AbCellera Biologics Inc. (NASDAQ:ABCL) Q4 2023 Earnings Call Transcript
AbCellera Biologics Inc. (NASDAQ:ABCL) Q4 2023 Earnings Call Transcript February 20, 2024
AbCellera Biologics Inc. misses on earnings expectations. Reported EPS is $-0.17 EPS, expectations were $-0.14. AbCellera Biologics Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon. Thank you for attending AbCellera Biologics Inc. FY 2023 Earnings Results and Business Update Call. My name is Matt, and I will be your moderator for today's call. [Operator Instructions] I would now like to pass the conference call over to our host Tryn Stimart, Chief Legal and Compliance Officer with AbCellera. Tryn, please go ahead.
Tryn Stimart: Thank you. Good morning, good afternoon, good evening to everyone listening around the world. Thank you for joining us for AbCellera's full year 2023 earnings call. I'm Tryn Stimart, AbCellera's Chief Legal and Compliance Officer. Joining me on today's call are Dr. Carl Hansen, AbCellera's President and Chief Executive Officer; and Andrew Booth, AbCellera's Chief Financial Officer. During this call, we anticipate making projections and forward-looking statements based on our current expectations and pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Our actual results could differ materially due to several factors as set forth in our latest form 10-K and subsequent forms 10-Q and 8-K filed with the Securities and Exchange Commission.
AbCellera does not undertake any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. Our presentation today, including our earnings press release issued earlier today and our SEC filings are available on our Investor Relations website. The information we provide about our pipeline is for the benefit of the investment community and is not intended to be promotional. As we transition to our prepared remarks, please note that all dollars referred to during the call are in U.S. dollars. After our prepared remarks, we will open the lines for questions and answers. Now I'll turn the call over to Carl.
Carl Hansen: Thank you, Tryn, and thanks everyone for joining us today. On today's call, I'll share some perspective on the state of sellers business, review the progress we made last year and lay out our priorities for 2024. First, the state of the business, as we enter 2024 and after nearly 12 years of investment, we are now in the final stages of building our engine with the remaining efforts concentrated on our manufacturing capabilities. Through this work, we have built a competitive advantage in the discovery and preclinical development of antibody therapies and we will soon be fully integrated from target through to the clinic. We have tested and proven our capabilities across more than 100 programs and we have done this in partnerships with the top tier of biotech and pharma companies.
Through these partnerships, we have built a portfolio of passive royalty positions in therapeutic programs. We believe this portfolio represents a growing and unrecognized store of value that will mature into future high margin revenue streams. Over the past 3 years, we have increasingly focused on only those partnerships that we see as strategic and that we believe will yield the highest value. This has included the addition of multiple co development programs in which we have the option to maintain a 50% ownership stake. Alongside of our partnership business, we have made internal R&D investments over the last 5 years to unlock difficult target classes including GPCRs and ion channels. This work is now bearing fruit. And last year, we announced our fist internal program from this effort that has advanced into IND enabling studies.
We believe this is just the beginning and that it foreshadows a series of potential first-in-class therapies over the coming years. In 2021, we launched a second long range R&D effort to build a highly differentiated platform for the creation of precision T cell engagers for indications in cancer and autoimmunity. This work has progressed quickly and has laid a strong foundation for both internal programs and strategic partnerships. Although we did not complete a major partnership on TC last year as we had anticipated, our conviction in this effort is undiminished. In the fourth quarter of 2023, we made a strategic decision to shift more resources to our internal pipeline and we completed a reorganization to align with this priority. This decision was made in light of the progress in our internal programs and in response to a persistent macroeconomic headwind for Biotech.
While we will continue to engage in strategic partnerships that add to our portfolio of royalty positions, our number one priority is to advance and build a pipeline of first-in-class and best-in-class therapeutics. We believe this has the highest value potential over the coming years. Last year, we secured $220 million in non dilutive funding from the governments of Canada and British Columbia to support this priority. With a cash balance of over $780 million this brings our total available liquidity to over $1 billion. With this liquidity and a platform that is capable of reproducibly delivering first-in-class therapeutic candidates, we have a rare opportunity to transition from a platform company to a vertically integrated clinical stage biotech and to do this from a base of value and without taking on binary risk.
Now turning to what we achieved in 2023. At the start of last year, we communicated that our investments would be focused on 3 pillars of the business. The first is expanding the capabilities of our engine with forward integration. This includes manufacturing, late stage preclinical and clinical capabilities. Second, continuing our technology development efforts to unlock new target classes and modalities, including T cell engagers, GPCRs and ion channels. And third, advancing high quality programs and partnerships to build our portfolio. With respect to the first, investments in our engine were focused on our manufacturing capabilities, including construction of our facility, building our platform and building our process development, manufacturing and quality teams.
As mentioned, manufacturing is the final piece of our engine. We expect the bulk of further investment to be made this year. We anticipate process development activities and pilot runs to begin in 2024 and that our GMP facility will come online near the end of 2025. Turning to R&D progress in 2023. We continue to invest in technologies that we believe can open up new market segments in antibody therapeutics. For our T cell engager platform, we presented data demonstrating the potential for solving 2 important problems in the field. In the first, we showed that our platform can produce TCEs that achieve high tumor cell killing with low cytokine release, which helps to address the problem of dose limiting toxicity associated with cytokine release syndrome.
In the second, we showed that our platform can generate TCR mimetic antibodies that specifically recognize MHC peptide antigens. Importantly, we believe the speed and ease with which we are able to find MHC peptide specific binders has potential to greatly expand the reach of TCEs in cancer therapy. Moving to our GPCR and ion channel efforts, I would like to remind you that we previously said we would elect at least one candidate from this platform for IND enabling studies in 2023. We achieved this with ABCL635, which is the first program in our pipeline. Last year, we also said we would move one of our co development programs into IND enabling studies. We achieved this with ABCL575, a program that we launched as part of a co development partnership with EQRx in 2021 and that we took control of after EQRx was acquired by Revolution Medicines.
ABCL635 and ABCL575 are both on track to enter clinical trials in 2025. ABCL635 is against an undisclosed target and is being developed as a potential first in class therapy for an indication in metabolic and endocrine conditions with an addressable market estimated at more than $2 billion in annual sales. There are a number of reasons why we are excited about 635. First, it targets a pathway that is well validated and presents low biological risk relative to a typical program. Second, we are not aware of any competing antibody drug programs against this target and therefore believe 635 has the potential to be a first in class therapy. Third, we have obtained compelling proof-of-concept data from studies in non-human primates. And finally, for this indication, we expect to obtain data on both safety and efficacy in early clinical development.
As we discussed previously, we will disclose more details on this program only once it reaches the clinic. Our second program, ABCL-575 targets OX40 ligand. It is being developed as a potential best in class therapy for the treatment of atopic dermatitis and has potential across a broad range of autoimmune and inflammatory conditions with high-unmet medical need, including asthma, alopecia, systemic sclerosis and inflammatory bowel disease. ABCL575 is differentiated from Amgen's rocatinlimab and that it targets OX40 ligand on antigen presenting cells, not OX40 on T cells. Further, 575 works through receptor blocking rather than killing immune cells, which we believe will provide a better safety profile. 575 is also distinct from biologics currently approved for the treatment of atopic dermatitis.
First, it blocks signaling upstream of currently targeted TH2 signaling molecules, including IL-13 impacting a broader portion of the inflammatory response. Second, blockade of OX40, OX40 ligand signaling is believed to promote T regulatory cells, offering the potential for immune reset and a more durable response. At present, we believe 575 is positioned to be the second OX40 ligand antibody into the clinic. It is following Sanofi's amlitelimab, which has shown excellent safety and efficacy in atopic dermatitis and is now being developed for multiple indications. ABCL575 has been designed with potency, PK and developability to enable less frequent dosing, which we believe provides an important potential for differentiation. Our focus is now to move ABCL575 into clinical testing as quickly as possible.
Considering the potential development across multiple indications, we believe it is likely that maximizing the value of this asset will require engagement with a large partner for later stage trials and commercialization. This stands in contrast to ABCL635 where pending positive clinical data, we believe it may be better for us to advance it independently. Turning now to partnerships. Through 2023, we continue to prioritize strategic partnerships. As part of building relationships with large and highly enabled partners, we expanded our work with Regeneron and started a new collaboration with Incyte. At the same time, we continue to look for opportunities to access new technology and new biology. In 2023, this included our collaboration with Prelude to co-develop first-in-class precision antibody drug conjugates.
And at the same time, we continue to build in our collaboration with Abdera, a company that we helped create in 2021 that is advancing a pipeline of radioisotope conjugates towards the clinic. Looking forward to 2024, our priorities for the year are as follows. First, advancing our internal pipeline. This includes moving ABCL635 and 175 towards clinical testing in 2025 and bringing at least one and perhaps two additional programs into IND enabling studies in the second half of the year. Second is completing the final stages of building our engine with the majority of investment directed to establishing our manufacturing capabilities. And third, on the partnering front, our focus is to expand relationships with large biopharma, including deals related to our TCE platform.
In addition, we will continue to be opportunistic in co-development deals that provide access to new targets or technologies and by engaging with strategic investors in company creation. And with that, I will hand it over to Andrew to discuss our financials. Andrew?
Andrew Booth : Thanks, Carl. As Carl pointed out, AbCellera continues to be in a strong liquidity position with over $780 million in cash and equivalents and over $200 million in available government funding to execute on our strategy. Over the past several years, AbCellera has been in building mode. As we enter 2024, we are nearing the end of that build. Our team is largely in place, and we expect our departmental expenses in R&D and in SG&A in 2024 to be similar to what we saw in 2023. 2024 will also be our last major capital expenditure year of this multiyear build as we complete our CMC and GMP manufacturing investments. 2024 investments in CapEx are expected to be similar to what they were in 2023 and be significantly reduced thereafter as we move from building these capabilities to using them on our own programs and programs with our strategic partners.
Looking at results. First, let me highlight some progress made on and changes to our key business metrics as we have detailed in our 10-K submission. In Q4, we added 21 new programs under contract and ended 2023 with 203 programs under contract with 46 unique partners. All new programs include downstream participation. Consistent with our direction over the past number of years, we are focusing on strategic partnerships and high quality programs rather than deal volume in our partnering activity. In addition, we expect to increasingly drive value from our pipeline of internal and co-development programs. We believe that the focus of our execution is not well represented with the number of discovery partners and programs under contract metrics.
As such, going forward, we will no longer be reporting on these metrics. We will keep reporting on program starts. In 2023, we started work on 12 partner initiated programs, 3 of which were in the last quarter. That is a rate of starts that broadly reflects our ongoing focus on strategic partnerships and high quality programs. This takes us to a cumulative total of 112 total partner initiated program starts, of which a total of 87 have downstream participation. Note that as described in our 10-K, we have also narrowed the definition of program starts business metric. As our strategy is unfolding, our main focus for partner initiated programs is on adding value to our portfolio of participation in the future success of molecules that we discover.
Consequently, we have refined this metric to only include programs with such downstream participation. We would also like to share with you a closer look at the progression of those 87 partner initiated programs with downstream participation that we have started. As of December 31st, we were actively working on 23 of these programs. We have completed the agreed scope of work on the other 64 programs and have transferred the resulting antibody sequences and data to our partners for evaluation and further development. To the best of our knowledge, our partners are progressing 38 of those programs. Of these, we believe that 30 are in late stage discovery, 5 are in preclinical development and 3 have reached clinical development. Based on the best information available to us, we believe that our partners have decided not to progress a total of 26 programs.
Overall, we view the progress of the molecules we have discovered in our partners' hands positively, and the attrition is consistent with our expectations. We look forward to more molecules from our programs reaching the clinic over time, and we will continue to report on these progressions to the clinic on a quarterly basis. In Q4 2023, we saw 3 new molecules advance to the clinic for a cumulative total of 13 molecules to have reached the clinic: 2 undisclosed molecules from partner initiated discovery in animal health were advanced into clinical field studies, and Arsenal Bio received an IND authorization for AB-2100. AB-2100 is an antibody with an indication in oncology that was derived by Arsenal Bio from a Trianni Mouse under a license from AbCellera.
Beginning this quarter, we are also indicating which of our molecules in the clinic are not expected to progress further. These include bamlanivimab, bebtelovimab and DNL919 as molecules discovered by AbCellera. Additionally, one molecule discovered under a Trianni license is not expected to progress. We continue to view our growing list of progressing molecules in the clinic as specific examples of our near and midterm potential revenue from downstream milestone fees and royalty payments in the longer term. Looking broadly across the program starts in our partner initiated portfolio as well as our AbCellera initiated internal programs, we see significant diversification across therapeutic indications. Of our 87 partner initiated programs with down streams, over 90 are in human health.
The majority of our partnered programs are in oncology, neurology and immunology broadly reflecting activity in the industry. As of December 2023, we also have 19 AbCellera initiated programs, up from 12 at the beginning of the year. All of the AbCellera initiated programs are in human health. We believe that the value we add to programs and the value of our partnered portfolio is reflected largely in the royalty rates we negotiate. We continue to prioritize more valuable programs instead of maximizing the number of programs under contract. As a result our result is that the range and average of negotiated royalty rates in our portfolio are shifting favorably. As we reported last year, between 2015 and 2019, our mean royalty rate was 2.4% across 37 partner initiated discovery programs with downstream.
And between 2020 and 2023, the mean royalty rate has increased to 4.3% across 141 programs with downstream participation. A quarter of the programs with downstream participation that we signed in this period have the potential to achieve royalty rates above 5%. These royalty rates do not reflect the value of programs in our internal pipeline, which we fully or substantially own. Turning to revenue. Revenue in the year was approximately $38 million almost entirely driven by research fees relating to work on partner initiated programs. This compares to research fee revenue of approximately $41 million in 2022. This year's revenue also includes approximately $2.5 million in a combination of licensing fees and milestone payments. And unlike in 2022, we earned no royalties in 2023.
Turning to operating expenses. Our research and development expenses for the year were approximately $176 million representing a roughly $68 million increase over the same period of the previous year. This increase reflects the growth in program execution, continuing platform development and our increasing investment in our internal program pipeline. In sales and marketing expenses for 2023 were approximately $14 million compared to just over $11 million in 2022. And general and administration expenses were over $61 million compared to roughly $56 million in 2022, reflecting good operating leverage supporting the growing business. As I mentioned previously, 2020 to 2023 were significant years of building our team. Now that team is largely in place and we expect our departmental expenses in R&D and in SG&A in 2024 to be relatively flat compared to 2023.
Looking at earnings, we are reporting a net loss of roughly $146 million this compares to earnings of approximately $159 million in 2022. The loss reflects our continued investment in our business and the absence of royalty revenues that were present in 2022. In terms of earnings per share, this year's result works out to a loss of $0.51 per share on a basic and diluted basis. Looking at cash flows, operating activities for 2023 used roughly $44 million. In the absence of regular royalty revenues, we would expect our operating cash flow to be irregular and often negative as we continue to invest in the growth and capabilities of the company. Of note, cash flow excluding the purchase of marketable securities used approximately $130 million for all of 2023.
As a part of our treasury strategy, we have nearly $630 million invested in short-term marketable securities. Our investment activities for the year include an approximately $127 million net increase in these holdings. All other investment activities amounted to approximately $111 million including approximately $77 million invested in property and equipment and approximately $45 million in other long-term investments. Investments in property and equipment are, of course, driven largely in part by our ongoing work to establish CMC and GMP manufacturing capabilities. We expect these investments to be substantially complete in early 2025. We anticipate that 2024 investments in property and equipment will be similar to those of in 2023. As a reminder, we own 50% of our large office and lab facilities and have financed from our balance sheet their construction.
In addition, we own 100% of our GMP manufacturing facility and accelerate does not have any debt. Altogether, we finished the year with about $788 million of total cash, cash equivalents and marketable securities. As a reminder, our continuing GMP facility build out is separately co funded by the Government of Canada's Strategic Innovation Fund. In addition, in 2023, we secured $220 million from the governments of Canada and British Columbia. This available capital does not show up on our balance sheet. With over $780 million on the balance sheet and the unused portion of our secured government funding, we continue to have approximately $1 billion in total available liquidity to execute on our strategy. This is more than our liquidity position from one year ago when we reported our December 2022 financials.
With respect to our overall operating expenditures, our capital needs are very manageable, and we remain in a strong liquidity position that allows us execute on our strategy with excellent visibility and runway. This includes advancing AbCellera led programs towards and into the clinic and working with strategic partners. We continue to believe that we have sufficient liquidity to fund well beyond the next 3 years of pipeline and platform investments. And with that, we'll be happy to take your questions.
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