Novel Technologies And Clinical Pipeline Will Unlock Future Possibilities

Key Takeaways

• Strong growth in partners and programs suggests robust future milestone and royalty revenues as technologies attract significant opportunities.
  
• Planned strategies and new technologies forecast expanded revenue streams, durable cash flows, and enhanced operating efficiencies.
  
• Reliance on noncash revenue and competitive market challenges may harm cash flow, profitability, and growth prospects.

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.

• OmniAb has seen double-digit percentage growth in both active partners and active programs, indicating strong future revenue potential as these programs progress and potentially yield milestone and royalty payments.
  
• The company has introduced new technologies and enhancements that are attracting partners and creating opportunities for significant future growth, which could positively impact future revenues and earnings.
  
• Potential key royalty assets are coming into focus, with the expectation that some of these programs will advance to become royalty-bearing assets, thereby contributing to durable cash flows and supporting revenue growth.
  
• OmniAb has a robust pipeline, including 32 active clinical programs and 5 new clinical entrants in 2024, and expects additional clinical program entries in 2025, which would drive future milestone and royalty revenue.
  
• The launch of novel technologies and planned strategic actions in 2025 are expected to significantly impact the business, potentially expanding revenue streams and increasing operating efficiencies.

OmniAb Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming OmniAb's revenue will grow by 26.1% annually over the next 3 years.
• 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 -235.1% to the average US Life Sciences industry of 12.9% in 3 years.
• If OmniAb's profit margin were to converge on the industry average, you could expect earnings to reach $6.8 million (and earnings per share of $0.05) by about April 2028, up from $-62.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 207.2x on those 2028 earnings, up from -3.5x today. This future PE is greater than the current PE for the US Life Sciences industry at 34.8x.
• 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 6.96%, as per the Simply Wall St company report.

OmniAb Future Earnings Per Share Growth

Risks

• The potential decline in service revenue due to the completion of certain programs and a decrease in noncash revenue recognition could impact total revenue and cash inflows.
  
• The high rate of clinical program attrition, even if expected, may lead to fewer milestone successes, thereby reducing expected earnings and net margins.
  
• Challenges in the highly competitive PD-1/PD-L1 market in China could lead to lower royalty income, impacting the company's net margins and profitability.
  
• The significant portion of revenue attributed to noncash elements highlights a discrepancy between reported revenue and actual cash flow, potentially affecting liquidity and financial stability.
  
• Market volatility and broader biotech industry challenges could lead to cautious spending and limited investments from partners, impacting future growth and revenue projections.

Valuation

• The analysts have a consensus price target of $8.5 for OmniAb based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $12.0, and the most bearish reporting a price target of just $4.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $53.0 million, earnings will come to $6.8 million, and it would be trading on a PE ratio of 207.2x, assuming you use a discount rate of 7.0%.
• Given the current share price of $1.77, the analyst price target of $8.5 is 79.2% 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.