investments37,100 589,155 
Cash paid for acquisition, net of cash acquired (26,857)
Cash paid for equity method investment (500)
Purchase of property and equipment(6,566)(2,828)
Other135 2,600 
               Net cash provided by investing activities66,236 613,850 
Cash flows from financing activities:
Repurchase of 2023 Notes(155,760)(203,210)
Payments under financing lease obligations(9,188)(5,224)
Proceeds from convertible bond hedge settlement18,938  
Payments to convertible bond holders for warrant purchases(18,446) 
Net proceeds from stock option exercises and ESPP29,484 2,459 
Taxes paid related to net share settlement of equity awards(5,903)(1,429)
Share repurchase (73,287)
Payments to CVR Holders(1,050)(2,325)
               Net cash used in financing activities(141,925)(283,016)
Effect of exchange rate changes on cash (50)
Net increase (decrease) in cash, cash equivalents and restricted cash(24,533)384,833 
Cash, cash equivalents and restricted cash at beginning of period47,963 72,273 
Cash, cash equivalents and restricted cash at end of period$23,430 $457,106 
Supplemental disclosure of cash flow information:
Interest paid$1,740 $2,531 
Taxes paid$3,720 $2,130 
Restricted cash in other current assets$ $190 
Supplemental schedule of non-cash activity:
Accrued fixed asset purchases$557 $381 
Accrued inventory purchases$4,968 $1,390 
Accrued financing lease payment$ $2,500 
Unrealized loss on AFS investments$(74)$(109)
See accompanying notes to unaudited condensed consolidated financial statements.
9



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.

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.

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
10



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 nine months ended September 30, 2021, the amount recognized as revenue that was previously deferred was $7.7 million, and $22.8 million, respectively. During the three and nine months ended September 30, 2020, the amount recognized as revenue that was previously deferred was $5.8 million and $8.3 million, respectively.

Disaggregation of Revenue

The following table represents disaggregation of royalties, Captisol and contract revenue (in thousands):
11



Three months endedNine months ended
September 30,September 30,
2021202020212020
Royalties
Kyprolis$8,821 $6,923 $18,548 $16,809 
Evomela2,665 1,802 7,191 4,577 
Other4,162 280 5,637 1,365 
$15,648 $9,005 $31,376 $22,751 
Captisol$35,093 $23,389 $128,875 $68,966 
Contract revenue
Service Revenue$4,828 $7,341 $17,650 $15,280 
License Fees200 158 2,293 1,793 
Milestone7,419 960 19,436 4,766 
Other1,647 995 5,030 2,873 
$14,094 $9,454 $44,409 $24,712 
Total$64,835 $41,848 $204,660 $116,429 

Short-term Investments
Our short-term investments consist of the following at September 30, 2021 and December 31, 2020 (in thousands):
September 30, 2021December 31, 2020
Amortized costGross unrealized gainsGross unrealized lossesEstimated fair valueAmortized costGross unrealized gainsGross unrealized lossesEstimated fair value
     Bank deposits$47,739 $8 $(3)$47,744 $84,120 $35 $(1)$84,154 
     Corporate bonds25,914 50  25,964 30,512 99 (1)30,610 
     Agency bonds2,501   2,501 4,499 2  4,501 
     Commercial paper23,264 10  23,274 45,459 27 (1)45,485 
     Corporate equity securities5,807 307 (723)5,391 4,466 360 (1,388)3,438 
     Mutual fund152,041 53  152,094 151,512 386  151,898 
     Treasury bill    3,999   3,999 
     Warrants 642  642  393  393 
$257,266 $1,070 $(726)$257,610 $324,567 $1,302 $(1,391)$324,478 
     Viking common stock42,171 32,763 
     Viking warrants 6,326 
Total short-term investments$299,781 $363,567 


During the nine months ended September 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 September 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 nine months ended September 30, 2021.

The following table summarizes our available-for-sale debt securities by contractual maturity (in thousands):
12



September 30, 2021
Amortized CostFair Value
Within one year$76,055 $76,086 
After one year through five years23,363 23,396 
Total$99,418 $99,482 

Our investment policy is capital preservation and we only invested in U.S.-dollar denominated investments. We held a total of eleven positions which were in an unrealized loss position as of September 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 nine months ended September 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 nine months ended September 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 $0.01 million and $0.1 million of allowance for credit losses, respectively, as of September 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 September 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 $24.4 million and will utilize the remaining advanced payments to offset a portion of the purchase price for future Captisol purchases.

13



Goodwill and Other Identifiable Intangible Assets

Goodwill and other identifiable intangible assets consist of the following (in thousands):
September 30,December 31,
20212020
Indefinite-lived intangible assets
     Goodwill$190,183 $189,662 
Definite lived intangible assets
     Complete technology280,173 277,740 
          Less: accumulated amortization(75,159)(63,600)
     Trade name2,642 2,642 
          Less: accumulated amortization(1,411)(1,312)
     Customer relationships40,700 40,700 
          Less: accumulated amortization(17,599)(15,597)
     Contractual relationships362,000 362,000 
          Less: accumulated amortization(28,974)(7,243)
Total goodwill and other identifiable intangible assets, net$752,555 $784,992 

Commercial License and Other Economic Rights

Commercial license and other economic rights consist of the following (in thousands):
September 30, 2021December 31, 2020
Gross
Adjustments(1)
NetGross
Adjustments(2)
Net
Commercial license rights$28,298 $(17,550)$10,748 $28,298 $(17,319)$10,979 
(1) Amounts represent accumulated amortization to principal of $11.6 million and credit loss adjustments of $6.0 million as of September 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, S.A. (Selexis) in April 2013 and April 2015, CorMatrix Cardiovascular, Inc. (CorMatrix) in May 2016, and Dianomi Therapeutics, Inc. (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 Med, LLC (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 September 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 nine months ended September 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 September 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 September 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 nine months ended September 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 nine months ended September 30, 2021, we further considered the current and
14



expected future economic and market conditions surrounding the novel coronavirus (COVID-19) pandemic and concluded no further adjustment was needed on the allowance for credit losses as of September 30, 2021.

Accrued Liabilities

Accrued liabilities consist of the following (in thousands):
September 30,December 31,
20212020
Compensation$4,564 $8,810 
Professional fees1,327 977 
Amounts owed to former licensees579 421 
Royalties owed to third parties103 693 
Return reserve