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

Good afternoon, and welcome to AbCellera's Q2 2026 Business Update Conference Call. My name is Jonathan, and I will facilitate the audio portion of today's interactive broadcast. At this time, I would like to turn the call over to Tryn Stimart, AbCellera's Chief Legal and Compliance Officer. You may proceed.

Thank you. Hello, everyone. Thank you for joining us for AbCellera's Second Quarter 2026 Earnings Call. I'm Tryn Stimart, AbCellera's Chief Legal and Compliance Officer. Dr. Carl Hansen, AbCellera's President and CEO; and Andrew Booth, AbCellera's Chief Financial Officer, are speaking on today's call. During this call, we may make statements about our strategic priorities and financial outlook based on our current expectations and in accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Our statements are subject to a number of risks, uncertainties and other factors that could cause actual results to differ materially from those described. Please review the Risk Factors section of our most recent Form 10-K and subsequent 10-Q filings with the SEC for a more detailed discussion of these risks. AbCellera assumes no obligation to update any forward-looking statements to reflect events or circumstances after today's date. Our presentation today, our earnings press release and our SEC filings are available on our Investor Relations website. The information we provide about our pipeline is intended for the investment community and is not promotional. As we transition to our prepared remarks, please note that this call is being recorded and will be available for replay on our Investor Relations website and that all dollars referred to during the call are 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.

Thanks, Tyrn, and thank you, everyone, for joining us today. The most important data readout this year is the top line results for ABCL635 in the treatment of moderate to severe hot flashes associated with menopause. Last quarter, we shared our interim Phase I data that showed robust and sustained target engagement in healthy male volunteers and supported quickly advancing into a Phase II study in postmenopausal women experiencing moderate to severe hot flashes. Recruitment in this study accelerated through H1, and we completed enrollment and initial dosing of patients in June, well ahead of schedule. Based on this, we expect a top line data readout very soon. If the data is positive, we believe ABCL635 will be highly derisked. As noted in our last call, we've been preparing for next steps, which would include late-stage clinical development in moderate to severe VMS associated with menopause and clinical studies to evaluate ABCL635 in treating VMS associated with cancer treatment. Turning to our broader portfolio. ABCL-688 and ABCL386 continue to progress through IND-enabling activities, and we expect both to enter Phase I/II studies in 2027. We will disclose more information on these programs when they enter clinical studies. Our Phase I trial for ABCL575 completed dosing and is on track for a readout in Q4. As previously discussed, we intend to complete Phase I studies, and we currently have no plans to develop it past Phase I. Finally, I had previously communicated a goal of moving another program into IND-enabling activities in the first half of this year. Although we missed this time line, we are making good progress, and I'm confident in the productivity and innovation of discovery. The most significant public disclosures since our last earnings call are related to business development associated with our T cell engager platform. As a reminder, it was 5 years ago that we started working on TCEs. And since then, we have invested heavily in the platform. Our efforts began with the hypothesis that more diverse CD3 binders would be important for engineering TCEs with improved therapeutic properties. Our internal work to date has proven this to be true, but it's also revealed that diversity of CD3 binders alone is not sufficient. Today, we know that repeated success in generating optimal TCEs requires a comprehensive toolkit of binders, technologies, assays, models and biological insights. Accordingly, our platform now includes diverse panels of CD3 targeting antibodies, along with proprietary panels of co-stimulatory antibodies to enhance and fine-tune TCE function, scalable protein engineering workflows to create a large diversity of binder combinations and formats, scalable in vitro assays to assess TCE function and development properties, experience in the translation between in vitro assays and in vivo models across multiple targets and increasingly, a connection between TCE properties and third-party clinical data. Together, we believe this creates a highly enabled platform for developing multi-specific TCEs with broad applications across oncology and autoimmunity. While we are leveraging this capability to advance internal programs, we also view it as a key platform for strategic partnerships. Last year, we announced our first significant TCE collaboration with AbbVie. Adding to this, we have recently entered into 2 new TCE collaborations with Vertex and with Jazz. These 2 deals are adding over $110 million in upfront cash to our balance sheet and have the potential for larger value in downstream payments and tiered royalties on net sales. Last week, we announced our most recent collaboration, which is with Vertex, focused on TCEs for autoimmune diseases and other conditions. Under the terms of the deal, AbCellera will receive $28 million in upfront payments, is eligible for potential downstream payments and tiered royalties on net sales and has a potential option to conduct process development and clinical manufacturing. In June, we also announced a collaboration with Jazz Pharmaceuticals that includes 3 confirmed discovery programs with $84 million in total near-term upfront payments. We have received $56 million in upfront payments for the first 2 programs, and we will receive another $28 million for the third program, which will be initiated within the next 12 months. Under the agreement, AbCellera is also eligible to receive over $2 billion in potential downstream payments, along with mid-single-digit to low double-digit tiered royalties on net sales. The deal also includes a mutual option for 2 additional discovery programs under the same financial terms and a mutual option for AbCellera to undertake certain IND-enabling activities and clinical manufacturing. The total potential deal value with all 5 programs included would be over $4 billion. We believe that this is one of the largest TCE discovery deals reported to date. Before handing over to Andrew, I'm pleased to welcome Dr. Victor Stander and Dr. Lynn Sealy as new Independent Directors on AbCellera's Board. Dr. Stander and Dr. Sealy are experienced biopharmaceutical executives with proven and complementary expertise in development across oncology, women's health, immunology and endocrinology. Lynn and Victor bring deep expertise and development experience that will serve us well as we build our portfolio and our company. And with that, I will hand it over to Andrew to discuss our financials. Andrew?

Thanks, Carl. As Carl pointed out, AbCellera continues to be in a strong liquidity position with over $565 million in cash and equivalents and with roughly $110 million in available committed government funding to execute on our strategy. We are continuing to execute on our plans with a focus on internal programs and leveraging our process development and clinical manufacturing investments. Looking at revenue and expenses. Revenue for the quarter was around $4 million compared to total revenue of approximately $17 million in the same quarter of 2025. Revenue this quarter is consisted mostly of research fees. Our research and development expenses for the quarter were approximately $46 million, approximately $7 million more than last year. This expense reflects the focus on investment in our internal programs. In sales, general and administration, expenses were approximately $14 million compared to $22 million last year. The large decrease in SG&A expenses relates to the conclusion of our intellectual property litigation case and to changes in the teams following the focus on our internal pipeline. Looking at earnings, we are reporting a net loss of roughly $55 million for the second quarter of 2026 compared to a loss of about $35 million a year earlier. In terms of earnings per share, this result works out to a loss of $0.18 per share on a basic and diluted basis. Turning to cash. Altogether, we finished the quarter with $567 million of total cash and marketable securities. That's a $6 million increase in total cash for the first half of 2026. Operating activities for the first half of the year used approximately $8 million in cash and included in the operating cash flow is the receipt of $56 million from the upfront payments under our TCE deal with Jazz. This portion of the upfront payments from the Jazz partnership was received in the quarter. Excluding marketable securities, investment activities year-to-date included approximately $6 million of capital expenditures, offset by $7 million in government grants received. As a part of our treasury strategy, we have $420 million invested in short-term marketable securities, and our investment activities for the quarter included a $15 million investment in these holdings. As a reminder, we have received committed commitments for funding the advancement of our internal pipeline from the Government of Canada's Strategic Innovation Fund and the Government of British Columbia. This available capital does not show up on our balance sheet. And with over $565 million in cash and equivalents and the unused portion of our secured government funding, we have over $675 million in available liquidity to execute on our strategy. In addition, we have further available liquidity from our ownership of the other Vancouver lab-based office building as well as our GMP facility. With respect to overall company expenditures, our capital needs are very manageable, and we continue to believe that we have sufficient liquidity to fund at least the next 3 years of pipeline investments. And with that, we'll be happy to take your questions. Operator?

[Operator Instructions] Your first question comes from the line of Steve Seedhouse at Cantor.

Just wanted to ask first on the upcoming -- on the forthcoming VMS data. What, in your view, is a clinically meaningful improvement in the VMS severity just in the context of that, I think, 3-point ordinal scale that's used for assessing severity? And then also, will you have threshold analyses for the VMS frequency data available with top line, something like a proportion of patients with 90% or 100% reduction in frequency. Just curious if that's something that will be with the top line. And then I have a follow-up as well.

Steve, Carl here. Thanks for the question. So first, in terms of the upcoming readout that obviously we're very excited about, our view is that success is a clean safety profile, which so far, everything that we've seen through Phase I has been entirely consistent with that and efficacy that tracks in a way that is comparable to the 2 small molecules that are approved. So on the frequency side, we are obviously looking for a response relative to placebo that's on the order of 20% at least, which is about what you see with the small molecules. And there's an additional requirement that you have at least 2 -- a reduction in frequency of at least 2 hot flashes per day, which is something that we expect to meet under the same criteria. On the severity side, we're expecting that if we get the frequency, we're going to track with severity and have numbers that are very comparable to the small molecules. I don't think we've communicated a definitive bar on that one. But historically, the severity has been easier to hit than the frequency. And so we are really more focused on the frequency side right now.

And just I wanted to ask about the -- you made some comments, and you've mentioned this before about potential application in cancer. So I guess this would be certainly women with breast cancer, but maybe also men on androgen deprivation therapy. And it sounded like you were going to look into opening some Phase II studies along with the late-stage program in menopause. But I'm curious why -- like why not move directly into Phase III label-enabling studies in those cancer indications, just given what we've seen from OASIS-4 with LinkQuit and assuming you'll have positive Phase II data in hand yourself and dose selection would be facilitated by that. Would love to get your thoughts on that.

Thanks, Steve. It's a great question. Probably it's a question that would be best directed to Sarah, our Chief Medical Officer, since she has been obviously leading point on the regulatory strategy. My understanding is that moving it first into this patient population, which is obviously going to be significantly different given that you're dealing with patients that have oncology is the first step before moving into later-stage trials. And we expect to initiate that relatively soon as we get ready for the larger study on BMS associated with menopause. And of course, there's going to be some gap between a readout and getting the final trial closed up and getting all set up for that. So we're sequencing that as quickly as possible.

Your next question comes from the line of Srikripa Devarakonda.

I want to ask a little bit about safety differentiation. The small molecules have liver monitoring requirements. If the upcoming data from 635 confirms -- reconfirms, I should say, a clean liver profile, can you talk a little bit about what you plan to do in Phase III in terms of liver monitoring to help establish a definitive differentiation on this aspect? And also, do you think a clear differentiation on safety would help capture the first-line non-hormonal market? And I have a follow-up question.

Sure. I'm probably going to not go too deep into this since we are expecting data relatively soon, and then we'll have ample opportunity to vet all those questions. But just briefly, as you mentioned, we have been very focused on safety as a key differentiator. Both the 2 small molecules have liver monitoring. That is inconvenient, both in practice and for patients. And we believe that it is a property associated with metabolism of small molecules and one that an antibody should not have. And of course, as reported last earnings call, the data so far shows no perceptible increase in liver enzymes across any of the patients. And so that thesis is sound, and we expect that, that will continue. In terms of how we look at that going forward, that will be on Sarah's docket, but my expectation is that we will continue to do some monitoring of enzyme levels. And make sure that, that holds going forward. But frankly, from a scientific perspective, I see no reason why that wouldn't. The other thing that you didn't mention on the safety side is there has been a somnolence side effect associated with the Bayer molecule. That's a somnolence side effect that we believe is associated with binding of that molecule, not just to NK3R but NK1R. We have an antibody that is specific, entirely specific to NK3R. So we do not expect to see that come up. And obviously, we haven't seen any of that in the data that we looked at so far, but that's another point that we'll be pushing. We do think that in addition to the convenience of a once-monthly dosing, improved safety for a product like this is paramount, and we are so far very encouraged by the data we've seen.

Great. Just a quick question on the partnerships that you have signed with Vertex, Jazz -- it seems like the focus is on multi-specific T cell engagers. Just wondering if you can talk a little bit about the percentage of internal resources that are dedicated to this TCE platform versus the others, especially the GPTR ion channel platform?

Great question. As I mentioned in my prepared remarks, our work in TCE is now a long-standing effort. So we have spent the last 5 years putting in place some of the very important building blocks to execute on these types of therapies. And along the way, have learned a lot about what it takes to succeed in this space. So much of that is now in the bank. So we're operating now from an established platform. We have extra bandwidth because that work is done to take on additional programs. And so I expect there will not be a big change in our allocation of resources to TCE, but it will be directed from putting the foundation in place, building the expertise and the capabilities to executing on those capabilities, both for internal programs and for partner programs. And we are very pleased to see that come to fruition and to have attracted to stellar partners in Vertex and Jazz who prioritize high innovation and are serious about bringing forward to the clinic. Just the last point, with respect to the balance between TCEs and, let's say, GPCRs and ion channels, I don't have a hard number, but I'd say that there's significantly more effort on the GPCR and ion channel side, but TCE has been one of the strong pillars of the pipeline, and we expect it will stay that way for the coming future.

Your next question comes from the line of Stephen Willey at Stifel.

This is Josh on for Steve. Congrats on the progress. Maybe just as a follow-up to the first question asked specifically on severity. And looking at some of the historical fezolinetant elinzenetant data, it sort of seems that -- it doesn't appear that fezolinetant actually maybe shows a statistically significant difference on severity at certain time points. And it looks like elinzenetant specifically at later time points and at higher doses has kind of shown this and wanted to get your thoughts on maybe severity being something that's maybe exposure driven and how you're thinking about that with maybe CL635's differentiation with the extended pathway.

It's a great question. I don't know exactly the data that you're looking at. Both severity and frequency are important regulatory endpoints that need to be hit. That's the understanding that we're moving on. And we do think that they correlate very well. There's -- at the very least, there's well-reported data on dose escalation for fezolinetant, where a dose escalation of fezolinetant showed improved efficacy both in frequency and in severity. And on the severity case, it did look as though that dose response lasted longer or plateaued later than it did on frequency. So I think that would be consistent with what you're saying, but I would be cautious to speculate too much with exactly how that's going to play out. And in any event, we are anxiously awaiting the data that's coming. So we're going to have that answer pretty quick, and then we'll be digging deeper into it.