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Item 7. Management’s Discussion and Analysis

2025-03-18 compared with 2024-03-25 · 113 added, 104 removed, 126 unchanged (63% of the section changed)

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Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those set forth under the section entitled “Risk Factors” or in other parts of this Annual Report.

licenses cutting edge discovery research technology to the pharmaceutical and biotech industry to enable the discovery of next generation therapeutics.

Our technology platform creates and screens diverse antibody repertoires and is designed to quickly identify optimal antibodies for our partners’ drug development efforts.

At the heart of the OmniAb platform is something we call Biological Intelligence TM , which powers the immune systems of our proprietary, engineered transgenic animals to create optimized antibody candidates for human therapeutics.

OmniAb licenses cutting-edge discovery research technology to pharmaceutical and biotech companies and academic institutions to enable the discovery of next-generation therapeutics.

Our technology platform creates and screens diverse antibody repertoires and is designed to quickly identify optimal antibodies and other target-binding proteins for our partners’ drug development efforts.

At the heart of the OmniAb platform is what we call Biological Intelligence TM , which powers the immune systems of our proprietary, engineered transgenic animals to create optimized antibody candidates for human therapeutics.

We believe the OmniAb animals comprise the most diverse host systems available in the industry.

Our suite of technologies and methods, including computational antigen design and immunization methods, paired with high-throughput single B cell phenotypic screening and mining of next-generation sequencing datasets with custom algorithms, are used to identify fully human antibodies with exceptional performance and developability characteristics.

We provide our partners both integrated end-to-end capabilities and highly customizable offerings, which address critical industry challenges and provide optimized antibody discovery solutions.

As of December 31, 2023, we had 77 active partners with 325 active programs using the OmniAb technology platform, including 28 OmniAb-derived antibodies in clinical development by our partners, one under regulatory review, and three approved products of our partners.

Our proprietary transgenic animals, including OmniRat ® , OmniChicken ® and OmniMouse ® have been genetically modified to generate antibodies with human sequences to streamline the development of human therapeutic candidates.

OmniFlic ® and OmniClic ® are fixed or common light-chain rats and chickens, respectively, designed to facilitate the discovery of bispecific antibodies.

OmniTaur™ provides cow-inspired antibodies with unique structural characteristics for challenging targets.

In May 2023, we announced the launch of OmniDeep™, a suite of in silico, AI and machine learning tools for therapeutic discovery and optimization that are woven throughout our various technologies and capabilities.

These tools include structural modeling, molecular dynamics simulations, large multi-species antibody databases, artificial intelligence, machine learning, deep learning models and more.

OmniDeep is designed to expedite the identification of candidates with the optimal affinity, specificity and developability profiles required for successful drug development.

In November 2023, we launched Omni dAb TM , an in vivo platform for the discovery of single domain antibodies based upon a human VH scaffold that affinity matures in a chicken host environment to provide a functionally diverse immune repertoire unavailable from mammalian systems.

We offer the industry’s only 4-species platform with differentiated technologies and capabilities.

We provide our partners both integrated end-to-end capabilities and highly customizable offerings, which address critical industry challenges and provide optimized discovery solutions.

As of December 31, 2024, we had 91 active partners with 363 active programs using the OmniAb technology platform, including 28 OmniAb-derived antibodies in clinical development by our partners, one under regulatory review, and three approved products developed and commercialized by our partners.

Our proprietary technologies are joined with and leverage a suite of in silico , artificial intelligence and machine learning tools for therapeutic discovery and optimization that are woven throughout our various technologies and capabilities.

Additionally, an established core competency focused on ion channels and transporters further differentiates OmniAb’s technology and creates opportunities in many important and emerging target classes.

OmniAb technologies are designed to be leveraged for the discovery of a variety of next-generation antibody-based therapeutic modalities, including bi- and multi-specific biologics, antibody-drug conjugates, CAR-T therapies, targeted radiotherapeutics, and many others.

The OmniAb suite of technologies spans from Biological Intelligence-powered repertoire generation to cutting-edge antibody discovery and optimization offering an increasingly efficient and customizable end-to-end solution for the growing discovery needs of the global pharmaceutical industry.

We partner with pharmaceutical and biotechnology companies and leading academic institutions that vary in size, clinical stage, geography and therapeutic focus.

Our license agreements are negotiated separately for each discovery partner, and as a result, the financial terms and contractual provisions vary from agreement to agreement.

We structure our license agreements with partners to typically include:

(i) upfront or, in some instances, annual payments for technology access (license revenue), (ii) payments for the performance of research services (service revenue), (iii) downstream payments in the form of preclinical, intellectual property, clinical, regulatory, and commercial milestones (milestone revenue), and (iv) royalties on net sales of our partners’ products.

Our partners gain access to wide repertoires of antibodies and state-of-the-art screening technologies designed to enable efficient discovery of next-generation novel therapeutics and deliver high-quality therapeutic antibody candidates for a wide range of diseases.

Our partners can select a biological target to treat a disease and define the antibody properties needed for therapeutic development or use certain of our technologies directly in their own laboratories.

Our license agreements with pharmaceutical and biotechnology partners generally include:

(i) upfront or, in some instances, annual payments for technology access;

(ii) payments for performance of research services;

(iii) downstream payments in the form of preclinical, intellectual property, clinical, regulatory, and commercial milestones;

and (iv) royalties on net sales of our partners’ products, if any.

License agreements with academic institutions are typically structured with revenue sharing.

We succeed when our partners are successful, and our agreements are structured to align economic and scientific interests.

Our typical royalty rates for antibody discovery contracts are currently in the low- to mid-single digits, and can vary depending on the other economic terms in the agreement.

Our future success and the potential to receive these payments are entirely dependent on our partners’ efforts over which we have no control.

If our partners determine not to proceed with the future development of a drug candidate, we will not receive any future payments related to that program.

Additionally, unless publicly disclosed by our partners, we do not have access to information related to our partners’ clinical trial results, including serious adverse events, or ongoing communications with regulatory agencies regarding our partners’ current clinical programs, which limits our visibility into how such programs may be progressing.

Historically, our revenue has been derived from payments for technology access, collaborative research services and milestones.

We believe the long-term value of our business will be driven by partner royalties as such payments are based on global sales of potential future partner antibodies, which generally provide for larger and recurring payments as compared to technology access, research and milestone payments.

We believe our revenue will be materially driven by milestones in the shorter term, and by royalties in the longer term, from our partnered programs in the United States and Europe.

Our license agreements typically include reporting requirements, which provide us updates from our partners on the status of their programs.

In addition, we track our active partnered programs by reviewing our partners’ public announcements and maintaining close communications with our partners to the extent possible.

In some instances, a partner may not publicly announce milestones, in which case, we would be generally dependent on our partner to track, report and disclose to us milestones at the time of achievement.

Our license agreements typically grant a perpetual license to our technology and are typically terminable by our partners without penalty with specified notice.

However, all milestone payments and royalties survive termination and continue with respect to any OmniAb-derived antibodies.

The royalty term is generally the longer of 10 years from the first commercial sale or through the last expiration in any jurisdiction of the patents covering such OmniAb-derived antibody.

Importantly, our royalty term is typically linked to the patents that our partners file related to the antibody discovered using our technology, which both lengthens and diversifies the royalty streams we receive.

Our typical royalty rates for antibody discovery contracts are currently in the low- to mid-single digits and can vary depending on other economic terms in the agreement.

Although our license agreements with pharmaceutical and biotechnology partners typically include technology access fees, milestone payments and royalties, each agreement is negotiated separately and as a result, the financial terms and contractual provisions vary from agreement to agreement.

By providing a full suite of antibody discovery technologies with streamlined economics, we believe we offer an attractive option to industry stakeholders.

We believe the long-term value of our business will be driven by royalties given that such payments are based on global sales of potential future partner programs, which generally provide for larger and recurring payments as compared to technology access, research and milestone payments.

We believe our revenue will be materially driven by milestones in the shorter term, and by royalties in the longer term, from our partnered programs.

However, there is significant uncertainty in timing and likelihood of reaching marketing authorization in drug discovery and development, and we cannot be certain when, if at all, royalty payments will be a material portion of our revenue.

Furthermore, we do not control the progression, clinical development, regulatory strategy or eventual commercialization of antibodies discovered using our platform, and as a result, we are entirely dependent on our partners’ efforts and decisions with respect to such antibodies.

Closing of the Business Combination and Separation from Ligand

On November 1, 2022 (the “Closing Date”), we, Ligand Pharmaceuticals Incorporated, a Delaware corporation (“Ligand” or the “Parent”), OmniAb Operations, Inc., a Delaware corporation and wholly-owned subsidiary of Ligand (“Legacy OmniAb”, formerly known as OmniAb, Inc.

and, together with Ligand, collectively, the “Companies”), and Orwell Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of APAC (“Merger Sub”), consummated the transactions contemplated by the Agreement and Plan of Merger (the “Merger Agreement”), dated as of March 23, 2022.

In connection with, and as contemplated by, the Merger Agreement, on November 1, 2022, in accordance with the terms of the Separation and Distribution Agreement, dated as of March 23, 2022, by and among APAC, Ligand and Legacy OmniAb (the “Separation Agreement”), Ligand transferred the Legacy OmniAb business, including certain related subsidiaries of Ligand, to Legacy OmniAb and made a contribution to the capital of Legacy OmniAb of $1.8 million, after deducting certain transaction and other expenses reimbursable by Legacy OmniAb (the “Separation”).

Following the Separation, as contemplated by the Separation Agreement, Ligand distributed on a pro rata basis to its stockholders all of the shares of common stock, par value $0.001 per share, of Legacy OmniAb (“Legacy OmniAb Common Stock”) held by Ligand, such that each holder of shares of common stock, par value $0.001 per share, of Ligand (“Ligand Common Stock”) was entitled to receive one share of Legacy OmniAb Common Stock for each share of Ligand Common Stock held by such holder as of the record date for the distribution, October 26, 2022 (the “Distribution”).

Following the Separation and Distribution, on November 1, 2022, we consummated the Business Combination, by and among us (formerly known as APAC), Ligand, Legacy OmniAb and Merger Sub, pursuant to which Merger Sub merged with and into Legacy OmniAb, with Legacy OmniAb becoming a wholly owned subsidiary of OmniAb.

Prior to completion of the Separation, on November 1, 2022, Legacy OmniAb operated as part of Ligand and not as a separate, publicly-traded company.

Legacy OmniAb’s combined financial statements were derived from Ligand’s historical accounting records and were presented on a carve-out basis.

All revenues and expenses as well as assets and liabilities directly associated with Legacy OmniAb’s business activity were included as a component of the combined financial statements.

The combined financial statements also included allocations of certain general, administrative, sales and marketing expenses from Ligand’s corporate office and from other Ligand businesses to Legacy OmniAb and allocations of related assets, liabilities, and Ligand’s investment, as applicable.

We believe the allocations have been determined on a reasonable basis;

however, the amounts were not necessarily representative of the amounts that would have been reflected in the combined financial statements had Legacy OmniAb been an entity that operated separately from Ligand during the periods presented.

Following the Separation, we began accounting for our financial activities as an independent entity.

Our financial statements as of December 31, 2023 and December 31, 2022 and for the period from November 1, 2022 through December 31, 2022 are based on the reported results of OmniAb as a standalone company.

The accompanying consolidated and combined financial statements include the accounts of OmniAb and its wholly owned subsidiaries.

All intercompany transactions and accounts within OmniAb have been eliminated.

Furthermore, we do not control the progression, clinical development, regulatory strategy or eventual commercialization of programs discovered using our platform, and as a result, we are dependent on our partners’ efforts and decisions with respect to such programs.

Key Business Metrics

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We believe that the following metrics are important to understanding our current business.

These metrics may change or may be substituted for additional or different metrics as our business continues to grow.

Metric December 31, 2023 December 31, 2022 % Change

Active partners 77 69 12%

These metrics are highly dependent on information provided by our partners and may change or may be substituted for additional or different metrics as our business continues to grow.

Metric Active Partners

Active Programs

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Approved Products

December 31, 2023 77 325 32 3

(1) (31) (5) —

December 31, 2024 91 363 32 3

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(1) Two of the five clinical program terminations regressed to discovery or preclinical phases and remained active programs as of December 31, 2024.

Active partners represents the number of partners that have rights to an active program or have executed a license agreement in advance of initiating an active program.

A partner is removed from the metric when the partner informs us they are terminating their license or they are no longer in business.

We view this metric as an indication of the competitiveness of our platform and our current level of market penetration.

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We view this metric as an indication of our near- and mid-term potential revenue from royalty payments.

Our business metrics are subject to risk and uncertainties related to our dependence on our partners providing timely and accurate information, which impacts our ability to objectively and accurately characterize the current level of activity for each program.

In addition, changes in our key business metrics do not directly correlate to current revenues.

For more information, see the section titled “Risk Factors - Our management uses certain key business metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions, and such metrics may not accurately reflect all of the aspects of our business needed to make such evaluations and decisions, in particular as our business continues to grow .”

Results of Operations

A discussion regarding our financial condition and results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022 is presented below:

Comparison of the Year Ended December 31, 2024 and December 31, 2023

(Dollars in thousands) 2024 2023 $ Change % Change

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Total revenue $ 26,391 $ 34,164 $ (7,773) (23) %

• License and milestone revenue decreased primarily due to (1) the recognition of a $25.0 million milestone related to the first commercial sale of teclistamab in the U.S.

during the year ended December 31, 2022, which was partially offset by the recognition of a $10.0 million milestone related to the first commercial sale of teclistamab in the EU during the year ended December 31, 2023 and (2) decreases in license and milestone revenue from other programs.

• Service revenue decreased as a result of the completion of work on certain ion channel programs and adjustments resulting from the extension of one of our ion channel programs with GSK, partially offset by the recognition of a portion of a research progression milestone.

• License and milestone revenue fluctuates depending on the timing of new license agreements with partners and partners’ achievement of milestones.

Because of these factors and the sporadic nature of development milestones, license and milestone revenue could fluctuate significantly from period to period.

License and milestone revenue decreased primarily due to the recognition in the prior year period of a $10.0 million milestone related to the first commercial sale of TECVAYLI ® (teclistamab) in the European Union and $2.5 million of milestones related to the start of pivotal studies in two additional indications for batoclimab.

This decrease was partially offset by the recognition in the current year period of a $2.0 million IND acceptance milestone, a $2.0 million phase 3 milestone, and a $1.5 million phase 1 milestone.

• Royalty revenue decreased primarily due to lower net sales from partners’ product sales.

Operating Expenses

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Amortization of intangibles 17,407 13,554 3,853 28 %

Other operating (income) expense, net 191 (592) 783 NM (1)

Other operating expense (income), net (2,365) 191 (2,556) NM (1)

Total operating expenses $ 100,893 $ 103,583 $ (2,690) (3) %

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(1) P ercentage change is not meaningful.

• Research and development expenses increased primarily due to increased personnel costs and rent expenses for newly leased facilities as we invested in the growth and development of our business.

• General and administrative expenses increased primarily due to personnel-related costs and costs associated with our obligations as a new public company.

• The change in other operating (income) expense, net was primarily due to changes in the fair value adjustments to contingent earnout liabilities and royalty expense.

Other income (expense)

Interest income of $5.1 million and $0.6 million during the years ended December 31, 2023 and December 31, 2022, respectively, was due to interest earned on short-term investments.

Prior to the Separation on November 1, 2022, interest income was earned and accounted for by Ligand.

• Research and development expenses consist of (1) personnel related expenses, including salaries, benefits and share-based compensation, (2) external expenses, including third-party costs for goods and services such as lab supplies and contract research, and (3) facility and other overhead expenses, including depreciation and occupancy costs.

Research and development expenses decreased primarily due to lower personnel costs and external expenses partially offset by higher facility and other overhead expenses.

(Dollars in thousands)

2024 2023 Change % Change

Personnel related expenses

28,444 29,259 $ (815) (3) %

External expenses

17,160 18,138 (978) (5) %

Facility and other overhead expenses

9,506 9,128 378 4 %

Total research and development expenses

$ 55,110 $ 56,525 $ (1,415) (3) %

• General and administrative expenses decreased primarily due to non-recurring consulting and other outside service expenses incurred in 2023 related to our separation from Ligand to become a standalone public company as well as lower legal and share-based compensation expense.

• Amortization of intangibles increased primarily due to impairments in 2024, including a $1.2 million impairment of certain finite-lived intangible assets related to the legacy acquisition of Ab Initio and a $2.7 million impairment of certain small molecule ion channel intangible assets.

• Other operating income, net increased primarily due to a $2.5 million reduction in contingent liabilities in 2024 attributed to changes in ion channel programs.

Other Income (Expense), net

Other income (expense), net decreased by $2.0 million during the year ended December 31, 2024 compared to December 31, 2023 due to lower interest income related to lower short-term investment balances.

Income Tax Benefit

(Dollars in thousands) 2024 2023 $ Change % Change

Loss before income tax $ (64,363) $ (26,061) $ (38,302) 147 %

Loss before income taxes $ (71,411) $ (64,363) $ (7,048) 11 %

Income tax benefit 9,378 13,744 (4,366) (32) %

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The tax rate is also affected by discrete items that may occur in any given year, but are not consistent from year to year.

Our effective tax rate for the year ended December 31, 2023 differed from the federal statutory tax rate of 21.0% primarily due to the tax benefit from research and development credits and the deduction of certain transaction costs, offset with non-deductible share-based compensation expense.

Our effective tax rate for the year ended December 31, 2022 differed from the federal statutory tax rate of 21.0% primarily due to non-deductible share-based compensation expense and an increase to our valuation allowance recorded against deferred tax assets, partially offset by the tax benefit from research and development tax credits and the impact of changes in our state tax rate.

Our effective tax rate for the year ended December 31, 2024 differed from the federal statutory tax rate of 21.0% primarily due to non-deductible share-based compensation expense, an increase to our valuation allowance recorded against deferred tax assets, and repricing of state tax deferred liabilities, net, partially offset by the impact of state taxes and the tax benefit from research and development tax credits.

Our effective tax rate for the year ended December 31, 2023 differed from the federal statutory tax rate of 21.0% primarily due to the tax benefit from research and development credits and the deduction of certain transaction costs, partially offset with non-deductible share-based compensation expense.

Liquidity and Capital Resources

Prior to our spin-off from Ligand, funding from Ligand was our primary source of liquidity.

In connection with the closing of the Business Combination, we were capitalized with $95.8 million in net cash, and as of December 31, 2022, had cash, cash equivalents short-term investments of $88.3 million.

As of December 31, 2024, our cash, cash equivalents and short-term investments were $59.4 million.

We believe our cash, cash equivalents and short-term investments and the cash we expect to generate from operations will provide us the flexibility we need to meet operating, investing, and financing needs and support our operations through at least the next 12 months.

We believe our cash, cash equivalents and short-term investments are sufficient to support our operations through at least the next 12 months.

If our anticipated cash flows from operations and current cash are insufficient to satisfy our liquidity requirements because of increased expenditures or lower demand for our technology platform, or the realization of other risks, we may be required to raise additional capital through issuances of public or private equity or debt financing or other capital sources.

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Our future capital requirements will depend on many factors, including, but not limited to:

• our ability to achieve revenue growth;

• our ability to achieve revenue growth, which is dependent on ability of our partners to successfully develop and commercialize therapies based on antibodies discovered using our platform;

• the costs of expanding our operations, including our business development and marketing efforts;

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• the impact of pandemics or other epidemic diseases on global social, political and economic conditions;

• our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public company;

• the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patents and other intellectual property and proprietary rights;

• the costs associated with any technologies that we may in-license or acquire.

In December 2023, we entered into an Open Market Sale Agreement SM (the “Sales Agreement”), with Jefferies LLC (the “Sales Agent”) under which we may, from time to time, sell shares of our common stock having an aggregate offering price of up to $100.0 million in an “at the market” (“ATM”) offerings program through the Sales Agent.

Sales of the shares of common stock, if any, will be made at prevailing market prices at the time of sale, or as otherwise agreed with the Sales Agent.

The Sales Agent will receive a commission from us of up to 3.0% of the gross proceeds of any shares of common stock sold under the Sales Agreement.

Sales of our common stock made pursuant to the Sales Agreement are made under our shelf registration statement on Form S‐3 which was filed on December 8, 2023 and declared effective by the SEC on December 18, 2023.

We are not obligated to sell, and the Sales Agent is not obligated to buy or sell, any shares of common stock under the Sales Agreement.

For the year ended December 31, 2024, we sold 2,771,192 shares of our common stock under the ATM program, for net proceeds of $11.4 million, after deducting commissions.

We anticipate that our principal uses of cash in the future will be primarily to fund our operations, working capital needs, capital expenditures and other general corporate purposes.

Additionally, we may receive up to $218.6 million from the exercise of the Warrants, assuming the exercise in full of all the Warrants for cash, but not from the sale of the shares of Common Stock issuable upon such exercise.

Additionally, we may receive up to $218.6 million from the exercise of our warrants, assuming the exercise in full of all the warrants for cash, but not from the sale of the shares of common stock issuable upon such exercise.

As of the date of this Annual Report, our warrants are “out-of-the money,” which means that the trading price of the shares of our common stock underlying our warrants is below the $11.50 exercise price of the warrants.

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Therefore, any cash proceeds that we may receive in relation to the exercise of such securities will be dependent on the trading price of our common stock.

If the market price for our Common Stock is less than the exercise price of the Warrants, warrant holders will be unlikely to exercise such securities.

We expect to use the net proceeds from the exercise of the Warrants, if any, for general corporate and working capital purposes, although we believe we can fund our operations with cash on hand.

Cash Flow Summary

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Financing activities $ 13,020 $ (892) $ 13,912

Cash Used in Operating Activities:

Cash from Operating Activities:

During the year ended December 31, 2024, cash used in operating activities of $39.7 million primarily reflected our net loss of $62.0 million for the period, adjusted by net non-cash charges of $32.5 million and a net change in operating assets and liabilities of $10.2 million.

The net non-cash charges primarily consisted of share-based compensation expense of $21.5 million and depreciation and amortization expense of $23.6 million, which were partially offset by a $9.0 million change in deferred income taxes, net.

The net change in operating assets and liabilities was primarily driven by a decrease in deferred revenue of $6.0 million, a decrease in operating lease liabilities of $2.4 million, and a decrease in accounts payable, accrued expenses, and other liabilities of $2.4 million.

During the year ended December 31, 2023, cash provided by operating activities of $2.3 million primarily reflected our net loss of $50.6 million for the period, adjusted by net non-cash charges of $28.1 million and a net change in operating assets and liabilities of $24.9 million.

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The net change in operating assets and liabilities was primarily driven by a decrease in accounts receivable of $26.9 million and a decrease in deferred revenue of $5.3 million.

During the year ended December 31, 2022, cash used in operating activities of $3.6 million primarily reflected our net loss of $22.3 million for the period, adjusted by net non-cash charges of $29.6 million and a net change in operating assets and liabilities of $10.8 million.

The net non-cash charges primarily consisted of share-based compensation expense of $18.3 million, and depreciation and amortization expense of $18.2 million, which were partially offset by a $6.4 million change in deferred income taxes, net.

The net change in operating assets and liabilities was primarily driven by an increase in accounts payable and accrued liabilities of $15.1 million offset by an increase in accounts receivable of $12.7 million and a decrease in deferred revenue of $9.5 million.

Cash Used in Investing Activities:

Cash from Investing Activities:

During the year ended December 31, 2024, cash provided by investing activities of $37.9 million primarily consisted of $78.0 million of cash from the maturity of short-term investments partially offset by $40.3 million of cash used to purchase short-term investments.

During the year ended December 31, 2023, cash used in investing activities of $18.4 million primarily consisted of $112.6 million of cash used to purchase short-term investments and $96.9 million of cash from the maturity of short-term investments.

During the year ended December 31, 2022, cash used in investing activities of $73.3 million primarily consisted of $54.8 million of cash used to purchase short-term investments and $17.2 million of cash used to purchase property and equipment.

Cash Provided by Financing Activities:

As Ligand managed our cash and financing arrangements prior to the completion of the Separation, all excess cash generated through earnings was deemed remitted to Ligand and all sources of cash were deemed funded by Ligand.

Cash provided by financing activities during the year ended December 31, 2023 and 2022 primarily included cash transferred to us from Ligand based on changes in our cash used for operations.

Cash from Financing Activities:

During the year ended December 31, 2024, cash provided by financing activities was $13.0 million, which primarily consisted of $11.4 million for the issuance of common stock under the ATM facility, net of commissions and $3.3 million of proceeds from the issuance of common stock from stock compensation plans.

During the year ended December 31, 2023, cash used in financing activities was $0.9 million.

During the year ended December 31, 2022, cash provided by financing activities was $110.7 million, which primarily consisted of $96.2 million of proceeds from the issuance of common stock upon the business combination and $18.6 million net transfer from Ligand, partially offset by $4.3 million in payments for deferred transaction costs and $2.0 million of payments to CVR holders.

Critical Accounting Policies and Estimates

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 and combined 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.

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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 “Note 2 – Summary of Significant Accounting Policies” in the notes to the consolidated and combined financial statements appearing elsewhere in this Annual Report for a full description of accounting pronouncements which we have recently adopted and the impact to our financial statements upon adoption.

For additional information, see “Note 2 – Summary of Significant Accounting Policies” in the notes to the consolidated financial statements appearing elsewhere in this Annual Report for a full description of accounting pronouncements which we have recently adopted and the impact to our financial statements upon adoption.

Although we believe that our estimates, assumptions, and judgments are reasonable, they are based upon information presently available.

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Revenue Recognition

License revenue is generally recognized at a point in time once we grant access to our intellectual property rights.

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.

Our contracts with customers often will include future contingent milestone based payments.

We include contingent milestone based payments in the estimated transaction price when the milestones are determined to be probable of being achieved.

These estimates are based on historical experience, anticipated results and our best judgment at the time.

License revenue is recognized when (or as) control of a performance obligation is transferred to the customer.

When combined performance obligations contain a promised license and related services or other promises, management judgment is required to determine whether revenue is recognized at a point in time or over time.

If a license for technology access is deemed to be the predominant promise in a performance obligation, we first determine the nature of the license, whether functional or symbolic intellectual property, to conclude whether revenue recognition as of a point in time or over time is most appropriate.

The determination of functional or symbolic intellectual property requires an assessment of whether the customer is able to benefit from the license in its current condition, or if the utility of the license is dependent on or influenced by our ongoing activities.

We include contingent milestone based payments in the estimated transaction price when there is a basis to reasonably estimate the amount of the payment and it is probable of being achieved.

These estimates are based on historical experience, anticipated results and management’s 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 the development milestone or regulatory approval.

Depending on the terms of the arrangement, we may also defer a portion of the consideration received if we have to satisfy a future obligation.

For research and development services that we recognize over time, we measure our progress using an input method.

The input methods we use are 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 it will take us to complete the activities, or the costs we may 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 numerous estimates and use significant judgment.

If our estimates or judgments 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 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.

Significant judgments must be made in determining the transaction price for licenses of intellectual property.

Because of the risk that products in development with partners will not reach development based milestones or receive regulatory approval, we generally recognize any contingent payments that would be due upon achievement of the development milestone or regulatory approval.

We recognize service revenue for contracted R&D services performed for partners over time.

We measure our progress using an input method based on the effort we expend or cost we incur relative to the estimated total effort or costs to satisfy the performance obligation.

This results in a percentage that is multiplied by the transaction price to determine the amount of revenue recognized each period.

This approach requires us to make estimates and use judgment.

If estimates or judgments change over the course of the collaboration, they may affect the timing and amount of revenue recognized in current and future periods.

We occasionally have sub-license obligations related to arrangements for which we receive license fees, milestones and royalties.

We evaluate the determination of gross as a principal versus net as an agent reporting based on each individual agreement.

Our license agreements typically grant a perpetual license to our technology and are typically terminable by our partners without penalty with specified notice.

License fees are nonrefundable, and termination of a license does not impact previously received and recognized license revenue.

In addition, all milestone payments and royalties survive termination of the license agreement and continue with respect to any OmniAb-derived antibodies discovered under the license agreement and would be recognized when achieved in accordance with our revenue recognition policies regardless of a license termination.

As such, any license agreement termination would not affect our revenue recognition policies.

For arrangements that include sales-based royalties, and under which the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

Each quarterly period, sales-based royalties are recorded based on estimated quarterly net sales of the associated collaboration products.

Differences between actual results and estimated amounts are adjusted for in the period in which they become known, which typically follows the quarterly period in which the estimate was made.

To date, actual royalties received have not differed materially from our estimates.

Intangible Assets and Other Long-Lived Assets — Impairment Assessments

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Significant judgments and estimates based on interpretations of existing tax laws or regulations in the United States are required in determining our provision for income taxes.

Changes in tax laws, statutory tax rates, and estimates of our future taxable income could impact the deferred tax assets and liabilities provided for in the combined financial statements and would require an adjustment to the provision for income taxes.

Changes in tax laws, statutory tax rates, and estimates of our future taxable income could impact the deferred tax assets and liabilities provided for in the consolidated financial statements and would require an adjustment to the provision for income taxes.

Deferred tax assets are regularly assessed to determine the likelihood they will be recovered from future taxable income.

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In evaluating our ability to recover deferred tax assets within the jurisdiction which they arise, we consider all available positive and negative evidence.

Factors reviewed can include the cumulative pre-tax book income for the past three years, scheduled reversals of deferred tax liabilities, our history of earnings and reliability of our forecasts, projections of pre-tax book income over the foreseeable future, and the impact of any feasible and prudent tax planning strategies.

Factors reviewed can include the cumulative pre-tax book income (loss) for the past three years, scheduled reversals of deferred tax liabilities, our history of earnings and reliability of our forecasts, projections of pre-tax book income over the foreseeable future, and the impact of any feasible and prudent tax planning strategies.

We recognize the impact of a tax position in our financial statements only if that position is more likely than not of being sustained upon examination by taxing authorities, based on the technical merits of the position.

Tax authorities regularly examine our returns in the jurisdictions in which we do business and we regularly assess the tax risk of our return filing positions.

Tax authorities can examine our returns in the jurisdictions in which we do business and we regularly assess the tax risk of our return filing positions.

Due to the complexity of some of the uncertainties, the ultimate resolution may result in payments that are materially different from our current estimate of the tax liability.

These differences, as well as any interest and penalties, will be reflected in the provision for income taxes in the period in which they are determined.

Prior to the Separation on November 1, 2022, OmniAb operated as part of Ligand and not as a stand-alone company.

We determined the OmniAb income tax provision as if Legacy OmniAb had filed consolidated federal income tax returns and combined state income tax returns separate from Ligand since its inception on January 8, 2016 when Ligand acquired Legacy OmniAb (originally known as “Open Monoclonal Technology, Inc.” or “OMT”).

We recorded a current federal and state income tax expense for the ten months ended October 31, 2022 and for the year ended December 31, 2021 to reflect OmniAb’s federal tax liability and state minimum taxes due on a carve-out basis.

We recorded a deferred federal and state income tax benefit for the ten months ended October 31, 2022 and for the year ended December 31, 2021 to reflect the change in the net deferred tax liability for the periods.

The difference between the tax attributes we historically calculated on a carve-out basis and the actual tax attributes that we received as a standalone entity on November 1, 2022 was adjusted through additional paid-in-capital.

Recent Accounting Pronouncements

For the summary of recent accounting pronouncements applicable to our consolidated and combined financial statements, see “ Item 8.

Financial Statements and Supplementary Data—Notes to Consolidated and Combined Financial Statements—Note 2 – Summary of Significant Accounting Policies.

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 2 – Summary of Significant Accounting Policies.

Implications of Being an Emerging Growth Company

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis