OmniAb, Inc. 10-K

Item 8. Financial Statements and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) 75 Consolidated Balance Sheets 76 Consolidated Statements of Operations 76 Consolidated Statements of Comprehensive Loss 78 Consolidated Statements of Stockholders’ Equity 79 Consolidated Statements of Cash Flows 80 Notes to Consolidated Financial Statements 81 74 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of OmniAb, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of OmniAb, Inc. (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2021. San Diego, California March 18, 2025 75 OMNIAB, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) December 31, 2024 2023 ASSETS Current assets: Cash and cash equivalents $ 27,598 $ 16,358 Short-term investments 31,836 70,625 Accounts receivable, net 5,272 3,844 Prepaid expenses and other current assets 3,432 4,074 Total current assets 68,138 94,901 Intangible assets, net 138,060 155,467 Goodwill 83,979 83,979 Property and equipment, net 15,492 18,249 Operating lease right-of-use assets 17,789 19,884 Restricted cash 560 560 Other long-term assets 1,540 2,185 Total assets $ 325,558 $ 375,225 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 2,297 $ 4,411 Accrued expenses and other current liabilities 6,141 7,068 Current contingent liabilities 531 1,303 Current deferred revenue 2,337 6,848 Current operating lease liabilities 3,782 3,486 Total current liabilities 15,088 23,116 Long-term contingent liabilities 953 3,203 Deferred income taxes, net 2,314 11,354 Long-term operating lease liabilities 19,382 22,075 Long-term deferred revenue 117 862 Other long-term liabilities 86 30 Total liabilities 37,940 60,640 Commitments and Contingencies (Note 7) Stockholders' equity: Preferred stock, $ 0.0001 par value; 100,000,000 shares authorized; no shares issued and outstanding at December 31, 2024 and December 31, 2023 — — Common stock, $ 0.0001 par value; 1,000,000,000 shares authorized at December 31, 2024 and December 31, 2023; 121,599,488 and 116,859,468 shares issued and outstanding at December 31, 2024 and December 31, 2023, respectively 12 12 Additional paid-in capital 388,979 353,890 Accumulated other comprehensive income 27 50 Accumulated deficit ( 101,400 ) ( 39,367 ) Total stockholders’ equity 287,618 314,585 Total liabilities and stockholders’ equity $ 325,558 $ 375,225 See accompanying notes to these consolidated financial statements. 76 OMNIAB, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) Year Ended December 31, 2024 2023 Revenue: License and milestone revenue $ 13,866 $ 20,699 Service revenue 11,949 12,180 Royalty revenue 576 1,285 Total revenue 26,391 34,164 Operating expenses: Research and development 55,110 56,525 General and administrative 30,741 33,313 Amortization of intangibles 17,407 13,554 Other operating expense (income), net ( 2,365 ) 191 Total operating expenses 100,893 103,583 Loss from operations ( 74,502 ) ( 69,419 ) Other income (expense), net: Interest income 3,106 5,055 Other income (expense), net ( 15 ) 1 Total other income (expense), net 3,091 5,056 Loss before income taxes ( 71,411 ) ( 64,363 ) Income tax benefit 9,378 13,744 Net loss $ ( 62,033 ) $ ( 50,619 ) Net loss per share, basic and diluted $ ( 0.61 ) $ ( 0.51 ) Weighted-average shares outstanding, basic and diluted 102,365 99,683 See accompanying notes to these consolidated financial statements. 77 OMNIAB, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (in thousands) Year Ended December 31, 2024 2023 Net loss $ ( 62,033 ) $ ( 50,619 ) Unrealized net gain (loss) on available-for-sale securities ( 23 ) 41 Comprehensive loss $ ( 62,056 ) $ ( 50,578 ) See accompanying notes to these consolidated financial statements. 78 OMNIAB, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, except share data) Common Stock Additional paid-in capital Accumulated other comprehensive income (loss) Retained earnings (accumulated deficit) Total stockholders’ equity Shares Amount Balance at January 1, 2023 115,218,229 $ 12 $ 330,100 $ 9 $ 11,252 $ 341,373 Issuance of common stock under stock compensation plans, net of tax 1,641,239 — 1,523 — — 1,523 Share-based compensation — — 24,820 — — 24,820 Unrealized net gain on available-for-sale securities — — — 41 — 41 Adjustments to net transfers of deferred income taxes, net from former parent company — — ( 2,553 ) — — ( 2,553 ) Net loss — — — — ( 50,619 ) ( 50,619 ) Balance at December 31, 2023 116,859,468 12 353,890 50 ( 39,367 ) 314,585 Issuance of common stock under stock compensation plans, net of tax 1,968,828 — 2,297 — — 2,297 Share-based compensation — — 21,499 — — 21,499 Unrealized net loss on available-for-sale securities — — — ( 23 ) — ( 23 ) Issuance of common stock under ATM facility, net of commissions and issuance costs 2,771,192 — 11,293 — — 11,293 Net loss — — — — ( 62,033 ) ( 62,033 ) Balance at December 31, 2024 121,599,488 $ 12 $ 388,979 $ 27 $ ( 101,400 ) $ 287,618 See accompanying notes to these consolidated financial statements. 79 OMNIAB, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended December 31, 2024 2023 Operating activities: Net loss $ ( 62,033 ) $ ( 50,619 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 23,583 19,497 Share-based compensation 21,499 24,820 Amortization of discounts on short-term investments, net ( 1,498 ) ( 3,441 ) Deferred income taxes, net ( 9,040 ) ( 12,540 ) Change in estimated fair value of contingent liabilities ( 2,547 ) ( 341 ) Other 544 100 Changes in operating assets and liabilities, net Accounts receivable, net ( 625 ) 26,898 Prepaid expenses and other current assets 642 2,321 Other long-term assets 645 642 Accounts payable, accrued expenses, and other liabilities ( 2,410 ) 920 Operating lease liabilities ( 2,436 ) ( 563 ) Deferred revenue ( 5,988 ) ( 5,347 ) Net cash provided by (used in) operating activities ( 39,664 ) 2,347 Investing activities: Purchases of property and equipment ( 1,875 ) ( 1,644 ) Purchases of short-term investments ( 40,288 ) ( 112,616 ) Proceeds from the maturity of short-term investments 78,000 96,900 Proceeds from sale of short-term investments 2,447 3,424 Payments of contingent liabilities ( 400 ) ( 4,440 ) Net cash provided by (used in) investing activities 37,884 ( 18,376 ) Financing activities: Proceeds from issuance of common stock from stock compensation plans 3,257 1,205 Taxes paid related to net share settlement of equity awards ( 960 ) ( 1,324 ) Payments of contingent liabilities ( 75 ) ( 300 ) Payment of transaction costs ( 571 ) ( 473 ) Proceeds from issuance of common stock under ATM facility, net of commissions 11,369 — Net cash provided by (used in) financing activities 13,020 ( 892 ) Net increase (decrease) in cash, cash equivalents, and restricted cash 11,240 ( 16,921 ) Cash, cash equivalents and restricted cash at beginning of year 16,918 33,839 Cash, cash equivalents and restricted cash at end of year $ 28,158 $ 16,918 Supplemental cash flow information: Right-of-use assets obtained in exchange for operating lease obligations $ 39 $ 328 Deferred revenue recorded in accounts receivable $ 732 $ 517 Taxes paid $ 16 $ 2,614 Supplemental non-cash investing and financing activities: Purchase of fixed assets recorded in accounts payable $ 77 $ 667 Intangible additions recorded in contingent liabilities $ — $ 1,476 Transaction cost recorded in accounts payable $ 15 $ 370 See accompanying notes to these consolidated financial statements. 80 OMNIAB INC. Notes to Consolidated Financial Statements 1. Organization and Basis of Presentation Description of Business OmniAb, Inc. (“OmniAb” or the “Company”, formerly known as Avista Public Acquisition Corp. II (“APAC”)) is a biotechnology company that licenses cutting-edge discovery research technology to the pharmaceutical and biotech industries and academic institutions to enable the discovery of next-generation therapeutics. The Company’s technology platform creates and screens diverse antibody repertoires and is designed to quickly identify optimal antibodies and other target-binding proteins for its partners’ drug development efforts. At the heart of the OmniAb platform is something the Company calls Biological Intelligence™, which powers the immune systems of its proprietary, engineered transgenic animals to create optimized antibody candidates for human therapeutics. The Company primarily derives revenue from license fees for technology access, milestones from partnered programs and service revenue from research programs. Business Combination On November 1, 2022 (the “Closing Date”), the Company, Ligand Pharmaceuticals Incorporated, a Delaware corporation (“Ligand”), OmniAb Operations, Inc., a Delaware corporation and wholly-owned subsidiary of Ligand (“Legacy OmniAb”, formerly known as OmniAb, Inc.), 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 (the “Business Combination”). Basis of Presentation The Company’s accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP. Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as included in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). Certain prior period amounts in the consolidated financial statements have been reclassified to conform to the current period presentation. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and accounts within the Company have been eliminated. Liquidity and Capital Resources The Company expects to continue to incur losses as it invests in research and development activities to improve its technology and platform, market and sell its technologies to existing and new partners, add operational, financial and management information systems and personnel to support its operations and incur ongoing costs associated with operating as a public company. The Company’s ability to continue its operations is dependent upon its ability to generate cash flows from operations and potentially obtain additional capital in the future. The Company believes its existing cash, cash equivalents and short-term investments are sufficient to support operations through at least the next 12 months from the date of issuance of these financial statements. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Emerging Growth Company OmniAb qualifies as an emerging growth company as defined in Section 2(a) of the Securities Act of 1933, as amended, (“Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). 81 Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. OmniAb has elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, OmniAb, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of OmniAb’s financial statements with another public company, which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period, difficult because of the potential differences in accounting standards used. 2. Summary of Significant Accounting Policies Use of Estimates The preparation of these consolidated financial statements in conformity with U.S. GAAP requires the use of estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Actual results may differ from those estimates. Cash, Cash Equivalents, and Restricted Cash Cash and cash equivalents consist of cash and highly liquid investments with maturities of three months or less when purchased. Cash and cash equivalents generally consist of bank deposits, money market funds as well as U.S. government and agency securities. The following table provides a reconciliation of the components of cash, cash equivalents and restricted cash reported in the consolidated balance sheets to the total of the amount presented in the consolidated statements of cash flows: (in thousands) December 31, 2024 December 31, 2023 Cash and cash equivalents $ 27,598 $ 16,358 Restricted cash 560 560 Total cash, cash equivalents and restricted cash presented in the consolidated statements of cash flows $ 28,158 $ 16,918 Restricted cash relates to deposits for the Company’s property leases. The restriction will lapse when the related leases expire. Short-term Investments Short-term investments generally consist of commercial paper, corporate debt securities, asset-backed securities and U.S. government and agency securities. The Company classifies short-term investments as “available-for-sale” as the sale of such investments may be required prior to maturity to implement management strategies. Therefore, the Company has classified all investments with maturity dates beyond three months at the date of purchase as current assets in the accompanying consolidated balance sheets based upon its ability and intent to use the investments to satisfy the liquidity needs of current operations. Any premium or discount arising at purchase is amortized and/or accreted to interest income as an adjustment to yield using the straight-line method over the life of the instrument. Investments are reported at their estimated fair value. Unrealized gains and losses are included in accumulated other comprehensive income (loss) as a component of stockholders’ equity until realized. Property and Equipment Property and equipment are stated at cost, subject to review for impairment, and depreciated over the estimated useful lives of the assets using the straight-line method. Amortization of leasehold improvements is recorded over the shorter of the lease term or estimated useful life of the related asset. Maintenance and repairs are charged to operations as incurred. When assets are sold, or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in operating income or expense. 82 Asset Estimated Useful Life Lab and office equipment 4 - 7 years Computer hardware 3 - 5 years Leasehold improvements Shorter of the useful life or remaining lease term Computer software Shorter of 3 years or useful life of asset Acquisitions The Company first determines whether a set of assets acquired constitutes a business and should be accounted for as a business combination. If the assets acquired are not a business, the Company accounts for the transaction as an asset acquisition. Business combinations are accounted for by using the acquisition method of accounting which requires the Company to use significant estimates and assumptions, including fair value estimates, as of the business combination date and to refine those estimates as necessary during the measurement period (defined as the period, not to exceed one year, in which the Company may adjust the provisional amounts recognized). Under the acquisition method of accounting, the Company recognizes separately from goodwill the identifiable assets acquired, the liabilities assumed, including contingent consideration and all contractual contingencies, generally at the acquisition date fair value. Contingent purchase consideration to be settled in cash is remeasured to estimated fair value at each reporting period with the change in fair value recorded in the statement of operations. Costs that the Company incurs to complete the business combination such as investment banking, legal and other professional fees are not considered part of consideration and the Company charges them to general and administrative expense as they are incurred. The Company measures goodwill as of the acquisition date as the excess of consideration transferred, which is also measured at fair value, over the net of the acquisition date amounts of the identifiable assets acquired and liabilities assumed. Should the initial accounting for a business combination be incomplete by the end of a reporting period that falls within the measurement period, the Company reports provisional amounts in its financial statements. During the measurement period, the Company adjusts the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date and the Company records those adjustments to its financial statements in the period of change, if any. Under the acquisition method of accounting for business combinations, if the Company identifies changes to acquired deferred tax asset valuation allowances or liabilities related to uncertain tax positions during the measurement period and they relate to new information obtained about facts and circumstances that existed as of the acquisition date, those changes are considered a measurement period adjustment and the Company records the offset to goodwill. The Company records all other changes to deferred tax asset valuation allowances and liabilities related to uncertain tax positions in current period income tax expense. Goodwill, Intangible Assets and Other Long-Lived Assets Goodwill, which has an indefinite useful life, represents the excess of cost over fair value of net assets acquired. Goodwill is reviewed for impairment at least annually during the fourth quarter, or more frequently if an event occurs indicating the potential for impairment. During the goodwill impairment review, the Company assesses qualitative factors to determine whether it is more likely than not that the fair value of its reporting unit is less than the carrying amount, including goodwill. The Company operates in one reporting unit. The qualitative factors include, but are not limited to, macroeconomic conditions, industry and market considerations, cost factors, the overall financial performance, and events affecting the reporting unit. If, after assessing the totality of these qualitative factors, the Company determines that it is not more likely than not that the fair value of its reporting unit is less than the carrying amount, then no additional assessment is deemed necessary. Otherwise, the Company proceeds to perform the quantitative assessment. The Company will then evaluate goodwill for impairment by comparing the estimated fair value of the reporting unit to its carrying value, including the associated goodwill. To determine the fair value, the Company generally uses a combination of market approach based on OmniAb and comparable publicly traded companies in similar lines of businesses and the income approach based on estimated discounted future cash flows. The Company’s cash flow assumptions consider historical and forecasted revenue, operating costs and other relevant factors. The Company may also elect to bypass the qualitative assessment in a period and elect to proceed to perform the quantitative assessment for the goodwill impairment test. The Company performs its annual assessment for goodwill impairment during the fourth quarter each year. No impairment indicators were noted in any periods presented in the consolidated financial statements under the qualitative assessment. 83 The Company’s identifiable intangible assets are composed of acquired core technologies, licensed technologies, contractual relationships, customer relationships and trade names. Identifiable intangible assets with finite lives are generally amortized on a straight-line basis over the assets’ respective estimated useful life. The Company regularly performs reviews to determine if any event has occurred that may indicate that intangible assets with finite useful lives and other long-lived assets are potentially impaired. If indicators of impairment exist, an impairment test is performed to assess the recoverability of the affected assets by determining whether the carrying amount of such assets exceeds the undiscounted expected future cash flows. If the affected assets are not recoverable, the Company estimates the fair value of the assets and records an impairment loss if the carrying value of the assets exceeds the fair value. Factors that may indicate potential impairment include market conditions, industry and economic trends, changes in regulations, historical and forecasted financial results, significant changes in the ability of a particular asset to generate positive cash flows, and the pattern of utilization of a particular asset. Other than an impairment of the Company’s finite-lived intangible assets related to certain legacy assets from Ligand’s acquisition of Ab Initio Biotherapeutics, Inc. (“Ab Initio”) in July 2019 and an impairment of certain small molecule ion channel intangible assets, as further described in Note 6 – Goodwill and Intangible Assets, Net, the Company did not identify indicators of impairment for its other finite-lived intangibles and long-lived assets at December 31, 2024 and 2023. Public, Private Placement, Forward Purchase and Backstop Warrants The Company assumed 7,666,667 warrants originally issued in APAC’s initial public offering (the “Public Warrants”) and 8,233,333 warrants issued in a private placement that closed concurrently with APAC’s initial public offering, (the “Private Placement Warrants”) in the Business Combination. Additionally, pursuant to the Amended and Restated Forward Purchase Agreement, dated as of March 23, 2022 (the “A&R FPA”), on the Closing Date, the Company issued 1,666,667 warrants in the forward purchase (the “Forward Purchase Warrants”) and 1,445,489 warrants in the redemption backstop (the “Backstop Warrants”). The Public, Private Placement, Forward Purchase and Backstop Warrants entitle the holder to purchase one share of common stock at an exercise price of $ 11.50 per share. The Public Warrants are publicly traded and are exercisable for cash unless certain conditions occur, such as the failure to have an effective registration statement related to the shares issuable upon exercise or redemption by the Company under certain conditions, at which time the warrants may be cashless exercised at the option of the Company. The Private Placement Warrants have terms and provisions that are identical to the Public Warrants except that the Private Placement Warrants were not transferable, assignable or salable until 30 days after the completion of the Business Combination. The Private Placement Warrants will be redeemable by the Company in all redemption scenarios and exercisable by the holders on the same basis as the Public Warrants. The Forward Purchase Warrants and the Backstop Warrants have the same terms as the Private Placement Warrants. The Company evaluated the Public, Private Placement, Forward Purchase and Backstop Warrants under ASC 815-40, Derivatives and Hedging-Contracts in Entity’s Own Equity (“ASC 815-40”), and concluded they meet the criteria for equity classification as they are considered to be indexed to the Company’s own stock. Revenue Recognition The Company applies the following five-step model in accordance with ASC 606, Revenue from Contracts with Customers , in order to determine revenue: (i) identification of the contract; (ii) identification of the performance obligations in the contract, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. The Company’s revenue is typically derived from license agreements with its partners and consists of: (i) upfront or 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 from partners’ product sales (royalty revenue). 84 License fees are 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, the Company first determines 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 the Company’s ongoing activities. The Company recognizes service revenue for contracted R&D services performed for partners over time. The Company measures its progress using an input method based on the effort it expends or costs it incurs relative to the estimated total effort or costs to satisfy the performance obligation. This results in a percentage that it multiplies by the transaction price to determine the amount of revenue recognized each period. This approach requires the Company 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. The Company includes 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 its 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 licenses of intellectual property. Because of the risk that products in development with partners will not reach development based milestones or receive regulatory approval, the Company generally recognizes any contingent payments that would be due to it upon or after achievement of the development milestone or regulatory approval. For arrangements that include sales-based royalties, and under which the license is deemed to be the predominant item to which the royalties relate, the Company recognizes 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. Accounts Receivable, Unbilled Receivables and Deferred Revenue Accounts receivable represents the amounts billed to the Company’s partners that are due unconditionally for revenue it has earned. The Company establishes an allowance for credit losses to present the net amount of accounts receivable expected to be collected. The allowance requires an estimation based upon historical loss experienced and adjusted for factors that are relevant to determining the expected collectability of accounts receivable. Some of these factors include delinquency trends, aging behavior of receivables, credit and liquidity quality indicators for industry groups, customer classes or individual customers and the current and expected future economic and market conditions. Depending on the terms of the arrangement, the Company may also defer a portion of the consideration received if it needs to satisfy a future obligation. The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and deferred revenue (contract liabilities) on the consolidated balance sheets. The Company generally receives payment at the point it satisfies its obligation or soon after. When revenue recognized exceeds the amount billed to the customer, the Company records an unbilled receivable for the amount entitled to be received based on an enforceable right to payment. Any fees billed in advance of being earned are recorded as deferred revenue. Unbilled receivables were $ 2.6 million and $ 0.8 million as of December 31, 2024 and 2023, respectively. During the year ended December 31, 2024, the amount recognized as revenue that was previously deferred at December 31, 2023 was $ 7.0 million. During the year ended December 31, 2023, the amount recognized as revenue that was previously deferred at December 31, 2022 was $ 6.4 million. Disaggregation of Revenue The disaggregated revenue categories are presented on the face of the consolidated statements of operations. 85 Research and Development Expenses Research and development expenses consist of material, equipment, facilities and labor costs of scientific staff who are working pursuant to collaborative agreements and other research and development projects. Also included in research and development expenses are third-party costs incurred for research programs including in-licensing costs, and costs incurred by other research and development service vendors. The Company expenses these costs as they are incurred. When the Company makes payments for research and development services prior to the services being rendered, it records those amounts as prepaid assets on its consolidated balance sheets and it expenses them as the services are provided. Share-Based Compensation The Company recognizes share-based compensation expense based on the estimated fair value on a straight-line basis over the requisite service periods of the awards, taking into consideration forfeitures as they occur. The fair value of restricted stock units (“RSUs”) is determined by the closing market price of the Company’s common stock on the date of grant. Performance-based restricted stock units (“PRSUs”) generally represent the right to receive a certain number of shares of common stock based on the achievement of the Company’s corporate performance or market goals and continued employment during the vesting period. Share-based compensation expense for these PRSUs is measured using the Monte-Carlo valuation model and is not adjusted for the achievement, or lack thereof, of the market conditions. The Company uses the Black-Scholes option-pricing model to estimate the fair value of stock purchases under the ESPP and stock options granted. The model assumptions include expected volatility, term, dividends, and the risk-free interest rate. The Company measures and recognizes compensation expense for shares to be issued under its employee stock purchase plan based on an estimated grant date fair value recognized on a straight-line basis over the offering period. Income Taxes The Company provides for income taxes under the asset and liability method prescribed by the ASC Topic 740, Income Taxes (“Topic 740”). Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates in effect when the differences are expected to reverse. If necessary, deferred tax assets are reduced by a valuation allowance to reflect the uncertainty associated with their ultimate realization. The Company accounts for uncertain tax positions recognized in the consolidated financial statements in accordance with the provisions of Topic 740 by prescribing a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. When uncertain tax positions exist, we recognize the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. The Company evaluates uncertain tax positions on a quarterly basis and adjusts the level of the liability to reflect any subsequent changes in the relevant facts surrounding the uncertain positions. Any changes to these estimates, based on the actual results obtained and/or a change in assumptions, could affect its income tax provision in future periods. Interest and penalty charges, if any, related to unrecognized tax benefits would be classified as a provision for income tax in its consolidated statements of operations. Income (Loss) Per Share Basic income (loss) per share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted income (loss) per share is computed based on the sum of the weighted average number of common shares and potentially dilutive common shares outstanding during the period. Comprehensive Income (Loss) Comprehensive income (loss) represents net income (loss) adjusted for the change during the periods presented in unrealized gains and losses on available-for-sale debt securities and reclassification adjustments for realized gains or losses included in net income (loss). The unrealized gains or losses are reported in the consolidated statements of comprehensive income (loss). 86 Recent Accounting Pronouncements From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed below, the Company believes that the impact of recently issued standards is either not applicable to the Company or will not have a material impact on its consolidated financial statements upon adoption. The following table provides a brief description of recently issued accounting standards which may impact the Company’s financial statements: Standard Description Effective Date Effect on the Financial Statements or Other Significant Matters ASU 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures The amendments in this ASU address investor requests for more transparency about income tax information through improvements to tax disclosures primarily related to the rate reconciliation and income taxes paid information. The ASU also includes certain other amendments to improve the effectiveness of income tax disclosures. Effective for the Company for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements and disclosures. ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures The amendments in this ASU require a public business entity to disclose specific information about certain costs and expenses in the notes to its financial statements for interim and annual reporting periods. The objective of the disclosure requirements is to provide disaggregated information about a public business entity's expenses to help investors (a) better understand the entity's performance, (b) better assess the entity's prospects for future cash flows, and (c) compare an entity's performance over time and with that of other entities. Effective in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statement disclosures. Segment Information Operating segments are components of an enterprise for which separate financial information is available and are evaluated regularly by the Company’s chief operating decision-maker in deciding how to allocate resources and assess performance. The Company manages its business as one operating segment. Concentrations of Business Risk Revenue from significant partners, which is defined as 10% or more of total revenue, was as follows: Year Ended December 31, 2024 2023 Partner A (1) 29 % Partner B 19 % 15 % Partner C 16 % 14 % Partner D 13 % (1) Partner E 12 % (1) _____________ (1) Represents less than 10% of total revenue. As of December 31, 2024, amounts due from two partners exceeded 10% of gross trade receivables and accounted for 55 % of net trade receivables. As of December 31, 2023, amounts due from three partners exceeded 10% of gross trade receivables and accounted for 88 % of net trade receivables. 87 3. Fair Value Measurement The Company measures its financial assets and liabilities at fair value, which is defined as the exit price, or the amount that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company uses the following three-level valuation hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs to value its financial assets and liabilities: • Level 1 - Observable inputs such as unadjusted quoted prices in active markets for identical instruments. • Level 2 - Quoted prices for similar instruments in active markets or inputs that are observable for the asset or liability, either directly or indirectly. • Level 3 - Significant unobservable inputs based on the Company’s assumptions. Financial Instruments Measured on a Recurring Basis The following tables provide a summary of the assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2024 and 2023: Fair Value Measurements as of December 31, 2024 (in thousands) Level 1 Level 2 Level 3 Total Cash equivalents Money market funds $ 17,616 $ — — $ 17,616 Total cash equivalents $ 17,616 $ — $ — $ 17,616 Short-term investments Government and agency securities $ 30,429 $ 1,316 — $ 31,745 Asset-backed securities — 91 — 91 Total short-term investments $ 30,429 $ 1,407 $ — $ 31,836 Liabilities: Current contingent liabilities $ — $ — 531 $ 531 Long-term contingent liabilities — — 953 953 Total contingent liabilities $ — $ — $ 1,484 $ 1,484 Fair Value Measurements as of December 31, 2023 (in thousands) Level 1 Level 2 Level 3 Total Cash equivalents Money market funds $ 12,289 $ — — $ 12,289 Total cash equivalents $ 12,289 $ — $ — $ 12,289 Short-term investments Government and agency securities $ 63,109 $ 4,998 — $ 68,107 Asset-backed securities — 2,518 — 2,518 Total short-term investments $ 63,109 $ 7,516 $ — $ 70,625 Liabilities: Current contingent liabilities $ — $ — $ 1,303 $ 1,303 Long-term contingent liabilities — — 3,203 3,203 Total contingent liabilities $ — $ — $ 4,506 $ 4,506 88 The carrying amounts reported in the Company’s consolidated balance sheets for accounts receivable, other assets, accounts payable and accrued expenses and other current liabilities approximate fair value due to their relatively short periods to maturity. Available-for-Sale Securities The Company obtains the fair value of its Level 2 available-for-sale securities from third-party pricing services. The pricing services utilize industry standard valuation models whereby all significant inputs, including benchmark yields, reported trades, broker/dealer quotes, issuer spreads, bids, offers, or other market-related data, are observable. The Company validates the prices provided by the third-party pricing services by reviewing their pricing methods and obtaining market values from other pricing sources. The Company did not adjust or override any fair value measurements provided by these pricing services as of December 31, 2024 or December 31, 2023. The Company has not transferred any investment securities between classification levels. Contingent Liabilities Contingent liabilities are measured at fair valued each reporting period by using a probability weighted income approach. A reconciliation of the Level 3 financial instruments as of December 31, 2024 and 2023 is as follows: (in thousands) Icagen (1) Taurus (2) xCella (2) Total Balance as of January 1, 2023 $ 4,747 $ 1,600 $ 1,764 $ 8,111 Payments of contingent liabilities ( 300 ) ( 1,600 ) ( 2,840 ) ( 4,740 ) Fair value adjustments to contingent liabilities ( 341 ) 400 1,076 1,135 Balance as of December 31, 2023 $ 4,106 $ 400 $ — $ 4,506 Payments of contingent liabilities ( 75 ) ( 400 ) — ( 475 ) Fair value adjustments to contingent liabilities ( 2,547 ) — — ( 2,547 ) Balance as of December 31, 2024 $ 1,484 $ — $ — $ 1,484 _____________ (1) Changes in the fair values of contingent liabilities in connection with the acquisition of Icagen are recognized in Other operating expense (income), net in the consolidated statements of operations and in the operating section of the statements of cash flows. Payments to contingent liability holders are disclosed in the financing section of the statements of cash flows. (2) Changes in the fair values of contingent liabilities in connection with the acquisitions of Taurus and xCella are recognized in Intangible assets, net in the consolidated balance sheets. Payments to contingent liability holders are disclosed in the investing section of the statement of cash flows. Contingent liabilities are classified as Level 3 liabilities as their valuation requires substantial judgment and estimation of factors that are not currently observable in the market. These subjective estimates include but are not limited to assumptions involving the achievement probability of certain developmental and commercialization milestones, discount rates, and projected years of payments. If different assumptions were used for the various inputs to the valuation approaches, the estimated fair value could be materially higher or lower than the fair value determined. 4. Short-Term Investments The Company classified short-term investments as available-for-sale securities, as the sale of such investments may be required prior to maturity to implement management strategies. The following tables summarize short-term investments as of December 31, 2024 and December 31, 2023: December 31, 2024 Unrealized (in thousands) Amortized Cost Gains Losses Estimated Fair Value Government and agency securities $ 31,719 $ 30 $ ( 3 ) $ 31,746 Asset-backed securities 90 — — 90 Total investments $ 31,809 $ 30 $ ( 3 ) $ 31,836 89 December 31, 2023 Unrealized (in thousands) Amortized Cost Gains Losses Estimated Fair Value Government and agency securities $ 68,054 $ 57 $ ( 4 ) $ 68,107 Asset-backed securities 2,522 — ( 4 ) 2,518 Total investments $ 70,576 $ 57 $ ( 8 ) $ 70,625 The Company classified all investments with maturity dates beyond three months at the date of purchase as short-term investments in the consolidated balance sheets based upon its ability and intent to use the investments to satisfy the liquidity needs of current operations. The following table summarizes available-for-sale investments by maturity as of December 31, 2024: (in thousands) Amortized Cost Estimated Fair Value Due in one year or less $ 31,809 $ 31,836 Due after one year — — Total investments $ 31,809 $ 31,836 The following tables summarize the Company’s available-for-sale investments’ gross unrealized losses and fair value aggregated by investment category and length of time that individual securities have been in a continuous loss position, as of December 31, 2024 and December 31, 2023: December 31, 2024 Less than 12 months More than 12 months Total (in thousands) Count Fair Value Unrealized Losses Count Fair Value Unrealized Losses Count Fair Value Unrealized Losses Government and agency securities 2 $ 2,930 $ ( 3 ) — $ — $ — 2 $ 2,930 $ ( 3 ) 2 $ 2,930 $ ( 3 ) — $ — $ — 2 $ 2,930 $ ( 3 ) December 31, 2023 Less than 12 months More than 12 months Total (in thousands) Count Fair Value Unrealized Losses Count Fair Value Unrealized Losses Count Fair Value Unrealized Losses Government and agency securities 5 $ 10,402 $ ( 4 ) — $ — $ — 5 $ 10,402 $ ( 4 ) Asset-backed securities 3 2,518 ( 4 ) — — — 3 2,518 ( 4 ) 8 $ 12,920 $ ( 8 ) — $ — $ — 8 $ 12,920 $ ( 8 ) The Company had certain available-for-sale debt securities in an unrealized loss position without an allowance for credit loss as of December 31, 2024. Unrealized losses on these debt securities have not been recognized into income because (1) the issuers have high credit quality, (2) management does not intend to sell and it is likely that management will not be required to sell these securities prior to their anticipated recovery and (3) the decline in fair value is largely due to market conditions and/or changes in interest rates. The issuers continue to make timely interest payments on the securities, and the fair value is expected to recover as the bonds approach maturity. 90 5. Balance Sheet Account Details Property and Equipment, Net Property and equipment, net, consisted of the following as of December 31, 2024 and 2023: December 31, (in thousands) 2024 2023 Leasehold improvements $ 17,745 $ 16,077 Lab and office equipment 9,785 9,452 Computer hardware and software 760 754 Construction in progress 103 842 Property and equipment, at cost 28,393 27,125 Less accumulated depreciation ( 12,901 ) ( 8,876 ) Total property and equipment, net $ 15,492 $ 18,249 Depreciation expense, which is included in operating expense, was $ 4.1 million and $ 4.0 million was recognized during the years ended December 31, 2024 and 2023, respectively, and was included in operating expenses. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following as of December 31, 2024 and 2023: December 31, (in thousands) 2024 2023 Compensation $ 5,468 $ 5,247 Due to former parent Ligand — 1,234 Professional service fees 324 431 Royalties owed to third parties 143 139 Other 206 17 Total accrued expenses and other current liabilities $ 6,141 $ 7,068 6. Goodwill and Intangible Assets, Net Goodwill and intangible assets, net consisted of the following as of December 31, 2024 and 2023: December 31, (in thousands) 2024 2023 Goodwill $ 83,979 $ 83,979 Definite-lived intangible assets Completed technology 233,158 233,158 Less: Accumulated amortization ( 98,773 ) ( 84,328 ) Customer relationships 11,100 11,100 Less: Accumulated amortization ( 7,425 ) ( 4,463 ) Intangible assets, net $ 138,060 $ 155,467 Total goodwill and other identifiable intangible assets, net $ 222,039 $ 239,446 Goodwill There were no changes in the carrying amount of goodwill during the years ended December 31, 2024 and 2023. 91 Intangible Assets Amortization of finite-lived intangible assets is computed using the straight-line method over the estimated useful life of the asset of up to 20 years and is reflected within amortization of intangibles expense on the consolidated statements of operations. Amortization expense of $ 17.4 million and $ 13.6 million was recognized for the years ended December 31, 2024 and 2023, respectively. During the year ended December 31, 2024, the Company determined that certain of its finite-lived intangible assets related to the acquisition of Ab Initio in July 2019 were fully impaired, and recorded a $ 1.2 million write-off of the net carrying value. In addition, the Company recorded a $ 2.7 million impairment of certain small molecule ion channel intangible assets during the year ended December 31, 2024. The impairment charges were recorded as “ Amortization of intangibles ” in the consolidated statements of operations. For the year ended December 31, 2023, there was no impairment of intangible assets with finite lives. The remaining weighted-average useful life of definite lived intangible assets is 11.1 years. At December 31, 2024, future amortization expense on intangible assets is estimated to be as follows (in thousands): Years Ending December 31, Amount 2025 $ 12,912 2026 12,912 2027 12,912 2028 12,912 2029 12,912 Thereafter 73,500 Total future amortization expense $ 138,060 7. Commitments and Contingencies Lease Commitments The Company’s corporate headquarters are located in Emeryville, California and its research facilities are located in Emeryville and Dixon, California, Durham, North Carolina, and Tucson, Arizona. It leases approximately 70,000 square feet of space under leases expiring from 2026 and 2032. The Company’s lease agreements do not contain any material residual value guarantees, material restrictive covenants, or material termination options. The Company’s operating lease costs are primarily related to facility leases for administration offices and research and development facilities and its finance leases are immaterial. Lease assets and lease liabilities are recognized at the commencement of an arrangement where it is determined at inception that a lease exists. Lease assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are initially recognized based on the present value of lease payments over the lease term calculated using the Company’s incremental borrowing rate generally applicable to the location of the lease asset, unless the implicit rate is readily determinable. Lease assets also include any upfront lease payments made and lease incentives. Lease terms include options to extend or terminate the lease when it is reasonably certain that those options will be exercised. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheets, and the expense for these short-term leases and for operating leases is recognized on a straight-line basis over the lease term. The depreciable life of lease assets and leasehold improvements is limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. The below table provides supplemental cash flow and other information related to operating leases (in thousands, except for lease term and discount rate): 92 Year Ended December 31, 2024 2023 Cash paid for amounts included in the measurement of lease liabilities: $ 3,495 $ 3,337 Right-of-use assets obtained in exchange for lease obligations: $ 39 $ 328 Weighted average remaining lease term (in years) 6.8 7.8 Weighted average discount rate 4.3 % 4.3 % In addition to base rent, certain of the Company’s operating leases require variable payments. These variable lease costs include amounts relating to common area maintenance and are expensed when the obligation for those payments is incurred and are recognized as operating expenses in the consolidated statements of operations. The following table summarizes the components of operating lease expense for the years ended December 31, 2024 and 2023: Year Ended December 31, (in thousands) 2024 2023 Operating lease cost $ 3,192 $ 3,175 Variable lease cost 1,798 1,524 Total lease costs $ 4,990 $ 4,699 Future minimum lease commitments are as follows as of December 31, 2024 (in thousands): Years Ending December 31, Operating Leases 2025 $ 3,782 2026 3,879 2027 3,980 2028 4,107 2029 3,307 Thereafter 7,992 Total lease payments 27,047 Less tenant improvement allowance ( 3,883 ) Present value of lease liabilities $ 23,164 Legal Proceedings From time to time, the Company has been and may be involved in various legal proceedings arising in its ordinary course of business. In the opinion of management, resolution of any pending claims (either individually or in the aggregate) is not expected to have a material adverse impact on the consolidated financial statements, cash flows or financial position and it is not possible to provide an estimated amount of any such loss. However, the outcome of disputes is inherently uncertain. Therefore, although management considers the likelihood of such an outcome to be remote, an unfavorable resolution of one or more matters could materially affect future results of operations or cash flows, or both, in a particular period. 8. Stockholders' Equity Authorized and Outstanding Capital Stock The total number of shares of the Company’s authorized capital stock is 1,100,000,000 . The total amount of authorized capital stock consists of 1,000,000,000 shares of common stock and 100,000,000 shares of preferred stock. As of December 31, 2024, no shares of preferred stock are issued or outstanding. Common Stock Holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders, including the election of directors, and do not have cumulative voting rights. Subject to preferences that may be applicable to any then outstanding preferred stock, holders of our common stock are entitled to receive ratably those dividends, if any, as may be declared by the Board out of legally available funds. In the event of our liquidation, dissolution or winding up, the 93 holders of common stock will be entitled to share ratably in the assets legally available for distribution to stockholders after the payment of or provision for all of the Company’s debts and other liabilities, subject to the prior rights of any preferred stock then outstanding. Holders of common stock have no preemptive or conversion rights or other subscription rights and there are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are duly authorized, validly issued, fully paid and nonassessable. The rights, preferences and privileges of holders of common stock are subject to and may be adversely affected by the rights of the holders of shares of any series of preferred stock that the Company may designate and issue in the future. Preferred stock Under the terms of the Company’s certificate of incorporation, its board of directors has the authority, without further action by the Company’s stockholders, to issue up to 100,000,000 shares of preferred stock in one or more series, to establish from time to time the number of shares to be included in each such series, to fix the dividend, voting and other rights, preferences and privileges of the shares of each wholly unissued series and any qualifications, limitations or restrictions thereon, and to increase or decrease the number of shares of any such series, but not below the number of shares of such series then outstanding. The Company’s board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deterring or preventing a change in the Company’s control and may adversely affect the market price of the common stock and the voting and other rights of the holders of common stock. The Company has no current plans to issue any shares of preferred stock. Earnout Shares Some of the Company’s shares of common stock are subject to certain price-based earnout triggers (the “Earnout Shares”). Earnout Shares vest based upon the achievement of certain volume-weighted average trading prices (“VWAP”) for shares of the Company for any 20 trading days over a consecutive 30 trading-day period during the five-year period following the Closing Date, with (i) 50 % of such Earnout Shares vesting upon achievement of a VWAP of $ 12.50 per share of common stock or upon the occurrence of a change of control transaction that will result in the holders of common stock receiving a price per share in excess of $ 12.50 , and (ii) the remaining 50 % percent of the Earnout Shares vesting upon achievement of a VWAP of $ 15.00 per share of common stock or upon the occurrence of a change of control transaction that will result in the holders of common stock receiving a price per share in excess of $ 15.00 . The Earnout Shares are not transferable until the vesting condition for the applicable tranche of Earnout Shares has been achieved. As of December 31, 2024, 14,999,243 Earnout Shares were issued and outstanding. Pursuant to the Sponsor Insider Letter Agreement executed concurrently with the Merger Agreement, by and among APAC, Avista Acquisition LP II (the “Sponsor”), Legacy OmniAb and certain insiders of APAC, 1,293,299 shares of OmniAb common stock held by the Sponsor became subject to the same price-based vesting conditions as the Earnout Shares (the “Sponsor Earnout Shares”). The Sponsor Earnout Shares are accounted for as equity-classified equity instruments and recorded in additional paid-in capital as part of the Business Combination. As of December 31, 2024, 1,293,299 Sponsor Earnout Shares were issued and outstanding. The Earnout Shares and Sponsor Earnout Shares will be automatically forfeited for no consideration if an applicable triggering event has not occurred from the Closing Date to and including the fifth anniversary of the Closing Date. Warrants As part of APAC’s initial public offering, 7,666,667 Public Warrants were sold. The Public Warrants entitle the holder thereof to purchase one share of common stock at a price of $ 11.50 per share, subject to adjustments. The Public Warrants are only exercisable for a whole number of shares of common stock. No fractional shares are to be issued upon exercise of the warrants. The Public Warrants will expire on November 1, 2027 (which is five years after the completion of the Business Combination), at 5:00 p.m., New York City time, or earlier upon redemption or liquidation. The Public Warrants are listed on the Nasdaq Capital Market under the symbol “OABIW”. Additionally, once the Public Warrants become exercisable, the Company can redeem the outstanding Public Warrants: • in whole and not in part; 94 • at a price of $ 0.01 per warrant; • upon not less than 30 days’ prior written notice of redemption to each warrant holder; and • if, and only if, the closing price of the ordinary shares equals or exceeds $ 18.00 per share (as adjusted for share subdivisions, share capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within a 30 -trading day period ending three trading days before the Company sends the notice of redemption to the warrant holders provided there was an effective registration statement covering the shares of common stock issuable upon exercise of the warrants. If the Company calls the Public Warrants for redemption as previously described, the Company has the option to require all holders that wish to exercise the Public Warrants to do so on a cashless basis. Simultaneously with APAC’s initial public offering, APAC consummated a private placement of 8,233,333 Private Placement Warrants with APAC’s sponsor. Each Private Placement Warrant is exercisable for one share of common stock at a price of $ 11.50 per share, subject to adjustment. The Private Placement Warrants have terms and provisions that are identical to those of the Public Warrants except that the Private Placement Warrants were not transferable, assignable or salable until 30 days after the completion of the Business Combination. The Private Placement Warrants will be redeemable by the Company in all redemption scenarios and exercisable by the holders on the same basis as the Public Warrants. Additionally, on the Closing Date, the Company issued 1,666,667 Forward Purchase Warrants and 1,445,489 Backstop Warrants pursuant to the A&R FPA. The Forward Purchase Warrants and Backstop Warrants have the same terms as the Private Placement Warrants. The Company concluded the Public, Private Placement, Forward Purchase and Backstop Warrants meet the criteria to be classified as equity. Upon consummation of the Business Combination, the Public, Private Placement, Forward Purchase and Backstop Warrants were recorded in additional paid-in capital. Equity Compensation Plans 2022 Incentive Award Plan The Company’s board of directors and stockholders adopted the 2022 Incentive Award Plan, or the 2022 Plan, which became effective upon the Closing of the Business Combination. Under the 2022 Plan, the Company may grant cash and equity incentive awards to eligible employees, directors and consultants. As of December 31, 2024, the aggregate number of shares of common stock that may be issued under the 2022 Plan was 29,262,905 shares. In addition, the number of shares of common stock available for issuance under the 2022 Plan will be annually increased on January 1 of each calendar year beginning in 2023 and ending in 2032 by an amount equal to the lesser of (i) a number equal to 5 % of the fully-diluted shares on the final day of the immediately preceding calendar year or (ii) such smaller number of shares as is determined by the Company’s board of directors. The 2022 Plan provides for the grant of stock options, including incentive stock options and nonqualified stock options, stock appreciation rights, restricted stock, dividend equivalents, RSUs and other stock or cash-based awards. OmniAb Prior Plans In connection with the Business Combination, Legacy OmniAb adopted the OmniAb, Inc. 2022 Ligand Service Provider Assumed Award Plan and the OmniAb, Inc. 2022 OmniAb Service Provider Assumed Award Plan, collectively referred to as the OmniAb Prior Plans, which govern the OmniAb equity awards issued upon adjustment of outstanding Ligand equity awards in connection with Ligand’s distribution of Legacy OmniAb common stock to Ligand stockholders. All awards under the OmniAb Prior Plans that were outstanding as of the closing of the Business Combination continued to be governed by the terms, conditions and procedures set forth in the OmniAb Prior Plans and any applicable award agreements, as those terms may be equitably adjusted in connection with the Business Combination. The Company assumed the OmniAb Prior Plans in connection with the closing of the Business Combination, and each of the awards thereunder. 95 At the Market Offering In December 2023, the Company entered into an Open Market Sale Agreement SM (the “Sales Agreement”), with Jefferies LLC (the “Sales Agent”) under which it may, from time to time, sell shares of its common stock having an aggregate offering price of up to $ 100.0 million in “at the market” (“ATM”) offerings 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 the Company of up to 3.0 % of the gross proceeds of any shares of common stock sold under the Sales Agreement. Sales of its common stock made pursuant to the Sales Agreement are made under its shelf registration statement on Form S‐3 which was filed on December 8, 2023 and declared effective by the SEC on December 18, 2023. The Company is not obligated to sell, and the Sales Agent is not obligated to buy or sell, any shares of common stock under the Sales Agreement. During the year ended December 31, 2024, 2,771,192 shares of common stock in the ATM offering were issued for net proceeds of $ 11.4 million, after deducting commissions. 9. Share-Based Compensation Share-Based Compensation Expense The Company recognized share-based compensation expense by function as follows: Year Ended December 31, (in thousands) 2024 2023 Research and development expenses $ 10,588 $ 12,804 General and administrative expenses 10,911 12,016 Total share-based compensation expense $ 21,499 $ 24,820 The Company recognized share-based compensation expense by award type as follows: Year Ended December 31, (in thousands) 2024 2023 Stock options $ 14,654 $ 15,148 Restricted stock units 5,746 7,730 Employee share purchase plan 485 1,329 Performance restricted stock units 614 613 Total share-based compensation expense $ 21,499 $ 24,820 Stock Options Stock options granted under the 2022 Plan typically vest 1/8 on the 6 -month anniversary of the date of grant, and 1/48 each month thereafter for 42 months. All option awards generally expire ten years from the date of grant. The Company uses the Black-Scholes option-pricing model to estimate the fair value of stock options granted. The model assumptions include expected volatility, term, dividends, and the risk-free interest rate. • Expected volatility : Due to the Company’s limited trading history for its common stock, the Company lacks sufficient historical data to support its expected stock price volatility. As such, the Company utilized a weighted approach by blending its own limited historical data with the volatilities of publicly traded biotechnology peers. The Company will continue to apply this approach until it has enough historical data to solely support its expected volatility. • Expected term : The expected term represents the period of time that options are expected to be outstanding. Because the Company does not have historical exercise behavior, it determines the expected life assumption using the simplified method which is an average of the contractual term of the option and its vesting period. • Dividend yield : The Company bases the expected dividend yield assumption on the fact that it has never paid cash dividends and has no present intention to pay cash dividends and, therefore, used an expected dividend yield of zero. • Risk-free interest rate : The risk-free interest rate is based upon U.S. Treasury securities with remaining terms similar to the expected term of the share-based awards. 96 The fair value of each option issued was estimated on the grant date using the Black-Scholes option pricing model with the following weighted-average assumptions: Year Ended December 31, 2024 2023 Risk-free interest rate 4.3 % 3.7 % Expected volatility 54.5 % 50.2 % Expected term (years) 6.0 6.1 Dividend yield — % — % The following table summarizes stock option activity under the Company’s equity award plans: Shares Weighted-average exercise price per share Weighted-average remaining contractual life (in years) Aggregate intrinsic value (in thousands) (1) Outstanding at January 1, 2024 14,795,859 $ 6.50 Granted 3,326,225 $ 5.43 Exercised ( 607,590 ) $ 3.66 Cancelled/Expired ( 633,866 ) $ 6.11 Outstanding at December 31, 2024 16,880,628 $ 6.40 7.8 $ 150 Exercisable at December 31, 2024 8,391,735 $ 7.65 7.2 $ 80 _____________ (1) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the estimated fair value of the common stock for in the money options at December 31, 2024. As of December 31, 2024, unrecognized stock-based compensation expense related to OmniAb options was $ 21.4 million, which is expected to be recognized over a remaining weighted-average period of approximately 1.17 years. As of December 31, 2024, unrecognized stock-based compensation expense related to Ligand options was $ 0.3 million, which is expected to be recognized over a remaining weighted-average period of approximately 0.31 years. The aggregate intrinsic value of OmniAb options exercised by OmniAb service providers during the year ended December 31, 2024 was $ 0.6 million. Cash received from OmniAb options exercised by OmniAb service providers during the year ended December 31, 2024 was $ 2.0 million. There were no OmniAb options exercised by Ligand service providers during the year ended December 31, 2024. Restricted Stock Units RSUs generally represent the right to receive a certain number of shares of common stock subject to certain vesting conditions and other restrictions. RSUs generally vest over three years . The fair value of restricted stock is determined by the closing market price on the grant date. The following table summarizes RSU activity during the year ended December 31, 2024 under the Company’s equity awards plans: Shares Weighted-Average Grant Date Fair Value Unvested balance at January 1, 2024 1,878,381 $ 5.61 Granted 915,564 $ 5.39 Vested ( 906,016 ) $ 6.28 Forfeited ( 126,721 ) $ 4.54 Unvested balance at December 31, 2024 1,761,208 $ 5.23 97 As of December 31, 2024, unrecognized stock-based compensation expense related to OmniAb RSUs was $ 5.5 million, which is expected to be recognized over a remaining weighted-average period of approximately 1.25 years. As of December 31, 2024, there is no unrecognized stock-based compensation expense related to Ligand RSUs. The aggregate intrinsic value of OmniAb RSUs vested for OmniAb service providers during the year ended December 31, 2024 was $ 4.5 million. The aggregate intrinsic value of OmniAb RSUs vested for Ligand service providers during the year ended December 31, 2024 was $ 0.7 million. Performance Restricted Stock Units PRSUs generally represent the right to receive a certain number of shares of common stock based on the achievement of certain corporate performance or market goals and continued employment during the vesting period. The Company’s PRSUs contain a market condition dependent upon the Company’s relative and absolute total stockholder return over a three-year period, with a payout range of 0 % to 200 % of the target shares granted. Share-based compensation expense for these PRSUs is measured using the Monte-Carlo valuation model and is not adjusted for the achievement, or lack thereof, of the market conditions. The following table summarizes the PRSU activity during the year ended December 31, 2024, under the Company’s equity awards plans: Shares (1) Weighted-Average Grant Date Fair Value Unvested balance at January 1, 2024 94,749 $ 16.11 Granted — $ — Vested — $ — Forfeited — $ — Unvested balance at December 31, 2024 94,749 $ 16.11 _____________ (1) Pursuant to the terms of the awards granted, the actual number of awards earned could range between 0 % and 200 % of target. The amount disclosed represents PRSU grants at target payout. As of December 31, 2024, there is no unrecognized stock-based compensation expense related to OmniAb PRSUs. Employee Stock Purchase Plan Under the Company’s 2022 Employee Stock Purchase Plan (the “ESPP”), eligible employees are entitled to purchase shares of common stock at a discount with accumulated payroll deductions. The ESPP provides for a series of overlapping 24 -month offering periods comprising four six-month purchase periods. The initial offering period under the 2022 ESPP is longer than 24 months, commencing November 1, 2022 and ending on November 29, 2024. The purchase price for shares of common stock purchased under the ESPP is equal to 85 % of the lesser of the fair market value of the Company’s common stock on (i) the first trading day of the applicable offering period or (ii) the last trading day of each six month purchase period in the applicable offering period. As of December 31, 2024, the aggregate number of shares of our common stock that may be issued pursuant to rights granted under the ESPP was 2,827,016 shares of our common stock. In addition, on the first day of each calendar year beginning on January 1, 2023 and ending on (and including) January 1, 2032, the number of shares available for issuance under the ESPP will be increased by a number of shares equal to the lesser of (i) 1 % of the fully diluted shares outstanding on the final day of the immediately preceding calendar year, and (ii) such smaller number of shares as determined by the board of directors. The fair value of ESPP shares issued to employees was estimated on the grant date using the Black-Scholes option pricing model with the following weighted-average assumptions: 98 Year Ended December 31, 2024 2023 Risk-free interest rate 4.3 % 4.9 % Expected volatility 55.1 % 54.3 % Expected term (years) 1.3 1.3 Dividend yield — % — % As of December 31, 2024, there was $ 0.8 million of unrecognized compensation expense associated with the ESPP, which is expected to be recognized over an estimated weighted-average period of 1.25 years. During the year ended December 31, 2024, there were 567,562 shares issued pursuant to the ESPP. 10. Income Taxes Income tax expense (benefit) consists of the following: Year Ended December 31, (in thousands) 2024 2023 Current expense (benefit): Federal $ ( 364 ) $ ( 840 ) State 26 ( 62 ) Total current expense (benefit): ( 338 ) ( 902 ) Deferred expense (benefit): Federal ( 8,929 ) ( 12,546 ) State ( 111 ) ( 296 ) Total deferred expense (benefit): ( 9,040 ) ( 12,842 ) Total income tax expense (benefit) $ ( 9,378 ) $ ( 13,744 ) A reconciliation of income tax expense (benefit) at the U.S. federal statutory rate to the provision for income taxes is as follows: Year Ended December 31, (in thousands) 2024 2023 Tax at federal statutory rate $ ( 14,996 ) 21.0 % $ ( 13,516 ) 21.0 % State, net of federal benefit ( 1,376 ) 1.9 % ( 531 ) 0.8 % Share-based compensation 1,207 ( 1.8 ) % 1,359 ( 2.0 ) % Executive compensation limitation 566 ( 0.8 ) % 995 ( 1.5 ) % Research and development credits ( 904 ) 1.3 % ( 1,053 ) 1.6 % Return to provision 247 ( 0.3 ) % ( 1,748 ) 2.7 % Change in uncertain tax positions 90 ( 0.1 ) % 99 ( 0.2 ) % State tax rate change 1,092 ( 1.5 ) % 126 ( 0.2 ) % Change in valuation allowance 4,688 ( 6.6 ) % 518 ( 0.8 ) % Other 8 0.0 % 7 0.0 % Total income tax benefit and effective tax rate $ ( 9,378 ) 13.1 % $ ( 13,744 ) 21.4 % The Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future. Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2024 and 2023 are shown below. The Company assesses the positive and negative evidence to determine if sufficient future taxable income will be generated to realize the existing deferred tax assets. The Company’s evaluation of evidence resulted in management concluding that the majority of the Company’s deferred tax assets will be realized. 99 The Company offsets all deferred tax assets and liabilities by jurisdiction, as well as any related valuation allowance, and presents them on its consolidated balance sheet as a non-current deferred income tax asset or liability (as applicable). Deferred tax assets (liabilities) are comprised of the following: December 31, (in thousands) 2024 2023 Deferred tax assets: Net operating loss carryforwards $ 13,302 $ 3,523 Research credit carryforwards 2,517 2,370 Share-based compensation 7,337 5,772 Deferred revenue 176 1,357 Operating lease liabilities 5,388 5,633 Contingent liabilities 153 706 Capitalized research and experimental expenditures 7,956 7,500 Accrued liabilities 1,222 204 Other 544 527 Total deferred tax assets before valuation allowance 38,595 27,592 Valuation allowance for deferred tax assets ( 5,526 ) ( 832 ) Net deferred tax assets $ 33,069 $ 26,760 Deferred tax liabilities: Identified intangibles $ ( 28,200 ) $ ( 30,116 ) Operating lease right-of-use assets ( 4,140 ) ( 4,383 ) Property and equipment, net ( 3,043 ) ( 3,615 ) Total deferred tax liabilities $ ( 35,383 ) $ ( 38,114 ) Deferred income taxes, net $ ( 2,314 ) $ ( 11,354 ) The following table presents the Company's U.S. federal and state NOL and tax credit carryforwards, net of unrecognized tax benefits, which may be available to offset future income tax liabilities: (in thousands) December 31, 2024 Expiration Date (if not utilized) U.S. federal NOL carryforwards $ 56,587 Indefinite U.S. state NOL carryforwards $ 20,227 Various dates between 2031 and 2044 U.S. federal research and development credit carryforwards $ 1,080 Various dates between 2032 and 2044 California research and development credit carryforwards $ 2,384 Indefinite Pursuant to Section 382 and 383 of the Internal Revenue Code of 1986, as amended, utilization of the Company’s net operating losses and credits may be subject to annual limitations in the event of any significant future changes in its ownership structure. These annual limitations may result in the expiration of net operating losses and credits prior to utilization. The deferred tax assets as of December 31, 2024 are net of any previous limitations due to Section 382 and 383. The Company accounts for income taxes by evaluating a probability threshold that a tax position must meet before a financial statement benefit is recognized. The minimum threshold is a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. A reconciliation of the amount of unrecognized tax benefits at December 31, 2024 and 2023 is as follows: 100 December 31, (in thousands) 2024 2023 Balance at beginning of year $ 569 $ 463 Additions based on tax positions related to the current year 99 113 Reductions for tax positions of prior years ( 30 ) ( 7 ) Balance at end of year $ 638 $ 569 Included in the balance of unrecognized tax benefits at December 31, 2024 is $ 0.2 million of tax benefits that, if recognized would impact the effective rate. There are no positions for which it is reasonably possible that the uncertain tax benefit will significantly increase or decrease within twelve months. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2024 and December 31, 2023, the Company recognized no interest and penalties. The Company files income tax returns in the United States and various state jurisdictions with varying statutes of limitations. The federal statute of limitation remains open for the 2021 tax year through the present. The state income tax returns generally remain open for the 2020 tax year through the present. Net operating loss and research credit carryforwards arising prior to these years are also open to examination if and when utilized. 11. Net Loss Per Share Loss Per Share Basic loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted loss per share is computed based on the sum of the weighted average number of common shares and dilutive common shares outstanding during the period. As described in Note 8 – Stockholders' Equity, Earnout Shares issued in connection with the Business Combination are subject to vesting based on the VWAP of common shares during the earnout period. The Earnout Shares are excluded from the calculation of basic and diluted weighted-average number of common shares outstanding until vested. The following table outlines the basic and diluted net loss per share for the years ended December 31, 2024 and 2023: Year Ended December 31, (in thousands, except per share data) 2024 2023 Net loss $ ( 62,033 ) $ ( 50,619 ) Weighted-average shares outstanding, basic and diluted 102,365 99,683 Net loss per share, basic and diluted $ ( 0.61 ) $ ( 0.51 ) The following table outlines common share equivalents which were excluded from the computation of diluted net loss per share, as the effect of their inclusion would be anti-dilutive or the share equivalents were contingently issuable as of each period presented: December 31, 2024 2023 Options to purchase common stock issued and outstanding (1) 21,993,590 20,823,399 Earnout shares 16,292,542 16,292,542 Avista private placement warrants 8,233,333 8,233,333 Avista public warrants 7,666,667 7,666,667 Restricted stock units issued and outstanding 1,855,957 2,090,145 Forward purchase warrants 1,666,667 1,666,667 Backstop warrants 1,445,489 1,445,489 Shares expected to be purchased under employee stock purchase plan 687,515 1,589,197 Total anti-dilutive shares 59,841,760 59,807,439 101 _____________ (1) Outstanding stock options include awards outstanding to employees of Ligand. 12. Segment Information The Company operates under one reportable business segment, providing discovery research technology to enable the discovery of next-generation therapeutics. The determination of a single reportable business segment is consistent with the consolidated financial information regularly provided to the Company’s chief operating decision maker (“CODM”). The Company’s CODM is its Chief Executive Officer, who reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance. In addition to the significant expense categories included within the consolidated statements of operations, certain other disaggregated amounts that comprise research and development and general and administrative are reviewed by the CODM. These 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. The following table outlines information about segment revenues, significant segment expenses, and segment net loss for the years ended December 31, 2024 and 2023: (in thousands) December 31, 2024 2023 Revenue $ 26,391 $ 34,164 Research and development expenses Personnel related expenses 28,444 29,259 External expenses 17,160 18,138 Facility and other overhead expenses 9,506 9,128 Total research and development expenses 55,110 56,525 General and administrative expenses Personnel related expenses 21,733 21,904 External expenses 8,470 11,185 Facility and other overhead expenses 538 224 Total general and administrative expenses 30,741 33,313 Amortization of intangibles 17,407 13,554 Other operating expense (income), net ( 2,365 ) 191 Total other income, net 3,091 5,056 Income tax benefit 9,378 13,744 Net loss $ ( 62,033 ) $ ( 50,619 ) All long-term assets are maintained in, and all net losses are attributable to, the United States of America. 13. Employee Benefit Plan The Company sponsors a qualified 401(k) defined contribution plan covering eligible employees. Participants may contribute a portion of their annual compensation limited to a maximum annual amount allowable under federal tax regulations. The Company, at its discretion, may make certain contributions to the 401(k) plan. The Company’s matching contributions were $ 0.6 million for both years ended December 31, 2024 and 2023. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 102