LGND 10-K & 10-Q changes, risk factors and insider trading

•Third partyThird-party intellectual property rights may prevent us or our partners from developing our potential products; our and our partners’ intellectual property may not prevent competition; and any intellectual property issues may be expensive and time consuming to resolve;

•Risks related to our accounting methodologies and tax status; and

Future revenue based on Kyprolis, Qarziba, Filspari, Evomela, TeriparatideTeriparatide, Vaxneuvance, Ohtuvayre, Capvaxive and Rylaze, as well as royalties from our other partnered products, may be lower than expected.

A significant portion of our royalty revenue is based on sales of Kyprolis by Amgen, sales of Qarziba by Recordati, sales of Filspari by Travere, sales of Evomela by Acrotech Biopharma, sales of Teriparatide by Alvogen/AdalvoAdalvo, sales of Vaxneuvance and Capvaxive by Merck, sales of Ohtuvayre by Verona Pharma, now a subsidiary of Merck, and sales of Rylaze by Jazz. Royalties, including payments from the foregoing partners, are expected to be a substantial portion of our ongoing revenues for the foreseeable future. Any setback that may occur with respect to any of our partners'partners’ products, and in particular Kyprolis, could significantly impair our operating results and/or reduce our revenue and the market price of our stock. Setbacks for the products could include problems with shipping, distribution, manufacturing, product safety, marketing, government regulation or reimbursement, licenses and approvals, intellectual property rights, including failure by any of the foregoing partners to enforce their respective intellectual property rights, competition with existing or new products and physician or patient acceptance of the products, as well as higher than expected total rebates, returns, discounts, or unfavorable exchange rates. These products also are or may become subject to generic competition. For example, we entered into a settlement agreement with Teva and Acrotech Biopharma (the holder of the NDA for Evomela) which will allow Teva to market a generic version of Evomela in the United States starting on June 1, 2026, or earlier under certain circumstances. The entry of generic competition for Evomela may materially and adversely affect the revenue we derive from Evomela sales. Also, Amgen previously settled patent litigation related to Kyprolis on confidential terms with several parties, but it was publicly reported that the U.S. launch date for at least Breckenridge Pharmaceuticals’ applicable generic product will be “on a date that is held as confidential in 2027 or sooner, depending on certain occurrences.”

We obtain Captisol from Hovione, our third partythird-party manufacturer, primarily at their facilities in Ireland and Portugal. If Hovione were to cease to be able, for any reason, to supply Captisol to us in the amounts we require, or decline to supply Captisol to us, we would be required to seek an alternative source, which could potentially take a considerable length of time and impact our revenue and customer relationships. In the event of a Captisol supply interruption, we are permitted to designate and, with Hovione’s assistance, qualify one or more alternate suppliers, although there is no assurance that we could do so timely or at acceptable costs, if at all. In addition to manufacturing at Hovione’s facilities in Ireland and Portugal, we have processing capacity for Captisol in both the United States and England.

We maintain inventory of Captisol, which has a five-year shelf life, at three geographically dispersed storage locations in the United States and Europe. If we were to encounter problems maintaining our inventory, due to factors such as natural disasters, tariffs or trade restrictions at one or more of these locations, it could lead to supply interruptions. In addition, we rely on Hovione to expand manufacturing capacity of Captisol and any failure by Hovione to timely implement such increased capacity could adversely affect our ability to supply Captisol to our partners. While we believe we maintain adequate inventory of Captisol to meet our current partner needs, and our Captisol capacity will be sufficient to meet future partner needs, our estimates and projections for Captisol demand may not be correct and any supply interruptions could materially adversely impact our operating results.

Third partyThird-party intellectual property may prevent us or our partners from developing our potential products; our and our partners’ intellectual property may not prevent competition; and any intellectual property issues may be expensive and time consuming to resolve.

We permit our partners to list our patents that cover their branded products in the Orange Book. If a third partythird-party submits a new drug application (“NDA”) or abbreviated new drug application (“ANDA”) for a generic drug product that relies in whole or in part on studies contained in our partner’s NDA for their branded product, the third partythird-party will have the option to certify to the FDA that, in the opinion of that third party,third-party, the patents listed in the Orange Book for our partner’s branded product are invalid, unenforceable, or will not be infringed by the manufacture, use or sale of the third party’sthird-party’s generic drug product. A third partythird-party certification that a new product will not infringe Orange Book-listed patents, or that such patents are invalid, is called a paragraph IV patent certification. If the third partythird-party submits a paragraph IV patent certification to the FDA, a notice of the paragraph IV patent certification must be sent to the NDA owner and the owner of the patents that are subject to the paragraph IV patent certification notice once the third-party’s NDA or ANDA is accepted for filing by the FDA. A lawsuit may then be initiated to defend the patents identified in the notice. The filing of a patent infringement lawsuit within 45 days of the receipt of notice of a paragraph IV patent certification automatically prevents the FDA from approving the generic NDA or ANDA until the earlier of the expiration of a 30-month period, the expiration of the patents, the entry of a settlement order stating that the patents are invalid or not infringed, a decision in the infringement case that is favorable to the NDA or ANDA applicant, or such shorter or longer period as the court may order. If a patent infringement lawsuit is not initiated within the required 45-day period, the third-party’s NDA or ANDA will not be subject to the 30-month stay.

Several third parties have challenged, and additional third parties may challenge, the patents covering our partner’s branded products, including Kyprolis and Evomela, which could result in the invalidation or unenforceability of some or all of the relevant patent claims. We may from time to time become party to litigation or other proceedings as a result of Paragraph IV certifications. For example, as a result of the settlement of one such matter, Teva will be permitted to market a generic version of Evomela in the United States starting on June 1, 2026 or earlier under certain circumstances. The terms of the settlement agreement are otherwise confidential. Also, as noted above, Amgen previously settled patent litigation related to Kyprolis on confidential terms with several parties, but it has been publicly reported that the U.S. launch date for at least Breckenridge Pharmaceuticals’ applicable generic product will be “on a date that is held as confidential in 2027 or sooner, depending on certain occurrences.”

In addition, we cannot assure you that all of the potentially relevant prior art information that was or is deemed available to a person of skill in the relevant art prior to the priority date of the claimed invention-relating to our and our partners’ patents and patent applications has been found. If such prior art exists, it can invalidate a patent or prevent a patent from issuing from a pending patent application, and we or our partners may be subject to a third partythird-party pre-issuance submission of prior art to the USPTO. Even if our patent applications do successfully issue and even if such patents cover our or our partner’s products or potential products, third parties may initiate litigation or opposition, interference, re-examination, post-grant review, inter partes review, nullification or derivation action in court or before patent offices, or similar proceedings challenging the validity, enforceability or scope of such patents, which may result in the patent claims being narrowed or invalidated, may allow third parties to commercialize our or our partners’ products and compete directly with us and our partners, without payment to us or our partners, or limit the duration of the patent protection of our and our partners’ technology and products.

In addition, periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and or applications will be due to the U.S. and various foreign patent offices at various points over the lifetime of our and our licensees’ patents and/or applications. We have systems in place to remind us to pay these fees, and we rely on our outside patent annuity service to pay these fees when due. Additionally, the U.S. and various foreign patent offices require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We engage reputable law firms and other third partythird-party professionals to help us comply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with rules applicable to the particular jurisdiction. However, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If such an event were to occur, it could have a material adverse effect on our business.

In addition, we may identify third partythird-party intellectual property and technology we may need to acquire or license in order to engage in our business, including to develop or commercialize new technologies. However, such licenses may not be available to us on acceptable terms or at all. Furthermore, geopolitical actions in the United States and in foreign countries could increase the uncertainties and costs surrounding the prosecution or maintenance of our patent applications or those of any current or future license partners and the maintenance, enforcement or defense of our issued patents or those of any current or future license partners. For example, the United States and foreign government actions related to Russia’s conflict in Ukraine may limit or prevent filing, prosecution, and maintenance of patent applications in Russia. Government actions may also prevent maintenance of issued patents in Russia. These actions could result in abandonment or lapse of our or our license partners’ patents or patent applications, resulting in partial or complete loss of patent rights in Russia. If such an event were to occur, it could have a material adverse effect on our business. In addition, a decree was adopted by the Russian government in March 2022, allowing Russian companies and individuals to exploit inventions owned by patentees from the United States without consent or compensation. Consequently, we or our license partners would not be able to prevent third parties from practicing our or our inventions in Russia or from selling or importing products made using our inventions in and into Russia. Accordingly, our competitive position may be impaired, and our business, financial condition, results of operations and prospects may be adversely affected.

The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability. Some of our patents or patent applications (including licensed patents) may be challenged at a future point in time in opposition, derivation, reexamination, inter partes review, post-grant review or interference. Any successful third partythird-party challenge to our patents in this or any other proceeding could result in the unenforceability or invalidity of such patents or amendment to our patents in such a way that any resulting protection may lead to increased competition to our business, which could harm our business. In addition, in patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace. The outcome following legal assertions of invalidity and unenforceability during patent litigation is unpredictable. If a defendant were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of the patent protection on certain aspects of our platform technologies. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, regardless of the outcome, it could dissuade companies from collaborating with us to license, develop or commercialize current or future products, platform and technology.

We may not be aware of all third partythird-party intellectual property rights potentially relating to our products, platform and technology. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until approximately 18 months after filing or, in some cases, not until such patent applications issue as patents. We or our licensors might not have been the first to make the inventions included in each of our pending patent applications and we or our licensors might not have been the first to file patent applications for these inventions. There is also no assurance that all of the potentially relevant prior art relating to our patents and patent applications or licensed patents and patent applications has been found, which could be used by a third partythird-party to challenge their validity, or prevent a patent from issuing from a pending patent application.

Moreover, our licensors may own or control intellectual property that has not been licensed to us and, as a result, we may be subject to claims, regardless of their merit, that we are infringing or otherwise violating the licensor’s rights. In addition, certain of our agreements with third parties may provide that intellectual property arising under these agreements, such as data that could be valuable to our business, will be owned by the third party,third-party, in which case, we may not have adequate rights to use such data or have exclusivity with respect to the use of such data, which could result in third parties, including our competitors, being able to use such data to compete with us.

Monitoring unauthorized disclosure and detection of unauthorized disclosure is difficult, and we do not know whether the steps we have taken to prevent such disclosure are, or will be, adequate. If we were to enforce a claim that a third partythird-party had illegally obtained and was using our trade secrets, it would be expensive and time-consuming, and the outcome would be unpredictable. In addition, some courts both within and outside the United States may be less willing, or unwilling, to protect trade secrets. Further, we may need to share our trade secrets and confidential know-how with current or future partners, collaborators, contractors and others located in countries at heightened risk of theft of trade secrets, including through direct intrusion by private parties or foreign actors, and those affiliated with or controlled by state actors.

We also seek to preserve the integrity and confidentiality of our confidential proprietary information by maintaining physical security of our premises and physical and electronic security of our information technology systems, but it is possible that these security measures could be breached. If any of our confidential proprietary information were to be lawfully obtained or independently developed by a competitor or other third party,third-party, absent patent protection, we would have no right to prevent such competitor from using that technology or information to compete with us, which could harm our competitive position. If any of our trade secrets were to be disclosed to or independently discovered by a competitor or other third party,third-party, it could harm our business, financial condition, results of operations and prospects.

From time to time, legislation is implemented to reign in rising healthcare expenditures. By way of example, the Affordable Care Act (“ACA”) was enacted in 2010 and included a number of provisions affecting the pharmaceutical industry, including, among other things, annual, non-deductible fees on any entity that manufactures or imports some types of branded prescription drugs and increases in Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program. Since its enactment, there have been judicial, executive and Congressional challenges to certain aspects of the ACA. On June 17, 2021, the U.S. Supreme Court dismissed the most recent judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality of the ACA. Thus,It is possible that the ACA will remainbe subject to judicial or congressional challenges or legislative modifications in effectthe infuture. itsIt is unclear how such challenges or modifications, and the healthcare reform measures of the current form.administration, will impact the ACA and our business.

Additional changes that may affect our business include the expansion of new programs such as Medicare payment for performance initiatives for physicians under the Medicare Access and CHIP Reauthorization Act of 2015, or MACRA, which was fully implemented in 2019. At this time, it is unclear how the introduction of this Medicare quality payment program will impact overall physician reimbursement. The cost of prescription pharmaceuticals in the United States has also been the subject of considerable discussion in the United States. There have been several Congressional inquiries, as well as legislative and regulatory initiatives and executive orders designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. In addition, on December 8, 2023, the National Institute of Standards and Technology published for comment a Draft Interagency Guidance Framework for Considering the Exercise of march-in rights, which for the first time includes the price of a product as one factor an agency can use when deciding to exercise march-in rights. While march-in rights have not previously been exercised, it is uncertain whether that will continue under the new framework. It is unclear whether or how much such rights may be exercised.

Most significantly, on August 16, 2022, the former President Biden signed the Inflation Reduction Act of 2022 (“IRA”) into law. This statute marks the most significant action by Congress with respect to the pharmaceutical industry since adoption of the ACA in 2010. Among other things, the IRA requires manufacturers of certain drugs to engage in price negotiations with Medicare (beginning in 2026), with prices that can be negotiated subject to a cap; imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation (first due in 2023); and replaces the Part D coverage gap discount program with a new discounting program (beginning in 2025). The IRA permits the Secretary of the Department of Health and Human Services (“HHS”) to implement many of these provisions through guidance, as opposed to regulation, for the initial years. HHS has and will continue to issue and update guidance as these programs are implemented. On August 29, 2023, HHS announced the list of the first ten drugs that will be subject to price negotiations, although the Medicare drug price negotiation program is currently subject to legal challenges. TheHHS impacthas ofgenerally thewon IRAsubstantive disputes in these cases, including cases on theappeal, pharmaceuticalalthough industrycertain cannotcases yet be fully determined, but is likelycontinue to beseek significant.appellate review.

We expect that these and other healthcare reform measures that may be adopted in the future may result in more rigorous coverage and payment criteriacriteria, new payment methodologies and in additional downward pressure on the prices that can be realized for any approved drug. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us or our partners from being able to generate revenue, attain profitability, or commercialize drugs. Individual states in the United States have also become increasingly active in implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for drug candidates or additional pricing pressures. Further, the new presidential administration could result in policy shifts that may affect us in ways we cannot foresee. We cannot predict with certainty what impact any federal or state health reforms will have on us, but such changes could impose new or more stringent regulatory requirements or result in reduced reimbursement for our products, any of which could adversely affect our business, results of operations and financial condition.

We and our partners may be subject to federal, state, and foreign laws and regulations that govern data privacy and security. The legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing focus on privacy and data protection issues, which may affect our business and may increase our compliance costs and exposure to liability. In the United States, numerous federal and state laws and regulations govern the collection, use, disclosure, and protection of personal information, including state data breach notification laws, federal and state health information privacy laws, and federal and state consumer protection laws. Each of these laws is subject to varying interpretations by courts and government agencies, creating complex compliance issues. If we fail to comply with applicable laws and regulations we could be subject to penalties or sanctions,sanctions. includingFor criminal penalties ifexample, we knowinglymay obtain or disclose individually identifiable health information from athird coveredparties entity(including inresearch ainstitutions mannerfrom which we obtain clinical trial data) that isare notsubject authorizedto orprivacy permittedand bysecurity requirements under the Health Insurance Portability and Accountability Act, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, and regulations implemented thereunder (collectively, “HIPAA”) or applicable state laws. Depending on the facts and circumstances, we could be subject to criminal and civil penalties if we violate HIPAA. Requirements for compliance under HIPAA are also subject to changes, as the U.S. Department of Health and Human Services Office of Civil Rights issued a proposed rule that would amend certain security compliance requirements for covered entities and business associates.

Certain states have also adopted comparable privacy and security laws and regulations, which govern the privacy, processing and protection of health-related and other personal information. Such laws and regulations will be subject to interpretation by various courts and other governmental authorities, thus creating potentially complex compliance issues for us and our future customers and strategic partners. For example, the California Consumer Privacy Act of 2018 (“CCPA”) went into effect on January 1, 2020. The CCPA createscreated new individual privacy rights for California consumersresidents, including the right to opt out of certain disclosures of their data, the right to limit the use and increasesdisclosure theof sensitive personal information (including health information). The CCPA places increased privacy and security obligations ofon entities handling certain personal information.data of California residents or households, limits data use and mandates audit requirements for higher risk data. The CCPA providesalso for civil penalties for violations, as wellcreates as a private right of action with statutory damages for certain data breachesbreaches, thatthereby haspotentially increased the likelihood of, andincreasing risks associated with a data breach litigation.Although Further,there are limited exemptions for clinical trial data and some other health data under the CCPA, as currently written, the CCPA may impact our business activities and exemplifies the vulnerability of our business to the evolving regulatory environment related to personal data and Protected Health Information (“PHI”). The CCPA is enforced by the California Privacy RightsProtection ActAgency, (“CPRA”) generally went into effect on January 1, 2023, and significantly amends the CCPA. It imposes additionala data protection obligationsauthority, onwhich coveredhas businesses,the including additional consumer rights processes, limitations on data uses, new audit requirements for higher risk data, and opt outs for certain uses of sensitive data. It also created a new California data protection agency authorizedpower to issue substantive regulations and could result in increased privacy and information security enforcement. Additional compliance investment and potential business process changes may be required. Similar laws have passed in other states and are continuing to be proposed at the state and federal level, reflecting a trend toward more stringent privacy legislation in the United States. Many states have adopted statewide comprehensive privacy laws and other states have privacy legislation that is pending. Many of these new state laws contain some type of exemption for information collected under HIPAA and some data processed in the context of clinical trials, either at the entity level or the data level, so the impact might be limited particularly as it relates to PHI. Some states also have laws that specifically focus on the processing of personal data related to individuals’ health, including California’s Confidentiality of Medical Information Act and Washington’s My Health My Data Act. The enactment of such laws could have potentially conflicting requirements that would make compliance challenging. In the event that we are subject to or affected by HIPAA, the CCPA, the CPRACCPA or other domestic privacy and data protection laws, any liability from failure to comply with the requirements of these laws could adversely affect our financial condition. Further, the existence of comprehensive privacy laws in different states in the country would make our compliance obligations more complex and costly and may increase the likelihood that we may be subject to enforcement actions or otherwise incur liability for non-compliance.

We are also or may become subject to rapidly evolving data protection laws, rules and regulations in foreign jurisdictions. For example, the European Union General Data Protection Regulation (“GDPR”) governs certain collection and other processing activities involving personal data about individuals in the European Economic Area (“EEA”). Companies that must comply with the GDPR face increased compliance obligations and risk, including more robust regulatory enforcement of data protection requirements and potential fines for noncompliance of up to €20 million or 4% of the annual global revenues of the noncompliant company, whichever is greater. The European Data Protection Board continues to release guidelines for industries and impose fines related to the GDPR, some of which have been very significant, including proposed amendments to the GDPR in November 2025. Among other requirements, the GDPR regulates transfers of personal data subject to the GDPR to third countries that have not been found to provide adequate protection to such personal data, including the United States, and the efficacy and longevity of current transfer mechanisms between the EEA and the United States remains uncertain. Case law from the Court of Justice of the European Union (“CJEU”) states that reliance on the standard contractual clauses - a standard form of contract approved by the European Commission as an adequate personal data transfer mechanism - alone may not necessarily be sufficient in all circumstances and that transfers must be assessed on a case-by-case basis. On October 7, 2022, President Biden signed an Executive Order on ‘Enhancing Safeguards for United States Intelligence Activities’ which introduced new redress mechanisms and binding safeguards to address the concerns raised by the CJEU in relation to data transfers from the EEA to the United States and which formed the basis of the newThe EU-US Data Privacy Framework (“DPF”), asalso released on December 13, 2022. The European Commission adopted its Adequacy Decision in relation to the DPF on July 10, 2023, rendering the DPF effective asintroduced a GDPR transfer mechanism tofor transfers between the E.U. and U.S. entities self-certified under the DPF. The DPF also introducedwith a new redress mechanism for E.U. citizens which addresses a key concern in the previous CJEUCourt of Justice of the European Union judgments and may mean transfers under standard contractual clauses are less likely to be challenged in future. With the advice of outside counsel and privacy experts, we take appropriate steps to ensure transfers of personal data outside the EEA and the UK, including to the United States, are conducted in a manner consistent with applicable law and legal requirements. We expect the existing legal complexity and uncertainty regarding international personal data transfers to continue. In particular, we expect the DPF Adequacy Decision to be challenged and international transfers to the United States and to other jurisdictions more generally to continue to be subject to enhanced scrutiny by regulators. As a result, we may have to make certain operational changes and we will have to implement revised standard contractual clauses and other relevant documentation for existing data transfers within required time frames. Since the beginning of 2021, after the end of the transition period following the United Kingdom’s departure from the European Union, we are also subject to the United Kingdom data protection regime, which imposes separate but similar obligations to those under the GDPR and comparable penalties, including fines of up to £17.5 million or 4% of a noncompliant company’s global annual revenue for the preceding financial year, whichever is greater. On October 12, 2023, the UK Extension to the DPF came into effect (as approved by the UK Government), as a UK GDPR data transfer mechanism to U.S. entities self-certified under the UK Extension to the DPF. As we continue to expand into other foreign countries and jurisdictions, we may be subject to additional laws and regulations that may affect how we conduct business. In addition, on June 19, 2025, the UK’s Data (Use and Access) Act 2025 (the “DUAA”) was granted Royal Assent, implementing various measures concerning data usage in the UK and reforming data protection laws. The provisions within the DUAA will come into force through 2026, and it remains too soon to tell how the DUAA will be implemented and what impact it will have on our international activities. Further, other EU and member state laws and regulations may impose further obligations or restrictions on processing health information in the EEA, such as the European Health Data Space Regulation. In the EEA, the NIS 2 Directive (“NIS 2”) is replacing the cybersecurity legal framework under the current NIS framework, aiming to ensure a high level of cybersecurity in the region. NIS 2 brings new medium and large organizations providing services in the EEA within scope of the legal framework. It extends to additional sectors and expands the list of in-scope healthcare organizations, including to certain providers engaged in research and development of medicinal products. The new regime imposes direct obligations on management in respect of an in-scope organization's compliance with NIS 2, requires covered organizations to put in place certain cyber risk management measures, strengthens incident reporting requirements and provides supervisory authorities with greater oversight. The majority of obligations will come into force when national legislation implementing NIS 2 becomes effective in the relevant EU member state. EU member states had until October 17, 2024 to transpose NIS 2 into national legislation, although many countries have still not completed the transposition. As such, the cybersecurity regulatory landscape in the EU is currently fragmented and uncertain. To the extent that we become subject to NIS 2 in the future, we may require additional investment of our resources in compliance programs. Under NIS 2, companies may be subject to administrative fines of up to the higher amount of €10 million or 2% of worldwide turnover.

Furthermore, the FTC also has authority to initiate enforcement actions against entities that make deceptive statements about privacy and data sharing in privacy policies, fail to limit third-party use of personal health information, fail to implement policies to protect personal health information or engage in other unfair practices that harm customers or that may violate Section 5 of the FTC Act. Failing to take appropriate steps to keep consumers’ personal information secure can constitute unfair acts or practices in or affecting commerce in violation of Section 5(a) of the Federal Trade Commission Act. The FTC expects a company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business, and the cost of available tools to improve security and reduce vulnerabilities. Additionally, federalthe FTC’s Health Breach Notification Rule applies to health apps and other similar technologies and expanded breach notification requirements, which adds complexity to compliance obligations. Further, the SEC implemented rules around incident reporting, requiring cybersecurity incidents to be reported four business days after determining that an incident is material. Federal and state consumer protection laws are increasingly being applied by FTC and states’ attorneys general to regulate the collection, use, storage, and disclosure of personal or personally identifiable information, through websites or otherwise, and to regulate the presentation of website content.

Prior to obtaining approval to commercialize a drug or biological product candidate in the U.S. or abroad, we or our partners must demonstrate with substantial evidence from adequate and well-controlled clinical trials, and to the satisfaction of the FDA or comparable foreign regulatory authorities, that such product candidates are safe and effective for their intended uses, and in the case of biological products in the U.S., that such product candidates are safe, pure and potent. Results from nonclinical studies and clinical trials can be interpreted in different ways. Even if we or our partners believe available nonclinical or clinical data support the safety purity, potency or efficacy of our product candidates, such data may not be sufficient to obtain approval from the FDA and comparable foreign regulatory authorities. The FDA or comparable foreign regulatory authorities, as the case may be, may also require us or our partners to conduct additional preclinicalnonclinical studies or clinical trials for our product candidates either prior to or post-approval, or may object to elements of clinical development programs.

For any product candidate for which we may be granted orphan drug designation in a particular indication, it is possible that another company also holding orphan drug designation for the same product candidate will receive marketing approval for the same indication before we do. If that were to happen, our applications for that indication may not be approved until the competing company’s period of exclusivity expires. Even if we are the first to obtain marketing authorization for an orphan drug indication in the United States, there are circumstances under which a competing product may be approved for the same indication during the seven-year period of marketing exclusivity, such as if the later product is shown to be clinically superior to our orphan product, or if the later product is deemed a different product than ours. Further, the seven-year marketing exclusivity would not prevent competitors from obtaining approval of the same product candidate as ours for indications other than those in which we have been granted orphan drug designation, or for the use of other types of products in the same indications as our orphan product. Orphan drug designation does not shorten the development time or regulatory review time of a drug and does not give the drug any advantage in the regulatory review or approval process.

The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy changes. Average review times at the FDA have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable. The newcurrent presidentialU.S. administration isalso expectedhas taken steps to resultreduce inthe decreasesnumber toof governmentfederal agencyemployees fundingby andestablishing personnelvoluntary acrosstermination departments,programs, whichby mayposition have an adverse effect on review timeseliminations or otherby processinginvoluntary functions.terminations.

Disruptions at the FDA and other agencies may also slow the time necessary for new drugs and biologics to be reviewed and/or approved by necessary government agencies, which would adversely affect our business or the business of our partners. For example, over the last several years, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA employees and stop critical activities. If a prolonged government shutdown occurs, or if there are other significant changes in funding, it could significantly impact the ability of the FDA to provide feedback on clinical trials and development programs, to meet with sponsors and to otherwise timely review and process our regulatory submissions, which could have a material adverse effect on our business. If the timing of FDA’s review and approval of new products is delayed, the timing of our or our partners’ development process may be delayed which would result in delayed milestone revenues and materially harm our operations of business.

Separately, in response to the COVID-19 pandemic, the FDA postponed most inspections of domestic and foreign manufacturing facilities at various points. Even though the FDA has resumed standard inspection operations of domestic facilities where feasible, any resurgence of the COVID-19 virus or future pandemics may lead to further inspectional or administrative delays. Regulatory authorities outside the United States may adopt similar restrictions or other policy measures in response to future pandemics. If a prolonged government shutdown occurs, or if global health concerns continue to hinder or prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our or our partners’ regulatory submissions, which could have a material adverse effect on our business.

•the royalties from the sales of Kyprolis, EvomelaQarziba, Filspari, Evomela, Teriparatide, Vaxneuvance, Ohtuvayre, Capvaxive and Rylaze and other products sold by our partners;

Our Management'sManagement’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.

•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),1, Basis of Presentation and Summary of Significant Accounting Policies.”

Revenue and Other Income

Total revenue and other income increased by $35.8$101.0 million, or 27%,60%, to $268.1 million in 2025 compared to $167.1 million in 2024 compared to $131.3 million in 2023 primarily due to the $23.8$52.2 million increase in royalties.royalties and $39.4 million increase in contract revenue and income. The increase in royalties in 20242025 was primarily due to income from Qarziba financial royalty asset acquired in the third quarter of 2024 and an increase in sales of TravereFilspari, Therapeutics’Ohtuvayre Filspari.and Capvaxive. Captisol sales increased by $2.5$9.3 million to $40.2 million in 2025 compared to $30.9 million in 2024 compared to $28.4 million in 2023.2024. The higherincrease in Captisol sales were due to the timing of customer orders. Contract revenue and other revenueincome increased by $9.5$39.4 millionmillion, with the change primarily due to milestone payments earnedincome from Veronathe PharmaPelthos uponTransaction. During the approvalthird and commercial launchquarter of Ohtuvayre.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):

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 decreasedincreased by $3.1$59.8 million in 20242025 compared to 2023,2024, with the decreaseincrease primarily attributabledue to lowera employee$44.3 million research and development funding arrangement related expensesto the D-Fi royalty rights acquired with the Castle Creek Investment transaction and laba supplies$17.8 resultingmillion fromresearch and development funding arrangement related to the PelicanOrchestra spin-offtransaction. Both transactions are discussed in SeptemberNote 2023.3, TheInvestment decrease was partially offset by additional costs associated with incubating the Pelthos business.Transactions.

Financial royalty asset impairment wasdecreased $30.6by $24.4 million forin 20242025 compared to 2024. The 2025 impairment of $6.2 million is primarily due to Takeda'sUGN-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.

OtherNon-operating incomeIncome (expense)and Expenses

The increasegain from short-term investments was $18.4 million in 2025 as compared to the gain (loss) from short-term investments of $28.7$75.0 million in 2024. The change is primarily driven by the realized gain of $60.0 million from the1) sale of 0.7 million shares of Viking common stock in 2024,2024 comparedupon towhich thewe $44.4recognized milliona realized gain from the sales of 5.0$60.0 million in 2024, while we did not sell any shares of Viking common sharesstock in 2023.2025, Inand addition,2) the$22.5 increasemillion wasunrealized drivengain byon changes2025 change in the fair value of ourPalvella ownershipcommon 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 20242024. comparedIn to an unrealized gain of $2.6 millionaddition, in 2023)2024, andwe recorded a $7.1 million net gain on the arrangements we executed and exercised in 2024 to hedge against the fluctuation in Viking'sViking’s share price.

Interest income consists primarily of interest earned on our short-term investmentsinvestments. andThe remainedincrease relativelyover steadythe prior year period was due to the increase in 2024average investment balances in 2025 compared to 2023.2024.

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), andmark-to-market adjustments on CVRs and absorbed losses onfor equity method investments.investment in Primrose Bio. Other non-operating expense, net, increaseddecreased by $53.2$20.2 million in 20242025 compared to 2023,2024, primarily due to thean $25.8insignificant change in Agenus Warrant fair value in 2025 ($0.5 million lossincrease) 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 revaluation of Primrose investments, the $12.8 million equity method lossinvestment fromin Primrose Bio,Bio thein $12.12025 compared to $7.0 million losslosses from change in fair value of derivative assets, and the $3.0 million impairment loss related to Neuritek warrantsabsorbed in 2024.

Our effective tax rate for 20242025 and 20232024 was 260%22% and 15%,260%, respectively. Our tax rate is affected by recurring items, such as the U.S. federal and state statutory tax rates and the relative amounts of income we earn in those jurisdictions, which we expect to be fairly consistent in the near term. It is also affected by discrete items that may occur in any given year, but are not consistent from year to year. In 2025, the variance from the US federal statutory rate of 21% was primarily attributable to increase in foreign includable income, non-deductible stock-based compensation and change in valuation allowance. In 2024, the variance from the U.S. federal statutory rate of 21% was primarily attributable to increase in foreign includable income and non-deductible stock based compensation. In 2023, the variance from the U.S. federal statutory rate of 21% was primarily due the decrease in unrecognized tax benefits. The items below also had an impact on the difference between our statutory U.S. rate.

At December 31, 2024,2025, we had approximately $256.2$733.5 million in cash, cash equivalents, and short-term investments. Cash and cash equivalents and short-term investments decreasedincreased by $85.9$477.4 million from last year, due to mark-to-market adjustments and factors described in the “Cash Flow Summary” below. Our primary source of liquidity, other than our holdings of cash, cash equivalents, and investments, has been cash flows from operations. Our ability to generate cash from operations provides us with the financial flexibility we need to meet operating, investing, and financing needs.

Historically, we have liquidated our short-term investments and/or issued debt and equity securities to finance our business needs as a supplement to cash provided by operating activities. Our short-term investments include U.S. government debt securities, shares of publicly traded companies, investment-grade corporate debt securities, bondcommercial fundspaper and certificates of deposit. We have established guidelines relative to diversification and maturities of our investments in order to provide both safety and liquidity. These guidelines are periodically reviewed and modified to take advantage of trends in yields and interest rates. Additionally, we own certain securities which are classified as short-term investments that we received as a result of a milestone and an upfront license payment as well as 1.0 million shares of common stock in Viking.

On September 30, 2022, we entered into an At-The-Market Equity Offering Sales Agreement (the “Sales Agreement”) with Stifel, Nicolaus & Company, Incorporated (the “Agent”), under which we may,were able to sell, from time to time, sell shares of our common stock having an aggregate offering price of up to $100 million in “at the market” offerings through the Agent (the “ATM Offering”). The shelf registration statement relating to such shares included a prospectus covering the offering, issuance and sale of up to $100 million of our common stock from time to time through the ATM Offering. TheAs shares to be sold underof the Salesdate Agreementhereof, maythe beShelf issuedRegistration statement is no longer effective and sold pursuant to the shelfATM registrationOffering statement.has expired. During 2024, we issued 360,325 shares of common stock in the ATM Offering, generating net proceeds of $37.4 million, net of commissions and other transaction costs. During 2025, we did not issue any shares of common stock in the ATM Offering.

We are obligated to make payments under operating leases, including rental commitments on leases that have not yet commenced. For information on these obligations, see detail in “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note (9),10, Leases.”

As of December 31, 2024,2025, we had $124.4 million in available borrowing under the Revolving Credit Facility, after utilizing $0.6 million for letter of credit. The maturity date of the Revolving Credit Facility, as amended, is OctoberSeptember 12, 2026.2028. As of December 31, 2024,2025, there were no events of default or violation of any covenants under ourthe financingRevolving obligations.Credit Facility.

We believe that our existing funds, cash generated from operations and existing sources of and access to financing are adequate to satisfy our needs for working capital; capital expenditure and debt service requirements; continued advancement of research and development efforts; potential stock repurchases; and other business initiatives we plan to strategically pursue, including acquisitions and strategic investments.

As of December 31, 2024,2025, we had $3.7$3.2 million in fair value of contingent consideration liabilities associatedrelated withto theour acquisitionsbusiness combinations to be settled in future periods.

In 2024, we generated cash from operations primarily from revenue and other operating income. We used cash for investing activities primarily for the Apeiron Acquisition and Agenus Transaction. During the year, weWe generated cash from financing activities, primarily including net proceeds from the sales of shares of common stock in the ATM Offering, and net proceeds from stock options exercises and ESPP.

In 2023, we generated cash from operations primarily from revenue and other operating income. We used cash for investing activities primarily for the purchases of financial royalty assets, the Novan acquisition and our investment in Primrose Bio, partially offset by cash from the sale and maturity of short-term investments including Viking shares. During the year, weWe used cash forin financing activities,activities includingprimarily for the repayment of the remaining $76.9 million principal amount upon maturity of the 2023 Notes upon maturity, partially offset by net proceeds from stock options exercises and $0.3 million accrued interest in cash.ESPP.

The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the consolidated financial statements and accompanying notes. The SEC has defined a company’s critical accounting policies as the ones that are most important to the portrayal of the company’s financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified the critical accounting policies and judgments addressed below. We also have other key accounting policies, which involve the use of estimates, judgments, and assumptions that are significant to understanding our results. For additional information, see “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note (1),1, Basis of Presentation and Summary of Significant Accounting Policies.” Although we believe that our estimates, assumptions, and judgments are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments, or conditions.

For the 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),1, Basis of Presentation and Summary of Significant Accounting Policies.”

We do not believe that there have been any material changes to the risk factors disclosed in Part I, Item 1A of our 2025 Annual Report.Report, except as described below. The risk factors described in our 2025 Annual Report and in this Quarterly Report on Form 10-Q are not the only risks we face. Factors we currently do not know, factors that we currently consider immaterial or factors that are not specific to us, such as general economic and political conditions, may also materially adversely affect our business or our consolidated operating results, financial condition or cash flows.

Total revenue and income increased by $6.4$16.1 million, or 14%,34%, to $51.7$63.7 million in Q1Q2 2026 compared to $45.3$47.6 million in Q1Q2 2025. Royalties increased by $15.5$11.6 million, or 56%,32%, to $43.0$48.0 million in Q1Q2 2026 compared to $27.5$36.4 million in Q1Q2 2025, primarily attributable to royalties earned on Filspari, Ohtuvayre, Capvaxive,Zelsuvmi, and Kyprolis.Ohtuvayre. Captisol sales decreased by $4.8$0.3 million, or 36%,4%, to $8.7$8.0 million in Q1Q2 2026 compared to $13.5$8.3 million in Q1Q2 2025, primarily dueattributable to the timing of customer orders. Contract revenue and income decreasedincreased by $4.3$4.7 million, or (97)%,161%, to $0.1$7.7 million in Q1Q2 2026 compared to $4.4$2.9 million in Q1Q2 2025, primarily dueattributable to athe regulatorytiming of milestone tiedevents tounder Xi’anpartner Xintong’s Xinshumu (pradefovir mesylate tablets) in Q1 2025.agreements.

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