Diversified Partnerships And Digital Transformation Will Drive Future Potential

Key Takeaways

• Strong adoption of AI-enabled platforms and expanded partner base enhance recurring, high-margin revenues while diversifying risk and supporting scalable, predictable earnings growth.
  
• Growth in late-stage partnered assets, higher royalty rates, and cost reductions position the company for improved margins, milestone potential, and accelerated path to profitability.
  
• Heavy dependence on partner-driven royalties, early-stage product revenues, cost-cutting pressures, partner attrition, and rising competition threaten long-term growth stability and market relevance.

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.

• The rapid uptake and strong market response to the xPloration high-throughput AI-enabled platform is opening non-dilutive, high-margin recurring revenue streams through both instrument sales and follow-on consumables/software, positioning the company to benefit from the industry's accelerating adoption of digital transformation and AI-driven drug discovery-expected to support long-term revenue growth and margin expansion.
  
• Diversification and expansion of the partner and program base-including 100 active partners and 381 active programs with strong net additions-reduce customer concentration risk and provide a broader pipeline for future milestones and royalties, increasing earnings predictability and long-term revenue scalability.
  
• The increasing number of late-stage (post-discovery and preclinical/clinical) partnered assets, including a 22% year-over-year growth in preclinical programs and several new programs entering the clinic, significantly raise the potential for substantial milestone payments and future royalty streams, driving long-term revenue and potential earnings inflection points.
  
• Demonstrated ability to command higher average royalty rates (now 3.36% vs 3.2% prior), alongside the emergence of new therapeutic modalities (e.g., bispecifics, domain antibodies), positions OmniAb to capture a disproportionate share of the growing market for novel biologics, thus supporting future revenue and margin expansion.
  
• Ongoing operational streamlining and cost reductions-including significant headcount rationalization resulting in an expected $7 million in annual cash savings-support lower operating expense run rates, which, in conjunction with revenue growth initiatives, may accelerate the path toward profitability and improve future net margins.

OmniAb Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming OmniAb's revenue will grow by 35.0% 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 -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 $8.0 million (and earnings per share of $0.06) by about September 2028, up from $-63.5 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 153.5x on those 2028 earnings, up from -2.9x today. This future PE is greater than the current PE for the US Life Sciences industry at 29.1x.
• Analysts expect the number of shares outstanding to grow by 1.4% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.36%, as per the Simply Wall St company report.

OmniAb Future Earnings Per Share Growth

Risks

• OmniAb remains heavily reliant on milestone and royalty revenues from partner-developed drugs, but has little control over the timing and ultimate commercial success of these partnered assets; this could lead to unpredictable and lumpy revenue recognition, impacting both revenue stability and earnings visibility over the long term.
  
• Despite recent launches like xPloration, new product revenues are currently small and early-stage, and the company provided no upward revision to revenue guidance based on these launches; slow ramp-up or disappointing demand for these offerings may limit long-term revenue growth and margin expansion.
  
• Ongoing headcount reductions and operating expense cuts, while improving cash burn, may also point to sales growth and innovation challenges, risking underinvestment in R&D or customer support, thus potentially compromising competitive advantage and future topline growth.
  
• Continued attrition of partner programs-a natural part of drug discovery-combined with delays or cancellations due to partner budget constraints, therapeutic reprioritizations, or industry downturns, could reduce the pipeline's ability to deliver future milestones and royalties, negatively affecting long-term earnings and cash flows.
  
• Intensifying competition from alternative therapeutic modalities (e.g., cell/gene therapies, RNA drugs) and rapid advances in AI-driven drug discovery platforms may diminish demand for traditional antibody discovery services, risking long-term erosion of OmniAb's addressable market, revenue base, and market share.

Valuation

• The analysts have a consensus price target of $7.857 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 $11.0, and the most bearish reporting a price target of just $3.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $56.6 million, earnings will come to $8.0 million, and it would be trading on a PE ratio of 153.5x, assuming you use a discount rate of 7.4%.
• Given the current share price of $1.52, the analyst price target of $7.86 is 80.7% 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.