AbCellera Biologics Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Financial amounts below are in U.S. dollars; millions are used unless stated otherwise. The company operates an AI-enabled antibody discovery platform through research, licensing, milestone and royalty partnerships.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $45.9m | $27.6m | $362.5m | $230.4m |
| Operating income (loss) | ($8.4m) | ($7.0m) | $216.6m | $151.0m |
| Net earnings (loss) | ($6.8m) | ($2.3m) | $161.8m | $114.9m |
| Net earnings (loss) per share, basic | ($0.02) | ($0.01) | $0.57 | $0.42 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $373.2m | $267.2m |
Q2 revenue rose 66% year over year, but the company recorded a larger quarterly loss as operating expenses grew. For the first half, revenue rose 57% and net earnings rose 41%. First-half operating and net margins were approximately 59.7% and 44.6%, respectively; Q2 operating and net margins were approximately negative 18.3% and negative 14.8%. These margins reflect volatile royalty revenue and are not necessarily indicative of future periods.
Q2 revenue included $33.2m of royalties, $12.5m of research fees, $0.1m of licensing revenue and no milestone payments. First-half revenue included $340.2m of royalties, $21.9m of research fees, $0.4m of licensing revenue and no milestone payments. Royalty revenue was primarily tied to Lilly’s sales of bebtelovimab and bamlanivimab.
Liquidity, balance sheet and cash flow
- At June 30, 2022, cash and cash equivalents were $790.6m and marketable securities were $231.7m, totaling $1,022.3m, up $299.3m from year-end 2021. Restricted cash was an additional $25.0m on the balance sheet.
- Total assets were $1,593.8m; total liabilities were $380.9m; shareholders’ equity was $1,212.9m. The filing does not report conventional long-term debt on the balance sheet; it reports lease liabilities, contingent consideration and other obligations.
- For the first half, operating cash flow was $373.2m, investing cash outflow was $53.6m and financing cash outflow was $2.0m. Property and equipment purchases were $45.8m. Operating cash flow benefited from royalty collections.
- Current liabilities included $107.3m of income taxes payable, $50.6m of accrued royalties payable, and $34.3m of current contingent consideration. Long-term contingent consideration was $24.6m.
Changes and management commentary
- Q2 royalty revenue increased $12.1m year over year; research fees increased $7.3m, which management attributed to more contracted programs. First-half royalty revenue increased $147.6m, while licensing revenue fell $20.1m, reflecting lower Trianni platform licensing revenue, and no new milestone payments were recorded.
- Operating expenses increased to $54.3m in Q2 and $145.9m in the first half. First-half R&D expense rose 94% to $53.1m, and general and administrative expense rose 62% to $28.7m. Stock-based compensation was $24.4m for the first half.
- As of June 30, the company reported 164 discovery programs under contract with 38 partners, compared with 138 programs and 33 partners a year earlier. It reported six molecules in the clinic versus four a year earlier.
- Bebtelovimab received FDA Emergency Use Authorization in February 2022. Lilly announced an additional U.S. government purchase agreement in June; AbCellera recognized royalties on approximately half of the associated doses during Q2. An option for 350,000 additional doses remained in the agreement, subject to its stated deadline.
Outlook, risks and contingencies
- Management said existing cash, cash equivalents and anticipated operating cash flows were expected to meet working-capital and capital-expenditure needs for at least 36 months after the report date, with no external funding anticipated under the current plan. The company also expects significant continued investment and rising expenses, including for R&D, staffing, facilities and manufacturing.
- Facilities under development were expected to expand capacity, with occupancy planned for early 2023. The company is building a GMP manufacturing facility and advancing office and laboratory headquarters through joint ventures.
- Revenue remains highly dependent on partner decisions and development outcomes. The filing emphasizes concentration in Lilly-related COVID-19 royalties and warns that changing variants, use restrictions or withdrawal of authorizations could reduce those royalties. Only a small number of programs had generated milestone or royalty payments, and no program had received full marketing approval as of the filing.
- Berkeley Lights patent litigation remained an important uncertainty. The patent litigation was stayed pending patent-office proceedings; a trial on an instituted inter partes review petition was scheduled for November 2022. The filing reported no material change in legal proceedings from the 2021 annual report.
- Potential repayment under phase 2 of the Canadian Strategic Innovation Fund was conditional on revenue thresholds; management recorded no liability because repayment conditions were considered non-probable at June 30, 2022. Routine litigation and contractual milestone, royalty and indemnification obligations are also disclosed.
- Other risks include partner concentration and termination, drug-development uncertainty, competition, execution of rapid growth and facility plans, intellectual-property protection, cybersecurity and privacy, COVID-19 impacts, and geopolitical and supply-chain uncertainty. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Investor facts to verify
- How much future revenue and cash flow depends on Lilly COVID-19 products, and how changing authorization or demand affects royalties.
- Whether contracted discovery programs progress to starts, clinical milestones and commercial products; the company reported 164 programs under contract but only six molecules in the clinic.
- Whether R&D, hiring, facility and manufacturing investments deliver capacity as planned, including the expected early-2023 facility occupancy.
- Developments and potential financial effects of the Berkeley Lights dispute and related patent-office proceedings.
- The timing and amount of contingent consideration, accrued royalty obligations, joint-venture loan commitments and any conditional SIF repayment exposure.