AbCellera Biologics Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. All financial amounts below are U.S. dollars; amounts are rounded to millions unless noted. The company discovers antibodies for partners and may receive research fees, milestones, and royalties if partner programs advance or reach commercial sales.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $10.1m | $45.9m | $22.2m | $362.5m |
| Operating loss | $51.4m | $8.4m | $116.3m | Operating income $216.6m |
| Net loss / earnings | $30.5m loss | $6.8m loss | $70.6m loss | $161.8m earnings |
| Basic loss / earnings per share | $(0.11) | $(0.02) | $(0.24) | $0.57 |
| Operating cash flow | Not separately presented for the quarter | $(24.2)m | $373.2m |
Q2 operating and net margins, calculated from reported figures, were approximately negative 511% and negative 304%, respectively; six-month margins were approximately negative 523% and negative 318%. The filing does not separately report gross margin.
- Revenue mix: Q2 research fees were $9.8m, licensing revenue $0.2m, and royalty revenue nil. Six-month revenue included $20.4m research fees, $0.6m licensing revenue, $1.3m milestone payments, and no royalties.
- Expenses: Q2 operating expenses were $61.4m, including $36.5m R&D. Six-month operating expenses were $138.5m, including $89.1m R&D. Six-month stock-based compensation was $31.9m.
- Liquidity: At June 30, cash and cash equivalents were $179.7m and marketable securities were $615.9m, totaling $795.7m. Total current assets were $930.7m and current liabilities $118.9m.
- Cash use: Six-month investing cash outflow was $184.0m, including $42.2m of property and equipment purchases and $528.9m of marketable-security purchases, partly offset by $422.8m of security proceeds. Cash, cash equivalents, and restricted cash decreased by $207.6m.
- Obligations: The balance sheet reports $342.3m of total liabilities. It reports operating lease liabilities, contingent consideration, and deferred government contributions; it does not show a conventional long-term borrowing balance. Deferred government contributions totaled $82.9m, and contingent consideration totaled $60.6m.
Changes versus comparable periods
- Revenue fell 78% year over year in Q2 and 94% in the first half, primarily because AbCellera recorded no royalties after bebtelovimab lost U.S. emergency-use authorization in November 2022. In the first half of 2022, royalty revenue had been $340.2m.
- Q2 research fees declined 22%; six-month research fees declined 7%. Management attributed this to the timing and progress of research work.
- R&D expense increased 37% in Q2 and 68% in the first half. Management attributed the first-half increase partly to a one-time $20.0m investment in co-development and pre-partnered programs in Q1, as well as higher compensation and facilities costs.
- Six-month operating cash flow shifted from $373.2m provided in 2022 to $24.2m used in 2023, reflecting the absence of royalty revenue and increased investment and operating expenditures.
- Interest income rose to $20.5m for the first half, which management attributed primarily to higher interest rates on cash and marketable securities.
Outlook, management commentary, and risks
- Management expects significant continued investment in R&D, business development, facilities, and manufacturing capacity, and says operating losses may occur in future periods. New facilities were under development with occupancy planned for 2024.
- Based on its current business plan, the company believes available cash, marketable securities, anticipated operating cash flows, and government contributions will cover working capital and capital needs for at least 36 months after the report date; it does not anticipate needing external funding in that period.
- In May 2023, Canada and British Columbia committed up to approximately $169.9m and $56.6m, respectively, for capability-building. Funding is subject to eligible expenditure, co-investment, milestones, and other conditions. Some portions are repayable or conditionally repayable beginning in 2033 (federal) or 2032 (provincial), and agreements include covenants and restrictions, including on dividends.
- Commercial progress included five partnered program starts in Q2. At June 30, the company reported 177 cumulative discovery programs with 41 partners and nine molecules in the clinic. These are operating metrics, not guarantees of future milestones or royalties.
- Key risks include dependence on partners’ development and commercialization decisions, historically concentrated royalty revenue, volatile and milestone-dependent revenue, continued R&D and construction spending, competitive and technology risks, and the possibility that programs do not yield approved commercial products.
- Legal matters include the company’s patent litigation with Berkeley Lights and a civil action involving the Schrader estate. The PTAB upheld all challenged claims of a licensed patent in January 2023 and denied Berkeley Lights’ rehearing request in July 2023; the company sought to resume its patent infringement action. The company says it considers the Schrader claims meritless and intends to defend itself.
- The company reported effective disclosure controls as of June 30, 2023 and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether new research programs and partnerships can offset the loss of COVID-19 royalty revenue, and whether partners achieve milestones or commercial sales.
- How cash, marketable securities, operating cash use, and capital spending evolve against management’s stated 36-month liquidity outlook.
- The conditions, funding receipts, repayment obligations, covenants, and dividend restrictions under the federal and provincial contribution agreements.
- Execution, timing, and costs of the planned facilities and manufacturing build-out, including the 2024 occupancy expectation.
- Developments and potential financial or operational effects of the Berkeley Lights and Schrader proceedings, and the carrying values of contingent consideration and acquired intangible assets.