AbCellera Biologics Inc. (NASDAQ:ABCL) Q3 2023 Earnings Call Transcript

AbCellera Biologics Inc. (NASDAQ:ABCL) Q3 2023 Earnings Call Transcript November 2, 2023

AbCellera Biologics Inc. beats earnings expectations. Reported EPS is $-0.1, expectations were $-0.14.

Operator: Good afternoon, and welcome to AbCellera’s Third Quarter 2023 Business Update Conference Call. My name is Kate, 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. You may proceed.

Tryn Stimart : Thank you. Good afternoon, and welcome to AbCellera’s Third Quarter 2023 Business Update. We are pleased to have you with us today as we discuss the results announced in our press release issued after the market closed today, which you can find on our Investor Relations website. With me on the call today are Dr. Carl Hansen, AbCellera’s Chief Executive Officer and President; and Andrew Booth, AbCellera’s Chief Financial Officer. The webcast portion of this call contains a slide presentation that we will refer to during the call. If you are following along on the phone and wish to access the slide portion of this presentation, you may do so on the Investor Relations section of our website. For those of you who have accessed the streaming portion of the webcast, please be aware that there may be a delay and that you will not be able to post questions via the web.

This presentation may contain forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any forward-looking statements are based on management’s current expectations and are subject to certain risks and uncertainties. Please review our SEC filings for risk factors that could impact our future performance. Our presentation and SEC filings are available on our Investor Relations website. Note that all dollars referred to during our call today are U.S. dollars. Now I am pleased to turn the call over to Dr. Carl Hansen.

Carl Hansen : Thanks, Tryn. The highlight this quarter is that we are advancing assets from two AbCellera-led programs into IND-enabling studies. The first asset, ABCL575 targets Ox40 ligand and is being developed as a potential best-in-class therapy for the treatment of atopic dermatitis and other indications in autoimmunity and inflammation. We discovered ABCL575 during our collaboration with EQRx as part of the co-development program that was initiated in 2021. We took ownership of this program in September after EQRx was acquired by Revolution Medicines. ABCL575 has been designed with potency, PK and developability to enable less frequent dosing, which provides a potential for differentiation. At present, we believe ABCL575 has the potential to be one of the first assets to follow amlitelimab, which is being developed by Sanofi and which recently had a positive Phase II readout providing evidence for the potential of this new class.

Our second asset, ABCL635 is against an undisclosed target with an indication in metabolic and endocrine conditions. It has the potential to be a first-in-class therapy in a market segment estimated at more than $2 billion in annual sales. For strategic reasons, we will disclose more details of this program an indication only once it reaches the clinic. ABCL635 is the first AbCellera-led asset derived from our GPCR and Ion Channel platform and is aligned with our strategy of leveraging our expertise and technology advantage to create an internal pipeline of first-in-class assets. We anticipate additional development candidates in the next 12 to 18 months from this platform, and we will announce them only when we have committed to move them forward into IND-enabling studies.

We would caution that studies leading to an IND carry significant risk. That said, if things progress as expected, we would anticipate IND submissions for both ABCL575 and ABCL635 in 2025. For both programs, we see the potential to get early efficacy — for both programs, we see the potential to get early efficacy data from clinical trials. We believe that these two assets and future programs will provide growing evidence that we can repeatedly generate potential first-in-class and best-in-class therapies. Given the breadth of our discovery activities, we anticipate generating more assets than we will have the bandwidth or capital to advance ourselves. Thus, we will be selective in the ones we bring forward into the clinic and expect partnering and out-licensing to remain an important part of our strategy.

Turning to partnering. In September, we announced a new partnership with Incyte working in the area of oncology. We also expanded our existing collaboration with Regeneron. Under the original agreement, Regeneron has exercised its rights to advance antibody candidates from two completed programs, including one against a GPCR target. Other programs are still active. In addition to the two partnerships completed in the quarter, yesterday, we also announced a collaboration with Prelude Therapeutics to codevelop novel precision antibody drug conjugates, or ADCs, in oncology. We are excited to be working with the Prelude team on the development of a new class of therapeutics with the first program focused on antibodies armed with small molecule protein degraders.

In summary, I would like to highlight that developments over this quarter are aligned with key business objectives that we laid out last year. First, we said we would elect at least one candidate from our GPCR and Ion Channel platform and at least one candidate from a co-development platform for IND-enabling studies in 2023. With the commitment to advance ABCL575 and ABCL635, we have achieved that milestone. Second, we said we would focus on high-value strategic partnerships. Our deals with groups like Regeneron, Prelude and Incyte are aligned with this strategy. We also said we would advance our T-cell engager platform and expected to enter into a significant transaction in 2023. The science and the development of this platform continue to progress as expected.

And tomorrow, our team will be presenting new data at SITC in San Diego. While we haven’t completed a transaction yet, we have increasing conviction in our TCE platform, both in its potential to generate internal assets and as a basis for strategic partnerships. And with that, I will hand it over to Andrew to discuss our financials. Andrew?

Andrew Booth : Thanks, Carl. First, let me highlight the progress made on our key business metrics during the third quarter of 2023. This quarter, we worked on four new discovery programs taking us to a cumulative total of 110 partnered program starts. And as a reminder, the number of starts in any given quarter will be irregular. Over the trailing 12 months, we’ve started work on 18 partner-initiated programs. We agreed to five new programs under contract in the quarter and ended the third quarter of 2023 with 182 programs under contract with 42 unique partners. As we’ve stated in the past, we continue to focus on strategic partnerships rather than on deal volume. Our key business metrics do not include programs that are initiated by AbCellera internally.

In Q3 of 2023, we saw NovaRock advance an additional molecule into the clinic for a cumulative total of 10 molecules in the clinic. We view our growing list of 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. Revenue in the quarter was approximately $7 million, almost entirely driven by research fees relating on work on partnership initiated discovery programs. This compares to research fee revenue of approximately $8 million in Q3 of 2022. This reduction of research fee revenue is consistent with our increasing focus on more strategic partnerships where AbCellera has a larger participation in the long-term value of the program.

This quarter’s revenue also includes some small amounts related to licensing fees. And unlike a year ago, there were no royalties and no milestone payments earned in the quarter. Turning to operating expenses. Our research and development expenses for the third quarter were approximately $38 million, representing a roughly $11 million increase over the same period of the previous year. This increase reflects the growth of program execution, continuing platform development and our investment in internal programs. In sales and marketing, expenses for the quarter were $3.5 million compared to just over $3 million in Q3 of 2022. And in general and administration, expenses were just over $14 million compared to just under $14 million in Q3 of the previous year, reflecting good operating leverage.

Looking at earnings. We’re reporting a net loss of roughly $29 million. This compares to earnings of approximately $27 million in Q3 of 2022, the loss reflects our continued investments in the business and the absence of the royalty revenues that were present in Q3 of the previous year. In terms of earnings per share, this quarter’s results work out to a loss of $0.10 per share on a basic and diluted basis. Looking at cash flows. Operating activities for the first nine months of 2023 used roughly $24 million. In the absence of regular royalty revenues, we would expect our quarterly operating cash flow to be irregular and often negative as we continue to invest in the growth and capabilities of the company. Of note, from operations and investment activities in the third quarter, we used approximately $10 million of cash.

As a part of our treasury strategy, we have over $600 million invested in short-term marketable securities. Our investment activities for the first nine months of the year include approximately $113 million net increase in these holdings. All other investment activities amounted to approximately $95 million, including approximately $62 million invested in property, plant and equipment and approximately $37 million in other long-term investments. Investments in property, plant and equipment are, of course, driven in large part by our ongoing work to establish CMC and GMP manufacturing capabilities. Altogether, we finished the quarter with over $813 million of total cash, cash equivalents and marketable securities. We have historically been successful at raising nondilutive sources of capital.

And as a reminder, our continuing GMP facility build-out is separately co-funded by the Government of Canada’s Strategic Innovation Fund. This available capital does not show up on our balance sheet. With over $800 million on the balance sheet and the unused portion of our previously secured government funding, we continue to have over $1 billion in total available liquidity. This is more than our liquidity position from one year ago when we reported our Q3 of 2022 financials. With respect to our operating expenditures, our capital need programs towards and into the clinic with excellent visibility and runway. We continue to believe that we have sufficient liquidity to fund well beyond the next three years of platform and pipeline investments and overall growth.

And with that, we’ll be happy to take your questions. Operator?

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Q&A Session

Operator: [Operator Instructions] The first question will be from the line of Allison Bratzel with Piper Sandler.

Allison Bratzel: Thanks for the update. I guess could you maybe just speak more on what we can expect to see for the T-cell engager platform tomorrow in the posters at SITC? And really just help frame what’s the bar you think potential partners are really looking for in order to have confidence that your TCE platform really is best-in-class and pull the trigger on a partnership. Your latest thoughts on the setup there would be really helpful.

Carl Hansen: Sure. Thanks, Allison, Carl here. Happy to take that. So we have continued to make great progress here. The SITC presentations really focus on two developments on the R&D platform. One of them is the advancement of the platform towards being able to generate antibodies against MHC peptide targets. We see that as highly differentiated and a capability that opens up a broad array of targets that are expressed inside the cell, but that get presented to the surface of the cell and are highly specific to tumors. So being able to do that solves one of the key problems in TCEs, which is being able to find targets that are specific and reduce the on-target off-tumor toxicity. The other big highlight is evidence that shows that combining a broad diversity of CD3 binders with the OrthoMab platform and being able to change both the affinity of binders and the epitope importantly, allows you to obtain profiles in the mixture of cytokine release and killing that you cannot obtain using just affinity alone or many of the existing antibodies.

That was the original thesis, and we have continued to push that forward and see it as very compelling in cases in particular, where dose-limited toxicity has been a problem. What’s not being shown at SITC, but something we’re also excited about is more recent data that very clearly shows that you can decouple cell killing from cytokine release. That’s something that has been pursued for some time. And in our hands, we think we have by far the clearest demonstration of that as compared to benchmarks that we’ve tested our antibodies against. So all of that is going very well. The timing of a transaction, I think, is always difficult to predict. But we are engaged with the top groups and have built relationships over the last year. And on all fronts, I think it’s going in the right direction.

Operator: The next question will be from the line of Robyn Karnauskas with Truist.

Robyn Karnauskas: I’m going to ask the one that you may not be able to answer, but maybe you can address it more broadly as to your capabilities. So Regeneron this morning mentioned that they’re Ox40 on their call may not be optimal. The target may not be safe versus Dupixent. How can you design things differently with this molecule to improve its specificity or make it a safe therapeutic index achievable? And maybe less potent payload, [cable linker, bystander], if you won’t address that molecule specifically for competitive reasons, maybe just address liquor capabilities more broadly because I think a lot of companies are facing these challenges where they have a suboptimal drug that could be better? And how are you thinking about that?

Carl Hansen: Sure, Robyn. I’m happy to take that. So I think your question was related to ABCL575, which is our antibody that we’re bringing forward against Ox40 ligand. Maybe a few things to say about that. We’re excited about that one for a few reasons. One is, we see this as a very compelling class, not just for atopic dermatitis, but for a wide array of different conditions and inflammation. It is a pathway for which there is a robust scientific literature that suggests that it is able to affect in multiple pathways in the inflammation cascade and that it can do it in a way that not only suppresses the activation and proliferation of T-effector cells and T memory cells that are associated with disease, but also that can interact with T regulatory cells to help to reset homeostasis in the immune system.