AbCellera Biologics Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Financial amounts below are in U.S. dollars; figures are rounded to millions unless noted. The company discovers antibodies for pharmaceutical and biotech partners and earns research fees, licensing revenue, milestones and royalties.
Financial performance and liquidity
| Metric | Q2 2021 | Six months 2021 |
|---|---|---|
| Revenue | $27.6 million | $230.4 million |
| Operating income (loss) | $(7.0) million | $151.0 million |
| Net income (loss) | $(2.3) million | $114.9 million |
| Operating cash flow | Not separately presented | $267.2 million |
| Capital expenditures and other investing cash flow | Not separately presented | $(61.5) million net investing cash flow |
Q2 revenue increased 146% year over year, while the company reported an operating loss versus an operating loss of $0.9 million and net income of $6.7 million in Q2 2020. For the first half, revenue rose from $15.9 million and net income from $4.6 million in 2020; results included substantial royalty and licensing revenue. The filing does not present a gross margin, and reported operating results are significantly affected by lumpy milestone, licensing and royalty items.
Q2 revenue included $21.2 million of royalties related to Eli Lilly’s bamlanivimab sales; research fees were $5.2 million and milestone revenue was $1.0 million. First-half revenue included $192.7 million of royalties, $20.5 million of Trianni licensing revenue, $8.0 million of milestones and $9.2 million of research fees. The corresponding first-half 2020 revenue was $15.9 million, with no royalty or licensing revenue.
Cash and cash equivalents were $792.6 million at June 30, up $198.5 million from year-end 2020. First-half operating cash flow was $267.2 million, primarily reflecting royalty collections, licensing and milestone revenue, partner payments and other operating cash movements. Cash used in investing was $61.5 million, including property and equipment purchases and investments in joint ventures. Financing cash outflow was $6.6 million. Long-term debt carrying value was $1.7 million; the filing reports no material borrowing facility balance. Management believes cash and anticipated operating cash flows can fund working capital and capital expenditures for at least 24 months from the report date.
Total assets were $1,151.9 million and total liabilities $184.2 million at June 30. Current assets were $864.0 million versus current liabilities of $69.8 million. Shareholders’ equity was $967.7 million. The share count was 276.98 million at quarter-end; 278.70 million shares were outstanding as of August 10, 2021.
Material changes and developments
- First-half revenue growth was driven chiefly by Eli Lilly royalties and the Trianni platform license, rather than a comparable increase in recurring research fees. Research fees fell 29% year over year for the first half, and 37% in Q2, as the COVID-19 antibody discovery program’s activity declined from its prior-year peak.
- First-half operating expenses rose to $79.4 million from $18.9 million. Increases included research and development, public-company and legal costs, stock-based compensation, and depreciation and amortization. First-half royalty fees of $23.6 million were associated primarily with royalties received on bamlanivimab sales and amounts due to pandemic-response collaborators.
- Headcount increased to 302 employees from 206 at year-end 2020. Discovery partners rose to 33 from 25 a year earlier; cumulative programs under contract rose to 138 from 76, and program starts to 60 from 48.
- Property and equipment increased to $87.5 million from $17.9 million at year-end, reflecting land, facilities and equipment investments. The company made investments in the Dayhu and Beedie joint ventures and committed up to CAD $82.7 million to fund the Dayhu JV loan, subject to its agreement terms.
Outlook, risks and contingencies
- No specific revenue or earnings guidance is provided. Management expects significant ongoing investment and increasing expenses in research and development, business development, facilities, manufacturing capabilities, hiring, intellectual property and public-company operations; it warns that future operating losses are possible.
- Revenue is volatile and dependent on partner program starts, milestones and commercialization. The company has generated a substantial portion of recent milestone and royalty revenue from Eli Lilly’s bamlanivimab. The FDA revoked bamlanivimab’s EUA as a standalone treatment in April 2021; in June, U.S. authorities paused shipments of bamlanivimab plus etesevimab because of variant resistance concerns. These developments could reduce future royalties. Bebtelovimab was in Phase 2 testing at the time of the filing.
- The company reported 138 discovery programs across 33 partners, but partner decisions and clinical outcomes are outside its control. It cautions that candidates may not reach approval or commercial success and that historical revenue should not be treated as predictive.
- Expansion plans include new office and laboratory facilities and a future GMP facility. New leases commenced in Vancouver and Sydney; a separate JV facility lease is expected to commence after construction. These projects entail substantial future commitments and execution risk.
- Management stated that disclosure controls were not effective as of June 30 because a previously identified material weakness in financial reporting remained unremediated. The weakness related to lease-liability accounting and other adjustments; management reported no material adjustments to the current-quarter statements due to the weakness and expected remediation by year-end.
- Other material risks include ongoing patent litigation with Berkeley Lights, partner and customer concentration, COVID-19 disruption, competition, intellectual-property protection, and the uncertainty of drug development. The filing reports no material change to legal proceedings compared with the 2020 Form 10-K.
Important facts for investors to verify
- Whether bamlanivimab-related sales and royalties continue, and the financial effect of regulatory actions, variant prevalence and changes in demand.
- How much future revenue is recurring research or licensing revenue versus concentrated milestone and royalty payments, and whether partner programs are starting and advancing.
- Whether the company meets its facility and manufacturing plans, including construction timing, lease obligations, JV funding commitments and capital spending.
- Progress in remediating the material weakness in internal controls and any subsequent changes in the company’s control assessment.
- Potential dilution from equity awards and exercises: the filing reports substantial options outstanding and a share count increase during the first half.
- Current status and potential financial or operational consequences of the Berkeley Lights litigation and other intellectual-property matters.