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Share-Based Compensation | 3 Months Ended
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Mar. 31, 2024
Share-Based Payment Arrangement [Abstract] |
Share-Based Compensation | 10. Share-Based Compensation Share-Based Compensation Expense The Company recognized share-based compensation expense by function as follows:
|  |  |  | Three Months Ended March 31,
(in thousands) |  |  |  |  |  | 2024 |  | 2023
Research and development |  |  |  |  |  | $ | 2,904 |  |  | $ | 3,278 |
General and administrative |  |  |  |  |  | 2,791 |  |  | 2,777 |
Total share-based compensation expense |  |  |  |  |  | $ | 5,695 |  |  | $ | 6,055 |
The Company recognized share-based compensation expense by award type as follows:
|  |  |  | Three Months Ended March 31,
(in thousands) |  |  |  |  |  | 2024 |  | 2023
Stock options |  |  |  |  |  | $ | 3,827 |  |  | $ | 3,569 |
Restricted stock units |  |  |  |  |  | 1,563 |  |  | 1,926 |
Employee share purchase plan |  |  |  |  |  | 152 |  |  | 409 |
Performance restricted stock units |  |  |  |  |  | 153 |  |  | 151 |
Total share-based compensation expense |  |  |  |  |  | $ | 5,695 |  |  | $ | 6,055 |
Stock Options Stock options granted under the 2022 Plan typically vest 1/8 on the six-month anniversary of the date of grant, and 1/48 each month thereafter for 42 months. All option awards generally expire 10 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, expected term, dividend yield, and the risk-free interest rate. •Expected volatility: Due to the Company’s limited trading history for its common stock, the expected volatility assumption is based on volatilities of a peer group of similar companies whose share prices are publicly available. The peer group was developed based on companies in the biotechnology industry. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available. •Expected term: The expected term represents the period of time that options are expected to be outstanding. Because the Company has limited 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. The fair value of each option issued to employees was estimated on the grant date using the Black-Scholes option pricing model with the following weighted-average assumptions:
|  |  | Three Months Ended March 31,
|  |  |  |  | 2024 |  | 2023
Risk-free interest rate |  |  |  |  | 4.3 | % |  | 3.7 | %
Expected volatility |  |  |  |  | 54.1 | % |  | 49.9 | %
Expected term (years) |  |  |  |  | 6.0 |  | 6.2
Dividend yield |  |  |  |  | — | % |  | — | %
The following table summarizes stock option activity awarded to OmniAb employees and directors 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 | 2,823,625 |  |  | $ | 5.65 |  |  |  |  |
Exercised | (269,671) |  |  | $ | 3.72 |  |  |  |  |
Cancelled/Expired | (143,997) |  |  | $ | 8.20 |  |  |  |  |
Outstanding at March 31, 2024 | 17,205,816 |  |  | $ | 6.39 |  |  | 8.5 |  | $ | 15,346 |
Exercisable at March 31, 2024 | 5,483,912 |  |  | $ | 8.43 |  |  | 7.6 |  | $ | 4,003 |
_____________ (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 March 31, 2024. As of March 31, 2024, unrecognized share-based compensation expense related to OmniAb options was $30.8 million, which is expected to be recognized over a remaining weighted-average period of approximately 1.46 years. As of March 31, 2024, unrecognized share-based compensation expense related to Ligand options was $1.6 million, which is expected to be recognized over a remaining weighted-average period of approximately 0.54 years. The aggregate intrinsic value of OmniAb options exercised by OmniAb employees during the three months ended March 31, 2024 was $0.4 million. Cash received from OmniAb options exercised by OmniAb employees during the three months ended March 31, 2024 was $1.0 million. There were no OmniAb options exercised by Ligand employees during the three months ended March 31, 2024. Restricted Stock Units Restricted stock units (“RSUs”) are awards of nontransferable 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 three months ended March 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 | 752,064 |  |  | $ | 5.64 |
Vested | (296,489) |  |  | $ | 10.42 |
Forfeited | (9,543) |  |  | $ | 5.53 |
Unvested balance at March 31, 2024 | 2,324,413 |  |  | $ | 5.00 |
As of March 31, 2024, unrecognized stock-based compensation expense related to OmniAb RSUs was $9.4 million, which is expected to be recognized over a remaining weighted-average period of approximately 1.52 years. As of March 31, 2024, unrecognized stock-based compensation expense related to Ligand RSUs was $0.1 million, which is expected to be recognized over a remaining weighted-average period of approximately 0.47 years. The aggregate intrinsic value of OmniAb RSUs vested for OmniAb employees during the three months ended March 31, 2024 was $1.7 million. The aggregate intrinsic value of OmniAb RSUs vested for Ligand employees during the three months ended March 31, 2024 was $0.7 million. Performance Restricted Stock Units PRSUs are share awards that, upon vesting, will deliver to the holder shares of the Company’s common stock. PRSUs vest over a continued employment period and are based on the achievement of certain corporate performance or market goals. 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 three months ended March 31, 2024, under the Company’s equity awards plans:
| Shares |  | Weighted-Average Grant Date Fair Value
Unvested balance at January 1, 2024 | 94,749 |  |  | $ | 16.11 |
Granted | — |  |  | $ | — |
Vested | — |  |  | $ | — |
Forfeited | — |  |  | $ | — |
Unvested balance at March 31, 2024 | 94,749 |  |  | $ | 16.11 |
As of March 31, 2024, unrecognized share-based compensation expense related to OmniAb PRSUs was $0.5 million, which is expected to be recognized over a remaining weighted-average period of approximately 0.75 years. 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 March 31, 2024, the aggregate number of shares of our common stock that may be issued pursuant to rights granted under the ESPP equals 3,394,578 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 our board of directors. As of March 31, 2024, there was $0.3 million of unrecognized share-based compensation expense associated with the ESPP, which is expected to be recognized over a remaining weighted-average period of 0.66 years. During the three months ended March 31, 2024, there were no shares issued pursuant to the ESPP.

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