OmniAb, Inc. (NASDAQ:OABI) Q4 2022 Earnings Call Transcript

OmniAb, Inc. (NASDAQ:OABI) Q4 2022 Earnings Call Transcript April 2, 2023

Operator: Good afternoon, ladies and gentlemen, and welcome to the OmniAb, Inc., Fourth Quarter and Full Year of ’22 Earnings Conference Call. At this time all lines are in a listen-only mode. Following the presentation we will conduct a question-and-answer session. . This call is being recorded on Thursday, March 30, 2023. And I would now like to turn the conference over to Kurt Gustafson. Please go ahead.

Kurt Gustafson: Thank you, Operator and good afternoon. This is Kurt Gustafson, OmniAb’s Chief Financial Officer. Thank you all for joining OmniAb’s fourth quarter 2022 financial results conference call. I’d like to remind listeners that there are slides to accompany today’s remarks. Those slides are available in the investors section of our website at omniab.com. Before we begin, I’d like to remind listeners that comments made during this call will include forward-looking statements within the meaning of the Federal Securities Laws. These forward-looking statements involve risks and uncertainties that could cause actual results to be materially different from any anticipated results. These forward-looking statements are qualified by the cautionary statements contained in today’s press release and our SEC filings.

Importantly, this conference call contains time sensitive information that is accurate only as of the date of this live broadcast, today March 30, 2023. Except as required by law OmniAb undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call. Joining me on the call today is Matt Foehr, President and CEO. During today’s call, Matt and I will provide highlights on the company’s operations, partner and technology updates, and our recent financial results. At the conclusion of the prepared remarks, we’ll open the call to questions. So with that, let me turn the call over to Matt. Matt?

Matt Foehr: Thanks, Kurt. Good afternoon, everyone, and thanks for joining this, our first financial results and business highlights conference call. Since 2016, OmniAb has grown and evolved through multiple strategic acquisitions and organic technology investment initiatives to become a leader in the integrated antibody discovery space. In November last year, we completed our spin-off from Ligand Pharmaceuticals, resulting in OmniAb becoming an independent publicly-traded company. With that transaction close, I’m confident we’re well positioned with our current corporate structure, our operational focus and our deep domain expertise to now capitalize on the growth opportunities that are ahead of us, and in doing so make an enduring impact on global human health.

That promise of impacting human health energizes our team of just over 100 employees, and positions us very well for the future. OmniAb’s highly scalable business model of licensing our discovery platform globally enables our partners to rapidly develop innovative therapeutics. Our partners value that we continue to push the frontiers of enabling technologies. We believe we’re the industry’s only four-species antibody discovery platform, making OmniAb the most diverse host system for fully human and bi-specific antibody discovery. With our proven platform technology, the number of partners with access to OmniAb antibodies has grown significantly, to a total of 69 with 291 active programs now including three product approvals. I’ll get to further details on our performance metrics on the next slide.

But another point I’d like to make here is that we’re participating in a large and growing market, with global sales of antibody pharmaceutical products projected to reach approximately $279 billion in 2025, up from about $180 billion in recent years. Some of the best selling drugs today are antibody-based medicines. And these are just some of the factors that drive the industry’s demand for cutting edge discovery technology. Our technology platform continues to prove its value to partners. Our teams made great strides in growing our portfolio with the addition of 13 new partnerships in 2022, including an expansion deal with an existing partner. We added more new partners in 2022 than in any other year of this technology’s history, which we feel positions the business for future growth.

As I mentioned, we have 291 programs currently being developed or commercialized by our partners. We recognized royalty revenue from initial commercial sale of both Zimberelimab and sugemalimab in China. And it’s also important to note that the numbers in the graphs on these slides are net of attrition. Our platform continues to generate new clinical programs. And we now have rat-derived, mouse-derived and chicken-derived antibodies that have entered human clinical trials. By yearend, our platform had generated a cumulative total of 28 clinical or approved antibodies, including three new programs that entered the clinic during the second half of 2022. Each of these programs has a different modality, which further demonstrates the flexibility of our technology.

The three new programs include Merck’s antibody drug conjugate, anti-CEACAM5 in advanced solid tumors; Genmab and BioNTech’s hexabody anti-CD27 in malignant solid tumors; and Janssen’s trispecific antibody in relapsed or refractory multiple myeloma. There were two programs that came out of clinical development in 2022, as two of our partners realigned the therapeutic area focus of their pipelines. That said, the clinical attrition rate of OmniAb antibodies remains very low. There are now more than 140 different clinical trials underway or completed by our partners. More than 27,000 subjects are to be or have been enrolled in clinical trials that are testing OmniAb derived antibodies. This is a representation of the significant investments that our partners are making in downstream development of antibodies discovered using our technologies.

Based on dialogue with partners, we see potential for approximately three to five new entries into clinical development for novel OmniAb-derived antibodies in 2023, with programs addressing major unmet medical needs. On Slide 7, we break out our 291 programs by stages of development. You can see there’s a large and growing base in the discovery stage totalling 251 programs, and now 14 programs in preclinical. In the clinic, our partners have programs totalling 19 in Phase 1, two and Phase 2 and two in Phase 3. And as I mentioned, there are three approved products derived from OmniAb technologies. We believe generating large, diverse antibody repertoires of high quality antibodies increases the likelihood of success in discovering an antibody with optimal therapeutic characteristics.

Many of our partners are using a number of our different engineered animals, and in some cases, more than one of our sources for a single program. OmniChicken has been the fastest growing source species, as OmniChicken antibodies bind to diverse epitopes on human targets with high affinity and also offer excellent profiles for development. OmniFlic and OmniClic are fixed and common light chain engineered rats and chickens, designed for efficient discovery of bispecific antibodies, which are of growing interest to the pharmaceutical industry. And OmniTaur provides access to antibodies with unique structural characteristics for challenging targets. I note here that OmniRat, which is our largest source category here on this slide, has been available to our partners the longest, and was launched first.

Our partners tell us they place a high value on our ability to provide flexibility to meet their evolving scientific needs. And our technology stack can be leveraged to develop multiple therapeutic formats and modalities as shown on Slide 9. By generating large and diverse repertoires of high quality antibodies, we believe the biological intelligence of our technologies increases the probability of success of therapeutic antibody discovery, and helps limit attrition of antibody product candidates. Our partners continue to advance programs through development, and some made public announcements about their progress during the fourth quarter and into this year. Notably, we received $35 million in milestone payments from our partner, Janssen related to TECVAYLI which Kurt will talk more about in a moment.

Moving to batoclimab Harbour BioMed recently announced positive top line results from its Phase 3 clinical trial for the treatment of generalized Myasthenia Gravis. In addition, Immunovant announced initiation of a Phase 3 trial of batoclimab in thyroid eye disease, and a pivotal Phase 2b trial in chronic inflammatory demyelinating polyneuropathy. Turning to Zimberelimab, Gilead and Arcus Biosciences announced positive results from the fourth interim analysis of the ARC-7 Phase 2 clinical trial in patients with first-line, metastatic non-small cell lung cancer. And for sugemalimab, EQRx announced that the UK and European regulatory agencies accepted its marketing authorization applications for first line treatment of metastatic non-small cell lung cancer.

In addition to that CStone announced other updates in China as well. Our technology stack is driven by the biological intelligence of our engineered transgenic animals, paired with our high throughput screening technologies to enable discovery of high quality, fully human antibody therapeutic candidates for a wide range of diseases. As I mentioned, we believe we are the industry’s only four species in-vivo antibody discovery platform making OmniAb the most diverse host repertoires that are available. Our experience and our collective dialogue with our partners gives us critical insight into the industry. And it creates a positive feedback loop to advance and innovate around our proprietary platforms. We also have a suite of in-silico tools for therapeutic discovery and optimization that are woven throughout our various technologies and capabilities.

These tools include structural modeling, large multi-species antibody databases, artificial intelligence, and machine learning sequence models and more. These capabilities enhance our ability for rapid identification of candidates with the right affinity, specificity and developability profiles, and leads to more effective and efficient drug development by our partners. In addition, we have extensive capabilities centered around ion channels and transporters that were established and built around small molecules and have clear potential in multiple formats and modalities. And we think we can create possibilities for completely new paradigms for approaching ion channel and transporter targets. We continue to invest in innovating around our technology, while evaluating strategic technology acquisitions and licensing opportunities to further broaden our capabilities.

For example, in February, we entered into a license agreement with mAbsolve for its Fc Silencing Platform technology. The agreement provides us with exclusive sub-licensable access to the STR technology, which will provide our partners with the ability to efficiently silence effector functions to help discover and develop safe and effective therapeutics. This is the latest example of creative expansion of our platform. We’re also excited to roll out new innovations relating to our platform this year, and our launches of new technologies will generally coincide with major antibody engineering and antibody discovery conferences this year. As I mentioned, we believe we’re well positioned for future growth, as we leverage our highly scalable business model and support our partners’ pipelines as they expand and advance into the clinic.

Through our business development efforts, we plan to add more license agreements and more partners to our portfolio. Further, we remain committed to investing in our proprietary technology platform to enhance our position as a leader in the marketplace and to continue to offer our partners versatility in workflows. As just one example during the fourth quarter of this year, we plan to launch a heavy chain-only transgenic chicken, which we see as an important new innovation that our partners will want to access. We look forward to keeping you updated on these developments through the year. And with that I will turn the call back over to Kurt for a discussion of the financials. Kurt?

Kurt Gustafson: Thanks, Matt. Before I turn to a discussion of our financial results, I’d like to spend a few moments reviewing our business model and how our license agreements are structured with our partners. One of the key points of the structure of our deals is that they are designed to align the economic and scientific interests of both parties. What I mean by this is that deals are structured so that we get paid when our partners have success. We try to keep access to the technology at a relatively low cost to encourage our partners to utilize the technology as much as they want. In terms of deal structure agreements typically include an upfront payment for access to our full technology stack. There’s also a potential for us to learn to earn collaboration or service revenue, should a partner ask us to do work for them.

And there are also milestone payments related to the advancements of programs in the clinic, and regulatory approval. And lastly, royalties on net sales of our partners’ products. We believe the long term growth in revenue will primarily be driven by royalties. However, I expect that most of the growth in the next few years will be driven by milestone payments. Turning now to our financial results, as a reminder OmniAb was part of Ligand for the first 10 months of the year. So the financial results prior to November 1 were prepared on a carve-out basis. Starting with revenue, total revenue for the fourth quarter of 2022 was $35.3 million compared to $15.3 million in the prior year quarter. The revenue increase was primarily due to the recognition of the U.S. based Teclistamab milestone of $25 million in the quarter.

We expect to recognize the remaining $10 million of milestone revenue for the first commercial sale in Europe later in 2023. There are specific accounting criteria for the recognition of this milestone as revenue. And as of today, we don’t believe these criteria have been met. And so it is likely that this $10 million will not be recognized even in the first quarter, but likely later in the year. Our service revenue is down slightly as a result of less work performed for some of our ion channel partners, partly due to the success with some of these programs as they advance into the next stage of development. Operating expenses for the fourth quarter were $26.3 million, compared with $20.4 million in 2021. The increase included expense necessary to support our standalone structure as an independent public company.

This includes increases in staff costs as we’ve hired people in various G&A functions, as well as other typical public company costs. However, I would note that this quarter also included approximately $2 million of expenses that were more onetime in nature. Net income for the quarter was $6.8 million or $0.07 per diluted share, versus a net loss of $3.1 million or loss of $0.04 per share in the year ago period. For the full year 2022 total revenue was $59.1 million. The increase in revenue was primarily due to the recognition of additional milestone revenue I just spoke of, as well as royalty revenue from our partners sales of Zimberelimab and sugemalimab. Operating expenses for 2022 were approximately $85.7 million compared with $70.4 million for 2021.

The increase was driven primarily by the same items that drove the increase in the fourth quarter, and mostly relate to the growth in our R&D infrastructure, as well as OmniAb preparing to be a standalone company. Net loss for the full year of full year was $22.3 million or $0.26 per share, versus a net loss for 2021 of $27 million or $0.33 per share. I also wanted to make a couple of comments about taxes. A new federal tax law went into effect at the beginning of 2022 that changed the way R&D expenses are deducted. Under the new law, U.S. R&D expenses generally have to be amortized and expensed over a five year period. As a result of this tax law change, combined with the recognition of the Teclistamab milestone, we are going to be a cash taxpayer for the fourth quarter sub period where we were an independent company.

And we also expect to be a cash taxpayer for the full year of 2023. At the end of the day, this is really just a timing difference for taxes, as we will eventually realize the full benefits of all of our R&D costs. Let me also make a few comments about the share count for EPS. Both our full year and Q4 share count numbers used for EPS represent a blended share count for the period prior to the spin out, which was approximately 82.6 million shares, and the shares outstanding post the spin out, which was approximately 98.9 million. Going forward, the 98.9 million basic shares outstanding will be the more appropriate base figure to use for EPS calculations. Just as a reminder of various components of our capital structure, in addition to the public float shares, we have approximately 16 million of earn-out shares outstanding as well as various employee equity awards and warrants.

The earn-out shares expire five years after the close of the spin out transaction and half vest at the price of $12.50, and the other half vest at a price of $15. The warrants also have a five year life and a strike price of $11.50. You’ll see on the face of our financial statements that we have 115 million shares issued and outstanding. This is the combination of the basic share count as well as the earn-out shares. We ended the year with $88.3 million in cash, cash equivalents and short term investments. As previously disclosed in January we received $35 million in milestone payments from Janssen related to the launch of Teclistamab. With the addition of these milestone payments, we are in a strong capital position. The business has been running fairly close to breakeven cash flow on an operating basis for the last couple of years.

So we believe that our current cash balance gives us sufficient runway to fund our operations for the foreseeable future. As for specific guidance, we expect that our cash balance at the end of 2023 will be slightly higher than the balance as of 12/31/22. I’ll close my comments with a discussion of our financial outlook for 2023. For perspective, I thought it might be helpful by starting to look at our operating expenses over the four quarters of 2020. So the fourth quarter was the first quarter that OmniAb started reporting as a standalone public company. As such, the fourth quarter provides the best representative base level of our operating expenses going forward. As Matt mentioned, we will continue to invest in R&D, so I would expect our quarterly R&D costs in 2023 to grow off this Q4, 2022 base.

On the G&A side, remember that the G&A line included close to $2 million of expenses that were non-recurring in nature. If you exclude those onetime expenses, our G&A expense level for the fourth quarter is largely in line with what we are expecting in subsequent quarters throughout 2023 with some nominal growth. One final comment, I’m pleased to announce that we’ve hired a new Head of Investor Relations. Her name is Neha Singh and I look forward to introducing her to all of you in the coming weeks. With that, I’d like to open up the call for questions. Operator?

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Q&A Session

Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. . And your first question comes from the line of Robyn Karnauskas from Truist Securities. Please go ahead.

Nishant Gandhi: Hi, this is Nishant. I’m on for Robyn. Congrats on all the progress, and thank you for taking my questions. So question around royalty, I mean, I know you have signed a lot more deals with key partners last year, and then now your platform is validated with more than 25 programs in clinic. So for programs going forward, do you expect to negotiate higher royalties for any of your programs, considering you have got a lot of validation for your projects? And second on pipeline diversity, I see with programs in clinics, you have a lot more molecules in oncology. So is that a consideration for you going forward to diversify into new disease areas and sign new partnerships in new disease areas? Thank you.

Kurt Gustafson : Yeah, maybe I’ll take the first part of that, Matt and you can talk about the second part. With regards to royalties, you’re absolutely right to sort of point out that as the platform has become more validated, we’ve actually been able to garner sort of better economics on some of the deals. So I can’t predict what that is going forward. But if I go take a look at historically, and take a look at the average royalty rate for deals signed in sort of each of the last five years, you’ll see a slight trend in terms of higher royalty rates through those deals that are signed. And I think that’s just a function of, as you point out the validation of the technology has done that. So we hope that, that continues, but it’s difficult to project going forward. But Matt on the diversity question.

Matt Foehr : Yeah, Thanks, Nishant for the question. Yeah, you point out that for the programs that have matriculated into the clinic first, if you look across that and our platform now has generated a total of, cumulative total of 28 clinical programs. So it’s highly validated from that perspective. But you’re correct. The majority of those from a therapy area perspective, are in oncology, although there are some in GI-disease, in immunology, also some in inflammation. But as you look at our pie chart that we have in Slide 7 of the deck, the breakdown there as you go deeper into the pipeline, especially in preclinical as well as discovery, we’re beginning to see the platform used across therapy areas, as one might expect, things like CNS diseases, inflammation, women’s health, infectious diseases and other areas. So I think over time we’ll see that diversity build up in the clinic as those programs progress and matriculate through developed.

Nishant Gandhi: Great, thank you.

Operator: Thank you. And your next question comes from the line of Stephen Willey from Stifel. Please go ahead.

Unidentified Analyst: Hey, thanks for taking the question. This is Josh on for Steve. So I guess we’ll start with, which of your transgenic animal platform’s garnered the most interest? And how do you see the further development and prioritization of these platforms changing in the coming years? Then I have a few follow-up questions.

Matt Foehr : Great. Thanks, Josh for the question. Yeah, we included some data this time to break down a little bit the distribution of the source, antibody sourced technology that our partners are leveraging. So if you look across our portfolio, a little more than half of the programs that are being actively moved through development by our partners leverage our OmniRat platform. OmniRat was actually the first platform that we launched, the first and is a widely used transgenic rat. The mouse space, obviously, there are mice out there, but the rat is quite unique. And it’s been proven over time to produce robust antibody responses for our partners. There’s also a lot of efficiency and flexibility that OmniRat presents for our partners allowing us to feed flexibly into their work streams.