Good afternoon and welcome to OmniAb Incorporated 2024 Financial Results and Business Update Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Kurt Gustafson, Chief Financial Officer. You may begin.

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 2024 financial results conference call. There are slides to accompany today’s prepared remarks, and they’re available on the Investors section of our website at omniab.com. Before we begin, as summarized on Slide 2, I would like to remind listeners that comments made during this call will include forward-looking statements within the meaning of the federal securities laws. These forward-looking statements involve risks and uncertainties that could cause actual results to be materially different from any anticipated results. These forward-looking statements are qualified by the cautionary statements contained in today’s press release and our SEC filings. Importantly, this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast today, August 8, 2024. Except as required by law OmniAb undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call. Joining me on the call today is Matt Foehr, OmniAb’s President and CEO. During today’s call, Matt and I will provide highlights on the company’s operations, partner and technology updates and our recent financial results. At the conclusion of our prepared remarks, we’ll open the call to questions. And with that, let me turn the call over to Matt.

Thanks, Kurt. Good afternoon, everyone, and thanks for joining us today on our Q2 conference call. I’ll pick up the presentation this afternoon here on Slide #4. During the quarter, we continued to grow our business with the addition of new partnerships. Given the velocity of new deals and a growing book of business, this year has the potential to be our best year ever in new partners and licenses. In parallel, our existing partners continue to advance their programs in the clinic, thereby strengthening our pipeline this year and beyond. We’re driving growth in the business with strong execution and we’re doing that within an efficient operating structure and a highly scalable business model. We intend to create further visibility for our platform through publications and by advancing our technologies. Our scientists recently published an important peer-reviewed paper in the Journal of Immunology relating to our OmnidAb, a single-domain antibody technology, which we launched last November and is now driving a growing number of new partner programs. And I also note that in the second quarter, we successfully demonstrated the efficient multi-site deployability of a next-generation exploration instrument across our labs. I mentioned the exploration platform here as it has the potential to drive additional efficiencies for our partner programs and to further expand our position as an industry leader in speed, throughput, reliability, and ease of use for antibody discovery screening activities. We remain committed to the continuous improvement of our technology to meet the evolving and broadening needs of our partners and to retain a leading market position. I’m proud of the achievements of our team and feel confident in our ability to execute our strategy in order to maximize value for all of our stakeholders. Now, moving to Slide #5, I’ll start to review some of…

Thanks, Matt. So I’ll provide a brief overview of our financial results for the second quarter and then we’ll take some questions. On Slide 16 we have our income statement for the second quarter of 2024 versus the year ago period. Total revenue for the quarter was $7.6 million, compared with $6.9 million in the prior year quarter. This revenue was consistent with our expectations with the exception of higher service revenue. Matt mentioned the discontinuation of the GSK small molecule ion channel program, and this triggered an acceleration of $1.3 million in service revenue above and beyond what would have otherwise been recognized in the quarter. GSK had paid for the service fees upfront, which were recorded as deferred revenue and were being amortized over the life of the research term. The discontinuation resulted in the acceleration of this amortization, which would have otherwise been recognized mostly over the next 2 quarters. As I previously stated, we continue to project milestone payments to be weighted towards the second half of the year based on the information and statements made by our partners. In terms of expenses, our R&D expense was relatively unchanged versus the prior year. G&A expense was $8 million versus last year’s $8.7 million, with the decrease primarily due to lower share-based compensation expense, as well as non-recurring costs in the prior year associated with our ERP system implementation. The amortization of intangibles in the second quarter was higher than our recent trend. The increase was due to a $1.2 million impairment related to assets associated with 2 legacy unpartnered Ab Initio programs. In addition, other operating income for the quarter included a $2.6 million reduction in contingent liabilities, primarily related to changes in the ion channel programs. We have CVR obligations that expire in 2027 from our acquisition of Icagen, and we accrue these CVR liabilities based on our projections of achieving various milestones. The recent notifications from GSK and Roche resulted in a decrease in our expected obligations for these CVRs, which was then recorded here in other operating income. Year-to-date, our operating expenses tracked relatively close to plan. However, we now expect total operating expenses in 2024 to be slightly less than total operating expenses in 2023. Turning to Slide 17. Here, you’ll see our balance sheet as of June 30, 2024. We ended the second quarter with $57.2 million in cash and as we’ve discussed before, we expect the first half of ‘24 to have a higher burn relative to the second half of the year, partly due to the milestone revenue being weighted towards the second half of the year, and partly due to the timing of cash payments from certain operating expense items that occurred in the first quarter. Given that we are still tracking close to our original plans, our cash guidance remains unchanged. And with that, I’d like to open the call for questions. Operator?

Thank you. [Operator Instructions] First question comes from Puneet Souda from Leerink Partners.

Hi. You have Michael on for Puneet. Congrats on the quarter. I think for the first question I wanted to talk a little bit about the exploration platform. I know you mentioned a proof-of-concept study you’ve done. I was curious if you could talk about how this distributed format you’re looking into fits into your overall offering. And if you could speak to sort of the confidence in the IP since there’s been some litigation sort of the microfluidics single cell space recently?

Yes, Michael, thanks for the question. And yes, the exploration platform is one that’s obviously been woven into our technology offering for quite a while, going back to acquiring it about 4 or 5 years ago. And it is a high throughput B cell screening platform that also has broad applicability to other areas as well. But we’ve focused really on B cell screening workflows. And it’s one that’s driven a lot of efficiencies within our business. And it’s one where we’ve actually had some of our larger partners inquire with us about getting access to exploration instruments. And as we’ve invested in that platform to increase throughput and speed, we’ve come to realize that it’s actually a form – it’s something that creates a lot of leverage in the business. You mentioned the IP landscape, for us, this is a microcapillary platform. So, from the way in which the equipment is run, it is quite unique. And it actually, beyond being very efficient in screening, it leverage – it can be paired with deep learning and AI and other things that we’ve been doing for many years to really increase throughput. So, we’re excited about the exploration platform. It’s something we’ve obviously have invested in over the years and continue to leverage in a variety of ways for our partners.

Okay, great. And then I was curious in conversations with new partners or existing partners, if you have any insights on, I guess, the appetite for discovery programs, given that the first half has been pretty good funding-wise. And then there’s also a lot of talk about sort of the large pharma prioritization that’s been happening. So, I wonder if you could offer some color there.

Yes, Michael, I can comment, and Kurt can add as needed. Yes, it’s obviously – as students of the industry, it’s clear that big pharma continues to go through prioritization exercises, which is natural. That’s something that happens on a secular basis within the industry. But Q2 was quite strong for us in terms of new program starts, and we actually have quite a variety of partners, right. It’s a mix of big pharmas and startups, as well as academic partnerships as well. If I look at the landscape now, as you compare it to about a year ago, you look at some of our newer partners who are quite well-funded. These are startups that have funding, solid VC funding, interesting biology, differentiated ideas, and they are coming to us to get access to our platform. And we are definitely seeing that at a higher rate than we saw, say, a year or even 2 years ago. So, that’s generally good to see. And I think it is juxtaposed with prioritization exercises that go on at big pharma. But again, I think that’s a natural part of the industry.

Great. Thank you very much.

The next question will come from Chad Wiatrowski from TD Cowen. Chad, go ahead.

Hey guys. This is Chad on for Steve Mah. Just looking at the existing programs, there is sort of large downstream milestone potential. How much visibility do you have given the bolus of upcoming partner catalysts in the next 18 months?

Yes, I think it’s kind of a combination of public and private information that we get in terms of our forecasts. A lot of our partners have made public statements about when they expect to start a Phase 2 or a Phase 3 program. So, obviously, you can observe that. And then in some cases the partners have provided us more detailed information of their plans. So, I would say that we have maybe a little bit more visibility than the outside world is based on some information that we get, although the information is not perfect, and we find out sometimes things change, right. Partners say that they are going to start something in the next quarter and that moves. But we do get some additional information other than what’s in publicly.

And I will add just a little bit to that, Chad, as well, that generally speaking, as things enter the clinic, is when they start to become a lot more public and visible to investors. And I think this quarter the TEV-56278 is an example, right. That’s a program for which there was not really public visibility until the program started and it was great to see last week to have a highlighting it on their earnings call. But again, that’s a program that was probably under the radar from a public perspective. But generally, as things progress out of preclinical and into Phase 1 is when there starts to be a lot more visibility for the outside world on specific programs.

Great. And yes, this is obviously a benefit of your business model today is like an R&D sharing platform. But regarding the exploration, would you ever sell instruments directly to partners, just given the majority of the R&D investment has already taken place?

Yes. Look, Chad, it’s a great question. I think it’s a topic that we would discuss – kind of discuss those plans transparently as they would form. We have been approached by people who would like exploration instruments. We know it’s deployable. We know it has broad application. We know it drives efficiencies. So, those are all things that I think create optionality in the business and things we can think about in the future.

Thanks for the questions guys.

Thanks Chad.

The next question will be coming from Stephen Willey from Stifel. Stephen, go ahead.

Yes. Good afternoon guys. Thanks for taking the questions. I was just kind of wondering where the potential re-partnering of these CNS assets you are getting back from GSK and Roche fit within your current list of priorities. And were these development candidates that were in IND-enabling studies? Is that the right way to think about where they were from a development stage? And I know you mentioned that you maintain co-ownership of the IP associated with the Glaxo small molecule, but is that also the case for the Roche asset as well?

Yes. Steve, thanks for the question. I would characterize these from a stage perspective as kind of discovery plus preclinical, right. I mean especially in that small molecule space, they are being tested in animal models and that sort of thing. So, that’s kind of how I would describe the stage. We now have the ability to re-partner them. Again, these are both in the CNS space. And that’s certainly something we have done in the past. If you look at our history, obviously, our core focus is technology innovation and development and licensing our technologies. But often programs do come out of our technology development, and we have successfully licensed individual assets in the past. We have some assets now that are available for license for which we pursue that. And so, that’s kind of a byproduct. We don’t plan on developing assets ourselves. But we do see these as prime candidates for potential re-partnering. There is growing interest in some of these ion channel spaces. Obviously, we are more focused on the antibody side now, but there are folks who are focused on small molecules as well. So, yes, hopefully, that gives you a little more color.

Okay. And then maybe just kind of going back to the macro for a second, just kind of curious, I mean obviously, you talked about how some of these prioritization efforts within big pharma tend to be cyclical. There was obviously a large CRO out yesterday with some pretty cautious commentary around big pharma spending just on the discovery and outsourcing front. Do those happenings influence kind of where you spend your time from a BD perspective?

Interesting, it’s an interesting question, Steve, and obviously, as I have said, we see these cycles. A lot of our BD efforts, right, are – I will kind of maybe answer it in two ways. A lot of our BD efforts are now – we are doing more and more outreach, but there is still a lot of inbound interest on our platform, which I think it says a lot about as we continue to expand the platform, as it becomes more validated, as we publish more papers and peer-reviewed journals, that tends to attract inbound interest. We have a nice mix in our portfolio now with our 83 partners of big pharmas, of startup companies, of academics. So, we kind of have an interesting vantage point on kind of where people are going. And so, the way I would answer it is, it not only informs – our relationships, not only inform the BD that we do, but the innovation that we do as well. And I think that drives interest. One of the reasons I think we have been able to grow the business, both from partners and programs net of attrition is because there is an understanding that we are continuing to innovate and that, I think attracts partners as well. So, our dialogue obviously is – there is a lot of forward-looking discussions with our partners, especially the larger ones. So – and they are kind of thinking downstream in a much more long-term discovery mindset, despite a firm that might be looking differently at its existing portfolio or reprioritizing it.

And then maybe just on the startup side, when you are engaging with these earlier stage companies, and perhaps these companies are even being formed around assets that are being discovered off your platform. How do you think about the economic return as it comes down to taking like a founder’s stake in equity versus trying to maximize downstream economics, or do you feel like you can accomplish both of those things within a specific deal structure?

Yes, we do feel like we can accomplish both of those things. I will say, and as we commonly say, we have NPVs in mind for how we structure deals, but no two deals are alike, right. And so, we pride ourselves on finding flexible structures that work for us and our stakeholders, but also work for the partners as well. We are certainly open to things like taking equity stakes and those kinds of things. Certainly, I have had a history of that and in our past management team has. So, we are open to those sorts of things. But yes, we are excited about our mix of partners. I mean we have added some pretty exciting startup companies in recent months here who really have interesting ideas, novel biology, proven management teams. And so all of those things kind of inform how we are thinking as we are finalizing a deal with a partner, but we are open to multiple kinds of structures. I think there is a lot of different ways that we can create value in a model like ours.

Okay. Thanks for taking the questions.

Thanks Steve.

Then the last question is going to come from Conor McNamara from RBC Capital Markets. Conor, go ahead.

Great. Thanks for the questions guys. And just a question about 2025. In the press release, you talked about cash use going down significantly. How should we think about where the revenue step-up comes from? Is that going to be – do royalties start becoming more meaningful in 2025, or is it going to be a similar mix, which is more of the milestones coming through? Is there any comment you can make on how we should think about that in 2025?

Yes. So, there is two parts to that, Conor. The first is, as I have talked about the leverage that’s built into this business. So, we have kind of built the business to where it needs to be. We are staffed where we need to be. And so, you won’t see really any sort of increase in operating expense, barring inflation. In fact, this year based on our latest projections, operating expense will actually be down here in 2024 relative to 2023. But in terms of what drives a substantial drop in the cash burn, it’s a function of revenue and more specifically milestone revenue. So, royalties, right now we are generating royalties from a couple of products over in China. We do note that one of the programs or one of those compounds just got approval in Europe. And so, there could be something that comes there. But our projection for kind of the change is really a function of increased milestones. As you think about those 50 things or so that Matt talked about that are currently in preclinical or clinical stages, as those move to the next stage, they will trigger milestones. And that’s what we think will be the primary driver of that.

Great. And by the way – thanks for that. In the disclosure on the absolute dollar amount, I think this is the first time you have broken it out by stage, right? The $3 billion is broken out, so I think that’s helpful, have you shown that data before?

No, this was the first time we put that out there. So, thanks for noticing.

Okay. That’s really helpful. Thanks for the color. That’s really helpful. And then just quickly, on the – you mentioned the European approval. Should we – I mean does that have any royalty revenue that flows through in 2024, or is that a smaller opportunity for you guys? Is there any way to quantify that?

It’s hard to know right now. I mean sugemalimab, it carries a 3% royalty on worldwide sales. Right now that’s – CStone says they are looking for a partner for, what I would sort of say, EU. They do have a partner for Switzerland and Central Eastern Europe in EwoPharma. They announced that. But they don’t actually – they are not going to launch this themselves. They are looking for a partner and they said that, they would have updates soon. So, I don’t know, Conor, in terms of – we will have to wait and see based on what partner they can line up. But I would say that, that could drive incremental royalty income, but that’s not part of sort of what we are forecasting at this moment.

Great. Kurt, thanks for the questions. Appreciate it. Congrats on a solid quarter.

Yes. Thanks Conor.

Great. Thanks Conor. So, it looks like that’s our last question, so I would like to thank everyone for participating on today’s call and for your questions and engagement. We look forward to keeping you updated on our progress and speaking to you again in a few months. We will be at some upcoming conferences, including the H.C. Wainwright Conference in New York City next month, and look forward to seeing some of you then. So, thanks again for your interest in OmniAb, and have a great day.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.