Tools and Diagnostics team introducing our next company in the AI-driven antibody drug discovery space. My pleasure to welcome Andrew Booth, CFO of AbCellera. Thanks, Andrew.
Thanks very much, Steve. Thanks for having us here. I just the regular disclaimer of, maybe making some forward-looking statements, so, please check our SEC filings for the full information about AbCellera.
Great. And, also, let's keep it interactive as possible. We're a relatively small group here, so if anybody has any questions, just please feel free to, you know, just, you know, shout them out, or if you want, just email me at steven.mah@cowen.com. But, yeah, let's kick it off. So, Andrew, yeah, maybe just give a quick introduction to, to AbCellera, for those that are new to the story.
Absolutely. My pleasure. So AbCellera is a company focused on therapeutic development of antibodies. The company started in 2012 out of the lab of Dr. Carl Hansen out of the University of British Columbia, and we have since spent the last 12 years and somewhere north of $500 million rebuilding the front end of drug discovery related to antibody with modern technologies. The focus there is to have this best-in-world capability, which is a mixture of intellectual property, technology, teams, facilities, know-how for an integrated end-to-end solution for drug discovery. We take that technology to the market really in three ways. The first, and it was the original way, or the start of the business, where a partner would come to us with their insight into biology, have functional requirements for finding a therapeutic antibody.
We would develop that antibody or a panel of antibodies and return it to the partner. In exchange, we would get paid some upfront fees, but really the lion's share of the value was in a royalty or downstream participation in the success of that molecule. We have since, we have done, you know, about 200 or so contracts, along that lines, in the partnership business, as we call it, about 100 of over 100 of those we've started and initiated, and in the majority of those handed back, those, antibody panels for to our partners for development. That business evolved into, also a co-development business where a partner would come with, some unique biology and unique capability.
We would negotiate a co-ownership position in the molecule that we discovered, and the right to participate in the funding the future therapeutic development so that we would maintain that 50% ownership position. The last way we bring this technology to the market is on our own internal programs. In programs where the target biology is already well understood, it's in the public domain, we initiate our own programs on that technology. Normally it is in the difficult target space. This is an area where we are really pushing the barriers of antibody discovery to find antibodies against these very difficult targets, perhaps in T cell engagers and CD3 discovery, MHC peptides, difficult transmembrane protein targets or complex membrane protein targets, ion channels and GPCRs, for example.
So this third sort of area of the way we bring the technology to the market is by initiating those programs under our own steam. They advance the technology, and of course they are also assets on their own. Just last year, we announced the first two of those such programs that have moved into IND enabling studies. One, ABCL635, is in that difficult target space of ion channels and GPCRs against an undisclosed target, but in the metabolic and endocrine condition. We would expect an IND for that in early 2025 and starting phase one. The second is a molecule, ABCL575. This is a molecule that came to us from our partnership or a co-development partnership we had with EQRx, because EQRx over the last year sold to Revolution Medicines, and this program reverted to us. It is an antibody against OX40 ligand.
It is actually a fast follower behind the Sanofi molecule that is being advanced for atopic dermatitis. And to our knowledge, we have the second molecule in that class. We're quite bullish on that class, given that target has got broad implications outside of atopic dermatitis in asthma, multiple ulcerative colitis, MS, and other indications. So quite excited about that. So. Oh, perfect. Yeah.
You know, that was great. Yeah. Maybe just digging in a little bit more on that kind of hybrid business model where you're kind of doing the R&D sharing and then also developing your own drugs. Like, you know, what were some of the thought processes going in there versus, you know, like Ginkgo was just on here where they're 100% not developing their own drugs, and, you know, they don't want to necessarily compete with potential customers and just doing 100% R&D sharing.
Yeah, I think in the earlier days, we definitely don't see it as competing with our customers. Quite the opposite, actually. We see, often, we find customers may come to us and say, we would like to advance a program in the following area. And do you think that's possible? We say, well, not only is that possible, we've maybe started in advance. We have a head start. You know, that's where we've anticipated what maybe the request could be. I think on the difficult target space specifically, if we believe we have a technology angle on how to find molecules against these targets, it doesn't make any sense to wait for someone to come and ask us to do one of those targets. So I think that's where we've decided to make those investments to develop those molecules.
We haven't seen it be a problem with our partners. And in the co-development, actually, these are cases where, and even in the company creation that we've done, where a partner is bringing a unique capability. Company creation example would be Abdera, where they have an angle on radioisotope, and they're looking for antibody radioisotope conjugates. We were able to get them quickly off the ground. They have developed those programs from company creation to hopefully getting into the clinic this year in just like three short years. So that's a great example of where we can partner. And we've done another co-development program this year with Prelude, where they have a degrader technology and antibody drug conjugate technology and linker where coupled with our own internal capabilities. That's a great partnership.
Got it. And then these, you know, these pre-partner drug candidates, how far do you intend to take them into clinical trials?
Yeah, well, we have started, we've just finished our annual disclosure, as you know. We've up to the end of December, we've started about 19 of those programs. In 2023, we also announced some funding from the Government of Canada to take up to 17 programs through to the end of phase one. So this is a funding where the Government of Canada has agreed to fund just under 50% of the drug development costs for us to take these programs through from target, target from target election all the way through to the end of phase one. So we certainly have a strong capital position to do those trials for those programs. When it comes to beyond that, it very much depends on what the program is.
A molecule like ABCL575, which is the OX40 ligand target that I mentioned, that's a molecule where, you know, it's got such broad applicability. Probably the right home for that is with a partner who can do a very broad multiple indication phase 2. And that's unlikely to be AbCellera as the best steward for that molecule going forward. However, ABCL635 is a molecule where we could conceivably take it past phase 1, but it's still early days and we haven't made that decision yet.
Okay, got it. Okay. So you have some flexibility depending on, you know, that's right, preclinical data.
But we certainly have the conviction to take things through phase 1. And I think that makes the most sense, and it is our intent to take many of those programs through.
Okay, got it. All right. And then, you know, maybe, you know, talking, let's shift back over to your partnered programs. You know, are there any particular area we're seeing more interest? Is it like, you know, like, you know, you mentioned, you know, radioisotope conjugates? What about like, you know, you know, ADCs and others, you know, T- cell engagers? You know, what kind of modalities and areas are getting the most interest?
Well, I think if you're talking about therapeutic areas, we did, we did just disclose in our, in our 10-K and in our last earnings call through an updated distribution of oncology, neurology, inflammation, autoimmunity. So a typical breakdown that broadly, I think, reflects the market activity. Just because you mentioned it, I, I will call out the T cell engagers. So this is an investment we've made over the past couple of years, showing scientific data at AACR in SITC, usually semi-annually updates on the scientific progress we've made, the most recent of which is, or sorry, the next one of which will be at AACR in just a couple of weeks' time.
Here we've characterized a broad panel of CD3 antibodies and shown that combined with a tumor targeting antibody, you can get different levels of cell engagement activation and tumor killing with these CD3 antibodies and the combination, so much so that there's a decoupling between cell killing and cytokine release, actually, with some families of the CD3 antibodies that we've discovered. This is a platform for us, one where we expect to partner it out. And we have been saying for a year, or so, and actually in 2023, we laid a number of goals for ourselves. The only one that we didn't hit was doing a deal in the T cell engager space, with a larger pharma partner.
We still have a lot of conviction in doing that, and there is a lot of interest in CD3s, not only in oncology, but also in autoimmunity.
Okay. All right. That's, that's very helpful. And then maybe, yeah, sticking with your partners, you know, do you see a mix of, you know, new partners versus existing partners, maybe expanding the scope of their relationship, whether it's in, you know, new disease areas or maybe expanding the length or timeframe, you know, what's kind of the mix of new versus existing?
Yeah, so we focus on, like strategic partners, and it's, it's not a volume number of partners. It's really high quality programs with partners. And, I mean, some of the, the, the very strong partnerships that we have, of course, with Eli Lilly, with, with AbbVie, with Regeneron, Gilead, and, those deals, just in the last year, we renewed a deal with Regeneron. So we had originally done a four-target deal with Regeneron that was originally done in 2020. Last year, they wanted to elect four new targets. So that was a renewal of that deal. And, you know, we also did a deal with Incyte, last year as well. So bigger pharma players, Prelude, I already mentioned, that was a co-development deal we did, last year.
We did a few deals in the fourth quarter, actually not disclosed yet, but also with partners, new partners, that maybe some disclosure will come in the coming weeks or quarters.
Okay. Yeah. And maybe digging in, digging in a little bit more on your comment of, you know, kind of a quality over quantity. You know, I've heard you guys disclose that, you know, you kind of, you have your own scientists look at potential partners, you know, potential strategies and whatnot to kind of vet them, and that you only kind of accept a partnership if, you know, kind of believe in the science and the biology, you know, maybe expand on, on that a little bit more.
Yeah, that's a little bit opposite to maybe some of your peers where, you know, they're really kind of prioritizing new program adds. I think an important point there is the way we structure our deals is we do get paid some cash upfront. It shows up as revenue in our P&L, but it's a bit of a distraction from where the real value is. Even when you probability adjust and discount for time, the economics behind any of these programs we work on, 90+% of the economic value of the program is in the royalty that we negotiate. And so if the value is in the downstream participation, it only makes sense to work on programs where you really have the conviction that this molecule has the opportunity to go and be a drug.
So the upfront payments, we really take as a sign that the partner is serious about advancing this program through to the clinic and then ultimately to patients. But it's not where a majority of the economic value is. When you tie your economic success to the success of the molecule, you want to be making sure you're only working on the very best of drugs. So we would have an assessment process for any of our partners where our scientists look at the biology, the mechanism of action, what's the therapeutic path to actually make this drug successful in the clinic and get to patients before we negotiate and sign a deal and then start work on the program.
We would say our opportunity cost is quite high, especially given that there are a good number of programs that we would work on in the internal pipeline as well. We set ourselves a high bar to make sure that our partnership programs with these strategic partners can really meet that.
Okay. And maybe can you talk about how, you know, like the royalty or downstream royalty rates have sort of evolved over time?
Yeah. In the earlier years, and actually from the beginning, maybe it was about 2015 to 2020, the average royalty rate we would negotiate was about 2.5%, and the interquartile range would have been between like 0% and 3.5%. And this is disclosed in our 10-K. Since 2020, the average royalty rate has moved from 2.5%- 4.3%. And the interquartile range is between, like 2.5% and I think 7% or 8%. So, so the progression that you would expect, and then the number of deals as well between 2020 and today is significantly higher than the number of deals that was in the period in before that. That's absolutely important for those partnership deals. That, of course, doesn't include the economic contribution of the wholly owned programs.
So these wholly owned assets, and when they get partnered out, they will also become an addition to that portfolio. Like the OX40 ligand, for example, if we were to partner that out, then that would again be another royalty position we would add to the portfolio.
Right, right. Okay. All right. Perfect. Yeah, maybe let's shift gears onto, you know, you're now vertically integrating into biologics manufacturing. Maybe talk about your kind of CMC, GMP facility, your building.
Yeah. So a few years ago, so when we, as we have been building this capability, our view of, kind of the caricature of drug development is, at the beginning, you have your, your ideation or your insight into biology that gives you the requirements of your drug. Then you have the product development step, which ends with a product that you can test. And then, of course, the clinical trials. Our view is that the investments in technology can really make a difference in that product development that starts at the target biology and ends with the drug product. And we made the investment into the process development, CMC manufacturing, and we had always had the ambition to have that.
I think our, our plans there for making those investments were accelerated by an opportunity with the Government of Canada, who agreed to co-fund these investments into development of the process CMC process development and GMP manufacturing. That was a decision that was made in the 2020 timeframe. We are a little behind our original schedule, but we will have, our pilot batches being made in 2024 and our first batches in the new manufacturing facility in 2025. That would give us this integrated end-to-end capability from, from target to IND and drug product ready to go into phase one. It's smaller scale. It's, and, and based in Vancouver.
In our first two products that we have, or our drug candidates, we have had to outsource that activity, but we've still had to build up the quality teams, etc., related to those molecules, for the next set of molecules. We would expect at least one development candidate to be announced in 2024 in the difficult target space, ion channel GPCR space. That will be the first molecule where we will develop the, do this cell line development work in-house, do the pilot batch in 2024, and be the first molecule going into the manufacturing facility.
Our internal capability, our internal development will keep much of that development or will keep, for a couple programs a year, I would say that manufacturing facility. It will then be complemented by probably first the co-development opportunities and then also our other partnership opportunities where we've done the discovery upfront that would then seamlessly integrate into the, or provide the pipeline to keep that facility busy.
Got it. And, you know, has the imminent, you know, opening of this GMP facility, is that how has that helped your BD discussions with new partners? I would imagine, especially with maybe emerging companies, you know, they don't have access to the precision biologics manufacturing might be a positive.
Absolutely a positive. So I'd say a real tailwind there, of course, is the smaller biotech companies or company creation. It's absolutely of interest to them, including the co-development work that we do. Another tailwind we see there is some of the geopolitical issues of doing GMP manufacturing, specifically in China. And to have a facility like this where we can do the GMP manufacturing here in North America, I think is also a tailwind. The programs that we would be doing discovery on now would be on the timeframe where the GMP manufacturing facility will be up and running. The cell line development we can do internally. And that's of a real value to these partners, I think.
All right. Right. And maybe give us a sense of how much this is, how much this facility is costing, how much the Canadian government and British Columbia is financing.
Yeah. So the construction of this facility actually was an announcement we made back in 2020. It was about a. I'm going to have to get the exchange rate right between Canadian and.
Rough and tough as horn.
Yeah. So let's say about a $180 million investment, of which the Government of Canada was funding 50% for the construction of this facility. And that was the agreement reached in 2020. You alluded to the province of British Columbia. So in 2023, we announced a separate co-funding agreement between AbCellera, the Government of Canada, and the Government of British Columbia, which is about advancing those programs. And that was about a 45%, let's say, funding agreement, and those programs will be manufactured in that facility. So they'll be making sure that the facility is used and that we get good and we practice and practice, you know, making antibodies that can support a phase one clinical trial.
Are there any restrictions on it that you're, you know, any strings attached with this Canadian money?
I think what you're asking there is like, why would the Government of Canada contribute this kind of capital towards these, towards AbCellera? The reason there is that, it's during the pandemic, this was certainly highlighted that, there hasn't been the development of a very strong biotech and life sciences and pharma ecosystem in Canada, and some of these assets were, were solely absent. The Government of Canada created a larger fund in order to try and encourage investment into that. AbCellera was there at the right time at the right place. I think our interests are very much aligned. They would like to help build anchor companies that make investments into, biotech and pharma assets in the country. That's exactly what we want to do to become an anchor company there.
Okay. No, no, it makes sense. I mean, in the U.S. as well, I mean, there's a Biden executive order on the bioeconomy, and there's obviously talk with the, you know, BioSecure bill of, you know, being able to kind of, you know, onshore or friendly shore biomanufacturing, you know, again, you know, to kind of secure API and drug supply. So, yeah, it's very much a, you know, very much an important topic here as well.
Yeah. And there are large funding opportunities in the U.S., of course, through DARPA, through BARDA, through joint projects, executive JPEO, and this is very similar to that. But the activities need to take place in Canada, which is a 10 out of 10 for us, because that's where we have our assets, our people, our decision makers anyway.
Okay. Got it. And then, you know, let's talk about the capacity to add kind of new partners and, you know, capacity, you know, once this new facility comes online to kind of service these partners, you think you have enough capacity with, you know, expected, you know, signing of new partners and, you know, new internal wholly owned programs?
Yeah, absolutely. And I think that the, it's a great question. And a few years ago, there was a big question about, there was such demand and such volume in the biotech community in general. The big question was, do we have enough capacity to be starting programs? We were focused not on the volume of program, but each program we were doing more and more activity as well in the program going end to end. That, of course, is even more the case when we do the process development CMC GMP manufacturing. We believe this GMP facility is actually built to do, you know, tens of batches a year. And each program through would maybe do, have a few batches in its lifetime, restocking, etc. So I think there's more than enough capacity there. And we're not aiming to fill capacity.
What we want is the ability to have it integrated, have flexibility on the timeline. And it is our, and we don't actually need to do too many projects in that facility to be, you know, cash flow break even or better. And actually, we want to make sure we're retaining the flexibility. And we think that integration and speed is a big deal to all the therapeutic programs we either do for ourselves or for our partners.
Okay. And, you know, the capacity in that GMP facility is just going to be solely reserved for AbCellera and partners, or, you know, would there, could there be a potential to, you know, operate as like a, you know, precision biologics manufacturer?
No, it's not our goal to become a CDMO and have a sales force trying to sell off extra slots. That's not what we're solving for. What we're, we think that with our own programs, the co-development programs and the programs of partners, that it's, it's more than enough of the pipeline where we have a real strategic interest in the success of the programs. And that's what we'll be using the facility for.
Okay. No, that, that makes sense. And, yeah, so, yeah, maybe let's talk about the balance sheet. You know, you obviously have a pretty nice balance sheet here. You know, let's talk a little bit about M&A. You guys have made a, you know, a couple small bolt-on acquisitions. But, you know, how should we think about, you know, M&A activity and, you know, maybe, are there some areas of, of, of the platform where there's sort of white space that could be filled?
Well, we have done M&A in the past, as you've mentioned, we did an acquisition of a repertoire sequencing portfolio of a multi-specific platform of our own proprietary humanized rodent platform. We did an acquisition in the difficult target space. So, for looking at ion channels and GPCRs, and those all fit the kind of the caricature of those business and M&A opportunities. The technology was great technology, but the technology on its own wasn't a business. It needed to be kind of integrated into what we call this engine, the full capability suite from target all the way to the clinic. We don't see any big gaps that we need to fill along the way.
I think we'll still be opportunistic, but it would, it would be of that similar kind of flavor, a great technology, complementary to our own, probably focused on the difficult target space. If it gives a leg up in our ambition to be able to systematically crack not only GPCR antagonists, but GPCR agonists, ion channels. We already believe at MHC peptides we can routinely do these kinds of difficult antibody discovery programs. But any kind of technology that gives us a leg up in really owning that space would be something we would definitely take a look at.
Okay. Great. Yeah, and maybe in the last few minutes, I'll open up to the floor if there's any questions. Otherwise, I'll just continue. Anybody have any questions? All right. Well, why don't we then, oh, go ahead, Chad.
Will the use of the downstream manufacturing be mostly focused on your internal programs bringing them forward or split with the internal partner?
Yeah, I think a split. So I don't think our own internal program effort, we brought two development candidates forward to IND-enabling studies last year. We've got at least one this year. So that pace of one or two a year is probably what you would expect going forward. So there could be a couple of year into the manufacturing facility, but it has capacity for much more than a couple of year. The next ones would be definitely our co-development where we have a 50% ownership and a strategic seat at the table kind of directing the advancement of those programs. And then also, of course, we will have room for partners who would like to move their programs through.
So, but we're. I don't think it would be. It makes sense, and it's against what we're trying to do, which is increase the speed, maintain the flexibility. It would be against that spirit to be trying to just bring other programs in where we don't know their expression systems or cell lines. And, you know, that's not our business to try and go through that operational activity. And that's not our core competence. What we're going to be doing is integrating it from only programs where we have also done the discovery.
Yeah. No, that makes sense. All right. Well, maybe let's wrap up in the last minute. You know, what do you see as kind of the key drivers and catalysts in 2024 we should look for?
Yeah. So in 2024, I'll start with the internal programs, the two we've mentioned, 635 and 575. You can expect us to do all that needs to be done to make sure that those INDs get delivered in early 2025. So that'll be the PK tox, the studies, and the GMP manufacturing to bring those INDs forward and all the clinical trial design, etc., to run a phase 1 and start those in 2025. We would also expect, as I mentioned, at least one development candidate brought forward from our internal development work. You can expect those to be first-in-class assets in the ion channel and GPCR area where we have been investing. We would expect some continued business development activity with strategic partners, these strategic partners that, either in co-development or, large well-enabled partners like, consistent with what we've done in the past.
We continue to have, even though it's the one goal we set for ourselves in 2023 and we missed, which was a deal in the TCE space, we continue to have conviction in that. And we would expect to do a deal on that platform, the first of what we would hope would be many deals in that, on the TCE platform. And we would expect to see, internally on the operations, our first program through our own cell line development through to, you know, a pilot or our pilot batch done in our own process development. So, and then beyond that, the kind of regular advancement that we've seen of the portfolio. So we continue to see molecules hit the clinic from work that we've done in the past or licenses that we have, that we have signed.
Those molecules we expect to continue to hit the clinic and even progress through the clinic.
Okay. And what about, what about like, upcoming, like, medical conferences? Is there going to be new T cell engager data presented at any conferences?
There is. So we actually sent out a press release just last week. We're presenting a number of posters at AACR that will be around the T cell engager work, of particular interest there. In addition to the CD3 work we're doing, showing a control of cytokine release, is some work on CD3 and PSMA. It's received a bunch of attention because of a deal that was done last week in the space that received a lot of attention. We had already presented a CD3 PSMA molecule at AACR last year. And so we'll be able to continue to show data at the poster. And it was called out in the press release specifically. Yeah. So that'll be the next one that's up.
Okay. Perfect. All right. Well, thanks, Andrew. Really appreciate you spending time with us.
You're welcome.
Thank you.
Thank you.