Regulatory Pressures And Competition Will Limit Prospects But Trigger Recovery

Key Takeaways

• Reliance on a limited partner base, rising regulatory pressures, and industry consolidation threaten revenue stability, platform adoption, and deal margins.
  
• Growing competition from alternative antibody discovery and AI-driven platforms may require higher R&D spending, risking long-term profitability and market share erosion.
  
• Sustained losses, heavy R&D spend, and rising competition threaten financial stability and margins despite operational changes and diversification efforts.

Catalysts

A biotechnology company, licenses discovery research technology to pharmaceutical and biotech companies, and academic institutions to enable the discovery of therapeutics in the United States, Europe, Japan, China, and Canada.

• Although OmniAb is positioned to benefit from long-term growth in global healthcare spending and the expanding need for innovative biologic drugs, elevated regulatory scrutiny on safety and increasing global pressure to reduce drug prices could curb partner budgets and slow platform adoption, which may limit royalty and milestone revenue growth.
  
• While the company is leveraging artificial intelligence and automation to make its xPloration platform more attractive and scalable, ongoing reforms in intellectual property rights threaten the security and long-term value of OmniAb's technology, potentially reducing the predictability and size of future royalty streams.
  
• Despite increasing the number of active programs and a continued expansion in the partner base, OmniAb remains vulnerable to revenue concentration as it is still dependent on a handful of key partners and milestone events; underperformance or program attrition by these partners could materially affect revenue and earnings quality.
  
• Although the pipeline of clinical and late-stage partnered programs has grown, industry-wide consolidation among pharmaceutical and biotech firms could lead to fewer licensing opportunities and increased bargaining power for remaining partners, ultimately driving down deal terms and compressing margins for OmniAb.
  
• While OmniAb's internal cost reduction and workflow efficiencies may help in improving net margins, mounting competition from alternative antibody discovery platforms and novel AI-driven technologies risks eroding market share and could force OmniAb to increase R&D investments beyond current revenue growth, leading to sustained net losses over time.

OmniAb Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on OmniAb compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming OmniAb's revenue will grow by 13.8% annually over the next 3 years.
• The bearish analysts are not forecasting that OmniAb will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate OmniAb's profit margin will increase from -275.8% to the average US Life Sciences industry of 14.2% in 3 years.
• If OmniAb's profit margin were to converge on the industry average, you could expect earnings to reach $4.8 million (and earnings per share of $0.04) by about August 2028, up from $-63.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 105.6x on those 2028 earnings, up from -3.8x today. This future PE is greater than the current PE for the US Life Sciences industry at 28.5x.
• Analysts expect the number of shares outstanding to grow by 3.84% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.29%, as per the Simply Wall St company report.

OmniAb Future Earnings Per Share Growth

Risks

• Despite growth in partners and programs, OmniAb continues to operate at a significant net loss, with the most recent quarter reflecting a net loss of $15.9 million and ongoing expenses considerably outpacing revenues, which puts sustained pressure on earnings and future financial stability.
  
• Although the company has diversified its partner base, its revenue remains highly sensitive to milestone achievements and the progress of partnered programs, and any downturn in biotech funding, program attrition, or slower clinical progress can sharply curtail revenue growth over the long term.
  
• The company is heavily investing in new technologies such as xPloration, but the revenue contribution from these launches remains relatively small compared to total costs, and the need for further R&D and product launches could drive expenses higher than revenue growth, compressing net margins.
  
• There is increasing competition from both established and emerging technology providers in antibody discovery, and alternative platforms driven by AI or other innovations may erode OmniAb's technological advantage over time, reducing their ability to command high royalty rates and impacting both revenue and gross margins.
  
• Recent headcount reductions and operational streamlining may achieve short-term cost savings, but risk undercutting R&D momentum or partner support capabilities at a time of industry consolidation and shifting demand, potentially weakening mid
• to long-term revenue opportunities and margin improvement.

Valuation

• The assumed bearish price target for OmniAb is $3.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of OmniAb's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $11.0, and the most bearish reporting a price target of just $3.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $33.9 million, earnings will come to $4.8 million, and it would be trading on a PE ratio of 105.6x, assuming you use a discount rate of 7.3%.
  
• Given the current share price of $1.97, the bearish analyst price target of $3.0 is 34.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.