AbCellera Biologics Inc.

Good day and thank you for standing by. Welcome to the Apsarela 2020 Business Update conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to Trin Steinmark. Thank you. Please go ahead.

Good afternoon, and welcome to Abcelera's first earnings conference call and our 2020 annual 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 today are Dr. Carl Hansen, Abcelera's president and chief executive officer, and Andrew Booth, Abcelera'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 of you who have accessed the streaming portion of the webcast, please be aware that there may be a delay and that you will not be able to post questions via the web. This presentation may contain forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any forward-looking statements are based on management's current expectations and are subject to certain risks and uncertainties. Please review our SEC filings for risk factors that could impact our future performance. Our presentation and SEC filings are available on our investor relations website. Note that all dollars referred to during our call today are U.S. dollars. Now, I am pleased to turn the call over to Carl Hansen. Thank you, Trent, and thank you everyone for joining us today. 2020 was a breakout year for Accelera on all fronts. We secured financing, expanded our technology platform, and in December, began trading on the NASDAQ. I'm excited to tell you about 2020 and where we will be going in 2021 and beyond. Briefly, through our work in pandemic response, we proved the power of our technology and our business model, discovering Bamlanivimab, the first therapeutic antibody against COVID-19 at world record speed. Bamlanivimab was granted emergency use authorization in November and has already been used to treat more than 400,000 patients. At the same time, we continued to invest in our platform and build capacity, including almost doubling our headcount and acquiring key technologies, including a proprietary humanized rodent platform and a bi-specific engineering platform. We also secured funding for and began work on the build-out of CMC and GMP manufacturing capabilities. Finally, we ended the year with nearly $600 million in cash and over $200 million in accounts receivable. This provides a strong cash position with which we will execute our plan for future growth. Since this is our first earnings call, I'd like to highlight how we are executing on our vision to develop new technologies and new business models that accelerate drug discovery across the industry. Acceler was founded on the philosophy that pushing back the frontiers of technology is the surest way to transform drug development, and that the impact of these technologies is amplified by business models that are centered around partnerships. Working at the interface of computation, engineering, and biology, Accelera is redefining the process of how drugs are discovered. We have spent the last nine years building an operating system that can search, decode, and analyze natural immune systems to find rare antibodies that can be developed into treatments. Our unique business model brings our operating system to the industry through partnerships. Over the past six years, we have partnered on over 100 therapeutic antibody discovery programs, working with companies that span the gamut. from early-stage biotech to some of the world's largest and most enabled biopharmaceutical companies. By partnering with Accelera, these groups can move more quickly, reduce costs, and tackle some of the toughest problems in antibody discovery. Typically, our partners come to us when they have identified a disease target. We then apply our technology to discover high-quality, potent antibodies that are suitable for development, and we return these antibodies to our partners for final preclinical development and clinical testing. While our work on COVID-19 has attracted a great deal of attention, the vast majority of our programs are in other therapeutic areas. This includes partnerships in oncology, inflammation, cardiovascular disease, pain, neurodegeneration, and many more. We structure our agreements in a way that aligns our interests with the success of our partners and ultimately with the patients they serve. Our partnership agreements include technical access fees and research payments, clinical and commercial milestones, and royalties on net sales of approved products. It is worth noting that while we work in the biotech sector, we do not consider ourselves to be a biotech company. That is because we are not focused on developing our own pipeline of proprietary drugs through the clinic. We are also not a tools company. We do not sell instruments and devices. Rather, we have established a centralized business model where we invest in teams, technology, and facilities, and provide access to these capabilities through partnerships, By working with others, we believe we can lift up the entire biologic industry. We believe our technology advantage comes from combining three things. Proprietary technologies that can generate massive, multidimensional antibody data sets, custom software systems to aggregate, store, and maintain data, and artificial intelligence and powerful computational tools to extract actionable information from this data. Our stack weaves together proprietary technologies from microfluidics, single cell analysis, genomics, protein engineering, machine learning, robotics, and automation. Together these tools provide core functionality to source, search, find, analyze, and engineer therapeutic antibodies. This process generates millions of data points with each program. Our growing data set allows our platform to become more powerful and more accurate with each program. Data generated through our discovery partnerships provides the basis for training AI algorithms that lead to new insights into antibody responses and improve the speed, accuracy, and efficiency of our technology. This creates a positive feedback loop through which each round of data analysis improves the next round of data generation. As we scale our business, this flywheel effect will lead to continuous and accelerating technological advantage. We believe our platform and business model solves two orthogonal technology problems. First, we open up important target spaces that have been outside the reach of legacy technologies. Second, our centralized model democratizes access to these technologies, which enables our partners to start programs without delay and prosecute them at maximum speed. For example, highly enabled companies come to us to help move forward programs that have been stalled for lack of technology. In these cases, we work at the cutting edge of what is possible. This has traditionally been our beachhead market and where we continue to invest in technologies that we believe can open up large swaths of drug development. On the other side of the spectrum, we partner with smaller companies that typically do not have access to the requisite technology, expertise, and bandwidth to go from idea to a therapeutic lead. For these companies, working with us removes the redundancy of attempting to set up their own discovery capabilities. This empowers them to move programs forward immediately and to focus on the innovation that is novel and unique to them, their target biology or their unique technologies. As an example of how Accelera can be the operating system for quickly launching new companies, we recently announced a partnership with Abdera, a precision oncology company working on a class of drugs that use antibodies armed with radioisotopes to destroy cancer cells. As another example, in 2020, we announced a partnership with Invitex, a biotech company at the forefront of developing antibody treatments for companion animals and pets. We subsequently announced an expansion of this collaboration after successfully completing the initial programs. A highlight of our work in 2020 was our response to the current pandemic that led to the discovery of Baminivimab, the first monoclonal antibody for COVID-19. We believe that this is a time compressed example of how our technology and business model can bring treatments to patients faster. In March of last year, we mobilized our technology to find solutions for COVID-19. At the beginning of this response, we made a decision to develop a single antibody, emphasizing speed and scalability so that we would be able to help as many patients as quickly as possible. That decision has saved lives. Over the past four months, Baminivimab has been used to treat approximately 400,000 high-risk COVID-19 patients in the U.S. alone, more than any other COVID-19 therapy in development. We believe this has kept thousands of people out of hospital and has saved thousands of lives. The speed of developing Baminivimab is a testament both to our technology and to the efforts of all teams involved, including our collaborators at the Vaccine Research Center at the NIH and Eli Lilly. When the entire world mobilized against COVID-19, we started several months after other well-enabled groups. Yet we succeeded in bringing the first monoclonal antibody therapy to the clinic, and we're the first to be authorized by the FDA. Today, Bamlanemab has been evaluated both alone and together with other antibodies in more than 5,000 patients across multiple clinical trials, and is currently authorized in more than 15 countries. Bamlanivimab alone has been shown to reduce hospitalization by 70% in high-risk patients with early COVID-19 infection and prevent COVID-19 in nursing homes by reducing the risk of contracting the virus by up to 80%. Because of its potency, Bamlanivimab also provides a therapeutic backbone for new combination therapies to expand the protection against viral variants. The first of these, banlanivimab together with edesivimab, has been authorized in the U.S. and within the European Union, and is predicted to be effective against 99% of variants currently circulating in the U.S. Recent Phase III data show that this antibody therapy reduces COVID-19-related hospitalizations and deaths by 87%. Most importantly, Across all patients treated with antibody therapy in these clinical trials, there has yet to be a single observed COVID-19-related death. I'd like to emphasize that again. Not a single COVID-19-related death has been observed in patients treated with Bamlanivimab, either alone or together with Edesivimab. In January, it was also announced that Bamlanivimab is being evaluated together with VIR7831 to treat COVID-19 in low-risk patients. Just this morning, top-line data released from the Phase II Blaze IV trial showed that the two monoclonal antibodies demonstrated a 70% relative reduction in persistently high viral load at day 7 compared to placebo. While the speed and manufacturing scalability was the most important criteria early in the response, we anticipated that next-generation antibodies would be needed to combat emerging variants. For that reason, over the past year, we have continued to screen patient samples, identifying thousands of human antibodies and generating massive amounts of information about how the human immune system responds to COVID-19. In January, following the emergence of the South African variant, we screened our human antibody database to find a next-generation antibody. In neutralization assays, this second antibody, called 1404, It's significantly more potent than any other antibody reported to date, and it's predicted to neutralize all circulating variants, including the South African strain, the UK strain, the New York, Brazil, and California strains. In late January, Lilly moved 1404 into preclinical development and manufacturing. We expect it will reach the clinic in Q2 of this year and have a goal of reaching emergency use authorization by mid-year. Given the breadth and potency of 14.04, we believe this antibody has potential to be a best-in-class therapeutic. We also believe antibody therapies are an important complementary approach to vaccines, both now and in the likely scenario that COVID-19 becomes an endemic problem. In summary, over the past 12 months, we've applied our technology to discover what we believe to be the two most potent antibodies against COVID-19 yet reported. We have proven that we are able to respond in real time with solutions that evolve along with the pandemic. Pandemics will happen again, and when they do, we'll be here and we'll be ready. Despite the massive impact of this work, I'd like to emphasize that Accelerate is not a COVID-19 company. In fact, our work in COVID-19 represents only two programs in our portfolio. We have more than 100 programs with a variety of partners that span nearly every indication, and we're just getting started. We see our work in COVID-19 as a proof point of how long-term investments in technology and teams can help make a difference in how new treatments get to patients, and that this is best done in a partnership model. In 2020, we drove several initiatives to further our competitive advantage, including upstream and downstream integration to our technology stack and expanding our capabilities. Our strategy is to continue investing to deepen and expand our technology platform, and in 2020, we made two key acquisitions. The first was OrthoMAP, a clinically validated protein engineering platform that allows for any two human antibodies to be recombined into a single molecule that can simultaneously engage with two targets. These antibodies, known as bispecifics, continue to be one of the fastest growing subclasses of biologics. We believe Orthomab, when coupled with our discovery engine, has the potential to be a best-in-class technology. The second was the acquisition of Triani. This is a modern version of humanized rodents, which have been by far the richest source of new therapeutics. The Triani mouse, the flagship mouse, is one of a very few in the industry that contain all the human genes that have been inserted into the genome in a controlled way. This acquisition is already paying off. It was recently announced that NovaRock Therapeutics was granted approval for their Phase 1 study of NBL012 at the start of this year. This molecule, which was discovered using the Triani mouse, is the first from the Triani platform to enter clinical trials and is the result of work performed by NovaRock through a licensing agreement in early 2018. We plan to use the Triani platform to do further R&D to bring next-generation mites that are suited for generating antibodies against the toughest problems in the industry. We are currently developing four next-gen mice and are building up capabilities for additional expansion. We have also licensed access to the flagship mouse to large, well-enabled partners and are continuing to negotiate new licensing deals. We are also excited to make long-term investments in the forward integration of our workload, which includes the development of translational sciences, CMC, and GMP manufacturing capabilities. We expect that those investments, which will play out over the next two to three years, will allow us to support smaller companies right from Target through to IMD, all within a single integrated solution. At Accelera, team is everything. This year we doubled our team to scale with our business growth, ending the year with 206 employees, up from 107 in 2019. We expect this growth in our workforce to continue through 2021. The work we've done in 2020 provides numerous proof points for our founding philosophy. We believe that by expanding technology capabilities and access, we can help accelerate the development of new therapies to patients and lift up the antibody discovery industry. Over the next few years, we will further extend our technological lead, investing in our platform technology, expanding our capacity with people and facilities, and deepening our relationship across the industry. Before I turn over to Andrew, I would like to take a moment to acknowledge our team. This year has been unlike any we have ever faced. Your unwavering dedication and courage has made a difference to patients. Thank you all for your work this year. And now, I'll turn over to Andrew Booth, our CFO, to provide an overview of our 2020 financials. Thanks, Carl. I'll start by looking at our KPIs. We ended 2020 with 103 programs under contract with 27 different partners. That's a 72% increase in programs under contract as compared to how we had ended the end of 2019. In 2020, we added nine program starts to the cumulative 43 starts we had at the end of 2019. We believe that the lion's share of the economic value in our partnerships is connected with our shared participation in the success of the therapeutics that are discovered by our platform. Since 2018, we have only accepted programs with downstream participation. And in 2020, we actually converted some existing programs without royalties to now include downstream participation as we have expanded our collaboration with certain partners. Looking at revenue, revenue in 2020 grew 20-fold over 2019 to $233 million. We have significant royalties and several milestone payments from Banlanivimab in our 2020 results that were not present in 2019. At the same time, our results also reflect the healthy growth of our underlying partnership business. While our business model emphasizes participation in downstream economics, we earned research fees of approximately $20 million, which were attributable to the range of discovery programs we worked on for our partners. This represents 71% growth over 2019. The research fees reflect work on new programs with new and existing partners, as well as activities from ongoing projects. We achieved royalty revenue of $198 million and milestone payments of $15 million attributable to Banlanivimab, achieving milestones all the way from phase one through to first commercial sale by Lilly in the United States. In terms of Banlanivimab, we are eligible to receive royalties on all sales, whether it is used alone or together with another antibody. We are also eligible to receive royalties on all sales of 1404, whether used alone or together with another antibody, following the same economics. Directly attributable to the $198 million in royalty revenue we earn from Lilly's sales of Bamlanivimab were $27 million in royalty fees payable to the NIH. The net impact of royalties on income from operations in 2020 was therefore $171 million. This net amount is in line and as expected with our disclosed terms under the agreement with Lilly of royalties in the mid-teens to mid-20s for sales of our COVID antibodies above $125 million. We view these royalties as a non-dilutive source of funding for the company. While we will not be giving forward guidance in the future, given that we're only two days away from the end of the quarter, we can give you some insight into what we are expecting for revenues. Based on the publicly available shipment data of Bamranivimab and calculating our associated royalty, we expect that our first quarter 2021 total revenues will be between $190 and $210 million. Looking at operating expenses, Our operating expenses further reflect the continued investment in our platform and infrastructure to grow our business. Our research and development spend in 2020 was $29 million. We are continuing to expand our R&D team's capabilities and capacity. This allows us to deliver on our partner programs as well as to enhance our technology stack organically. I'd like to call out two expense items in R&D that are not expected to repeat in the future. The first is the expense of $4 million from in-process R&D from the acquisition of the OrthoMap platform for bispecific antibodies. This was an important inorganic move to add to our technology stacks capabilities. The second is an expense for liability classified options, or LCO, related to changing our functional currency to U.S. dollars from Canadian dollars in 2020, where the strike price for options was still in Canadian dollars. This is a non-cash expense that will be settled in equity when employees exercise the associated options. All option holders have since converted strike price to US dollars in the first quarter of 2021, so we won't expect to see this expense in the future. We are also extending the reach and capacity of our business development team as reflected in sales and marketing expenses of nearly $4 million in 2020. This $2.6 million or three times increase was primarily driven by the expansion of the team. It also supported additional marketing and public relations activities. We will continue to invest and grow this function to address the demand that we see from business development. In general and administration expenses for 2020, there were $12 million. The increase from 2019 was driven by strengthening of the team and other activities to support the overall growth of the company and to prepare for being a listed entity. This amount also includes nearly $2 million in costs incurred in connection with our preferred share financing and IPO in 2020. There are three other items on the income statement that I would like to mention. Depreciation and amortization increased by $3.2 million to $4.8 million. That increase is as expected, reflecting the strong investment in the business. including amortization of intangibles related to the Trienni acquisition. Much of the interest in other expense of $6.5 million was incurred in relation to the OrbiMed credit agreement and an earlier credit facility, both of which we retired during the year. We ended the year with no commercial debt. Going forward, We expect interest expense to be nominal given our strong liquidity position, and the debt that you see on our balance sheet is from a Canadian government repayable funding program that carries zero interest. Finally, grants and incentives in 2020 saw a $6.5 million increase from 2019 to $8.3 million. This is mostly related to cost recovery from the Government of Canada funding our Strategic Innovation Fund, or SIF, project. In 2020, we secured total SIF funding of $126 million over five years, which is dedicated to future infrastructure investments, including CMC and small-scale GMP manufacturing capabilities. Any additional cash from the SIF project that we receive for eligible capital expenditure activities will result in the recognition of a deferred credit on the balance sheet for future periods. 2020 was also the first year in which we incurred an income tax expense. In total, our provision for income taxes was $39 million. Looking at net earnings, our net earnings in 2020 jumped to $119 million from a $2 million loss in 2019. This is, of course, in large part due to the success of Bamlanibimab. In terms of earnings per share, this works out to a basic earnings of 53 cents per share and diluted earnings of 45 cents per share. Excluding the three non-recurring items I mentioned above, the liability classified options, the Dualogix IPR&D expense and financing costs, our basic EPS would have been about 60 cents per share and 49 cents on a diluted basis. Looking at cash, Operating activities contributed another $23 million, consistent with the capital efficiency that we have demonstrated in the past. In 2020, we were successful in multiple rounds of financing, raising the net total of $684 million. This includes the $523 million net proceeds from our December IPO, as well as $75 million raised from our Series A2, and $90 million from our convertible note issuance earlier in the year that supported the acquisition of Triani. These cash inflows allowed us to make important investments. We successfully acquired Triani and also made significant investments in facilities and equipment to strengthen our teams and technology platforms. We finished 2020 with $594 million of cash and equivalents. Of note, after the year ended, we have received $198 million of accrued accounts receivable balance into cash. Overall, we are now in a strong liquidity position, which will allow us to continue to build capacity, expand platform capabilities, and pursue business development initiatives. With that, we'll now take your questions. Operator?

As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. We ask that you limit yourself to one question and one follow-up so we have time for all questions in the queue. Please stand by while we compile the Q&A roster. Your first question is from Tiago Fox with CreditSleep.