AbCellera Biologics Inc. ($ABCL)

Bank of America's Annual Healthcare Conference in very toasty Las Vegas. I'm very happy to be joined here on stage with Carl Hansen with AbCellera. Thank you so much for joining.

It's great to be here. Thanks for having me.

Wonderful. Maybe, for those who might be newer to the story, can you give us a brief overview of the company? And again, you've evolved from a successful discovery partner into a company now focused on advancing its own clinical assets. How did that evolution happen?

Sure. So the company is now roughly 13 years old. It was started at the University of British Columbia, where I was a professor at the time. And from the early days, or in the first, let's say, decade of the company, we were really focused on a technology-forward strategy. We were building and integrating proprietary and best-in-class technologies to make a platform for the generation of novel and highly differentiated antibody therapeutics. And the business model behind that, that drove that was a partnership business model. So we were essentially hired guns for the industry, and we're the partner of choice when large pharma, highly enabled partners ran into antibody discovery problems where their internal technologies were not up to the task. And so that business really drove the company for the first 10 years. And the model included early research fees as well as downstream stakes and programs, and we were running this hired gun technology access for a stake in molecules that are moving forward, sort of a royalty aggregator. The company had a big breakout moment in 2020. We had been working with the Department of Defense with DARPA on a platform technology for pandemic response. And in March of 2020, we were able to deploy that. And with Eli Lilly, we were successful in having 2 therapeutic antibodies that got emergency use authorization that ultimately were used in about 2 million patients in the U.S. And we had a 25% royalty on that product. So over '21, '22, '23, that brought in about $1 billion of nondilutive capital into the company. At the -- on the heels of that, we went public at the end of 2020, raised about $650 million. And then subsequently, we were able to bring in another $400 million in support from the Canadian government. So the company had this breakout moment in 2020. And over the last 2 years, we have been completing that project of building a highly differentiated capability for generating antibodies, much of which was crafted and perfected in the context of solving some of the toughest problems in the industry. So in '23, we made the decision that we now have the capital, we have the differentiated capabilities. We saw some very compelling opportunities, and it was time to take that capability and turn it inward to reform the company into a classic drug development company. And over the last 2.5 years, we've been basically heads down, reforming the company, moving those programs forward and are now within sight of a very exciting first clinical readout and believe we have the ability to follow that up again and again over time. So I have been on a bit of a push to reengage with the investment community because in a lot of ways, this is a new company profile and a new start to the next chapter of the company.

That's a great segue to the next question, which is when you think about the market's response, what do you think they're overlooking about how transferable some of these previous experiences are in terms of your success moving forward? And I guess, what gives you an edge in antibody discovery?

Yes. So I'll start first with the edge. So like I said, like we -- for 10 years, we made our living solving challenging antibody discovery problems. And in particular, I believe we now have best-in-class or best-in-world capabilities for some very important specific applications in therapeutic antibodies. So GPCRs and ion channels is -- has been a heavy focus. Our first program, which I'm sure we're going to talk about ABCL635 is emblematic of that capability. We also have developed capabilities in multispecifics and more recently in ADCs. So the platform build is highly differentiated. We can make molecules that are not me-toos, but they get into some new space where there's not much competition. And it's integrated all the way from discovery through now to manufacturing. That's a very unusual setup for a company. But the market, I think, rightly, doesn't want you to talk about a platform. They want to see what is the outcome of the platform. And so for the last 2 years, we've been setting that up. 635 is the first example. Next year, we expect another 2 programs of a similar profile, ABCL688 and 386 to come forward. And I believe, over time, we're going to be judged on the differentiation of the platform as seen in the assets as well as perception that we are taking that capital and that capability and directing it to bets that are going to have high return on investment. And we're feeling really good about those first 3 programs and maybe another one coming behind it.

Got it. Let's pivot to 635. I mean, obviously, NK3R has been validated by small molecule approaches. I guess what gives you confidence an antibody approach could be potentially differentiating?

Sure. So NK3R, I think, is a great example of how we think about selecting programs. So as you mentioned, a lot of validation and now clinical validation with 2 small molecules. Coming into this program, I think our big risk was will an antibody be able to engage and block NK3R in the part of the brain that is responsible for driving the hot flash process we're instigating it, which is called the KNDy neurons in the infundibular nucleus. We like this program a lot from the beginning because there's a well-established biomarker to test that target engagement in testosterone. And our view is that if we can get there and get strong blockade of NK3R, then we should be able to get efficacy that is at least comparable to what the small molecules have seen and perhaps even better. So our differentiation thesis is an antibody that has at least comparable efficacy, that has better convenience through a once-monthly subcutaneous injection and importantly, that does not have the safety liabilities that exist with the small molecules. And in particular, both molecules have a warning for liver, liver enzymes, the requirement for liver monitoring. And the first product that was launched, which is VEOZAH, post launch has gotten a black box warning for liver injury. So we believe that, that is not because of an on-target effect, but rather metabolism of the small molecules and an antibody, obviously, will not have that. So we've got a real shot of having a cleaner safety profile, better convenience and at least better efficacy and perhaps a scientific case that could lend itself to better efficacy.

Just for a minute, just parity with efficacy here. I mean, how do you expect prescribers to weigh both of those dynamics? The issues about safety and liver monitoring versus dosing convenience and enhanced efficacy.

Well, I think it's a big deal. So first of all, there's a convenience advantage, both for practitioners and for patients. So in comparing a once-daily oral to a once-monthly subcutaneous injection, we have done some third-party market research. And that came back for equal efficacy and equal safety that about 55% of women would prefer a once-monthly injectable over a daily oral. And what's interesting is if you listen to the interviews, you see that there's a subset of patients that strongly prefer the injectable. It's like a no-brainer. There's also a subsection that do not want an injectable, they want oral. So both are true. But on average, there's a preponderance of people that would prefer the injectable, and that preference goes up for anyone that has any experience with it. From a practitioner perspective, both small molecule products require liver monitoring. So if you don't want an injectable, then you don't get off the hook because you still need to go for blood draws and liver monitoring. And for VEOZAH, that liver monitoring is quite intense. It's monthly in the beginning and then a bit less frequent later on. So a product that is more convenient for the physician to administer a product that is more convenient to take for the patient and one that doesn't have the same safety considerations, we think will be highly attractive. And in a market that gets developed by small molecules, being the only injectable is a great place to be because we expect that there's at least 2 small molecules now, and there may well be competition in that part of it as well moving forward.

Help us frame the third quarter Phase II readout. What levels of efficacy? And then what do you need to see on safety to help confirm that both are indeed differentiated?

Yes. Great question. So I think it was like 2 days ago, we had our earnings call, and we released some of the interim data from the Phase I study. The important take-home points there were, so far, we see a very clean safety profile, which is what we expected. In monitoring liver enzymes at all doses out 12 weeks, we see no indication of liver signal. And most importantly, we saw that target engagement in the infundibular nucleus as measured by testosterone reduction was superior at doses that are compatible with our PPP as compared to approved small molecules. So we have deeper testosterone suppression and that testosterone suppression sustained through the entire dosing period of a month versus transient suppression that happens only briefly and recovers to baseline in 24 hours for the small molecules. So already, we have a good indication that we're going to see a good safety profile that will have the dosing profile that we want. And the last remaining question is, does the target engagement as measured by testosterone correlate with efficacy in the same way that, that has correlated with small molecules. If that is true, then we feel strongly that we're going to have a drug, but we still need to get that readout. And for us, success is equal efficacy or comparable efficacy with what they've seen in the small molecules. That's roughly a 22% reduction relative to placebo on the frequency measure. And with that, we think we have something that could easily be a blockbuster product. In the upside, we might see that we have better efficacy, and then we'll open 2 bottles of champagne instead of 1.

We'll root for you there. Let's just briefly turn to 575 in the time we have left. But given all the growing interest in the OX40 ligand, where do you believe 575 can stand apart?

Yes. So 575, first, I'll say it's somewhat off brand for AbCellera. So it's a molecule that we got through a historic partnership with EQRx. The investment thesis for ABCL575 was that we believed at the time that the OX40 ligand class could be a huge class and that a molecule that was a terrific molecule, potent and suitable for less frequent dosing would be in high demand as the leading molecules, amlitelimab and rocatinlimab from Sanofi and Amgen needed towards their final studies. I'd say what has happened is the efficacy of those readouts as well as the occurrence of Kaposi sarcoma, has taken the shine off of the class in atopic dermatitis. So our strategy was always to move that forward and then look for a partner. We're going to read that molecule out at the end of the year. I think it's going to be as built. It's going to look like a terrific molecule suitable for every 6-month dosing. I think at this point, the prospects for partnering in atopic dermatitis are diminished. So if we don't find a good opportunity, we'll hold on to it, but we don't have plans to invest further. And my intuition is that the OX40/OX40 ligand class is going to come back around, but it may come back around in a different indication or in combination. And we're going to keep our head up and look for opportunities. But at this point, we are much more excited about ABCL635 and much more excited about the 2 molecules that we haven't yet disclosed, ABCL688 and 386 that are moving into the clinic and are much more on brand in terms of trying to get into not crowded spaces with compelling opportunities for unmet need by using an advantage in our technology.

Just real briefly, when you think about 575, is there anything about the readout that maybe doesn't necessarily help that program, but overall helps build that idea that your platform is distinguished?

I think that ABCL635 very much does that. So it's a potent antagonist of a GPCR target. That's a strength of the company. ABCL688 will do that. ABCL386 will do that. OX40 ligand, in my view, is not a particularly difficult target. You don't need AbCellera to make a great antibody for it. So I don't know if there's a lot of read-through on ABCL575 to the rest of the platform. I do think if you had a baseball card with stats, it may well be the best OX40 ligand antibody out there. But does that really matter, is an open question. So we do think a lot about portfolio selection and the objective is by the end of 2027, if we get the right data readout, we could have 635 in late-stage studies, 688 disclosed and moving into patient populations, 386 there, maybe even another one. And when you look at those programs, my belief is that you will say, yes, I understand there is real differentiation in that platform. And management has done a great job of picking opportunities that make a lot of sense, and we're excited about all of those programs. But that's going to take some time to play out.

Makes sense. All right. In the time we have left, what can you tell us about 688 and 386?

We've said very little. For 688, we have said that it's from the GPCR9 channel platform, and that has been a central strength of the company. And we've said that it's a myriad of autoimmunity. For 386, we've always said it's in oncology. So we're not saying much, and I am sympathetic to investors that want to know more about the pipeline, but we have to weigh that against what has become an incredibly competitive world. And we believe that it is in the best interest of the company and shareholders to hold our cards as close as we can until the very last moment. Now that we control manufacturing, we don't even need to file patents until we get close to the clinic. And we are, I think, routinely going to be trying to fly under the radar as long as possible so that we get a really substantial lead in moving programs that we have conviction in. So not much, unfortunately, but it's coming.

Fair enough. Looking forward to these next disclosures. Thank you so much, Carl, for joining.

All right. Thanks so much for having me.