AbCellera Biologics Inc. (ABCL) Earnings Call Transcript & Summary

Good afternoon, everyone. Welcome to the 43rd Annual J.P. Morgan Healthcare Conference. My name is Grace Cho, and I'm an associate on the JPMorgan Healthcare Investment Banking team. Our next presenting company is AbCellera Biologics. And speaking on behalf of the company, we're pleased to have Chairman, CEO and President, Carl Hansen. With that, I'll pass it on to Carl.

Thank you, Grace, and thank you, JPMorgan, for putting on a great meeting and giving me the opportunity to give you an update about AbCellera. We find ourselves at a very exciting time in the company as we are transitioning from being a platform and partnership company into a company that will be bringing our first 2 assets into clinical development this year. What I'm really excited about and what I'll tell you in the next few slides is about the setup that we have that gives us a real shot of building a pipeline over the coming years and transitioning from a highly enabled early-stage biotech into a global biopharma. Before I begin, I just want to draw your attention to the regular disclaimers and perhaps start with a summary of where we are today. AbCellera is a biotech company located in Vancouver. We were founded in 2012, and we have spent the last nearly 13 years building a competitive advantage in the creation of antibody therapies. That competitive advantage is comprised of an engine that is about taking proprietary and state-of-the-art technologies and integrating them into a full solution that allows you to go from a concept of a therapeutic right through to the initiation of clinical development. That engine is embodied not just with technology, but also with the workforce of approximately 600 FTE, about 500 in Vancouver, 70 in Sydney, Australia and smaller groups in Boston and Montreal, as well as very considerable investments in infrastructure including a state-of-the-art lab facility in Vancouver and a manufacturing facility that is in the final stages of completion. Today, I believe that we have a competitive advantage over anyone in the world in going from a concept to a development candidate and bringing that towards the clinic. That is a competitive advantage that we have not built in isolation, but rather through a business model that focused on partnering for the first 10 years. Since the very early days in 2014, we have engaged in discovery partnerships. And as of today, we have executed or started on over 100 therapeutic antibody discovery programs with a variety of different partners, which include many of the industry's largest and most enabled players, companies like Regeneron, GSK, Gilead, Pfizer and Lilly and beyond. I will draw your attention to the top right there, where we have just entered another very significant and exciting collaboration with AbbVie, which is one of our partners. And this is the first significant engagement that AbCellera has made in building on our T-cell engager platform, which we spent the last few years developing. So we will be able to share more of that in the coming months and years as that collaboration advances. Now through that partnership business, we were both able to direct our R&D and to cut our teeth on many of the most difficult problems in the industry. We were also able, through that, to build a diversified portfolio of passive positions that are royalty stakes in therapeutic programs that are being developed by our partners. The way that these deals would work is that we would engage in discovery, we get paid some upfront fees, some research fees and then are eligible to receive both clinical milestones, and ultimately, royalties typically in the low to mid-single-digit range on approved therapies that may come out of that portfolio. As of today, we have 95 programs that have that kind of downstream structure. And of those, the large majority are still in preclinical development and 14 programs have entered into early-stage clinical development, including 2 programs that were done with Eli Lilly for COVID-19 that got Emergency Use Authorization that was subsequently revoked. Because of the early stage of these programs, we believe that there is very little value being ascribed right now from the market for this portfolio. But nevertheless, we do believe this is a financial asset that does have value that will mature over time as these programs advance to and through the clinic, and hopefully, we see some of these in the long run making it ultimately to patients. And if they do, then we will be eligible to receive payments that will come in essentially as 100% margin payments for work that we did years before. About 15 months ago, we made a clean decision to shift that business model and to ramp down this partnership business and to focus our resources instead on the creation and advancement of an internal and co-development pipeline of assets. This decision comes at the same time that we are nearing the very last stages of building the platform. And over the next -- over this quarter and the next quarter, we will be making our final large investments in our manufacturing facility. Once that's done, you will see a significant change in the use of cash on the cash flow statements as we start to move from building capabilities to using them on our own behalf. So as of today, we find ourselves at a new beginning for AbCellera, and we are at what I believe is a highly unique place for a company, perhaps one that is even unprecedented. We have a company that is mature that has been around for about 13 years. We have fully built out the workforce. We are highly enabled, I would argue one of the most enabled companies for therapeutic antibody creation. And we have gotten to this place while still being in a very strong cash position. Through the building of AbCellera, of course, we had revenue from the early days on partnership businesses. We've been able to get significant non-dilutive funding from the Canadian government, both for building our manufacturing facilities and also for advancing therapeutic programs. We raised about $550 million in 2020 in our IPO. And through our work on COVID-19 with Eli Lilly, we were able to bring in a windfall of approximately $800 million. And together with all that, despite the significant investment, we find ourselves today with about $875 million in available liquidity, which includes $670 million on the balance sheet as of the end of Q3 and another $205 million that is committed but as yet undrawn from the Canadian government to advance therapeutic programs. So in a nutshell, we are a company that has full capabilities and we have capital. We will be using that capital and turning it into a pipeline of internal and co-developed assets. From here, the most important question for success is how do we choose programs and how do we make decisions about the allocation of capital? Where do we double down, where do we partner and where do we decide to back off of programs as they move forward? We have built a strategy that is explicitly indication-agnostic. The reason being that if we confine ourselves to a certain indication, we believe that it's more difficult to find those golden opportunities where you believe you have an outsized chance of winning in the market and an outsized chance of return on investment. So we have full capabilities to work on antibody therapies, including ADCs and bispecifics, and we're looking broadly across indications. And when we pick programs, we need to answer 4 questions. First, we need to answer, do we like the science? And that question is really asking, do we believe that if we make a therapeutic antibody with a certain property that it's likely to work in the clinic and be approved. Second, do we see a big commercial opportunity for that therapeutic? Third, do we have a case to be made for strong differentiation and a case to win in the market? And lastly, is there a clear development path for that therapeutic? And as a smaller company, we are particularly focused on finding opportunities where, for a limited amount of cost and time, we can build higher conviction in programs, and therefore, know that we're on the right track to ultimately getting a therapeutic approved. Now in the perfect world, we would build a portfolio where we score highly on all of these different criteria. The reality is that every program has its strengths and weaknesses, and I will maybe walk you through our first 2 programs, ABCL575 and ABCL635, that we will be moving into the clinic later this year. First, ABCL635. This is our lead program. It is a program for an as of yet undisclosed target and indication, but it is broadly in the area of metabolic and endocrine disorders. This is a program that we are very excited about because it scores highly across all 4 dimensions. First, from the pathway side, this is a target that has been well validated both in preclinical work and in the clinic with small molecules. And it's one where we believe that if we can show good target engagement that it's highly likely to be efficacious. And we also believe that it's unlikely or at least we do not have concerns that engaging the target will cause toxicities or side effects. Secondly, we believe that there's a large and important and unmet commercial opportunity. In our estimation, there is a large target population and that we can easily make either a bottoms-up or top-down case for a market opportunity of over $2 billion in peak sales -- total -- I should say, TAM of $2 billion. On the differentiation side, ABCL635 has the potential to be a first-in-class antibody, so the first antibody against this particular target. We anticipate or have a good case for differentiation in terms of the safety profile. And finally, we believe that a product that is a once-monthly subcutaneous injection will be preferred by patients and we have market data to support that preference. Lastly, this is a program with a clear and established development plan and one where there are very good biomarkers so that in the first trial that we'll be running through the end of this year and into early next year, we'll be able to test this molecule in patients. And at the end of that, we'll have a very clear view as to whether or not we are engaging the target and whether it's likely to work as a therapeutic. So this is one that we're very excited about. And for AbCellera, the first half of 2026 will be an important time when we start to read out that program and see if it has a path for further investment to become a drug. Our second program is ABCL575. This is one that we have disclosed, and it's an OX40 ligand antagonist, a non-depleting OX40 ligand antagonist. This is a program that is not innovative on the target side. It is following amlitelimab, which is a molecule that's now in Phase III by Sanofi in atopic dermatitis and is being evaluated in Phase II for other indications. In Phase II, they have shown that amlitelimab had efficacy that was comparable to Dupixent, had a clean safety profile, and because of the mechanism of action, has a longer duration effect albeit a slower time to the onset of that effect. We believe that there is a large commercial opportunity here. Of course, atopic dermatitis is already north of $10 billion with single-digit penetration in biologics in the patient group. We also know that for Dupixent, there's approximately 20% of patients that discontinue. And so even as a second-line therapy, there's an attractive commercial opportunity. Of course, there's also lebri from Eli Lilly, which is an IL-13 antagonist. But because there's almost complete overlap between lebri and Dupixent in the mechanism of action, if you went to a second line, having another option like OX40 ligand would be attractive. Thus far, OX40 ligand is arguably the only other important mechanism of action that has been shown to work in atopic dermatitis. Lastly, if you look at the biology of OX40 ligand, there's a good case to be made for working across many indications. And as I mentioned, it's currently being evaluated for celiac disease, for asthma, HS, alopecia and others. So we believe in a nutshell that the OX40 ligand class has the potential to be huge. What we have is a molecule that is coming in behind -- quite far behind amlitelimab, but is neck and neck with other molecules that are now being developed. The differentiation thesis is that we've engineered this molecule to have excellent biophysical properties, so good formulation, and with YTE mutation, has half-life extension that should allow for less frequent dosing than amlitelimab. I'd say that's a modest case for differentiation, but an important one if stacked up against once-monthly dosing that maybe happen for Sanofi. And we do believe that given what we've seen thus far preclinically, we have a very good chance of being able to have less frequent dosing than what they ultimately get. Lastly, because this is following a clear development path and we expect to have the CTA filing, which is the Canadian equivalent of an IND submitted in Q2 of 2025 and a readout at the same time as ABCL635 with safety and PK in 2026. So in 2025, we are making the transition from being a preclinical platform and partnership company to a clinical stage biotech. Our first 2 programs will enter the clinic in the back half of this year, ABCL635 and ABCL575. And behind that, we have a large and robust, and in our view, a very exciting and differentiated portfolio of preclinical assets. We have roughly 20 preclinical programs that are underway at various stages starting from just getting going to ones that are within striking distance of a development candidate this year. And our intent is that over the coming years we'll be electing, on average, 2 development candidates per year so that over the time from now to 5 years from now, we have the potential to build what is an exciting and highly differentiated portfolio. The name of the game now is for us to find that molecule that has likely to be a winner and to push it as far as possible. And if we get that, then I think we're well set up to have a really dramatic acceleration of productivity based on the long-term investments in incapability and in the internal pipeline. And with that, I will stop and happy to take some questions.

I can get started with the questions. To start, what are some key catalysts to expect over the next 12 months?

Sure. So I think I touched on some of these through the talk. So first of all, the -- actually, first of all, we will be disclosing the identity of ABCL635 in Q2 of this year. In Q2 of this year, we also anticipate 2 CTA filings, one for ABCL575 and 635. And then, of course, the initiation of first-in-human later in the year. Both of those programs, the real catalysts will come with clinical data, which we expect in the first half of 2026, so a little bit more than 12 months off. We recently announced the collaboration on our TCE platform. That is an area -- that is the one area in partnering where we're still very active, and we see a lot of opportunity and a lot of interest being driven by clinical data that's now coming out from various groups that has compellingly made the case that TCEs have an important place to play in solid tumors. And then additional catalysts, I'd say, are the election and announcement of new development candidates. And we're hopeful that we have some that will not only be exciting therapeutics that are differentiated and first-in-class, but also that very strongly highlight the technological differentiation at the company since we do have many programs in the preclinical pipeline that are going after target classes that have, thus far, been either very difficult or completely intractable.

Thanks, Carl. You mentioned briefly about the development candidates that you're electing. So with the AbCellera engine largely in place and the big investment there complete, how is the company thinking about which development candidates to take forward?

Yes. So the question is with the capability and the capital and the ability really to go anywhere you want in terms of modality and platform, how do we pick? And I'll just maybe resummarize what I laid out in the presentation. We're looking for those golden opportunities where AbCellera can win and where we believe that there is a much higher chance of success, not just success in the clinic, but commercial success than is average. And we look at those through 3 lenses: science, differentiation, development and commercial opportunity. And I would say that within the portfolio, that's always being evaluated and always changing based on internal data and external data, but we feel very bullish that we have a stable of exciting assets that can come out over the next year and beyond.

And switching gears to ABCL575, where do you see the opportunity for differentiation based on what you've learned about the molecule thus far?

Yes. So again, ABCL575 was designed to be at least as efficacious as amlitelimab, which is currently the frontrunner, but to allow for less frequent dosing. We're confident that we have seen that. We have a molecule that in our assays, if anything, might be more potent, but probably is comparable to amlitelimab. We have a terrific CMC package, good formulations, so we can get to a higher concentration in a subcu formulation. And finally, with the YTE half-life extension, we expect based on preclinical data that we will have better PK and longer target coverage. But of course, we need to show that in the clinical study. And I would say for amlitelimab -- pardon me, for 575, the catalysts are really twofold. Internally, in our clinical development, the most important thing is to show PK and target coverage. And over that time, we also expect to get external catalysts, which include readouts from Sanofi in other indications as well as work being done by other groups, particularly looking at OX40 ligand as a combination therapy. If any of those read out well, we believe that reads through to this asset and increases the value of the class, and hence, the value of the asset.

And turning to ABCL635, how do you think about the potential success of this program in terms of providing external validation of your competitive advantage here?