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spk01: Welcome to Abcelera's second quarter 2022 business update and conference call. My name is Lydia, and I'll facilitate the audio portion of today's interactive broadcast. If you'd like to ask a question after the prepared remark, please press start, followed by the number one on your telephone keypad. At this time, Steema, Abcelera's Chief Legal and Compliance Officer.
spk06: Thank you. Good afternoon, 22 Business Update.
spk07: We're pleased to have you with us today for a press release issued after the market closed today, which you can find on our Investor Relations website.
spk06: With me on the call are Dr. Carl Hansen, Accelerator's Chief Executive Officer and President, and Andrew Booth, Accelerator's Chief Financial Officer. The webcast portion of this call, the slide portion of this presentation, you 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. Presentation here today 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. Please review our SEC filings for risk factors that could impact our future performance. Our presentation is available on our Investor Relations website. Note that all dollars referred to during the presentation are now available. Now, I am pleased to turn the call over to Carl Hansen. Thanks, Trent, and thanks, everyone, for joining us today. It's my pleasure to introduce you to the business for the second quarter of 2022. We're on a rock-solid footing. Despite the pandemic, we believe the current marketing environment is a strong tailwind for our business. We ended the quarter with a lot of excellence in marketable securities, and we are fully funded to continue executing on our strategy and building our business.
spk07: In contrast, the current environment to extend our competitive advantage.
spk06: At the same time, well-managed biotech companies must continue to drive innovation while also prioritizing efficiency and capital preservation. This dynamic reinforces outside expertise, safe time, reduced fixed costs.
spk07: Finally, Rationalization across the industry is likely to result in a consolidation of talent, which will benefit companies that are positioned for growth.
spk06: We've continued to attract top-tier talent, including new CMC and GMP leaders, and we expect to leverage this trend as we continue to scale our opt-in technologies that make drug development faster, more efficient, and more accessible. There are three foundational steps in drug development. Product ideation identifies the target and defines the properties required for a therapeutic.
spk07: Once this is done, the next step is to create therapeutic products.
spk06: Yet this is also the step that is most critical to get right. And that is because in drug development, unlike any other industry, By far, the most time and most money is spent on the third step, which is product testing. It involves clinical trials that typically take seven to ten years and incur costs in the range of a billion dollars. Once the process begins, if you're going to embark on such an investment of time and capital, it is imperative that you get it right from the start. Product creation is also the step in drug development that has been most neglected. and that this is the place where our technology can drive the most value. Our long-term advantage in antibody product creation and to use this advantage stakes in next-generation antibody products. Our business model and investments create significant value in three ways. By making drug development faster, by doing things that haven't been done before, and by leveling the playing field for partners, and expanding the ecosystem of innovators. For example, we believe bringing an antibody treatment to those who need it one year faster than the current industry of an approved treatment by more than 200 . Moreover, being the first to market could result in an additional therapy sale. Similarly, We estimate that opening up new target space and modalities has the potential to unlock market segments that together represent more than $100 billion in opportunity. Removing the need to reinvent the wheel lowers the barrier to entry and can help small companies compete more effectively. For innovative biotech companies committed to this could save them more than a year and tens of millions of dollars at the earliest stages. a number of new deals to unlock breakthroughs for venture capital firms, Versant Ventures and Atlas Ventures. Both of these teams have proven track and then translating those breakthroughs into exciting and impactful companies.
spk07: We provide these early-stage companies with
spk06: the ability to start discovery immediately and advance programs without having to build the underlying capabilities, teams, and infrastructure. This allows them to focus on their innovative science, operate with enhanced capital efficiency, and increase the probability of finding an optimal therapeutic candidate. In turn, Accelera benefits from these partnerships by connecting with the very best science, healing the growth of our diverse portfolio of states in next-generation antibody therapy. We also believe we can use our technology advantage to do things that have not been done before, in building a panel of CD3 binding antibodies for next-generation T cell engagers, an effort that we first announced in November of last year. As a quick reminder, we can kill cancer cells by binding both T cells and tumor cells at the same time, and it's recognized as a difficult target. As a result, targeting antibodies available, which limits the ability to fine tune T cell activation. requires access to a panel of CD3 binding properties and the ability to bind to a wide variety of sites on the CD3 complex. Using our technology, we believe we have built the industry's largest panel of diverse currently available. We presented our data at AACR earlier this year. As an update to this, we have new data showing that unique antibodies that bind broadly. Our panel also exhibits a broad range of binding affinities, spanning almost three orders of magnitude. As a first demonstration of this panel, with an antibody directed against a model tumor antigen, GFR, for testing. These proof of concept bispecifics showed that they induced a wide range of T cell activation. And importantly, we identified bispecifics that effectively kill tumor cells and release, suggesting the in the clinic. It's capable of constructing antibodies with a wide range of functional activities, which is exactly what is needed to build tunable, optimized therapeutic T cells. The next step
spk07: We are actively working on our platform with a number of different tumor-targeting arms where we are also specific.
spk06: To date, we've initiated discovery against two well-known tumor antigens, and we anticipate starting work. We will be sharing data from these programs as they become available.
spk07: We will be doing this work on real-world problems with
spk06: both to the development and validation of our T-cell engager platform. While the primary objective of this work is technology development, the byproduct of these efforts could be bi-specific antibodies with the potential to be advanced as best as possible. This potential for asset generation as a benefit of technology development is also present in our work in unlocking difficult target classes, including GPCR. In this particular case, For T-cell engagers or for difficult targets, our intention is to partner any resulting assets for clinical and commercial development. For that reason, we refer to them as pre-partnered programs, and we will share more information on these as they mature. Our work on platform development for rapid pandemic response is what resulted in the COVID-19 antibodies, which we subsequently partnered with Eli Lilly. In this case, we had spent two years developing our technology specifically for pandemic response prior to the emergence of the COVID-19 pandemic. And we initiated our work before entraminibimab was the first antibody to be authorized by the FDA, and betalovimab continues to be used to combat the virus. Remains effective against all known variants of concern. The value of assets that can be generated through technology development efforts is illustrated by the 2.5 million doses that have been delivered to patients thus far, saving 10 million. In summary, Accelerate is ideally positioned to stay on course and to deliver value for patients, for our partners, and for our shareholders.
spk07: And with that, I'll hand it over to Andrew Booth. Andrew?
spk06: I'm pleased to highlight the progress we've made in our key business metrics, beginning with program starts. We started four new programs in the sense to a cumulative number of 88 programs.
spk07: As indicated previously, we expect a number of new programs to continue, and we expect a strong underlying number of starts to continue.
spk06: This holds true for the last year. We started 28 programs in the 12 months ended June 30, 2022, compared to 12 programs in the trailing 12 months ended June 30, 2021. For clarity, the program starts reported here do not include the discovery efforts initiated by Abcelera that may lead to the pre-partnered programs that Carl mentioned earlier in the call. We ended the quarter with six new programs under contract, all of which were with two new partners, That's a 19% increase in programs under contract as compared to the end of Q2 2021. With our total of 164 programs under contract, we continue to have a strong book of work. In addition, we entered into a collaboration with Versant Ventures to discover therapeutic antibodies from multiple targets selected by Versant's portfolio of biotech companies. This collaboration builds on previous work between Versant and Abcelera, which has already enabled three of the firm's stealth stage company. Our business development focus continues to be on high-quality programs that are a complement to our existing partnerships and where Abcelera has a strong economic position. Consistent with what we entered into in this last quarter are excellent additions to our portfolio.
spk07: As of June 30, 2022, we will be introducing the next molecules in the clinic.
spk06: For our molecules at a commercial stage, a U.S. government purchase order for 150,000 doses of Beptalovumab was received and partially fulfilled by our partner, Eli Lilly, during June of 2022. This contributed meaningfully to our Q2 results. In addition, Lilly recently announced that they will begin commercial sales of Beptalovumab in this arrangement to enable the use of Beptalovumab in the future. According to USHHS data, bethalomab has recently been administered at an average rate of approximately 4,000 doses per day within the United States. As we've stated in the past, we view the growing of our near and midterm potential revenue from downstream milestone fees and royalty payments in the longer term. We expect to see continued strong growth on these key drivers of the business Turning to revenue, our revenue in the quarter was $46 million. Revenues were driven in large part by the $33 million of royalties we earned from shipments of Bethlehemath at the end of the quarter. Our work on many programs with a wide range of partners in Q2 2022 were approximately $13 million, a meaningful increase from the same quarter last year, reflecting the strength
spk07: strength of our core discovery activities.
spk06: Licensing fees were minimal this quarter, and we earned no new milestone payments. Looking ahead to the remainder of 2022, we expect continued strength in research fees and the majority of total 2022 revenue to be derived from royalty doses of Bephlobamab to the US government in the first half of 2022. We expect this to reach 750,000 doses cumulatively in Q3 given the current confirmed orders by the U.S. government.
spk07: The new arrangement of starting this month is expected to result in additional royalties to have set closely as usage normalizes in the coming months and quarters.
spk06: As a reminder, under our agreement with Lilly, we are entitled to receive royalties in the mid-teens to mid-twenties on sales of the Love-O-Math. source of funding to support our investments in capacity and platform capability building, including investments into forward integration. Turning to our operating expenses, our research and development expenses for the second quarter were approximately $27 million, a $12 million to improve the team's capabilities and capacity, partner programs, as well as to
spk07: enhance our capabilities organically.
spk06: Approximately two thirds of our R&D efforts are directed at enhancing capabilities and about one third relates to partner program execution. In sales and marketing expenses for the quarter were approximately $3 million compared to $1 million in Q2 of 2021. General and administration expenses for the quarter were approximately $14 million, compared to approximately $11 million in Q2 of 2021. The increase is largely driven by the need to support the growing business. We are reporting a net loss of approximately $7 million for Q2 2022, compared to a loss of approximately $2 million in Q2 2021. In terms of earnings per share, this works out to a loss of $0.02 per share on a basic and diluted basis for the quarter. This result reflects the recognition of royalties on bethalomab, mostly offsetting our ongoing investments 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 cash flow. Operating activities for the first six months of 2022 contributed $373 million to cash. This notably includes the collection of the accrued accounts receivable balance from royalties earned in the last quarter of 2021 and the first quarter of 2022. On the investing activities side, the first half of the year shows a total investment of $54 million, largely related to investments in property, plant, and equipment, as a part of our Treasury's
spk07: approximately $230 million invested in short-term marketable securities.
spk06: As a result, we finished the quarter with over $1 billion of unrestricted cash, equivalents, and marketable securities. In summary, we remain in an increasingly strong liquidity position that allows us to execute on our strategy, including making material investments to build capacity, capabilities, and expand the platform. We believe that we have sufficient liquidity for well beyond the next three years while making these investments. And with that, we'll be happy to take your questions. Operator?
spk01: Thank you. If you'd like to ask a question, please press star followed by the number one on your telephone keypad now. To withdraw your question, please press star followed by two. And when preparing to speak, please ensure your device is unmuted locally. Our first question today comes from Tiago Foss of Credit Suisse. Your line is open. Please go ahead.
spk06: Great. Thanks for the question and congrats on all the progress. So just wanted a little bit more detail on the first adventurous deal. It's very interesting. Again, the value proposition for early stage innovators, not having to build out some capacities, it's a little bit more obvious and accepted by the investor community relative to potential value-add. So it's larger by pharmaceutical companies. So in a way, you can give more context how that transaction came about potentially.
spk07: So is this something that you can actually replicate across other venture capital firms or aggressively perhaps at this stage of the existence? I'm curious about your thoughts there. Thank you.
spk06: Thanks, Tiago, for the question. Carl Hansen here. Let me start by saying, you know, this is a segment of the market that we have been excited about for some time. And I think, you know, as to use investments in technology centrally, along with a partnering business model, to allow for the best ideas and the best science to compete on a level playing field and not be operational friction in moving a molecule from an idea through to something that can actually be used in the classroom. You know, if you'll indulge me, an analogy that I like a lot, if you think about the semiconductor industry, where we're at a point now where two innovators with a good idea in a garage can very quickly move that forward and advance because they can leverage a huge amount of infrastructure that is the foundation on which they can build their innovation. So they focus only on what is unique and essential to their business. The current state of biotech is not like that. In biotech, if you have an idea, you need to get right down to the ground level and start to put in place the labs and hire the people, you know, wasteful. And it actually holds back innovation to the detriment of those innovators of investors, of the biotech community, and ultimately patients.
spk07: And the business model.
spk06: Now, a challenge with this is that if you look at the number of opportunities, there are ideas out there and innovators and scientists.
spk07: And being able to efficiently connect with the very best and have them supported
spk06: by experienced entrepreneurs and venture capital firms that can bring the people and the operations and the capital to turn those into viable businesses is a very important thing. So this engagement with two talk-tier firms, with Versant and with Atlas, is very much about that. It's a win-win interaction where we help them to be more competitive, the people that are looking for venture capital investment. We help them to get their ideas off the start line faster and more efficiently. And in turn, we benefit by connecting with science that's already been vetted and with teams that know how to build companies that ultimately create value and bring molecules to the clinic.
spk01: Next in the queue today, we have a question from Gaurav Goparaju of Ehrenberg Capital Markets. Please go ahead.
spk04: Hi, this is Ronald. I'm from the desk of Gaurav. I just had a few questions regarding, you know, the royalties from the COVID antibody. Do you know, can you tell us, like, what the next thing is on your radar in terms of, you know, pipeline commercialization? And do you know...
spk07: Do you have an internal calculation of what your commercial royalties will be outside of just – Actually, you may have seen a couple of weeks ago before their earnings that moving – There's a bet to love with meth.
spk06: They are now selling bet to love with meth directly to states in order to make sure that that product can get through to patients that are needing – needing the COVID antibodies in those states. So we'll no longer be going through the government purchase order mechanism. And I think we'd see this very positively as a way for the supply chain to kind of simplify and maybe be a little bit more the standard way of delivering those product and supply chain to patients that Lilly is from in terms of getting standing in terms of its effectiveness against COVID. ultimately to the patients that are in need.
spk04: Okay, thank you for that.
spk07: Just one last, you know, you could offer a billion dollars for smart security. Do you have any short-term plans for that? Yeah, I would say we have long-term plans for that.
spk06: the billion dollars we have in cash. And it's not lost of us, of course, the great position we're in to have such a strong balance sheet, especially as we are investing heavily in the capability building of the company and of the platform. As we've seen in the past, we have consistently been great stewards of capital and growing that investment. in R&D and in sales and marketing year over year. And Q2 is much the same, growing almost 100% over the same period in 2021. In addition, of course, we have very ambitious plans with our investment in the vertical integration through Translational Sciences, CMC, and GMP. Those are the investments in the short, the immediate, and mid and long term that we are pursuing in order to put that capital to work. Congratulations on a great quarter.
spk07: Thank you for taking my question.
spk01: The next question comes from Puneet Salda of SVB Securities. Your line is open.
spk06: Yeah, hi, Carl, Andrew. Thanks for taking the question. to understand first a bit about the pre-partnered programs. You know, Andrew, maybe can you qualify maybe for pre-partnered programs and sort of what sort of investment that they require and maybe just give us a sense of what, you know, despite the early days here and the partner programs are going to be, across sort of different therapeutic categories or whatnot.
spk07: And then ultimately, you know, this is something that is routinely long-term objective here.
spk06: Is this something that you would want to develop a molecule or, you know, a drug that you would want to develop yourself?
spk07: Yeah, hey,
spk06: and then I'll pass it over to Carl to talk about what we'll be working on. So, of course, as Carl mentioned in his remarks, our emphasis here is on technology development, and those are the efforts that we're spending in our R&D. I did mention that, you know, two-thirds of our efforts and our expense in R&D is on building, and that these sort of pre-partnered assets are the benefits that – that results from having to work on real things to make sure that your technology development is actually achieving ultimately the goals that you're aiming to prove out in terms of speed, speed of being able to find antibodies, being able to find antibodies that previously, you know, making those investments to prevent, you know, smaller companies from having to read So in terms of the added expense, I think those are included in kind of our base business model, and that having assets pop out of those investments are just something that we are on these investments. And in terms of the breadth and depth of that, I'll let Carl comment on that. Maybe I'll just back up. to a higher level here and revisit what is the strategy and where we see these technologies that allow for us to do discovery at greater speed, at higher quality, at greater scale than it's been done before. And another very important dimension is is to push back the frontier of what's possible and open up new opportunities for new modalities and new target classes. Launching onto technology development efforts, hard problems, to have the potential not to bring one asset forward, but to open up entire classes. The two areas that we're focused on are in PSOL, engagers where if we can demonstrate and we believe we're on track to do that that the combination of ortho map and cd3 can generate quickly t-cell engagers with better properties and potential targets that can be connected with similarly on the difficulty ours if you went to google and you did a quick search you would quickly We come up with dozens of targets that have the potential to be first-in-class, blockbuster therapies, unmet medical needs. So that's what the big prize is. Now, when you're working on that, you need to work on real problems. And as you make progress against the technology hurdles, you will. We'll have, through that work, developed assets that are valuable and that need to be brought to capability building, and then to do that by partnering before those costs get large with companies that are better positioned, frankly, for that clinical development and commercial development. So I know when that happens that everyone will be focused on the assets and they'll be very excited about it. Once you've done it once, it's likely you're going to be able to do it again and again that we really want to get out of this is first, open up these new therapeutic opportunities. Second, prove to people, again, and we have done this before, that our investments in technology are having an ROI and allowing us to succeed where others have failed. And third, of course, bring forward assets that I believe our partners will be excited to take on, and they will see it as though we have opened up opportunities and anticipated needs. Got it. That's super helpful. And the data releases, how should we think about that?
spk07: And then maybe just on the biospecific. Sure. So in terms of data release,
spk06: and metrics. So we're currently not including anything related to pre-partnered programs or this technology development effort in Program Start. One of the advantages of doing this work is that we will have the data and we're not nearly as constrained as we normally are in terms of confidentiality in sharing this with the public and having people have a sense of what is possible with the platform. So as, as these programs advance and they get to the point where we believe we've made a meaningful advance, um, wherever, or perhaps in publications, wherever it's appropriate. Um, it's difficult. I know you're gonna ask me, it's difficult to predict the timing of that because these are difficult problems we're trying to solve. Uh, that said, you know, we're excited by the progress we're making, uh, both on the TESOL front and on the difficult targets. And we are hopeful that we'll have, you know, all things, if things line up well, we'll have meaningful results to share, you know, within the next 12 months or so. In terms of the T-cell engager work, we are looking to present this at some conferences in the relatively near future. Thus far, we don't have confirmation. Before I can share that detail with you. Thanks, Vinay. Okay. And then last one, if I could, if you don't mind, if I could just squeeze in one last one around. We get a lot of questions from investors around small biotech exposure that the companies have. Obviously, you have a number of VC projects and, you know, early stage projects.
spk03: Can you maybe just give us a sense of, you know, what's the exposure here for contracts or what's the exposure for small biotech?
spk06: early-stage biotech that you have versus the larger biopharma within your total contracts. Obviously, you have a number of VC projects ongoing, too, so it seems like that number could increase. Thanks so much. Sure. Yeah, I'm happy to answer that. I think on a previous call, I don't remember which one, we did present some details of our portfolio in terms of programs under contract. Within that presentation, there was a breakdown in terms of deals with biotech or with partners we would characterize as large pharma. Roughly a quarter to a third of programs under contract are with the large integrated pharma companies, which of course means, you know, let's say 60% to 75% are with biotech companies. That pool of biotech companies spans the gamut from companies that are right out of the gate, companies like the ones we are working with already with these venture capital groups, but up to more mature, publicly traded, small, mid-cap biotech companies. Incidentally, that breakdown is largely in line with what we believe to be the distribution of program starts across the sector. And the same could be said about indication. So we seem to have a portfolio that is broadly reflecting the sector. Thus far, we don't see a trend of it tipping, but, of course, that could change over time.
spk03: Thanks for taking the questions.
spk01: Our next question comes from Stephen Wiley of Stiefel. Your line is open. Please go ahead.
spk03: Yeah, good afternoon. Thanks for taking the questions, and congrats on the progress. Maybe just following up on the bi-specific side, maybe just curious if you can speak to whether or not these two known tumor antigens that you've initiated work on Are these geared towards hematological or solid tumors? And I guess if the latter, do you feel like valency is also going to be kind of incorporated into the interrogative process here to try to minimize CRS and maybe improve safety tolerability and just off-target exposure?
spk06: Thanks, Steve. Carl here. I'm happy to take that. So the first two programs we've initiated are not directed towards hematology. They are towards solid tumors. We see that as the big challenge and the big prize and, honestly, where the biggest unmet need is right now. In terms of thinking about valency, we are using the OrthoMAP platform. This is a platform that allows us to use our CD3 panel and binders on the tumor antigens in a variety of different formats, including one-by-one, it looks like an IGT, two-by-one, two-by-two. So we are investigating that. That said, thus far from the characterization we've done, that a lot of the effects that you are alluding to can be achieved if you've got the right binder, the right affinity, the right epitope. So we would see format as one of the ways that you can change the functional properties of the buy specific, but it's not the only one. And given the breadth of CD3 and the flexibility of the platform, we've got a lot of options at our disposal to look at.
spk03: Okay. That's helpful. And I'm not sure what you can say regarding, you know, this transition of that to live a map from government purchasing to more of a a Lilly-led distribution channel, but do we know anything about kind of where they currently are with manufacturing capacity and just whether or not they've indicated or amassed to whether or not they intend to keep manufacturing here in kind of beyond mode?
spk06: Yeah, hey, Steve, it's Andrew here. So we don't have a lot of extra details about this. This is probably much better a question for Lily. What we can point people towards, and I mentioned it in my prepared remarks, is the HHS data that we see, which gets updated on a weekly basis, you know, over the last number of weeks quite consistently has been averaging, you know, doses administered at about 4,000 doses per day. We'd imagine that that would continue, but that's the public data that we have to work from. So I think from a manufacturing standpoint, we don't have any insight, but I would point to the fact that, you know, due to Depth of Level Map's potency, it's quite a low dose that is required, so the manufacturing effort is not too onerous, with I think it's still 175 milligrams per dose. So hopefully that would mean that... the manufacturing capacity that they have would stretch a long way in terms of benefiting a lot of patients out there who are still contracting COVID, as you know.
spk03: Understood. Thanks for taking the questions.
spk01: Our next question comes from Gary Knackman of BMO Capital Markets. Your line is open.
spk05: Great, thanks. Good afternoon. So the six new programs under contract with two new partners, Atlas and One Undisclosed, and then also the Versant deal, just talk about the economics with those new partnerships, if these are higher value arrangements. I'm assuming they are, and how you set them up. And I'm curious if there are a lot more VC deals out there to come. How big is that universe for you?
spk06: Yeah, hey, Gary. Good to hear from you. So yeah, the six programs under contract, well, with Atlas and then Undisclosed Partner, but as you point out, with Versant, another eight programs that was in the press release and as well in the prepared remarks. I think that we don't disclose, of course, the economic terms of any of our partnerships. So I think the last time And what we will do, I think, consistently on an annualized basis is kind of in aggregate show what the terms are from the previous year. And we did that most recently in our 10K. We do see we're adding quite a bit of value and we're being quite judicious about the programs we are bringing out under contract. And I think
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