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

All right. I think we're going to get started. Welcome back to another session at TD Cowen's 46th Annual Healthcare Conference. It's great to see everybody. I'm Brendan Smith, one of the tools DX analysts here at TD. And I'm joined on stage today by the Senior Director of Strategic Finance and IR from AbCellera, Martin Hogan. Martin, it's good to see you.

Thank you very much. Thanks so much for having us.

Great. So I know we've got a lot of topics to cover, a lot of questions to kind of sit through. But by any means, if anybody in the audience has questions throughout, feel free to kind of flag me or can send an e-mail at [email protected]. We can work them into conversation too. So maybe, Martin, let's kind of just first level set the AbCellera of March 2026, right? So the platform has kind of evolved through a few different iterations over its lifespan. But how do you now kind of see the relative value of the company given kind of its transition to more of a biotech-like entity? And help us kind of contextualize the research fees core franchise in the context of where we are today?

Absolutely. I'm super happy to talk about that. I will make some forward-looking statements. Please do look at our SEC filings and risk factors. And with that out of the way, when you look at AbCellera today, really, what you're looking at is a company that spent the past 13-odd years investing cumulatively something like $1 billion to build out an end-to-end capability to discover and develop and now also manufacture as drug product antibody-based therapeutics and specifically in areas that are very difficult to find antibodies against. So complex membrane, protein targets, ion channels, GPCRs, T cell engagers, multispecifics. So really from the beginning, a company built to push the edge of what's possible in antibody discovery and development. At the start line, that was a technology capability that has been sort of crystallized with upstream, downstream parallel abilities around it and honed really in the fire of having run over 100 drug discovery programs for some of the top players in the industry who often came to us with the most difficult problems that they had and which we solved successfully, as you rightly said, for fees and stakes in the downstream success. The most valuable thing as excited as we are about the value of that emerging milestone and particularly royalty portfolio in the long run, by far, the most valuable thing that came out of that was the capability of the team and the platform to pursue those targets. And we're finding that the most valuable application of that capability really is against targets that we can identify ourselves and pursue with internal programs. So as we're sitting here, AbCellera 2026 is a company that has really matured with an incredible platform to move into its own programs and really into later-stage clinical development with our first program having entered Phase II and reading out later in the year.

And perfect segue now. So let's maybe talk about 635, right? So this is ABCL635, kind of lead compound here. You mentioned we have some Phase I/II data expected, I think, in Q3 of this year. Maybe before we get into expectations for the readout itself, kind of help us level set this mechanism specifically for 635 and why you see it as especially differentiated for VMS, hot flashes relative to kind of the unmet need and some of the other drugs that are out there?

Absolutely. Yes. 635 is definitely worth our time talking about as our lead program. When you look at the lead indication, and I'll say it's the lead indication is hot flashes or vasomotor symptoms, VMS associated with menopause. In the United States, there are about 12 million women suffering from moderate to severe symptoms, where that's defined as hot flash is so bad that you need to stop what you're doing at the moment to get through the hot flash. So pretty severe interruption to the lives of women. So about 12 million experiencing that, about half of them, and I'd say only half so far, seeking treatment where the first-line treatment and the best treatment, if it works for you, is arguably menopause hormone therapy, right, where I think the awareness that this is an excellent treatment is growing, and we are welcoming that. Unfortunately, about 12% of women are contraindicated for MHT and about 8% of women go on the therapy and then find that they can't tolerate it. So you're left with one in five women who really is looking for a non-hormonal alternative because the hormones don't work for them. And into that space launched Astellas with their small molecule NK3R inhibitor and Bayer with their dual NK3R/NK1R inhibitor, also small molecules. We still see that there is a significant unmet medical need even past that because in the case of both of those molecules, there are certain safety and tolerability issues, if you will. And that sort of gave rise to our target product profile in this space, where what we're looking for is an antibody that has a very clean safety and tolerability profile, partly because it's an antibody and partly because it is specific to only engaging NK3 arm. And in addition, we're looking for a more convenient dosing regime. So instead of a daily oral, having done a market research study with women, we find that roughly half of all women would prefer a monthly auto-injection, given the same safety and efficacy profile as a daily oral. And as we just discussed, we're looking for a better profile on that count. And interestingly, the subpopulation of that survey that was auto-injector experienced had a 70% preference for auto-injectors. So we believe that we've got a compelling differentiation potential in our profile here, both on safety tolerability as well as on convenience. While we're on convenience, maybe worth adding, both of the small molecules come with liver enzyme monitoring. And so you can look at that, of course, from the perspective of safety and maybe degree of worry for the patient, but it is also an additional burden on the prescribing physicians having to make sure that the patient goes through the baseline monitoring and then the follow-ups. So on that count alone, we believe we've got a really, really good profile. And that, of course, is in a space that is still very, very much growing.

Great. That really helps level set the conversation on 635. So I know in your earnings call last week, you also mentioned some encouraging early data that you observed in the Phase I portion of the study. What can you kind of tell us about some of those green shoots and ultimately, how they're informing your approach to the Phase II now?

Absolutely. So we are in a Phase I/II study, and we're well down the Phase I portion of that study. Of course, we're looking for safety. And so far, what we know about the safety is looking as clean as we had expected. And the other piece, besides, of course, the very exciting news that our modeling on PK seem to be spot on. So we're seeing data in humans that matched exactly our expectations. I think the really exciting part that we're getting out of this is a biomarker reading that tells us that we are engaging the target in humans the way both that the Veozah molecule did with respect to the biomarker as well as what we've seen in nonhuman primates. It's a proxy. It does tell us we're getting engagement on the target that we're hitting. It doesn't retire all the risk to the development yet. That really is up to the Phase II study, but we're now sitting here at a point where the drug is doing what we expected it to do as far as we can tell in Phase I.

Okay. All right. Great. So now maybe looking ahead to the Q3 readout itself. What should we expect from the data in terms of patient numbers, doses tested? You mentioned kind of a subcu formulation at some point and really kind of the clinical endpoint. So help us just kind of level set what realistically we can expect in Q3?

Yes. So in Phase I, we did a SAD/MAD portion, which allowed us to, with confidence, pick a dose for the Phase II portion. In the Phase II, we have 80 patients. So these are -- these participants are women who are expecting -- who are experiencing moderate to severe hot flashes. It is a triple blinded randomized placebo-controlled trial with, I think, a ratio of about 2:1 in terms of drug and placebo receiving participants. And the -- besides obviously delivering additional comfort on safety, the key thing is that the study is powered to deliver an efficacy signal, right? And the target product profile on efficacy, which we haven't touched on yet, is to get efficacy that is at least on par with what we're seeing from the small molecules. And if we see that and the Phase II readout, again, probably sometime after Labor Day, is designed to -- is designed and powered to deliver that proof point. If we do see that, then we will feel pretty comfortable that we have a drug on our hands.

Got it. So it sounds like comparable efficacy at least potentially differentiated dosing and superior efficacy is kind of the ideal product profile that we're really looking for.

Superior efficacy would, of course, be ideal. There's no question about it. But our expectation and our baseline is that we get comparable efficacy. Both those drugs in terms of the small molecules, they both do work and make a very meaningful difference for women. So if we get the same efficacy, but with a better safety profile and preferred dosing, that's our target product profile, and we feel very comfortable that we've got a potential winner.

And I know also on the Q4 call, you mentioned plans to potentially expand 635 into a few adjacent oncology indications. So help us -- maybe just walk us through kind of the logic from a mechanistic standpoint and what next steps from here will kind of be included in that strategic rollout.

Absolutely. So mechanistically, what the drug is doing is it is binding to the NK3R receptor on KNDy neurons. And in healthy young men and women, those candy neurons get, if you will, activated and simulated by neurokinin, so NKB and downregulated by binding sex hormones. So in the case of women LH, for example, and in the case of men testosterone. And so you sort of have a scale that's imbalanced with weights on both sides. And what happens in menopause, of course, is that estrogen goes away and the scale sort of tips towards the overactivation side with neurokinin. And what the drug does is it blocks the receptor and sort of removes that signal and it's back in balance. In the oncology indications, both, for example, in breast cancer, as well as in prostate cancer, in the case of prostate cancer, androgen deprivation therapy, endocrine therapy for breast cancer, you are removing the hormone signal to the KNDy neurons, right? Like that's what those therapies need to do to deal with the cancer. And so you have the same problem that you have in menopause, right, where the dampening signal to the thermal regulatory core is missing. And so they -- so mechanistically, the drug works exactly the same in dealing the same underlying condition of being -- having imbalanced signaling to the KNDy neurons due to a lack of -- of the sex hormones.

Got you. Okay. So help us now kind of think about the time line for 635. So we have the Phase II data readout in Q3. What's kind of the timing plan for if things look good in Phase II, when do you think you could potentially start a pivotal? And then also when -- what's kind of the plan to initiate some of these oncology indications?

Absolutely. So maybe start with the oncology indications. I think, once we get the readout from the Phase II and if it's positive, then we will move quickly into a Phase II trial on the cancer associated or cancer treatment-associated VMS trials. And we would move at maximum speed, of course, into a registrational trial for the menopausal VMS indication. The good thing is we don't need to reinvent the wheel on the Phase III trial design. Both the Bayer and the Astellas drug have demonstrated what is required to receive approval. So we'll be very much following in those footsteps, incorporating any learnings that there may be. In terms of timing, you could imagine that we'll be racing in 2027 to make that happen. The trials are not very long, but I think we'll see the detailed plans when we get there. Overall, and part of the reason why we chose NK3R as a target to go after in this indication to go after, as we try to do for other programs in our internal pipeline is that the -- as long as you've got the right molecule, the development path is clear. It has the potential for early derisking, right? When you think about -- we moved into patients, I think, in the -- around the middle of last year. So in just over a year, we'll have gone through full Phase I/II trials and readouts. And the Phase III trial also is expected to be on the manageable and maybe quicker side than the average trial.

And I imagine some of the answer to my next question will kind of come from based on what the Phase II data looks like. But is the plan now all looks fine or as expected in Phase II that you would carry just a subcu dose into a Phase III? Or would you potentially do an IV and a subcu dose?

The target product profile has always been to say we want -- like we are really aiming for a subcu auto-injector pen, right? And that -- from the convenience angle, that's kind of what we're looking for. That will certainly be the goal for menopausal VMS, whether that's the same or whether an adjustment is needed in the oncology treatment-related indications, I think, remains to be seen.

Okay. All right. Great. So now maybe let's pivot to 575. Let's talk a little bit about it. It is notably competitive space here for the OX40L inhibitor, 575. Help us kind of situate what the AbCellera kind of strategy is for this one now kind of -- and what's really ultimately driving your approach to this drug just in the context of competition from Sanofi and [ Regeneron ]?

Absolutely. I should probably start by saying this is our second molecule in the clinic. It is off strategy for us, right? It meets three out of four criteria that we have for internal programs very nicely. We understand the science and it really is a question of finding the right antibody. We have the capability to develop and derisk early, and there is still a large unmet medical need and commercial opportunity out there. But there isn't significant potential for differentiation, right? It was launched as a fast follower to amlitelimab in, at the time, collaboration with EQRx, but so don't read -- importantly, don't read from that program through into how we are selecting other programs where we're very much keeping an eye on differentiation. In this case, we do still -- we still see I think as Sanofi does, targeting OX40 ligand as a very promising approach in autoimmunity or immune conditions as an AD and beyond. I think that profile hasn't changed. Overall, the amlitelimab has proven to be a surprisingly safe drug, considering that in a way, it is an immunosuppressant. So surprisingly self drug, much better profile than some of the other things you'd see in the post-2P setting like JAK inhibitors, for example. And we're still encouraged by the data that we're seeing. Efficacy that doesn't seem to be tailing off yet at 26 weeks, a really clean safety profile. And in terms of differentiation, there is still some room for our molecule to achieve a prolonged dosing schedule, right, where we don't know yet, like our expectation is that amlitelimab will get approved. We'll see either with a monthly or a quarterly dosing schedule. And based on the half-life extension of our molecule and the data we've seen so far, we should be able to achieve one better. So quarterly, if it's monthly or semiannual, if it's quarterly.

Got it. And still on track for kind of the next data update there by year-end '26.

Data update, exactly data update by year-end. And that's then also sort of the point to which we are looking to take the molecule at least for now, right? We believe that this is going to be a large exciting space with likely a good number of molecules. So potential to be best-in-class, like amlitelimab in all respects, except for enhanced dosing regime. But there will likely be many drugs. We also see this space as being one that really requires a lot of experience, capacity, muscle firepower in terms of going after the full potential of a drug like this. And that is -- that would be beyond our capabilities. Others are better positioned to do that. And we're expecting that they are based on the discussions we've had so far, keen to see us check the boxes with the Phase I data before potentially partnering out the molecule to somebody who really is a better owner.

So you are kind of in at least preliminary discussions with some folks who are kind of keeping an eye on that year-end data readout, potentially checking the box and then revisiting a partnership, out-licensing, what have you, maybe early next year. Yes.

Possibly.

Got it. Okay. All right. So then maybe moving to the deeper pipeline a little bit. So -- because you also have a few other assets are also progressing here. So what can you kind of tell us about the target indication kind of just approach for 688 and 386? And really just kind of about the unveiling strategy for each kind of additional pipeline asset now as they approach Phase I studies?

Absolutely. So both of those have the potential to -- both have the potential to be first-in-class. I think with 688, there likely is going to be some antibody-based competition. Let's see, but both are in indications that are hugely exciting. We're not revealing the details, but 688 is in an autoimmune condition and 386 is in an oncology indication. We'd say that both have commercial potential overall unmet medical need addressing potential that is likely as exciting as 635 is, albeit different. What we are doing, particularly -- and you'll -- to the frustration of a good number of people who follow us, investors and others, we are playing our cards close to our chest, particularly where we're in this space and I told you we're looking for making sure that we're in a space where we've got real differentiation potential. And so we want to keep that quiet and keep the competition sort of off the trail for as long as possible. So the plan here is at the moment that we would unveil the target and the indication around the time of initiating clinical trials.

All right. I -- are you able to tell us, at least within the autoimmune indication, is this something like -- we've seen some other companies when they're moving into autoimmunity, kind of trying to build out this like pipeline in a product type of approach where it's a mechanism, whether it's FcRn or something else that's applicable broadly to a few different indications. Is this something like that or a little bit more targeted specific for one indication that you have in mind?

Without going too far, there -- as you rightly point out, I think in autoimmunity, many of the mechanisms work in more than or manifest in more than one indication. And that's the case here, too. What -- which of those we pursue, how and when, I think is still part of strategy formulation for us.

Got it. All right. So now maybe kind of contextualize the run rate now. So we've got -- maybe zooming out, we talked about some specific programs. We've talked about upcoming catalysts for you guys. So we've got Q3 readout with 635, potential expansion to pivotal study oncology indications next year. It sounds like readout in AD by the end of this year with 575 updates into Phase I for the third and fourth asset, too. So what's kind of the expected cadence as you're building out the pipeline, not just this year, but really over the next kind of 2 to 3 years? And what's kind of guiding your strategy in terms of where you're looking, right, with the platform capabilities. It sounds like you have some options in terms of building these antibodies, but what's kind of the North Star as you're building out more biotech pipeline?

Yes, great question. And this is exciting. It's easy to lose sort of side of the force for the trees, right? When you fast forward a little bit, we're set to designate our fifth development candidate later this year and looking to move that quickly into and through IND-enabling studies so that when we sit here again in a couple of years' time, there's a reasonable chance anyway that we'll have five programs in the clinic, of which one or two might be in late-stage registrational trials already, right? So this is -- it's a really exciting time when you consider that if we had sat here a year ago, we would have still firmly been a preclinical company, right? We are advancing a pipeline that is indication agnostic behind that of over 20 programs in various stages of discovery and early preclinical development with candidates for down-stage development to be nominated subsequently. And when you look at how we choose them, it is those four strategy criteria and where we find those opportunities tends to be and roughly half of our programs are against ion channel and GPCR targets, where we believe we've built out what are likely the world's leading capabilities in terms of pursuing agonists and antagonists to those targets with many important indications tied to them. The other half of the programs use some other advanced angle, be that our TCE platform, where we have a few programs in development, like in early development, other multispecifics or something else where we believe that it takes -- that it really takes the advanced abilities of our platform to bring together an antibody-based solution to a major problem. That's how we're curating them. We're screening many ideas concurrently for adding to that platform. But what we're really hoping to do is through the selection and then through the unveil of the upcoming programs to -- sort of to prove that we've got a good taste in biology and a good taste in target selection.

Got it. All right. And I guess kind of tied into this part of the conversation, too, obviously, you guys have a new GMP facility, right, that is now online and started to speak a little bit more to the scalability factor when it comes to this, obviously, pretty well capitalized for a biotech -- effectively a biotech company at this stage of development. But I guess, how should we think about that GMP facility as it relates to kind of your willingness to go into some of these different areas? And how is that kind of impacting your strategy now as you're building out the pipeline?

Yes, great question. So the GMP facility really sort of put the finishing touch onto our platform investments and still leaves us, as you rightly point out, with $700 million of cash equivalents and committed government funding to pursue the strategy, advance, add to the pipeline. And that with a run rate that is now that those investments are complete is coming down to somewhere just north of $100 million, call it, $120 million a year. So really, really, really good runway and visibility in those investments. What the manufacturing capability allows us to do really is control our supply chain, which in the current environment is a pretty significant factor. It accelerates CMC and manufacturing to a degree, gives us a certain degree of flexibility as well that is hard to obtain or expensive with the CDMO. But intriguingly, and I think maybe somewhat underappreciated, it extends patent runway, right? When you are going to a CDMO, you will want to have your patent filed, and that often is 2 to 4 years before you're starting your clinical trials where you need to have it filed in any case. So for the programs that we are manufacturing in-house, we are looking to have an extra 2 to 4 years of patent life when we -- through out just by virtue of having -- not having had to file and disclose the sequence to the CDMO early. So that's really the role that it plays. I think we're also expecting with the volume of programs that are coming through the pipeline that we will get good utilization and probably favorable economics, but the real advantage lies in the flexibility, speed and that patent IP protection angle.

Okay. All right. Great. So maybe just in the last minute here, help us think about -- we've had for 5 years or so. So the AbCellera of '23 even, kind of adding one or two assets into the clinic on average over the next few years, advance, you talked about the potential time line for some of these programs itself. Should we think about AbCellera really as kind of this core biotech in the sense that if you're bringing an asset into Phase I, the goal really is to kind of carry it forward yourself? Or is there kind of a balance you're already where you are today, kind of looking to strike between out-licensing certain drugs given your differentiation on the actual manufacturing platform, where kind of a more mature version of the company would be whether that's 50-50, 70-30, what that looks like? Is that a core part of the actual strategy as you're building out?

Yes. One of the things that I've always really appreciated about the company is the willingness to look at the facts as they are and to understand value robustly and not to get dogmatic, right? And I think the same applies here. So the AbCellera of 2030 if things go reasonably well, and they don't need to go very well, just reasonably well, we'll have a full clinical pipeline in late stage, maybe approaching approval and many in behind and still a preclinical pipeline to keep feeding that for a while. There will be some programs where we will have come across a better owner like 575, who was willing to pay fair value for the asset, right? And in that case, we would be open and free to partner the asset because we will continue to have a company that can do many things and invest, reinvest whatever we receive in such a partnering transaction. So I think we are very much open. And hopefully, some of the partnerships that we built in the earlier stage of the company, we're certainly seeing those conversations carry on will support sort of some of the trust that is needed in making such a deal work.

All right. And I think with that, we are at time. Thank you, everybody, for listening in. I know we got an action-packed day still left in the back half. Martin, always great to see you. Thanks for joining.

Thank you, Brendan. Absolute pleasure.