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AbCellera Biologics: A Compounding Machine In Biotech Clothing

Mar. 08, 2021 2:29 AM ETAbCellera Biologics Inc. (ABCL)102 Comments
Confoundedinterest profile picture
Confoundedinterest
8K Followers

Summary

  • AbCellera Biologics is a little followed and largely uncovered company. What it is building however is known all throughout the biotech and pharma industries.
  • With the likes of Bill Gates, Peter Thiel and DARPA as key backers, AbCellera is quietly creating a call option on vast swaths of new and emerging biotech.
  • AbCellera, contrary to the competition, partners with its customers and locks in royalty agreements, leading to a very long but potentially vast revenue cycle.
  • The sell-off in tech and high-growth names has punished AbCellera extremely hard and created a decent entry point. Investors cannot get past the current valuation and seem to lack the long-term vision to see the pot of gold at the end of the rainbow.

In this article, I would like to introduce AbCellera Biologics (NASDAQ:ABCL), the antibody discovery company that could have the potential to revolutionize the process for discovering and rapidly advancing new therapies.

Overview

AbCellera, fresh off of its recent IPO, classifies itself as a full-stack, artificial intelligence, or AI, powered drug discovery platform that searches and analyzes the database of natural immune systems to find antibodies that can be developed as drugs.

According to the company's S-1 filing, it believe its "technology increases the speed and the probability of success of therapeutic antibody discovery, including enabling discovery against targets that may otherwise be extraordinarily difficult to treat".

In a nutshell, the company thinks it has built a unique process for both identifying and rapidly advancing new therapeutic discoveries utilizing modern technology and synthetic biology. The company views itself as a tech company, not a biotech or a device maker.

AbCellera operates in two key markets, the antibody development market and the cell therapy market. Both of the company's target markets are expected to grow at breakneck speed over the next five years.

Source: AbCellera

Rather than advancing AbCellera's own clinical pipeline of drug candidates, instead it forges partnerships with drug developers of all sizes, from large-cap pharmaceutical to small biotechnology companies. The company then empowers them to move quickly, reduce cost and tackle the toughest problems in drug development.

The partner company basically comes to AbCellera with an idea for a therapeutic agent, AbCellera then performs the entire discovery process, validates the work and turns the process back over to the partner company for clinical trials.

The company has a stellar list of investors with Peter Thiel and Bill Gates both participating in the IPO and in previous venture funding rounds along with a collaboration with DARPA, an office of

This article was written by

Confoundedinterest profile picture
8K Followers
I work in the financial and property management industry for a well known, publicly traded "mini Berkshire" Insurance company. I focus on portfolio structure, value, reasonably priced growth, tech and biotech spaces. I passed the series 6 and 7 exams at age 18 but do not at this time have active licenses.My passion for investing and personal finance education began at a very early age. I opened my first brokerage account at the age of 12 and have invested through crashes, crises, recessions and bubbles. I have made many mistakes in both my personal and investing lives, however, each mistake I have made has taught me valuable lessons on my journey, both in life and towards financial independence. As of March 2023, my total portfolio has compounded at 10.2% per year since 1993, beating the S&P 500's return of 9.87% over the same time period. I do not currently hold active licenses and I am not a financial advisor and do not give out or publish investment advice. Articles I write are my opinion only and are not solicitations, please seek guidance from a licensed financial advisor before investing in any security. Opinions expressed in my articles are my own and do not reflect or indicate any positions or opinions held of my primary employer.

Analyst’s Disclosure: I am/we are long ABCL, BLI, TWST, SDGR, CRSP, NTLA, EDIT, GILD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (102)

s
What do you think now stock at 8.20
D
@Confoundedinterest

I own SDGR, VEEV and SLP (among a few others). ABCL sure seems like a nice addition to this theme (med/research data/big-data and biomed finally getting married) that I believe will be significant over the next 10-20 years. Going to read through what they've filed, and if I like what I see, will start a position in it.

Thank you for the article!

The best of fortune to us all
CR144 Research profile picture
Bamlanivimab (codenamed LY-CoV555) is a monoclonal antibody developed by AbCellera Biologics and Eli Lilly as a treatment for COVID-19. The drug was granted an emergency use authorization (EUA) by the US Food and Drug Administration (FDA) in November 2020, and 950,000 doses have been bought by the US government as of December 2020.
In April 2021, the EUA was revoked.

en.wikipedia.org/...

----
So that sounds like revenues from bamlanivimab will not be flowing that much if EUA was revoked. Bamlanivimab can still be used as combination treatment with etesevimab, so some revenue will be flowing, but much smaller.
CR144 Research profile picture
25 March 2021 U.S. Halts Distribution of Lilly’s Bamlanivimab Monotherapy, Citing SARS-CoV-2 Variant Resistance

www.genengnews.com/...

The U.S. government has halted distribution of Eli Lilly’s COVID-19 antibody treatment bamlanivimab (LY-CoV555) as a monotherapy just four months after it received FDA emergency use authorization, citing a sustained increase in variants of SARS-CoV-2 that are resistant to the monotherapy.

In announcing the halt this week, the U.S. Office of the Assistant Secretary for Preparedness and Response (ASPR) said it will continue to distribute bamlanivimab in combination with etesevimab (LY-CoV16 or JS-16), another Lilly antibody. The combination won FDA authorization for emergency use last month.
futyike profile picture
Great article. Thanks
E
Excellent article. Put it on my watch list and started conducting research since the day you published. Started a position today...let's see where we are in 3-5 years.
W
Very interesting article, thanks. However, I think there are a few flaws, but I would be interested in your thoughts:
1) I think you are underestimating how long it takes to take an antibody from discovery to FDA approval. You model out revenue in 2025. I think 10years is probably a better timeframe (bamlanivimab is an exception of course.)
2) You can't apply a 25x P/E on 2030 earnings because that would imply that the royalties continue in perpetuity. But patents expire. 10x-15x might be more appropriate and given my above point, you might need to extend that out to 2035.
3) On the plus side, the bamlanivimab experience argues, as you do, that the $65m revenue per drug could be underestimating the potential. Just one $1B drug could blow some of those numbers out of the water. I think ABCL was projected to get $150m or so in royalties from Lilly's $1-$2B in revenue from bamlanivimab.

Separate from your model, how will investors react as revenues drop in the coming years? As vaccinations roll out (and will be needed in perpetuity), the need for treatments like bamlanivimab will drop off a cliff because the number of COVID cases will plummet. So revenue will fall back to minimal amounts over the next few years as the rest of its pipeline makes its way through the lengthy testing and approval phases. Unlikely that it maintains a $7+B valuation in that scenario, no? I know you are in it for the long term, but the probability that you get a much lower entry point is high, no? The rest of the investors out there will not be patient. Even if you and Bill are.

Interested to hear your thoughts.
B
@We The North Investor
You didn't ask me, but I'll chime in here on your #1 above.

10 years the old way, yes, for biotech R&D personnel using traditional development methods. But we're talking about techies using AI to build a database/library that whittles away at that entire process. ABCL personnel don't know about chemistry/biochemistry/medicine. But they do know how to construct algos to get to achieve their targets antibodies which then get turned over to the client. And the first piece of evidence that posits this approach just might be disruptive to the antibody development paradigm is the blinding speed by which they developed bamlanivimab. An investor either accepts that or doesn't. We do. Apparently enough BP and biotech do too, that's how they got 103 programs under contract (not counting recent GILD announcement.

But do your own DD.

Cheers!
Michael Dolen profile picture
@We The North Investor I like the way you think. The only thing you said I slightly disagree with is that one should wait for a better entry in the coming years, after the bamlanivimab royalties plummet. That lower entry very well could happen however, it also might not.

If they have their hand in hyped clinical trials which are chugging along nicely and getting press, that alone could sustain and further drive up market cap. I'm not suggesting one should take a full position today. Rather, I'm saying taking no position at all, in hopes of a better entry later, may not work out as expected. Yes, I could see it trade down to $12-16, but I could also see that not happening.
Confoundedinterest profile picture
@We The North Investor in regards to your questions 1) AbCellera is targeting roughly 5 to 7 years from discovery to approval given advancements they have made, they began the current discovery royalty model in 2018 thus my 2025 revenue target. This may be off by a year or two in either direction but it’s a good midpoint to think about.

2) you are assuming that they stop producing marketed drugs when the current drugs in their pipeline reach patent expiry, in my opinion the pace of development will only increase due to their fly wheel and dedication to continuous technological improvement. Their library of antibodies grows exponentially with each discovery project leading to in my opinion an steady increase in drug development partnerships and success rates over the coming decades.

3) I sincerely think my estimates for revenue per drug is ridiculously conservative considering that the company is likely to only target big ticket and a large market potential drugs, otherwise it’s simply not worth it for them to start the discovery process and as they have noted they have their pick currently of development partners and cannot keep up with the interest.

I view the companies Covid antibodies as a bit of a teaser of things to come, The larger investment community may disagree and I fully expect revenues to decline in the coming years before ramping again after 2025. It’s entirely possible that the company could sell off markedly once revenue starts to decline and Covid is brought under control, however as we get closer to clinical results and approvals of pipeline drugs I think you will see the market taking notice of that. With such a large amount of development work currently ongoing I have to expect a lot of nice headlines in the years to come.

In addition there are lots of other paths that the company can take to produce revenue before drugs are marketed and royalties received, they have many interesting patents in synthetic biology and also with software for drug development. You are correct however that I am not at all worried about the share price for the next four years, would I love it to shoot up 400 to 500%? Sure, but for me the math works right now at this price, and I see a fantastic risk reward going forward.

This company is certainly not for everyone and anyone expecting a quick buck will likely be disappointed however this has the potential to be a massive compounder going forward and I am very happy to be along for the ride.
B
What is your view on their competitive moat? Is the platform a software based model(saas)? Would this fit into a company like VEEV or perhaps one of the CRL names? Also, do you see them expanding beyond the initial drug discovery process into phase I, II & III? Are there also any drug discoveries they are working on that are advancing to the clinical phase?
Confoundedinterest profile picture
@BKbiobull The moat for them is in the process, they have proprietary technology in software, hardware etc. Trianni mouse tech is very interesting and also the patents for cell screening currently subject to a patent dispute with BLI. Also the growing data library they have from each partnership is vital as they generate millions of data points with each compound which the company owns. I would seriously doubt they would expand into developing their own pipeline as they view themselves as a technology company.
Federico Cuneo profile picture
@Confoundedinterest I should add that the company is at the moment investing heavily to transform itself into a sort of "subcontractor" for the biotech and Pharma industry. This from their 10K:

"Expand our market by delivering a full solution through forward integration. Many of our potential partners, including early stage biotech companies, are seeking a partner with the infrastructure, resources and expertise to execute early stage discovery and preclinical development programs. Building on our existing platforms, we are adding capabilities and infrastructure to support full chemistry, manufacturing and control, or CMC, activities and GMP manufacturing to provide our partners with a full solution from target to investigational new drug application, or IND, submission.


Scale our teams and facilities to meet future demand. We are building capacity to support the execution of additional partnerships and expansion of the scope of discovery programs. To achieve this, we are investing in expanding our workforce and our facilities, and increasing efficiency through automation and software solutions. Over the past year we have grown our workforce by 93%, moving from 107 to 206 full-time employees as of December 31, 2020. Over this period, we entered into leases to expand our facilities from 21,000 square feet to 80,000 square feet, including a new 48,000 square feet research headquarters that is expected to open in the fourth quarter of 2021, are building a new GMP facility and are planning for a further facility expansion of approximately 200,000 square feet that will support cell line development, process development and GMP manufacturing of antibody therapeutics."
Confoundedinterest profile picture
The price action in ABCL has been very odd. My best guess is that due to no obvious catalysts on the horizon, day traders are using this stock as a cash machine.

Just today I doubled my position in the company and will continue to add on further weakness.

Imo those with patience will be rewarded.
Warrior2323 profile picture
@Confoundedinterest ...buffling indeed
Warrior2323 profile picture
@Confoundedinterest Any latest views looking ahead of next week's earning announcement?
a
...and now $GILD has extended their partnership. Interesting...
B
Bought this recently at around $30 on the way down. Wish I’d waited just a few days more to buy, or even just averaged in over a week instead of a single chunk. However, very satisfied with the subsequent trading update.
Federico Cuneo profile picture
Great company and very interesting business model. I opened a position today at $35, hope it goes lower a bit more so can add at cheaper prices.
The issue, I believe, is that some people are trying to put a "Covid stock" mark on the company, when this COVID drug is just one of hundreds in different areas that will come to market in the next few years. As COVID seems to getting contained in the USA (but not in the rest of the world) the concern is that revenues will decrease, but that is a total myopic view of this company. The COVID development is just a show of what they can achieve, I am impressed must say, not only for the effectiveness of the product but for the business model, which is unique and places the company as the place to go for antibody drugs.
Michael Dolen profile picture
My broker contacted me this morning to ask to loan out my $ABCL shares. Surprising given that I only have a super tiny starter position. Apparently there must be significant demand to short this right now.
B
@Michael Dolen
Umm...I don't think so. Asked my trading desk, and they would have no problem with the request. You must have a piss-ant broker. Size is everything.

Cheers!
Michael Dolen profile picture
@Blue Scorpion No, it's a major broker. The +50% in share price in 5 days probably attracted new shorts.
B
I can draw up a list with about 3000 names on it I would rather short than this one, if a gun was put to my head and I was ordered to short something.

Cheers!
RigaProf profile picture
What's your view on the patent dispute with BLI?
Confoundedinterest profile picture
@RigaProf I think ABCL has a strong case and the upper hand for sure, as a shareholder in both however my hope is to see a license agreement with royalties as BLI does not directly compete with ABCL and the world is large enough for them both.
RigaProf profile picture
@Confoundedinterest Thanks for replying. Sounds like heads they win, tails the other guy loses. The mystery is why the imp vol on the puts is in or close to triple digits. Why would I buy the shares when I can sell an Oct 2021 $25 strike put for $500? Get the stock at a net cost of $20 or pocket the premium.
B
Well, well, well.....Mr Market has spoken. ABCL was grossly undervalued in the mid-$20s for the multitude of reasons cited in several bulls' posts. I'm guessing the few posters who tried to talk the stock down..one of whom laughably argued for single digits, as dumb as that sounds...are feeling unintelligent right about now. Or maybe they aren't here to figure out how to make money, they just want to exercise their inflated egos.

Life is beautiful!

Cheers!
7r4v profile picture
7r4v
05 Apr. 2021
@Blue Scorpion
Looks like the market is still speaking. Curious to see how this moves this week.
t
nice earning release today
trader2020 profile picture
I think the royalty revenue from Lilly will be more than $200,000,000 in 2021 based on Lilly's 2021 guidance ( 1-2 Billion in 2021). Lilly reported $850 million Bamlanivimab revenue in Q4 2020. the royalty revenue from Lilly is more than %20 as per agreement if the sale is more than 125,000,000.

The Bamlanivimab approved in more than 16 other countries and it is counting up. France, Canada, UK, Germany, Italy, Saudi Arabia,...
www.covid19.lilly.com/...

Here is the link for AbCellera'a CEO and CFO interview at the 10th Annual SVB Leerink Global Healthcare Conference. The second part of the interview about business development is very interesting and the key drivers in 2021 and 2022.

wsw.com/...
r
no mention of the recent Baker Bros position just under 10 million shares
h
hf89
26 Mar. 2021
The way the share price has performed lately looks like many shorts believe this company is going to bankrupt soon and they don't need to cover their short positions. This is the worst stock in my portfolio (>50% loss already). It looks like this stock only goes down and it won't take much longer to become a penny stock and get delisted.
B
@hf89
Blaming the shorts when the short position is a tiny 1.5% of all shares outstanding? Laughable, bro. How about taking responsibility for your own bad decision paying $50 for the stock?

It's ppl like you they invented mutual funds and ETFs for.

Cheers!
h
hf89
26 Mar. 2021
@Blue Scorpion 1.5% of all shares outstanding is small (I suspect that is old data). However, the short volume ratio has been ~25% which is not small (https://fintel.io/ss/us/abcl).
Confoundedinterest profile picture
@hf89 Shorts gonna short... They know it is not in any risk whatsoever of bankruptcy, they use momentum and clearly the momentum is with them at the moment. I happen to think this is one of the best positioned companies in biotech and am very happy with my purchases both at $38 & $28, if you can't stomach a 50% draw down this definitely is not the stock for you. I frankly am fine with it going to single digits, it means I can load up even more when funds are available.

The math worked for me at $38 & $28 so I love it even more lower, nothing has changed the thesis whatsoever. I only get mad when things drop and I have no cash to add.
B
We added significantly to our tiny stake today. We are value investors but every once in a while, we like to add a wildcard into our holdings. This is a wildcard. Smart ppl at the helm operating a unique business model with imbedded optionality. We don't think covid is the last time mankind will be under assault from a deadly bug, and we like antibodies more than vaccines. The FDA will be extremely cooperative as they were with this one. Hence our rationale for this position.

We care not what revenues are reported next week. This is about the future, not Q1. We want a 3 year double, not +20% in next 6 months.

We are essentially done adding unless the stock heads sub-$20. Unlikely, but anything is possible when you have a market that hangs life or death on short-term-ism. This sell-off is mostly all nervous Nellie retail, not institutional. So we thank the Nellies for allowing us to round out our position at what we believe are attractive prices.

But please do your own DD.

Cheers!
Warrior2323 profile picture
@Blue Scorpion Still believe in this and hope it will trend up soon. Yes will consider to enter if under $20 but hope it will not further trend down.
B
@Warrior2323
You used the word "soon" which gives me pause. Sounds like you are in a hurry to make a profit. We view ABCL as a long haul stock. IOW, if the concept of using AI to accelerate antibody development pans out on a repeated basis, this becomes a lotto ticket. But that will take time to determine. Can't put a stopwatch on that, amigo. Check your expectations, they might be a mismatch with the animal that this one is.

Cheers!
bluescorpion0 profile picture
@Blue Scorpion Ah you mean the antibody that was halted because it doesn't work very well. Antibodies over vaccines!
www.healio.com/...
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