S1 Breakdown: AbCellera, the OS for Next-Gen Antibody Discovery
The Operating System for Next-Generation Antibody Discovery
AbCellera Biologics ($ABCL) is a full-stack artificial intelligence-powered therapeutic antibody drug discovery platform. The company's mission is to improve the world's health with technologies that transform how antibody-based therapies are discovered. AbCellera's platform searches and analyzes millions of natural antibodies to find ones that can be used as next-generation drug candidates.
AbCellera was founded in 2012 by biomedical researchers Carl Hansen and Véronique Lecault. After raising nearly $300 million in venture capital and government grants, the company embarked on a December 15th IPO, which saw the stock pop 205% on opening day, surging from $20 to a high of $71.91, going down in history as Canada's largest biotech IPO. Today, $ABCL trades at over $43 per share at a market capitalization of over $12 billion. What follows is a summary of AbCellera's S1, platform, valuations, and current investors.
❓What are antibodies?
Antibodies are Y-shaped proteins made by the immune system to fight infection and disease. They circulate in the blood and function to specifically recognize, bind to, and neutralize foreign substances (viruses, bacteria, proteins, or cancer cells). After exposure to these foreign substances, antibodies continue to circulate in the blood, protecting against future exposure and illness.
Compared to the 20,000 hard-coded genes in the human genome, at any given time, a human produces 1 billion different antibodies, each created from a single immune cell. There are over 100 trillion different possible antibody molecules, roughly 100 billion times that of the humane genome. The complexity of this diversity is astonishing. Imagine typing all the potential antibody variable sequences back to back in 12-point Arial font. The result would be a string of letters extending from the earth to the sun over 1,000 times. Collecting and interpreting this data presents immense challenges during antibody discovery programs.
Therapeutic antibodies are biopharmaceuticals (drugs made from or containing components of living organisms/biological sources) used to treat various human diseases, including cancers, autoimmune, inflammatory, and infectious diseases. Like natural antibodies, a therapeutic antibody recognizes and binds to foreign substances in our body to trigger the immune system or block further cancerous growth.
Antibodies are amongst the fastest growing class of drugs. In 2019, antibody-based therapeutics accounted for over $140 billion in sales and represented 5 of the 10 top-selling therapeutics worldwide, with 36 products reaching sales greater than $1 billion. The antibody-based therapeutics market is expected to reach $260 billion by 2025, representing an 11% CAGR from 2019 to 2025.
As of September 30th, 2020, there were over 115 approved antibody therapeutics with >150 in Phase 3 clinical trials. Finding antibodies to develop drugs that prevent and treat diseases is a gruesome multi-year multi-billion dollar investment that promises no success.
- According to a study of over 9,000 clinical development programs at large pharma companies, approximately 90% of antibody drugs fail to reach approval.
- Those that do succeed take, on average, 9.4-12 years to gain acceptance.
- According to a Tuft University study published in 2016, the average cost of drug development was approximately $2.9 billion.
AbCellera aims to reduce inefficiencies, decrease costs, and accelerate the timeline antibody discovery process for partners with its full-stack, AI-powered platform.
💰Money & Partnerships
AbCellera doesn't manufacture its own drug pipelines. Instead, AbCellera's business model involves building partnerships with large-cap pharma, small biotech companies, governments, and non-profits to accelerate their drug development processes. As of September 30th, 2020, the company had 94 discovery programs (either complete, in progress, or under contract) across 26 partners.
AbCellera makes money in 3 ways:
- Research and discovery fees- up-front payments for access to AbCellera's technology and performance of research.
- Clinical milestone payments- down-stream payments.
- Royalties- on net sales of any approved therapeutics.
While most of AbCellera's revenue to date is from up-front payments for research programs, the company believes its business's long-term value will be driven by milestone and royalty payments.
The Numbers (as of the 9-months ended September 30th, 2020)
- 94 discovery programs, 71 which include the potential for downstream milestone and royalty payments
- 26 partners
- 90 days to identify a viable antibody drug candidate for Eli Lilly's potential antibody therapy to treat and prevent COVID-19.
- 1 program has resulted in clinical milestone payments to date since initiating a partnership program in 2014. AbCellera received $8 million for clinical milestones met by Lilly relating to molecule LY-CoV555.
- 0 programs have received marketing approval
- 174 full-time employees (81 scientists, 45 engineers, 48 business professionals)
- $25 million in revenue (+200% since generating $8.4 million in revenue in the 9-months ended September 30th, 2019)
- $17.2 million research fees
- $8 million milestone payments
- $0 royalties
- $20.7 million in research and development (R&D) costs (+205% since spending $6.8mm in R&D costs in the 9-months ended September 30th, 2019)
- $1.6 million in sales and marketing costs(+103% since spending $792k in the 9-months ended September 30th, 2019). The company hasn't historically invested heavily in sales and marketing, but this is a growth lever they plan to start pulling on with IPO proceeds.
- + $1.9 million net income.
Partnerships (source: S1)
- IgM Biosciences. Multi-target, multi-year partnership focused on oncology and immunology and announced on September 24th, 2020.
- Lilly. Multi-year partnership with 9 targets focused on COVID-19 and additional indications and announced on May 22nd, 2020.
- Gilead Sciences. Single target partnership focused on infectious disease and announced on June 13th, 2019.
- Denali. Multi-year partnership with eight targets focused on neurological diseases and announced on February 28th, 2019.
- Novartis. Multi-year partnership with up to 10 targets and announced on February 14th, 2019.
- Government of Canada. Commitment of up to CAD $175.6 million ($125.6 million) to expand efforts related to the discovery of antibodies for use in drugs to treat COVID-19, and to build technology and manufacturing infrastructure and announced on May 3rd, 2020.
- Bill & Melinda Gates Foundation. Two-year agreement focused on high-priority infectious diseases including HIV, malaria and tuberculosis and announced on March 14th, 2019.
Eli Lilly Partnership (Source: S1)
- In partnership with Eli Lilly, AbCellera applied it's technology stack to co-develop LY-CoV555, a potential antibody therapy treatment to treat and prevent COVID-19. AbCellera identified an antibody cnadidate within 90 days from initiating the program.
- October 7th, 2020: Lilly submitted a request for Emergency Use Authorization for LY-CoV555 which was granted on November 9th, 2020.
- October 28th, 2020: Lilly announced agreement to supply US Government with 200,000 vials of LY-CoV555 for $375 million.
- October 29th, 2020: Lilly announces contract with U.S. Army Contracting Command for procurement of LY-CoV555 for $312.5 million.
- December 2nd, 2020: Lilly announced purchase by US Government of an additional 650,0000 vial doses for $812.5 million.
- November 22nd, 2020: Lilly granted authorization for LY-CoV555 therapy by Health Canada under Interim Order Respecting the Importation, Sale, and Advertising of Drugs for Use in Relation on COVID-19.
- November 24th, 2020: Lilly announced agreement with Canadian government to supply 26,000 doses of LY-CoV555 for $32.5 million.
Under their partnership with Lilly, AbCellera is entitled to receive a specified % of proceeds that Lilly receives from these sales. This partnership is one example of how AbCellera's technology can accelerate drug discovery.
💻AbCellera's Tech Stack
AbCellera's core differentiation is its vertically integrated end-to-end AI-powered tech stack, which compounds each step of the antibody discovery process's productivity and efficiency.
Accelerated FlyWheel of Learning
The S1 describes Abcellera's accelerated flywheel of learning. Every partnership produces data that Abcellera maintains ownership rights to. The more data generated, the more Abcellera can glean insights from their growing dataset to accelerate the process of antibody discovery for their partners.
"The marriage of advanced data collection and computation creates a flywheel effect that augments our technology. As we run our partnership business, we are amassing unique, multidimensional data sets that link measurements at the level of single immune cells with the properties of the antibodies they make and the DNA sequences that encode their function. A single antibody discovery project can generate millions of DNA sequences and single-cell measurements, as well as thousands of target-specific antibodies, each characterized by hundreds of data points. Every project generates more data about the antibody immune response. This creates a competitive advantage whereby Celium extracts insights from the data that allows us to accelerate wet lab experimentation with in silico computation in a continuously iterative process. Because our computation is grounded on real world data, the output of Celium is not theoretical predications. We find real molecules that have been optimized by nature. In our partnership programs, we maintain rights to large unique data sets that connect information at the level of single-cell measurements, DNA sequence and protein function. We use this data to create an accelerating flywheel of learning: data generation from our partnership business provides the basis for AI modules that lead to expanded capabilities and faster data generation which supports our partnership business." (Source: S1)
While AbCellera faces significant competition in the life sciences and biotechnology market, their competition focuses on different steps of their technology stack, as opposed to vertical integration:
What put AbCellera on my radar is its healthy balanced list of investors. The latest 13F filings show multiple institutional investors opening new or adding to long positions:
- Peter Theil owns 5% of the company and sits on the board.
- Baker Brothers are famous biotech investors that grow $1 billion in 2006 to $17.3 billion in 2019.
- 13-F Filings show Baker Brothers, Orbimed, Casdin, Viking, Perceptive, and Pura Vida all added or increased their positions.
2020 & 4Q20 Earnings
AbCellera will announce its 4th quarter and full-year 2020 earnings on Monday March 29th, 2021 after market close. The company will hold a conference call at 5pm EST same day.
At a market capitalization of $12 billion today, $ABCL is trading roughly 480x its 9-months trailing revenue or 360x its annualized 9-month trailing revenue. Assuming AbCellera hits $100 million in revenue this year, a stretch by any means, the company would trade at 120x trailing 12-month revenues.
However, as an investor with zero biotechnology domain expertise, I can't pretend this is the right way of looking at the company; I would love input from anyone more familiar with this space. What are your thoughts on AbCellera's technology platform and the market opportunity?