Good afternoon. And welcome to AbCellera's Full-Year 2022 Business Update Conference Call. My name is Daniel, 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 proceed.

Thank you. Good afternoon, and welcome to AbCellera's full-year and fourth quarter 2022 business update. We're pleased to have you with us today as 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 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 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.

Thanks Tryn. And thanks everyone for joining us today. It’s my pleasure to provide an update on our business and the strong progress we made in 2022. 2022 marked AbCellera’s 10th anniversary. And in the year, we hit a symbolic milestone [in starting] [ph] our 100th partnered antibody discovery program. Much has changed since we founded the company in 2012. We have grown from six founders to over 500 employees. We've opened facilities in four countries and have developed systems and processes to support our operations that have grown in size and in complexity. Throughout, we have continued to develop and integrate technologies as we build an engine for antibody discovery and development that we believe now stands at the forefront of the industry. And along the way, we have expanded our business and evolved the ways in which we bring our growing capabilities to our partners. Two years ago, we embraced more change as we made the transition to a publicly traded company and accelerated our growth. As we enter 2023, I believe we are now at an inflection point and are entering a new phase of transformation and growth of our capabilities. Expanding our engine with translational science, manufacturing, and regulatory matters to create a unified path from idea to the clinic and demonstrating our capabilities in solving some of the most difficult discovery problems in the industry. Over the past decade, AbCellera has been a company of continual improvement and change. However, throughout all this change, our strategy and the core beliefs that underpin it have remained constant. Every business is built on a hypothesis. Ours is that sustained investments in technology can move the needle in drug development and make our industry more productive. Every business also reflects a way of seeing the world of philosophy.…

Thanks Carl. Carl provided an overview of the engine that we have built over the past decade. We estimate that we have invested over $500 million to build that engine, which spans approximately a 500 team members and is on track to include over 650,000 square feet of lab and office space, including CMC and GMP capabilities by 2024. To fund our growth, we have raised approximately $800 million in equity since 2012. We have also accessed substantial non-dilutive funding predominantly in the form of royalties from our COVID-19 response where we have generated approximately $1 billion in revenue cumulatively. In addition, we have also secured over $150 million in government grants and contracts. We prioritize investments with scalability, broad applicability, and high expected rates of return when we allocate capital. Since 2012, we have accumulated earnings of approximately $430 million. From the combination of strong operational execution and financing, we are in a strong liquidity position with approximately $900 million in cash, cash equivalents, and marketable securities. Our key business metrics speak to the strong momentum in our business. In 2022, we started work on 23 new discovery programs with partners. Of these, nine starts were in the fourth quarter, taking us to a cumulative total of 101 partnered program starts. The 23 programs we started in the year represent approximately a quarter of all programs that we have ever started with partners and reflect an almost 30% increase in cumulative starts compared to the end of 2021. All starts in the fourth quarter included downstream participation. We ended 2022 with 174 programs under contract with 40 unique partners. In 2022, our partners also advanced three more molecules into the clinic, bringing our total molecules in the clinic to eight at the end of 2022. Our portfolio is diversified…

[Operator Instructions] The first question comes from the line of Tiago Fauth of Credit Suisse. Please proceed.

Hey, great. Thanks for taking the questions and congrats on the progress. Just a couple for me. One is on the pre-partnered program. So again, you had a lot of program starts in that category. How should we think about the ideal timing in general due to search for partners for those programs? I know that's probably going to be a case by case basis, but curious what the potential monetization partnership of [those programs] [ph]?

Hey Tiago, Carl here. Thank you for the question. So, the punch line is, I think you're right. We're going to look at every one of these opportunities as they mature and it's likely that timing could be different. Our strategy is to advance these to the point where we have established that we have high likelihood or have actually achieved clinical candidates. And then to make that data available, probably in a publication or certainly when strategic at a meeting. That effort we anticipate given the nature of these targets. So, these are typically programs that are directed towards targets that are widely sought after and recognize it being as high value. So, we believe that that disclosure is likely to kick-off discussions with partners. And then of course, we'll have to enter into those discussions and see what is the best path for each particular asset.

Thank you. The next question comes from the line of Andrea Tan of Goldman Sachs. Please proceed.

Hi, everyone. Thanks for taking my question. Maybe on the GPCR and ion channel work that you're planning on highlighting this year, curious if you can provide a bit more color on the nature of those data disclosures. And then maybe given that this will fall on the back of your work with T-Cell engagers that you shared last year, how much read through do you think there is to your broader platform and your ability to discover antibodies against these types of targets?

Thanks, Andrea. So, I'll start by talking about the GPCR & Ion Channel work. As mentioned in the prepared remarks, these programs have been launched not as standalone programs, but in connection with long range R&D activities that seek to unlock the entire class. So within the class of Ion Channels and GPCRs, there's a large number of targets that are validated. Perhaps there are small molecules that have worked, but there are problems with toxicity or specificity that would make antibodies an ideal solution. For these targets, that are generally [on the open] [ph], the problem has been in identifying antibodies with the right properties to make them into drugs. So, we've been working on several of these programs. As I mentioned, there is still risk and I would certainly say that, we're not at the point where any of these targets can be addressed successfully, but we do expect that we'll get there. That work is now gathering speed and there's enough success that we expect this year, we'll be able to bring forward at least the first example of a clinical candidate. So, the data that we would share on a molecule like that would of course include all the characterization that shows that it hits the target, that it has the desired functional properties. And that it has the right biophysical properties to make it developable as a drug. So, we're expecting or certainly aiming to have the first of those show up this year. And as you mentioned, those – that success in itself will be seen as valuable because these have the potential to be developed as first-in-class or best-in-class assets, but even more important for us is that it demonstrates that the strategy of investing in solving these problems is paying off. And once you’ve solved one, there's a higher likelihood you'll be able to get the next one. And so, we believe there's a lot of read through into the platform by showing examples of solving problems that have remained outstanding the industry for a decade. The same is true, of course, in the T-Cell Engagers space that effort is not as advanced, but we do expect to get to the point of development candidates for the first program this year. And in our view layering on successes over the last few years in CD3, in COVID-19, in moving forward programs for partners, layered on top, success in GPCR's and Ion Channels and ultimately in T-Cell Engagers, all of that reinforces our thesis that sustain investments in technology can move the needle and make it more accessible and practical to get antibodies forward for these problems.

Thanks, Carl. And then maybe just one last question. Could you just remind us what in your mind is the right mix of partner initiated co-development and pre-partnered programs?

Yes. So, I wouldn't say that we're thinking about it as the right mix. Our main line of business is to generate a large and diversified stake in programs that are being advanced by partners. And so, partner initiated programs are one element of that. And of course, there is the discovery partnerships and co-development partnerships. Pre-partnered programs, as I mentioned, come out of our technology development work. We have been investing to build capacity to make sure that we are able to respond to all the high quality partner initiated programs that we can find. And so, we're continuing to grow that business. Of course, if we see opportunities that are connected with our technology development, we will invest in those as well. And we see that as anticipating the needs and finding another way to bring high quality assets into the hands of partners for clinical development.

Great. Thank you so much.

Thank you. Next question comes from the line of Gary Nachman of BMO. Please proceed.

Hi, guys. Good afternoon. Really just following on that last question, Carl. So, on the different strategies of creating value with both partnered and pre-partnered programs, are those moving completely in parallel or do you expect to focus a lot more on the pre-partnered programs going forward? So, another way of asking it is, do you think it will be harder to accelerate the level of your partnered programs? Is there a point where it just gets a little bit more mature that part of the business? And then how do things change for you when you have CMC and GMP capabilities in 2025? How will that change how you think about both the partnered and the pre-partnered programs and maybe how you're going to structure economics around those programs with those capabilities?

Thanks, Gary. So first, the partner initiated programs that we do are the bread and butter of the business. And so, we are continuing to move that forward. Now, as we've said on previous calls, our business development strategy is not to optimize volume in terms of the number of programs, but rather to make decisions that we believe will optimize the value that they represent in the portfolio. So that will be a combination of finding partners that we believe have great ideas and are well-enabled to bring them forward. It will be being able to negotiate terms that give us a deeper economic stake in those and connected with that is our ability to demonstrate and to perform activities that add more value to those programs. So, certainly as we begin to move towards forward integration with translational science, with manufacturing, even building out regulatory capabilities to help the smaller and less enabled partners, we're adding more value and we would expect to participate more in the success of those programs. So that's how we see partner initiated programs is, volume, I do believe it will increase, but much more I think the way in which we select opportunities the likelihood of them moving forward, the speed at which they move forward, and our economic participation are some of the big levers that we think about in terms of maximizing value. From that perspective, the work on pre-partnered programs, which is about taking the initiative to demonstrate capabilities that unlock new areas, we see as completely synergistic with that. It drives business towards us because we develop and demonstrate capabilities. And in many instances, particularly with the larger companies, we will have move forward programs where there is an interest and that has also generated value by saving time and de-risking those programs. And so, we really see those two parts of the business as one really or at least walking arm in arm.

Okay. That's helpful. And then maybe you could just run through a little bit on the last couple of partnered programs. AbbVie and Rallybio, it seems they are a little bit on offset into the spectrum in terms of the size of the company and how they're structured in terms of AbbVie being responsible for the targets or Rallybio that's really shared in a co-development arrangement. So, I'm just curious if you see in terms of the opportunities out there, is it – are there a lot for both of those types of partnerships? And how long did it take for those to really to consummate? Just so we get a sense of maybe what goes a little bit behind the scenes, just with two recent examples? Thanks.

Sure. So, obviously, those are two deals with companies that have a very different profile. I would say that the new partnership with AbbVie, which we're very excited about is representative of much of our work with the larger very enabled partners that have a real track record and capabilities in antibody therapeutics. So, those engagements tend to be driven by their teams finding problems where they need an extra lever or an extra advantage in technology to get those programs over the hump and start moving towards the clinic. And there are no shortage of programs like that. So, there's a lot of potential market opportunity amongst the big and most enabled players like the AbbVie's, like the Regeneron's, where they are actively interested in moving antibody therapeutics into areas where it has been either difficult or impossible. So that deal, I think, finding alignment early on in the capabilities is very straightforward. Of course, it does take time to contract, but that's part of doing business in this space. On the Rallybio side, that's another great example of how our platform can deliver value to partners. So, here we have a company that is based on insight into the targets that is experienced, that has developed drugs before. But that has not yet built internal capabilities for antibody discovery. And there, we can save them the need to reassemble those capabilities or build them from scratch and allow them to focus on where they're really strong, while we take on the discovery and pre-clinical development of those assets. And that we see as a way to really strip out redundancy in the industry. I mentioned also in the prepared remarks a couple engagements that we have made with premier venture capital groups and I think that's another example where you've got innovation, you've got capital, you've got executives, a business idea. And from our perspective, there's no need for these companies to need to reinvent all the substructure of innovation. They should be focused on where they can really deliver value and of course that's what a centralized engine is supposed to do and that's part of our mission.

Okay. That color is really helpful. Thank you.

Thank you. The next question comes from Robyn Karnauskas from Truist. Please proceed.

Good try. Thanks for taking my question. So, I just had a few. Just one, does the new NovaRock molecule that's entering the clinic, can you talk about whether it has downstream participation in it? And my second question is on deal terms. So, the contract you signed in the [last year] [ph] probably have a lower royalty structure. And as you're building out your capabilities and given how long sometimes you can take pharma to move to the clinic, is there a way for you or the partner to amend the terms of the partnership to get more involved or to receive higher royalty rates? Is that something that you think might happen at all? And then my last question is, how has it changed since the IRA and the big focus on biologics? Your interactions with your partners, as far as the need to develop new molecules fast that are best-in-class. I'm just curious if you've seen a shift since the IRA was announced? Thanks.

Hey, Robin, Andrew here. I'll take each of those in turn. So, the new NovaRock molecule, yes, it does indeed have a downstream participation and a royalty associated with it. That's why we do include it on that chart. With regards to the deal terms that we have with our partners, I mean, we have – in each of these arrangements, we have kind of an understood scope of work that we're doing and the agreed economics and terms associated with that scope of work. It's not contemplated that we would change that materially throughout the execution of the program and certainly not with an intent to come to a renegotiation at some point later in the partnership. So, I think those terms or those contracts, kind of stand on their own with a set scope of work with the intent for us to do our activity and then deliver back to the partner what is promised for them to continue on the development. You mentioned a comment as well that I just want to clarify, it sounded as though you indicated that the royalty rates had decreased in the recent past, but that's not the case. The royalty rates have been increasing.

The old ones. Yeah. The old ones, I was talking about the old contracts [indiscernible] the old programs where the lower royalty rates are like, do you have – would you negotiate – would be able to negotiate higher royalty rates as these companies see that you're more capable – you have greater capabilities and that they may need that because pharma is not moving faster?

Actually, it's a great question and this is between 2021 and 2022. We made a definite change in the nature of the contracts we were negotiating. In 2021, you'll see we negotiated several multi-year, multi-target deals for even 8 or 10 targets at a time. We've since indicated on calls that we've moved away from locking ourselves into the economics on multiple targets even when we are adding capabilities. So, what we're tending to do more and more and you see it in our results is negotiate smaller contracts for programs under contract with certain economics because there really isn't the opportunity to go back to the partner and renegotiate the economics once they're agreed to at the signing of the contract. The opportunity we have is to have a renewal or repeat engagement with an existing partner once they've seen our capabilities and then we have the opportunity on the subsequent programs to negotiate again the royalty rates given the increased capabilities and whatever the increased value is that we would be doing, we would be bringing to that partner. That's more our posturing today than it had been some years ago. And so, we don't see the opportunity to reopen those older negotiations from 2019 and previously to change the economics in those contracts. Hopefully, that answers the question more completely.

Yes. Exactly. And then just a question on the IRR. I'm just curious if you're seeing – we're definitely hearing a shift in big pharma world, and biotech world about what they're prioritizing. So, I'm just curious if you're seeing a shift in what types of programs people are leveraging your technology for?

I'd say just generally the IRA and certainly how biologics are more favorably treated in that document or in that regulation. It definitely is a tailwind for us in the business with more people shifting towards antibody – potential antibody treatments. I think that bodes well for us over the longer-term. In the very recent past, I'm not sure we've quite seen the giant uptick, but I think it would only be a tailwind for us in our business going forward.

Great. Thanks a lot.

Thank you. The next question comes from Puneet Souda of SVB Securities. Please proceed.

Hi. You have Michael on for Puneet. Congrats on 4Q and a strong 2022. So, now that COVID royalty is starting to normalize, I was wondering if you could provide any guardrails for perhaps program starts or potential new adds under contract for the year? [13] [ph], in 2022 and 2023, you had roughly similar program start. Is that a cadence that we should expect going forward or do you see it lifting from this year into 2023?

Thanks for the question, Michael. So, first of all, on the COVID revenues, yes, we do – as we mentioned in the prepared remarks, we are not forecasting any future revenue from COVID molecules. Of course, we stand at the ready with our partner Lilly if a regulatory path opens up with a molecule that we've discovered with them. And what we see that really as upside to 2023 and beyond. In terms of program starts, as I think, you know, we haven't provided guidance in the past on program starts. We have been saying, we've had a very strong quarter in Q4 with nine program starts. And I think that generally reflects just the momentum we have. And our focus on the execution in the business of working on these with our partners. And in addition, of course, we have the program starts relating to the pre-partner programs. Our key metric is really for only partner initiated program starts and we continue to see great momentum there, as well as – and that – we do see that continuing into 2023. But we still do not plan to give any specific guidance with regards to program starts in 2020 – for 2023. I would point to and I'm sure you noticed the performance on research fees year-over-year. This again points to the fact that we're doing more per program and that is directly reflected in the research fee revenue that we're – that we are earning on the execution of each of those programs. That's where we're really focused rather than on specifically the number of program started. How are we adding more and more value to each program that we're working on, advancing those discovery efforts through to molecules that eventually can get to patients in the clinic.

Okay, great. That's really helpful. And then one thing we're also wondering, so, we've heard a little bit about increased, I guess scrutiny on capital deployment. And we were wondering if this has reflected favorably for the business given your, I guess more capital efficient offering or is that having any bearings on, I guess, your trajectory for program start?

Yes, I'll do my best to answer that question. As you know, we're in a very strong liquidity position and we have big investments, which I think we've been communicating consistently this forward integration into translational sciences, CMC, GMP. It does require absolutely some allocation of capital to build-out those capabilities. We of course are doing that very capital efficient way with the co-funding from the government of Canada. And we have in general taken advantage of government programs that are out there in the past and we'll continue to do that for any available government programs in the future to really make sure we're investing in a very efficient way the capital that we have. I don't think we've seen any – I think the words you used were increased scrutiny on the deployment of that capital. I think we've been quite transparent in what our plans are. And…

Just to clarify, this is for customers that we've been hearing some biopharma have been focusing on making their cash runway extend. So, this is not about [accelerate capital] [ph] deployment, but rather [accelerate customers] [ph], if they're – the decision is about how do we proceed with capital? That sort of question, yes.

Okay. If this is a macro question about many of our customers and their ability to deploy capital, I think that the fact that the market is down at the moment really plays to our strengths where companies can come to us and we can in a very capital efficient way where we are deferring the lion's share of the economics to the downstream participation through milestones and royalties, they can quickly get up and running and have us put best of world capabilities on discovering antibody for them in the shortest amount of time. That's a great value proposition overall and especially in a tight macro market. So, I think that that plays to our strengths. And can help us get them to a value inflection point maybe more quickly than their alternative. So, I think that is a tailwind for us at the moment.

Okay. Thank you very much.

Thank you. The next question comes from [indiscernible] Stifel. Please proceed.

Hi, guys. This is [indiscernible] on for Steve at Stifel. I just have a quick question regarding the pre-partnered T-Cell Engager program. So, I'm wondering, like, how differentiated your selected T-Cell Engagers should be in order to guarantee, you know, special partnering? But on the flip side, like, if you can't find a partnering, like, how far in the clinic, I guess, would you be able to like advance these selected T-Cell Engagers in the clinic by yourself? Like how far can you address it in the clinic? So, thank you.

Thanks, [indiscernible]. This is Carl taking the question. So, just as a backdrop, the T-Cell work is an effort we started a little bit over a year ago. First, working to build out what we believe is now the broadest and highest quality panel of anti-CD3 antibodies, which we can then combine with our bispecific platform, OrthoMab and using automation and high throughput functional characterization, select antibodies that have the bispecific antibodies that have potent tumor killing, even against targets with low surface density and that simultaneously have desirable profiles in terms of cytokine release, which has been one of the main issues limiting these therapies. So, we have now initiated five programs as part of that effort to demonstrate that capability. We still will need to do the preclinical work to show that these work in animal models and ultimately this needs to be tested in the clinic. But it's worth highlighting that in the field a large majority of the T-Cell Engagers that have been brought forward, have been brought forward on either the same or a very close variant of the same CD3 molecule that people have been using for over a decade. So, we've got a scenario we’re just based on the scarcity of available molecules. The same experiment has been run again and again and again, although with some changes in format and of course indication. So, our hypothesis is that that's not the way to solve the problem. Solving the problem requires new innovation and we are confident that we'll be able to demonstrate that. In terms of the partnering, we have been engaged with a number of conversations with some of the very large players in the space that are aware now that this is going to be an important class for oncology. Those conversations are going very well. And we are optimistic that we'll be able to find a partner for one or more of those relatively soon. But of course that work is still ongoing. What we're not going to do is take our foot off the brake. So, we are equipped in order to bring these forward and we will continue to move them forward so that we're not losing time on those. And in the background, we do anticipate we may start some other programs to demonstrate this in the near-term.

Thank you.

Thank you. The next question comes from Gaurav Goparaju of Berenberg. Please proceed.

Okay. Nothing more from me guys, really congratulate on the year and the quarter and talk soon. Thank you.

Thanks, Gaurav.

Thank you. The next question comes from Antonia Borovina of Bloom Burton. Please proceed.

Great. Thanks and congrats on a solid quarter. My first question is just with regards to the pre-partner programs. I'm just wondering, what could that look like? Would it likely just be a single antibody candidate that you would partner or would a deal likely involve some backup candidates with slightly different properties? And then my second question is with regards to the macro environment and I'm just wondering if the broader sector downturn has impacted the types of deals, partners want to pursue? Like I'm thinking specifically with regards to the smaller players and whether they're more interested in pursuing co-development deals with you to offload some of the development costs?

Sure. So, this is Carl again. So, in terms of pre-partner programs, we are advancing these programs primarily in connection with technology development and we believe that bringing forward ready clinical candidates is the strongest proof that the platform is working and that we're actually solving the problems. We would expect that when we do that, we would have a lead clinical candidate that would be the focal point of any discussion. But of course, on a case by case basis, if there are backups and if that's appropriate, that could easily be part of a deal. So, I don't think I would speculate on that unless we had a particular case that we were discussing. In terms of the market condition and what we are perceiving from partners. As Andrew briefly touched on it, it is a difficult market, but in many ways, our business is quite robust to this. So, from our view, there's an under – there's a foundation of a lot of terrific science and innovation still in the industry. There's a lot of capital in the private sector and new companies being formed. And our business model allows those companies to move forward more quickly and with lower investment. And so, we believe that that smaller company or early innovations sector of the market is one where we are becoming more attractive at least on a relative basis in the current conditions. I don't think that we've seen an increased activity or interest in co-development. And co-development opportunities more often happen when we happen to meet a group where there is a really great synergy and capability and where we become convinced that there is an interesting opportunity to go forward and then that conversation proceeds. But to date, we haven't seen that, but of course, it's still early.

Okay. Thank you.

Thank you. And the last question comes from Do Kim of Piper Sandler. Please proceed.

Hi. This is [Skyler] [ph] on for Do. Thanks for taking my question. For your partner initiated programs, what is the variation of how well defined the partner's discovery plan is when the collaboration begins? And does that vary significantly among your big pharma customers? And how much does the initial discovery plan impact your decision both to choose partners and the deal terms? Thanks.

Hey, [Skyler] [ph]. Great question. I think there is definitely variability and how well defined the program is or the statement of work or – and that is something that normally our R&D team will work with the R&D team of our partner to further divide even before a contract gets finalized. So, I think it's – when that statement of work gets completed for the target of interest, we have to have a very clear understanding of what is getting delivered. And this is somewhere where actually AbCellera can bring a lot of value and even defining what exactly is the output that the partner is looking for. Really focused on the years of experience and 100 programs that we've worked on to work towards that clinical candidate that can actually move forward into translational sciences, CMC and GMP manufacturing and then ultimately to patients. There is some variability and I think we're becoming more and more experts in really understanding how to define that program from the start.

Got it. Thank you and congrats on the quarter.

Thank you. And with that we will conclude our question-and-answer portion of today's call. I would now like to pass the call back over to Carl for closing remarks.

Great. Thank you all for joining us today. This remains an exciting time for AbCellera. And we're looking forward to keeping you updated on our progress on future calls. Thanks so much.

And with that, we will conclude today's conference call. Thank you for participating. You may now disconnect your lines.