ABCL - AbCellera Biologics: Promising Platform But Watch-And-Wait Approach Advised

2023-07-19 01:26:24 ET

Summary

• AbCellera Biologics, a multinational company focused on antibody drug development, experienced a drop in revenue due to reduced demand for its COVID-19 antibody treatments.
• Despite financial setbacks, ABCL remains operational and continues to form partnerships to streamline drug development and testing.
• I recommend a 'Hold' position for AbCellera stock, citing the company's solid technological base, diversified drug portfolio, and robust partnerships and noting financial risks and uncertainties.

Company Overview

AbCellera Biologics ( ABCL ) is a multinational company dedicated to revolutionizing antibody drug development. Through advanced technology and strategic collaborations, they aim to accelerate the discovery of antibody drugs. Starting with six founders, AbCellera has grown to a workforce of 500 across multiple continents. Their focus on generating long-term value involves identifying optimal drug candidates and forming partnerships to streamline the journey from target to clinical testing. By the end of 2022, AbCellera had established 174 programs with 40 partners, ensuring a diverse portfolio of future antibody drugs.

AbCellera Biologics' discovery platform demonstrated remarkable speed and significance, exemplified by the development of bamlanivimab and bebtelovimab, widely recognized monoclonal antibody treatments for COVID-19 in collaboration with Eli Lilly ( LLY ). This groundbreaking achievement enabled AbCellera to generate nearly a billion dollars in milestone payments and royalties during the pandemic.

However, the Emergency Use Authorization for both antibodies was eventually revoked , with the latest withdrawal occurring in November 2022, AbCellera's COVID-related revenue ceased. Nevertheless, the company's discovery platform remains operational, undeterred by this setback.

This article examines AbCellera's financial performance, stock evaluation, market position, partnerships, revenue streams, future strategies, and growth prospects. Additionally, an investment recommendation is provided based on a comprehensive analysis of the company.

Financial Performance

AbCellera Biologics' Q1 2023 revenue dropped to $12.2 million from $316.6 million in Q1 2022, due to reduced bamlanivimab demand. However, research fees rose to $10.6 million, while milestone payments and licensing revenue reached $1.3 million and $0.4 million. R&D, Sales & Marketing, and General & Administrative expenses increased, reflecting investments in antibody discovery, business expansion, and growth. The company experienced a net loss of $40.1 million, but ended the quarter with $821.5 million in cash, cash equivalents, and marketable securities. AbCellera had 177 contracted programs with 41 partners, initiated 101 partnered program starts, and had nine molecules in clinical trials.

Stock Assessment and Market Position

Per Seeking Alpha data, analysts predict an EPS decline YoY for ABCL , falling from -$0.50 in 2023 to -$0.59 in 2025. Despite this, sales are expected to increase by 35.08% from 2023 to 2024 and by 11.83% from 2024 to 2025. However, an overall sales decline of 89.75% is projected for 2023. Earnings revisions present a mixed picture with a slight tilt towards upward revisions. The company's valuation metrics and growth indicators present a complex image with an enterprise value-to-sales ratio of 7.48 and a price-to-book ratio of 1.80. While ABCL has a 3-year CAGR in revenue of 135.90%, its YoY revenue growth has fallen by -62.98%. The company shows solid profitability indicators such as a gross profit margin of 13.85%, but also substantial losses with an EBIT margin of -40.50% and a net income margin of -27.71%. Over the past year, ABCL has underperformed the S&P 500, with a price decline of 28.37% against the S&P 500's growth of 17.07%.

ABCL's market cap stands at $2.07B, with total debt of $83.13M.

AbCellera operates within the thriving biotechnology sector, specifically focusing on the rapidly expanding field of therapeutic antibodies. Per AbCellera, this sector is projected to grow from a $250 billion market in 2022 to over $350 billion by 2027 . The firm's strategic approach involves expediting drug development, tapping into new market segments, and offering a simplified pathway to antibody discovery and development for biotech companies.

Partnerships and Revenue Streams

AbCellera's revenue sources are largely derived from partnerships with a wide array of organizations, spanning small biotech startups to leading pharmaceutical corporations. The primary objective of these partners, mostly based in the United States and Europe, is to leverage AbCellera's capabilities to accelerate and improve their drug development programs.

The company's partnership agreements typically include near-term payments for access, research, and intellectual property rights; downstream payments contingent on clinical and commercial milestones; and royalties on net sales of therapeutics. Some agreements involve additional value-capture strategies, like acquiring equity in partner firms or options for deeper investment in progressing therapeutic candidates.

Among AbCellera's partners are prominent companies such as AbbVie ( ABBV ), Rallybio, Empirico, Everest Medicines, Moderna ( MRNA ), and Gilead Sciences ( GILD ). These agreements highlight a shared participation in the potential success of future antibody therapeutics.

Future Strategies and Growth Prospects

AbCellera's management underscored their ongoing commitment to the long-term strategy of the company during their recent earnings call . The strategy centers around investing in the enhancement of their team, technology, and infrastructure to develop a leading engine for antibody therapeutics.

AbCellera is committed to augmenting its competitive edge, mitigating risks in drug development, and maximizing value creation. Key initiatives include expanding their platform's back end, investing in automation and software systems to increase efficiency and integration, and building a diversified portfolio with long-term shareholder value in mind.

Notable partnership successes and new company creations, such as the one with Teva Pharmaceuticals and Abdera, underscore AbCellera's strategic achievements. Despite the challenges, the firm maintains a strong balance sheet and is focused on expanding their discovery engine, continuing technology development efforts, and advancing high-quality programs to enhance their portfolio.

My Analysis & Recommendation

In conclusion, AbCellera Biologics presents a complex yet intriguing investment case. The company has had its share of triumphs and tribulations, from the unprecedented success with the COVID-19 antibodies, to the subsequent cessation of their Emergency Use Authorizations and the resultant revenue decline. Nonetheless, the company remains undeterred, with its discovery platform and numerous partnerships continuing to show promise for future growth.

Investors should watch for upcoming milestones from AbCellera's various clinical trials and partnerships. Successful advancements could significantly increase investor confidence and propel ABCL stock. The company's pathway to profitability will largely depend on its ability to generate substantial revenue from its numerous programs and partnerships. Given the inherent uncertainties in drug development, this could be a lengthy process.

AbCellera has similarities with other biotech firms leveraging technology platforms to accelerate drug development, such as Moderna. Like Moderna, the success of AbCellera will largely hinge on the successful commercialization of its various drug candidates.

AbCellera's strategy of focusing on long-term shareholder value and investing heavily in technology and infrastructure is a double-edged sword. While it positions the company for potential long-term growth, it also increases the financial risk, especially given the firm's current negative margins.

In light of these considerations, I would recommend a 'Hold' position for ABCL stock. The company has a solid technological base, a diversified portfolio of future drugs, and robust partnerships. However, given the substantial decline in its COVID-related revenue and the inherent uncertainties in its path to profitability, it may be prudent for investors to adopt a watch-and-wait approach. Future positive clinical results, successful partnerships, and an improvement in the company's financial position could warrant a reassessment of this position.

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