Earnings Call Transcript - OABI Q2 2025

Operator, Operator

Good afternoon, and welcome to the OmniAb Inc. Second Quarter 2025 Financial Results and Business Update Conference Call. As a reminder, this conference is being recorded. I would now like to turn the conference call over to Mr. Kurt Gustafson, OmniAb, Inc.'s Chief Financial Officer. You may begin.

Kurt A. Gustafson, CFO

Thank you, operator, and good afternoon, everyone. This is Kurt Gustafson, OmniAb's Chief Financial Officer, and thank you all for joining our second quarter 2025 financial results conference call. There are slides to accompany today's prepared remarks, and they're available in our Investors section of our website at omniab.com. Before we begin, I'd like to remind listeners that comments made during this call by OmniAb's management 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, August 6, 2025. 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. And during today's call, we'll provide highlights on the company's business and operations, partner and technology updates as well as our recent financial results and outlook. And at the conclusion of the prepared remarks, we'll open the call to questions. And with that, let me turn the call over to Matt.

Matthew W. Foehr, CEO

Thanks, Kurt. Good afternoon, everyone, and thanks for joining us today on our Q2 call. I'll start now with Slide #4. As I mentioned on our last call, we started the year with strong deal flow, and this continued in the second quarter with a number of new partners added in the first half of the year, setting a pace for one of our strongest years yet. We continue to see a robust pace and quality of deals. And we think this is a testament to our differentiated technology platform, which continues to evolve and expand and to our team's relentless pursuit of innovation that leverages our unique vantage point in the industry. Our partners are actively advancing programs into human trials with the start of a new clinical stage program during the second quarter and several others that are progressing through development. And on the third highlight here on Slide 4, the recent launch of our xPloration Partner Access Program has been very well received with a strong response from existing partners and others. Within weeks of launch, we sold and installed an xPloration system, and we are managing a robust pipeline of leads and business activity for this new technology that's expected to be accretive to the business and to further diversify our sources of revenue. Our platform is attracting new partners and facilitating the addition of new programs. We continue to drive efficiencies in our business through leveraging our technologies, including xPloration and through the streamlining of our business practices, all with the goal of creating long-term and sustainable value for our stakeholders. We've been realigning our staffing needs and recently reduced some costs in our headcount. This is in addition to the staffing realignment we disclosed back in February related specifically to the small-molecule ion channel element of our business. We began 2025 with 114 employees, and our go-forward headcount is at 87 employees. And Kurt will provide some financial details in his remarks. So in summary here, our outlook for 2025 remains very much on track, and we feel we're extremely well positioned to deliver on our strategic goals to expand the reach of our technologies and to execute on our current xPloration launch and the upcoming new technology launches that we're also very excited about. Additionally, we're constantly seeking further workflow efficiencies and technology innovations in what we see as a highly scalable business. So now I'll review some of our business metrics, starting here on Slide #5. We ended Q2 with 100 active partners. During the second quarter, we signed an asset deal with Angelini Pharma for a small-molecule ion channel modulator that targets Kv7.2, which we discussed on our last call. In addition, we executed multiple license agreements, including new deals with Veraxa Biotech, Duke-NUS, University of Strathclyde, University of Maryland, AB-Ray Bio and an undisclosed global CRO. As you see on the slide, we're also providing some updated detail on the distribution of our active partners by type, including discovery, commercial and academic as well as the distribution of our partners on a geographic basis. Although our partners are mostly based here in the U.S., there's been a steady diversification of our partner base as we've been successfully increasing the reach of our platform. Turning to Slide 6. You can see the number of active programs increased to 381 as of quarter end. We've continued to experience positive momentum with a year-to-date net increase of 18 programs. And we're continuing to see the strength in program additions that started late last year. Attrition is obviously a natural and expected element in drug discovery and development generally. And we do continue to see and expect to see attrition, which can be driven by a variety of factors, including partner therapy area focusing and budget decisions and timing of receipt of reports or updates from our partners. That said, the net addition of 18 programs year-to-date shows some significant strength and has more than doubled the number of net additions through the first half of 2024. Slide #7 breaks down our 381 active programs by their license type and summarizes elements of overall contracted downstream economics. Importantly, about 99% of our active programs have potential future economics contractually owed to OmniAb. The 1% that don't are generally linked to legacy agreements with prepaid licenses that were signed years ago by companies that we acquired. 90% of the programs are linked to what we generally refer to as Antibody Standard Licenses and 7% are through what we call Revenue Share License Agreements, where we get a defined portion of whatever form of value our discovery partners get, be that equity, cash or other forms of value. These revenue share deals are mostly with academic institutions that incubate OmniAb-derived assets prior to planned corporate formation events. Our antibody programs have over $3 billion in total remaining contracted potential milestone payments and an average royalty rate of 3.36%. This 3.36% average is an increase from an average royalty rate of 3.2% that we reported in November of 2023. I think the ability to command strong royalties reflects the value of our technologies and their relevance to the industry. It also speaks to the value our team is creating for our partners and for our stakeholders. Here now on Slide 8, we're putting a bit of a spotlight on the continued growth of the post-discovery stage programs in our portfolio as well as the advancement of these programs into and through development. During the quarter, a number of new programs progressed to the preclinical stage of development and another one is recruiting for a Phase III clinical trial, which is Immunovant IMVT-1402 for myasthenia gravis. We're really encouraged by the expanding number of post-discovery stage programs, which have experienced 22% growth from the prior year period. The preclinical programs also have nice diversity of indications and include inflammation, fibrosis, renal, dermatology, CNS diseases and others in addition to the historical strong showing in oncology. Importantly, these 61 programs that are post-discovery stage are associated with approximately $1.3 billion in contracted remaining potential milestones to OmniAb. The total potential milestones associated with the later-stage programs has continued to increase, and that increase has been fairly dramatic in the last 8 to 12 months. And you can see here the contribution of $700 million from small-molecule ion channel programs that have now moved into preclinical. We think the growth here demonstrates potential value-creating events in the pipeline, the progress in the pipeline overall as well as our partners' conviction around assets that have been discovered with our technologies. Moving now to Slide 9. The number of active clinical programs and approved products was 32 at the end of Q2. A new OmniChicken-derived program entered the clinic in the quarter from Seismic Therapeutics. This marks the third OmniChicken-derived antibody to enter human clinical trials following programs with Boehringer Ingelheim and Teva. Through Q2, we've had 2 novel programs initiate first-in-human clinical trials in 2025. We've seen attrition or stage of development modification in Phase I assets with a CN1 program returned from Curon to WuXi, which WuXi now characterizes as preclinical. And a Genmab program that entered an initial Phase I trial in Q1 and then exited that trial in Q2. As I've said, and as we often say, attrition is a natural part of drug development. Based on dialogue with our partners, we continue to see potential for a total of approximately 5 to 7 new entries into clinical development for novel OmniAb-derived programs this year. Slide #10 illustrates our clinical and commercial stage partner pipeline for active programs that carry remaining downstream economics. As you see, this pipeline flows from Phase I through to later stages and product approvals from left to right. In the last couple of quarters, it's been great to see the growing number of programs moving to the right on this graphic, the latest of which now includes the recent addition of Immunovant IMVT-1402 shown in Phase III, as I mentioned. Turning to Slide 11. We've highlighted select recent partner updates, including presentations at ASCO from J&J and Merck KGaA. The disclosed J&J data for their trispecific 5322 program is especially notable to us with the 100% response rate that was observed in heavily pretreated multiple myeloma patients. The initial data were described as suggesting a potential paradigm shift for the treatment of these patients. So there's a real opportunity with this program to significantly elevate the standard of care for multiple myeloma. J&J indicated publicly that they look forward to seeing the results from planned Phase II and Phase III studies for the 5322 program. And on their most recent earnings call, they highlighted these data again while saying they are now closer than ever to their ambition of curing multiple myeloma. Other highlights shown here include Teva receiving Fast Track designation for TEV-408 for the treatment of celiac disease. And I want to note that this program is also in clinical development for vitiligo. Teva additionally announced a partnership with Fosun for TEV-278, which is a partnership established with the goal of accelerating clinical development of the compound that's in clinical trials now for the treatment of various forms of cancer, including melanoma. Now to conclude my section here on Slide #12, we've highlighted our recently launched xPloration Partner Access program. xPloration is a high-throughput single B-cell screening instrument that leverages machine learning and AI. It offers 10x more single cell screening throughput versus other instruments, which allows users to screen in a far more efficient fashion. We believe this system has unmatched screening throughput and superior hit recovery, along with exceptional ease of use and reliability. We highlighted xPloration in a presentation at the Boston PEGS Conference in May, where the system was awarded Best of Show honors. Just weeks after launching, we sold and installed xPloration at a global partner, creating a new revenue stream derived from the sale of the instrument as well as recurring revenue from proprietary single-use consumables and subscription services for software with maintenance. It's still early in the launch, but the response from the market has been extremely positive. And we're building a pipeline of sales leads from our growing roster of partners based on new availability of the platform, and we're also getting inquiries from others who are interested in becoming OmniAb discovery partners specifically to get access to xPloration. With xPloration, we're able to further empower partners with the latest technologies to improve their probability of success in a really efficient and scalable manner. That's part of why we see xPloration as a nice complement to our current core business as it supports our mission of enabling the rapid development of innovative therapeutics. The feedback we are getting indicates to us that this is the right time for xPloration as the industry embraces the value of lab automation and instrumentation for Big Data generation to also leverage AI- and ML-aided screening and selection. We're very excited about the prospects of this new offering as it continues to demonstrate our commitment to innovation and to customer service while diversifying our revenue streams. And with that, let me now turn the call back over to Kurt for a discussion of our Q2 financial results.

Kurt A. Gustafson, CFO

Thanks, Matt. On Slide 14, I'll start with a review of our revenue. For the second quarter of 2025, we reported revenue of $3.9 million compared with $7.6 million for the same period in 2024. The decrease was primarily related to lower milestones achieved in the quarter and lower service revenue. Service revenue declined primarily due to the discontinuation of a small-molecule ion channel program last year, which also resulted in the acceleration of noncash revenue in that quarter, which overinflated last year's number. The decrease was partially offset by the new xPloration revenue this quarter, and this revenue primarily includes the sale of an instrument as well as the sale of various consumables related to the xPloration platform. Slide 15 shows our cost and operating expenses for the second quarter of 2025 which decreased to $20.1 million from $23.9 million for the prior year period. We saw decreases in both R&D and G&A expenses relative to last year, and I'll go into some of those details here on the next slide. So turning to Slide 16 and focusing on operating expense. You'll see a new line item for the costs associated with the xPloration revenue, which were approximately $300,000 this quarter. This represents the costs associated with the manufacturing of the xPloration instrument as well as the related consumables sold in the quarter. Research and development expense was $10.9 million versus $13.9 million a year ago, with the decrease primarily due to lower stock-based compensation, lower headcount as well as lower external expenses associated with small-molecule ion channel programs. G&A expense declined to $7.7 million from $8 million for the same period in 2024, with the decrease primarily due to lower legal fees and lower stock-based compensation expense. The other operating income line includes a gain of $3 million for the sale of the Kv7 asset to Angelini, which was partially offset by an increase to our CBR liability associated with the sale. The net loss for the second quarter of 2025 was $15.9 million or $0.15 per share, which compared with a net loss of $13.6 million or $0.13 a share for the same period in 2024. As Matt mentioned, we had a further reduction to our headcount in July. This reduction is expected to have onetime expenses of about $1 million that will occur primarily in the third quarter. We expect that the combination of the actions that we took last February and this one here in July will result in approximately $7 million of annual cash savings going forward. Turning to Slide 17, you'll see the balance sheet as of June 30, 2025. We ended the quarter with $41.6 million in cash, and our cash used in the quarter was $2 million. During the quarter, we received milestone payments for Genmab's 1078 and Acasunlimab as well as the upfront payment from Angelini related to the sale of the Kv7 asset. So let me conclude with Slide 18 with a discussion of our 2025 guidance. We continue to expect that 2025 revenue will be between $20 million and $25 million and operating expense will be between $85 million and $90 million. As a reminder, approximately 40% of our operating expense is noncash, mostly due to stock-based compensation and the amortization of intangibles, primarily from historical company or technology acquisitions. We also continue to expect that our cash used in 2025 will be lower than cash used in 2024. And finally, our guidance on the tax rate remains unchanged at approximately 0% due to a valuation allowance. And with that, I'd like to open up the call for questions.

Operator, Operator

And your first question comes from Puneet Souda from Leerink.

Micheal Theodore Almisry Sonntag, Analyst

You have Micheal on for Puneet today. Congrats on the quarter. My first question has to do with just large pharma versus small biotech trends. So we've heard a lot from CROs talking about small biotech moving forward on their trials. And I'm wondering if you're seeing any of that flow through either positive or negative in terms of your discovery. Any color you can provide there or if it's a completely separate from, I guess, more later stage?

Matthew W. Foehr, CEO

Yes, Micheal, thanks for the question. This is Matt. We are pleased with the ongoing growth in both our partners and programs. We have noticed strong momentum building since last year, which has continued, and it is reflected in our performance and figures through Q2. We have experienced positive net growth in our partners, indicating the relevance of our technologies in the industry and their ability to attract new partners and programs. Additionally, we are seeing good participation from both large pharmaceutical partners starting new programs and from smaller companies as well. Contributions are coming from both sides, including academic institutions that are developing assets to eventually launch new companies. In response to your question about small and large entities, we are seeing activity from both.

Micheal Theodore Almisry Sonntag, Analyst

Okay. Great. And then a quick question on the guide. I was wondering if the reiterated guide continues to exclude any benefit from xPloration or if the reiteration sort of includes expectations now that you're 1 quarter in with the launch.

Kurt A. Gustafson, CFO

Yes. I think as we said, we had indicated that xPloration would be additive to what we had. I mean this number that we have here in Q2, it's a great start to this, but it's pretty small numbers, but no change to the guidance, but this xPloration should be additive to that.

Matthew W. Foehr, CEO

Yes. There is still no change, Micheal, we see xPloration as an addition and a positive contribution to the business in terms of its operational design. We have been preparing for this launch for quite some time, and we are excited about it. The feedback has been very encouraging.

Operator, Operator

And your next question comes from Matt Hewitt from Craig-Hallum Capital Group.

Unidentified Analyst, Analyst

This is Jackson on for Matt. Congrats on the quarter. Yes, I wanted to dive into xPloration there a little bit, seeing revenue flow through. Curious if you guys could provide a little color on the pipeline as to how that's going, maybe even if not numbers, help give some guidance on that.

Matthew W. Foehr, CEO

Yes. Yes. Thanks, Jackson. We launched the Partner Access Program, obviously, in May, mid-May at the PEGS conference in Boston. That was really a perfect place to launch the technology given the attendees of that meeting. We were really happy with the reception we got. We were voted the Best of Show, which was cool. But a lot more importantly, a lot of really great dialogue kicked off there. We're now at 100 active partners, obviously, who are candidates, if you will, for xPloration, some for some of whom it's more relevant than others, obviously, just given business model. But we are really happy with the fact that we sold and deployed an instrument really within weeks of the launch at a global partner. And I think that bodes very well for how we're positioned. The book of business is filling up really nicely. We're managing a lot of business activity around it. These are obviously capital acquisitions. So the process is slightly different than a standard technology licensing process. But we are really pleased with the feedback we're getting and the momentum that the xPloration team is building up and for what the technology is doing for the business. I'll also note, too, that we are also getting interest from others who are not currently OmniAb partners who are sort of leading with xPloration, wanting to become discovery partners, specifically with xPloration in mind. And I think that really speaks to some of the comments I made earlier about this really being the right time for xPloration from a lot of different perspectives.

Operator, Operator

And your next question comes from Brendan Smith from TD Cowen.

Jacqueline Kay Kisa, Analyst

Congrats on the quarter. This is Jackie on for Brendan. I was just curious what that timeline looks like for existing partners that want to become a part of the Access Program? Is it kind of a blanket requirement to purchase an instrument? Or are you guys also offering a sort of data generation side separately for those partners?

Matthew W. Foehr, CEO

Yes, that's a great question, Jackie. To provide some perspective, xPloration has been integrated into our internal workflows for many years, which means we've been preparing for its launch and deployment to partners for some time. It's also crucial in how we utilize big data generation and our AI and ML tools, branded as OmniDeep. We continue to support our standard discovery partners with this. Furthermore, it attracts partners not just with access to various species of animals and unique human antibodies, but also with the extensive workflow capabilities we've developed that help deliver valuable antibody sequence insights. Our partners retain access to this, including xPloration, through us. However, some partners have their own wet labs and are conducting enough work and campaigns each year that it makes sense for them to have an xPloration instrument on-site. Thus, there's been no change in how we collaborate with partners in terms of data generation and sharing, but certain partners can now purchase an xPloration instrument. Kurt will provide additional insights.

Kurt A. Gustafson, CFO

Yes. Let me add on, Jackie. So let's say somebody comes to us and they're interested in an xPloration instrument, and they're not currently a partner. So we will have that dialogue and say, we let them know that this is a Partner Access Program. And if they're interested in becoming a partner, then we would work out and do a license with them to give them access to our technology stack and it could kind of be done at the same time. They'll sign that license to become a partner, and then we could engage in the discussion on the sale of an xPloration unit. So that's how it would work.

Jacqueline Kay Kisa, Analyst

That's great and really informative. I appreciate the insights. You might not be able to share much about this, but do you have any details on where you expect your second tech launch to focus? Will it continue more on the AI/ML data portfolio side or shift towards the antibody legacy business?

Matthew W. Foehr, CEO

Yes. Yes. Great question, Jackie. I will say we are planning an additional technology launch this year. We've generally launched our new technologies at major scientific conferences that are very relevant to our partner set, right? The technology we're going to launch is informed by, obviously, the deep relationships we have with our 100 partners and growing and also kind of leverages that vantage point that we have on the industry. So we'll talk more about it when we launch it. I'll just say we will launch it this year. It is certainly highly relevant to our strategic mission to help partners discover antibodies more quickly and efficiently. And we think it will actually be a pretty impactful one with a lot of novelty to it.

Operator, Operator

And your next question comes from Stephen Willey from Stifel.

Stephen Douglas Willey, Analyst

Just with respect to the Janssen trispecific, the data does look quite interesting. Does that fall into the grandfathered prepaid license bucket? I guess I asked the question because I know that the prior bispecific that Janssen got approved, teclistamab, I believe, was also prepaid in nature.

Matthew W. Foehr, CEO

Steve, you make a good point. You are right about the disclosed economics of the Janssen deal. However, it does not qualify as prepaid as you mentioned. There are actually $35 million in milestone payments linked to the first sales, which is consistent with what was shared when TECVAYLI was approved and launched in the U.S. and Europe. Therefore, these payments are associated with the launch and it is not a fully paid license.

Stephen Douglas Willey, Analyst

Got it. Understood. And then I understand it still early in xPloration, and it's probably hard to give guidance around anything at this point. But just curious if you guys have a rough estimate that you might be willing to proffer up with respect to what the back-end stream of consumable and subscription revenue may look like on a per instrument basis. Is that a number that you guys would be willing to disclose? Or is there, I guess, kind of an industry reference that you would point us to?

Kurt A. Gustafson, CFO

Yes. It's a good question, Steve. I mean we have estimates of what we think those might be, but it actually varies depending on the customer that's using it. So I don't think we're ready to provide what those estimates are at this point, but it could be different depending on the type of customer that is using the instrument. So I don't know, Matt, anything to...

Matthew W. Foehr, CEO

Yes, I believe it's still early in the process. However, it is a high-margin business on the back end, which I think is very positive for the xPloration line.

Stephen Douglas Willey, Analyst

You mentioned that the Seismic molecule is the third antibody derived from OmniChicken that has entered the clinic. Can you provide an estimate of what percentage of those assets are in preclinical stages or further along? I understand that those 61 assets also originate from that platform. Does this technology typically receive a higher royalty rate compared to the overall average of the portfolio you mentioned?

Matthew W. Foehr, CEO

Yes. Steve, obviously, a range of royalties as you look across our full portfolio, right? And as that mix has evolved, we're seeing improvement in the average royalty with evolution of the mix across the portfolio. Just sort of speaking generally about the chicken platform, as I said, we've had 3 now OmniChicken-derived antibodies enter the clinic, chicken generally has within it a number of technologies, our standard OmniChicken, which obviously is a chicken that produces fully human antibody sequences. We also have OmniClic, which is a chicken with a common light chain that also produces fully human sequences, really designed specifically around bispecifics. We launched OmnidAb not that long ago, about 1.5 years or so ago, which is a chicken that produces domain antibodies, which are really interesting in CNS and other areas. And then we continue to innovate around the chicken as well. It's a highly differentiated technology for a lot of reasons. In terms of the questions around the 61 programs that are post-discovery stage or preclinical or later, there are definitely a number of chicken programs in there. In fact, we have an OmnidAb represented in there as well, which is a pretty quick progression for a newer technology. But we've not broken it down by source technology at this point.

Operator, Operator

And your last question comes from Connor McNamara, RBC Capital Markets.

Unidentified Analyst, Analyst

This is Carter on for Conor. Congratulations on the quarter. I just had a question about the business plan for xPloration. Is that mostly selling instruments and then also selling consumables? Or is that a reagent rental kind of plan that you want to do with the xPloration?

Matthew W. Foehr, CEO

Yes. It is selling instruments. You're right, the way you described it, where we will sell instruments to partners. And then downstream of that, they will buy from us proprietary consumables as well as software license with maintenance as well. There are 2 primary consumables, which are chips and plates that are needed for runs of the instrument.

Unidentified Analyst, Analyst

Perfect. Just congratulations with the new additions of programs and partners. As you look in your funnel with folks who are looking at the platform, what are some of the themes that you're seeing for the programs that your partners are exploring? Has it changed from oncology to CNS or infectious diseases? Or could you give just broad themes as to what you're seeing right now?

Matthew W. Foehr, CEO

Yes, that's a great question. When we innovate with new technologies, we consider not only the current state of the industry but also its future direction. With 381 programs growing and over 100 partners, we have a valuable perspective on the industry. We think about the technologies our partners are interested in and how we can diversify our platform and portfolio in terms of therapeutic areas and other uses. We review our preclinical assets and, as expected, see oncology, but we also identify inflammation, fibrosis, renal, dermatology, and an expanding range of CNS diseases. There are also interesting trends in metabolic and discovery areas, particularly as larger pharmaceutical companies target broader fields. Overall, we have a compelling view of the industry and are noticing significant diversity developing in our pipeline.

Operator, Operator

There are no further questions at this time. Mr. Matt Foehr, you may proceed.

Matthew W. Foehr, CEO

Thank you all for joining our call today. We appreciate your interest and engagement with OmniAb. We look forward to discussing our third quarter financial results at our next conference call, which will be in early November. In the meantime, we're looking forward to participating in a number of investment conferences in the coming weeks and months, and we'll announce those details shortly. So thanks again, and have a nice afternoon.

Operator, Operator

Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect. Have a great day.