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

OmniAb, Inc. (NASDAQ:OABI) Q4 2023 Earnings Call Transcript March 20, 2024

OmniAb, Inc. beats earnings expectations. Reported EPS is $-0.14, expectations were $-0.17. OABI isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon, and welcome to OmniAb, Incorporated Fourth Quarter and Full Year 2023 Financial Results and Business Update Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Kurt Gustafson, OmniAb, Incorporated’s Chief Financial Officer. You may begin. Thank you.

Kurt Gustafson: Thank you, operator, and good afternoon, everyone. As you said, this is Kurt Gustafson, and I want to thank you all for joining our fourth quarter and full year 2023 financial results conference call. There are slides to accompany today’s prepared remarks, and they 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 the live broadcast, today, March 20, 2024. 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, OmniAb’s 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.

Matthew Foehr: Thanks, Kurt, and good afternoon, everyone, and thanks for joining our fourth quarter and full-year 2023 conference call. As we kick off the call today, I’d like to mention that our clear mission here at OmniAb is to enable the rapid development of innovative therapeutics by pushing the frontiers of drug discovery technologies. We do this within a pure-play licensing business that is partnering-focused and that’s designed to be efficient, scalable, highly leverageable, and that we believe is now poised for growth to meet what we see as an enduring and global need in the pharmaceutical industry. Our technology offering addresses the most critical challenges of antibody-based drug discovery. We have a highly differentiated suite of technologies that are proven and increasingly leverageable.

Better industry success rates and other factors are driving an acceleration of antibody-based investment by the pharmaceutical industry, and we think we’re well-positioned to meet increased demand for cutting-edge, antibody-focused discovery technologies. OmniAb grew significantly in 2023, making substantial progress across key elements of our business. This included expansion of our partnership base and our pipeline of partner programs, advancements of key late-stage programs by some of our partners, and global expansion of our business development team. We now have BDT members in the U.S. and in Asia, based out of Singapore, and in Europe. We’re focused on and dedicated to continued innovation and executed extremely well on that in 2023 with two successful new technology launches, including OmniDeep, which is our suite of in silico AI and machine learning technologies and capabilities that are woven throughout our technology stack and that marry extremely well with the biological intelligence of our transgenic animals.

In November, we launched OmnidAb, which is our latest example of a novel transgenic animal, and I’ll talk more about that shortly. We had an impressive list of achievements in our first full year as an independent public company, but our focus remains on pushing the boundaries of technologies to continue to meet the needs of our partners now and in the future. We have an increasingly efficient internal technology innovation engine that helps frame how we believe will create long-term value for all of our stakeholders. And building on this momentum from 2023, we’re looking forward to continued growth in the year ahead. Here now on slide number five, you can see some of our business metrics, and these graphs in many ways speak for themselves and I think clearly show that 2023 was another year of substantial growth and progress in our business.

Despite sector-related and macro headwinds last year, our key performance indicators continued to perform extremely well. Our active partners grew to 77 from 69 a year ago, representing a 12% increase. Our active partner programs also grew by 12%, with an increase to 325 from 291. And lastly, our active clinical and approved programs increased by 23%, as we had 32 at the end of 2023 compared with 26 at the end of 2022. I want to stress that all of these numbers here are net of attrition, and I note that attrition is obviously natural and it’s expected in pharmaceutical discovery and development. I’ll now talk about our partnership base in a little more detail here on slide number six. 2023 was highly productive in new partner additions as our number of active partners continued to grow net of attrition.

We saw multiple factors driving this expansion, including platform visibility and clinical and commercial validation of our technologies, an expanded business development and marketing presence that’s backed by our cutting-edge science, and our new technology launches. As we continue to focus on licensing to align our interests with our partners, we’re attracting and bringing in a diverse set of partners to bolster the next wave of discovery and preclinical candidates advancing to the clinic. Moving now to slide number seven, here we’re providing a further breakdown of our new platform licensing deals from last year. We signed 10 new licenses in 2023, and today we’re disclosing new platform deals with Enable Life Sciences, as well as one with a start-up company that were both signed in the fourth quarter, along with a previously disclosed Big Pharma partnership that was also executed in Q4.

And as I said, we signed 10 new deals in the full year of 2023. As you see here on the chart, two were with well-established global Big Pharma players, as well as deals with new biotech partners and academic partners. We added four new deals with start-up partners, and I want to highlight that 40% of our deals were done with start-up companies, despite the significant drop in funding for smaller or new biotech companies in 2023. We see this diversity of new partners as a strength in our business. Maintaining our business track record of execution, we’ve also seen nice growth and advancement of active programs, and I’m now on slide number eight. As mentioned, we started 2023 with 291 active programs and grew to 325 active programs net of attrition.

You can see the growth reflected on the left-hand side in the bar chart. The pie chart on the right breaks down our 325 active programs by stage of development. By the end of 2023, our growing discovery phase consisted of 278 programs and 15 programs that were in the preclinical stage. And importantly, we define preclinical stage programs as ones that are confirmed to be in pre-IND or IND-enabling studies. During 2023, we had six programs move from preclinical to phase one clinical trials. So, at the end of the year, we had 25 programs in Phase 1 trials. And I note also that one program moved from Phase 3 to its first international registration filing. With these leading positive metrics, it’s also good to see that we have kept and are building momentum for the growth in active clinical programs that are shown here on slide number nine.

We started off 2023 indicating that we expected three to five new clinical starts by our partners. And we ended the year with six new clinical starts. To mention a few just briefly, Seagen announced initiation of a first in human phase 1 clinical trial of its bispecific SGN-BB228, which is targeting anti-CD228 and 4-1BB in advanced melanoma and other solid tumors. This program is now in Pfizer’s pipeline following the closure of their acquisition of Seagen and going forward will be referenced by its Pfizer project number. Immunovant initiated a Phase 1 clinical trial of its next generation anti-FcRn IMVT-1402 in autoimmune diseases and Cessation began a Phase 1 study of CSX-1004, which is a monoclonal antibody derived from OmniRat designed specifically to prevent fentanyl overdose.

During the fourth quarter, BioCity Biopharma announced the first patient was dosed with its first in class CDH3 targeting antibody drug conjugate BC3195 in a Phase 1 trial in China. A number of our other partners also reported progress on other clinical and commercial stage assets in Q4. And some of those were summarized in our press release that was issued after the market closed today. Based on our dialogue with partners, we see potential for approximately four to six new entries into clinical development for novel OmniAb derived antibodies in 2024. As I mentioned, we’re committed to continued innovation around our platform. And because of the nature of our relationships, we have a great vantage point not only on where the industry is right now, but where the industry is headed.

And that informs the technologies that we develop and deploy. Last year, we launched OmniDeep and OmnidAb, and both of those are called out here on slide 10 in the two green boxes on the lower left. I’d like to highlight the OmnidAb technology that was launched in Q4, as it’s quickly becoming yet another key differentiating technology here at OmniAb. A foundation of our business is our novel transgenic animals. We believe novel antibodies that are generated in vivo are superior to ones from other sources, because they’re naturally optimized through an iterative process that preferentially selects for antibodies with excellent specificity and developability profiles. The ability of the immune system of our engineered transgenic animals to create optimized antibodies for human therapeutics is what we call biological intelligence.

And we believe this approach increases efficiency and probability of success for our partners and positions our business extremely well. So OmnidAb is our latest example of this. And as described here on slide 11, it’s the first and only transgenic chicken producing single domain antibodies, which is a novel class of antibody found naturally in camelids that’s being increasingly exploited for a variety of therapeutic applications. OmnidAb is a novel in vivo platform based on a human VH scaffold that affinity matures in a chicken host to provide a functionally diverse immune repertoire of antibodies unavailable from mammalian systems. In a simple sense, single domain antibodies provide modular building blocks and can be assembled into various formats to fit the biology of a desired application.

And you can also see on this slide some of the things we hear from our partners, about the technology as multiple partners are using it now in active programs. We expect many more will initiate programs with OmnidAb this year and next. This is partly because of the unique physical properties of single domain antibodies that are summarized here on slide number 12. It can be expressed independently as a unit and their compact format opens up new and important opportunities from a scientific and medical perspective. Single domain antibodies can be leveraged for important applications. They can open up alternate routes of administration that we show here on slide 13. They can lead to increased penetration and tunable clearance and also to new opportunities and new markets for us in imaging, in diagnostics, in theranostics, and in radiotherapy.

And they also have broad therapeutic applications in bi and multi-specifics and CAR-T therapy as well as pursuing therapeutics for CNS and neurodegenerative diseases, which are obviously areas of significant interest for our partners. Now as we look at the current year here on slide 14, in addition to expecting four to six new clinical programs, we expect we’ll see late stage advancement for a number of key programs at Genmab, at Immunovant, and others. We also expect that our progress on some of our higher value ion channel programs with global big pharma partners will become more visible to investors and to the research world generally and we’re excited about that. We now have a fully staffed business development team and a more efficient innovation and support engine that we plan to leverage for deal expansion globally.

And we’ll continue to focus on innovation and expansion of our technology platform and the introduction of new technology, new workflows, and new partner experience enhancements that we’ll talk about at scientific and technical conferences through the year. And with that, I will turn the call back over to Kurt to run through the financials. Kurt?

Kurt Gustafson: Thanks, Matt. So, bear with me one final time as I make the statement about our historical financials. These financial results reported for the periods prior to November 1, 2022, 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 corporate structure and the methodologies for reporting. So, moving to Slide 16. This summarizes the financial performance in the fourth quarter of 2023. Total revenue for the fourth quarter was $4.8 million compared to $35.3 million in the prior year quarter. The decrease was primarily due to the recognition of the TECVAYLI milestone of $25 million that was recorded in Q4 2022.

Service revenue was lower primarily due to the completion of work on certain ion channel programs and royalty revenue was about the same as it was last year. Turning to operating expense. Our R&D expense for the fourth quarter was $14.8 million compared to $12.9 million in the prior year quarter. The increase was primarily due to higher personnel costs and investments in our new facilities. For G&A, expense was $7.9 million compared to $10.2 million in the prior year quarter. Our G&A expense was down due to the transaction costs associated with the spin-off that were recorded in Q4 of 2022. This was somewhat offset by the higher headcount-related costs as we built up the G&A side of the business over the course of 2023. The net loss for the fourth quarter was $14.1 million or $0.14 per share versus a net income of $6.8 million or $0.07 per share in the prior year period.

One additional thing that I want to point out is regarding our tax rate in the fourth quarter. We recognized a onetime benefit in the fourth quarter of 2023 that was primarily the result of a deduction for transaction-related expenses associated with the spin out. Absent onetime items, we generally expect our tax rate to be around 20% going forward. Turning to the full year results on Slide 17. For 2023, total revenue was $34.2 million compared to $59.1 million for 2022. Our license and milestone revenue was lower versus the prior year. The primary difference between the two years was the revenue recognition of the TECVAYLI milestones. We recorded a $25 million milestone for TECVAYLI in 2022 for the commercial launch in the United States versus the $10 million milestone that was recorded in 2023 for the EU launch.

Recall, however, that the cash for both milestones was actually received in 2023. Service revenue was down compared to the previous year, primarily due to the completion of work on certain ion channel programs. Operating expense for 2023 was approximately $103.6 million compared to $85.7 million in 2022, we saw an increase in R&D costs associated with higher headcount than the investments in our new facilities in 2023. And for G&A, we saw an increase in costs associated with building out our G&A infrastructure, which included both people as well as normal public company costs that were not part of the expense structure for most of 2022. Net loss in 2023 was $50.6 million or $0.51 per share versus a net loss in 2022 of $22.3 million or $0.26 a share.

2023 was a year of establishing our operations as a separate public company and building a base from which we can grow the business. As you can see, looking at the total operating expense line on Slide 18, operating expenses leveled out at about $26 million per quarter. But keep in mind that a good portion of our operating expense is non-cash. But we now have the personnel and facilities that we believe will be sufficient to support the growth of the operation well into the future. Importantly, we expect to continue to grow the number of partners and programs, but this growth will require a minimal additional head count going forward due to the leverage that is built into our business. As a result, we expect operating expense in 2024 to be approximately the same as it was in 2023.

This is a differentiating feature of our business given that our work streams leverage the biological intelligence built into our transgenic animals to discover new molecules. Turning to Slide 19 and taking a look at the balance sheet and our cash position. We ended the year with $87 million in cash versus a starting cash balance of $88.3 million. The only other kind of major change on our balance sheet of note was the reduction in accounts receivable that was based on the collection of that — those TECVAYLI milestones. To set the stage for our projected cash position going forward, I think it’s important to understand the components of what drove our cash burn in 2023, which is shown here on Slide 20. If you look at the hashed black bars in the chart on the right, you’ll see our actual quarterly cash flows for 2023.

These show that our net cash used for the full year was $1.3 million. However, this was aided by the receipt of a $35 million payment for the TECVAYLI milestones that were received — both of them were received in Q1 of 2023. The blue bars show cash burn, excluding this payment, which show the pro forma cash burn averaged about $9 million per quarter for a total of $36.3 million for the year. As we look ahead to 2024, we expect our cash use in 2024 to be relatively similar to the cash use in 2023 when you exclude the $35 million TECVAYLI milestone payment that we received in 2023. However, unlike 2023, the timing of our cash burn will be more front-end loaded in 2024. Q1 is traditionally our largest burn quarter due to compensation cycle items.

And in 2024, we are projecting that milestone payments will be weighted toward the second half of the year, based on the latest information we’ve received from our partners and public statements that they’ve made. Looking at the following year based on the expected progression of our existing partner pipeline, we expect our cash use in 2025 to be substantially lower than in 2024. We still expect that our cash — our current cash balance and cash from operations should provide sufficient capital to fund the operations for the foreseeable future. The view of our longer-term cash is based on a model that forecast cash inflows from each of our existing partner programs, utilizing standard industry time lines for clinical development and applying standard industry probabilities of success.

For example, we had 25 programs in Phase 1 studies at the end of 2023. Based on standard industry probabilities, we would expect approximately half of those to make it to a Phase 2 study. Using industry average, we calculate the amount of time a program would spend in a Phase 1 study before moving to a Phase 2 study, we then multiply the contracted Phase 2 milestone payment by this probability to come up with our projected milestone payment. Now in reality, we will never get half of a milestone payment. However, given the number of programs that are under development, we believe that this methodology provides a suitable way to forecast future revenue. One additional point is that this cash outlook excludes any sort of strategic technology acquisition.

And with that, I will let Matt make a few closing comments before we open up the call to Q&A.

Matthew Foehr: Thanks again, Kurt. I want to reiterate that in just over a year after completing our spin-off and becoming an independent company, we’ve made great strides in our business execution. OmniAb is primed for growth, and our business is now highly scalable and highly leverageable given the team we’ve assembled and the previous investments that we’ve made into the business. We focus our organizational energy here on our stakeholders, which we see as our team, our partners and the patients that their programs treat or will treat the communities where we work and of course, and importantly, on our investors. And with that, I will now turn the call back over to the operator to open it up for questions. Operator?

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Q&A Session

Operator: Thank you. [Operator Instructions] Your first question comes from the line of Puneet Souda from Leerink Partners. Your line is now open.

Puneet Souda: Hey guys, thanks for the questions here. So first one, Matt, if I could ask around here in terms of overall expectations, you ended up ahead of that. The number of programs were also ahead just trying to parse out how much of this is simply a function of biotech fundraising and also M&A that we have seen in the first three months this year. And how much of this is due to more business development conversations, could you maybe parse those out? And maybe you’re seeing some effect of that already in 2023. So maybe just talk to us about sort of what you saw at the end of 2023? And what’s been the conversation on the business development side in the first quarter here as well?

Matthew Foehr: Yes, Puneet, thanks for the question. And implicit in your question and as you said, we’re coming off a period in 2022 and 2023, when the biotech funding generally was down substantially, right? Smaller companies, especially were having a hard time raising money big pharmas as well established. We’re taking a close look at their pipelines and focusing their energy on certain assets or therapy areas and really, despite that in 2022 and 2023, we saw really nice growth net of attrition from — in active partners as well as active programs. In fact, 2022 and 2023 were some of our highest growth years in terms of number of new licenses. In some ways, it can be hard to parse out the various elements of what’s driving that growth, right?

We were building our business development team through the year last year. We had some nice visibility for the platform really driven by increased investment in innovation and launching new technologies as well as nice headlines from partners who were progressing nicely through the clinic. So, I think all of those things play a role in the growth that we’re seeing. It is clear that the industry as a whole appears to be off to a good start this year, especially when you compare it to 2022 and 2023. And we think that really does position our technology quite well, given the level of validation and visibility and momentum that we’re building up. So hopefully, that gives you a little more color.

Puneet Souda: Yes, that’s helpful. And could you talk a little bit about in terms of single domain antibodies, you pointed to a couple of areas where they could be potentially applicable, within the context of your prior product launches, maybe just talk to us how would you stack this, the level of interest you’re getting here and your expectations for sort of the growth and then the technology.

Matthew Foehr: Yes, Puneet, thanks. In terms of the amount of interest in OmnidAb, I really can’t recall another technology that we’ve added on or launched that has had more interest on day one. In fact, really the moment that we launched it, we were already — when partners knew it was coming, we were already working on antigen for a number of programs. We now have multiple partners leveraging the technology, some of them with multiple programs. And it really is, I think, a technology launch that was very well timed from a number of perspectives. Obviously, these are all discovery stage at this point. But it was really dialogue we’ve been having with partners over the last couple of years that informed our conviction around the need for a single domain technology like OmnidAb that can leverage the chicken host, especially when it’s paired with our screening and other technologies that are woven throughout our stack.

So yes, we feel really good about the work that’s already going on, the dialogue and the deliverables that are already being provided to partners who were the earliest users that started at the end of last year. And yes, we’re excited about how it positions the business.

Puneet Souda: Got it. Okay. Super helpful. I’ll hop back in the queue.

Operator: Your next question comes from the line of Joe Pantginis from H.C. Wainright. Your line is now open.

Joseph Pantginis: Hey guys, good afternoon. Thanks for taking the questions. Before my questions, actually, I think it’s pretty encouraging at this point, having modeled both ends of the business from the ligand days to really hear the efficiencies that you have in place now and that you don’t really need to add employees that much even as your number of programs grow. So that’s very nice to hear. So my first question, I guess, first starting high level. So not to sound — well, you’re already doing cutting-edge technologies with regard to antibody discovery. So you did mention it briefly in your prepared comments, but what — how have you seen the role of AI impacting your technologies? Because obviously, that’s not only just the catch rates of the day, but increasingly important with regard to these technological breakthroughs.

Matthew Foehr: Yes. Joe, thanks. This is Matt. And obviously, AI and you’ve known the business for a while, tracked the business for a while. AI, big data management, deep learning, machine learning, these are all areas that we’ve been involved in and leaning into for quite a while, really the last few years or more. It comes naturally when you’re in the sort of cutting-edge science world that we’re in. And it is an area that we’ve been leaning into much more last year, last May, we launched OmniDeep, which is our suite of in silico AI, machine learning, tools that leverage large multi-species databases. And we launched that in May of last year. But really, many of our partners knew we were in this space long in advance of that.