Hi all,
We're excited about AbCellera's IPO and noticed nobody is really paying attention or interested. We've put together an analysis on their IPO below, with diagrams available at our seekingalpha blog post below. Appreciate any feedback and discussion!
https://www.bnnbloomberg.ca/covid-19-treatment-developer-abcellera-biologics-files-for-ipo-1.1525743
Summary
- AbCellera has filed its preliminary prospectus for its IPO; shares have yet to be priced but the company is looking to raise a proposed ~$200mn.
- 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.
As part of our multi-part series detailing all you need to know about AbCellera and its IPO, part I of our analysis will focus on providing an overview of AbCellera's business model, competitive landscape, key financial metrics, IPO details, and our investment thesis. These are summarized in the outline below. Part II will dive deeper into the valuation, existing contracts, pro-forma financials, capital structure, and go-forward expectations for the business.
Outline
- Business Model
- Recent Developments / Company Timeline
- Management Team & Board Overview
- Financial Analysis
- Competitive Landscape
- IPO Details
- 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).
AbCellera’s revenue is split into three streams - these streams include:
- Licensing / Research Fees (68% of revenue, 9 months ended September 30, 2020): payments for technology access and performing research
- Milestone Payments (32% of revenue): downstream payments for clinical/commercial milestones. Note: Only one program, LY-CoV555 with Eli Lilly, to date has resulted in milestone payments
- Royalties: royalties on net sales of any approved therapeutics. Note: As of September 30, 2020, AbCellera has yet to receive any royalties. 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 business strategy (per prospectus) is focused on (i) using the drug discovery platform to unlock new opportunities for therapeutic antibody development; and (ii) partners access the platform to eliminate the extended delays and costs associated with setting up drug discovery capabilities.
Recent Developments / Company Timeline
- 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.
- 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.
- In June 2020, LY-Cov555 moved to first in-inhuman testing and progressed to Phase 3 clinical trials.
- 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.
- 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. In addition to strategic value, Trianni also generates revenues through mouse sales, platform licensing fees and associated downstream milestone payments.
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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.
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Shareholders are detailed below:
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Financial Analysis
In Part II of this 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).
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; pro forma for the conversion of ~$80mn of convertible preferred shares and $90mn of convertible notes, AbCellera will have limited leverage on the balance sheet.
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. While the IPO has yet to be priced, we expect the IPO to price wide of the latest $12.46 funding round precedents, driven by continued positive news (FDA and Health Canada approval for Bamlanivimab, Trianni acquisition, new contracts, and more). We note the following pricing precedents:
- March 2020: Series A2 preferred shares issued at $12.46/sh
- April 2020: Existing shareholder purchased ~$600k of shares at $11.21/sh
- June 2020: Existing shareholder purchased ~$3mn of shares at $11.21/sh
- October 2020: Granted options to employees, consultants and directors to purchase ~3.6mn shares at a weighted average of $10.51
Assuming a $25/share IPO price (refinements to valuation to come), we expect the fully-diluted share count to be ~39.8mn (~15.4mn shares outstanding as of September 30 plus ~$8.0mn shares issued as part of IPO plus ~8.1mn of convertible preferreds plus ~4.2mn of convertible notes plus ~4.0mn of options in the money), putting the pro forma market capitalization at ~$1.0bn.
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.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
https://seeking alpha.com/instablog/52796529-breakwater-research/5525083-pre-ipo-everything-you-need-to-know-abcellera-part-i
Submitted November 30, 2020 at 07:43PM by BreakwaterResearch https://ift.tt/3o99W9V
