AbCellera Biologics Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Unaudited financial statements; amounts below are U.S. dollars unless noted. AbCellera discovers and develops antibodies through partner programs and internal programs, with potential revenue from research fees, licensing, milestones and downstream royalties.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $6.6m | $101.4m | $28.8m | $463.9m |
| Operating income (loss) | ($54.9m) | $37.7m | ($171.2m) | $254.3m |
| Net income (loss) | ($28.6m) | $26.6m | ($99.2m) | $188.4m |
| Operating cash flow | Not separately stated | Not separately stated | ($24.3m) | $246.4m |
| Capital expenditures for property and equipment | Not separately stated | Not separately stated | $62.5m | $58.3m |
Q3 and nine-month 2023 operating margins were approximately negative 832% and negative 593%, respectively, reflecting the sharp decline in revenue alongside continuing expenses. Gross margin is not presented as a distinct measure in the filing.
- Revenue mix: Q3 research fees were $6.4m, licensing revenue $0.2m, and there were no milestone or royalty revenues. For the nine months, research fees were $26.8m, licensing $0.8m and milestones $1.3m; royalty revenue was zero.
- Expenses: Nine-month R&D expense rose 60% to $127.0m, including a $21.6m one-time investment in co-development and internal programs in Q1. Total operating expenses were $200.0m, down from $209.6m in the prior-year period, mainly because no royalty fees were recorded in 2023.
- Other income and taxes: Nine-month interest income was $31.3m, up from $7.6m, primarily reflecting higher interest rates. The company recorded a $26.2m income-tax recovery for the nine months, versus $82.1m of tax expense a year earlier.
- Cash and liquidity: At September 30, cash and cash equivalents were $172.4m and marketable securities were $613.4m, totaling $785.8m, down $100.6m from December 31, 2022. Current assets were $919.5m and current liabilities $110.2m. The filing reports no clear conventional borrowings balance; it does report $75.2m of operating lease liabilities and $84.1m of deferred government contributions classified as long-term liabilities.
- Cash movement: Nine-month cash used in investing was $196.8m, including $62.5m for property and equipment. Financing provided $6.6m. Cash, cash equivalents and restricted cash decreased by $214.9m; the cash-flow statement’s ending total includes restricted cash held in other assets.
Material changes versus prior comparable periods
- Revenue fell 93% in Q3 and 94% for the nine months, principally because Lilly’s COVID-19 antibody royalty revenue ceased. The FDA announced in Q4 2022 that bebtelovimab was no longer authorized for emergency use in any U.S. region.
- The absence of 2022 royalty revenue also eliminated related royalty fees: $64.9m for the first nine months of 2022 versus none in 2023. The company moved from profit to loss in both comparison periods.
- Operating cash flow shifted from $246.4m provided in the first nine months of 2022 to $24.3m used in 2023, reflecting lost royalty receipts and increased investment and operating expenditures.
- Business activity expanded: discovery partners increased 11% to 42, programs under contract increased 11% to 182, partnered program starts increased 20% to 110, and molecules in the clinic increased 43% to 10, compared with September 2022.
Outlook, management commentary and risks
- Management expects continued significant investment in R&D, internal and partnered programs, business development, facilities and manufacturing capabilities. Two AbCellera-led programs were committed to IND-enabling studies during Q3; new facilities under development were scheduled for occupancy in 2024.
- Based on its current business plan, management believes existing cash, marketable securities, anticipated operating cash flows and government contributions will cover working-capital and capital-expenditure needs for at least 36 months after the report date, and does not anticipate external funding in that period. This is a forward-looking assessment, not a guarantee.
- In May 2023, Canada and British Columbia committed up to CAD $300m combined (reported as approximately $222.3m). Components include repayable and conditionally repayable support; certain repayments begin in 2032 or 2033. Funding depends on eligible spending and co-investment, and agreements impose Canadian investment, R&D, headcount and other covenants, as well as restrictions on dividends and change-of-control notice or consent rights. Failure to meet obligations may lead to funding suspension or termination and repayment demands.
- Key business risks include dependence on partners for program starts, development milestones and commercialization; historical reliance on Lilly for royalties; uncertain drug-development outcomes; rising operating costs; facility and manufacturing execution; competition; and potential financing needs if the business plan or anticipated cash flows change.
- Legal matters: Patent litigation against Bruker Cellular Analysis resumed after a stay was lifted in August 2023; no trial date was set. Bruker appealed a patent-review decision, which AbCellera believes will be upheld. The company also says it will defend the Schrader civil litigation and is seeking dismissal of certain affiliates. AbCellera states it has no litigation contingency reserves; the filing does not provide a clear quantified estimate of potential loss.
- Management reported disclosure controls were effective as of September 30, 2023, with no material change in internal control over financial reporting during the quarter. The filing cautions that quarterly results may fluctuate substantially.
Important facts for investors to verify
- Whether new research fees, milestones or commercial royalties can replace the discontinued COVID-19 royalty stream, and how concentrated future revenue remains among partners.
- Progress, timing and costs for the two internal IND-enabling programs, the new facilities and manufacturing plans, and whether planned 2024 occupancy is achieved.
- Actual receipt and permitted use of government contributions, repayment terms, covenant compliance and any resulting restrictions on shareholder distributions.
- Cash burn and investment spending against management’s stated 36-month liquidity outlook, including the composition and maturity of marketable securities.
- Developments and potential financial effects of the Bruker and Schrader proceedings, which the filing does not quantify clearly.