AbCellera Biologics Inc.

Good day and thanks for standing by. Welcome to the Accelera Q1 2021 earnings result and 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 your speaker today, Trin Steinmark, Chief Legal Officer and Chief Compliance Officer. Please go ahead.

Thank you. Good afternoon, everyone, and welcome to Abcelera's first quarter 2021 business update. We are pleased to have you with us today where we will discuss the results announced in our press release issued after the market closed today, which you can find on our investor relations website. With me on the call are Dr. Carl Hansen, Abcelera's chief executive officer and president, 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 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 pose 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 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 to everyone for joining us today. I'm excited to share with you the results of our first quarter of 2021, which saw us carrying forward momentum from 2020 and achieving strong growth performance across all areas of our business. But before I do that, I'd like to pull back and take a few minutes to revisit our long-term vision for what we are building here at Accelera and for the magnitude of the opportunity that we see before us. Put plainly, our vision is to build the most technologically advanced antibody drug discovery engine in the world and to redefine the state of the art for the industry, not just today, but for decades to come. This is a bold vision. It is one that we are uniquely positioned to achieve. We believe that the technology stack that we've assembled over the last nine years offers capabilities in the discovery of therapeutic antibodies that are already unmatched in combined metrics of speed, versatility, quality, and diversity. Despite our leading position today, we are far from done. Over the coming years, we will continue to invest aggressively in building our technology stack to push back the frontiers of what is possible. This is not only about invention and innovation. It is also about building modern facilities to empower interdisciplinary R&D. It is about industrialized molecular biology automation, and it is about integration of CMC and GMP manufacturing. It will require increasingly powerful computational tools based on artificial intelligence that can take advantage of hyperscale data science to predict drug-like properties. It is also about building an elite workforce, one that is inspired by the opportunity to work on technologies that can radically change how drug development is done. Perhaps most importantly, it is about maintaining a culture of innovation and constant improvement across all dimensions of our organization. This is what we are building at Accelera. Our business model is unique in that it emphasizes collaboration and partnership. We aim to empower partners, large and small, that are committed to translating science into new therapies that help people. For smaller companies, we believe we can unlock innovation and value, both by stripping out the redundancy of everyone attempting to rebuild internal capabilities, and also by allowing great science to connect with best-in-world capabilities. For the larger and more enabled companies, we believe our efforts will open up new disease areas and new target classes, and also that our model enables increased speed, efficiency, and adaptability by using Abcelera as an extension of their R&D teams. We expect to work on the development of hundreds of potential drugs to treat a wide array of diseases spanning cancer, inflammation, neurodegeneration, infectious disease, and beyond. Through this work, we aim to create long-term shareholder value by building a large and diversified portfolio of royalty positions in the next generation of antibody-based therapies. To achieve this vision, our efforts today are focused on expanding our capabilities, building capacity, and extending our commercial reach. Our key growth strategies include, one, increasing the number of programs under contract by expanding our commercial reach. Two, forward integration of our tech staff to include translational sciences, CMC, and GMP manufacturing capabilities. Three, scaling our teams and facilities. advancing internal R&D to further our technological differentiation, and five, leveraging proprietary data science to drive continual improvements in speed, precision, and automation, and to increase the predictive power in the selection of antibody development candidates. We see programs under contract, or PUCs, as a key indicator of our long-term commercial success. We intend to use our platform to generate a portfolio of hundreds of royalty positions, forging new partnerships and expanding our work with existing partners. This quarter, we added 16 pucks and two new partnerships. You will note that this included expanding a previous single-target deal with Gilead Sciences into a new multi-year, multi-target agreement that also included licensing of the Triani flagship mouse. Through continual expansion of our capabilities and the addition of new technologies, we will also look to bring more value to our partners and to increase the royalties associated with our partnership deals. Total revenue for the quarter was $203 million, and we ended the quarter with over $680 million in cash and over $190 million in accrued accounts receivable. Our strong cash position and our ongoing revenue stream from COVID-19 programs provides capital to quickly scale our teams, expand capacity, and extend our technological advantage. As I mentioned, Abcelera is about building technology out at scale. In the long run, we envision scaling up our tech stack to occupy over a million square feet of office and lab space, with facilities custom designed to foster innovation at the nexus of sciences, bringing together software developers, data scientists, biologists, engineers, and business leaders. We envision integration of computation with industrialized automation to create a modern factory for innovation and drug development. We envision AbCellera as a premier destination for the brightest and the most creative minds, for people who seek challenge and want to work at the leading edge. As a first and exciting step towards this vision, we recently announced our plans to build a 380,000 square foot tech campus right here in the heart of Vancouver. We are also adding capabilities to further support full chemistry manufacturing and control, or CMC, and good manufacturing practice, GMP manufacturing. This will provide our partners with a full solution from target to an investigational new drug application submission. We are finalizing plans to build our new GMP facility here in Vancouver in close proximity to our headquarters, and I look forward to sharing more about this in the near future. As expressed already, bold technology development is a pillar of Epsilor's growth strategy. Executing on this requires strong leadership across the company. Accordingly, we were fiercely proud to announce the promotion of Dr. Esther Faulconer to Chief Technology Officer earlier this year. Prior to her promotion to CTO, Dr. Faulconer was Head of Research and Development, overseeing our activities in genomics, microfluidics, biochemistry, protein engineering, data science, and machine learning. She led the development of Epsolar's pandemic preparedness platform and led its deployment last year against COVID-19. This effort resulted in the discovery and the development of Bammanivimab and now of 1404. Esther has proven herself to be a truly exceptional scientist and a strong leader. We congratulate her on her new position and the opportunity that sits before her. Which brings us to our update on COVID-19. As you know, last year we demonstrated the power of our platform and the drive of our team with the discovery of Bammanivimab. In addition to being the first antibody therapy for COVID-19 to reach the clinic and the first to receive emergency use authorization, Bamlanivimab has also been by far the most broadly used antibody therapy to date against COVID-19. In the US alone, Bamlanivimab has been used to treat well over 400,000 patients. It has prevented tens of thousands of hospitalizations and it has saved more than 11,000 lives. To address emerging variants, bamlanivimab has been evaluated in clinical trials with two other antibodies, including edesivimab and VIR7831. In February, the combination of bamlanivimab and edesivimab was authorized for emergency use in the U.S., and due to the rise in new variants, Lilly recently transitioned to this combination, with bamlanivimab alone no longer authorized for emergency use in the United States. Knowing that additional antibodies would be needed to combat emerging variants, we deployed our platform once again to come up with a new antibody that we believe has potential to become a long-term solution for COVID-19 as the virus becomes endemic. As anticipated on the last earnings call, this second antibody, named 1404, has since moved into clinical testing to treat patients with mild to moderate COVID-19, making it the second clinical asset from a Solaris platform in under a year. 14.04 has combined breadth and potency that we believe give it potential as a best-in-class solution for COVID-19. In terms of breadth, in preclinical studies, 14.04 has been shown to be effective against SARS-CoV-2 and all currently known variants of concern. This includes those variants first identified in the UK, South Africa, Brazil, California, and New York. We also have high confidence that it will be effective against the B.1.617 variant, which first emerged in India. In terms of potency, 14.04 has been shown to neutralize SARS-CoV-2 at exceptionally low concentrations. This means that it has the potential to be scaled up quickly, and also that it is well-suited for administration as a subcutaneous injection instead of as an infusion. We believe that the prospect of a potent and broadly neutralizing antibody that can be given as a simple shot rather than an infusion would be game-changing. It would facilitate much broader use and impact of antibody therapies to fight COVID-19 around the world. 14.04 is currently being evaluated both alone and in a three-way combination together with faminivimab and edesivimab. We expect clinical testing to progress quickly, and if all goes well, submission for emergency use authorization could occur this summer. I want to highlight that as a new public company with only 260 people, we have now succeeded in bringing two therapeutic antibodies into clinical development in less than 12 months. There could be no stronger evidence of the power of our platform or the strength of our team. Moreover, I believe this is just a glimpse of what we intend to achieve over the next decade and across many disease areas. And with that, I'll turn it over to Andrew Booth, our CFO, to provide an overview of our first quarter 2021 financials. Thanks, Carl. First, I'll talk about our key performance indicators. We ended the quarter with 119 programs under contract with 29 different partners. That is a 63% increase in programs under contract as compared to the end of Q1 in 2020. We believe that we are starting to see the combined positive impacts of several factors with this increase in business development activity. These factors include our investment in the business development team and the profile that our platform has received both from the success of our COVID antibody programs and the broader publicity of the technology that we have received from our IPO and being a public company. Importantly, this growth also reflects the success that we have had in our initial programs with some partners who are now looking to work on more programs with us. We saw that extension of partnerships with several groups in 2020, and again in the first quarter with the expanded relationship with Gilead. During the quarter, we saw two more program starts in order to take us to 59 cumulative starts. Note that we are not including our work on 1404 as a new start. The 1404 effort was part of the same COVID antibody program that we started in 2020, which had already delivered bamlanivimab. As a reminder, program starts occur when our partners are ready to trigger the work on a selected target, including having all the appropriate reagents ready for us to start discovery and their teams ready to continue development when they get our results back. This can be variable. It's not unusual for there to be a lot of preparatory work and lag before we actually start a program after signing an agreement with a partner. At the same time, we expect a robust number of program starts in 2021, with the increase in pucks as the leading indicator of this. Looking at revenue, revenue in the quarter was nearly $203 million, 44 times what it was in Q1 2020. We have significant royalties and a milestone payment from Banlanibimab in our results that were not present in the first quarter of 2020. We achieved royalty revenues of $171 million and a milestone payment of $7 million in Q1. These are all attributable to the Lilly sales of Bamlanivimab, both alone and in combination with Edesivimab. The milestone Bamlanivimab reached in Q1 was the first commercial sale in Europe. Directly attributable to the $171 million in royalty revenue we earned from Lilly sales of Bamlanivimab were $20 million in royalty fees payable to the NIH. the net impact of royalties on income from operations during the quarter was therefore $151 million. As noted in our previous earnings call, we view these royalties primarily as a non-dilutive source of funding for the company, and importantly, as a proof point of what can happen when one of the many programs in our portfolio is successful. As expected, And as per Lilly's guidance on their last quarterly earnings call, we would expect royalty revenues in Q2 to be below where they have been in Q1. We remain optimistic at the prospect of long-term revenue stream from COVID products, including Bamlanivimab and 1404. You will notice that we have also added a new line to our income statement related to license fees. We generated $20 million in license fees from our recently acquired Triani Humanized Rodent Platform. While the primary benefit of the Trani platform lies in enhancing the technology stack of our discovery programs, it is worth noting that within just a few short months, we've integrated that acquisition and recouped 22% of the original purchase price. In the future, we will continue to offer licenses to the flagship mouse to our partners, as well as integrated into our core discovery offering. Note that the licenses are generally one-off events, which we would expect to occur irregularly. Meanwhile, We continue to invest and develop the next generation of animals internally to expand these capabilities. While our business model emphasizes participation in downstream economics, we also receive income from the research we do for our partners. We earn research fees of approximately $4 million, which are attributable to the range of discovery programs we worked on for our partners. This is slightly less than the first quarter of 2020, where we received substantial fees from our paid COVID-related discovery work from DARPA. Turning to operating expenses, our research and development spend in the quarter was approximately $12 million, a threefold increase over the previous year. We expect that our investment into R&D will continue to grow as we can keep expanding 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. In sales and marketing, expenses for the first quarter were about $3 million, an almost six-fold increase from the same quarter in 2020. This reflects significant growth in our business development team, capabilities, reach, and capacity to connect with the strong global demand that we are seeing. This expense also includes an $800,000 donation to fund a clinical study related to Bamladivimab in Canada. In general and administration expenses for the quarter, they were roughly $6 million, also a significant increase from 2020, driven by the need to support a much larger business and meet the requirements of being a publicly listed company. Looking at earnings, our net earnings were $117 million compared to a $2 million loss in the first quarter of 2020. As with our last quarter, this is in large part due to the success of Bamlanivimab. In terms of earnings per share, this works out to a basic earnings of 43 cents per share and diluted earnings of 37 cents per share. Turning to cash flows, Operating activities contributed $109 million, which includes the collection of accrued accounts receivable balance from December 2020. On the investing activities side, besides CapEx of nearly $4 million, you will note that we are also showing a $12 million investment in equity investees. This relates to our Vancouver facilities expansions, which are structured as joint ventures with our development partners, Dehue and Beatty Group, where Abcelera owns 50% of the facilities. We finished the quarter with $686 million of cash and cash equivalents, and $193 million of accrued accounts receivable. We continue to maintain a strong liquidity position that allows us to continue to build capacity, expand the platform, and pursue business development initiatives. And with that, we'll be happy to take your questions, and I'll turn it back to the operator.

As a reminder, to ask a question, you'll need to press star 1 on your telephone. To withdraw your question, press the pound or hash key. Please limit yourself to one question and one follow-up to allow time for everyone's question. Please stand by while we compile the Q&A roster. Our first question comes from Tiago Fox with credits. Your line is open.