AbCellera Biologics Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; this is an annual report, not a standalone fourth-quarter filing. Amounts are in U.S. dollars unless noted.
Business context
AbCellera operates an antibody discovery and development platform and partners with biotechnology and pharmaceutical companies. Its agreements typically combine research and access fees with potential development and commercial milestones and royalties. At year-end, it reported 174 programs under contract with 40 partners; 149 programs included potential downstream participation.
Key financial results
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | $485.4 million | $375.2 million | +29% |
| Operating income | $216.5 million | $204.4 million | +6% |
| Net earnings | $158.5 million | $153.5 million | +3% |
| Basic / diluted EPS | $0.56 / $0.50 | $0.56 / $0.48 | Basic unchanged |
| Operating cash flow | $277.4 million | $244.6 million | +13% |
| Cash, equivalents and marketable securities | $886.5 million | $723.0 million | +$163.5 million |
Calculated operating margin was approximately 44.6%, down from 54.5% in 2021; calculated net margin was approximately 32.7%, down from 40.9%. Revenue growth did not translate proportionately into earnings growth as operating costs increased. Research and development expense rose 74% to $107.9 million, while total operating expenses rose 57% to $268.9 million. Stock-based compensation was $49.5 million, up from $30.6 million.
Revenue mix: royalties were $443.0 million (about 91% of revenue), research fees $40.8 million, licensing revenue $0.7 million, and milestone payments $0.9 million. Royalty revenue was exclusively from Eli Lilly’s COVID-19 antibodies. The filing reports $386.5 million cash and equivalents and $500.0 million marketable securities; restricted cash was reported separately. Investing cash outflow was $352.6 million, including significant marketable-security purchases and capital investment. The filing states that existing liquidity and anticipated operating cash flows are expected to cover working capital and capital needs for at least 36 months after the report date.
No conventional borrowing balance is presented in the balance-sheet summary. Significant obligations include $82.3 million of operating lease liabilities and $60.3 million of acquisition-related contingent consideration. The contractual-obligations table totals $242.8 million and excludes lease arrangements recognized as lease liabilities.
Material changes versus 2021
- Revenue rose 29%, driven principally by a $115.7 million increase in COVID-19 royalty revenue and a $21.7 million rise in research fees. Licensing revenue fell $20.1 million and milestone payments fell $7.1 million.
- R&D, sales and marketing, and general and administrative expenses increased as the company expanded its platform, workforce, and commercial organization. Headcount grew 28% to 495 employees.
- Operating cash flow increased, aided by royalty receipts and collection of accrued royalties. Cash and marketable securities increased despite substantial investing outflows.
- The company recorded an $8.4 million impairment of one next-generation mouse program acquired with Trianni; it said this did not affect its remaining mouse programs or core platform.
- Programs under contract increased from 156 to 174, partnered program starts from 78 to 101, and molecules in the clinic from five to eight.
Outlook, risks and unusual items
- COVID-19 revenue cliff: In November 2022, the FDA withdrew bebtelovimab’s U.S. emergency-use authorization, and Lilly paused distribution. AbCellera says it does not expect significant further royalties from its COVID-19 program, the principal source of recent profitability and positive operating cash flow. Management expects losses and negative operating cash flow in the near-to-medium term as it continues investing.
- Long-dated portfolio returns: Management expects the most meaningful additional portfolio royalty revenues to begin after 2030. It aims to build a diversified portfolio of milestone and royalty interests, but partner development, approvals, and commercialization are uncertain and largely outside AbCellera’s control.
- Investment and facilities: The company plans continued platform R&D and facility expansion. It targets GMP manufacturing capability in 2025 and has stated a longer-term goal of reducing target-to-clinical-candidate timelines to under two years. These are plans, not assured outcomes.
- Government funding: Canada committed up to CAD $175.6 million through the Strategic Innovation Fund. Repayment of the second-stage funding depends on future revenue thresholds; no repayment liability was accrued because repayment was assessed as not probable at year-end.
- Litigation: AbCellera is pursuing patent-infringement claims against Berkeley Lights; the related court case had been stayed while patent-review proceedings were pending. In January 2023, the patent review board rejected all challenges to one asserted patent, and AbCellera intended to seek resumption of the court case. A separate 2022 British Columbia lawsuit alleges an implied partnership and patent infringement; AbCellera disputes the claims. Outcomes and costs remain uncertain.
- Other risks: Revenue concentration in Lilly, partner and drug-development execution risk, competition, intellectual-property protection, construction and scaling risks, cybersecurity and privacy, foreign-exchange exposure, and potential future impairments. The auditor identified the fair value of TetraGenetics contingent consideration ($36.8 million at year-end) as a critical audit matter because it depends on significant estimates, including milestone probabilities and forecast revenue.
Most important facts for investors to verify
- Whether post-COVID royalties and other revenues can replace the Lilly-driven revenue stream, and the pace of the expected transition to losses and negative operating cash flow.
- Actual cash burn, capital spending, and liquidity runway relative to management’s stated 36-month expectation; distinguish cash and marketable securities from restricted cash and other assets.
- Progress and economics of partner programs: program starts, clinical advancement, milestones, partner concentration, and the timing and probability of future royalties.
- Construction, funding, and timing of the new headquarters and GMP facility, including the conditions attached to Canadian government funding.
- Developments in the Berkeley Lights and Schrader litigation, acquisition-related contingent consideration, and the Trianni impairment and remaining acquired assets.