AbCellera Biologics Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Unaudited U.S. GAAP financial statements; amounts below are U.S. dollars. Financial statement amounts are rounded to millions.
Business context
AbCellera operates an AI-enabled antibody discovery and development platform and earns research fees, licensing revenue, milestones, and royalties through partnerships. At quarter-end it reported 164 discovery programs, including completed, active, or contracted programs, across 38 partners. It reported seven molecules in the clinic. Revenue in the period was heavily influenced by royalties from Eli Lilly’s COVID-19 antibodies.
Financial performance
| Metric | Q3 2021 | Q3 2022 | Nine months 2021 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $5.5m | $101.4m | $235.9m | $463.9m |
| Operating income (loss) | $(28.1)m | $37.7m | $122.9m | $254.3m |
| Net income (loss) | $(21.4)m | $26.6m | $93.5m | $188.4m |
| Diluted EPS | $(0.08) | $0.08 | $0.29 | $0.60 |
| Operating cash flow | — | — | $261.3m | $246.4m |
Q3 2022 revenue rose $95.9m year over year, principally from a $93.1m increase in royalty revenue; research fees rose $2.4m to $7.5m. Nine-month revenue increased 97%, led by royalty revenue up $240.7m to $433.6m. Research fees increased to $29.4m, while licensing revenue fell to $0.5m from $20.7m and milestone revenue fell to $0.4m from $8.0m. Q3 operating and net margins were approximately 37% and 26%, respectively; nine-month margins were approximately 55% and 41%.
Operating expenses increased with growth and investment. For the first nine months, R&D expense rose 78% to $79.6m, general and administrative expense rose 47% to $42.5m, and sales and marketing expense rose 69% to $8.6m. Royalty fees were $64.9m, compared with $23.6m in the prior-year period, and were associated with royalty revenue from Lilly products. Stock-based compensation was $36.2m for the nine months, versus $21.6m.
Liquidity, balance sheet, and cash flow
At September 30, 2022, cash and cash equivalents were $372.0m and marketable securities were $496.2m, for combined liquidity of $868.2m, excluding restricted cash. That total increased $145.2m from December 31, 2021, although cash and cash equivalents alone declined from $476.1m. Current assets were $1,045.7m and current liabilities $106.1m. Total assets were $1,552.4m, total liabilities $302.2m, and shareholders’ equity $1,250.2m.
Nine-month operating cash flow was $246.4m, investing cash outflow was $335.6m, and financing cash outflow was $2.0m. Investing included $58.3m of property and equipment purchases, $19.8m invested in or loaned to equity-accounted investees, and substantial net purchases of marketable securities. The filing does not present a conventional borrowings balance as a prominent debt line; liabilities include operating leases and contingent consideration. Operating lease liabilities were $71.6m long-term, in addition to current lease liabilities.
Changes, outlook, risks, and unusual items
- Royalty concentration and variability: Management said the increase in revenue was primarily linked to Lilly’s sales of bebtelovimab. The company warned that COVID-19 variants, distribution limits, or withdrawal of authorizations could interrupt royalties. It stated that significant recurring revenue has not yet been established and that only two AbCellera discovery programs and two Trianni programs had produced milestone or royalty payments to date; no program had received full marketing approval.
- Investment and liquidity outlook: The company expects significant spending on R&D, hiring, business development, facilities, and a small-scale GMP manufacturing plant. It expects new facilities to expand capacity, with occupancy planned for early 2023. Based on its current plan, management expected existing liquidity and anticipated operating cash flows to fund working capital and capital expenditures for at least 36 months after the report date, with no external funding anticipated during that period.
- Facilities and commitments: A Vancouver office and laboratory lease commenced in July 2022 through a 50%-owned joint venture. The company recognized a $41.1m lease liability and corresponding right-of-use asset. It also disclosed significant construction-related joint-venture loans and commitments, including a Dayhu loan balance of $33.2m at quarter-end.
- Legal matters: A lawsuit filed October 14, 2022, names the company, affiliates, and CEO and alleges an implied partnership or joint venture and infringement of a Canadian patent. Plaintiffs seek damages and other relief; the company said it considers the claim meritless and intends to defend itself. The filing also describes ongoing patent litigation with Berkeley Lights, including patent challenges and related proceedings.
- Other risks: Key disclosed risks include dependence on a limited number of partners and Lilly-related royalty revenue, uncertain partner development and commercialization, competition, intellectual-property disputes, execution and scaling of facilities, cybersecurity and data protection, and effects of COVID-19, inflation, and geopolitical conditions.
- Controls: Management concluded disclosure controls were effective as of September 30, 2022, and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much future revenue and cash flow depends on Lilly’s COVID-19 products, and whether other partnerships can produce meaningful milestones or royalties.
- Whether bebtelovimab distribution and authorization support continuing royalty receipts, and the timing and extent of any changes.
- Progress, cost, and occupancy timing for the new facilities and GMP manufacturing capacity, including joint-venture financing and lease obligations.
- Developments and potential financial exposure in the Canadian lawsuit and Berkeley Lights intellectual-property litigation.
- Whether rising R&D, personnel, royalty, and facility costs remain supportable if royalty revenue falls or partner programs are delayed.