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AbCellera Biologics (NASDAQ: ABCL)
Q3 2024 Earnings Call
Nov 04, 2024, 5:00 p.m. ET

AbCellera Biologics Reports Steady Progress in Q3 2024

Highlights from the Earnings Call

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, and welcome to AbCellera’s Q3 2024 business update conference call. My name is Tamia, and I will facilitate the audio portion of today’s interactive broadcast. [Operator instructions] At this time, I would now like to turn the call over to Tryn Stimart, AbCellera’s chief legal and compliance officer. You may proceed.

Tryn Stimart — Chief Legal and Compliance Officer

Thank you. Good morning, good afternoon, and good evening to everyone listening around the world. Thank you for joining us for AbCellera’s 2024 third quarter earnings call. I’m Tryn Stimart, AbCellera’s chief legal and compliance officer.

Joining me on today’s call are Dr. Carl Hansen, AbCellera’s president and CEO; and Andrew Booth, AbCellera’s chief financial officer. During this call, we expect to make projections and forward-looking statements based on our current expectations in accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may vary significantly due to various factors outlined in our most recent form 10-K and subsequent forms 10-Q and 8-K filed with the Securities and Exchange Commission.

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AbCellera is not obligated to update any forward-looking statements due to new information or future developments. Our presentation today, including our earnings press release issued earlier, along with our SEC filings, can be found on our investor relations website. The details provided about our pipeline serve the investment community’s interests and are not meant to be promotional. Please note, all dollar amounts mentioned during this 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 Hansen.

Carl Hansen — Chief Executive Officer

Thanks, Tryn, and thank you everyone for joining us today. With several new disclosures this quarter, I’ll summarize AbCellera’s status and our current advancements. A year ago, we committed to establishing an internal pipeline, transitioning from a platform company to a clinical stage biotech. In the past year, we reorganized our teams and shifted our investments towards advancing internal programs and building up our platform capabilities.

The first two programs in our pipeline, ABCL635 and ABCL575, are on track for CTA filings in Q2 of next year. We are also advancing a diverse portfolio of discovery stage programs, including wholly owned programs targeting multi-pass transmembrane proteins, T-cell engagers, and several 50-50 co-development initiatives on novel targets and enhanced antibody conjugates. We are satisfied with the scope and quality of this portfolio and are optimistic about its progression towards achieving differentiated clinical assets.

Concurrently, we are finalizing our capabilities and facilities. Notably, we completed moving into our new headquarters in Vancouver, a project that began in 2020. Our GMP manufacturing facility is making steady progress and is on schedule to be operational in 2025. Additionally, we have strengthened our translational and development teams to prepare for our first two clinical trials next year.

We expect to continue investing in our team as our pipeline expands. Regarding partnerships, this quarter we extended our collaboration with Eli Lilly. Aligning with our pipeline development focus, our priority is now to cultivate co-development collaborations where we maintain co-ownership of the resulting assets. We will also seek to collaborate on our TCE platform with existing and new partners.

We will present updated data on our TCE platform later this week at SITC. I want to express my gratitude to our leadership and teams for their efforts during this transformational year. We are on the right track in our transition to a clinical stage company. With continued focus and execution, I’m confident that this journey will yield substantial value for both our patients and shareholders.

Now, I’ll hand it over to Andrew to discuss our financial results. Andrew?

Andrew Booth — Chief Financial Officer

Thanks, Carl. AbCellera remains in a strong liquidity position with approximately $670 million in cash and equivalents, along with about $210 million in available government funding to support our strategy. In the third quarter of 2024, we effectively pursued our plans to advance both partner-initiated and internal programs while completing our CMC and GMP investments. In terms of key business metrics, we initiated work on two partner-initiated programs this quarter, bringing our cumulative total to 95 programs with downstream participation.

During the quarter, we announced that ABD-147 received orphan drug designation from the FDA. As noted previously, we consider our growing list of advancing molecules in the clinic as specific indicators of our near and mid-term revenue from downstream milestone fees and long-term royalty payments. Regarding revenue and expenses, revenue for the quarter was nearly $7 million, primarily generated from research fees related to partnered programs.

This figure remains consistent with the approximately $7 million earned in Q3 of last year. We anticipate that research fee revenue may trend lower as we increasingly pivot towards internal and co-development programs. Our research and development expenses…

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Company Reports Increased Losses Amid Growing Investment Commitments

For the third quarter, expenses reached approximately $41 million, reflecting an increase of $3 million compared to the previous year. This rise is largely attributed to ongoing program execution, continued platform development, and enhanced investments in the company’s internal program pipeline.

Third Quarter Financial Summary

In the sales and marketing sector, expenses for Q3 totaled around $3 million, which is a slight reduction from the prior year. Conversely, general and administration expenses amounted to approximately $19 million, compared to nearly $14 million in Q3 of 2023. The increase stems mainly from costs associated with defending our intellectual property.

The company experienced a net loss of roughly $51 million for the quarter, significantly higher than a loss of about $29 million in the same period last year. Notably, this loss includes a non-cash impairment charge of approximately $32 million related to in-process R&D. This impairment occurred because of a decision to prioritize internal programs and halt the development of next-generation transgenic mice.

Consequently, the loss translates to $0.17 per share, based on both basic and diluted calculations. In terms of cash flow, for the first nine months of 2024, there has been a cash usage of around $118 million, incorporating all operations and investments to finalize the infrastructure for our headquarters and CMC, GMP manufacturing capabilities.

Cash Flow and Investment Activities

Operating activities for the initial nine months of 2024 utilized about $100 million. As part of our treasury strategy, the company has nearly $520 million invested in short-term marketable securities, but these investments have decreased by approximately $124 million over the nine-month period. Other investments totaled a net of $38 million, which included roughly $63 million allocated toward property, plant, and equipment for establishing CMC and GMP manufacturing capabilities. These investments were partially balanced by government contributions and cash proceeds from selling our stake in Invetx within the quarter.

We project that spending on property, plant, and equipment will maintain a similar pace through the fourth quarter of 2024, with a completion aimed for early 2025. At the end of the quarter, total cash, cash equivalents, and marketable securities stood at $670 million.

Liquidity Position and Strategic Outlook

The company has secured commitments for funding its GMP facility and advancing its internal pipeline from Canada’s Strategic Innovation Fund and the government of British Columbia. This available capital is not reflected on the balance sheet. With around $670 million in cash and equivalents, along with the unused portion of the secured government funding, the total available liquidity amounts to approximately $880 million, allowing us to pursue our strategic goals comfortably.

Management remains confident in its liquidity, asserting that it can support investments beyond the next three years for pipeline and platform advancements. We are ready to address any questions you may have. I will now return the floor to the operator.

Questions & Answers:

Operator

Thank you. We will now begin the Q&A session. [Operator instructions] The first question comes from Allison Bratzel with Piper Sandler. You may proceed.

Allison Bratzel — Analyst

Hey, sorry. Can you hear me? Hey, sorry about that.

Carl Hansen — Chief Executive Officer

Yep, we can hear you.

Allison Bratzel — Analyst

I had a question regarding OX40 and the competitive landscape. Considering recent updates, such as from rocatinlimab, which seemed to underperform with investors, could you share your thoughts on the advantages of an OX40 ligand-targeted therapy like 575? Has this data changed your perspective on the landscape, especially concerning atopic dermatitis versus other inflammatory indications?

Carl Hansen — Chief Executive Officer

Sure, Allison. Carl here. Indeed, we noted the update on rocatinlimab, which adds to the dialogue about the differences between OX40 ligands and OX40. It’s important to highlight that rocatinlimab operates with a different mechanism than 575. Specifically, rocatinlimab is a depleting antibody, targeting and eliminating cells expressing OX40, while our product is an effector-null antibody that doesn’t deplete these target cells.

Historically, this pathway has proven essential for supporting the expansion and survival of both B-cells and T-cells. Thus, blocking either OX40 or OX40L has lifted some therapeutic possibilities. Observing the efficacy data from Amgen, we saw considerably lower responses compared to those reported with amlitelimab. From this, we conclude that non-depleting OX40 ligand antibodies have taken the lead in this domain, with 575 engineered to potentially excel in terms of potency and developability.

Current data suggests that atopic dermatitis could be a primary indication, but we believe its application could extend across a diverse range of significant conditions. We remain optimistic and plan to present preclinical data about 575 at a conference next year, close to our CTA filing.

Allison Bratzel — Analyst

Got it. Thank you.

Operator

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

Andrea Tan — Analyst

Good afternoon. Thanks for taking my questions. Carl, could you elaborate on the data we can expect to be presented at SITC regarding the T-cell engagers?

Carl Hansen — Chief Executive Officer

At SITC, we will showcase updated information from our platform technology. This will include a few programs highlighting how we’re combining TAA antibodies with our unique CD3 panel to achieve desirable effects in both cellular killing and cytokine response. Additionally, we intend to discuss our progress developing trispecific TCEs designed for co-activation, aiming for sustained T-cell activity, which remains crucial for achieving efficacy in some cancers.

Andrea Tan — Analyst

OK, thank you.

Operator

Thank you. The next question comes from Stephen Willey with Stifel. You may proceed.

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Strengthening the Pipeline: Insights from CEO Carl Hansen’s Update on TCE Platform

Good afternoon, everyone. Thanks for your questions. I’d like to start with your inquiry about the TCE platform. You’ve mentioned several partnerships, but I’m curious about your vision for your wholly owned pipeline. How many programs could you advance by yourself without broader partnerships?

Carl Hansen — Chief Executive Officer

Thanks for the question, Steve. Over the past 12 years, we have put significant effort into building the necessary capabilities to create leading antibody therapies. As I mentioned earlier, we are nearing the end of these investments, establishing a solid foundation for developing promising assets. Currently, we have just under $900 million in liquidity available to support this platform and populate our clinical pipeline with what we believe are exciting assets. We’re actively engaged in developing pre-clinical programs.

We have a diverse portfolio and are currently reviewing it to prioritize the programs we will focus on. We believe many of these have the potential to become significant successes. Looking ahead, we anticipate moving two to three new development candidates forward each year starting next year.

Our liquidity from the last three years, as Andrew noted, positions us well. If we secure strong data indicating a candidate’s potential to address major unmet medical needs, we will have various options moving forward. Anticipating the need for late-stage trials, we may need to raise equity financing or out-license additional assets to fund those. This, however, is a bit further down the line since our first two programs are set to enter the clinic next year.

Stephen Willey — Analyst

Is there a timeline for concluding this portfolio review?

Carl Hansen — Chief Executive Officer

We expect to finalize that by the end of December.

Stephen Willey — Analyst

Great, thanks. Another area of interest is the CTA filings scheduled for next year. You’ve secured funding from the Canadian government, but does this requirement mean that a certain number of trial sites must be in Canada? How might this affect your Phase 1 timelines?

Andrew Booth — Chief Financial Officer

Hello, Steve. That’s a good question. We aim to bring 15 to 17 molecules into Phase 1 with this funding, which we have secured from both the Canadian government and the government of British Columbia.

The Phase 1 trials will occur in Canada, focusing on molecules such as 575 and 635. We do not foresee any challenges in conducting these trials in Canada and remain committed to that plan. However, if we encounter any issues down the road, we will consider expanding our trial sites into the United States or globally. It is important to note that, to qualify for Canadian funding, these Phase 1 trials need to be undertaken in Canada.

Stephen Willey — Analyst

Thank you for the clarification.

Operator

Next, we have Kripa Devarakonda from Truist. Please go ahead.

Kripa Devarakonda — Analyst

Thanks for taking my question. I’d like to ask about ABCL635, which is being developed for metabolic and endocrine conditions, focusing on GPCR or ion channels. This market has seen challenges; could you elaborate on this target and its market potential? You mentioned a market size of $2 billion previously, is that still accurate? Additionally, how competitive do you see this space?

Carl Hansen — Chief Executive Officer

Hello, Kripa. That’s correct. We previously indicated that ABCL635 is a first-in-class antibody targeting metabolic and endocrine disorders and is directed at a multi-pass transmembrane protein, a significant research focus. We conservatively estimate an addressable market exceeding $2 billion. Until the CTA is approved, we won’t be sharing specific details about the program for strategic reasons; however, we will disclose the target and the indication after approval.

Kripa Devarakonda — Analyst

Understood. Thank you.

Operator

Next, we have Evan Seigerman from BMO. You may proceed.

Unknown speaker — BMO Capital Markets — Analyst

Hi there, Connor is here for Evan. Appreciate your time. With several assets entering the clinic soon, can you share your thoughts on spending adjustments for the upcoming year, particularly between internal versus partner programs, especially in light of recent changes?

Andrew Booth — Chief Financial Officer

Thanks, Connor. Regarding the upcoming year, we expect the costs for the Phase 1 trials of 635 and 575 to remain manageable, with no significant increases anticipated for 2025, or even into 2026.

Our R&D expenses will likely keep pace, remaining similar to what they are currently and expected to be in Q4. You may recall that at the start of the year, we projected expenses to hold flat compared to Q4 of last year, which has held true. What will change is that we anticipate a significant reduction in Capex expenses in early 2025, as we wrap up constructing major facilities that have incurred considerable costs in 2024. Overall operating expenses, however, are expected to remain stable in 2025 compared to 2024.

Unknown speaker — BMO Capital Markets — Analyst

Thank you very much.

Operator

Next, we have David Martin from Bloom Burton. You may proceed.

David Martin — Analyst

Thank you for the opportunity to ask my question. Returning to ABCL575, how do you see it positioned relative to other OX40s and IL receptor antibodies? Do you expect it will compete for first-line treatment or fall into second-line treatment?

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Exploring New Therapies: Insights from Carl Hansen on OX40 Ligand and T-Cell Platforms

Carl Hansen — Chief Executive Officer

That’s a great question. In the case of atopic dermatitis, we see three main mechanisms driving current interest: JAK inhibitors, IL-13 antibodies, and now the OX40 pathway. Dupixent has made a significant impact as a treatment, but it’s important to note that it’s not effective for everyone. Approximately 40% of patients do not respond or stop using it altogether.

This highlights a substantial unmet medical need within the realm of biologics for atopic dermatitis. We anticipate that the OX40 and OX40 ligand mechanism could potentially become a viable second-line treatment after Dupixent. Over time, we believe it has a strong chance of becoming a first-line therapy as its benefits—particularly in durability—are recognized. Currently, Dupixent is administered every two weeks, while Sanofi is experimenting with monthly and three-month dosing. Our approach could allow for treatments every three months or even longer, positioning us competitively in this market.

Addressing your question about how patients might react to IL-13 versus OX40, OX40 ligand therapies, we are cautiously optimistic. Clinical evidence suggests that some patients experience similar response rates after switching from Dupixent to other treatments. This indicates a promising possibility that OX40 therapies could provide an effective option for patients who did not find success with Dupixent. However, further clinical trials are needed to confirm this.

David Martin — Analyst

Thank you for the insight.

Operator

Thank you. [Operator instructions] The next question comes from Brendan Smith with TD Securities. You may proceed.

Brendan Smith — Analyst

Thank you. I have a follow-up question regarding the T-cell engagement (TCE) platform. Can you explain what an ideal partnership would look like as you move forward? I’m interested in how the T-cell space is evolving, particularly in oncology and autoimmunity.

Carl Hansen — Chief Executive Officer

That’s a thought-provoking question. In the biomedical landscape, modalities such as TCEs often experience varying levels of excitement. Currently, we’re seeing a renewed interest surrounding TCEs, supported by promising clinical data and recent partnerships within the industry.

We believe that we have some of the most advanced tools for developing TCEs. Our immediate focus is on refining the science behind these therapies to ensure they are both effective and safe for patients. This will involve collaboration with partners that possess deep scientific expertise and a commitment to clinical testing to unlock the potential of these treatments.

While we’re eager for a partnership that offers upfront financial support, the primary goal is to collaborate with teams experienced in the science of TCEs. This will allow us to develop effective cancer therapies over the long term, given that such innovations typically unfold over several years. We remain optimistic about what lies ahead.

Brendan Smith — Analyst

Thanks for that explanation.

Operator

Thank you. The next question comes from Puneet Souda with Leerink Partners. You may proceed.

Puneet Souda — Analyst

Hello, Carl and Andrew. Thank you for taking my questions. First, can you provide an update on the GMP facility and its current capacities within the pipeline? Additionally, are you seeing any activity resulting from the U.S. BIOSECURE initiative?

Andrew Booth — Chief Financial Officer

Hey Puneet. I’ll start by discussing the GMP facility. About four years ago, we embarked on this project with the goal of initiating production in late 2024 or early 2025. We now anticipate that it will be closer to late 2025 when we begin our first molecule production.

The project is progressing well, transitioning from team building to establishing the facility. It’s situated near our headquarters, and we are eager to produce our first molecules there by 2025. Our next compounds, specifically molecules 575 and 635, will also be manufactured in this facility.

Carl Hansen — Chief Executive Officer

I’d like to add that our preclinical pipeline continues to develop well. Several candidates are nearing readiness for development, and within the coming months, we will clarify which of these molecules—whether derived from internal programs or collaborations—will be the first to utilize the facility. Our strategy is to validate the facility’s capabilities in its inaugural year. As this operational expertise grows, we foresee ongoing advantages from managing our own manufacturing, especially amid geopolitical challenges associated with the BIOSECURE Act, which could enhance our speed and potentially lower our costs in bringing new therapies from concept to clinical use.

Puneet Souda — Analyst

Got it. For my second question, I’d like to inquire about the priority activities at AbCellera. Could you share more details on this front?

AbCellera Biologics CEO Discusses Strategic Priorities Moving into 2025

Near-Term Focus: Capital Allocation and Operational Efficiency

During a recent earnings call, Carl Hansen, Chief Executive Officer of AbCellera Biologics, outlined the company’s strategic priorities as they advance into 2025. His remarks followed initial inquiries about the company’s ongoing internal programs and the development of its pipeline, which includes the 575, 635, and 675 programs as well as the TCE initiative.

Strategic Goals: Finding a Winner and Building on Success

Hansen emphasized the unique stage AbCellera finds itself in, holding a fully developed platform capable of generating high-quality antibody assets. The company has sufficient capital to fuel its clinical pipeline over the next few years. He listed three main priorities for AbCellera:

• The first priority is to make wise capital allocation decisions in order to identify the company’s first major success.
• Next, they aim to create a diverse portfolio of innovative assets to complement their lead candidate.
• Lastly, maintaining operational efficiency is key, enabling the company to have better control over its future.

Additionally, Hansen noted that AbCellera is in a strong liquidity position with plenty of runway ahead, which it plans to leverage effectively to ensure continued growth.

Closing Remarks from Leadership

After concluding the Q&A session, Hansen expressed gratitude to participants for their engagement, promising future updates regarding the company’s progress. His optimism, measured and controlled, left attendees hopeful for what lies ahead in AbCellera’s journey.

Call Participants:

Tryn Stimart — Chief Legal and Compliance Officer

Carl Hansen — Chief Executive Officer

Andrew Booth — Chief Financial Officer

Allison Bratzel — Analyst

Andrea Tan — Analyst

Stephen Willey — Analyst

Kripa Devarakonda — Analyst

Unknown speaker — BMO Capital Markets — Analyst

David Martin — Analyst

Brendan Smith — Analyst

Puneet Souda — Analyst

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