AbCellera Biologics Inc.

Good day and thank you for standing by. Welcome to the Abcelera Q3 2021 Earnings Results and Business Update Conference Call. At this time, all participants are in the listen-only mode. As the speaker's presentation, there will be a question and answer session. To ask a question during that session, you will need to press star 1 on your telephone. If you require any further assistance, please press the zero. And now I'd like to hand the conference over to your first speaker today, Trinh Simart, Chief Legal Officer. Thank you. Please go ahead.

Thank you. Good afternoon, everyone, and welcome to Abcelera's third 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, Absella's Chief Executive Officer and President, and Andrew Booth, Absella'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 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. A presentation and SEC filings are available on our investor relations website. Note that all dollars referred to on our call today are U.S. dollars. Now, I am pleased to turn the call over to Carl Hansen.

Thank you, Trin, and thank you, everyone, for joining us today. It's my pleasure to provide an update for the third quarter of 2021. We continue to focus on our long-term business objectives, and we've made strong progress executing across the organizations. We closed the quarter with nearly $800 million in liquidity, including over $750 million in cash, cash equivalents, and marketable securities, and over $40 million in accounts and accrued receivables. In addition to our strong financial position, we posted strong growth across key business metrics, including 17 new programs under contract, bringing our total number of programs to 155, nine new program starts, bringing our total number of starts to 69, and one new molecule that has entered the clinic, bringing our total number of molecules in the clinic to five. First, to frame the results from this quarter, it is important to stress our strategy and how we believe this will drive long-term value for patients, for our partners, and for our shareholders. There are no shortcuts in building a truly great company, We are focused on building something of substance, something that will endure, and something that hasn't existed before. We are building a vertically integrated technology stack that covers all steps in preclinical antibody discovery and development. What makes us different is that we are replacing the legacy approaches that had their roots in the 1980s with an interlocking chain of modern technologies, including microfluidics, genomics, single-cell analysis, protein engineering, computational methods, and artificial intelligence. These technologies are held together by software engineering and hyperscale data science that provides, and that we believe will continue to provide, increasing gains in efficiency and scalability across our workflow. Along with our investments in infrastructure and high-performance workforces, we believe our technology allows us to respond to any discovery challenge across the industry and to deliver candidates more quickly and with higher probability of success. We believe that we have already established best-in-world capabilities across this critical part of the drug development workflow. And we continue to expand our technology, now forward integrating with investments in translational science, CMC, and GMP manufacturing. We expect these capabilities to be in place in the first half of 2024. This will allow us to go from a drug target to delivering the DNA sequence of a lead antibody, the data needed to support an investigational new drug application filing, and the drug substance that supports clinical testing in Phase I and Phase II. By putting all these capabilities together, we believe we can help our partners bring drugs to patients faster and with greater probability of success. In the long run, our bold vision is to be recognized as the industry's premier drug discovery engine. to a built-in platform with capacity to deliver lead antibodies for over 100-plus discovery programs per year, and to be supporting dozens of these through IMD filing each year. All of this done in half the time that it currently takes. Building on our technology foundation, our business generates multiple sources of value for shareholders. These include upfront payments for tech assets, research payments for executing on programs, licensing fees, and milestones and royalties associated with clinical and commercial success of the molecules that we discovered. This year, we have expanded our deal structures to add new ways to capture value, including taking equity stakes and building in the option to invest and deepen our participation in molecules that have come from our platform. Through this business model, we are building a large and a diversified portfolio of stakes in the next generation of antibody-based therapies. By picking great partners, by leveraging technology advantages, and by working broadly across different indications and modalities, we believe we can generate long-term value and superior returns while at the same time not assuming the binary risk that is normally associated with drug development. Today, we have built a portfolio of 155 programs under contract, and 131 of these have downstream participations. We're working on indications that span oncology, pain, neurodegeneration, infectious disease, autoimmune disease, allergic inflammation, ophthalmology, women's health, and cardiovascular disease. Through our programs, we deliver antibodies to be developed for the full range of therapeutic modalities. This includes IgGs, IgMs, and IgAs, bispecific antibodies, single-chain antibodies, CAR-T cell therapies, radioisotope conjugates, and CNS-delivered antibodies. Finally, the power of our platform has attracted partnerships across the spectrum of drug development companies. This includes the most enabled companies like Lilly, Gilead, and Regeneron, fast-moving biotechs such as EQRX, Denali, and IgM, and also innovative emerging biotechs such as Empirico, Angios, and Cation. We continue to see strong and accelerated demand across our partnership business. In the third quarter, we added another 17 new programs under contract, Over the first nine months of the year, we have now added 52 programs under contract, as compared to 34 that were added over the same period in 2020. While the number of programs under contract will vary from quarter to quarter, we have now built up a robust book of work that we expect will translate into a steadily growing rhythm of annual program starts, which is when the work on each program actually begins. We will increasingly be focusing on program starts as a primary metric in building our portfolio and also as a reflection of our growing capacity to execute. In the third quarter, we started nine programs, bringing our total program starts to 69. This quarter, we also added two new multi-target partnerships that bring important and unique dimensions to our growing portfolio of programs, including opening up new geographic markets and pioneering new therapeutic modalities. Our most recent partnership, which is with Everest Medicines, represents our first engagement with a company focused on developing drugs in Asia. Everest is a late stage clinical development company whose leadership has a proven track record in the rapid development and commercialization of innovative therapeutics. This partnership is already off to a great start and has the potential to bring multiple molecules into the clinic with accelerated timelines. We look forward to working with them on 10 targets across multiple indications starting first with oncology. We are also excited about a new collaboration with Moderna to advance their portfolio of RNA-based medicines. This partnership will address six different targets. Over the past year, the massive impact of RNA vaccines has solidified RNA as an important and proven modality. Outside of vaccines, there are many other opportunities for RNA-based medicines, including antibodies. Through our collaboration with Moderna, we are pairing Abcelder's Discovery Engine with Moderna's industry-leading RNA platform to pioneer a new way of delivering antibodies. We will use our platform to find therapeutic antibodies and provide Moderna with a data package that includes the DNA sequence that encodes these antibodies. Moderna will then use their technology to deliver these sequences to the patient in the form of an RNA molecule so that the patient's own body can make the antibody and combat the disease. This bypasses the conventional manufacturing process that is used to make standard antibodies. In addition to having the potential to significantly accelerate the path towards clinical development, RNA delivery also provides opportunities to use antibodies in ways that would be difficult or impractical with conventional manufacturing methods. This is yet another example of how Accelerate can work through partnerships to unlock innovation and accelerate the development of new types of antibody-based medicines. It also highlights the importance of continued investment in our platform to open up new opportunities in drug development. An opportunity of particularly high value is the space of GPCR and ion channel proteins. These targets play key roles in cellular function and include many well-validated targets for a broad range of indications, spanning cancer, inflammation, pain, obesity, fibrosis, and more. While these drug targets are widely regarded as a large and untapped opportunity for therapeutic antibodies, they have proven largely intractable using existing technologies. For context, more than 50% of approved small molecule drugs are against GPCRs and ion channels. In many instances, small molecule development has been hampered by poor specificity and off-target toxicity, something antibodies are ideally suited to remedy. Despite this recognized opportunity, And despite intense work across the industry, there are only two approved antibodies against GPCRs, and to date, no antibodies against IM channels have even made it into clinical development. There are many challenges in tackling these targets, and we have an overarching technology development program to systematically address each of them. One of the most important is that many of these targets are extremely difficult to produce, which is the first step in discovery. In September, we acquired TetraGenetics, a Boston-based company that solves the production challenge and is able to provide the critical reagents, that is, sufficient quantities of highly pure GPCR and ion channel proteins. These proteins are used at every step of the discovery workflow to immunize, screen, characterize, and engineer therapeutic antibodies. We are integrating TetraGenetics into our tech staff to provide an optimized source of proteins for our antibody discovery efforts, and to solve a key challenge in pursuing these highly sought after but difficult to access drug targets. On that note, I'd like to extend a warm welcome to Paul Caluzzi and the rest of the talented team at Denver Genetics. Another example of an inorganic technology acquisition that we have made and which is now unlocking new opportunities and creating value is our acquisition of the OrthoMAP bi-specific platform last year. Bispecific antibodies are the fastest growing subset of antibodies in development. They represent a major growth driver within the $140 billion antibody therapeutics market. Despite early success, there are numerous technical challenges for successful development of bispecifics. These include challenges in discovery, challenges in selection of appropriate binding pairs, and challenges in protein engineering and manufacturing. Orthomab is a clinically validated platform which addresses the protein engineering and manufacturing challenges that have hampered the development of bispecifics. This platform uses advanced computational and experimental protein engineering methods to create IgG-like bispecific antibodies from any two starting antibody sequences. The resulting bispecifics are made using standard production and purification techniques. OrthoMAP also supports a variety of multi-specific formats that can be tailored to the target biology and to the desired mechanism of action. By integrating OrthoMAP into our existing technology stack, we can provide our partners with a rapid and complete solution for generating tailored, stable, and developable biospecific antibodies. Due to the flexibility and differentiation of the OrthoMAP platform, we're seeing inbound interest from many partners. To date, over a dozen programs under contract now include the use or the option to use our bispecific technology, and we are regularly starting discovery on bispecific antibody programs. We view OrthoMath as an important focus for our business development and one that is also being supported by high-value R&D to expand our platform. For example, we see a large and growing market opportunity in the use of bispecifics for T-cell redirection in oncology. specifically through CD3 receptor engagement on T cells. Finding anti-CD3 antibodies with the right properties, including appropriate affinity and epitope recognition, is critical to the success of this class of therapeutics and depends upon the antibodies being used and the targets that are being addressed. CD3 is a notoriously difficult target. As a result, there are limited options available for companies entering this space. In response to this need, this quarter, we initiated an internal effort to generate a proprietary panel of fully human CD3 antibodies. We plan to make these available alongside our OrthoMAP platform. By adding new Abcelera-owned CD3 antibodies with OrthoMAP and pairing that with our discovery capabilities and hydrocoid assays for functional assessment, we aim to provide a complete and high-value solution for drug developers wanting to develop the next generation of bispecific T-cell engagers. We anticipate having results to share with you on this project next year. In addition to solving the hardest problems, our business model also addresses another critical impediment that impacts the entire industry. Today, many drug developers are not able to access the technology, the expertise, the facilities, or the people that they need to quickly advance their therapeutic programs. By bringing our solutions to the market in a partnership model, we are working to close that gap. This is particularly powerful when launching new companies where access to our platform can dramatically accelerate discovery by removing the need to build internal capabilities. In these cases, our full-stack solution provides even more value, and as a result, we have had the opportunity to evolve our deal structures beyond royalties and milestones to capture that value. This now includes equity and equity-like participation and options to invest in molecules that we discover. Our collaboration with Invitex is one of the first examples of us taking an equity position in a collaboration partner. Invitex is developing biotherapeutics for animal health, and as one of the founding partners, we have been their discovery engine since inception. We initiated the first program in 2019, and this quarter, Invitex advanced the first molecule from this collaboration, IVX01, into the clinic. IVF01 is a canine-specific antibody treatment for an undisclosed chronic indication in dogs. This is the first program as part of a broad collaboration that includes multiple programs over multiple years. The use of biologics for the improvement of health and longevity of companion animals represents a new and growing subset of biologics. We look forward to continuing to launch programs with our partner, Invitex. Summing up, This quarter, we have continued to make excellent progress across our core business. We remain focused on our three top priorities, which include, first, building and executing on our partnership business to expand our diversified portfolio of royalty streams. Next, forward integration of the platform and scaling of our teams and facilities to support all antibody discovery activities up to an IND submission. And finally, investing in data science to further our technological differentiation and and to increase the speed and the scalability of our tech stack. And with that, I'll hand over to Andrew Booth, our CFO, to provide an overview of our third quarter 2021 financials. Andrew? Thanks, Carl. I'll start by highlighting our key business metrics. We ended the third quarter of 2021 with 155 programs under contract with 35 unique partners. That's a 65% increase in programs under contract as compared to the end of Q3 in 2020. We continue to see the combined positive impacts of our investments in our business development team and the increasing awareness of our platform on our business development activities. In the quarter, we added Moderna and Everest to our partnership portfolio. The programs with both of these partners include downstream participation in the form of milestones and royalties on net sales. Also in the quarter, we started nine new programs to take us to a cumulative number of 69 program starts, 17 of which were started in the first nine months of 2021. We continue to build capacity and to engage with many partners on preparations for their program starts. We also continue to expect a robust number of program starts as part of this generally increasing trend. While starts will always be somewhat irregular, as you would expect, the increase in programs under contract is a leading indicator of the long-term trajectory expected for program starts. Last quarter, we introduced a new business metric, molecules in the clinic, which represent the number of unique molecules for which an IND or equivalent application has been approved based on an antibody that was discovered by us or by a partner using licensed epicellular technology. We are pleased to report progress on this metric as we view it as an indication of our near and midterm potential revenue from downstream milestone fees and royalty payments in the longer term. In Q3, one new molecule reached the clinic, taking us to a total of five. Carl has already noted that this molecule, IVX01, is the result of our first program in a collaboration with Invitex. We congratulate the team for reaching this important milestone and look forward to progress on this and other programs in the future. As an update on our first molecule to reach the clinic, as noted in our previous earnings call, U.S. shipments of bamlanivimab with Lilly's edesivimab were paused in June because at the time, beta and gamma variants that were resistant to this combination were prevalent in the United States. On September 2nd, U.S. shipments of bamlanivimab together with edesivimab resumed. Since then, the U.S. government has distributed over 400,000 doses of vanlanivimab with edesivimab, which is on average over 50,000 doses per week. These shipments to the U.S. states were made from existing federal government supplies. The U.S. government has also recently ordered an additional over 600,000 doses of vanlanivimab with edesivimab from Lilly, at least 400,000 of which are expected to be delivered in Q4, with the balance in January of 2022. Additionally, in September, the European Commission entered into a framework agreement with Lilly under which European countries may purchase up to 220,000 doses of vanlanivimab in combination with edesivimab. The momentum we have so far achieved with number of partners, number of programs under contract, program starts, and molecules in the clinic at the end of Q3 has far outperformed our expectations from one year ago for the entire year of 2021. These will be key drivers of growth in the business and of shareholder value over the longer term. Looking at revenue, revenue in the quarter was $5.5 million. We earned our revenue predominantly from research fees, which accounted for $5.1 million. This is an increase from the same quarter last year and reflects activity with a diverse set of partners across a range of programs. As program starts increase, we would expect this trend of revenue from research fees over an increasingly diversified set of customers to continue to grow. As expected, we are reporting limited royalty revenues in this quarter of about $200,000 from new shipments of Bamlanivimab, which had been paused in the United States in June. When use of Bamlanivimab with edizivimab resumed, the U.S. government was able to draw on their existing supply of Bamlanivimab. This did not trigger new orders of Bamlanivimab to Lilly or royalties to us in the quarter. The recent US government order, which I discussed earlier, is in line with our belief that as COVID-19 becomes endemic, there is a potential for revenue from COVID-19 products, which we view as an upside and not integral to our long-term business strategy. Milestone revenue naturally occurs irregularly, and no revenue-linked milestone events occurred in Q3 of 2021. The milestone revenue in Q3 of 2020 was related to milestones achieved by Banlanivimab last year. Finally, we earned approximately $200,000 in the quarter in license fees from our Triani platform. Turning to operating expenses, our research and development spend for the quarter was $18 million, a $10 million increase over the previous year. This reflects our ongoing investments into R&D, which will continue to grow as we keep expanding our R&D team's capabilities and capacity. This allows us to deliver our partner programs with nine starts achieved in this quarter, as well as to enhance our technology stack organically. In sales and marketing, expenses for the quarter were just over $1 million, a doubling from the same quarter in 2020. This reflects the ongoing growth of our business development team, capabilities, reach, and capacity to connect with the strong demand that we continue to see, both inbound and outbound. General and administration expenses for the quarter were roughly $11 million, compared to $3 million in the second quarter of 2020. $3 million of this increase were related to higher non-cash stock-based compensation expenses, bringing us in line with publicly listed companies. The increase is otherwise driven by the need to support a much larger business and the associated legal and corporate development requirements of being a publicly listed company, as well as the ongoing investments to protect our intellectual property. For the third quarter, we are reporting a net loss of roughly $21 million, compared to an approximately $3 million loss in the third quarter of 2020. In terms of earnings per share, this works out to a loss of $0.08 per share on both a basic and diluted basis. This result reflects our ongoing investment to expand and enhance our discovery platform and to grow our diversified portfolio of long-term stakes in the next generation of antibody drugs while running discovery efforts for our partners. Looking at the first nine months of the year, we've generated revenues of $236 million and net income of over $93 million. That equates to an earnings per share of $0.34 on a basic and $0.29 on a diluted basis year to date. Looking at cash flows, operating activities for the first nine months of 2021 contributed over $261 million, which includes the collection of the accrued accounts receivable balance from December 2020 and strong royalties earned from BAML and IBIMAB in the first half of the year. On the investing activity side, the first nine months of the year show a $49 million investment in property, plant, and equipment, including the land purchase of our future GMP facility in Vancouver. The remainder was predominantly related to our tetragenetics acquisition and to construction financing of our facilities, which has been partially offset by funding received from the Government of Canada's Strategic Innovation Fund. As part of our Treasury strategy, we invested approximately $240 million in short-term marketable securities during the quarter. We finished the quarter with almost $800 million in short-term liquidity, including $754 million of cash, cash equivalents, and marketable securities, and about $44 million in accounts receivable and accrued accounts receivable. Given the recently announced purchase agreements for COVID antibodies from Lilly and the associated royalty due to Abcelera, we see the potential for our liquidity position to further improve in the near term. In summary, we continue to be in a very strong liquidity position that allows us to execute in our strategy and continue to build capacity to expand the platform and to pursue business and corporate development initiatives. We believe that we have sufficient liquidity for well beyond the next two years. And with that, we'll be happy to take your questions, and I'll turn it back to the operators.