Good afternoon and welcome to AbCellera Second Quarter 2022 Business Update and Conference Call. My name is Libya and I'll facilitate the audio portion of today's indirect broadcast. [Operator instructions] At this time, I would like to turn the conference over to Tryn Stimart, AbCellera's Chief Legal and Compliance Officer. Mr. Stimart, please proceed.

Thank you. Good afternoon and welcome to AbCellera's second quarter 2022 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. If you're 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 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.

Thanks Tryn and thank you, everyone for joining us today. It's my pleasure to provide an update on our business for the second quarter of 2022. AbCellera is on rock solid footing. Despite what has been a challenging time for biotech, we believe the current marketing environment is a strong tailwind for our business. We ended the quarter with over $1 billion in cash, cash equivalents and marketable securities, and we are fully funded to continue executing on our strategy and building our business. In contrast, the current environment has serious challenges for would-be competitors, and we therefore expect to extend our competitive advantage. At the same time, well managed biotech companies must continue to drive innovation while also prioritizing efficiency and capital preservation. This dynamic reinforces the value of our business model, which empowers them to leverage outside expertise, save time, reduce fixed costs, and improve their chances of success. Finally, rationalization across the industry is likely to result in a consolidation of talent, which will benefit companies that are positioned for growth. We've continued to attract top tier talent, including new CMC and GMP leaders and we expect to leverage this trend as we continue to scale our operations and capabilities. AbCellera's purpose is to be a catalyst for the industry by developing technologies that make drug development faster, more efficient and more accessible. There are three foundational steps in drug development. Product ideation is the basic biological research that identifies the target and defines the properties required for therapeutic. Once this is done, the next step is to create therapeutic product. This step of product creation is arguably one of the most complex regulated and technologically intensive in any sector that this is also the step that is most critical to get, right? And that is because…

Thanks Carl. I'm pleased to highlight the progress we've made on our key business metrics. Beginning with program starts. We started four new programs in the second quarter of 2022, taking us to a cumulative number of 88 program starts, as we've stated previously, we expect a number of starts in a quarter to be somewhat irregular, and we expect the strong underlying number of starts to continue. This holds true for the last year. We started 28 programs in the 12 months end at June 30th, 2022, compared to 12 programs in the trailing 12 months end at June 30th, 2021 for clarity, the program starts reported here, do not include the discovery efforts initiated by accelerating that may lead to the pre partnered programs that Carl mentioned earlier in the call, we ended the quarter with six new programs under contract. All of which were with two new partners. That's a 19% increase in programs under contract as compared to the end of Q2, 2021 with our total of 160 work programs under contract, we continue to have a strong book of work. In addition, we entered into a collaboration with verse adventures to discover therapeutic antibodies from multiple targets selected by Vern's portfolio of biotech companies. This collaboration builds on previous work between ENT and accelerating, which has already enabled three of the firm's steal stage companies. Our business development focus continues to be on high quality programs that are a compliment to our existing partnerships and where accelerating has a strong economic position consistent with these objectives. We believe that the partnerships that we've entered into in this last quarter are excellent addition to our portfolio, as we've previously indicated, the total number of programs under contract is the leading indicator of the longer term trajectory…

[Operator instructions] Our first question today comes from Tiago Fauth of Credit Suisse. Your line is open. Please. Go ahead.

Great. Thanks. Thanks for the question and congrats on all the progress. So just one in a little bit more detail on the first adventurous deal. It's very interesting, again, the valley proposition for early stage innovators, not having to build out some, some capacities, it it's a little bit more obvious and accepted, but I think that's community relative to potential value add. So it's a larger bio pharmaceutical companies. So any way you can give more context how that transaction came about. I mean, you're talking about a portfolio companies, different modalities, potentially. So is this something that you can actually replicate across other venture capital firms? Is this something that is worth pursuing more aggressively perhaps at this stage of, of the existence about your thought there? Thank you.

Thanks Thiago for the question. Carl Hansen here. Let me start by saying, this is a segment of the market that we have been excited about for some time. And I think, as for your comments, we see a huge opportunity to use investments in technology centrally along with a partnering business model to allow for the best ideas and the best science to compete on a level playing field and not be held back because of the capital requirements or the operational friction in moving a molecule from an idea through to something that can actually be used in the clinic and hopefully gets forward to help treat patients. If you'll, if you'll indulge me an analogy that I like a lot, if you think about the semiconductor industry where we're at a point now where two innovators with a good idea in a garage can very quickly move that forward and advance it and bring it to the marketplace. And they're able to do that because they can leverage a huge amount of infrastructure that is the foundation on which they can build their innovation. So they focus only on what is unique and essential to their business. The current state of biotech is not like that. And biotech, if you have an idea, you need to get right down to the ground level and start to put in place the labs and hire the people. And you're doing that ultimately to bring a single asset forward. And that is incredibly, wasteful and it actually holds back innovation to the detriment of, those innovators of investors of the biotech community and ultimately patients. So we think we can solve that by combination of investments in technology and the business model. Now, a challenge with this is that if you look at the number of opportunities there are a huge number of ideas out there and innovators and scientists and being able to efficiently connect with the very best and have them supported by experienced entrepreneurs and venture capital firms that can bring the people and the operations and the capital to turn those into viable businesses is a very important thing. So this engagement with two talk tier firms with ENT and with with Atlas is very much about that. It's a win-win interaction where we help them to be more competitive to people that are looking for venture capital investment. We help them to get their ideas off the start line faster and more efficiently. And in turn we benefit by connecting that's already been vet and with teams that know how to build companies that ultimately create value and bring molecules through to the clinic.

Today we have question from Gary Nachman of BMO Capital Markets. Please go ahead.

Hi. this is Ronald [ph]. I'm from the desk of GU. I just had a, a few questions regarding the royalties from the COVID antibody, as they're reaching their government end. Can you tell us, like what, what the next thing is on your radar in terms of, pipeline commercialization, and do you have like an internal calculation of what your commercial real people be outside of? Just the percentage that you have?

Yeah. Hey, Ronald, it's Andrew here. Thanks for the question. Actually you may have seen a couple of weeks ago Lilly announced just before their earnings that moving from the us government purchase orders of beloved math, they are now selling beloved math directly to states in order to make sure that that product can get through to patients that are needing the needing the, the, the COVID antibodies in those states. So we'll no longer be going through the government purchase order mechanism. And I think we'd see this very positively as a way for the supply chain to kind of simplify and maybe be a little bit more the standard way of delivering those product and supply chain to patients that Lilly is familiar with. So I think that is a, a positive move in terms of getting that map, which is the last map standing in terms of its effectiveness against against COVID ultimately to the patients that are in.

Okay. Thank you for that. Just one last question, you're sitting on, you said over a billion dollars in cash over market securities. Do you have any short term plans for that?

Yeah, I would say we have long term plans for the $1 billion we have in cash, and it's it's not lost of us. Of course, the, the great position we're in to have such a strong balance sheet especially as we are investing heavily in the capability building of the, of the company and of the platform. As we've seen in the past, we have consistently been great stewards of capital in growing that investment. And we saw doubling typically our investment in R&D and in sales and marketing year over year. And Q2 is much the same growing almost a hundred percent over the same period in 2021. In addition, of course we have very ambitious plans with our investment in the vertical integration, through translational sciences, CMC, and GMP manufacturing. So that is, those are the investments in the, in the short, the immediate and mid and long term that we are, that we are pursuing in order to put that capital to work.

Awesome. Thank you so much. And congratulations on a great quarter. Thank you for taking my questions.

The next question comes from Puneet Souda of SVB Securities. Your line is open.

Yeah. Hi Carl, Andrew. Thanks for taking the question. So a couple from my end, just wanted to understand the first, a bit about the Pro-Partner programs. Andrew, maybe can, can you qualify maybe an expense for these for pre partnered programs and sort of what sort of investment that they require and maybe just give us a, give us a sense of what despite the early days, what sort of investment that you expect here and, and duration of that. And then, how broad are these pre partner programs are going to be across sort of the different therapeutics categories or whatnot. And then ultimately, this is something that is routinely done by your clients not necessarily acceler. So just wondering, what is the long term objective here? Is this something that you would want to develop a molecule or drug that you would want to develop yourself?

I'll take the first part of that question regarding the expense, and then I'll pass it over to Carl to talk about the breadth of what will be working on. So of course as Carl mentioned in his remarks, the, the emphasis here is on technology development, and those are the efforts that we're spending in our R&D. I did mention that, two thirds of our efforts and our expense in R&D is on capability and platform building, and that these sort of pre-partnered assets are the benefits that result from having to work on real things, to make sure that your technology development is actually achieving ultimately the goals that you're aiming to prove out in terms of speed of being able to find antibodies being able to find antibodies that previously what had been intractable and also, making those investments to prevent, smaller companies from having to rebuild the rebuild the wheel and and be more competitive. So in terms of the added expense, I think those, those expenditures and R and D are already included in a kind of our base business model. And that's just a, this benefit of having assets pop out of those investments are just something that we are that we are benefiting from, from these investments. And in terms of the breadth and depth of that, I'll let Carl comment on that.

Sure. Yeah. So maybe I'll just back up to a higher level here and revisit what is the strategy and where we see these repartnered programs coming from? So we have set out to be the company that invests in technologies that allow for us to do discovery at greater speed at higher quality at greater scale that's been done before. And another very important dimension is to push back the frontier of what's possible and open up new opportunities for new modalities in new target classes. So in order to do that, that means that we are launching on to technology development efforts, where we're trying to solve big, hard problems to have the potential, not to bring one asset forward, but to open up entire classes. So right now the two areas that we're focused on are in T-cell engages where if we can demonstrate and we believe we're on track to do that the combination of ORMA in CD3 can generate quickly T-cell engagers with better properties, more suited for therapeutic development. There are dozens of potential targets that can be connected with similarly on the difficult target space in iron channels and GPCRs. If you went to Google and you did a quick search, you would quickly come up with dozens of targets that have the potential to be first in class blockbuster therapies that address severe and unmet medical need. So that's what the big prize is. Now, when you're working on that, you need to work on real problems. And as you make progress against the technology hurdles, you will have through that work developed assets that are, valuable, and that need to be brought forward into development. And our strategy is to be focused on the technology and the capability building, and then to do that by partnering before those costs get large with companies that are better positioned, frankly, by clinical development and commercial development. So I know when that happens, that everyone will be focused on the assets, and they'll be very excited about that for us what's most exciting is that once you've done it, once it's likely you're going to be able to do it again and again and again. So the three things that we really wanna get out of this is first open up these new therapeutic opportunities, second prove to people again, and we have done this before that our investments in technology are having an ROI and allowing us to succeed where others have failed. And third of course, bring forward assets that I believe our partners will be excited to take take on. And they will see it as though we have opened up opportunities and anticipated needs.

Got it. That's super helpful and in terms of the metrics around these pre partner programs and the, the data releases, how should we think about that? And then maybe just on the bispecific data, what conferences sort of your targeting there, and then just have one more follow up.

Sure. So in terms of data release and, and metrics, so we're currently not included, anything related to pre-partnered programs or this technology development effort in program starts. We one of the advantages of doing this work is that we will have the data and we're not nearly as constrained as we normally are in terms of confidentiality in sharing this with the public and having people have a sense of what is possible with the platform. So as these programs advance and they get to the point where we believe we've made a meaningful advance towards the end goal of actually developing a therapeutic, then we will bring those forward, on quarterly calls at scientific presentations wherever, or perhaps in publications, wherever it's appropriate. It's difficult. I know you're going to ask me -- it's difficult to predict the timing of that, because these are difficult problems we're trying to solve. That said, we're excited by the progress we're making both on the T-cell front and only difficult targets. And we are hopeful that we'll have, all things, if, if things line up well, we'll have meaningful results to share, within the next 12 months or so in terms of the the T-cell engagement work we are looking to present this at some conferences in the relatively near future thus far, we don't have confirmation. So I'll have to wait before I can share that detail with you.

Okay. And then last one, if I could if, if you don't mind, if I could squeeze in one last one around we can get a lot of questions from investors around small biotech exposure that the companies have obviously you have a number of VC projects and early stage projects. Can you maybe just give us a sense of what's the exposure here for contract or what's the exposure for small, early stage biotech that you have worse, the larger biopharma within your contract total contracts, obviously you have a number of VC projects going to, so it seems like they, that could, that number could increase. Thanks so much.

Sure. Yeah, I'm happy to answer that. I Don on a previous call, I don't remember which one we did present some details of our portfolio in terms of programs under contract within that presentation, there was a breakdown in terms of deals with biotech or with partners, we would characterize as large pharma roughly a quarter to a third of programs under contract are with the large integrated pharma companies, which of course means, let's say 60% to 75% are with biotech companies that pool of biotech companies spans the gamut from companies that are right out of the gate. Companies like the ones we are working with already with these venture capital groups, but up to more mature, publicly traded, small, mid gap biotech companies incidentally that that breakdown is largely in line with what we believe to be the distribution of program starts across the sector. And the same could be said about indication. So we seem to have a portfolio that is broadly reflecting the sector thus far. We don't see a trend of it tipping, but of course that could change over time.

Thanks for taking the questions.

Our next question comes from Stephen Willey of Stifel. Your line is open, please. Go ahead.

Yeah, good afternoon. Thanks for taking the questions and congrats on the progress. Maybe just following up on the bispecific side maybe just curious if you can speak to whether or not these two known tumor antigens that you've initiated work on, are these geared towards hematological or solid tumors? And I guess if the latter, do you feel like valency is -- is also going to be kind of incorporated into the, into the interrogative process here to, to try to minimize CRS and maybe improve safety tolerability and just off target exposure?

Thanks, Steve. Carl here. I'm happy to take that. So the first two programs we've initiated are not directed towards hematology. They are towards solid tumors. We see that as the big -- the big challenge and the big prize, and honestly where the biggest unmet need is right now in terms of thinking about valency we are using the ort map platform. This is a platform that allows us to use our CD three panel and binders on the tumor antigens in a variety of different formats, including one by one looks like an IgG two by one, two by two. So we are investigating that that said we also believe, and we've got evidence thus far from the characterization, we've done that a lot of the effects that you are that you are alluding to can be achieved if you've got the right binder, the right affinity, the right epitope. So we would see format as one of the ways that you can change the, the functional properties of a bispecific, but it's not the only one and given the breadth of CD three and the flexibility of the platform, we've got a lot of options at our disposal to look at.

Okay, that's helpful. And not sure what you can say regarding this transition of bebtelovimab from government purchasing to more of a Lilly led distribution channel. But do we know anything about kind of where they currently are with manufacturing capacity and just whether or not they've indicated whether to you, or I guess in any public forum as to whether or not they intend to, to, to keep manufacturing here in, in, kind of the, on mode?

Yeah. Hey, Steve, it's Andrew here. So we don't have a lot of extra details about this. This is probably much better a question for Lily what we can point people towards. And I mentioned it in my prepared remarks is the HHS data that we see which gets updated on a weekly basis over the last number of weeks quite consistently has been averaging doses administer to 4,000 doses per day. So we would we'd imagine that that would continue, but we though that's the public data that we have to work from. So I think from a manufacturing standpoint, we don't have any insight, but I would point to the fact that due to that flu maps, potency, it's quite a low dose that is required. So the manufacturing effort is not too onerous with, I think it's still 175 milligrams per dose. So hopefully that would mean that the manufacturing capacity that they have would stretch a long way in terms of benefiting a lot of patients out there who are still contracting COVID as you know.

Our next question comes from Gary Magman of BMO capital markets. Your line is open.

Great. Thanks. Good afternoon. So the six new programs under contract with two new partners at less one undisclosed, and, and then also the ver deal. Just talk about the economics with those new partnerships. If these are higher value arrangements, I'm assuming they are and how you set them up. And I'm curious if there are a lot more BC deals out there to come. How big is that universe for you?

Yeah. Hey, Gary good to hear from you. So yeah, the, the six programs under contract well with Atlas and then undisclosed partner, but as you point out with ENT another eight programs that was in the press release and as well in the, in the prepared remarks I think that we don't disclose of course the economic terms of any of our partnerships. So I think the last time and what we will do, I think consistently on an annualized basis is kind of in aggregate show what the, the terms are from the previous year. And we did that most recently in our 10 K. We, we do see we're adding quite a bit of value and we're being quite judicious about the programs we are bringing out under contract. And I think, thus far in 2022 we're behaving quite consistent to our previous strategy of how we've articulated that. I do think that there is a, a good market to, to go to where, where our offering will be quite attractive to these venture capital funds. And I think Carl May have a few more words to say about how attractive in the, the prospects we see there.

Yeah. Hi, Gary, Carl here first maybe just a comment on sort of the big picture. If you look over the last decade or perhaps a bit more one of the things that has become very apparent is that the large majority of new programs or new therapeutics are actually originating in biotech. So biotech is a rich source of innovation. One of the reasons is that it is distributed. There's lots of ideas, lots of things that are being attempted. The other side of that is that our research shows that if you looked at the total number of therapeutic antibody starts industry in any given year, a roughly 50% of that comes from relatively small biotech companies. So that's, that's a big a big part of the market. Of course, it's important that you're able to find the best programs and also assemble the teams around it. And that's why this engagement with ENT and Atlas and, and other like firms, I think there's potential there is, is synergistic and has the potential to really create some value, not just for us, but for the investors and for the companies. The last thing I'll say is that starting companies in the antibody phase historically has the goal to do. And one of the reasons is that the complexity of doing the discovery of characterizing of doing the development work and ultimately manufacturing a therapeutic antibody presents a very formidable hurdle for a new company internally we've done some analysis and you can quickly convince yourself that when you have to rebuild all of that, even if it is a good idea, good meaning that it would stand up to the, the same problem is of success that have traditionally been seen in the industry. It may not be a viable investment opportunity when instead you take that idea and you connect it with infrastructure and capability and expertise that is already in place you shorten the timelines and you reduce the capital needs, and you make that opportunity now a viable investment. So from that perspective it is our hope and it is our belief that this type of deal can actually expand the universe of companies and ideas that sea light of day, and hopefully make it through to be therapeutics.

Okay, great. That was helpful. And then Carl, just on the six molecules in the clinic, anything more you can say on those that the types of studies being run therapeutic areas, where we might see some clinical data, any sense on that. And then I have one more?

No, Gary obviously know the molecules are in the clinic are under are being driven by our partners. And so we would, we refer you to them to get updates. And when you expect to have the results from various trials many of these are still quite early. So I think we're a ways off before they get to the pivotal trial.

Okay. and then Andrew, I appreciate your comments before, just on Beth, and Lily's strategy, but I mean, should we assume it’s obviously hard for us to model this going forward as it is for you right now. We could look at the, the average number of doses per day, but assuming also there'll, there'll be a pricing benefit when they go through the commercial channel. Is that a reasonable assumption?

Yeah, I think as you point out Gary, it's tough for us to model as well. So trust me, we're quite sympathetic to, to that. We view it, of course, as upside and non-dilutive funding tallow us to continue our investment. As we, I think have said quite consistently on the pricing previously, the government purchase orders were at about $1,800 a dose for about map, we noticed in the recent release that the new pricing is at $2,100 a dose for, for how doses are going out under this new commercial arrangement through with Eli Lilly selling directly to states. So that's just another data point that we've also seen in the publicly available information.

Our next question today comes from Do Kim with Piper Sandler. Please go ahead.

Hi. thanks for taking my question. So I just want to go back to Carl's comments on the current biotech market environment, having potential tailwinds to accelerate but a as you look at your partner programs that are past discovery and in preclinical studies have you observed any slowdown or pause in development of these programs by the partner? We seeing small cap biotech looking to cut cost or reduce cost having to just slow down the development of, of preclinical programs. Just wondering if you're seeing the same?

And Carl here, with the caveat that, of course we're relatively early in this current market I'd say that we haven't seen any indication of that whatsoever. And I, I don't think that I really anticipate that for a few reasons, one is by and large, we have managed to partner with very high quality firms and even in a bear market the high quality firms are going to be able to access capital and make sure that they are moving their programs forward. For the smaller companies biotech; the last thing that you compromise is the one asset that you're moving forward. So people prioritize these and thus far we've seen no, no indication that's going to be an issue. Of course, even if that does happen and at where as a, as a general comment if there are smaller companies that are moving forward with assets that are promising but the companies are required for some reason to slow down operations. It's difficult that those would be picked up by larger companies in the space. And so in, in biotech good high quality assets ultimately find their way to the bigger companies that are well positioned to do the late state trials in the commercial development.

Great. That's helpful. And, the question on the VC partnerships, I know you can't say much about the deal economics, but was getting equity in the startup companies, these VC back biotech’s ever on the table. Is, is this something that you guys look for? I imagine that it could be a potential option for these startups with just low starting capital?

We have done some deals in the past with early stage companies where we do have an equity position. We haven't disclosed all of the all the terms associated with these particular deals, but I feel safe to say it's not an equity based deal. It's more like our standard discovery agreements. And that doesn't mean that, that we might not be open to that in some special cases, but it's not our line of business to be building equity positions. We're much more focused on building a portfolio of royalty positions and stake in the actual molecules.

[Operator instructions] Our next question comes from Antonia Borovina with Bloom Burton. Please go ahead.

Hi, good afternoon. My first question is just related to your program starts, and I know that you've mentioned before that those can be lumpy and quite variable from quarter to quarter, but the last two quarters, they have been a bit lighter than we were anticipating. So I just want to clarify that that's just a timing thing and that there weren't any delays or capacity constraints that impacted the number of programs you could start in second quarter. And also whether you're anticipating an acceleration in, in program starts in the second half of the year.

Hey, Antonio, it's Andrew here. Good question. Certainly the reason that we indicate, and the reason I, I presented in my prepared remark, the, the trailing 12 months is because as you point out, this is expected to be somewhat irregular or lumpy. We have not had any issues related to our capacity in terms of addressing programs starts whatsoever. So I think we, we are seeing great benefits from our increases in investments, on, on the capacity and capabilities of the team. Remember as well on that in that same along that same theme every program that we do tend, we tend to take on more and more work as we add capabilities on behalf of our partners. And then we also reflect that in our, or we see that in the capability and capacity that we're building. We're, this is not indicative of a slowdown. I think I would say for the second quarter. But we do expect the irregularity of this and why we will probably continue to state it on a trailing 12 month basis rather than on a trailing six month or certainly a quarter over quarter.

Okay. Thanks. And then if I could just one follow up, I wanted to clarify regarding your bite platform, have you made this platform available to potential partners yet, or have you primarily focused on proving it out with your pre partnered programs?

Hi, I'm Carl here. I'll take that one. So I think you're referring to our bispecific T-cell engagement platform which is related to bites, but is not a bite platform. I just wanted to make sure we're clear on that. So we have, we launched this in November, that was starting from ground zero to date, we have built up the CD three panel. We have conducted a series I'd say a comprehensive set of experiments to characterize that panel and believe it is best in world in many dimensions, including diversity and cross reactivity, functional properties. What we need to do now is to prove that out against a series of antigens that are of commercial interest and that people are, will recognize as creating value. So we're doing that internally at the same time. We have been engaging in business development discussions with a variety of groups to start to access that panel. I'd say those discussions are going very well and we've seen a great deal of interest. I've actually been surprised by the love of interest but we're, we're still working through those and it's not we don't have a timeline for when we might we might be engaging on having other people access that platform just yet.

Okay. Thanks. We have no further questions in the queue. So I'll hand the call back over to Carl Hansen for closing remarks.

Great. thank you everyone for joining us today. It's been an exciting time for accelerate and we look forward to providing further updates on future calls.