OmniAb Q2 2023 Earnings Call Transcript

There are 9 speakers on the call.

Operator

Afternoon, and welcome to OmniAb Inc. 2nd Quarter 2023 Financial Results and Business Update Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded.

Operator

I would now like to turn the call over to Kurt Gustafsson, OmniAb Inc, Chief Financial Officer, you may begin. Thank you.

Speaker 1

Thank you, operator, and good afternoon, everyone. Thank you all for joining our Q2 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 omniam.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 Statements contained in today's press release and our SEC filings.

Speaker 1

Importantly, this conference call contains 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.

Speaker 2

Thanks, Kurt. Good afternoon, everyone, and thanks for joining our Q2 conference call. I'll start today with an overview of our business here on Slide number 4 of the deck. At the core of OmniAb's business model is our proprietary discovery In a simple sense, it's a model based on licensing innovative technologies to partners. Omniatt is differentiated in the marketplace by having the most diverse For fully human and bispecific antibody discovery with the industry's only 4 species platform.

Speaker 2

That includes transgenic mice, rats, chickens and cow based technologies. Our partners have an increasing number of antibodies in clinical trials that are from our technology and the versatility of our platform continues to be demonstrated in the number of modalities and formats Being employed by our partners both preclinically and clinically. We offer 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. Our technology and our core capabilities are driven by what we call the biological intelligence of our transgenic animals and are further strengthened by our innovative high throughput screening and other technologies. There are 74 partners with access to our technology or We have antibodies with over 300 programs in various stages of research and development.

Speaker 2

The antibody space is one of the fastest growing parts of the drug industry With a market size expected to be larger than $250,000,000,000 within a couple of years. We believe we're in a great position to capitalize on this opportunity With our unique and expanding technology offerings. We're constantly innovating our technology stack and this May, we introduced our newly branded OmniDeep offering, which is a suite of in silico capabilities, including structural modeling, large multi species antibody databases, Molecular dynamics simulations, artificial intelligence and machine and deep learning sequence models that are applicable across our technology platforms to further enhance our partner's In addition, we plan to introduce our novel heavy chain only OmniChicken that we will be branding as Omni DAB in the Q4 of this year. And I'll say more detailed comments about DAB And our excitement around that technology until later this year when we launch it. On this next slide, I just want to reiterate that as a company and as a team, we're mission driven to enable the rapid discovery of innovative pharmaceutical products We're poised for continued growth as shown here on Slide number 6 by the new license agreements we signed during the Q2.

Speaker 2

In Q2, our team closed 4 new platform license agreements, One with Merck Inc. And one with Neurocrine Biosciences as well as platform deals with Stanford University and Seattle Children's Hospital. Regarding Merck, this is a new agreement and is with the U. S. Merck and Company, not to be confused with the German Merck KGaA with whom we also have an agreement.

Speaker 2

We reached a total of 74 active partners at quarter end, up from a partner count of just Slightly more than 60 as of a year ago. Our discovery platform continues to garner interest in the industry among a diversified Group of leading global pharmaceutical companies allowing us to leverage our highly scalable business model. Adding partners like Merck Inc, Our global leaders in the industry and who are committed to using the power of leading edge science to improve lives bolsters our growing list of partners. We believe this is a testament to our effective and efficient discovery technologies, to our in house expertise for scientific collaboration services, Our mindsets are developing a deep understanding and also prioritizing the current and the future needs of our partners as well as our commitment to continued innovation. Here on Slide number 8, our portfolio of active programs increased to 305 With 29 programs in the clinic under regulatory review or approved for commercialization at the end of Q2.

Speaker 2

During the Q2, we added a net total of 4 new programs to our portfolio. Importantly, I want to note that when we report program count, We do so net of attrition as attrition is expected in the pharmaceutical industry. In this quarter, attrition was seen only in the discovery stage of our partnered pipeline. The pie chart on the right hand side of the slide breaks down our 305 programs by stage of development. The discovery phase consists of 261 programs in addition to 15 programs now in the preclinical stage.

Speaker 2

In the clinic, At the end of June, our partners had 22 programs in Phase 1, 2 programs in Phase 2, 1 in Phase 3 as well as one program Currently under regulatory review. There are 3 approved drugs utilizing OmniAb derived antibodies And we're recognizing royalty revenue from commercial sales of zembrolumab and sugimalumab in China, both of which are also being pursued in other geographies. We saw some nice progression of programs in the quarter as well with 3 programs transitioning from the discovery stage To the preclinical stage with 2 programs moving from the preclinical stage into their first human clinical trials And with one Phase 3 program moving to a regional filing for approval shown here on this slide number 8 pie chart on the right as BLA stage. Our large and growing portfolio features a diversified set of partners utilizing a variety of formats and modalities as I mentioned earlier. I'd also like to note here that the count of active programs has increased from 270 in the year ago period up to 305 programs at the close of the second quarter, noting again that this is net of program attrition.

Speaker 2

Despite some of the industry's challenges, including evolving financing environment and funding constraints, especially for some of the smaller players in our industry, Our portfolio continues to expand from a combination of new and existing partners. We don't feel that it's entirely unexpected that Factors can influence the velocity of growth of some of our business metrics. And although we see a slightly lower number of net new program additions compared to last year, OmniAb is in a very solid position for continued growth with an increasing number of both active programs and active partners. Moving now on to slide number 9. As I mentioned, in the Q2, 2 new programs entered the clinic.

Speaker 2

With Immunovant, who initiated a Phase 1 clinical trial of IMVT-fourteen oh two, which is a subcu FcRn inhibitor. Also, Gloria Pharmaceuticals initiated a Phase onetwo study to investigate the safety, tolerability and preliminary efficacy of GLS-twelve As a monotherapy in combination with GLS-ten in subjects with advanced solid tumors that had progressed following standard treatment. We've now had 3 new programs enter the clinic in the first half of this year And we expect a potential 1 to 2 more to enter the clinic before year end. I want to note that when 2023 began, we indicated that we 3 to 5 new programs to enter the clinic this year. By the end of June, we'd already reached 3 and we're now Focused on an upward range of 4 to 5 new clinical programs for the year.

Speaker 2

Our partners made numerous public announcements about their clinical and commercial progress during the Q2 and in recent weeks. And I'll highlight Few of them on this slide, Slide number 10, starting with vadaclimab. During the Q2, we earned milestone revenue related to advancement of vadaclimab In addition, Harbor Biomed announced that China's NMPA Accepted its Biologics license application for the treatment of generalized myasthenia gravis. And for the same indication, Hanel announced that they're progressing towards initiation of a Phase 3 trial in Japan later this year. As for the next generation anti FcRn IMVT-fourteen oh two, I mentioned that ImmunoVand initiated a Phase 1 trial to evaluate safety, tolerability and pharmacodynamics and they communicated that initial data are 1 of our newer partners, Cessation Therapeutics announced that they've received authorization to initiate a Phase 1 clinical trial.

Speaker 2

CSX-one thousand and four was first discovered via collaboration with Scripps Research Institute and subsequently licensed to Cessation for development. Cessation is developing this compound for the prevention of fentanyl overdose, which is an indication that obviously has an important and urgent unmet medical need. Aptivo Therapeutics announced data for its bispecific AML drug candidate, APV-four thirty six, And that it plans to initiate 2 Phase 2 clinical trials in AML populations. And lastly, we achieved a research progression For small molecule inhibitors of a genetically validated target relevant to neurological diseases in one of our ion channel collaborations with GSK. Okay.

Speaker 2

This triggered a $2,000,000 progression payment for OmniAb and Kurt will discuss the accounting for this. We're particularly excited about this program with GSK as it demonstrates the capabilities of our highly differentiated ion channel and transporters Technology platform. Ion channels are key components in a variety of biological processes that involve rapid changes in cells And they hold therapeutic potential in a broad range of indications, including neurological and metabolic diseases, pain, cancers, infectious diseases and many others. Our ion channel platform in OmniAb leverages our proprietary expertise In a combination of biological assays, medicinal chemistry and in silico and computational chemistry applications to enable the discovery of ion channels targeting therapeutics in a variety of formats and modalities. We believe our differentiated core capabilities can assist partners in their advancement of drug discovery against this target class.

Speaker 2

We're continuously expanding our capabilities in this area, and we believe we have one of the We have an extensive bank of custom cell lines, reagents and assays that are designed to And that's what attracts partners to this element of our technology and capabilities. As these are higher value and more difficult targets to identify, we structure our collaboration agreements accordingly. These deals provide for exclusivity on various targets and as a result have higher milestone payments and higher royalty percentages than we typically get We have agreements with GSK for 2 neurology targets that are in discovery phase And another partner is Roche for 3 undisclosed targets that are also in the discovery phase. In total, We're eligible to receive $1,000,000,000 in milestones on these 5 programs alone along with royalties should a program be commercialized. And this last slide for me, which is slide number 13 in our deck, highlights our key areas of focus going forward.

Speaker 2

It describes why we believe we're well positioned for future growth and can make an enduring impact on our industry and ultimately on global human health. Our business is highly scalable and we're focused on increasing partners and expanding programs by continuing to invest in technologies and innovations to power the discovery and development of effective therapeutic candidates. A focus on And building value for stakeholders is at the foundation of what we do. And that focus is guided in collaboration with our Board of Directors and it's Present in every employee here as well. While I mentioned our Board of Directors, I do also want to acknowledge on today's call that earlier this week, With heavy hearts, we announced the passing of a beloved Board member here at OmniAb, Sunil Patel.

Speaker 2

Sunil was an accomplished biotech executive who was a long time colleague and a co architect of what we're building here at Omnium. And I'll add that the team here is honoring Sunil's contribution and legacy as we continue to do our important work, expand our technology and grow our business. And now, before I hand the call back over to Kurt, I'll finish by saying that we look forward to keeping the investment community updated as we execute on our And with that, I'll pass it back over to Kurt now for a discussion of our Q2 financial results. Kurt?

Speaker 1

Thank you, Matt. As a reminder, the financial results reported for the prior year periods are prepared on a carve out basis, which were derived from Ligand's historical accounting records as if OmniaV, we're an independent company. As a result, certain comparisons to prior periods aren't reflective of true underlying business changes. This is primarily true for operating expenses given the differences in corporate structure and the methodologies for reporting. You'll recall that OmniAb derives revenue from several sources, including upfront payments for partners to access our technology stack, Payments related to service contracts, when we do discovery work for our partners milestone payments typically related to progress in the clinic and royalties on net sales of our partners' programs.

Speaker 1

So moving specifically to our Q2 results, Total revenue for the Q2 of 2023 was CAD6,900,000 compared to CAD7,200,000 in the prior year quarter. We saw an increase in license and milestone revenue based on milestones that were hit this quarter, mostly related to progress with vitaqumab, specifically the start of additional pivotal studies for 2 new indications. The increase in milestone revenue was offset by a decrease in service revenue, And this decrease is related to a few different things. First, we've completed our portion of the work on certain programs And these programs have been handed off to the R and D teams at our partners. As a result, we are no longer earning service revenue for these programs, but we still have the opportunity to earn milestones and royalties should these programs advance.

Speaker 1

2nd, the research period The initial $7,000,000 upfront payment that was being amortized over the initial research period had its amortization schedule to reflect the new length of the research period. This resulted in a one time negative adjustment of $1,700,000 this quarter. The full $7,000,000 will all eventually be recognized. It's just that the recognition of the revenue will be spread over the new longer research period. And 3rd, as it relates to the GSK program that achieved the $2,000,000 research progression milestone, This milestone is recognized as service revenue and will be amortized over the research period of this program.

Speaker 1

As this program is a bit more than halfway through its research period, we recognized a bit more than half of this milestone in the current quarter and the rest will be amortized over the remaining research period. The net result of the change in the amortization period and the new milestone Ignition created a negative impact of about $500,000 in the quarter relative to what the trend would have been. Turning to operating expense. Our R and D expense for the 2nd quarter was $14,100,000 compared to $11,500,000 in the prior year quarter. Similar to Q1, the increase was primarily due to higher personnel costs and higher costs associated with our new facilities.

Speaker 1

G and A expense was $8,700,000 compared to $5,000,000 in the prior year quarter, with the increase related to increased headcount and other costs associated with being a newly established public company. The net loss for the Q2 was $14,700,000 or $0.15 per share versus a net loss of $10,300,000 or $0.12 per share in the prior year period. Turning to the balance sheet. We ended the Q2 with a total of $103,100,000 in cash, cash equivalents, short term investments. Our business model is not capital intensive and is highly scalable.

Speaker 1

And while we are committed to growing the business and keeping our technology cutting edge, We're also committed to deploying our capital efficiently. We continue to expect that our cash balance at the end of 2023 Turning to our quarterly results, I'd like to make a few comments on some of the underlying trends that we see. Excluding the milestone revenue recognized specifically for teclistamab, we generally expect total revenue to grow. However, the majority of our revenue in the near to medium term will come from milestone payments and the exact timing of these milestones can be difficult to predict. As a result, our revenue growth will likely be a bit lumpy on a quarterly basis.

Speaker 1

As we think about our operating expense going forward, I had indicated last quarter that our Q1 2023 actual results would be a good baseline from which we would grow. The 2nd quarter results were consistent with that expectation With the pace of G and A spend being more moderate than that of our R and D spend. And with that, I'd like to open up the call for questions. Operator?

Operator

Thank One moment please for your first question. Your first question comes from Puneet Souda from Leerink Partners. Please go ahead.

Speaker 3

Yes. Hi, guys. Thanks for taking the questions. So, Matt, maybe first one, Obviously, you talked about some of the headwinds in the market. And as you pointed out, There's potential that you could see that, but maybe talk to us a little bit about the flip side of what's happening at the partners and What they are telling you in terms of the projects that they can potentially bring to you because you're providing them value and Cost reduction, maybe talk to us about what how do they think about that as they think about the

Speaker 2

Yes. Puneet, thanks. This is Matt. I appreciate the question. Yes.

Speaker 2

As we I mean, one of the things I'll highlight that obviously this quarter, we entered into Four new platform license agreements with new partners, right? Merck and Neurocrine. Merck obviously is a well known player, Global force in the industry that is really committed to leading edge science and leveraging Cutting Edge Technologies to develop new medicines. Neurocrine, of course, is a 30 year plus history in innovations and success Of pursuing really what have become life changing medicines in the neurology and neurological disease space. But also new partnerships with Stanford and Seattle Children's, both of which are leading academic centers, both of which are focused on translating their novel biology into new medicines.

Speaker 2

So sometimes it's not only the existing partners that tell us a lot about how we're bringing value to them, but it's the new partners as well, Right. So to your question of how we do that, we obviously get into a lot of deep discussions with our partners of areas they're interested in And why they see our technologies unlocking opportunities for them. That Obviously, translates into potential for increased success rates and faster pace in terms of finding Quality antibodies to then take into the clinic and that's why they're attracted to do licensing deals with us. I think there's also a recognition now, a more broad recognition of our continued commitment to innovation. And that is also, I think, an important part as well.

Speaker 2

And obviously, our innovation is informed by our deep relationships with partners. So there's like what we Like to call an intelligent feedback loop where you get a sense of where the industry is headed and that informs the sorts of innovations and investments we want to make in our technology. So it's really at the end of the day about speed and opportunity and efficiency and quality of The product, in this case, the antibodies that are coming out of our plasma.

Speaker 3

Got it. And with that question,

Speaker 4

I was

Speaker 3

wondering what I was trying to get to is that if the biotech funding situations were to get worse, is there an opportunity for you to Sort of gain more share in the marketplace. And then let me just follow-up with a question on China. I mentioned I know you mentioned Gloria anti LACT in the Phase I trial now. Wondering if you could update us on what you're Seeing in China, we are all seeing weakness in the discovery stages in China. That's well known at this Wondering what you're seeing there, any color you can provide geographically?

Speaker 3

Thank you.

Speaker 2

Yes, I'll take that, Puneet. I'll take the China part first and then Kurt maybe can add some color as well. Obviously, we announced this quarter that Gloria entered the clinic in China. So it's nice to see it's always nice to see clinical progression Out of our pipeline, and we obviously have a couple of drugs that are approved in China that Kurt can probably comment on as well. A lot of that in terms of the later stage visible programs out of China really come out of some very early partnerships with OmniRat that were struck years ago.

Speaker 2

And those programs progressed quickly through the clinic and then or approaching the clinic, which is really a representation of what you see in our pipeline with some of our assets. But maybe Kurt, you want to talk a little bit as well?

Speaker 1

Yes, Puneet, I mean, we don't have any specific knowledge relative to the sales forecast, if you will, of our partners. I know that One of our partners disclosed earlier this year that there have been supply chain issues in the first half of the year, in part due to challenges with COVID. But they also indicated that they expect that those supply chain issues will be alleviated in the second half of the year. And so they were forecasting sales to pick Back up, we obviously earn a royalty on that. I think the first part of your question, our partnerships are designed really to align Sort of the economics that our partners pay with success, right?

Speaker 1

So I do think in a difficult if we're in a difficult funding environment, Our model is conducive to have people continue to use it because they're really not paying They're not paying for large sums of money until they actually have success, say, discovering a drug and actually moving into the clinic. So I do think that there's opportunities there and we're still continuing to see growth across our key metrics.

Speaker 5

Got it.

Speaker 4

That's super helpful. I'll hop back into the queue.

Speaker 1

Thanks, Puneet.

Operator

Your next question comes from Dan Karnauskas from Truss Securities. Please go ahead.

Speaker 6

Hi, team. Thanks so much for taking my questions. I'm going to start off with a couple that I don't know you'll The old answer. So can you talk a little bit about how the platform deals with Stanford and those are different than Those are the pharmaceutical companies, like how are they structured, if you can give any color? And is your are your ion channel programs Do they have better economics given the scarcity of like being able to develop small molecules to those Or biologics to those programs?

Speaker 6

I would think that they have better economics because you're adding a lot more value.

Speaker 2

Yes, Robin, thanks. I'll answer your second question first on the ion channel programs. And really the short answer is yes. The way those programs are structured, we are granting Exclusivity to the target to the specific target with those partners, they're accessing not only Technology and capability, but novel cell lines, novel reagents, novel screening technologies, Etcetera. So that then drives really a different and a higher economic structure.

Speaker 2

The 5 programs that are highlighted in the deck today for ion channel and transporter Collaboration, both those are with GSK and with Roche. Those five programs alone have $1,000,000,000 in milestones And royalties that are higher than our standard platform license agreements. So those are Assets that we're excited about, obviously, we highlighted the GSK program today, but the short answer is yes. Now to your first question about the different sorts of deals, we have in recent quarters Leaned into not only license agreements with leaders in the industry, commercial, those that are Investing a lot in R and D and commercialization like Merck and Neurocrine, but also with academic centers, leading academic centers. And Just as a general matter of policy and based on confidentiality, we don't disclose specific deal structures, but we have And then in our corporate deck, we've outlined typical deal terms for all of our deals and they fall within boundaries that we've previously We disclosed there are multiple parts of the deals.

Speaker 2

There are upfront payments. There are milestones. There are royalties and there's an interplay between those. But in terms of Access to the platform, there really are not major differences between the deals signed with, say, a traditional commercial pharma and the academic centers. But on the business side, obviously, it would be highly unusual for an academic center to commercialize a drug on its own.

Speaker 2

Obviously, these folks have leading edge biology. They generally want to translate that into therapeutics that then get spun out into companies. So really the only difference is we'll have special provisions with that specifically deal with how those economics will work when the academic institution chooses to out license the program or form a company around it. But at a basic sense, they're very similar. There are just some Specific provisions that are more applicable to the academic setting.

Speaker 6

That's really helpful. And I guess a follow-up, it's like $1,000,000,000 is a lot. So have you been able to negotiate since you've been working with these companies a little bit more disclosure about what you need To see to get those milestones. And then my last question, sorry for so many. You don't talk a lot about omni deep.

Speaker 6

And I know you believe that nature based immune response, they're best, but I'm just wondering if you're willing to leverage OmniDeep platforms to AI ML based Silicone antibody design, it's a hot topic right now, so I thought I'd ask that question. Thanks.

Speaker 2

Yes, sure.

Speaker 1

On the first part, just Financially, the way these deals are structured, they're really structured the same way as our other deals, right? So there are Typically clinical stage milestones as they progress through the clinic and royalties, the difference is the magnitude of the payments are larger Mostly because of a function of the exclusivity on which we have written these deals. On the antibody side, All of the things that people are going after, those are non exclusive targets, whereas with the IN channels, these targets are being licensed out on an exclusive basis. And As a result, that's what triggers the larger economics. But there's nothing unusual necessarily about The types of things, they fall within that same sort of deal structure of upfront payment and milestones and royalties.

Speaker 2

Yes. And I'll be happy to comment on the AI question, Robin. Obviously, given the visibility and use of AI Technologies are industries that are, I'll say, highly visible in a popular sense or are touted in a popular sense. This is A question we do get. And OmniDeep, I'll just say, is our suite of in silico tools for Therapeutic antibody discovery and optimization that are really woven throughout our various technologies and capabilities.

Speaker 2

And these tools include Structural modeling and large, very large multi species antibody databases, AI and machine learning sequence models And more. And it really it allows for optimization of identification of candidates that come out of our technology. Now there's To the core of your question, obviously, there's a lot of discussion around AI and its use kind of Sol AI approaches and I think the element of that that might not be as well understood is that There are really some important considerations and limitations of that and that's why we think there's so much power in not only the biological intelligence Our animals, but also the leveraging our AI capabilities. Now we've been using in silico and AI Tools in our downstream work for a long time actually, especially on the screening side and some of our work around behind channels and transporters. So we have deep expertise here in our organization that we really kind of rolled out in the concept of Omni Deep in Q2, but These have been woven throughout our organization and technology from the spirit of cutting edge and good science for quite a long time.

Speaker 2

And in fact, more than a couple of years ago, we actually did a deal With Landing AI for a vision portion of AI that we incorporated into our exploration platform successfully that Has really been kind of a wild success story around how we leverage our screening. But On a technical level, there's a lot of limitations to just AI approaches. So really the power of OmniDeep comes from marrying it to What I'll call the biological intelligence of our transgenic animals, because a carefully engineered transgenic animal system really has many of the tests that are needed to select the winning antibody inherently built into them, as natural checkpoints, so you can essentially try and test Millions of different sequence possibilities rather than just doing it in a model and obviously the biological system can weed those out. Now we do leverage AI in other ways downstream from that with large amounts of data and I think that's where a lot of that power comes from. So I know I got a little technical there, but hopefully that makes sense.

Speaker 6

That's great. Thank you so much.

Operator

Your next question comes from Stephen Wiley from Stifel. Please go ahead.

Speaker 5

Yes, good afternoon. Thanks for taking the questions. And appreciate some of the macro commentary that you provided. I know some of your peers have been kind of talking about that of late. But I guess, Have you seen much in the way of any uptick of attrition just on the discovery program front?

Speaker 5

And Would you expect that to be kind of the better surrogate of some of the macro challenges just given some of the Reprioritization of R and D spend and I guess kind of broader pipeline streaming efforts that we're Starting to see across the space.

Speaker 2

Yes. I mean, a great question, Steve. I'd say really nothing specific there on the attrition front. As we noted, obviously, I'll just say at the outset, Attrition is a natural part of the pharmaceutical industry as we all know many things fail and that's the fact that there is attrition is obviously expected. This last quarter, we only saw attrition in the discovery phase and just in discovery stage assets.

Speaker 2

Looking back a little bit, in the Q4 of last year, we saw first program attrition. At the clinical stage, 2 partners had exited certain therapeutic areas or specific therapeutic areas. Those assets themselves may have potential in other hands, but are not included in our program count anymore. That's I bring that up as an example. It's difficult to say is that a macro thing?

Speaker 2

Is that just larger partners focusing In those specific instances, it's very difficult to say. So I think it's hard to answer your question specifically, but these are all metrics that we always monitor All the time and, and obviously keep having deep dialogue with our partners. So hopefully that gives you a little more color.

Speaker 4

Okay.

Speaker 5

And I guess the work that's ongoing in the ION channel space, I know that these again are being kind of licensed On a target exclusive basis, but I guess for those targets that have already been claimed by either GSK or Roche, And I understand that all of these are difficult to drug. But I guess how would you kind of characterize these targets that they've selected in The hierarchy of things that are difficult to do within the Ion channel space itself and how much more kind of green space In the target universe, do you think that you have over the next kind of 1, 3, 5 years? Thanks.

Speaker 2

Yes. Great question, Steve. The description, obviously, there's a substantial amount of confidentiality considerations and other things with partners And this is at the discovery phase, it was an agreement that was originally struck a couple of years ago, so it's progressed well. Obviously, we announced The milestone in this quarter and I'll just say when folks are pursuing ion channels And transporters, these are generally considered high value targets, right? And I'll just comment generally, I think GSK has a really ambitious innovation agenda in this area.

Speaker 2

They've stated publicly a goal to Positively impact the health of 2,500,000,000 people by the end of 2,030. So that's a really Aggressive goal and an ambitious one and we're excited to be collaborating with them. I think these are programs where We've got distinct capabilities and cell lines and reagents and other things as well as high throughput screening As well as the ability to leverage multiple modalities, which I think are the kinds of things that can attract more of these Sorts of partnerships potentially in the future.

Speaker 5

Great. Thanks for taking the questions.

Operator

Your next question comes from Matt Hewitt from Craig Hallum. Please go ahead.

Speaker 4

Hi, this is Jack on for Matt. Thanks for taking our questions. Obviously, you recently just launched OmniDeep and I

Speaker 1

was just kind of curious what the initial reception

Speaker 4

has been from your customers. Thanks.

Speaker 2

Yes. Thanks, Jack. I'll say very positive. We launched it at the PEGS conference in Boston in May. And I hope to say that the feedback in the room is a big area, a big, Big presentation, very well attended and the feedback from partners who were sitting in the room was almost immediate.

Speaker 2

And it continues to be an area of focus In terms of not only new programs, but potentially taking different approaches to increase the success the potential Success rate of some existing programs with partners and our obviously our research and innovation team And our BD team continues to partner on that as we talk with partners about it. So the feedback has been quite positive.

Speaker 4

Thanks for taking my question.

Operator

Your next question comes from Chad Wai Truszky from TD Cowen. Please go ahead.

Speaker 7

Hey, Matt. Hey, Kurt. It's Chad on for Steven. Hey, Chad. Yes, congrats on the GSK milestone.

Speaker 7

Could you give some more detail as to what differentiates your tech stack from peers who also claim That these historically difficult targets such as iron channels are an opportunity that they're pursuing as well?

Speaker 2

Yes, yes, sure. Happy to talk more about it. I think one of the few things differentiate our Technology, right. The core is the foundation of the multi species approach that we can present. But beyond that, We highlighted a little bit about our commitment to continually expanding our capabilities around the ion channel We have a long history here that really dates back decades in terms of building high throughput screening That can be applicable to a variety of modalities.

Speaker 2

I think that is extremely important in this space where and especially in the industry overall where The lines between different approaches and modalities are becoming creatively blurred intentionally. And I think we are really at a spot where we can leverage that different than others. We've also built up An extensive bank of custom cell lines that are specifically designed to facilitate The discovery in these areas, in some of these specific areas, that's something that's been built up over many years. And when you marry that with Our other discovery and repertoire generation and screening technologies, it really does, I think, position us in a pretty unique fashion. And I think that's Why folks like GSK and Roche are attracted to us for these sorts of partnerships.

Speaker 7

Really helpful. And I appreciate the improved downstream regarding Ion channels, but there's sort of precedent that exclusivity of targets has led to some significant upfront payments. So is there an opportunity here to drive some upside in the near term?

Speaker 1

All deals are become a negotiation, right? And so I think to the extent that we show success That we always try to leverage that for higher payments. I think as we look historically a lot of this The difference between this and the antibody business has been more just on the exclusivity. The other thing that I would point out on the ion channel side and Matt talked a little bit about the expertise that we have. And so for the most part with these Ion Channel programs, there's a license that for Target on an exclusive basis, But then we are continuing to do all of that work.

Speaker 1

And so a big portion of the service revenue that we generate Comes from the ION channel side of the business. In many cases, the partners are prepaying for that and sort of gave the example today on the specific GSK program where They paid $7,000,000 upfront that was being amortized over the research period. So we are able to generate Relative to the antibody side of that business, call it outsized economics just on a relative basis. But a lot of that is just this function of that it's on an exclusive basis.

Speaker 7

Thanks for taking the questions, guys.

Speaker 1

Thanks, Jed.

Operator

Your next question comes from Yuan Zhih from B. Riley. Please go ahead.

Speaker 8

Hi. This is Brandon Carney on for Yuan. Thanks for taking our question. You talked Some about the trends you've been seeing in the discovery stage. Can you comment on the clinical stage regarding delays or cancellations of clinical trials?

Speaker 8

Can you comment on what You've observed so far related to the projects you're tracking in the Biologics development?

Speaker 2

Yes. This is Matt. I'll comment. Kurt may have some When we started the year, we said we expected 3 to 5 new clinical entrants this year. At the end of Q2, we were actually already at 3.

Speaker 2

And today, we're focused now on a Higher area there of 4% to 5% this year. And so we're seeing nice clinical progression or graduation into the clinical We are pleased this quarter to see some assets move out of discovery into preclinical, which means that they're then preparing to enter The clinic. So we are seeing nice progression in the portfolio. I don't know if Kurt anything you'd want to add to that?

Speaker 1

We have not actually seen a lot of clinical attrition in terms of the clinical attrition that we have seen. It's really not it's been a function of partners exiting therapeutic areas as opposed to sort of any failure of a study or something like that. As Matt said, attrition is part of this business and it will happen. But our experience thus far on the clinical side has actually been Pretty darn good relative to industry averages.

Speaker 8

Thanks. That's helpful. And one last one from us. Have you noticed any shifted interest in Biologics development due to the Inflation Reduction Act?

Speaker 1

I mean, I'll just make a comment. I mean, our business is mostly on the antibody business is on the antibody side. It is probably a more attractive place to develop drugs just given the benefits that have been afforded by the Inflation Reduction Act. But given that we if we had a small molecule offering and antibodies offering, would we see more people moving over the antibody? I don't know.

Speaker 1

It's tough to say. We believe that we've got a great platform and we're continuing to attract new players as evidenced By the 4 new deals that we've signed this quarter. So, Matt, I don't know if you have?

Speaker 2

Yes. I think I mean, I'd add that Because of the higher success rates of antibody based medicines as compared to small molecules, From a scientific and technical perspective, there have been an evolving shift in the industry because of those higher success rates. So that's something obviously we see and hear and know. Now the IRA, obviously, legislation will allow Medicare to negotiate drug prices with manufacturers for a select number of high cost drugs starting, I believe in 2026 and there are exceptions to how those negotiations can happen and that sort of thing. But there are, I'll say, a longer tail that's afforded to Biologics Medicines, which It's something that may accelerate the interest in the industry and a shift towards biologic medicines that we saw happening Already in advance of IRA.

Speaker 2

So I think if anything, it can help accelerate the interest there. But I think The science and the probability of success in medical benefit in terms of the specificity that antibody based medicines Provide and predictability for development was already starting that shift. So if anything, it just may accelerate it.

Speaker 8

Okay. Thanks for that commentary and thanks for taking our questions.

Speaker 7

Thank you.

Operator

There are no further questions at this time. I will turn the call back over to the CEO, Matt Foehr.

Speaker 2

Great. Thank you. I'd like to thank everyone for participating in today's call and for your questions. We look forward to keeping you updated on our progress and Speaking with you next quarter and at various investment conferences we'll be attending in the coming weeks and in the fall. We'll be at the Stifel Conference.

Speaker 2

Coming up, we'll also be at H. C. Wainwright, Cantor as well as the Craig Hallum Capital Conferences In New York in the fall. So in the meantime, we appreciate your interest in OmniAb, and thanks again. Have a great day.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for joining and you may now disconnect your lines. Thank you.

Earnings Conference Call
OmniAb Q2 2023
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