LIGAND PHARMACEUTICALS INC (LGND)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Caution: This discussion and analysis may contain predictions, estimates and other forward-looking statements that involve a number of risks and uncertainties, including those discussed in Part II, Item 1A. Risk Factors. This outlook represents our current judgment on the future direction of our business. These statements include those related to our future results of operations and financial position, Captisol-related revenues and Kyprolis and other product royalty revenues and milestones under license agreements, product development, and product regulatory filings and approvals, and the timing thereof. Actual events or results may differ materially from our expectations. For example, there can be no assurance that our revenues or expenses will meet any expectations or follow any trend(s), that we will be able to retain our key employees or that we will be able to enter into any strategic partnerships or other transactions. We cannot assure you that we will receive expected Kyprolis, Captisol and other product revenues to support our ongoing business or that our internal or partnered pipeline products will progress in their development, gain marketing approval or achieve success in the market. In addition, ongoing or future arbitration, litigation or disputes with third parties may have a material adverse effect on us. Such risks and uncertainties, and others, could cause actual results to differ materially from any future performance suggested. We undertake no obligation to make any revisions to these forward-looking statements to reflect events or circumstances arising after the date of this quarterly report. This caution is made under the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

We use our trademarks, trade names and services marks in this report as well as trademarks, trade names and service marks that are the property of other organizations. Solely for convenience, trademarks and trade names referred to in this report appear without the ® and ™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or that the applicable owner will not assert its rights, to these trade marks and trade names.

References to “Ligand Pharmaceuticals Incorporated,” “Ligand,” the “Company,” “we” or “our” include Ligand Pharmaceuticals Incorporated and our wholly-owned subsidiaries.

Overview

We are a biopharmaceutical royalty company focused on deploying capital and licensing technologies to acquire and create diversified royalty streams from high-value medicines. Our primary business is investing in and structuring royalty interests in mid- to late-stage development and commercial biopharmaceutical products, allowing us to generate long-duration, non-dilutive cash flows supported by a lean corporate cost structure. Capital deployment and technology licensing are the primary drivers of our long-term growth.

We partner capital through a range of transaction structures—including royalty purchases, development-stage financing arrangements, and acquisitions of companies or assets with embedded royalty rights—designed to create cash flowing royalties and produce attractive risk-adjusted returns. Our goal is to provide investors with exposure to biopharmaceutical innovation through a diversified portfolio of royalty interests while mitigating the binary risk and capital intensity traditionally associated with drug development.

In addition to our royalty investment activities, we operate two infrastructure-light, royalty-generating platform technologies, Captisol® and NITRICIL®. These technologies exemplify our platform technology investment criteria: infrastructure-light, scalable intellectual property with existing royalty streams and the potential to generate incremental royalties through partner-driven development and commercialization.

Our revenue is generated primarily from royalties on sales of products commercialized by our partners, supplemented by Captisol material sales and contract revenue from license fees and milestone payments. We partner with leading biopharmaceutical companies to leverage their capabilities in late-stage development, regulatory execution, and commercialization, while we focus on disciplined capital deployment, portfolio construction, and risk management. This also allows us to leverage our partner's asset infrastructure in sales and marketing, manufacturing and R&D to avoid infrastructure ourselves.

2031 Convertible Debt Financing

On June 25, 2026, we completed the offering of $700.0 million aggregate principal amount of 0.00% convertible senior notes due 2031 (the “2031 Notes”). The aggregate principal amount of the 2031 Notes includes the full exercise of the option to purchase an additional $75.0 million aggregate principal amount of 2031 Notes by the initial purchasers.

Net proceeds from the offering were $679.0 million, after deducting fees and expenses. Of that amount, we used $81.7 million of the proceeds to enter into a call spread overlay consisting of convertible note hedge and warrant transactions, and approximately $60 million to repurchase 228,859 shares of our common stock at a price of $262.17 per share. The convertible note hedge transactions intended to reduce the potential for dilution from the 2031 Notes upon conversion. As a result of the

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warrants transactions, there will be no dilution to our stock until the share price exceeds $524.34 per share. We expect to use the remaining net proceeds from the offering of the 2031 Notes for general corporate purposes, including investing in complementary businesses, companies, products and technologies, although we have no present commitments or agreements to do so beyond the XOMA Acquisition. See Note 6, Debt, for additional information regarding the 2031 Notes.

XOMA Acquisition

On July 14, 2026, we announced completion of the acquisition of XOMA Royalty, a biotechnology royalty aggregator. Details of the transaction are as follows:

•Each outstanding share of XOMA Royalty common stock was converted into the right to receive (i) $39.00 in cash and (ii) one contingent value right (CVR) representing the holder’s right to receive potential future payments derived from the CVR trust’s interest in XOMA Royalty LLC in connection with the Holding Company Reorganization (as defined in the merger agreement);

•The closing of the transaction met our original timeline expectations. Management believes that the transaction is expected to be immediately accretive; and

•We funded the transaction through cash on hand and expects to retain sufficient capital capacity to continue executing our capital deployment strategy of investing approximately $150 million to $250 million annually in high-value royalty assets.

We believe that the XOMA Acquisition strengthens our royalty portfolio by adding seven commercial products, including Roche’s VABYSMO® (faricimab-svoa), Servier’s OJEMDA™ (tovorafenib), and Zevra Therapeutics’ MIPLYFFA® (arimoclomol). Additionally, the acquisition adds 14 late-stage development programs, featuring Takeda’s mezagitamab and certain assets from Takeda’s externalized asset portfolio, such as osavampator, volixibat, and OHB-607, along with more than 100 assets in various stages of development to Ligand’s portfolio. As a result, our portfolio has more than doubled in size, now comprising over 200 commercial, clinical, and preclinical stage royalty assets.

Concurrently with the closing of the XOMA Acquisition, we entered into the Amended Credit Agreement, which amends and restates in its entirety the Credit Agreement. The Amended Credit Agreement provides for a $125.0 million revolving credit facility maturing on September 12, 2028. The Amended Revolving Credit Facility is secured by certain collateral of Ligand and the guarantors and is guaranteed by all of our material domestic subsidiaries, each of whom will derive substantial benefit from the Amended Revolving Credit Facility.

Key Portfolio Development

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) will help readers understand our results of operations, financial condition, and cash flows. It is provided in addition to the accompanying consolidated financial statements and notes.

Our MD&A is organized as follows:

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•Results of Operations. Detailed discussion of our revenue and expenses for twelve months ended December 31, 2025 and 2024. A comparison of our results of operations for twelve months ended December 31, 2025 and 2024 can be found under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report.

•Liquidity and Capital Resources. Discussion of key aspects of our consolidated statements of cash flows, changes in our financial position, and our financial commitments.

•Critical Accounting Policies and Estimates. Discussion of significant changes we believe are important to understand the assumptions and judgments underlying our consolidated financial statements.

•Recent Accounting Pronouncements. For summary of recent accounting pronouncements applicable to our consolidated financial statements, see “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 1, Basis of Presentation and Summary of Significant Accounting Policies.”

Results of Operations

Revenue and Income

FY 2025 vs. FY 2024

Total revenue and income increased by $101.0 million, or 60%, to $268.1 million in 2025 compared to $167.1 million in 2024 primarily due to the $52.2 million increase in royalties and $39.4 million increase in contract revenue and income. The increase in royalties in 2025 was primarily due to income from Qarziba financial royalty asset acquired in the third quarter of 2024 and an increase in sales of Filspari, Ohtuvayre and Capvaxive. Captisol sales increased by $9.3 million to $40.2 million in 2025 compared to $30.9 million in 2024. The increase in Captisol sales were due to the timing of customer orders. Contract revenue and income increased by $39.4 million, with the change primarily due to income from the Pelthos Transaction. During the third quarter of 2025, we recognized $53.1 million in total income related to the divestiture of LNHC in connection with the Pelthos Transaction.

Revenue from intangible royalty assets is a function of our partners’ product sales and the applicable royalty rate. The following table represents revenue from intangible royalty assets by program (in millions):

(1) Our royalty rate on Ohtuvayre is 3%, of which 2% is recognized in revenue from intangible royalty assets and the remaining 1% is accounted for as financial royalty asset.

(2) We receive tiered profit sharing of 25% on quarterly profits less than $3.75 million, 35% on quarterly profits greater than $3.75 million but less than $7.5 million and 40% on quarterly profits greater than $7.5 million.

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Operating Costs and Expense

FY 2025 vs. FY 2024

Total operating costs and expenses for 2025 increased by $37.3 million or 20% compared with 2024. Cost of Captisol increased year over year in 2025 primarily due to an increase in sales of Captisol during 2025 compared to 2024. Amortization of intangibles remained relatively steady in 2025 at $32.7 million compared to $33.0 million in 2024, with the change due to the deconsolidation of LNHC, Inc. on July 1, 2025 in connection with the closing of the Pelthos Transaction.

At any one time, we are working on multiple programs. As such, we generally do not track our R&D expenses on a specific program basis. Our R&D expenses increased by $59.8 million in 2025 compared to 2024, with the increase primarily due to a $44.3 million research and development funding arrangement related to the D-Fi royalty rights acquired with the Castle Creek Investment transaction and a $17.8 million research and development funding arrangement related to the Orchestra transaction. Both transactions are discussed in Note 3, Investment Transactions.

General and administrative expenses increased by $13.8 million in 2025 compared to 2024, with the increase primarily due to transaction costs.

Financial royalty asset impairment decreased by $24.4 million in 2025 compared to 2024. The 2025 impairment of $6.2 million is primarily due to UGN-301 and other Agenus partner programs. The 2024 impairment of $30.6 million was primarily due to Takeda’s decision to discontinue the soticlestat program.

Fair value adjustment to partner program derivatives are not recognized in 2025 with the adoption of ASU 2025-07. Refer to Note 1, Basis of Presentation and Summary of Significant Accounting Policies, for additional information on the ASU 2025-07 adoption. The $15.1 million gain recognized in 2024 was due to certain Agenus partners discontinuing development of their partnered programs.

We do not provide forward-looking estimates of costs and time to complete our ongoing research and development projects as such estimates would involve a high degree of uncertainty. Uncertainties include our inability to predict the outcome of research and clinical studies, regulatory requirements placed upon us by regulatory authorities such as the FDA and EMA, our inability to predict the decisions of our partners, our ability to fund research and development programs, competition from other entities of which we may become aware in future periods, predictions of market potential for products that may be derived from our work, and our ability to recruit and retain personnel or third-party contractors with the necessary knowledge and skills to perform certain research. Refer to “Item 1A. Risk Factors” for additional discussion of the uncertainties surrounding our research and development initiatives.

Non-operating Income and Expenses

FY 2025 vs. FY 2024

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The gain from short-term investments was $18.4 million in 2025 as compared to the gain from short-term investments of $75.0 million in 2024. The change is primarily driven by 1) sale of 0.7 million shares of Viking common stock in 2024 upon which we recognized a realized gain of $60.0 million in 2024, while we did not sell any shares of Viking common stock in 2025, and 2) $22.5 million unrealized gain on 2025 change in fair value of Palvella common stock that we received in December 2024. Also, in 2025, we recorded an unrealized loss on Viking common stock of $5.1 million as compared to an unrealized gain of $9.0 million in 2024. In addition, in 2024, we recorded a $7.1 million net gain on the arrangements we executed and exercised in 2024 to hedge against the fluctuation in Viking’s share price.

The gain from change in fair value of equity method investments and other investments was $90.7 million for 2025, attributable to the fair value changes of the shares of Pelthos common stock and Pelthos Series A convertible preferred stock that we acquired in connection with the Pelthos Transaction. For additional information, see Note 2, Pelthos Transaction. The loss from change in fair value of equity method investments and other investments was $34.6 million for 2024, attributable to the fair value adjustment of $25.8 million to Primrose Bio securities investment, the $5.8 million impairment to Primrose Bio equity method investment, and the $3.0 million impairment loss related to Neuritek warrants.

Interest income consists primarily of interest earned on our short-term investments. The increase over the prior year period was due to the increase in average investment balances in 2025 compared to 2024.

Interest expense consists primarily of 1) the 0.75% coupon cash interest expense in addition to the non-cash accretion of discount (including the amortization of debt issuance costs) on our 2030 Notes issued in August 2025, and 2) interest accrued related to a royalty and milestone payments purchase agreement entered into by Novan, Inc. in 2019, assumed by Ligand as part of the Novan acquisition in September 2023, and deconsolidated on July 1, 2025.

Other non-operating expense, net, primarily consists of mark-to-market adjustments on derivatives (other than Viking Share Collar and Put and the partner program derivatives), mark-to-market adjustments on CVRs and absorbed losses for equity method investment in Primrose Bio. Other non-operating expense, net, decreased by $20.2 million in 2025 compared to 2024, primarily due to an insignificant change in Agenus Warrant fair value in 2025 ($0.5 million increase) compared to $7.1 million decrease in 2024, no change in Agenus Upsize Option fair value in 2025 compared to $4.9 million decrease in 2024, and no losses absorbed losses from equity method investment in Primrose Bio in 2025 compared to $7.0 million losses absorbed in 2024.

Income tax benefit (expense)

FY 2025 vs. FY 2024

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