AbCellera Biologics Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. All financial amounts below are U.S. dollars; financial statement amounts are presented in millions unless stated otherwise.
Business context
AbCellera operates an AI-enabled antibody discovery platform and partners with drug developers. Revenue includes research fees, licensing, milestones, and royalties. At quarter-end, the company reported 158 discovery programs completed, in progress, or under contract with 36 partners, versus 119 programs and 29 partners a year earlier. Six molecules were in the clinic, compared with one.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2022 |
|---|---|---|
| Revenue | $202.7 million | $316.6 million |
| Operating income | $158.1 million | $225.0 million |
| Net earnings | $117.2 million | $168.6 million |
| Operating cash flow | $109.5 million | $100.2 million |
| Capital expenditures for property and equipment | $3.6 million | $14.5 million |
- Revenue rose 56%; net earnings increased 44%. Operating margin was approximately 71% versus 78%, and net margin approximately 53% versus 58%.
- Royalty revenue increased 79% to $307.0 million, accounting for most revenue. Research fees rose 134% to $9.3 million. Licensing revenue fell to $0.2 million from $20.3 million, and there were no milestone payments versus $7.0 million a year earlier.
- Operating expenses increased to $91.6 million from $44.7 million. Research and development rose to $26.4 million, general and administrative to $14.3 million, and royalty fees to $44.6 million. Stock-based compensation was $12.3 million, up from $5.4 million.
- Cash, cash equivalents, and marketable securities totaled $786.1 million at March 31, up from $723.0 million at December 31, 2021. Cash and cash equivalents were $545.7 million and marketable securities $240.3 million. The balance sheet also reports $25.0 million of restricted cash.
- Net cash provided by operations was $100.2 million; investing activities used $26.4 million and financing activities used $3.1 million. Operating cash flow was lower year over year despite higher earnings, including because accrued royalty receivables increased.
- Total liabilities were $384.8 million, including $58.1 million of contingent consideration and $45.4 million of accrued royalties payable. The balance sheet does not show a separate conventional debt balance; operating lease liabilities were reported.
Material changes and developments
- Management attributed the revenue increase primarily to royalties associated with Lilly’s sales of bebtelovimab, alongside higher research fees. Royalty fees payable also increased with royalty revenue.
- R&D expense increased 113%, reflecting higher compensation and research materials, facilities, supplies, and services. G&A increased 122%, including higher stock-based compensation and costs supporting company growth.
- Bebtelovimab received FDA Emergency Use Authorization in February 2022. Lilly announced a U.S. government purchase agreement for up to 600,000 doses for at least $720 million, with an option for 500,000 additional doses.
- Subsequent to quarter-end, AbCellera deposited CAD $25.0 million (approximately US$20.0 million) in trust to acquire land for a future GMP facility, subject to customary closing conditions.
Outlook, risks, and contingencies
- No specific revenue or earnings guidance was provided. Management said that, based on its current plan, existing cash and anticipated operating cash flows should meet working-capital and capital-expenditure needs for at least 36 months after the report date. It expects significant investment and operating expenses to continue increasing.
- Results are exposed to timing and success of partner programs and drug commercialization. Management emphasized that a substantial portion of potential partnership value depends on downstream milestones and royalties, and that significant recent royalty revenue came from Lilly’s COVID-19 antibody products.
- The company warned that COVID-19 variants, changes in distribution or use, or withdrawal or limitation of product authorizations could interrupt royalties. It also noted it has not yet had a program receive full clinical marketing approval.
- Berkeley Lights patent litigation remains a material uncertainty. The patent cases were stayed pending inter partes review; in January 2022, the PTAB denied one petition and instituted one, and in February denied the remaining petition. Trial on the instituted petition was scheduled for November 2022. The company also described a separate Berkeley Lights lawsuit that was voluntarily dismissed in July 2021.
- Other disclosed risks include partner concentration and performance, execution of facility expansion and growth, competition, intellectual-property protection, COVID-19 disruption, and the Russia–Ukraine conflict and related sanctions. Repayment of Phase 2 Strategic Innovation Fund support is conditional on future revenue thresholds; no amount was accrued because repayment conditions were assessed as not probable.
- Management reported disclosure controls and procedures were effective as of March 31, 2022, with no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Verify how much of subsequent revenue and cash generation depends on Lilly royalties, and whether product use, authorizations, and sales remain in place.
- Track royalty receivables, accrued royalty obligations, and income taxes payable, which rose to $334.4 million, $45.4 million, and $105.6 million, respectively, at quarter-end.
- Assess whether growth in programs under contract and program starts converts into research fees, clinical milestones, and future commercial royalties.
- Monitor GMP facility and headquarters investment, including the conditional post-quarter land acquisition and related joint-venture funding.
- Follow the Berkeley Lights litigation and PTAB proceedings, as well as any resulting legal costs or intellectual-property impact.