Q4 2022 Abcellera Biologics Inc Earnings Call
They are Dr. Carl Hansen at seller, as Chief Executive Officer, and President and Andrew Booth accelerates Chief Financial Officer.
Webcast portion of this call contains a slide presentation that we will refer to during the call. If you were on as you are following along on the phone and wish to access the slide portion of this presentation. You may do so on the Investor Relations section of our website.
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Our presentation and <unk> SEC filings are available on our Investor Relations website note that all dollars referred to during our call today are U S dollars.
Now I am pleased to turn the call over to Dr. Carl Hansen.
Thanks, Tim.
And thanks, everyone for joining us today.
It's my pleasure to provide an update on our business and the strong progress we made in 2022.
2022 marked its <unk> 10th anniversary.
And in the year, we hit a symbolic milestone and starting our 100 partnered antibody discovery program.
Much has changed since we founded the company in 2012.
We have grown from six founders to over 500 employees.
We've opened facilities in four countries and have developed the systems and processes to support our operations that have grown in size and in complexity.
Throat, we have continued to develop and integrate technologies as we build an engine for antibody discovery and development that we believe now stands at the forefront of the industry.
And along the way, we've expanded our business and evolved the ways in which we bring our growing capabilities to our partners.
Two years ago, we embraced more change as we've made the transition to a publicly traded company and accelerated our growth.
As we enter 2023 I believe we are now at an inflection point and are entering a new phase of transformation and growth of our capabilities.
Expanding our engine with translational science manufacturing and regulatory matters to create a unified path from idea to the clinic.
And demonstrating our capabilities in solving some of the most difficult discovery problems in the industry.
Over the past decade, <unk> has been a company of continual improvement and change.
However throughout all this change our strategy and our core beliefs that underpin it have remained constant.
Every business is built on a hypothesis.
Ours is that sustained investments in technology can move the needle in drug development and make our industry more productive.
Every business also reflects a way of seeing the world our philosophy.
<unk> is that the surest path to success is through building strength and using it to create value for others.
That is why our primary focus is not on developing a new drug but rather on building a company that works with others to find many trucks.
Our belief in technology, and our philosophy or how on how we create value is captured in our strategy.
Our strategy is simply this.
First to build an engine that is best in world at going from an idea to a drug in.
And second to use our engine with partners to build a large and diversified portfolio of steaks and future antibody therapies.
The first part of our strategy to build an engine for antibody discovery and development is an ambitious and long term technology project that encapsulates nearly everything we do as a company.
The problem, we are working to solve is to take our partner specification for a new therapeutic antibody and turn this into a treatment that is ready for clinical testing.
Our engine creates value for the industry by speeding up discovery and development unlocking new areas for antibody drugs.
And by leveling the playing field to make antibody discovery more accessible to drug developers of all sizes.
Okay.
Drug discovery is not done in a single step in our engine is not built on a single instrument or technology.
It is a centralized solution that integrates expertise technology data knowhow and infrastructure to enable us to respond to any problem that partners may have and to do so with precision and with speed.
The challenges of building such an engine our formidable it takes time technology expertise.
Capital and mastery of the complexity that is inherent in doing antibody discovery at scale.
The second part of our strategy is to build a large and diversified portfolio of steaks and future therapies.
Over the years, our partnerships have evolved to include three different program types.
The first two types our partner initiated programs, which include discovery programs and co development programs.
The third program type known as pre partnered programs arises from long range R&D projects that seek to unlock high value areas of antibody therapeutics.
When successful these efforts have the potential to generate wholly owned assets for partnering.
Partner initiated discovery programs are the largest component of our portfolio and have deal terms that include near term upfront and research payments downstream milestones and royalties on success and the sale of products.
Because near term payments typically cover our cost of doing the work the return on marginal investment for these programs is high.
The largest fraction of the value of these programs is associated with future royalty streams from approved drugs.
Royalty rates for these programs are typically low to mid single digit range.
And have increased as the capabilities of our engine have grown.
Partner initiated discovery programs represent a large number of programs in which we have a small royalty position.
It is the aggregate of these physicians that has the potential to create significant long term value in a way that it's predictable and does not depend on the success of any one specific program.
Noteworthy noteworthy partnerships for us in 2022 include agreements with Premier venture capital groups, Versant ventures and Atlas venture.
These relationships are valuable for connecting our engine to early stage innovation.
In 2022, we also entered into a new partnership with Abbvie.
Highlighting the value, we can bring to large and well enabled partners.
Similarly, we announced our partnership with Regeneron last year and the advancement of our first program with them towards late stage preclinical development.
Although partner initiated discovery programs have a high return on investment the bulk of the returns will not be realized until therapies reach the market, which has historically taken an average of more than 10 years.
Due to the confidential nature of discovery programs, we are able to provide only limited information about this part of our portfolio with details on any specific program only disclosed once it reaches the clinic.
Because of the limited disclosure and the long timelines. We believe this large and important component of our portfolio may have been underappreciated, but should be of interest to those investors, who look for efficient capital allocation with a long term view.
Our second type of partner initiated programs are co developments.
Although there are fewer of these programs in our portfolio any one of them has the potential to meaningfully impact our business.
Co development programs give us give us the option, but not the obligation to co invest in the sequential stages of program development.
We begin discovery with a 50% stake in the program and have the option to invest on a stage by stage basis to retain this position.
This also gives us visibility on the data and the progress of each program.
We announced our first co development partnership in 2021 and to date, we have started to work on six co development programs.
We expect to select the final candidates final clinical candidates for one or more of these programs in the next 12 to 18 months, which will allow them to advance into C&C and I'd, enabling studies.
In 2022, we announced a new co development partnership with rally bio to bring treatments to patients with rare diseases.
Finally.
We have been working on long range technology development projects that seek to open up areas of therapeutic discovery, where we believe there is not just one target one opportunity, but a whole family of opportunities that could be prosecuted.
While the primary objective of our pre partnered work is to expand the capabilities of our engine in high value areas. These efforts may produce wholly owned assets with the potential to become first in class antibody therapies that address large areas of unmet medical need.
Our pre partnered programs are focused on three areas, including T cell engages GPU.
<unk> nine channels and pandemic response.
To date, we've started five programs directed against well known solid tumor targets using our T cell engagement platform.
We expect the first of these programs to advance the development candidates within the next 12 months to 18 months.
In <unk> and ion channels, we've initiated preparatory work on about a dozen targets and six of these have now progressed to program starts.
While technical risk remains we anticipate sharing data on the first clinical candidate, resulting from this work in 2023.
Finally, our most advanced pre partnered program is of course, COVID-19, where antibody assets emerged from our efforts to develop a pandemic response platform.
We partnered these assets with Lilly to bring our first two COVID-19 antibodies <unk> and <unk> that helped approximately 2 million patients in the U S and worldwide.
As mentioned on our previous earnings call. We have a third COVID-19 antibody that we believe will be effective against all known variants of concern, including the recent BQ, one BQ, one dot one and SBB variance.
This antibody continues to progress through preclinical development with Lilly.
If a clear path for clinical development and patient access can be established we stand ready together with Lilly to move this program forward quickly.
Looking forward into 2023 and beyond we will continue to allocate our resources to build the pillars of our strategy.
First building technology and infrastructure to create a centralized engine for the discovery and development of antibody therapies at scale.
Here, our near to medium term focus is on building out our capabilities for forward integration, including translational science manufacturing and regulatory capabilities to enable full preclinical antibody discovery and development.
Second continuing technology development to unlock new target classes and to enable a new modalities, including our work in <unk> and <unk> and <unk> channels.
We are excited to see these efforts advancing and look forward to demonstrating our capability and bringing new clinical candidates forward for development.
And third executing on partnered programs to build a diversified portfolio of steaks and next generation therapeutic antibodies.
Our business development efforts remain focused on connecting with the highest value programs, both with new and existing partners.
And as our capabilities grow we anticipate building deeper relationships that take our partners faster and further towards the clinic.
As we execute on this strategy, we are defining an exciting new category of a company called tech enabled biotech or tech bio.
We believe companies in this space, including our own must ultimately be evaluated not on the promise of their technology, but on the output of their platforms.
We demonstrate this by solving discovery problems that are recognized as difficult across the industry.
Signing new and expanded partnerships with top tier drug developers.
And when the molecules that we discover are advancing towards and through the clinic.
And in the end our success will come down to the people.
I am fiercely proud of the team that we've built in what we've accomplished over the first 10 years of the business.
We have momentum.
We are at an inflection point.
And in the next two years as a team we will show what our engine can really do.
And with that I'll now hand, it over to Andrew Booth, our CFO to provide an overview of our full year 2022 financials.
<unk>.
Thanks Carl.
Carl provided an overview of the engine that we've built over the past decade.
We estimate that we have invested over $500 million to build that engine, which spans approximately a 500 team members and is on track to include over 650000 square feet of lab and office space, including CMC and GMP capabilities by 2024.
To fund our growth we have raised approximately $800 million in equity since 2012.
We have also access substantial non dilutive funding predominantly in the form of royalties from our COVID-19 response, where we have generated approximately $1 billion in revenue cumulatively in.
In addition, we have also secured over $150 million in government grants and contracts.
We prioritize investments with scalability broad applicability and high expected rates of return when we allocate capital.
Since 2012, we have accumulated earnings of approximately $430 million.
The combination of strong operational execution and financing we are in a strong liquidity position with approximately $900 million in cash cash equivalents and marketable securities.
Our key business metrics speak to the strong momentum in our business.
In 2022, we started work on 23, new discovery programs with partners of these nine starts were in the fourth quarter, taking us to accumulative total of 101 partnered programs starts.
The 23 programs, we started in the year represent approximately a quarter of all programs that we have ever started with partners and reflect and almost 30% 30% increase in cumulative starts compared to the end of 2021.
All starts in the fourth quarter included downstream participation.
We ended 2022 with 174 programs under contract with 40 unique partners in.
In 2022, our partners also advanced three more molecules into the clinic, bringing our total molecules in the clinic to eight at the end of 2022.
Our portfolio is diversified across partner types and therapeutic indications the capabilities of our engine our broadly applicable to antibody based drug development. So we can access a broad selection of programs in the industry by partnering.
Of our 148 partner initiated programs with downstream, 90% are in human health. The majority of our partnered programs are in oncology neurology and immunology broadly, reflecting the activity in the industry.
Possessing a diverse portfolio of programs ameliorate certain risks associated with individual drug development programs and we believe diversification across partner type an indication makes our portfolio potentially more robust relative to portfolios with a more limited focus.
Our portfolio is diversity is also diversified across program types are.
Our three program types provides flexibility in how we create and capture value they allow us to enhance our platform and and our economics, where the value we add to the programs is particularly large.
Partner initiated discovery was our first type of program out of a total of 131 partner initiated programs under contract with downstream participation. We have started work on 69 programs.
We continue to add programs to this portfolio and Theyre large volumes speaks to our portfolio diversification. The potential return we can earn on our incremental investment in these programs is very high.
We announced our first co development program in 2021.
Out of 17, such programs in our portfolio. We have started work on six.
These programs enhance our portfolio economics by giving US $50 50, co ownership and the option, but not the obligation to co invest to maintain our ownership of these programs.
We announced our pre partnered program category in 2020 to these efforts in technology development with the potential to have the potential to produce wholly owned assets.
To date, we have started 12 of these pre partnered programs success in partnering these assets could drive meaningful meaningful value in deeper royalty stakes in each program. They also have the potential for large upfront payments, which could bring significant cash flows forward.
The value we add to programs is reflected largely in the royalty rates that we negotiate with.
We continue to prioritize more valuable programs instead of maximizing the number of programs under contract as a result, the range and average negotiated royalty rates in our portfolio is shifting favorably.
As we reported last year, our mean royalty rate was two 4% across 37 partner initiated discovery programs with downstream participation that were contracted between 2015 and 2019 beta.
Between 2020 and 2022, the mean royalty rate has increased to four 1% across the 112 programs with downstream participation that we have signed during that period.
A quarter of the programs with downstream participation that we've signed between 2020 and 2022 have the potential to achieve royalty rates above 5%.
We continue to view, our growing list of molecules in the clinic as specific examples of our near and midterm potential revenue from downstream milestone fees and long term royalty payments.
During the year, we saw three additional molecules entered the clinic.
We can now disclose that one molecule <unk> 909 was discovered by us in our discovery partnership with Denali dinner.
Denali has advanced the molecule into a phase one clinical trial with an indication in Alzheimers disease.
The other two molecules were discovered and developed by partners one of them undisclosed using our tree any humanized roden platform under license.
We congratulate <unk> on advancing NBL <unk> with an indication in oncology as their third tree any drive molecule into the clinic and welcome to phase one start of NBL or one five.
Turning to revenue our revenue for the year was approximately $485 million or 2022 revenues were dominated by the $443 million of royalties that we earned from shipments of <unk> and <unk> during the year.
This was up from $375 million in 2021.
We realized approximately $1 million in milestone payments and approximately $1 million in licensing fee revenue in 2022.
Finally, we earned approximately $48 million in research fees in connection with our partner initiated discovery programs. This is up from $19 million in 2021.
We have always viewed the royalties earned from our sales of COVID-19 antibodies as a source of non dilutive funding as Carl mentioned earlier in the call. If a practical regulatory path is established we are ready to go ahead with a third COVID-19 antibody together with our partner Lilly.
As it stands we do not expect to receive further royalties from our COVID-19 program and expect our revenues to be correspondingly lower in 2023 with or without these royalties from the sale of Covid antibodies, we will continue to support investments in expanding the capabilities of our engine, including our forward integration into translational sciences.
CMC and GMP, which we expect to be operational in 2025.
Turning to operating expenses, our research and development expenses for the year were nearly $108 million compared to $62 million in 2021.
This 75% increase reflects our continuing investments in our business as we expand the capacity of our teams and the capabilities of our engine to deliver on a growing number of discovery programs.
Notably our build out of the teams for CMC and GMP manufacturing is now gathering pace heading into 2023.
Approximately two thirds of our R&D efforts continue to be directed at enhancing the capabilities of our engine with the remaining one third relating to execution on our partner initiated programs.
Sales and marketing expenses for the year were approximately $11 million compared to nearly $7 million in 2021. This.
This approximately 60% increase reflects our continuing investments in business development.
General and administration expenses for the year were approximately $55 million.
Compared to almost $42 million in 2021. This approximately 30% increase was driven by the need to support the growing business overall.
We were profitable for the full year of 2022 and are reporting earnings of approximately $158 million for the year.
This compares to earnings of approximately $153 million in 2021.
This result reflects the recognition of royalties on <unk> and Thats deliver mab offsetting investments to expand the capabilities of our engine and running discovery efforts for our partners.
As discussed earlier, we do not expect to receive further royalties from our COVID-19 program and therefore do not expect to be profitable in 2023.
In terms of earnings per share our results for 2022 works out to a profit of 56 cents per share on a basic and <unk> 50 per share diluted basis.
Looking at cash flows our operating activities for 2022 contributed approximately $270 million to our cash flow. This includes the strong royalties earned from our Covid antibodies in the first three quarters of the year and the collection of accrued accounts receivable from royalties on sales of <unk> in 2021.
As a part of our Treasury strategy, we keep around $500 million invested in short term marketable securities and our investment activities for the year include an approximately $250 million net increase in these holdings.
Also included in our investment activities for the year is an approximately $70 million investment in property and equipment as well as payments connected with our field excuse.
Excuse me payments connected with our facilities expansion, including our future GMP facility in Vancouver, having.
Having broken ground for that facility as well as on our new headquarters and building building in 2022. We are set to continue these investments into 2023 and 2024 as a reminder, our GMP facility is co funded by the government of Canada's strategic innovation Fund.
As a result, we finished the year with over $880 million of unrestricted cash cash equivalents and marketable securities. We remain in a strong liquidity position that allows us to fully execute on our strategy to continue to expand the capabilities of our engine and to do so with excellent excellent visibility and runway we continue to believe that.
We have sufficient liquidity to fund well beyond the next three years of investment in the growth of our business.
With that we'd be happy to take your questions.
Operator.
If you would like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to remove that question. Please press star followed by two again to ask a question. Please press star one as a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question.
We will pause here briefly as questions are registered.
The first question comes from the line of.
Thiago.
Of credit Suisse. Please.
Please proceed.
Okay, great. Thanks for taking my questions and congrats on all the progress just a couple for me.
One is on the pre partnered program. So again, you've had a lot of programs in that category.
How should we think about the ideal timing in general due to search for partners for those programs I know thats, probably going to be on a case by case basis, but.
Curious what the potential monetization of partnership on those programs.
Hey, Tiago Carl here. Thank you for the question.
So the punch line is I think youre right.
We're going to look at every one of these opportunities as they mature and it's likely that.
Timing could be different or.
Our strategy is to advance these to the point, where we have established that we have high likelihood or have actually achieved clinical candidates and then to make that data available.
Probably in a publication or certainly.
When strategic at a meeting.
That that effort, we anticipate given the nature of these these targets. So these are typically programs that are directed towards targets that are widely sought after and are recognized as being at high value. So.
So we believe that that disclosure is likely to kick off discussions with partners and then of course.
We will have to.
Enter into those discussions and see what is the best path for each particular asset.
Thank you.
Next question.
Comes from the line.
Andrea Tan.
Goldman Sachs. Please proceed.
Hi, everyone. Thanks for taking my question, maybe on the <unk> and ion channel work that Youre planning on highlighting this year. Just curious if you can provide a bit more color on the nature of those data disclosures and then maybe given that this will follow on the back of your work with T cell engagements that you shared last year, how much read through do you think there is to your broader platts.
Farm and your ability to discover antibodies against these types of targets.
Thanks, Andrea So I'll start by talking about the <unk> channel work.
As mentioned in the prepared remarks.
These programs have been launched not as standalone programs, but in connection with long range R&D activities that.
<unk> seek to unlock the entire class so within the class of Iron <unk>.
There is a large number of targets that are validated perhaps there are small molecules that have worked but it but there are problems.
With toxicity or specificity that would make antibodies an ideal solution.
For these targets that are generally open the open the problem has been in identifying antibodies with with the right properties to make them into drugs. So we've been working on several of these programs as I mentioned, there is still risk and I would certainly say that we're not at the point where any of these targets.
<unk>.
Can be addressed successfully but we do expect that we'll get there.
That work is now gathering speed and Theres enough success that we expect this year, we will be able to bring forward at least the first example of a clinical candidate. So the data that we would share on a molecule like that would of course include all the characterization that shows that it hits the target that it has the desire functional properties and that it has the right.
Biophysical properties to make it developable as a drug.
So we're we're expecting or certainly aiming to have the first of those show up this year and as you mentioned those that success in itself.
It will be seen as valuable because these have the potential to be developed as first in class or best in class assets, but even more important for us is that it demonstrates that the strategy of investing in solving these problems is paying off and once you solved one there's a higher likelihood youll be able to get the next one and so we believe there is a lot of read through it.
To the platform.
By showing examples are solving problems that have remained outstanding the industry for a decade.
The same is true of course in the T cell and <unk> space that effort is not as advanced but we do expect to get to the point of development candidates for the first program this year.
And in our view layering on.
Successes over the last few years.
In CD three in COVID-19, and moving forward programs for partners.
Layered on top success in GPC has an ion channels and ultimately in T cell engages all of that reinforces our thesis that sustained investments in technology can move the needle and make.
Make it more accessible and practical.
To get antibodies.
For these problems.
Thanks, Karl and then maybe just one last question can you just remind us what in your mind is the right mix of partner initiated co development and pre partnered programs.
Yes so.
I wouldn't say that we're thinking about it as the right mix. Our main line of business is to.
Generate.
A large and diversified stake.
In programs that are being advanced by partners and so partner initiated programs.
One element of that and of course, there's the discovery partnerships and co development partnerships pre.
Pre partnered programs as I mentioned come out of our technology development work we.
<unk> been investing to build capacity to make sure that we are able to respond to.
All of the high quality partner initiated programs that we can find and so we're continuing to grow that business.
Of course, if we see opportunities.
That are connected with our technology development, we will.
We will invest in those as well.
And we see that is anticipating the needs and finding another way to bring high quality assets into the hands of partners for clinical development.
Great. Thanks, so much.
Thank you.
Question comes from the line of Gary Nachman of BMO. Please proceed.
Hi, guys. Good afternoon just.
Just following on that last question Carl so on the different strategies of creating value with both partnered and <unk> partnered programs are those moving completely in parallel or do you expect to focus a lot more on the pre partnered programs going forward. So another way of asking it is do you think it'll be harder to access.
The level of your partnered programs is there a point, where it just gets a little bit more mature that part of the business.
And then how did things change for you when you have <unk>.
<unk> and GMP capabilities in 2025.
How would that change how you think about both the partnered in the pre partnered programs and maybe how youre going to structure economics around those programs with those capabilities.
Thanks, Gary.
So first.
The partner initiated programs that we do are the bread and butter of the business and so we are continuing to move that forward now as we've said on previous calls our business development strategy is not to optimize volume in terms of the number of programs, but rather to make does.
<unk> that we believe will optimize the value that they represent in the portfolio. So that will be a combination of finding partners that we believe have great ideas and our well enabled to bring them forward it'll be being able to negotiate terms that give us a deeper economic stake in those and.
With that is our ability to demonstrate and to perform activities that add more value to those programs. So certainly as we begin to move towards forward integration.
With translational science with manufacturing, even building out regulatory capabilities to help the smaller and less enabled partners, we're adding more value and we would expect to participate more in the success of those programs.
So that's that's how we see partner initiated programs is volume I do believe it will increase but much more I think the way.
The way in which we select opportunities the likelihood of them moving forward the speed at which they move forward and.
And our economic participation or some of the big levers that we think about in terms of maximizing value.
From that perspective, the work on pre partnered programs, which is about taking the initiative to demonstrate capabilities that unlock new areas. We.
We see as completely synergistic with that it drives business towards us because we develop.
Develop and demonstrate capabilities and in many instances, particularly with the larger companies.
We will have moved forward programs, where there is an interest and that has also generated value by saving time and de risking those programs and so we really see those two parts of the business as one really or at least walking arm in arm.
Okay. That's helpful. And then maybe you could just run through.
A little bit on the last couple of partnered programs Abbvie and rally buyer.
They are a little bit on opposite ends of the spectrum in terms of the size of the company and how they're structured.
In terms of Abbvie being responsible for the targets are rally bio that's really shared in a co development arrangements I'm just curious.
If you see in terms of the opportunities out there is it.
There are a lot for both of those types of partnerships and how long did it take for those to really to consummate.
Just so we get a sense of maybe what goes a little bit behind the scenes just with two recent examples.
Okay.
Sure so.
Obviously those are two deals with companies that have a very different profile.
I would say that the new partnership with Abbvie, which we're very excited about.
Is representative of much of our work with the larger very enabled partners that have a real track record and capabilities and antibody therapeutics.
Those engagements tend to be driven by by.
By their teams.
Finding problems, where they need an extra.
Extra lever or an extra advantage in technology to get those programs over the hump and start moving towards the clinic.
And there are no shortage of programs like that so there is there is a lot of potential market opportunity amongst the big and most enabled players like the <unk> like the regeneron.
They are actively interested in moving antibody therapeutics into areas, where it has been either difficult or impossible.
So that that.
That deal I think finding alignment early on in the capabilities is very straightforward of course, it does take time to contract with that.
That's that's part of doing business in this space on.
On the rally biocide.
That's another Great example of how our platform can deliver value to partners. So here we have.
A company that is based on insight into the targets that is experienced.
Develop drugs before but that has not yet built internal capabilities for antibody discovery and there we can save them the need to reassemble those capabilities or build them from scratch and allow them to focus on where they're really strong while we take on the discovery.
And preclinical development of those assets.
That we see as a way to really strip out redundancy in the industry.
I mentioned also in the prepared remarks, a couple of engagements that we have made with premier venture capital groups and I think that's another example, where you have got innovation, you've got capital you've got executives business idea.
And from our perspective, there is no need for these companies to need to reinvent all the substructure of innovation they should be focused on where they can really deliver value and of course, that's what a centralized engine.
Is supposed to do and that's part of our mission.
Okay that color is really helpful. Thank you.
Thank you.
The next question comes from.
Robyn.
Karnak.
Sukkah.
From <unk>. Please proceed.
Good try.
Difficult.
Thanks for taking my question. So I just had a few just one does the new <unk> entrants.
Molecules at entering the clinic can you talk about whether it has downstream participation in it.
And my second question is on <unk>.
Deal terms.
The contract you signed last year, it's probably a bit lower royalty structure as you're building out your capabilities and given how long sometimes it can take farmer Mac's missed at the clinic is there a way for you and the partner to amend the terms of the partnership to get more involved already reached the higher royalty rate is that something that you think.
Might happen at all and then.
My last question is.
What.
How has it changed since the IRA and I think focus on biologics.
Your interactions with.
On your partners as far as the need to develop new molecules that are best in class I'm. Just curious if you've seen a shift the IR area within out thanks.
Yes.
Hey, Robyn Andrew here.
Yes, I'll try to take each of those in turn so the new Rover <unk> molecule, yes. It does indeed have downstream participation in a royalty associated with it. That's why we do included on that on that chart.
With regards to the deal terms that we have with our partners.
We have.
In each of these arrangements, we have kind of an understood scope of work that we're doing and the agreed economics and terms associated with that scope of work, it's not contemplated that we would change that materially throughout the execution of the program and certainly not with it with an intent to come to a renegotiation at some point later in the.
In the partnership so I think those terms or those contracts kind of stand on their own with the set scope of work with the intent for us to to do our activity and then deliver back to the partner what is promised for them to continue on the development.
You mentioned, a comment as well, but I just want to clarify.
It sounded as though you indicate that the royalty rates had decreased in the recent in the recent past, but thats not the case the royalty rails have been increasing the old one.
Yes, the old ones.
Old contract Keith I would just say.
The old programs.
Lower royalty rates, but like do you have would you negotiate.
Negotiate higher royalty rate.
These companies see that youre more capable.
Yes, greater capability that they.
They may need that confirm its market moving faster.
Actually it's a great question and this was in between 2021 and 2022.
We made a definite change in the nature of the contracts be renegotiating in 2021, Youll see we negotiated several multi year multi target deals for even eight or 10 targets at a time.
We've since indicated on calls that we've moved away from locking ourselves into the economics on multiple targets, even when we are adding capabilities. So what we're tending to do more and more and you see it in our results is negotiate smaller contracts for park programs under contract with certain economics.
Because there really isn't the opportunity to go back to the partner and renegotiate the economics once theyre agreed to at the signing of the contract.
The opportunity we have is to have a.
Our renewal of repeat engagement with an existing partner once they've seen our capabilities and then we have the opportunity on the subsequent programs to negotiate again the royalty rates given the increased capabilities and whatever the increase value is that we would be doing we will be bringing to that partner that's more our posturing today.
Than it had been some years ago and so we don't see the opportunity to reopen those older negotiations from 2019 and previously to change the economics in those contracts.
Hopefully that answers the question more more completely.
Yes.
Exactly and then just a question on the Irene just curious if youre seeing we're definitely hearing of chefs and big pharma World.
I think we're all about what Theyre prioritize names.
Im curious if youre seeing a shift in what types of programs people are leveraging your technology for.
I'd say just generally.
And certainly how biologics are more favorably treated in.
In in that documentary and that regulation. It definitely is a tailwind for us in the business with more people are shifting towards antibody potential antibody treatments.
I think that bodes well for us over the longer term.
The very recent past I'm not sure we've quite seen Jive.
<unk> uptick, but I think it would only be a tailwind for us in our business going forward.
Great. Thanks, a lot.
Thank you.
Next question comes from Puneet <unk> SVP Securities. Please proceed.
Hi, do you have Michael on for <unk>, Congrats on for Q and a strong 2022.
So now that Covid loyalty.
Well, it's kind of normalize I was wondering if you could provide any guardrails for.
Perhaps program starts or potential new ads on their contract for the year 13, and 2022 and 2023 you had roughly similar programs start cadence that we should expect going forward or do you see it lifting.
Lifting from this year into 2023.
Hey, Thanks for the question Michael.
So first of all on the Covid revenues, yes, we do as we mentioned in the prepared remarks, we are not forecasting any any future revenue from Covid molecules of course, we stand at the ready with our partner Lilly if a regulatory path opens up with a molecule that we've discovered with them.
We see that really as upside to 2023 and beyond.
In terms of <unk>.
Program starts we as I think you know we havent provided guidance in the past on programs starts we have been saying.
We've had a very strong quarter in Q4 with nine program starts and I think that generally reflects just the momentum we have and our focus on the execution in the business of working on these with our partners and in addition of course, we have the program starts related to the pre partnered programs. Our key metric is really for only partner initiated a program starts.
We continue to see great momentum there as well as <unk>.
And that we do see that continuing into 2023, but we still do not plan to give any specific guidance with regards to programs starts.
In in 2020 for 2023, I would point to and I'm sure you noticed the performance on research fees year over year. This again points to the fact that we're doing more per program and that is <unk>.
Directly reflected in the research fee revenue that were that we are earning on the execution of each of those programs, that's where we're really focused rather than on specifically the number of program starts. It's how are we adding more and more value to each program that we're working on advancing those that those discovery efforts.
Through two molecules that eventually can get to patients in the clinic.
Okay, Great that's really helpful and then.
One thing. We're also wondering so we've heard a little bit about increase I guess.
Scrutiny on capital deployment, and we were wondering.
If the.
Has reflected favorably for the business given your.
It's more capital efficient offering or if thats, having any bearing on that.
Actually occur programs start.
Yes.
I'll do my best to answer that question as you know we're in a very strong liquidity position and we have the big investments, which I think we've been communicating consistently.
This forward integration into translational Sciences, CMC GMP. It does require absolutely some allocation of capital to build out those capabilities. We of course are doing that very capital efficient way with the co funding from the government of Canada.
And we have in general.
Taking advantage of Gov.
The government programs that are out there in the past and we will continue to do that for any available government programs in the future.
To really make sure we're investing.
We're in a very efficient way or the capital that we have.
We I don't think we've seen any I think the words you used were increased scrutiny on the deployment of that capital I think we've been quite transparent in.
Times are in winter.
Yes.
Just to clarify this is for customers. So we've been hearing and Biopharma had been focusing on using making their cash runway extend so this is not about accelerated capital deployment, but rather accelerate customers.
Their decisions about how to proceed with capital that's sort of question yet.
Okay. If this is a macro question about many of our customers and their ability to deploy capital I think that.
The fact that the market is down at the moment really plays to our strengths where.
Companies can come to us and we can in a very capital efficient way, where we are deferring the lion's share of the economics to the downstream participation through milestones and royalties. They can quickly get up and running and have us put best of world capabilities on discovering antibody for them in the shortest amount of time.
That's a it's a great value proposition overall, and especially in a tight macro market. So I think that that plays to our strengths.
And can you help us get them to a value inflection point, maybe more quickly than they than their alternative. So I think that is a tailwind for us at the moment.
Okay. Thank you very much.
Thank you.
Next question comes from.
Thule sleek bought there.
Stifel. Please proceed.
Hi, guys. This is Tony.
Paul I just have a quick question regarding the partner program.
Ma'am.
So.
Im wondering like have.
Depreciated Euro connected T cell engagement.
In order to guarantee.
Certainly played into.
The flip side like if you can't find a partnering like how far in the clinic.
Would you be able to like advances.
That could keep telling data in the clinic.
I recall like how far.
Thank you.
Clearly this is Karl Karl taking the question.
So just as a backdrop. This is the T cell work as an effort, we started a little bit over a year ago.
First working to build out what we believe is now the broadest and highest quality panel of anti <unk> antibodies.
We can then combine with our Bispecific platform Ortho Mab.
And using automation and high throughput functional characterization select antibodies that have the bispecific antibodies that have potent tumor killing.
Even against targets with low circumstances.
And that simultaneously have desirable profiles in terms of cytokine release, which has been one of the main issues limiting these therapies.
So we have now initiated five programs.
As part of that effort to demonstrate that capability.
We we still will need to do the preclinical work to show that these work in animal models and ultimately this needs to be tested in the clinic.
But it's worth highlighting that in the field.
A large majority of the T cell engagement that have been brought forward have been brought forward on either the same or are very close variant of the same CD three molecule that people have been using for over a decade.
So we've got a scenario, where just based on the scarcity of available molecules the.
At the same experiment has been run again, and again and again, although with some changes in format and of course syndication.
So our hypothesis is that that's not the way to solve the problem solving that problem requires new innovation and we are confident that we'll be able to demonstrate that in terms of the partnering.
We have been engaged with a number of conversations with some of the very large players in the space.
That are aware now that this is going to be an important.
Class for oncology.
Those conversations are going very well.
And we are optimistic that we'll be able to find a partner for one or more of those relatively soon but of course that that work is still ongoing.
What we're not going to do is take our foot off the brake. So we are equipped in order to bring these forward and we will continue to move them forward. So that we're not losing time on those.
And in the background, we do anticipate we may start some other programs to demonstrate this in the near term.
Thank you.
Thank you. The next question comes from Gaurav <unk>.
Sandburg. Please proceed.
Okay and nothing more from you guys really congratulated.
On the on the year in the quarter and toxin.
Thanks Chiara.
Yes.
Okay.
Thank you.
Next question comes from Antonio.
Tonia Brovina.
Of Bloom Burton. Please proceed.
Great Thanks and congrats.
A solid quarter.
My first question is just with regards to the prime partner programs and I'm just wondering.
What could that look like would it likely just be a single antibody candidate that you would partner or would the deal likely involve some.
Some backup candidates with slightly different property.
And then my second question is with regards to.
The macro environment.
Just wondering if the broader sector downturn has impacted the types of deals partners one for sale like I'm thinking, particularly with regards to the smaller players and whether they're more interested in pursuing co development deals looking to offload some of the development.
Okay.
Sure. So this is Karl again.
In terms of pre partner programs.
We are advancing these programs primarily in.
In connection with technology development, and we believe that bringing forward.
Ready clinical candidates is the strongest proof that the platform is working and that we're actually solving the problems.
We would expect that when we do that.
Would have.
Lead clinical candidate that would be the focal point of any discussion but of course on a case by case basis. If there are backups and if thats appropriate that could easily be part of a deal. So I don't think I would speculate on that unless.
We had.
A particular case that we were discussing.
In terms of the the market condition and.
We are perceiving.
From from partners.
As Andrew briefly touched on it.
It is a difficult market, but in many ways our business is quite robust for this so from our view.
There is an there is an under.
There is a foundation of a lot of terrific science and innovation still in the industry.
There's a lot of capital.
In the private sector and new companies being formed.
And our business model allows those companies to move forward more quickly with and with lower investment and so we believe that that that smaller company or early innovations sector of the market is one where we are becoming more attractive at least on a relative basis.
In the current conditions.
I don't think that we've seen an increased activity or interest in co development in.
And co development opportunities more often happened when we happened to meet a group where there is a really great synergy and capability and where we become convinced that there is an interesting opportunity to go forward and then that that conversation proceeds but to date, we haven't seen that but of course, it's still early.
Yes.
Okay. Thank you.
Thank you.
And the last question comes from do Kim of <unk>.
Piper Sandler. Please proceed.
Hi, This is skyler on for Joe Thanks for taking my question.
For your partner initiated programs what is the variation of how well defined the partners discovery plan is when the collaboration begins and does that vary significantly among your big pharma customers and.
And how much does the initial discovery plan impact your decision to choose partners and the deal Jeremy. Thanks.
Okay.
Hey, Scott Great question I think there is there is definitely.
Our ability and how well defined.
Yes.
The program is or the statement of work or and that is something that normally our R&D team will work with the R&D team of our partner to further define even before a contract gets finalized so I think it's when when that statement of work gets completed.
For the target of interest.
We have to have a very clear understanding of what is getting delivered and this is somewhere where actually accelerate can bring a lot of value and even defining what exactly is the output that the partner is looking for really focused on the years of experience in 100 programs that we've worked on to work towards that clinical candidate that can actually move forward.
To translational science of CMC, and GMP manufacturing and then ultimately to the patients. There is some variability and I think we're becoming more and more experts and really understanding how to define that program from the start.
Got it thank you and congrats with Macquarie.
Thank you and with that we will conclude our question and answer portion of today's call.
I would now like to pass the call back over to Carl.
For closing remarks.
Great. Thank.
Thank you all for joining us today.
<unk> is an exciting time for <unk> and we're looking forward to keeping you updated on our progress on future calls thanks, so much.
And with that we will conclude today's conference call. Thank you for participating you may now disconnect your line.