Company: LGNZZ
Filing Date: 2025-02-28
Form Type: 10-K
Source: 0000886163-25-000012
Chunk: 123

Company: LIGAND PHARMACEUTICALS INC
Filing Date: 2025-02-28
Form: 10-K
Item: Item 7
Chunk 123
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 as changes in our business strategy and our internal forecasts. For example, if our future operating results do not meet current forecasts or if we experience a sustained decline in our market capitalization that is determined to be indicative of a reduction in fair value of our reporting unit, we may be required to record future impairment charges for purchased intangible assets. Impairment charges could materially decrease our future net income and result in lower asset values on our balance sheet.

Financial Royalty Assets - Recognition of Income

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Financial royalty assets represent a portfolio of future milestone and royalty payment rights acquired that are passive in nature (i.e., we do not own the intellectual property or have the right to commercialize the underlying products).

Our financial royalty assets are classified similar to loans receivable and are measured at amortized cost using the prospective effective interest method described in ASC 835-30 Imputation of Interest. The effective interest rate is calculated by forecasting the expected cash flows to be received over the life of the asset relative to the initial invested amount. The effective interest rate is recalculated in each reporting period as the difference between expected cash flows and actual cash flows are realized and as there are changes to expected future cash flows.

The gross carrying value of a financial royalty asset is made up of the opening balance, or net purchase price for a new financial royalty asset, which is increased by accrued interest income (except for assets under the non-accrual method) and decreased by cash receipts in the period to arrive at the ending balance.

We recognize income from financial royalty assets when there is a reasonable expectation about the timing and amount of cash flows expected to be collected. Income is calculated by multiplying the carrying value of the financial royalty asset by the periodic effective interest rate. We account for financial royalty assets related to developmental pipeline or recently commercialized products on a non-accrual basis. Developmental pipeline products are non-commercialized, non-approved products that require FDA or other regulatory approval, and thus have uncertain cash flows. Newly commercialized products typically do not have an established reliable sales pattern, and thus have uncertain cash flows.

Valuation of Partnered Programs Derivative Assets Acquired in Agenus Transaction

Partnered Programs acquired in the transaction with Agenus are accounted for as derivative assets under ASC 815, Derivatives and Hedging, and were recorded at fair value at acquisition. These derivative assets are marked to fair value at each subsequent reporting period. To determine the fair value of the derivative assets, the Company applied a discounted cash flow model using observable and