OmniAb, Inc. (NASDAQ:OABI) Q1 2023 Earnings Call Transcript May 12, 2023

Operator: Good morning, and welcome to the OmniAb Inc.’s First Quarter 2023 Financial Results and Business Update Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. As a reminder, this conference is being recorded. I would now like to turn the call over to Kurt Gustafson, OmniAb Inc.’s Chief Financial Officer. Please go ahead.

Kurt Gustafson: Thank you, operator, and good morning, everyone. Thank you all for joining our first quarter 2023 financial results conference call. There are slides to accompany today’s remarks, and they are available in the Investors section of our website at omniab.com. Before we begin, I would like to remind listeners that comments made during this call will include forward-looking statements within the meaning of 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, May 11, 2023.

Except as required by law, OmniAb takes — 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. With that, let me turn the call over to Matt Foehr. Matt?

Matt Foehr : Thanks, Kurt. Good morning, everyone, and thanks for joining our first quarter 2023 financial results conference call. OmniAb has been an independent publicly traded company for just about six months now. So I’d like to start off this morning by taking a quick moment to welcome our new investors and new analysts who are joining today and to just briefly describe a bit of what we do. OmniAb’s business model is focused on licensing our proprietary discovery platform to enable our partners to rapidly discover innovative therapeutics. We generate revenue from upfront payments for access to our technology stack. From collaboration or service revenue when a partner asks us to do work for and with them from milestone payments related to advancement of clinical phases, regulatory or commercial achievement and from royalties on net sales of our partners’ products.

We believe OmniAb has the most diverse host systems for fully human and bispecific antibody discovery with the Industry’s only 4-Species Platform. Our technology stack is driven at its core by the biological intelligence of our engineered transgenic animals paired with our high-throughput screening technologies to enable the discovery of high-quality fully human antibody therapeutic candidates for a wide range of diseases. Our robust base of experience, coupled with our close collaborations with partners gives us critical insight into the industry and creates a positive feedback loop to advance and expand our proprietary platform. We strive to keep our technology offerings at the forefront of our industry. And in a few slides, I’ll discuss our branded OmniDeep offering, which leverages in silico capabilities such as structural modeling, artificial intelligence and machine learning across our technology platforms in order to further enable our partners work.

OmniDeep is the first of our technology launches this year. As we also plan to launch our novel heavy-chain OmniChicken in the fourth quarter. Leveraging our highly scalable business model, the number of programs underway by partners continues to grow and that provides significant validation of the value our technology brings to our partners. And we continue to drive business development efforts to attract additional partners as we participate in this large and growing market, which is projected to reach about $279 billion in 2025. With our current resources and our dedicated staff of over 100 employees, in a proven technology platform, we believe we’re positioned for growth to address major unmet medical needs for novel therapeutics. We continue to expand partner relationships, which totaled 70 partners at the end of the first quarter with the addition of a new license with the Scripps Research Institute related to assets now being developed by Cessation Therapeutics.

Subsequent to quarter end, we also signed a new platform license agreement with Neurocrine Biosciences. Our partners represent a wide range of pharma companies, and we continue to attract high-quality partners that are seeking our discovery platform and our team’s scientific collaboration services. Approximately 20% of our partners are among the world’s top 20 pharmaceutical companies as measured by global revenue. I’ll also highlight here that this industry is constantly expanding and consolidating with new companies being formed and companies being acquired, and that dynamic will sometimes impact the number of partners that we report. That’s expected to be the case with Seagen and Pfizer given their previously announced and planned consolidation.

I know here, too, that our agreements are generally all structured so that the economics to OmniAb are tied and maintained to the program even in instances where there are changes in ownership. As I mentioned, our portfolio continues to grow and reached over 300 programs with 27 programs in the clinic or approved for commercialization at the end of Q1. During the quarter, we added a net of 10 new programs to our portfolio. The pie chart on this slide breaks out our 301 programs by stage of development. The discovery phase is large and growing with a base totaling 260 programs in addition to 14 programs in the preclinical stage. In the clinic, our partners have 20 programs in Phase I; two in Phase 2 and two in Phase 3. There are three approved drugs utilizing OmniAb-derived antibodies, and we’re recognizing royalty revenue from commercial sales of Zimberelimab and Sugemalimab in China, both of which are also being pursued in other markets.

In the first quarter, we had a new program entered the clinic with Seagen, who initiated a Phase 1 clinical trial of SGN-BB228, which is a CD228 and 4-1BB bispecific molecule that’s in clinical development for advanced melanoma and other solid tumors. As I mentioned on our last quarterly call, based on discussions with partners, we see potential for three to five new OmniAb-derived antibodies to enter the clinic in 2023. We strive to provide utmost flexibility to meet our partners’ evolving scientific needs as we believe generating large and diverse repertoires of high-quality antibodies increases the likelihood of success in optimizing desired therapeutic characteristics. The science behind the individual programs drives our partners’ use of our different engineered animals.

And in many cases, they use more than one source for a program. Partners currently have antibodies in clinical trials that are rat-derived, that are mouse-derived and are chicken-derived, and we continue to see the versatility of our platform showing in the number of modalities and formats being employed by our partners, both preclinically and clinically. Our partners made a number of public announcements about their clinical and commercial progress during the first quarter and in recent weeks. Notably, in January, we received $35 million in milestone payments from Janssen related to TECVAYLI, which Kurt will discuss. Regarding other progress, I’ll start with batoclimab. Batoclimab is in clinical development by HANALL, by Harbour Biomed and by Immunovant.

Harbour Biomed announced positive top line results from its Phase 3 clinical trial in China for the treatment of generalized myasthenia gravis. HANALL has announced that they’re making progress on plans to initiate a Phase 3 in Japan later this year, also for the treatment of generalized myasthenia gravis. In addition, Immunovant announced that it expects to report initial results from its Phase 2 clinical trial in Graves’ disease in the second half of this year. Immunovant is also running clinical trials in generalized myasthenia gravis, thyroid eye disease and chronic inflammatory demyelinating polyneuropathy. And for the next-generation anti-FcRn IMVT-1402, which was discovered using our OmniRat technology, Immunovant announced plans to initiate a Phase I clinical trial for autoimmune diseases.

I want to make one clarifying note regarding the economics for both batoclimab and the 1402 programs, which is that these molecules were originally discovered by HANALL using OmniRat and any payments that we receive will come from HANALL through defined sharing economics that are built into our agreement with them. As I mentioned, Seagen recently initiated a Phase 1 clinical trial of SGN-BB228, a CD228 and 4-1BB bispecific molecule in advanced melanoma and other solid tumors. And a comment also here on ASCO, I’ll note that based on the titles and presentations that have been disclosed, we expect a number of our partners will present new clinical data for OmniAb-derived programs at the ASCO Annual Meeting that is taking place coming up here in June.

As mentioned in our press release this morning, we’ll be launching our OmniDeep platform at next week’s PEGS meeting in Boston. Our Head of Systems Engineering, Bob Chen will be presenting case studies highlighting OmniDeep. OmniDeep is a suite of in silico tools for a therapeutic discovery and optimization that have been woven throughout OmniAb’s various technologies and capabilities. These tools include structural modeling, molecular dynamic simulations, large proprietary multi-species antibody databases, AI and machine and deep learning sequence models and additional features. Leverage with the biological intelligence of our engineered animals and our screening technologies, such as exploration, OmniDeep allows for rapid identification of candidates with the right affinity specificity and developability profiles to lead to more effective and efficient drug development.

These proprietary capabilities have been part of our internal research efforts for many years and we’ve recently expanded them, especially for programs with some of our larger partners. Our extensive capability is centered around ion channels and transporters also leverage OmniDeep, which we view as a differentiated tool for viable target to lead delivery. We have capabilities that are particularly effective for difficult and high-value ion channel targets. These capabilities were originally established and built around small molecule and are now being applied to multiple formats and modalities for our partners. Not only do we value the relationships we have with our partners, we also help to create value through their feedback on the discovery process and areas that they find of interest to their pipeline expansion plans.

We utilize this input to further enhance and innovate our technology platform to maintain what we see as a leading position within the industry. We have a highly scalable business model and we’re poised to facilitate the development of therapeutic candidates into the clinic by our partners as well as to continue to do new deals with structures that create value for all stakeholders and also that expand our portfolio with new partners. And we look forward to keeping you updated as we execute on this strategy. So with that, let me now turn the call back over to Kurt for a discussion of the first quarter financials. Kurt?

Kurt Gustafson: Thanks, Matt. As a reminder, the financial results reported from the prior year period are prepared on a carve-out basis, which were derived from Ligand’s historical accounting records, as if OmniAb were an independent company. This makes certain comparisons difficult, primarily for operating expenses, given the differences in the methodologies for reporting. Now let’s walk through a few of the highlights for the quarter. Total revenue for the first quarter of 2023 was $16.9 million compared to $9.6 million in the prior year quarter. The revenue increase was primarily due to the recognition of the remaining $10 million milestone payment for the first commercial sale of TECVAYLI in the EU. I mentioned on our last conference call that we received a $35 million payment from Janssen and that $25 million was recognized as revenue in the fourth quarter for the first commercial sale in the U.S. I also stated that we would likely recognize the remaining $10 million milestone payment later in the year.

However, in April, we received information from Janssen that met the criteria for recognizing the EU portion of this milestone revenue in the first quarter. Like last quarter, our service revenue was down slightly as a result of less work being performed for some of our ion channel partners based on stage and status of these exclusively licensed programs. Turning to operating expense. Our R&D expense for the first quarter was $13.8 million compared to $10.8 million in the prior year quarter. The increase was primarily due to higher personnel costs and higher costs associated with our new facilities. G&A expense was $8.2 million compared to $4.1 million in the prior year quarter as we staffed up these functions and incurred other costs associated with being a public company.

The net loss for the first quarter was $6.1 million or $0.06 per share versus a net loss of $6.3 million or $0.08 per share in the prior year period. One additional comment about shares used for our earnings per share calculation. The number of shares of 99.2 million for Q1 is based on our basic shares outstanding and should be a good number to be using for the EPS calculations going forward. We ended the first quarter with $113.6 million in cash, cash equivalents and short-term investments. The increase in the quarter was primarily driven by the receipt of the $35 million milestone payment for TECVAYLI. Other than the associated decrease in accounts receivable for the milestone that I just mentioned, there were no significant changes to our balance sheet.

The only other change that I’ll mention is that we paid approximately $2 million in the first quarter on our CDR obligation most of which was related to various OmniTaur programs that recently started. We continue to expect that our cash balance at the end of 2023 be slightly higher than the balance at the end of 2022 and that this balance provides sufficient runway to fund our operations for the foreseeable future. On our fourth quarter earnings call, I indicated that our Q4 2022 R&D expense is a good base off of which we would be growing. Q1 2023 actual results are in line with that expectation, and we continue to expect to see this trend going forward. On the G&A side of things, I’ve previously indicated that our fourth quarter 2022 G&A expenses included approximately $2 million of onetime expenses and indicated that if you pulled out that $2 million, we expected that our G&A expense would grow slightly off this adjusted Q4 figure.

As you can see, our Q1 2023 results are consistent with that guidance, and we also expect to see the similar trend going forward. And with that, I’d like to open up the call for questions. Operator?

Q&A Session

Operator: Thank you. Ladies and gentlemen, we’ll now begin the question-and-answer session. [Operator Instructions] Your first question comes from Robyn Karnauskas from Truist Securities. Please go ahead.

Operator: Thank you. Your next question comes from Stephen Willey from Stifel. Please go ahead.

Operator: Of course. Your next question comes from Joe Pantginis from H.C. Wainwright. Please go ahead.

Operator: Thank you. Your next question comes from Puneet Souda from SVB Securities. Please go ahead.

Operator: Thank you. Your next question comes from Steven Mah from TD. Please go ahead.

Operator: Thank you. [Operator Instructions] Your next question comes from Matt Hewitt from Craig-Hallum Capital Group. Please go ahead.

Operator: Thank you. There are no further questions at this time. You may proceed.

Matt Foehr : Great. Thank you, operator. I’d like to thank everyone for participating on this morning’s call and for your questions and engagement. We look forward to keeping you updated on our progress and speaking with you next quarter. I just want to mention also that we’ll be out on the road meeting with investors in addition to attending the EF Hutton conference today here in New York. We’ll also be attending the B. Riley conference in the L.A. area, the Benchmark Virtual Conference as well as the Craig-Hallum Capital Conference that’s coming up in Minneapolis. So thanks again, all, and have a great day.