AbCellera Biologics Inc. (NASDAQ:ABCL) Q1 2024 Earnings Call Transcript

AbCellera Biologics Inc. (NASDAQ:ABCL) Q1 2024 Earnings Call Transcript May 7, 2024

AbCellera Biologics Inc.  isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon and welcome to AbCellera’s Q1, 2024 Business Update Conference Call. My name is Harry and I will facilitate the audio portion of today’s interactive broadcast. [Operator Instructions]. At this time, I would like to turn the call over to Tryn Stimart, AbCellera’s Chief Legal and Compliance Officer. Please go ahead.

Tryn Stimart: Good morning. Good afternoon and good evening to everyone listening around the world. Thank you for joining us for AbCellera’s 2024 first quarter earnings call. I’m Tryn Stimart, AbCellera’s Chief Legal and Compliance Officer. Joining me on today’s call are Dr. Carl Hansen, AbCellera’s President and CEO and Andrew Booth, AbCellera’s Chief Financial Officer. During this call, we anticipate making projections and forward-looking statements based on our current expectations and pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Our actual results could differ materially due to several factors as set forth in our latest form 10-K and subsequent forms 10-Q and 8-K filed with the Securities and Exchange Commission.

AbCellera does not undertake any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. Our presentation today including our earnings press release issued earlier today and our SEC filings are available on our Investor Relations website. The information we provide about our pipeline is for the benefit of the investment community and is not intended to be promotional. As we transition to our prepared remarks, please note that all dollars referred to during the call are in U.S. dollars. After our prepared remarks, we will open the lines for questions and answers. Now, I’ll turn the call over to Carl.

Carl Hansen: Thanks, Tryn, and thank you everyone for joining us today. As AbCellera continues to evolve into a clinical biotech company, we are directing our resources towards three main priorities. Our first priority is advancing our internal pipeline, including ABCL635 and ABCL575. Both programs are in manufacturing and IND enabling studies and are on track for IND submissions in 2025. Our second priority is completing platform investments that are focused on forward integration, including establishing our clinical manufacturing capabilities. We are on track to start our first engineering runs at our facility next year. And finally, our third priority is executing partnerships that we view as strategic to our long-term vision of becoming a scalable drug development company.

This quarter, we presented new data on our TCE platform, which we view as both an important source of internal programs and as a basis for strategic partnerships. Over the past two years, we have built a platform to create TCEs, a class which we believe has potential to be one of the most important therapies for cancer and liquid tumors. Last month, we presented four posters at the annual meeting of the American Association for Cancer Research to update our progress on this effort. A highlight of this work is that we have shown we can reproducibly generate TCEs that show high tumor cell killing and remarkably low cytokine release. This graph shows results comparing AbCellera-generated TCEs against clinical benchmarks for three different tumor targets, PSMA, 5T4, and B7-H4.

The top row of the graph shows that our TCEs achieve equivalent tumor cell killing with potency that is comparable or superior to the three clinical benchmarks. The middle row shows interfering gamma secretion that in each case is below the level of the benchmarks and the bottom row shows the secretion of TNF-alpha, a cytokine that is perhaps the most important mediator of excessive inflammatory responses. AbCellera’s TCEs show remarkably low TNF-alpha secretion compared to the clinical benchmarks and in the case of PSMA, TNF-alpha is close to zero across the entire range of antibody concentrations tested. When we started this work, it was our hypothesis that we would need a large number of anti-CD3s and that it would be a combinatorial problem to find the right pair of CD3 and tumor binding arms to achieve these results.

Instead, what we have found is that within our panel of hundreds of CD3s, there are three small families of related CD3 binders that can be used to achieve the rare property of potent tumor cell killing with low cytokine release and that this can be done repeatedly across different tumor targets. Starting with a large number of CD3 binding antibodies allowed us to identify these rare subsets that we are now prioritizing in TCE development. The focus of our work is now to test if these properties translate to in vivo models and to advance a subset of programs forward in development. From a technology development perspective, our TCE platform is now nearly complete. In addition to having highly differentiated and proprietary CD3s, we have also developed panels of antibodies that can be used to enhance T-cell activation and survival via Signal 2 costimulation and have demonstrated the ability to target MHC peptide antigens.

These results were also shared at AACR. Moving to strategic partnerships, this quarter we announced a collaboration with Biogen for a novel target that enables the delivery of biotherapeutics across the blood-brain barrier. And last week, we announced a collaboration with Viking and ArrowMark focused on the creation of asset-based companies, similar to what we previously did with Versant Ventures in the formation of Abdera. And with that, I will hand it over to Andrew to discuss our financials. Andrew?

Andrew Booth: Thanks, Carl. AbCellera continues to be in a strong liquidity position with approximately $725 million in cash and equivalents and with approximately $240 million in available government funding to execute on our strategy. In the first quarter of 2024, we continued to execute on our plans to complete our CMC and GMP investments and to advance both partner-initiated and internal programs. Looking at our key business metrics, in the first quarter, we started work on three partner-initiated programs, which takes us to a cumulative total of 90 partner-initiated programs with downstream participation. In Q1 2024, no additional molecule is advanced into the clinic, and we maintained a cumulative total of 13 molecules to have reached the clinic.

We’d also like to congratulate Arsenal Bio, who in April announced the first patient dose in a Phase 1-2 trial for AB2100, which is in development as a treatment for clear cell renal cell carcinoma. We view our growing list of progressing molecules in the clinic as specific examples of our near and midterm potential revenue from downstream milestone fees and royalty payments in the longer term. Turning to revenue and expenses, revenue in the quarter was $10 million, almost entirely driven by research fees relating to work on partner-initiated programs. This compares to research fee revenue of approximately $11 million in Q1 2023. In light of our focus on select high-quality programs with increased long-term participation, particularly through code development, this was a good quarter for program research fees.

Our research and development expenses for the quarter were approximately $39 million, roughly $13 million less than the same period of the previous year. This expense is driven by ongoing program execution, continuing platform development, and our increasing investment in our internal program pipeline. The decrease compared to Q1 last year reflects the absence of approximately $20 million in one-time expenses related to co-development and internal programs that were incurred in Q1 of 2023. In sales and marketing, expenses for Q1 were about $3 million, a small reduction relative to last year, and in GN&A, expenses were just over $17 million, compared to roughly $15 million in Q1 of 2023. Looking at earnings, we are reporting a net loss of roughly $41 million for the quarter, compared to a loss of $40 million in the same quarter of last year.

The loss reflects the continued investments in our business, particularly CMC and GMP manufacturing capabilities, platform, and internal programs. In terms of earnings per share, this quarter result works out to a loss of $0.14 per share on a basic and diluted basis. Looking at cash flows, operating activities for Q1 used roughly $42 million, of which over $10 million were related to seasonal or transient working capital increases. As we have stated in the past, we expect our operating cash flow to be irregular and often negative as we continue to invest in our strategic partnerships, our capabilities, and our internal pipeline. As part of our treasury strategy, we have over $570 million invested in short-term marketable securities. Our investment activities for the quarter include an approximately $57 million net decrease in these holdings.

All other investment activities amounted to approximately $27 million, including approximately $24 million invested in property and equipment. Investments in property and equipment are, of course, driven in large part by our ongoing work to establish CMC and GMP manufacturing capabilities. We expect these investments to continue at approximately the Q1 rate through 2024 and be substantially complete in early 2025. Altogether, we finish the quarter with approximately $725 million of total cash, cash equivalents, and marketable securities. And as a reminder, our continuing GMP facility buildout is separately co-funded by the Government of Canada’s Strategic Innovation Fund. In addition, in 2023, we secured $220 million from the Governments of Canada and British Columbia.

This available capital does not show up on our balance sheet. With over $725 million in cash and equivalents and the unused portion of our secured government funding, we continue to have just under $1 billion in total available liquidity to execute on our strategy. With respect to our overall operating expenditures, our capital needs are very manageable. We continue to believe that we have sufficient liquidity to fund well beyond the next three years of pipeline and platform investments. And with that, we’d be happy to take your questions. Operator?

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Q&A Session

Operator: Thank you. We will now begin Q&A. [Operator Instructions] And for our first question today, we’ll go to the line of Andrea Tan of Goldman Sachs. Please go ahead. Your line is open.

Andrea Tan: Good afternoon. Thanks for taking our question. Carl, maybe on the back of your data presentation to AACR, how are you thinking about what additional data need to be generated to spur strategic interest in a transaction? And then just curious when you’ve spoken in the past about doing a deal that captures the value of the platform, can you just remind us again what that would entail or how would you assess the merits of such a deal? Thanks so much.

Carl Hansen: Thanks, Andrea. I’m happy to take that. So first, let me say that we’ve been working on the platform and in the area of TCEs now for roughly two and a half years. Over that time, we have made terrific progress on building the platform, which provides the building blocks to create TCEs that we believe can have highly differentiated capabilities as demonstrated in vitro. That’s really the punch line from the data that we showed at AACR. The focus now, of course, is on being able to take that data and show that it translates into in-vivo models and then ultimately to the clinic and ultimately that it makes a difference for patients. In terms of deal making, we remain optimistic that we’ll be able to make a deal for access to the platform.

When I look across other platforms in the industry, I do believe that we have something that is differentiated and can solve problems that others cannot. And we continue to engage in conversations and I’d say that the response broadly is an appreciation of the science and the toolkit that’s there. So that is something we’re actively working on and I wouldn’t speculate on what the timing of that would be. In the meantime, we’re also moving these forward on the translational side, as I said, towards in-vivo models and towards the clinic. We see that as being a major value driver. So, one of the overarching realities of the field is that people are very excited about this class. People that are working in the class are starting to see that there’s data coming in on solid tumors that’s encouraging.

And broadly speaking, I think there’s a consensus that this will be a very important class of immunotherapies. At the same time, no one knows exactly how to crack solid tumors. And so there’s going to need to be work done in models and done in the clinic. We’re going to do some of that here at AbCellera, but we’re also going to need to engage with partners to make sure that platform is used broadly and that currently is the focus.

Andrea Tan: Got it. Is there a scenario where you would consider advancing one of these maybe independently and this would become a third internally developed program?

Carl Hansen: Yes, absolutely. So we, as I said in my prepared remarks, we see the platform as highly differentiated and we see it as an important basis or foundation on which to make strategic partnerships in the area of TCEs, both in oncology and also in autoimmunity, but we also see it as an important source of internal programs. And one of the things that is probably most exciting about TCEs is that once you have the platform in place, once you really start to understand the science behind it and you crack that open, there are numerous opportunities that can then be prosecuted with, I wouldn’t say little lift, but with higher probability of success because we expect there will be some transfer from one program to the other. So we’re quite excited about that and we definitely do see this as one of the sources of internal programs that we would be willing to take forward in the clinic ourselves.

Andrea Tan: Thanks so much.

Operator: Our next question today is from the line of [indiscernible] of Truist. Please go ahead, your line is open.

Unidentified Analyst: Hey guys, thank you so much for taking my question. I have a follow-up question on the TCE platform. Where do you think, beyond discovery, what do you think you add greater value to the broader TCE space in general? And do you think that that is currently being recognized by strategic more broadly? And I know this. I’ll ask a question about a follow-up to one of the prior questions in a different way. In the slides that you presented, you have shown multiple different TCEs targeting PSMA, 5T4, B7-H4. And you mentioned that all of them are differentiated from clinical benchmarks. How will you decide if you were to develop one internally, which ones to develop? Is it how unique it is first-in-class or is it you improving on the competitive landscape? Thank you.

Carl Hansen: That’s a great question. So first, I think you asked, what do we bring outside of discovery? And the short answer is that at this point, we have put in place a platform, which is a toolkit for making TCEs. And what we have shown is that we can bring those forward to create molecules. I would characterize that as discovery. So at this point, we haven’t shown value outside of discovery. That happens when you move into translational models and then move into the clinic. And that will take time and that is something that we’re pushing forward. Now, what we think is different in the platform is that the broad diversity of CD3s has allowed us to better understand how to engage CD3 on T cells and how that interplay between how you engage CD3 and how you engage a tumor antigen can control the response of T cells.

In the examples that are shown on the graph, the objective was to get high potency of killing with a minimal cytokine release to address one of the problems in TCEs, which has been dose limiting toxicity associated with CRS. So some of those examples and PSMA highlighted specifically, you could not have imagined a more compelling example of being able to completely decouple potent cell killing from cytokine release. That’s an astonishing result. And it’s one that we’re excited about, but we have not yet shown, as I said, that it will translate into animal models and then into the clinic. And that’s the next step. So that’s part of it. The other part, of course, in discovery is that AbCellera has for 10 years been making a living, working with some of the best in the world, solving some very difficult discovery problems.