Abcellera Biologics Inc. annual report, FY2021

AbCellera Biologics Inc. — FY2021 Form 10-K

Reporting period: Fiscal year ended December 31, 2021. The filing is an annual report, not a standalone Q4 report. Amounts are U.S. dollars unless stated otherwise. AbCellera operates an antibody-discovery platform and partners with drug developers; it does not itself advance a clinical drug pipeline.

Financial results and liquidity

Metric	FY2021	FY2020
Revenue	$375.2 million	$233.2 million
Operating income	$204.4 million	$156.0 million
Net earnings	$153.5 million	$118.9 million
Basic / diluted earnings per share	$0.56 / $0.48	$0.53 / $0.45
Operating cash flow	$244.6 million	$22.7 million
Investing cash flow	$(332.2) million	$(119.8) million
Financing cash flow	$(3.9) million	$683.7 million

• Revenue grew 61%. Royalty revenue was $327.3 million, up 65%, and came from Lilly sales of bamlanivimab. Licensing revenue was $20.8 million, primarily from the Trianni platform; milestone payments were $8.0 million. Research fees were $19.1 million, down 4%.
• Operating expenses rose to $170.8 million from $77.1 million. R&D increased 111% to $62.1 million; general and administrative expense rose 251% to $41.8 million, including higher stock-based compensation, public-company and legal costs. Stock-based compensation totaled $30.6 million.
• Calculated from reported figures, operating margin was approximately 54.5% versus 66.9% in FY2020, and net margin approximately 40.9% versus 51.0%. These margins declined despite higher earnings, reflecting expense growth and revenue mix.
• At year-end, cash and cash equivalents were $476.1 million and marketable securities $246.8 million, totaling $723.0 million; restricted cash was $25.0 million. Total assets were $1.319 billion and total liabilities $292.8 million.
• Cash and securities increased $128.9 million year over year. Investing outflows chiefly reflected marketable-security purchases, real estate and facility spending, acquisitions and investments in equity-accounted entities. The company reported no material outstanding borrowings; its OrbiMed credit facility had been repaid in 2020.
• Year-end liabilities included $40.1 million of operating lease liabilities and $58.8 million of contingent consideration payable. The current ratio, calculated from reported balance-sheet amounts, was approximately 7.7.

Material changes and business developments

• Discovery partners increased from 27 to 36; programs under contract rose 51% to 156, program starts rose 50% to 78, and programs in the clinic increased from one to five. Of the 156 programs, 131 had potential milestone and royalty participation.
• Revenue remains unusually concentrated: Lilly bamlanivimab royalties accounted for most FY2021 revenue. Research fees came from multiple partners, but individual partners represented 10%–29% of those fees.
• The company acquired TetraGenetics in September 2021 to add ion-channel and transmembrane-protein capabilities. Trianni acquisition integration was ongoing; TetraGenetics purchase-price allocation remained preliminary at year-end.
• R&D investment, headcount and facilities expanded materially. Employees grew 87% to 386. Property and equipment increased to $111.6 million, including land and facility investments.

Outlook, risks, contingencies and unusual items

• Management said existing cash, cash equivalents and anticipated operating cash flows were expected to fund working capital and capital expenditures for at least 24 months after the report date. No specific revenue or earnings guidance was provided. Management expects continued investment and higher operating expenses, including for R&D, hiring, business development and facilities.
• The company plans to expand into CMC and GMP manufacturing. It expected the GMP facility and commercial manufacturing capability to be in use in approximately three to four years. Canadian Strategic Innovation Fund support was committed up to CAD $175.6 million (reported as $125.6 million); $47.1 million was claimed in FY2021. Some phase-two funding may be repayable if specified revenue thresholds are met; no repayment liability was accrued because repayment was considered not probable.
• Royalty and milestone revenue is contingent on partner development, regulatory decisions and product sales. The filing states that only one AbCellera discovery program had generated milestone and royalty payments to date and no program had received full marketing approval. Bamlanivimab use was restricted in U.S. regions with prevalent nonsusceptible variants in January 2022, creating a material risk to royalty revenue.
• After year-end, Lilly’s bebtelovimab received FDA emergency use authorization in February 2022; Lilly also announced a U.S. government purchase agreement for up to 600,000 doses, with an option for 500,000 more. These are subsequent developments, not FY2021 results.
• AbCellera’s pending Berkeley Lights patent litigation was stayed while patent-office reviews proceeded; the company sought infringement remedies and faced counterclaims. Litigation costs and outcomes are uncertain.
• Other key risks include dependence on a limited number of partners and product programs, drug-development failure, competition, execution of rapid growth and acquisitions, intellectual-property protection, cybersecurity, COVID-19 disruption, and stock-price volatility. The company disclosed a prior material weakness in financial controls, reported remediating it in 2021, and concluded controls were effective at year-end; the auditor gave an unqualified opinion on the financial statements and internal controls.

Investor verification priorities

1. Track Lilly product sales, variant susceptibility, authorization status and royalty receipts; verify how much future revenue depends on bamlanivimab.
2. Assess whether the 156 contracted programs progress to starts, clinical milestones and commercial products, and whether partner concentration decreases.
3. Verify the timing, total cost, funding and repayment terms of GMP and other facility projects, including SIF claims and conditional repayment provisions.
4. Review TetraGenetics and Trianni integration, contingent-consideration valuations and any changes to preliminary acquisition accounting or acquired intangible assets.
5. Monitor Berkeley Lights litigation and patent-review outcomes, related costs, and any effect on AbCellera’s intellectual-property position.
6. Reconcile reported liquidity with planned capital spending, leases, contingent consideration and share-based compensation; note that the filing’s 24-month liquidity assessment is management’s estimate.