v3.26.1
Fair Value Measurements
 6 Months Ended
Jun. 30, 2026
Fair Value Disclosures [Abstract]  
Fair Value Measurements Fair Value Measurements
Assets and Liabilities Measured on a Recurring Basis
The following table presents the hierarchy for our assets and liabilities measured at fair value (in thousands):
June 30, 2026December 31, 2025
Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Assets:
Short-term investments(1)
$146,279 $204,777 $— $351,056 $183,982 $374,612 $— $558,594 
Pelthos Series A Preferred Shares96,870 — — 96,870 106,262 — — 106,262 
Pelthos Common Shares42,390 — — 42,390 46,500 — — 46,500 
Derivative assets(2)
— 13,586 5,250 18,836 — 10,643 4,989 15,632 
     Total assets$285,539 $218,363 $5,250 $509,152 $336,744 $385,255 $4,989 $726,988 
Liabilities:
Contingent liabilities - CyDex$— $— $352 $352 $— $— $395 $395 
Contingent liabilities - Metabasis(3)
— 2,240 — 2,240 — 2,826 — 2,826 
Derivative liabilities— 824 — 824 — — — — 
     Total liabilities$— $3,064 $352 $3,416 $— $2,826 $395 $3,221 
(1) Excluding our investment in corporate equity securities and U.S. government securities, our short-term investments in marketable debt and equity securities are classified as available-for-sale securities based on management’s intentions and are classified within level 2 of the fair value hierarchy, as these investment securities are valued based on quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. We have classified marketable securities with original maturities of greater than one year as short-term investments based on our ability and intent to use any or all of those marketable securities to satisfy the liquidity needs of our current operations.
(2) Castle Creek Warrant is classified within Level 3 of the fair value hierarchy because significant valuation inputs are unobservable in the marketplace. All other derivative assets are classified within Level 2 of the fair value hierarchy because they are valued based on quoted prices for identical or similar instruments in markets that are not active, and on model-based valuation techniques for which all significant assumptions are observable in the market.
(3) In connection with our acquisition of Metabasis in January 2010, we issued Metabasis stockholders four tradable CVRs, one CVR from each of four respective series of CVR, for each Metabasis share. The CVRs entitle Metabasis stockholders to cash payments as frequently as every six months as cash is received by us from proceeds from the sale or partnering of any of the Metabasis drug development programs, among other triggering events. The liability for the CVRs is determined using quoted prices in a market that is not active for the underlying CVR. The carrying amount of the liability may fluctuate significantly based upon quoted market prices, and actual amounts paid under the agreements may be materially different than the carrying amount of the liability. During the three months ended June 30, 2026 and 2025, we recorded a change in the fair value of the Metabasis CVR liability that amounted to $(1.1) million and $0.1 million, respectively, to mark-to-market. During the six months ended June 30, 2026 and 2025, we recorded a change in the fair value of the Metabasis CVR liability that amounted to $(0.5) million and $1.9 million, respectively, to mark-to-market.
A reconciliation of the level 3 financial instruments as of June 30, 2026 is as follows (in thousands):
Assets
Fair value of level 3 financial instruments as of December 31, 2025
$4,989 
Fair value adjustments to derivative assets261 
Fair value of level 3 financial instruments as of June 30, 2026
$5,250 
Liabilities
Fair value of level 3 financial instruments as of December 31, 2025
$395 
Payments to CVR holders and other contingent payments(50)
Fair value adjustments to contingent liabilities7 
Fair value of level 3 financial instruments as of June 30, 2026
$352 
Assets Measured on a Non-Recurring Basis
We apply fair value measurement techniques on a non-recurring basis when evaluating potential impairment losses related to our goodwill, intangible assets with estimated useful lives and other long-lived assets.
We evaluate goodwill annually for impairment and whenever events or changes in circumstances indicate that goodwill may be impaired. We determine the fair value of our reporting unit using a combination of inputs, including the market capitalization of Ligand and Level 3 inputs such as discounted cash flow analyses, which rely on unobservable assumptions.
We evaluate intangible assets with estimated useful lives and other long-lived assets for impairment whenever events or changes in circumstances indicate that such assets may not be recoverable. We perform the impairment assessment using an undiscounted cash flow analysis at the lowest level at which the cash flows of the intangible assets and long-lived assets are largely independent of the cash flows of other asset groups.
There was no impairment of our goodwill, intangible assets with estimated useful lives, or long-lived assets recorded during the three and six months ended June 30, 2026 and 2025.
Fair Value of Financial Instruments
Our cash and cash equivalents, accounts receivable, other current assets, accounts payable, accrued liabilities, deferred revenue, current operating lease liabilities, and current finance lease liabilities are financial instruments and are recorded at cost in the condensed consolidated balance sheets. The estimated fair value of these financial instruments approximates their carrying value.
Financial Assets Not Measured at Fair Value
Financial royalty assets are carried at amortized cost using the effective interest method or on a non-accrual basis. Management estimates the fair value of financial royalty assets using forecasted royalty receipts. The projected future cash flows are derived from expected royalty payments and milestones, and are discounted using asset‑specific discount rates. Financial royalty assets are classified as Level 3 within the fair value hierarchy because their fair value is based on inputs that are significant and unobservable.
The estimated fair value and carrying value of financial royalty assets were $306.6 million and $207.2 million, respectively, as of June 30, 2026, and $294.9 million and $219.7 million, respectively, as of December 31, 2025.
To determine the fair value of long-term financial royalty assets, we estimated future underlying product sales, applied probabilities of technical and regulatory success for development stage programs, estimated timelines for development and regulatory milestones, and applied discount rates reflecting partner execution and commercialization risk, which ranged from
13% to 35% as of both June 30, 2026 and December 31, 2025. The weighted average discount rate (weighted by relative fair value) was 17% as of both June 30, 2026 and December 31, 2025.