AbCellera Biologics Inc.

Good afternoon and welcome to the Absarilla's Q2 2024 Business Update Conference Call. My name is Tamia and I will facilitate the audio portion of today's interactive broadcast. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star 1 on your telephone keypad. At this time, I would like to turn the call over to Trent Stymart, Absarilla's Chief Legal and Compliance Officer. You may proceed.

Thank you. Good morning, good afternoon, and good evening to everyone listening around the world. Thank you for joining us for Absarilla's 2024 Second Quarter Earnings Call. I'm Trent Stymart, Absarilla's Chief Legal and Compliance Officer. Joining me on today's call are Dr. Carl Hanson, and CEO, and Andrea Booth, Absarilla's Chief Financial Officer. During this call, we anticipate making projections and forward-looking statements based on our current expectations in pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Our actual results could differ materially due to several factors as set forth in our latest Form 10-K and subsequent Forms 10-Q and 8-K filed with the Securities and Exchange Commission. Absarilla does not undertake any obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise. Our presentation today, including our earnings press release issued earlier today, and our SEC filings are available on our Investor Relations website. The information we provide about our pipeline is for the benefit of the investment community and is not intended to be promotional. As we transition to our prepared remarks, please note that all dollars referred to during the call are in U.S. dollars. After our prepared remarks, we will open the lines for questions and answers. Now, I'll turn the call over to Carl.

Thanks, Trent, and thank you everyone for joining us today. Through the second quarter, we continue to focus capital allocation on our three priorities. First, building and advancing our internal pipeline. Second, completing investments in our platforms and facilities. And third, executing on select strategic partnerships. Starting with our internal pipeline, both ABCL 635 and ABCL 575 are progressing well and we anticipate submitting clinical trial applications, the Canadian equivalent of an IND, in Q2 of 2025. Turning to our TCE efforts, we noted on the last call that our platform development is essentially complete and that we are moving leads from select programs into preclinical efficacy models. On the strength of data obtained in these studies, we may elect to bring one or more of these programs into our pipeline in 2025. Of the four programs currently being evaluated, three are in oncology, including PSMA, B7H4, and an undisclosed target. PSMA is a well-validated target in prostate cancer, an area of high unmet medical need. To date, clinical TCEs targeting PSMA have either shown high tumor cell killing with high toxicity related to cytokine release or low tumor killing with low toxicity. In our in vitro studies, we have shown that our PSMA TCE leads have comparable tumor cell killing to the most potent clinical benchmarks while also having much lower cytokine release. We believe this profile has potential to achieve better safety, enabling higher dosing, and better efficacy. B7H4 is a target expressed on malignant cells in various solid tumors, including breast, ovarian, and lung. Similar to our PSMA program, our B7H4 TCE leads show comparable tumor killing and lower cytokine release as compared to the only relevant clinical benchmark. As with our PSMA program, we believe this profile has the potential to improve both safety and efficacy. For both PSMA and B7H4, as well as for our third undisclosed target, there are currently no approved T cell engagement therapies. Our fourth program is a TCE targeting CD19 and is being developed for autoimmunity. CD19 is a target expressed broadly and specifically on B cells. The ablation of B cells with CD19-directed CAR-T has recently been shown to be highly effective in the treatment of lupus and is recognized to have broad potential in other autoimmune disorders where B cells are implicated. As a modality, TCEs have clear commercial advantages over CAR-T, namely cost, accessibility, and convenience. Because of this, CD19 TCEs that were originally designed for oncology are now being repurposed and evaluated in the treatment of autoimmune conditions. Most notably, in studies with a small number of patients, BlinCyto has shown early signs of efficacy in both rheumatoid arthritis and systemic sclerosis. The goal of our CD19 program is to achieve deep B-cell ablation, comparable or approaching what is achieved with CAR-Ts, along with convenient delivery and a -in-class safety profile. We will provide updates on these four programs as they become available. In addition to being a source of potential internal programs, we continue to view our TCE platform as a basis for strategic partnerships. Speaking of partnerships, we'd like to congratulate ABDARA for receiving IND clearance and FDA Fast-Track designation for ABD147, a radioisotope antibody conjugate for the treatment of patients with small cell lung cancer. As a reminder, Avcellera is a founding partner in ABDARA and discovered the antibody from which ABD147 is derived. Avcellera has a low single-digit royalty in ABDARA's programs, as well as a -single-digit equity ownership position in the company. We would also like to congratulate our partner Invitex on their upcoming acquisition by DECRA for up to $520 million in total consideration. Like with ABDARA, Avcellera was a founding partner in Invitex, which is a companion animal health company that launched in 2018. Through the partnership, Avcellera has worked on multiple programs, three of which have reached clinical field studies. Avcellera has a low single-digit royalty in Invitex's programs, as well as a -single-digit equity ownership position in the company. Finally, we recently announced an expansion of our partnership with Eli Lilly. This builds on a successful collaboration that started in March of 2020 and included eight antibody therapeutics discovery programs, as well as our COVID-19 pandemic response efforts. We are excited to continue our productive collaboration with Lilly. And we note that this follows expansions with other top-tier partners, including Regeneron and Gilead. And with that, I'll hand it over to Andrew to discuss our financials. Andrew?

Thanks, Peril. Avcellera continues to be in a strong liquidity position, with approximately $700 million in cash and equivalent, and approximately $220 million in available government funding to execute on our strategy. In the second quarter of 2024, we continue to execute on our plans to complete our CMC and GMP investments and to advance both partner-initiated and internal programs. Looking at our key business metrics, in the second quarter, we started work on three partner-initiated programs, which take us to a cumulative total of 93 programs with downstream participation. As Carl mentioned, Avdera advanced ABD 147 into the clinic in Q2 2024, bringing the cumulative total of molecules to have reached the clinic to 14. The other change in our portfolio of molecules in the clinic is the advance of Arsenal Bios AB 2100 into a Phase 1-2 trial in the second quarter. We view our growing list of progressing molecules in the clinic as specific examples of our potential revenue from downstream milestone fees and royalty payments in the longer term. Turning to revenue and expenses, revenue in the quarter was $7 million, mostly driven by research fees relating to work on partner-initiated programs, as well as $1.5 million in milestone payments. This compares to research fee revenue of approximately $10 million in Q2 of 2023. We expect research fee revenue to continue to trend lower as we increasingly focus on internal and co-development programs. Our research and development expenses for the quarter were approximately $41 million, roughly $5 million more than last year. This expense is driven by ongoing program execution, continuing platform development, and our increasing investment in our internal program pipeline. In sales and marketing, expenses for Q2 were about $3 million, a small reduction relative to last year. And in general in administration, expenses were just over $20 million compared to roughly $16 million in Q2 2023. This increase is driven by expenses related to the defense of our intellectual property. Looking at earnings, we are reporting a net loss of roughly $37 million for the quarter compared to a loss of nearly $31 million in the same quarter of last year. In terms of earnings per share, this quarter's results work out to a loss of $0.13 per share on a basic and diluted basis. Looking at cash flows, operating activities for the first half of 2024 used roughly $72 million. As a part of our treasury strategy, we have over $520 million invested in short-term marketable securities. Our investment activities for the six months include an approximately $113 million net decrease in these holdings. All other investment activities amounted to approximately $31 million, including approximately $44 million invested in property, plant, and equipment, driven by our ongoing work to establish CMC and GMP manufacturing capabilities. We expect these investments to continue at approximately this rate through 2024 and be substantially complete in early 2025. Altogether, we finished the quarter with $698 million of total cash, cash equivalents, and marketable securities. As a reminder, we have received commitments for funding for our GMP facility and the advancement of our internal pipeline from the Government of Canada's Strategic Innovation Fund and the Government of British Columbia. This available capital does not show up on our balance sheet. With nearly $700 million in cash and equivalents and the unused portion of this secured government funding, we continue to have over $900 million in total available liquidity to execute on our strategy. With respect to our overall operating expenditures, our capital needs are very manageable. We continue to believe that we have sufficient liquidity to fund well beyond the next three years of pipeline and platform investment. And with that, we'll be happy to take questions. Operator?

We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason at all you would like to remove that question, please press star followed by two. Again, to ask a question, please press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. The first comes from Allison Bratzel with Piper Sandler. You may proceed.

Hi. Good afternoon and thanks so much for taking the question. Maybe just one for me, you know, on the TCE platform. Could you help us understand strategic interests and also your own internal interest in advancing this program in oncology indications versus autoimmune indications like with your CD19 program? You know, just how do you view that? And now that you're moving the four TCE molecules into preclinical efficacy models, could you just frame for us kind of what we can expect in terms of preclinical updates that could help us understand the differentiation of those products? Thank you.

Thanks, Allison. Carl here. Happy to take that. You know, so first just quickly with respect to strategic interest, I've had that question on previous calls. You know, the answer remains largely the same. We have advanced the program, pardon me, the platform very significantly over the last two and a half years. The science has been reviewed and I think widely appreciated for the quality and the potential of what it can do in TCEs. And we remain in active conversations with some of the key players in the space. Our focus right now is in showing that the data that we've had in in vitro will translate into in vivo models and then ultimately towards the clinic. So with respect to that, we are simultaneously advancing four programs into in vivo studies. Those studies obviously are to confirm, at least in the oncology case, to confirm the ability to get tumor regression in xenograft models as well as to evaluate cytokine release alongside of that. We don't know yet how the data will shake out and we're keeping a high bar, but we think that, you know, based on what we've seen thus far with TCE, there's a good probability that we'll be able to come up with molecules that are differentiated with respect to what we've seen in the clinic thus far. And as I mentioned, we are testing our molecules against benchmarks and using that as one of the criteria for deciding whether or not we bring them into the portfolio next year. So we will share that data at conferences like ASCO and CITC when it becomes available. As I mentioned, I don't expect that we'd be in a position to elect a development candidate this year, but on the basis of strong data, we could do so next year. On the autoimmune side, you know, CD19, we think that's a tremendous opportunity. We believe that the data that's been seen thus far in CAR-T and also with the small part of the Glensido studies suggest that this could be an approach that is widely applicable to autoimmune conditions. We think that a great product needs to have strong B cell depletion. As I mentioned, our goal is to get something that is comparable, if not as good as what is seen in CAR-T and also that it should be both safe and convenient. And obviously, you know, CAR-T therapies have real challenges commercially and in terms of And Glensido is itself also not a particularly convenient drug. So the studies that were done required, you know, five days of continuous infusion done twice. So our goal is to have something that looks much more like a standard drug. And our platform has been built, you know, to allow for strong killing with low cytokine release in a developable package. And so we're confident that, you know, we've got at least a very good shot of doing that. So we'll let you know as that data progresses.

Thank you.

Thank you. The next comes from Stephen Willie with Steeful. You may proceed.

Yeah, good afternoon. Thanks for taking the questions. So, Carl, I know that you've talked about the TCE platform and improved cytokine release profile relative to some of the benchmarks out there. But I guess in the setting of autoimmune disease, you know, we've seen much lower rates of CRS with both CAR-T and TCEs, at least what was previously described in oncology. And I'm presuming that's due to lower antigen burden. So just curious, you know, how you think about the lower rate of CRS from a competitive perspective as you choose to move another CD19 TCE into what's becoming, you know, a fairly crowded space. And then you talked about the importance of convenience. How important is product profile with respect to sub-Q administration, with respect to dosing interval, things like that?

Those are great questions, Steve. So, you know, first, I think that's accurate that, you know, as compared to oncology, the data that exists thus far in using CD19-directed B-cell ablation methods has shown less cytokine release and less toxicity. Presumably, that is because there is less burden. You don't have the big tumor burden that you have in liquid tumors. It's also potentially because many of these patients are being treated after, you know, they've been on several lines of therapy for immunosuppression. So that's certainly accurate. That said, you know, in some conditions, for instance, like lupus, that's very serious and where people, patients have been, you know, refractory to existing therapies, where, you know, hospitalization or delivering something over multiple days is probably okay. Certainly, if it has a good effect. In other autoimmune conditions, we think that, you know, the bar is going to be higher in terms of the convenience of the product. And so if you imagine that this will be a more general strategy for treating autoimmune conditions, you certainly don't want to be using a CAR-T. So we actually don't consider the CAR-T to be a direct competitor. We believe that if someone comes up with a TCE that has even close to the same efficacy, it will dominate over CAR-Ts in terms of use. And so that's the strategy. And if you think about the TCEs that are out there right now, there actually are surprisingly few. I mean, that's one of the things that makes us attractive. There are, as I mentioned, some molecules that were developed for oncology that are being repurposed. We think the class can be huge and we are focused on using our platform to come up with the best in class profile. So that's the bar that we're holding and we're hopeful and optimistic that we'll get there.

Okay, that's helpful. And then with respect to the oncology TCE candidate for which the target has yet to be disclosed, is that just a function of the fact that that's just not a lead development candidate as of yet? Or is that insinuating that perhaps you are taking a little bit of novel biological risk with this third target?

I'd say that thus far, apart from some very notable exceptions, there's been biological risk associated with any TCE and solid tumors. So that's kind of built in to the space. But you're right. The reason we have decided not to disclose that one yet is that program is a step behind the others. And I do expect that as that matures, we'll make that target known and share data in due course, probably at CIPSE or ASCO, depending on when the data comes in.

Okay, pretty good. Thanks for taking the questions.

Thank you. The next question comes from Andrea Tan with Goldman Sachs. You may proceed.

Good afternoon. Thanks for taking our questions. Carl, one here for you, maybe around the increasing debate that's occurring right now regarding ox-40 versus ox-40 ligand approaches in atopic derm. I'm just wondering if you could walk us through again the puts and takes for targeting ligand versus the receptor and remind us where you see 575's differentiation as a potentially best in class asset. And then just as a follow up to that, then, if there is any possibility that we could see preclinical data ahead of the IND filing next year. Thanks so much.

Thanks, Andrea. So first, with respect to ox-40 ligand, ox-40, I've heard arguments made on both sides. I would say generally there's pretty good evidence, you know, preclinically that blocking that pathway, however you do it, has a good chance to be efficacious. What is worth noting that is different between Amlitellumab, which is the lead obviously in ox-40 ligand and our program, which is falling behind that as a best in class asset, versus Amgen's ROC. Amgen's is a depleting antibody. And so it's an antibody that binds to ox-40, but it's been engineered in the FC to ablate the cells that express ox-40. And that has, or there have been some side effects associated with that molecule, and presumably that's the reason why. In terms of, you know, our program, we are excited, as I mentioned before, about the class. If you think about atopic dermatitis, there's really, I'd say, two targets that have proven to be very efficacious. One of them obviously is IL-13, and the other, or one pathway I should say, is IL-13, and the other is the ox-40, ox-40 ligand pathway. We also think that this is a program and a class that has large potential across many different autoimmune conditions. And one of the things that's really is distinguishing about it is what appears to be a very long lasting effect, which lends itself to less frequent dosing. We have come into this knowing that, you know, to be successful, this is going to be a program that needs to stack up against other programs that are following and have a best in class profile. What that means is a molecule that has potency, at least comparable to amyotillumab, superior half-life, good developability, meaning that we can get it to a high dose formulation, and then of course a good CMC package and a high titer cell line. Thus far we are on track for all of that, and you know, I've maybe taken a little more time than some others in moving it forward. We're on track for a CTA submission in Q2 of next year, and I think that the extra time making sure we've got a great molecule is going to pay off.

Got it. And then maybe if you don't mind commenting on your interest or potential to even share some preclinical data ahead of that CTA submission.

Another good question. I think that we may well do that. We haven't made a definitive plan to do it yet. Probably the most interesting data would be some of the early PK studies in NHP. So, sorry, I don't have a clear answer for you yet. We may well show that. Of course, those studies are not necessarily predictive of what will happen in people, and probably the most important data will be the early PK data from the Phase 1 study.

Okay, thanks so much.

Thank you. The following comes from Evan Seigerman with BMO. You may proceed.

Thank you for taking my question. A few from me. One, I know you're you come to PSMA by CD3 to Amgen's AMG 160, but maybe kind of talk to me about what you think might help reduce the CRS and AIDS in the clinic. Also, looking at some of your research feeds this quarter, we saw pretty meaningful lower research feeds for the quarter. Maybe expand on that. Kind of what you're on this and whether you expect this to be reflective of any sort of run rate going forward. Thank you so much.

Yeah, so Carl here, I'll start with the PSMA question and maybe hand off to Andrew for the research feeds. So, you know, we have been benchmarking against AMGEN 160. That's one of the molecules that we have used in our internal studies. So, in in vitro studies, so meaning cell killing assays on tumor cells done on the bench, what we see is the ability to kill cancer cells to the same level and at similar potencies, but with dramatically less cytokine release. That data is actually quite striking. So it's not that you get a small difference in the release of some of the most inflammatory cytokines like TNS alpha. Rather, what you see is something that looks like it is qualitatively as well as quantitatively different. So we're excited about that. We think it's highly differentiated compared to anything that we've seen or anything that we've tested on the bench. And the open question now is if that profile will be reproduced in animal studies. So there's no guarantee that that will work. But based on what we believe to be the mechanism, we're optimistic that that will happen. If it does, then as I mentioned, it means that you should be able to get, you know, the same type of tumor cell killing and have less of the toxicity that has to happen. And that has been seen in some of these TCEs. And we believe that, you know, while TCEs against PSMA have been a crowded space, it's also a good space because there is data out there. So you know something about what has happened in the clinic. There is really good evidence that you can get efficacy with a straight TCE. And that's a great place for us to prove the platform and to move on forward. But of course, that's a bit downstream. Right now we're focused on getting the in vivo data. Andrew, maybe I'll pass to you for the research fees question.

Yeah, thanks, Carl. Thanks, Evan. Yeah, I think that the trend, as I indicated in the prepared remarks, the research fees has been reduced because of our focus more on internal programs as well as the co-development. And we had highlighted that in previous quarters that the expectation was that the research fees would be, you know, would be about this rate and trending downwards in the coming quarters. So you should be able to, you should expect that. And what's driving that is, as I mentioned before, the focus on internal programs, which is where the majority of those R&D dollars are spent and less emphasis on the partnership business just with the few strategic partners and some of the co-development activities.

Thank you. The next question comes from Punit Suda with Learing Partners. You may proceed.

Hi, you have Michael on for Punit today. So I guess I want to talk a little bit about the large cap collaboration. So you've noted a couple program expansions. I was wondering if you could talk a bit about how the economics of these collaborations have evolved since their first iteration.

Sure. Sure. So, Carl here. Yeah, we are very pleased to reinforce the collaboration with Lilly. This quarter, actually that happened in Q3, but it was announced recently, so we brought it up on the call. That has been a collaboration that has been, you know, very productive where there's really good engagement with the scientists. And of course, Lilly is one of the premier companies in the space. And we believe that relationship is going to be important for Accelera in years to come. You know, I think I'm not at liberty to disclose the financial, the financial components of that deal, but it's moved in the right direction. The other thing I would say is that, you know, that, that, you know, renewal or expansion of the collaboration alongside of the other ones that we noted, including Gilead and Regeneron. I do view as a very strong endorsement that the work that we've done in building the platform and being able to tackle some of the most difficult problems has produced a platform that is valued by people in the space that have their own capabilities and they're at the very top of the heap. And I think that's a really great indication that we're on the right track in terms of being able to do a better job at creating antibody therapies. So as a message to, you know, the investor community that there is something under the hood, I think it's a pretty strong signal.

Okay, great. Now, I was wondering if you could also clarify what grows the impairment you assessed this quarter.

Yeah, thanks very much. So the, the impairment, we had an impairment of both a contingent consideration as well as some in process R and D that were mostly offsetting. So you'll see the continued consideration impact in the other income and the IPR and RD and the depreciation, advertisement and other. And that is from an acquisition made previously where we had had some contingent consideration due. It looks as though that continued consideration will be reduced. And there was an associated, an associated impairment that we took on some in process R and D relating to some programs that are not going to advance forward that were a part of one of those acquisitions. So it was non-cash and the impairments were roughly, roughly offsetting.

Great. Thank you very much.

Thank you. As a quick reminder, if you would like to ask a question, please press star one on your telephone keypad. The next question comes from Steven Ma with TD Securities. You may proceed.

Great. Thanks for taking the questions. Just a couple on the business development front. Congratulations on the Lilly expansion. But can you talk about new partner engagement levels? I'm curious to see how that's going as you know, start to see a little bit more funding into biotech companies and we see a few more green shoots out there.

Yeah, Carl here. I'm happy to take that one. Glad to hear that you're seeing more funding into biotech companies and some optimistic signs. That's great to hear. Regardless of that, you know, we have, you know, for some time been communicating that we're focusing as a top priority building and advancing our internal pipeline as well as finding select strategic partnerships. So I think it was last call that we announced a new engagement with Biogen. This quarter, you know, we've got a renewal with Lilly. That's the type of deal that we're looking for. We may also find interesting companies where there is synergy in technology or new biology that we think can contribute to building an exciting pipeline of either fully owned or co-owned assets internally. What that means is that you're going to see lower volume that of course is reflected in the research fees. That's what Andrew mentioned. And there's going to be a less brisk pace of announcements in partnerships as compared to let's say 2020-2021 when we first became a public company.

Okay, that makes sense. And then maybe pivoting over to your Viking-Aromark collaboration. You know, given, you know, the successes with Avdara and Vettex, those have worked out well. How is the Viking-Aromark collaboration going and when should we start to expect to see companies start to launch out of that collaboration? Thank you.

We love that collaboration. I would say it's off to a great start, but we are still in the early innings, right? So we are working with them on program ideas and intend to create companies once we have development candidates. So that's something that's going to take some time to play out. And, you know, we will let you know we have something interesting to report. But I do agree that, you know, the Avdara example is a terrific example of the value that can be created by finding good ideas and complementary skills and executives and putting that together with the built platform. And we certainly hope to repeat that. And we're working hard to make sure that we do. Okay, great. Thank you.

Thank you. The final question comes from Bill Jahangiri with Truist. You may proceed.

Hi, this is Billah Jahangiri on for Kripus. We had a couple questions here. Now that you're increasingly prioritizing internal programs, how will you prioritize your partnerships? And on that note, what capabilities do you offer a company like Regeneron that they don't already have? And also on that note, on your TCE front, we noticed you had MHC peptide targets. I believe Regeneron used to have PIG programs that never made it into a clinic. And we wanted to know how you differentiated there. Thanks.

Carl here. Would you mind maybe breaking up the question and just taking one at a time?

Yeah, I guess for the MHC peptide targets, how do you differentiate from previous companies that have tried to enter in that space? It's a complex target. You know, you have to immunize mice and stuff like that. And other companies have not gone into the clinic. So I just want to know how you guys are pushing forward and differentiating from them.

Yeah, well, we mentioned the TCE programs are bringing forward the program that is an MHC peptide target that we have previously talked about was not in that group before. Although we do believe that's a program that has become interesting recently because of some readouts in the cell therapy space. So that target was against Mejia 4. That's one that maybe we'll look at again and reevaluate. In terms of our space at MHC peptide, we believe that in terms of generating TCR memetic antibodies, that our platform provides a very considerable advantage over other approaches that we're aware of. That doesn't mean that other people cannot do it, but we believe we can do that with greater speed and quality than most, at least on average, given a given target. So, you know, there is, in our view, no reason why if you can generate a good antibody MHC peptide target that you would not bring that into the clinic, provided that you found an area of high unmet medical need and you've thought about the development path. So we think that's an exciting space. There are, of course, companies that have developed programs against MHC peptide. And we think there's going to be a lot more of that in the future. It's just not one that we've prioritized for the first programs in TCE.

Thank you.

There are currently no other questions at this time. I will pass it back to the management team for closing remarks.

Thank you everyone for joining the call. We're excited about the progress internally and we look forward to keeping you updated on future calls.

This concludes the conference call. Thank you for your participation. You may now disconnect your line.