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

All right. Good morning, everyone. I'm Stephen Willey, one of the senior biotech analysts here at Stifel. And glad to have with us here to kick things off this morning from AbCellera Biologics, CFO, Andrew Booth. Andrew, thanks.

Hi, Steve. Good coming. Thank you for having me.

Here. Maybe before we jump into Q&A, if there's any, I guess, any opening statements or introductory comments you want to make about the company?

Yes. I'll just -- first of all, thank you for having me here and the regular disclaimers that I may be saying forward-looking statements, and please check the SEC filings for all of our necessary risks or reported risks.

Okay. So you're obviously you've made the transition, right, from kind of becoming a portfolio platform-focused company to one that is now developing your own clinical assets. And that's definitely kind of a transition I want to talk to you. But maybe we can just kind of talk a little bit about the partnership side of the business and kind of what drove that transition from kind of being not necessarily kind of a service provider, right, but kind of being more in control of your own drugs, wanting to take ownership of that. And should we expect that, that ownership potential for the wholly owned assets that you move into the clinic should also possibly increase over time in terms of the amount of economics that you want to retain?

Yes. Happy to comment on that. So actually, the kind of lead up to that is AbCellera has now been around for about 13 years. It was founded in 2012. And you're right, at the beginning, the investments were all on the capability building in the platform. And we were doing that working on some of the hardest programs out there that were funded by our partners. So we were able to, for the majority of the first decade of the company, use the partnership business and the partnership model as a way to invest and build up our own capabilities with the goal of really focusing on the highly differentiated, very difficult targets. So we've talked about those in the past. So antibody discovery and development programs that have some kind of technical challenge that need to be overcome. And we believe we could invest in that capability to get to a different technology curve for finding therapeutic antibodies. And we focused in on that by bringing this capability to our partners. And as you say, not really in a service model, but in a way where we would get paid for what we would do. But importantly, we would retain some of the upside in the success of the molecules that we discovered, participating in downstream milestones and then ultimately royalties. And over time, as the company built, the focus for us was capturing that long-term value. So increasing in the royalty position, moving into co-development where we would have like a 50%-50% stake. And even then back in 2021 or so, really making a shift, not solving for volume there, but really solving for working on difficult problems where we believe our technology could make a difference and with partners who we believe had the wherewithal to get them through to the clinic and then move them on ultimately to patients. Now during that time, there was a real focus on building those capabilities. And now, as you say, we have made a transition into using those capabilities still for our partners. We have some strategic partners. They're really the big pharma partners that we're focused on with Lilly and AbbVie. And that has been a conscious shift, and you've watched it over the last number of years. And recently -- or about 2 or 3 years ago, we made the decision to say, no, and we're also going to move forward our own assets. And it took some time to get those into the clinic. And as you said, kind of we would consider that transition complete this year in 2025 as the first 2 of those wholly owned assets moved into the clinic in the second quarter. And in the third quarter, we also announced that there's -- the next one has moved into the IND-Enabling studies. So I think that, that has been received well by the market as well as by our employees and the focus and direction on that, where when we said we were going to move, that was the strategic choice. And then we followed that up with the execution and hit the time lines of bringing these first 2 assets to the clinic, and we're pretty excited about that, and we'll have the first readouts in 2026.

Okay. And like you said, I think there's still some -- you're still entertaining partnership opportunities, right? So maybe you can explain to us what that checklist needs to look like in order for you to choose to work with a partner now.

Yes. And we have worked on over 100 programs with partners. And we have -- on an annual basis, we do give more color as to what that portfolio of downstream positions look like in terms of how many are we still working on and how many do we know are not being pursued by partners. And we still occasionally will do that. But we actually put those programs to the same test that we put our own internal programs through, like do we like the science? Do we think there's a big commercial opportunity? Do we have an angle on differentiation? And is there a good clinical development path. Those are typically -- that's typically the framework that we use. And in the case where it's a partnership, it's also got to be a molecule program where we don't really have an angle on our own how we could pursue that. The partner is typically bringing something to the table that we wouldn't be able to pursue that program without the partner, whether it's their clinical development expertise or some other technology, which has been the way we have gotten into these co-development ones. If it's a smaller company, we've actually managed to negotiate a full co-ownership of a molecule that uses both our own capabilities as well as that of a partner.

Okay. Are partners or potential partners now maybe a little bit more cautious in the sense that you are developing your own pipeline of drugs, right? And I think before that kind of wasn't the case. And so I guess as a partner now coming to AbCellera, how do you, I guess, solve for those 2 things in doing a deal?

Yes. We get this comment quite a lot. We have for years actually, but we don't see it in the day-to-day. Generally, partners and well-enabled partners come to us because maybe they're stuck and they see that we might be able to -- and there's a partner -- there's a program that's important to them, and maybe we can get them unstuck or bringing some technology to the -- or capability to the program that they just wouldn't have access to. A good example of that is recently in this year, we announced a T-cell Engager deal with AbbVie. So we've been talking about and working on the T-cell Engagers because it's a particularly difficult antibody discovery program of how to engage T-cells and engage them and activate them in just the right way. But then partner them in a bispecific format or even a multi-specific format. And that is a program that AbbVie we're pursuing with AbbVie, some of our own internal programs and with AbbVie with the ones that are important to them. And for us, that actually helps us build a relationship with those companies. They get to understand the scientific rigor and the level of quality we have in discovery and development. And if anything, it builds that relationship in the event we might want to partner one of our assets maybe at a later stage. So it's almost a presale activity, you could say, in that licensing. If there are assets in our portfolio that we would want to license, it's great to have those relationships.

Yes. That's a good point.

And I think that's a win-win actually. And so I don't think -- we don't see that as a deterrent or we don't get that response from those select partners that we choose as a deterrent. It's more of a feature.

So you talked about the -- I guess, the scientific acumen that you've built up in the T-cell Engager space. I know you've also built up some acumen in the GPCR and ion channel space. Are those primarily kind of like the 2 silos where partners now are coming to you for antibody generation?

Yes. I know -- and I know it's part of the legacy of like we've been in the partnership business for some time, but really, the focus is on the internal pipeline. And -- but yes, the difficult targets are particularly difficult antibody discovery program is what we believe we're known for and what our capabilities are well suited for. And we have historically done that and continue to do that for our partners should they ask. And we have a great set of partners with Lilly, Regeneron, Novartis and others. As you know, there's great validation on the capabilities from those partners that we've worked with. But the focus has turned to really applying that capability to our own internal pipeline. And the case in point is ABCL635, which is a GPCR target. And I know we're going to talk about that one in a second.

Yes. So let's talk about 635. And maybe you could just kind of at a high level, introduce the genesis of this thing. And these targets, I guess, have been historically very challenging. And so I guess from a discovery perspective, how does -- how did your platform differentiate in this instance and allow for the nomination of this asset?

Yes. So ABCL635 is an antibody against the NK3R Neurokinin 3 receptor. And how we came about this asset is it went through that framework that I kind of quickly overviewed previously. It's like do we like the science? And in this case, the NK3R pathway is actually well validated by small molecules, and we can talk about that in terms of the competition that they are building the class of nonhormonal treatments for hot flashes associated with VMS. So the science, we think, is very well validated. The commercial opportunity is huge, and we can go into some of those numbers, but women experiencing moderate to severe hot flashes as a result of VMS and menopause is -- it's a giant -- it's a large market and a big unmet medical need. Do we have the opportunity for differentiation? Well, we're the first-in-class monoclonal antibody. We see an opportunity, especially in the dosing regimen and that from the studies that we have done, we see that the majority of women actually would prefer a monthly injectable to a daily oral. That's if safety and efficacy are equivalent, and we have reason to believe why we might be safer than the small molecules. And clinical data will tell us if we've got more efficacy. And lastly, the clinical development path. Actually, it's a very straightforward clinical development path with a single injection, we expect to see -- we have strong biomarkers that we will test in Phase I. And we do also, as a part of our Phase I, have a proof-of-concept study that is being done on postmenopausal women with experiencing moderate to severe hot flashes. So without a lot of outlay of capital, we are going to be able to see a signal, which will give us real conviction that this antibody is going to eventually be a drug. And I can go into any one of those.

Yes. No, let's hit them all. So I guess on the scheduling side, you talked about this being once monthly. There's a half-life extended antibody. Do you think that there's maybe an opportunity to even extend the frequency of administration beyond a month?

Yes, it is possible. Right now, our target product profile is for a monthly subcutaneous injection with an auto-injector. And we think that, that would fit and be well received by the market. So that is a source of differentiation. I think it's a great source of differentiation. Just to go back to these statistics, we polled a number of women who are experiencing hot flashes and asked if they -- what they would prefer, either a daily oral or monthly injectable. And over 50% of women said that they would prefer the monthly injectable. And when you segmented that to women who have experience with needles or injectables, either through diabetes or GLP-1s or any other type of subcutaneous treatment, it's over 75% that preferred the injectable. And with the increased use of GLP-1s, maybe that would skew the entire field to vastly preferring and into monthly injectable over a daily oral. So that's a real opportunity. And the one thing I didn't talk about in terms of our framework of the science, the commercial opportunity, the differentiation, the commercial development path. And it leads to the investments we've made in the platform is that the novelty on this one and the ability to others -- for others to follow. It is an antibody against a GPCR target that hits a part of the brain that is not normally do you go after antibodies even for trying to hit a target in this part of the brain, and it is a GPCR target. So we think we have quite a differentiated asset here that played to our strengths of the years of investment in technology.

I would imagine CNS penetrant is maybe one of the first things that folks are trying to screen out for actually, right?

Yes. Well, actually, the -- we have said quite clearly, and I think that the major risk on this program is target engagement. So can we engage the target? And we are going to find that out in the Phase I. So again, that leads to the -- that lends itself to this conviction on the clinical development path for not very much capital we are going to make -- get a good biomarker data and then also see if the engagement of the NK3R Neurokinin 3 receptor is sufficient to lower hot flashes by kind of in the middle of next year. And that engaging that part of the brain and engaging it sufficiently to actually be able to send the signal past the blood-brain barrier to the thermal regulatory spot of the brain is the major risk in this program, and that kind of broadly is the target engagement. And we will know by the middle of next year, which is a very exciting time for AbCellera.

Okay. Maybe talk a little bit about the Phase I. I know that's being done in development with this grant, I think it is with the Canadian government. So maybe you can just talk about how many patients, how you expect the utilization of Canadian trial sites to impact or not impact the pace at which you can enroll patients. And then maybe you can just talk a little bit about the biomarker that you're going to be looking at that's going to allow you to claim proof of concept sometime next year.