Good morning, and welcome to the RBC Capital Markets 2024 Global Healthcare Conference. I'm Connor McNamara, the Life Science Tools and Diagnostics analyst. It's my pleasure to host OmniAb. Up on stage with me today is Kurt Gustafson, the CFO of OmniAb. Thank you for joining us.
No, thanks for having me.
Kurt, just give us a quick background on OmniAb and what brought you to OmniAb, because I think that itself is a pretty compelling story.
Yeah, so OmniAb is a company that licenses research and discovery technology to the pharmaceutical and biotech industry, really to help them discover next-generation therapeutics. It's a licensing model. We don't develop our own drugs. It's actually one of the reasons that I was attracted to the company. I joined about two years ago, and have been working in companies that were developing therapeutics before that, and you have kind of the rollercoaster ride that goes along with that. So I sort of say our goal is to really own, say, 3%-5% of 1,000 things versus 100% of a couple of things that may or may not work, right? So it's a licensing model that's focused on, you know, enabling technologies for the pharmaceutical industry.
Now all within monoclonal antibodies, which is a very attractive end market right now. But what, what do you say is the state of the monoclonal antibodies market? Where are we as far as new therapeutics that are coming to market?
Yeah, so I think the, the antibody market is as robust as it's ever been, and there's probably a lot of reasons for that. You can take a look at, you know, historical success rates of, small molecules versus large molecules. I think large molecules is close to double that for small, versus small molecules. I think that, you know, there are other factors that drive being able to be more specific in your targeting. I think some of the largest drugs ever sold, have been, have been antibodies. I think people, even just antibody market today, if you take a look at the way customers are using our technologies, some of the things that they're developing are probably you wouldn't even consider antibodies anymore, right? So you have bispecifics, trispecifics. We have people doing multispecifics, even using fragments of antibodies in CAR-T.
So, it's sort of really expanded into a lot of different areas. I think, you know, in other ways, there's some financial tailwinds that are helping the antibody market as well. And so you can call it either an incentive or maybe a disincentive, but the Inflation Reduction Act has, you know, created a difference between the economics for large molecules versus small molecules. So the Inflation Reduction Act gave Medicare the ability to negotiate drug prices with the pharmaceutical industry. And what it did was it differentiated between large molecules and small molecules by giving large molecules a longer runway by about four years before they became or become subject to price negotiation.
And so, you know, that's a big deal if you think about a drug that is a very large drug, and all of a sudden you're subject to price negotiations a little bit earlier than you had thought. In fact, PhRMA, the trade organization for the pharmaceutical industry, did a survey of their constituents, and a majority of their constituents said they plan on shifting resources away from small molecule research, presumably to large molecule research, because of the Inflation Reduction Act. So, you know, I think the antibody market is here to stay. We're certainly continuing to see growth in our business, so going back to robust as ever.
And I think, and I think for those of you that cover the Life Science Tools market, you know, the last, you know, 18 months has been tough just as far as, you know, funding, the weak funding environment in biotech, pharma pulling back on spend. And you guys have seen actually, you know, you've seen a lot more programs come through. And I think what you just highlighted is very important is there's this shift. And, and, you know, if you think about where pharma sits today as far as their ability to spend on R&D, if they're having these conversations, you know, would you say it's safe to say that we're still very early on the amount of programs that could be pursued within the antibody space?
Yeah, absolutely. I think interest in our platform remains high. If you think about, you know, our customer base and the people that we talk to, you know, we're talking to scientists at these companies and, you know, there's still more drugs to be discovered and scientists are still going after trying to find novel targets and looking for drugs to treat disease. So you talk about funding environment and things like that. We actually, the folks that we talk to sometimes are a little immune from that. Like we on the finance side certainly pay attention to those types of things, but when you're on the scientific side, you actually are, you know, you have a budget and you're going after it. So, you know, we've seen kind of this cycle in the funding environment.
We've been able to grow both in sort of upcycles and downcycles. I think if you go take a look at the last couple of years, you know, end of 2022, first part of 2023 were some tough years in the funding, biotech funding environment. We were growing both kind of our key metrics of the number of partners and the number of programs by pretty good clip. I think on an annualized growth rate, we're about 15% on both of those key metrics in 2022 and 2023. So we're continuing to see good growth, you know, in our business.
Not only that, remind us, you're seeing more of those programs advance in the clinic into the clinic. I think in 2023, you guided to 3-5 programs advance in the clinic. You ended up hitting 6. This year, you're guiding 4-6. So not only are they investing, they're still in new programs. They're continuing to fund the programs that are out there, which I think is pretty important because in a lot of other areas within healthcare, you're not, or in, you know, drug development, you're seeing a pause in either investment in new programs or advancement, but you haven't seen any type of slowdown in that in your antibody space.
Not really, right? So last year, you're right. We guided 3-5. We ended up with 6. We're still on track for 4-6 this year based on our discussions with partners. You know, attrition is a natural part of this business, right? It's most of the attrition that we see is on the earlier stage in the discovery side. We have seen, you know, a handful, I think, you know, 3 or so programs that have come out of the clinic, but all of the things that have come out of the clinic that have been using our technology have come out as a result of, you know, what appears to be portfolio decisions, right? So we had a company exit a therapeutic area and so they stopped a program.
So, you know, at this point, we haven't seen anything come out of the clinic as a result of any sort of safety or efficacy issue. It's, it's really been more portfolio realignment.
Got it. Last year you launched your latest product, OmnidAb, the first single domain antibody from a chicken host. How's that rollout gone since launch and, you know, what are the kind of applications that they're using that for?
Yeah, so OmnidAb was launched in the fourth quarter of last year, probably been our most successful launch ever. If I kind of take a look at the number of programs or the number of partners that were interested in starting programs right away, a lot of folks, a lot of folks have, have keyed up, started up programs, you know, right away. For, for those of you who don't know OmnidAb, just kind of going back to what that is, it is a chicken that creates a llama-like antibody with fully human sequence. You still following me, Connor, here? Chicken, L lama.
I think you're talking to them, not me. You know, I know all this.
So llamas make really unique types of antibodies, right? Rather than your typical antibody of two heavy chains and two light chains, llamas create these antibodies that only have two heavy chains. And they can actually be expressed as a single domain antibody. And sort of the advantage or the difference here is those single domain antibodies are really small and much smaller than a standard antibody. And so there are new applications that I think some of our partners are interested in exploring with these things. So think about the ability to cross the blood-brain barrier. Think about different ways for drug delivery potentially being inhaled. We also have partners that are looking at these things for diagnostics, theranostics, using them in CAR-T.
So, lots of different applications for these single- domain antibodies, just given their size and unique characteristics. So we're excited about this launch. I think it's, you know, I think some of the partners that we've signed up recently were probably kind of, maybe if they were on the edge, OmnidAb is what brought them over the edge to sign the deal with us.
Right. And what's, you know, repeat when you get a customer or partner, you know, what's kind of their repeat on new programs? I'm assuming they're with you at that point, or have you seen them expand the number of products they're getting from you versus that they trial one and so on the next program they come back and they're going to get, you know, they expand their both to the whole suite of what you have, including the OmniDeep, or how do we think about that?
So it's across the board. I'd say most of the partners that we have will probably spin up more than just one program. There are, you know, some partners that come and sign a deal that really just want to go after one target. You know, the way our deal structure works, though, is they have the access to the full suite of technology. They can use it as much as they want. And we have, you know, a handful of partners that are really prolific users of the platform. In fact, we have, say, OmniRat colonies in their laboratories. And they're spinning up 5-10, you know, new programs a year. It's just part of their workflow. So, you know, every partner is different in terms of how they're using the technology.
You know, even those that are sort of ingrained with OmniRat, we still see them, you know, starting some OmniChicken programs or, you know, using OmniFlic or OmniClic to work on bispecifics depending on their specific, you know, target need. But I 'd say the vast majority of our customers are, you know, continue to use the program.
Okay. One more on the technology and then we'll get into finance, I promise.
Okay.
So, you know, there are a few partners that have some upcoming data that I know you guys are pretty excited about. So what can you tell us both about Immunovant and Genmab and when, you know, what's the timing, what should we look for, and what kind of is the opportunity with each of those programs?
Yeah, so I'd say both Genmab and Immunovant are kind of where we get a lot of questions. You know, I'll say the business model is one of a diversification model across, you know, all of our 327 programs that are going on right now. So, you know, all of them matter and none of them matter all at the same time. But these are later- stage programs. So it's something that everybody's watching and, you know, potential for some potentially big sales on some of these drugs. So let's talk about Genmab first. The drug everybody's kind of waiting to see the data on is acasunlimab. We now know it's going, the data's going to be at ASCO. So we're, you know, a few weeks away. I think everybody's looking forward to seeing that data.
It's in second line, non-small cell lung cancer, and that's phase II data. Presumably the data's good because they've said they're starting the phase III in the second half of this year. So, we're assuming that the data is good. But we're looking forward to seeing that data, I think, along with everybody else here in a few weeks. Immunovant, there's really kind of two compounds that we need to talk about because they're the batoclimab and then they have their next- generation program, which is IMVT-1402. Both are going after FcRn-related diseases. In terms of data that I understand that we should be seeing, I think they will have a readout on their phase III study in myasthenia gravis here in the second half of this year. So that'll be great.
That's pivotal data that, or topline pivotal data that we're going to see. And I think there'll be phase III data or topline data in thyroid eye disease, next year. So that program is pretty well advanced and, you know, is looking good. In terms of IMVT-1402, they've got, they had great data from, you know, or I guess phase I data that, that looked good last year. And they seem very excited about that program. They, they said recently that they expect to start 10 studies and 10 indications over the next couple of years with that program. So, really interesting science, really interesting area, potentially big markets. And, obviously, for both of these programs, we're still eligible for milestones as well as royalties on that. So we're cheering them along.
Great. Let's go through that revenue model. So you've got, I think, one program on market now or one partner that's got programs on market, but that hasn't produced a lot of royalties. You know, we know that's a smaller market, and the ones you just talked about. These are much bigger opportunities if they, assuming they do get to market than what you currently have there. And that's a function of just the size of the TAM or is it a function of the royalty that you would be receiving on revenues or both?
Yeah, so there's actually two drugs that are approved that are generating royalty income for us or royalty revenue for us today. Both of them are ones at PD-1, ones at PD-L1, but in China. And the Chinese market is pretty competitive for these drugs. And so while we are getting a royalty, we get a 3% royalty on each of these sales in China have not been huge. And so it's been a pretty small amount in terms of what it generates for us. Those drugs are in development in the U.S. and Europe, and to the extent that we could see an approval there, maybe we could see, you know, an uptick in that. But you know, as of today, you're absolutely right. Not a lot of royalties that have come in from those two compounds.
So, I really think as you take a look at the expectations for both, you know, acasunlimab as well as IMVT-1402 and batoclimab, I kind of look at them as kind of almost a single product given that they're going after presumably the same indications. Those look like they could be much bigger being developed in the U.S. So I think, you know, they'd be more of a moving the needle kind of thing for us.
Got it. Okay. If you just look at the overall opportunity from both your milestones and your potential future revenue opportunity. And I know it's a tough thing to do because you're in a lot of programs.
Yeah
And they're at various stages, but what do you, first off, have you quantified what those numbers are? If let's just say all, all your milestones were hit, and they all went to market, based on whatever, you know, consensus estimates are on revenue. I mean, it's pretty substantial. And I don't know how much, how much you're able to disclose or what math you've done, but I've seen some numbers out there that you've given. And so I'd love to hear what you've talked about on both the milestone side and potential royalty side.
Right. So we, if you go back to our third quarter earnings call, we sort of opened the kimono up a little bit in terms of what the economics for that portfolio looks like. So at the time, and you know, probably we've added programs since then, but the needle's not going to move that much just given the numbers that are out there. But at the time, we said if you take a look at those active programs that we had at the time, the average royalty was about 3% on those programs. And the royalties or the, sorry, the milestones, if everything hit for those 300-some, you know, programs was around $3 billion. We also have talked about another part of the business, which we really haven't touched on, but we have some deals specifically with ion channels.
Those actually have even higher royalty rate. And the milestones associated with those are about $1 billion as well. So, you know, collectively, in terms of the programs that are out there, we're around $4 billion. Now, obviously not everything is going to be.
That's just milestones. That's not.
That's just milestones.
That's not the royalties that you're going to.
And then royalties, obviously on top of that.
Okay. And in this most recent, call it pharma downturn, and it, you know, sounds like you're not impacted, but has the, like, the way that the customer structure contracts changed at all? Are they doing more upfront or more higher, you know, leverage to more of the milestones versus royalties, or has there been a change in preference the other way around where they want to put less capital up now and say, we'll give you some more backend economics?
Yeah, I haven't really seen necessarily any sort of trend in terms of people pushing back on one side or the other than they're always pushing for everything to be lower, right? But in terms of, we are pretty flexible in terms of the way that we can structure licenses within certain parameters, right? So, you know, what I can tell you is the term sheets that go out to our, you know, prospective customers are all the same. Everything starts off the same, and they get negotiated from there.
And, you know, in some cases, we have a prospective customer that is very sensitive to the royalties, and they're willing to pay more on the front end, but they want to keep the royalty rate down. In some cases, we have folks that are, you know, don't want to pay a lot of money upfront, and they're willing to pay a higher backend. So we always have a risk-adjusted NPV that we're trying to hit. We can kind of dial other parts of this kind of up and down a little bit as long as we hit that risk-adjusted NPV.
So I haven't seen any sort of like trend in people wanting to pay more or less royalties. It usually is specific to the company. And classically, you know, the big pharma company is one that says, hey, I need to keep the royalty down. I'm willing to pay a little bit more upfront. And so we'll see that. The smaller biotech is, hey, I don't want to pay a lot of money upfront. I'm willing to give you a bigger backend. Classically, that's kind of what we see. There are exceptions to that.
You know, like I said, we can work within that as long as we kind of get back to, you know, a risk-adjusted NPV that's in our band. We can do that. But, you know, in general, royalties are kind of in the low- to mid-single digits and sort of what range we're in that sort of zone depends on kind of how much they're paying on the kind of milestone in front end.
Okay. And then on, you know, if you look at those opportunities and obviously until that, you know, until they come to market, you're not getting that royalty stream. And if some of these milestones hit this year versus, or next year versus this year, where are you on a cash flow perspective?
Because, you know, Q1, you did have a higher cash burn than you have had over the last several quarters. And so, you know, how much comfort and line of sight do you have to, okay, here are my expenses. We know that we're set. And, you know, we feel good about where we are on the cash burn perspective. And you don't necessarily need one of these to hit in 2024 for things to, right, to be gravy for you guys?
Yeah. So I think in terms of operating expense, we obviously have good line of sight in terms of what that is. The, the business has actually grown to a point where things are pretty stable. This is a, a model that's, that's really scalable and has a lot of leverage built into it. You know, we, we kind of are somewhere between 110, 115 folks today. And that's as big as I think we need to get. I think we could probably double, triple the number of programs that we have without adding much headcount. And it's, you know, in many cases, like just to give you an example with OmniAb, we'll ship the rats to the partners. They do the immunization. They do the screening themselves. We sort of just get a report on what they've done. And so, you know, that's almost infinitely scalable.
So I think we've got a pretty good sense of where we are from an OpEx standpoint. On the revenue side, we sort of rely mostly on what partners are saying. So in some cases, they give us a little bit of insight into what they're going to do in other cases. You know, like Genmab with acasunlimab, they said they're going to start a phase III in the second half of the year. We're assuming that's what's going to happen. So we take a look at what they've said and we've sort of planned out our revenue accordingly. From a cash flow, for I guess cash burn standpoint for this year, we told folks Q1 was going to be our largest burn quarter.
We knew that the milestones that we had coming in were going to be weighted to the second half of the year. Q1 is when we have certain, how do we say it, certain compensation cycle items that happen. So, we knew Q1 was going to be a larger burn. But the guidance that we gave for 2024 was that our cash burn was going to be relatively similar to what we had last year if you pull out that big one-time milestone. So cash burn last year, if you pull out the big milestone, was about $36 million. This year, we think it'll be relatively similar to that. A big chunk of that, you're right, was burned in the first quarter, but we're still kind of tracking where, you know, we had that original guidance.
As we look further out, you know, cash burn should come down substantially in 2025, as we see more, things come through from a milestone standpoint. And, the company, as we model out our cash flows, we think we've got enough cash, for the foreseeable future. So we basically use a model that takes the standard industry probabilities of success times the amount of time it takes in each stage. You know, so for example, there's, I think, 21 things in phase one. We assume about half of those are going to make it to phase II. You multiply that by the phase two milestone. And we just model out cash flows that way. And when we sort of run that model, we think we're in good shape.
Just last question. I mean, you were in a lot of programs. At what point do you just stop trying to win new programs? Like, well, let's just go ahead and go on vacation and collect our cash for years to come because that's the beauty of your business. At some point, it's, you know, it's going to become very, very cash flow positive. And so, but I'm assuming that's not the case. You still have, you're still out there active trying to win new programs, but you know, what's the right number?
We are, you know, I told the CEO, Matt Foehr, you know, I don't think actually we can even screw this up based on the amount of partners and programs that we have and things coming through the pipe. But, you know, we're not stopping here. We're not satisfied. Business development is a huge area that we're focused on. We've expanded from one to five the number of BD people we have working on this stuff. We've got more programs than we ever have, or more term sheets out there than we ever had before. So I'm confident this team is going to bring in more business.
Great. Well, Kurt, thanks for joining us. Really appreciate it. Matt, if you're online, sorry, the CEO couldn't make it, but hope you're doing well, Matt. Really appreciate your time, joining us at RBC.
Thank you.