LLY - AbCellera Biologics: A Post-Covid Future

2023-03-23 17:06:11 ET

Summary

• Today, we take a deeper look at AbCellera Biologics whose Covid revenue stream is fading fast as the pandemic ends.
• However, its core business continues to show progress, the shares are well liked by analyst firms and had heavy insider buying in 2022.
• An investment analysis follows in the paragraphs below.

Kings need not raise their voices to be heard ."? V.E. Schwab, A Conjuring of Light

Today, we shine the spotlight on AbCellera Biologics Inc. ( ABCL ) , a mid-cap developmental concern from north of the border. The company has a unique platform and partnering strategy. The Covid pandemic greatly boosted the company's balance sheet, sales and profile. However, that revenue stream is quickly winding itself down as the pandemic ebbs. What is ahead now for AbCellera Biologics? An analysis follows below.

Company Overview:

AbCellera Biologics Inc. This Vancouver, British Columbia headquartered scientific concern is focused on the discovery of antibodies that can be developed as therapies against a wide spectrum of indications. The company went public with much fanfare in December 2020, raising net proceeds of $522.8 million at $20 per share and more than tripled immediately on its first day of trading. Since then, the stock has consistently trended down and currently is deep in 'Busted IPO' territory. The stock trades near $7.25 a share and sports an approximate market capitalization of $2.2 billion.

Development Platform:

The company leverages its artificial intelligence-driven technology platform to discover Y-shaped proteins made by the immune system known as antibodies. Since each antibody is created from scratch by an individual immune cell through a random shuffling of DNA fragments, the number of antibodies that can be produced by the human body to fight disease is nearly limitless. As stated in a previous article :

Since only a very small number of antibodies are responsible for a particular immune response, it is necessary to possess a massive database to analyze and speed up this class of therapy's development. Enter AbCellera. It sources antibodies from humans and many other mammals, including mice, rats, cats, and dogs. Using mice that are genetically engineered to express human antibody genes - courtesy of its 2020 acquisition of Trianni and a licensing deal with Alloy Therapeutics - it then triggers an immune response and searches for antibodies that are affecting said response. After mapping, analyzing, and adding to its growing library of antibodies, it selects the best one[S] for engineering. Owing to its 2020 purchase of Dualogics, AbCellera can now combine antibodies to create bispecifics. Through these processes, it aims to greatly speed up antibody development with therapies that have a much higher chance of clinical success. "

Almost all of AbCellera's current revenue comes from a COVID-19 treatment called bamlanivimab that it collaborated on with Eli Lilly ( LLY ) around. A second COVID-19 antibody (bebtelovimab) was also developed with Lilly to combat Covid variants. Emergency use authorization (EUA) for bebtelovimab in the U.S. was suspended due to emergence of COVID-19 variants resistant to the treatment in late November of last year. As the pandemic has ebbed noticeably, these revenues will drop drastically for the company as well as across all the entire Covid ecosystem (treatments, vaccines, testing, etc..)

The company's core business is partnering with pharmaceutical concerns. These then advance the antibodies into the clinical development. AbCellera receives discovery fees, as well as potential milestone and royalty payments on these candidates.

The company added 18 partnered programs in 2022 to reach a cumulative total of 174 programs under contract that are either completed, in progress, or under contract with 40 different pharma/biotech partners. 8 current molecules are currently in clinical development or approved.

Fourth Quarter Results:

AbCellera reported its fourth quarter numbers on February 21st. The company had a GAAP profit of 50 cents a share, nine cents below the consensus. Revenues grew just over 29% on a year-over-year basis to $485.4 million, which missed expectations by just over $30 million.

Royalties associated with bamlanivimab and bebtelovimab came to $443 million while the company's partnership business generated research fees of $40.8 million, versus $19.1 million in the same period a year. Milestone payments of $900,000 and licensing revenue of $700,000 rounded out the rest of AbCellera's sales mix for the quarter.

Balance sheet and Analyst Commentary:

Since the company posted fourth quarter results, five analyst firms including Stifel Nicolaus and BMO Capital have reissued Buy ratings on ABCL. Cowen & Co. upgraded the stock to a Buy rating as well. Price targets proffered ranged from $18 to $38 a share.

Just over 10% of the outstanding float in the shares is currently held short. Insiders and one key beneficial owner added nearly $20 million to their holdings collectively in 2022. There were no insider sales last year. So far in 2023, there has been no insider activity in the stock.

The company ended FY2022 with just over $900 million of cash, cash equivalents, and marketable securities. The company had just over $175 million in total expenses (R&D, G&A and Selling & Marketing) during the fiscal year. AbCellera carries no long-term debt.

Verdict:

The current analyst firm consensus has the company losing 60 cents a share as revenues plunge nearly 90% to $52 million in FY2023. The analyst community sees similar losses in FY2024 even as revenues rise to just over $65 million. There is a wide variance to sales estimates it should be noted.

The Covid pandemic ended up boosting AbCellera's balance sheet and helped prove out its approach. At its current run rate, the company has more than five years of expenses fully funded by the cash on its balance sheet, not counting offsetting revenues, milestone pay-outs and other partnered fees.

That said, the rest of the company's partnered candidates in the clinic are in very early stage development (see above). Given all this as well as strong analyst support for the stock and significant insider buying last year, ABCL seems to merit a small ' watch item ' position as this story unfolds.

You might think that there's some authority you could look for to answers, but all of the authorities you can think of are fake ."? Jean-Paul Sartre

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