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AbCellera Biologics Inc. (ABCL)

Q3 2021 Earnings Call· Tue, Nov 9, 2021

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Transcript

Operator

Operator

Good day, and thank you for standing by. Welcome to the AbCellera Q3 2021 Earnings Results and Business Update Conference Call. [Operator Instructions]. And now I would like to hand the conference over to your first speaker today Tryn Stimart, Chief Legal Officer. Thank you. Please go ahead.

Tryn Stimart

Analyst

Thank you. Good afternoon, everyone, and welcome to AbCellera's Third Quarter 2021 Business Update. We are pleased to have you with us today where we will 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 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. Those of you following along on the phone who wish to access the slide portion of this presentation may do so on the Investor Relations section of our website. For those 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 on our call today are U.S. dollars. Now I am pleased to turn the call over to Carl Hansen.

Carl Hansen

Analyst

Thank you, Tryn, and thank you, everyone, for joining us today. It's my pleasure to provide an update for the third quarter of 2021. We continue to focus on our long-term business objectives, and we've made strong progress executing across the organization. We closed the quarter with nearly $800 million in liquidity, including over $750 million in cash, cash equivalents and marketable securities and over $40 million in accounts and accrued receivables. In addition to our strong financial position, we posted strong growth across key business metrics, including 17 new programs under contract, bringing our total number of programs to 155, 9 new program starts bringing our total number of starts to 69 and 1 new molecule that has entered the clinic, bringing our total number of molecules in the clinic to 5. First, to frame the results from this quarter, it is important to stress our strategy and how we believe this will drive long-term value for patients, for our partners and for our shareholders. There are no shortcuts in building a truly great company. We are focused on building something of substance, something that will endure and something that hasn't existed before. We are building a vertically integrated technology staff that covers all steps in preclinical antibody discovery and development. What makes us different is that we are replacing the legacy approaches that have their roots in the 1980s with an interlocking chain of modern technologies, including microfluidics, genomics, single cell analysis, protein engineering, computational methods and artificial intelligence. These technologies are held together by software engineering and hyperscale data science that provides and that we believe we'll continue to provide increasing gains in efficiency and scalability across our workflow. Along with our investments in infrastructure and high-performance workforces, we believe our technology allows us to respond to…

Andrew Booth

Analyst

Thanks, Carl. I'll start by highlighting our key business metrics. We ended the third quarter of 2021 with 155 programs under contract with 35 unique partners. That's a 65% increase in programs under contract as compared to the end of Q3 and 2020. We continue to see the combined positive impact of our investments in our business development team and the increasing awareness of our platform on our business development activities. In the quarter, we added Moderna and Everest to our partnership portfolio. The programs with both of these partners include downstream participation in the form of milestones and royalties on net sales. Also in the quarter, we started 9 new programs to take us to a cumulative number of 69 program starts, of which were started in the first 9 months of 2021. We continue to build capacity and to engage with many partners on preparations for their program starts. We also continue to expect a robust number of program starts as part of this generally increasing trend. While starts will always be some irregular as you expect the increase in programs under contract is a leading indicator of the long-term trajectory expected for program starts. Last quarter, we introduced a new business metric molecules in the click, which represent the number of unique molecules for which IND or equivalent application has been approved based on an antibody that was discovered by us or by a partner using less and step cellular technology. We are pleased to report progress on this metric as we view as an indication of our near and midterm potential revenue from downstream milestone fees and royalty payments in the longer term. In Q3, one new molecule reached the clinic pay us to a total of 5. Carl has already noted that this molecule, IVX-01,…

Operator

Operator

[Operator Instructions]. Your first question is from Gal Munda with Berenberg Capital.

Gal Munda

Analyst

The first one, I just like to ask around the program starts and the new packs in the quarter, obviously, a very, very strong performance. Is there any sort of common element to those either parts and program starts that you're seeing between different types of customers, maybe split between the larger pharma customers or partners, sorry, or more biotech? How did you see the digital trends in that?

Carl Hansen

Analyst

Sure, Gal. This is Carl. I'm happy to take that one. Thanks for the question. So first, with respect to additional pucks in the quarter, those were largely attributable to the 2 partnerships that we mentioned, both being multiyear multi-target deals with Everest and with Moderna. In terms of program starts, 1 of the things that we're very pleased with is the increasing diversity of different partners that are represented in program starts. And so that is a good mix of early stage of large companies and of the sort of mid-cap or mid- to small cap biotech companies. I'll just add that from a business development perspective, we are seeing a lot of inbound from a mix of customers. As I mentioned, the bispecific capabilities are definitely driving some of that. And in terms of performance, we have now added 55 new programs under contract in the first quarter. pardon me, we've added 52 programs under contract in the first 3 months, part 9 months, let me try that 1 more time. We have added 52 programs under contract in the last 9 months. that is exceedingly, but that is very strong and has exceeded our expectations for the year. And so we're feeling great about the business development. And really, as we mentioned, are now turning our attention towards room execution.

Gal Munda

Analyst

Perfect. And then just as a follow-up. When I think about the new molecule in the clinic that you reported from embedded. In terms of -- that was based on your relationship back from a couple of years ago, right? So is that how you see most of these relationships are playing out starting the program and then a couple of years in starting to kind of to the -- in terms of the timing, that seems to be pretty short time line, but just any comments on that and whether that's something that could continue more of as we exit this year?

Carl Hansen

Analyst

That's a great question. So this is the first program to come out of the Inditex collaboration. As we mentioned, it comes from a program that was initiated in 2019. So we are very pleased with the speed of that work, particularly given that at the time of initiating Invetx was still just a company that was in the early stages of being formed. As a general trend, we believe that our investments in technology and also the partners that we are now making collaborations with and the types of programs that we're working on have the potential to result in increasingly fast time lines from initiation to programs in the clinic. Of course, it's going to take some time to bear that out. But it is a trend that we are certainly keeping our eye on and 1 that we think is reinforcing our business thesis, which is that investments in technology and capacity and partnerships can help shorten that time from ideas to clinical testing.

Operator

Operator

Your next question is from the line of Stephen Willey with Stifel.

Stephen Willey

Analyst

Was just wondering if you can maybe expand upon the CD3 work that you're doing? It sounds like you're developing your own in-house panel of novel CD3 targeting antibodies. I know that there's a lot of interest in the drug development space around trying to find some attenuated CD3 binders that maybe aren't as aggressive on the CRS side as some of the current piece of redirecting bispecifics right now. And so Would just be interested in terms of how you're functionally characterizing these in-house? And when do you think these might be ready to pair up with the OrthoMab platform?

Carl Hansen

Analyst

Thanks, Steve. Carl here. So first, I think a lot of your comments certainly resonate. As I mentioned, we see a lot of interest from companies big and small, that are looking to get into this space with bispecific antibodies that can redirect T cells. It's 1 of the areas, I think, that is showing terrific promise, but also 1 of the areas where the technological hurdles are much higher than in other cases. So that's an opportunity for us. We are an enabler through technology. The Ortho map platform solves a big chunk of that by being -- by allowing you to pair antibodies and produce molecules that can be expressed well and are developable in a standard manufacturing process. With the T-cell redirection, as you mentioned, there's now good evidence that the success of molecules depends very much not only on the properties of the CD3 engager but also on how that particular CD3 engager has been paired with the binding partner, which, of course, depends on the target. And so there is a requirement of generating a large panel of CD3. So do you have the starting substrate to test those combinations, something that we have initiated. It's not yet done, but we feel confident in our capabilities to deliver on that. And in parallel, we are building internal capabilities to express those advice-specifics and do the functional characterization so that we will have a full workflow that can start really just at the name of the target and can move that through to generating binders for the target panel CD3s and functional data that can help to assess which of those pairs and with CD3 molecule is best suited for that application. So that's the goal. There's a lot of work to do there. We've indicated that we hope to share progress on that in the new year. And I'll just emphasize that we do see this as an area where AbCellera is extremely well positioned to help companies more effectively bring therapies to patients and one where we are devoting significant resources to make sure that we do that as quickly as possible.

Stephen Willey

Analyst

Okay. Interesting. And then just on the Moderna collaboration. I know maybe it seems a little bit nontraditional relative to some of your other partnerships whereby there's a deliverable that you're providing, but Moderna still has to do a little bit of reverse engineering to turn it into a therapeutic. So can you maybe comment as to whether or not the economics of the per program Moderna collaboration are consistent with, I guess, the base case economics that you're extracting across all these different partnerships?

Carl Hansen

Analyst

Yes. Great question, Steve. So first, on the Moderna collaboration in general, Moderna obviously is a company with tremendous resources right now and also world-class capabilities RNA therapeutics. There is an opportunity to use RNA to deliver antibodies. And we are very pleased that they have selected us to be their discovery engine, recognizing that to attempt to build that internally would cause undue delays and ultimately result in working with technologies that are not where they need to be to prosecute those programs. In terms of the business terms, or maybe I'll back up a second. You mentioned that they still have work to do. At this point, when we hand off candidates. Right now, it Is always -- or it is currently in our partner's hands to do the manufacturing towards the final therapeutic. Now most often, that is done through the traditional path, which is to generate a cell line and then to bring that through the regular GMP manufacturing process. In this case, the manufacturing instead is just the manufacture of the RNA and then the RNA is delivered to the patient. So conceptually, while the path is different, conceptually, I don't think it's distinct from our more difficult collaborations. And directly to the business terms, obviously, we're not disclosing details, but the terms are in line with our recent partnerships. And I'd say as a general trend over the last couple of years, we are seeing our deal value go up in recognition of the platform and increasing demand that we're seeing from partners.

Operator

Operator

And your next question is from the line of Puneet Souda with SVB Leerink.

Puneet Souda

Analyst

So first on COVID and quick -- two quick ones, if I could, on the products and the pipeline and partnerships. So on the 400,000 doses, that's really great to see in the fourth quarter for you and the rest in 2022. But as you saw, there was a strong data from Pfizer on antivirals and prior to that with Mark. With that in mind, what's your expectation for bamlanivimab in 2022 I mean, obviously, there's been a lot of discussion around this among the investors. So I just wanted to get your thoughts as to what -- how you're thinking about this. And I also wanted to just confirm that you're fully expecting the U.S. orders, the current -- at least the fourth quarter and the first quarter wants to come through.

Carl Hansen

Analyst

Thanks, Puneet. Let me start by reiterating something that I think we've been consistent on through all the calls. We got involved with COVID-19 because we found ourselves with a technology that was needed and going to respond quickly. We are very proud of the work that we've done with our partner, Eli Lilly, in bringing now 2 molecules into the clinic and 1 faminemumab and bamlanivimab with etesevimab that have had a major impact in helping patients with COVID-19 over the past 12-plus months. In the near term, we have -- or in recent times, we have seen bamlanivimab and etesevimab shipping out in the U.S. And with the recent order, we are -- given the recent order, we would expect that, that would result in additional revenues, as we mentioned, in Q4 and Q1 of next year. Those revenues, we view as upside and as nondilutive financing that help us to reinvest in our core business which is taking a much broader view of antibody therapeutics, investing for the long run to be able to help move ideas into molecules if we test in the clinic. -- for hundreds of different programs over the coming years. So that's where our focus is. Now in terms of the recent results on small molecules, both from Merck and Pfizer, I think both are impressive. The Pfizer result, if it stands, I think is very impressive and good news for the world. And certainly, 1 would expect that, that would take some fraction certainly of the therapeutic applications I still believe that there are patients that cannot easily be protected from vaccines and that antibodies would provide a prophylactic application that would be important for those patients. I also think that there is a scenario where antibodies would be chosen in place of small molecules, even in the therapeutic application. But of course, no one really has a clear view of how that's going to play out. If it -- if our molecules continue to be used, that will be great. We'll be happy to have helped with the COVID-19 problem. And of course, the revenue will help us to double down the business. But as Andrew said, the results of COVID-19 is not something we view as integral to our business.

Puneet Souda

Analyst

Got it. That's super helpful. On the biospecific program, I mean you briefly mentioned about that, that's obviously gaining traction for you. wondering with the new contract adds in the quarter, that was '17 contract that was obviously strong since the time of IPO. Could you parse out for us at this point in time, what is the primary component primary driver among the sort of the tech stack and overall services and turnaround times and overall partnership that you're offering that continues to bring increasingly more partners to you today. If you could sort of parse that out? And is there a differentiating factor today, technology-wise service-wise, that's bringing -- continues to bring increasingly more partners to you.

Carl Hansen

Analyst

Thanks, Puneet, for the question. It's one that's very difficult to answer directly because the needs of every partner from a technology perspective are going to depend very much upon the application, the modality of the targets that they're going after. There is a trend that we definitely see happening. And one that I feel is a real tailwind for AbCellera. We're certainly seeing that the provision of technology or capabilities in discovery and development. We feel it's bifurcating into 2 classes. There are groups that are running sort of fee-for-service low-cost solutions that are fragmented. And then there are companies like ourselves, and in fact, I think we're unique in this capacity that are investing in technology and bringing it together in a fully integrated workflow. When there are partners out there who are experienced in drug development and recognize the value of having the very best molecules, they're coming to us, and that's where we want to play. We want to work with people that appreciate technology, capabilities, speed, service, infrastructure and know-how as ways to help them meet their goals of bringing therapies to patients more quickly.

Puneet Souda

Analyst

Okay. And just last one, if I could -- Can you just at least maybe size the market for us there? Or I know you can't provide the indication, but maybe just help us understand, is this more of a proof of the platform again? Or could this be more of a meaningful royalty of the product was to get to market? Just wanted to clarify that.

Carl Hansen

Analyst

Great question again, Puneet. So first of all, Animal Health is a relatively new application of biologics. It's 1 that in recent years has taken off much faster than I think people had expected. So there is clearly a need and a market opportunity for taking some of the innovations that have been applied over the years in human health and applying them to companion animals. With respect to the first program that's moving forward, we are very pleased about that program, and we think it's a significant but any program that moves into the clinic is not one that we would see as being a main driver of our business. That's not how our business works. Our business is much more about providing solutions that over time, build a large and diversified portfolio so that we can, in the long run, generate returns that are exceeding what is typical in the industry, but not be tied to any particular program and therefore, not taking on the binary risk.

Operator

Operator

And your last question is from Dennis Renick with BMO.

Unidentified Analyst

Analyst

Just a couple for me. So you guys have obviously had a very successful 2020, 2021 in terms of new program starts, programs under contract and all the other key metrics. Can you talk a little bit about the vision for 2022 and what we should expect to see the same run rate in key metric growth or maybe a little like tapering as we move forward? And just a quick one. If you could provide some more context on what kind of ramp-up we can see you guys do upon the completion of the CMC and GMP manufacturing facilities.

Carl Hansen

Analyst

Thanks, Dennis. There's a few questions in there, so I'll try to make sure I get all of them, but feel free to redirect if I miss one of the points. So as we look at 2022, I don't think there are going to be any surprises. We have 2 been investing in the platform in infrastructure and in building our workforce to build capacity to execute on the partnership business. And hand-in-hand in that, we've been making investments on our business development team to make sure that we're bringing in the programs under contract that are the leading indicators of the work that ultimately translates into starts. At this point, as I mentioned in my prepared remarks, we built a robust book of business, and we are now working closely with partners to make sure we've got the reagents. We've got the work plan set and we're starting to see an uptick as a steady rhythm of starts in this quarter. And that trend, while it may go up and down with some variability from quarter-to-quarter, we expect to be growing if average over some reasonable period off into the future. So next year is going to be a year of execution of continuing to build our business development team and on focusing on moving programs as quickly as possible through our stacks that our partners can get them into late age preclinical development and ultimately to the clinic. In terms of the CMC and GMP manufacturing project. As I mentioned, that is a big project and our top priority in R&D and platform development. It includes translational science, building CMC capabilities and building a new facility for GMP manufacturing. That project is currently on track. It is scheduled to be live in the first half of 2024. Once live, I expect there'll be some ramp up in terms of building the workforce and the capacity but the facility is designed to be able to handle north of 30 programs per year. And so that's how we see that. And of course, that's a project that will be at version 1 in 2024, and we'll continue to make investments to integrated with the front end of the stack with an objective of shrinking the time from initiation of a program to IND filing.

Operator

Operator

And that ends the question-and-answer session for the call. I'll now hand the agent over to Carl Hansen CEO, for closing remarks.

Carl Hansen

Analyst

Great. Thank you, everyone, for joining us today. This is an exciting time for AbCellera, and we're looking forward to keeping you updated on our progress on future calls. Have a great night.

Operator

Operator

This concludes today's conference call. Thank you for joining. You may now disconnect. Have a great day.