Pre-IPO: Everything you need to know about AbCellera (NASDAQ:ABCL)

Updated: Nov 13, 2021

  • AbCellera is expected to IPO on Nasdaq on December 10, 2020; shares are expected to price between $14 to $17 a share, raising as much as $391 millions.

  • AbCellera is a Vancouver-based AI-powered drug discovery platform with backing from Peter Thiel, known for its leading platform and COVID-19 treatment in partnership with Eli Lilly

  • Its most successful antibody (LY-Cov555)/bamlanivimab has recently been granted emergency approval by Health Canada and the FDA - expected to receive >$100mn in royalties

  • Its unique, proprietary business model and experienced management & board positions AbCellera for long-term success

  • We see AbCellera as a play on LY-Cov555 success and the near-term delivery of other antibody candidates, with the downside of potential headline risk

The Vancouver-based AI drug discovery platform that has caught the eye of investors including Peter Thiel for its leading platform and the development of its COVID-19 treatment with Eli Lilly (NYSE: LLY), AbCellera Biologics Inc. (the “Company” or “AbCellera”) is set to IPO (NASDAQ: ABCL) with Credit Suisse as lead left underwriter (prospectus filed November 20, 2020).

Here’s all you need to know about AbCellera and its proposed IPO.


  1. Business Model

  2. Recent Developments / Company Timeline

  3. Management Team & Board Overview

  4. Competitive Landscape

  5. IPO Details

  6. Financial Analysis

  7. Valuation

  8. The Bottom Line

AbCellera Business Model

AbCellera provides drug developers with a platform to find antibody candidates for drug research. Its AI-powered full-stack platform searches and analyzes real-world immune system databases to find leads that are subsequently used for clinical R&D. Unlike its competitors, AbCellera operates along the entire value chain from sourcing to the delivery of antibody candidates; this solves the existing problem of either inadequate/outdated discovery approaches or using multiple fragmented solutions (costly and inefficient).

It is important to note what AbCellera is not - a drug developer. Instead, Abcellera lends their technology to pharmaceutical companies, both large and small, in hopes of speeding up discovery times for antibody therapies. This in turn leads to cost savings for the drug developer, quicker times to clinical trials, and faster delivery of medical solutions. They define themselves as the “Operating System for Antibody Discovery”.

It follows then that revenues are project driven - the more programs authorized by drug developers, the more fees Abcellera earns. Abcellera sees long term value in the business to be driven off downstream and royalty payments that are more stable and are a consequence of successful discovery programs. We explore this notion later in the article. To summarize, revenues streams are as follows:

  1. Licensing / Research Fees (68% of revenue, 9 months ended September 30, 2020): payments for technology access and performing research

  2. Milestone Payments (32% of revenue): downstream payments for clinical/commercial milestones

  3. We note that only one program to date, LY-CoV555 (Eli Lilly), has resulted in milestone payments

  4. Royalties: royalties on net sales of any approved therapeutics

  5. As of September 30, 2020, AbCellera has yet to receive any royalties

  6. Royalties generally will range from low-single digit for non-COVID targets to mid-teens to mid-twenties for COVID targets

As of September 30, 2020, AbCellera had 94 discovery programs either completed, in-progress, or under contract, with a few public key partnerships below. Some of AbCellera’s recent, public partnerships are as follows:

Eli Lilly (NYSE: LLY) - On March 12, 2020, AbCellera and Lilly announced to co-develop antibody therapies for the treatment of COVID-19, the potential treatment LY-CoV555 accelerated due to Coronavirus Treatment Acceleration Program. As part of the agreement, AbCellera received an upfront payment of $25mn and is entitled to receive an aggregate of up to $29mn of milestone payments. As of September 30, 2020, AbCellera has received $8mn related to LY-CoV555 and is eligible to receive royalties on aggregate sales (including Lilly’s $375mn and $312.5mn contracts with the US government and US Army Contracting Command respectively).

Invetx - On February 23, 2020, AbCellera originally entered a multi-year, multi-target partnership agreement with Invetx. Based on the successful delivery of research programs under the original agreement, the scope of the collaboration has been expanded to include multiple new targets over several years on November 19, 2020.

Kodiak Sciences (NASDAQ: KOD) - After a successful collaboration in 2016, AbCellera and Kodiak Sciences announced a new partnership on October 29. 2020 to generate therapeutic antibody candidates in ophthalmology.

IGM Biosciences (NASDAQ: IGMS) - AbCellera and IGM Biosciences announced on September 24, 2020, that they have entered into a multi-year, multi-target strategic research collaboration and license agreement to facilitate the discovery and development of novel IgM antibodies.

AbCellera’s solutions to existing challenges.

The diagrams above illustrate AbCellera’s partnerships over time; the Company continues to expand partnerships in line with its growth strategy.

AbCellera’s business strategy (per prospectus) is focused on (i) using the drug discovery platform to unlock new opportunities for therapeutic antibody development; and (ii) allowing partners to access the platform to reduce delays and costs associated with setting up drug discovery capabilities. The firm continues to develop their strategy, building a stronger platform with the idea of higher downstreams royalties negotiated.

AbCellera’s strategy creates a positive feedback loop through which each round of research program improves the speed and efficiency of the next round of data generation

Recent Developments / Company Timeline

  1. In March 2020, AbCellera entered into a discovery partnership with Eli Lilly and Company, to perform discovery research for a number of targets for Lilly that will result in antibodies for Lilly to develop and potentially commercialize.

  2. In April 2020, AbCellera entered into a multi-year agreement with the Canadian government’s Strategic Innovation Fund, and CAD $175.6mn ($125.6mn) was committed by the Government of Canada, of which >$110mn remains and is intended to be used to build a GMP facility.

  3. In June 2020, LY-Cov555 moved to first in-inhuman testing and progressed to Phase 3 clinical trials.

  4. In November 2020, LY-CoV555 was granted emergency-use authorization by the FDA and Health Canada. For the nine months ended September 30, 2020, AbCellera received an aggregate of $8.0mn upon the satisfaction of clinical milestones by Lilly.

  5. In November 2020, AbCellera acquired Trianni for $90.0mn. Trianni develops transgenic mice that provide a source of fully-human antibodies for therapeutic antibody candidates. Trianni mouse technology will allow AbCellera to generate more high-quality antibodies against difficult targets and improve the speed of the discovery programs, which in turn should create higher leverage when negotiating downstream royalties. In addition to strategic value, Trianni also generates revenues through mouse sales, platform licensing fees and associated downstream milestone payments.

Defining Bamlanivimab

While any treatment for COVID-19 is big news for the world community, we’d like to emphasize what LY-CoV555/Bamlanivimab is not - a vaccine, a cure, or even a recovery aid for COVID-19.

Rather, clinical trials showed a 72% reduction in hospitalization rates within patients that have already been diagnosed with COVID-19. We make an analogy and compare the effect of bamlanivimab to blood clotting - it stops from excessive bleeding (hospitalization) when a wound or blood vessel is burst (diagnosis of COVID-19). For already hospitalized patients, studies have shown little to effect in helping patients recover from the advanced stages of COVID-19. Other clinical trials evaluating Bamlanivimab for the treatment of mild to moderate COVID-19 symptoms and for recovery purposes remain active.

This carries some short and long term implications. Abcellera will likely benefit both in the short and long term if the treatment becomes widely used in hospitals. They may also receive more milestones and royalty payments from governments and drug developers. However, the growth story will deteriorate as vaccines, which are already in federal approval stages, become available. Vaccines, herd immunity and measures to avoid the spread of COVID-19 will reduce growth opportunities for Bamlanivimab to be a continued factor in Abcellera’s growth. Finally, any royalties from the sale of Bamlanivimab remains unknown as no further disclosures have been made to date.

Nonetheless, the drug received US FDA approval, with Eli Lilly inking an agreement to supply the U.S government to provide 300,000 vials to high risk patients.for a sum of $375,000,000, or ~$1,250 a vial. Health Canada has also approved the use of the treatment,

Curiously, Abcellera proposed $200Mn comes shortly after a slew of positive news for the firm. This could come as a redflag to some, with the view that the firm is slapping as much lipstick as possible on the pig to sell it. However, we remain optimistic with the view that all the recent developments are timely given the COVID-19 pandemic and prepare the firm for future growth.

Company Timeline: AbCellera has demonstrated consistent growth and has generated positive operating cash flow cumulatively since its inception in 2012.

Management Team & BOD Overview

AbCellera’s management team is highly experienced with significant experience in related industries. AbCellera has also continued to bolster its board of directors with high-profile names including Peter Thiel (Palantir, Paypal, Facebook) and John Montalbano (CPPIB) ahead of its IPO.

With its recent additions, we view AbCellera’s management team and board as a strength.

Executive Officers Positions

Carl L. G. Hansen, Ph.D. Chief Executive Officer and Director

Andrew Booth Chief Financial Officer

Véronique Lecault, Ph.D. Chief Operating Officer and Director

Tryn Stimart Chief Legal Officer and Corporate Secretary

Non-Employee Directors

Michael Hayden, Ph.D. Director

John S. Montalbano Director

Peter Thiel Director

Director Nominee

John Edward Hamer, Ph.D. Director Nominee (nominated to join in December 2020)

Shareholders are detailed below:

Competitive Environment

AbCellera’s current market position as a full-stack service provider provides meaningful barriers to entry, with its primary competitors providing services at some point along its value chain. The integrated nature of AbCellera’s services (provides integrated services from start to end), in addition to the nature of its AI-platform (interconnection and scale enable AI to continuously become more efficient) is a competitive advantage.

That being said, the life sciences and biotech platform technology market is highly competitive; technical competitors at different stages of AbCellera’s platform in the following fields are detailed below:

Single-cell screening: Berkeley Lights Inc. (NASDAQ: BLI), HiFiBio Inc., Ligand Pharmaceuticals Inc. (NASDAQ: LGND), and Sphere Fluidics Ltd.

Antibody RepSeq: 10X Genomics Inc. (NASDAQ: TXG), Adaptive Biotechnologies Corp. (NASDAQ: ADPT), Atreca Inc (NASDAQ: BCEL). and Distributed Bio Inc.

Bispecific antibody engineering: Abbvie Inc. (NYSE:ABBV), Genmab A/S, Merus N.V. and Zymeworks Inc. (NYSE:ZYME)

Discovery using genetically engineered rodents: Ablexis LLC, Crescendo Biologics Ltd., Harbour Antibodies BV, Kymab Ltd., Ligand Pharmaceuticals Inc (NASDAQ: LGND). and RenBio Inc.

In addition, AbCellera competes with a variety of fee-for-service contract research organizations, in most cases using legacy technologies that would compete with one or more steps in AbCellera’s technology stack. Organizations may also elect to develop their workflows on legacy systems rather than rely on AbCellera’s platform.

IPO Details

The IPO will be jointly underwritten by Credit Suisse (left lead), Stifel, Berenberg, SVB (healthcare specialist) and BMO Capital Markets.

On Monday December 7 2020, AbCellera said it is offering 23 million shares in the IPO, which is expected to price between $14 to $17 a share. The company could raise as much as $391 million. The pro forma adjusted common shares count after the IPO is ~265.95mn shares. This puts AbCellera at a market capitalization of ~$4.1bn based on $15.5 IPO price.

Financial Analysis

In this part of our analysis, we will take a deeper dive into the valuation, pro forma financials, capital structure, and go-forward expectations for the business. The below provides a brief overview of the financials. We view the company to be financially healthy, given the low capitalization and limited contractual obligations, supported by continued licensing/research revenue and royalties from LY-CoV555 and other contracts.

Revenue has grown at a 109% CAGR since 2014, primarily driven by increased research fees (driven by the number and quality of programs under contract) and milestone fees (AbCellera received its first milestone fee in 2020 from Lilly of $8mn). September 2020 YTD revenue was ~$25mn (~$30mn pro forma for Trianni acquisition).

Key Revenue Drivers in the near term will include milestone payments on existing contracts and royalty payments from Lilly for LY-CoV555. The company is eligible for royalties in low- to mid-teens for aggregate sales below $125mn and mid-teens to mid-twenties on aggregate sales above $125mn. Assuming a 20% royalty on existing US contracts (~$690mn), this would drive an incremental $137mn of revenue (excluding an additional $21mn available through milestone payments).

We noted that Abcellera will likely move towards a recurring revenue model as the business develops more partnerships and use of their technology is more prevalent (and successful) in the industry. Details of future milestone payments and royalty payments are set out through partnership agreements with the drug developers. While we have no insight into the specifics of these arrangements, we expect more transparency going forward as Abcellera sees continued success in their programs.

Liquidity will be bolstered by the equity raise, with the use of proceeds used to continue making investments in R&D, building its business development team and other general corporate purposes. AbCellera has more than $8mn of total future contractual obligations and commitments (as of September 30, 2020), which can be financed through cash on hand or other debt (AbCellera has demonstrated access to bank and private placement debt).

Capital Structure will look significantly different post-IPO; the pro forma adjusted ~265.95mn common shares, includes 23mn IPO shares issue, ~81.2mn convertible preferred shares, and ~7.63mn shares from convertible notes based on $15.5 IPO price. The company also has

  • ~13mn common shares reserved for issuance under their current plan, as of September 30, 2020, which shares will cease to be available for issuance at the time their 2020 Plan becomes effective.

  • ~21mn common shares to be reserved for future issuance under the 2020 Plan

  • 27mn common shares to be reserved for future issuance under our 2020 Employee Share Purchase Plan

IPO Details

Comparable Companies

Information gathered as of November 26, 2020.

Relay Therapeutics (Nasdaq: RLAY) - Relay Therapeutics is a clinical-stage medicines company transforming the drug discovery process with the goal of bringing therapies to patients. Relay’s Dynamo platform integrates an array of experimental and computational approaches to provide a differentiated understanding of protein structure and motion to drug these targets. The company currently has three candidates with one in Phase 1 trial. The company planned to sell 20mn shares in the IPO. The company’s shares began trading on the Nasdaq Global Market on July 16, 2020. The first trading day closed at ~$35 per share, which is 75% above the $20 IPO price. The company currently has a market cap of ~$4.9bn.

Pandion Therapeutics (Nasdaq: PAND) - Pandion Therapeutics is a clinical-stage biopharmaceutical company developing therapeutics designed to address the unmet needs of patients suffering from autoimmune diseases. The company has combined a network-based conceptualization of the immune system in advanced protein engineering to develop drug design and discovery platform. The company currently has four candidates with one in Phase 1 trial. The company planned to sell 7.5mn shares priced at $18 a share. The company’s shares began trading on the Nasdaq on July 17, 2020. The first trading day closed at ~$18 per share, which agrees with the IPO price. The company currently has a market cap of ~$534.0mn.

Pliant Therapeutics (Nasdaq: PLRX) - Pliant Therapeutics is a clinical-stage biopharmaceutical company focused on discovering and developing novel therapies for the treatment of fibrosis. The company currently has two lead product candidates that are in Phase-2 trial. Pliant also has a second product candidate, partnered with Novartis, undergoing Phase-1 trial. In addition to clinical-stage programs, Pliant currently has two preclinical programs targeting oncology and muscular dystrophies. The company announced the pricing of its initial public offering of 9mn shares at $16 per share. The shares begin trading on the Nasdaq on June 2, 2020. The first trading day closed at ~$21 per share, which is ~31% above the $16 IPO price. The company currently has a market cap of ~$1.0bn.

Forma Therapeutics (Nasdaq: FMTX) - Forma Therapeutics is a biopharmaceutical company that has an approach integrating its drug discovery technologies and oncology expertise, enabling screening, discovery and rational development of a generation of small molecule drug candidates. Forma is building a pipeline of therapeutics in human cancers, such as key targets associated with cancer stem cells, tumour cell metabolism, programmed cell death of epigenetic disease mechanisms. Forma leverages its innovative drug discovery platform to address challenging targets and develop an internal pipeline of drugs. The company currently has five candidates, with two in Phase 1 and Phase 2 trials respectively. The company also has two out-licensed program candidates in Phase 1. Forma announced the pricing of its initial public offering of ~16mn shares, including the exercise in full by the underwriters of their option to purchase up to ~2mn additional common shares at $20 per share. The shares began trading on the Nasdaq Global Market on June 19, 2020. The first trading day closed at ~$39 per share, which is 95% above the $20 IPO price. As of November 26, 2020, The company currently has a market cap of ~$1.7bn.

Although the goal of the above companies is to discover and develop potential drugs or therapies to satisfy different requirements of the patients, the business model and strategy are very much similar to what AbCellera is aiming to achieve with its IPO. Some of the notable goals are listed below:

  • Advance its lead product candidate as well as other potential candidates.

  • Leverage its proprietary discovery platform by expanding its library and harnessing the insights and data generated from each research program.

  • Build a pipeline of additional drugs in their own fields of expertise.

  • Explore and evaluate additional partnerships or collaborations to maximize commercial opportunities.

  • Become a market leader in its own field of research.

The Bottom Line

Our Investment Thesis: we think that AbCellera is well-positioned to grow as a leader in an attractive, lucrative, and fragmented industry, supported by a strong management team and board. As the Company continues to find success, AbCellera will transition from its position today as a company heavily dependent on near-term binary outcomes (reliance on a few partnerships with milestone payments for revenue) to a more stable (royalty cash flows) company with significant upside for growth.

The Positives:

World-class management & shareholder support

  • Experienced executive team with deep experience (STEMCELL, Precision NanoSystems)

  • Strong and supportive long-term minority shareholders and experience board

Leading industry platform with barriers to entry

  • Full-stack solution is a unique value proposition vs. its competitors.

  • Data generated through discovery partnerships provide the basis for training AI modules that yield new insights into antibody responses; with each research program, the platform becomes more effective and efficient

  • Benefits from natural antibody optimization vs “genetically made” antibodies from legacy systems

Scalable business with a large addressable market

  • AI platform and partnership strategy enables organic growth with minimal funding requirements

  • In 2019, antibody-based therapeutics accounted for over $140 billion in sales worldwide and represented five of the top 10 selling therapeutics.

The business model enables diversified revenue long-term stream

  • Three pronged revenue stream: research, milestone payments, royalties.

  • Revenue to stabilize as therapeutics are approved and come to market (e.g. LY-CoV555)

COVID upside

  • Bamlanivimab (Eli Lilly collaboration, LY-CoV555) approved for treatment by Health Canada and the FDA

  • Royalties and future milestone payments to drive near-term revenue growth

The Risks:

Headline Risk: milestone payments and earnings are dependent on unknown, binary outcomes (excluding royalties).

  • Timing and quantum of LY-Cov555 royalties are unknown, delays or other negative developments would limit near-term upside

  • Lack of transparency - disclosure of partnerships is at the mercy of AbCellera’s customers, with little to no control over public disclosure from partners.

Customer Risk: AbCellera’s revenue stream relies on its partnerships as if it cannot maintain and expand current partnerships or failure to address the needs of customers could impact the market acceptance of the platform.

  • As of September 30, 2020, AbCellera had 94 discovery programs that were either completed, in progress or under contract, including 71 with the potential for milestone and royalty payments.

Lack of traction: Abcellera relies on their technology and partners’ ability to advance a product into clinical development and medical use. Since the launch of their partnership program in 2015, Abcellera has only 1 program lead to clinical milestone payments. If investors are to put a premium on their valuation, Abcellera will need to show rapid adoption of their technology within the industry and successful delivery of therapies to the population.

  • We expect larger, high profile antibody discoveries (through the use of Abcellera’s technology) to receive higher coverage and perhaps prompt drug makers to disclose Abcellera’s involvement.

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