UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission File Number: 001-39781

AbCellera Biologics Inc.

(Exact Name of Registrant as Specified in its Charter)

British Columbia	Not Applicable
( State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2215 Yukon Street Vancouver, BC	V5Y 0A1
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (604) 559-9005

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common shares, no par value per share	ABCL	The Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ☐    No  ☒

As of May 5, 2022, the registrant had  284,536,212 common shares, no par value per share, outstanding.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Income and Comprehensive Income	2
	Condensed Consolidated Statements of Stockholders’ Equity	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Unaudited Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	23
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61
Item 3.	Defaults Upon Senior Securities	61
Item 4.	Mine Safety Disclosures	61
Item 5.	Other Information	61
Item 6.	Exhibits	62
	Signatures	63

i

Summary of the Material and Other Risks Associated with Our Business

Our business is subject to numerous material and other risks and uncertainties. You should carefully consider the following information about these risks, together with the other information appearing elsewhere in this Quarterly Report, including our financial statements and related notes hereto. The occurrence of any of the following risks could have a material adverse effect on our business, financial condition, results of operations and future growth prospects. The risks and uncertainties described below may change over time and other risks and uncertainties, including those that we do not currently consider material, may impair our business. These risks include, but are not limited to, the following:

• We have incurred losses in certain years since inception and we may not be able to generate sufficient revenue to maintain profitability.

• Our quarterly and annual operating results have fluctuated significantly in the past and may fluctuate significantly in the future, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations.

• Our commercial success depends on the quality of our antibody discovery platform and technological capabilities and their acceptance by new and existing partners in our market.

• If we cannot maintain and expand current partnerships and agreements and enter new partnership agreements that generate discovery programs for antibodies, our business could be adversely affected.

• In recent periods, we have depended on a limited number of partners for our revenue, the loss of any of which could have an adverse impact on our business.

• Development of a biologic molecule is inherently uncertain, and it is possible that none of the drug candidates discovered using our antibody discovery platform that are further developed by our partners will receive marketing approval or become viable commercial products, on a timely basis or at all.

• The failure of our partners to meet their contractual obligations to us could adversely affect our business.

• We may be unable to manage our current and future growth effectively, which could make it difficult to execute on our business strategy.

• We have invested, and expect to continue to invest, in research and development efforts that further enhance our antibody discovery platform. Such investments in technology are inherently risky and may affect our operating results. If the return on these investments is lower or develops more slowly than we expect, our revenue and operating results may suffer.

• Our partners have significant discretion in determining when and whether to make announcements, if any, about the status of our partnerships, including about clinical developments and timelines for advancing collaborative programs with the antibodies that we have discovered, and the price of our common shares may decline as a result of announcements of unexpected results or developments.

• Our partners may not achieve projected discovery and development milestones and other anticipated key events in the expected timelines or at all, which could have an adverse impact on our business and could cause the price of our common shares to decline.

• The life sciences and biotech platform technology market is highly competitive, and if we cannot compete successfully with our competitors, we may be unable to increase or sustain our revenue, or sustain profitability.

• Our business has been and may continue to be adversely affected by the COVID-19 pandemic.

• The ongoing military action between Russia and Ukraine and related sanctions could adversely affect our business, financial condition, and patent administration.

• Our success depends on our ability to protect our intellectual property.

• If we fail to establish and maintain proper and effective internal control over financial reporting, our operating results and our ability to operate our business could be harmed.

• Sales of a substantial number of our common shares in the public market could cause our share price to fall significantly, even if our business is doing well.

Investing in our common shares involves a high degree of risk. You should carefully consider the risks and uncertainties contained in Part II, Item 1A, Risk Factors, together with all other information in this Quarterly Report on Form 10-Q, including our consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as our other filings with the Securities and Exchange Commission, or the SEC, before investing in our common stock. Any of the risk factors we describe below under Part II, Item 1A, Risk Factors, could adversely affect our business, financial condition or results of operations. The market price of our common stock could decline if one or more of these risks or uncertainties were to occur, which may cause you to lose all or part of the money you paid to buy our common shares. Additional risks that are currently unknown to us or that we currently believe to be immaterial may also impair our business. Certain statements below are forward-looking statements. See “Forward-Looking Information” in this Quarterly Report on Form 10-Q.

ii

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

AbCellera Biologics Inc.

Condensed Consolidated Balance Sheets

(All figures in U.S. dollars. Amounts are expressed in thousands except share data)

(Unaudited)

	December 31, 2021		March 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	476,142	$	545,718
Marketable securities		246,835		240,335
Total cash, cash equivalents, and marketable securities		722,977		786,053
Accounts and accrued receivable		160,576		334,403
Restricted cash		25,000		25,000
Other current assets		21,247		28,922
Total current assets		929,800		1,174,378
Long-term assets:
Property and equipment, net		111,616		122,049
Intangible assets, net		148,392		145,785
Goodwill		47,806		47,806
Investments in and loans to equity accounted investees		50,313		58,882
Other long-term assets		30,642		43,389
Total long-term assets		388,769		417,911
Total assets	$	1,318,569	$	1,592,289
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and other liabilities	$	32,017	$	25,717
Current portion of contingent consideration payable		22,934		27,499
Income taxes payable		35,683		105,648
Accrued royalties payable		22,506		45,364
Deferred revenue		7,536		9,190
Total current liabilities		120,676		213,418
Long-term liabilities:
Operating lease liability		36,413		36,356
Deferred revenue and grant funding		60,758		64,151
Contingent consideration payable		35,886		30,623
Deferred tax liability		37,370		36,804
Other long-term liabilities		1,733		3,430
Total long-term liabilities		172,160		171,364
Total liabilities		292,836		384,782
Commitments and contingencies
Shareholders' equity:
Common shares: no par value, unlimited authorized shares at December 31, 2021 and March 31, 2022: 283,257,104 and 284,521,181 shares issued and outstanding at December 31, 2021 and March 31, 2022, respectively		722,430		725,755
Additional paid-in capital		35,357		44,726
Accumulated other comprehensive income		280		787
Accumulated earnings		267,666		436,239
Total shareholders' equity		1,025,733		1,207,507
Total liabilities and shareholders' equity	$	1,318,569	$	1,592,289

The accompanying notes are an integral part of these condensed consolidated financial statements.

1

AbCellera Biologics Inc.

Condensed Consolidated Statements of Income and Comprehensive Income

(All figures in U.S. dollars. Amounts are expressed in thousands except share and per share data)

(Unaudited)

	Three months ended March 31,
	2021			2022
Revenue:
Research fees	$	3,986		$	9,333
Licensing revenue		20,259			231
Milestone payments		7,000			-
Royalty revenue		171,496			307,017
Total revenue		202,741			316,581
Operating expenses:
Royalty fees		20,010			44,637
Research and development(1)		12,352			26,366
Sales and marketing(1)		2,578			2,370
General and administrative(1)		6,422			14,268
Depreciation and amortization		3,305			3,990
Total operating expenses		44,667			91,631
Income from operations		158,074			224,950
Other (income)
Other income		(265	)		(665	)
Grants and incentives		(3,148	)		(5,194	)
Total other (income)		(3,413	)		(5,859	)
Net earnings before income tax		161,487			230,809
Income tax expense		44,266			62,236
Net earnings	$	117,221		$	168,573
Foreign currency translation adjustment		-			507
Comprehensive income	$	117,221		$	169,080
Net earnings per share attributable to common shareholders
Basic	$	0.43		$	0.59
Diluted	$	0.37		$	0.54
Weighted-average common shares outstanding
Basic		269,697,212			283,895,020
Diluted		320,282,747			311,482,017

The accompanying notes are an integral part of these condensed consolidated financial statements.

¹Exclusive of depreciation and amortization

2

AbCellera Biologics Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(All figures in U.S. dollars. Amounts are expressed in thousands except share data)

(Unaudited)

	Common Shares				Additional Paid-in			Accumulated		Accumulated Other Comprehensive		Total Shareholders'
	Shares		Amount		Capital			Earnings		Income		Equity
Balances as of December 31, 2021		283,257,104	$	722,430	$	35,357		$	267,666	$	280	$	1,025,733
Shares issued and restricted stock units ("RSUs") vested under stock option plan		1,264,077		3,325		(2,922	)		-		-		403
Stock-based compensation expense		-		-		12,291			-		-		12,291
Foreign currency translation adjustment		-		-		-			-		507		507
Net earnings		-		-		-			168,573		-		168,573
Balances as of March 31, 2022		284,521,181	$	725,755	$	44,726		$	436,239	$	787	$	1,207,507

	Common Shares				Additional Paid-in			Accumulated		Accumulated Other Comprehensive		Total Shareholders'
	Shares		Amount		Capital			Earnings		Income		Equity
Balances as of December 31, 2020		269,497,768	$	710,387	$	5,919		$	114,202	$	-	$	830,508
Shares issued under stock option plan		1,428,162		752		(579	)		-		-		173
Stock-based compensation expense		-		-		4,021			-		-		4,021
Reclassification of liability classified options		-		-		5,201			-		-		5,201
Net earnings		-		-		-			117,221		-		117,221
Balances as of March 31, 2021		270,925,930	$	711,139	$	14,562		$	231,423	$	-	$	957,124

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

AbCellera Biologics Inc.

Condensed Consolidated Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

(Unaudited)

	Three months ended March 31,
	2021			2022
Cash flows from operating activities:
Net income	$	117,221		$	168,573
Cash flows from operating activities:
Depreciation of property and equipment		840			1,391
Amortization of intangible assets		2,465			2,606
Amortization of operating lease right-of-use assets		661			976
Stock-based compensation		5,427			12,291
Other		432			(592	)
Changes in operating assets and liabilities:
Accounts and accrued research fees receivable		(30,073	)		(8,751	)
Accrued royalties receivable		26,861			(167,914	)
Income taxes payable		(6,123	)		69,965
Accounts payable and accrued liabilities		(5,194	)		751
Deferred revenue		6,086			941
Accrued royalties payable		(7,134	)		22,857
Deferred grant revenue		2,468			4,682
Other assets		(4,392	)		(7,557	)
Net cash provided by operating activities		109,545			100,219
Cash flows from investing activities:
Purchases of property and equipment		(3,644	)		(14,495	)
Purchase of marketable securities		-			(51,774	)
Proceeds from marketable securities		-			57,294
Receipt of grant funding		-			2,596
Long-term investments and other assets		-			(11,657	)
Investment in and loans to equity accounted investees		(12,195	)		(8,335	)
Net cash used in investing activities		(15,839	)		(26,371	)
Cash flows from financing activities:
Repayment of long-term debt and contingent consideration		(1,716	)		(72	)
Proceeds from long-term debt and issuance of common shares pursuant to exercise of stock options		173			1,941
Payment of liability for in-licensing agreement		-			(5,000	)
Net cash provided by (used in) financing activities		(1,543	)		(3,131	)
Effect of exchange rate changes on cash and cash equivalents		(484	)		(204	)
Increase in cash and cash equivalents		91,679			70,513
Cash and cash equivalents and restricted cash, beginning of period		594,116			501,142
Cash and cash equivalents and restricted cash, end of period	$	685,795		$	571,655
Restricted cash included in other long-term assets		-			(937	)
Total cash, cash equivalents and restricted cash shown in the statement of cash flows	$	685,795		$	570,718
Supplemental disclosure of non-cash investing and financing activities
Property plant and equipment in accounts payable		423			2,353
Right-of-use assets obtained in exchange for operating lease obligation		14,188			658

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

AbCellera Biologics Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(All figures in U.S. dollars. Amounts are expressed in thousands except share data)

(Unaudited)

1. Nature of operations

AbCellera Biologics Inc.’s (the “Company”) mission is to improve health with technologies that transform the way that antibody-based therapies are discovered. The Company aims to become the centralized operating system for next generation antibody discovery. The Company’s full-stack, AI-powered antibody discovery platform searches and analyzes the database of natural immune systems to find antibodies that can be developed as drugs. The Company believes its technology increases the speed and the probability of success of therapeutic antibody discovery, including enabling discovery against targets that may otherwise be intractable. The Company forges partnerships with drug developers of all sizes, from large cap pharmaceutical to small biotechnology companies. 

2. Basis of presentation

The accompanying unaudited interim condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the SEC for interim financial information. Accordingly, these financial statements do not include all the information and footnotes required for complete financial statements and should be read in conjunction with the audited consolidated financial statements of the Company and the accompanying notes thereto for the year ended December 31, 2021.

These unaudited interim condensed consolidated financial statements reflect all adjustments, consisting solely of normal recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of results for the interim periods presented. The results of operations for the three months ended March 31, 2021 and 2022 are not necessarily indicative of results that can be expected for a full year. These unaudited interim condensed consolidated financial statements follow the same significant accounting policies as those described in the notes to the audited consolidated financial statements of the Company for the year ended December 31, 2021.

All amounts expressed in these condensed consolidated financial statements of the Company and the accompanying notes thereto are expressed in thousands of U.S. dollars, except for share data and where otherwise indicated. References to “$” are to U.S. dollars and references to “C$” and “CAD” are to Canadian dollars.

3. Significant accounting policies

Use of estimates

The preparation of the consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Areas of significant estimates include, but are not limited to, revenue recognition including evaluating whether contractual obligations represent distinct performance obligations, determining whether an option for additional goods or services represents a material right, allocating the transaction price to performance obligations within a contract, and assessing the recognition and possible future reversal of variable consideration, the fair value of acquired intangible assets, contingent consideration payable, and the estimates of stock-based compensation awards. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could significantly differ from those estimates.

COVID-19 Pandemic

With the global spread of the ongoing COVID-19 pandemic, the Company has implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on its employees and its business. The Company has taken measures to secure its research and development activities, while work in its laboratories and facilities has been re-organized to reduce risk of COVID-19 transmission. Given the global economic impact, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic, the Company’s business, financial condition, and results of operations could be materially adversely affected. The Company continues to closely monitor the COVID-19 pandemic as it evolves its business continuity plans and response strategy. As of the date of these condensed consolidated financial statements, the Company is not aware of any specific event or circumstance that would require the Company to update its estimates, assumptions and judgments or revise the carrying value of its assets or liabilities. Actual results could differ from these estimates, and any such differences may be material to the Company’s condensed consolidated financial statements.

5

Recent accounting pronouncements not yet adopted

The Company has reviewed recent accounting pronouncements and concluded that they are either not applicable to the Company or that there was no material impact or no material impact is expected in the condensed consolidated financial statements as a result of future adoption.

4. Net earnings per share

Basic and diluted net earnings per share attributable to common shareholders was calculated as follows:

	Three months ended March 31,
	2021		2022
Basic earnings per share
Net earnings attributable to common shareholders - basic	$	117,221	$	168,573
Weighted-average common shares outstanding - basic		269,697,212		283,895,020
Net earnings per share attributable to common shareholders - basic	$	0.43	$	0.59
Diluted earnings per share
Net earnings attributable to common shareholders - diluted	$	117,221	$	168,573
Weighted-average common shares outstanding - basic		269,697,212		283,895,020
Stock options and RSUs		50,585,535		27,586,997
Weighted-average common shares outstanding - diluted		320,282,747		311,482,017
Net earnings per share attributable to common shareholders - diluted	$	0.37	$	0.54

The Company excluded nil and 2,974,052 potential common shares based on amounts outstanding as of March 31, 2021 and March 31, 2022, respectively, from the computation of diluted net earnings per share attributable to common shareholders because including them would have had an anti-dilutive effect.

5. Property and equipment, net

Property and equipment, net consisted of the following:

	December 31, 2021			March 31, 2022
Computers	$	7,843		$	8,356
Land		33,044			33,044
Laboratory equipment		18,805			25,822
Leasehold improvements		23,962			28,568
Operating lease right-of-use assets		37,788			37,469
Property and equipment		121,442			133,259
Less accumulated depreciation		(9,826	)		(11,210	)
Property and equipment, net	$	111,616		$	122,049

As of December 31, 2021 and March 31, 2022, leasehold improvements include tenant improvements in progress that have not commenced depreciation in the amount of $19.8 million and $6.6 million, respectively. Depreciation expense on property and equipment for the three months ended March 31, 2021, and 2022 was $0.8 million and $1.4 million, respectively.

Subsequent to March 31, 2022, the Company deposited CAD $25.0 million ($20.0 million) in trust to acquire land related to the future GMP facility, subject to customary closing conditions.

6

6. Intangible assets

Intangible assets consisted of the following:

	March 31, 2022
	Gross carrying amount		Accumulated amortization		Net book value
License	$	35,873	$	11,942	$	23,931
Technology		52,700		3,246		49,454
IPR&D		72,400		-		72,400
	$	160,973	$	15,188	$	145,785

As of March 31, 2022, amortization expense on intangible assets is estimated to be as follows for each of the next five years:

	Amortization Expense
2022	$	10,425
2023		10,399
2024		4,041
2025		4,041
2026		4,041
	$	32,947

7. Investments in and loans to equity accounted investees

The Company has entered into two joint ventures as part of the construction of future office and laboratory headquarters. During 2020, the Company entered into a joint venture with Dayhu (Dayhu JV). As of March 31, 2022, the equity investment balance of $19.7 million represents the contributions made since inception. In March, 2021, the Company entered into the Beedie joint venture (Beedie JV). To date the equity investment balance of $14.7 million represents contributions made since inception into the Beedie JV. To date, the Company has recorded immaterial amounts of its proportionate income or loss with respect to both ventures.

In March, 2021, the Company made a commitment of up to CAD $82.7 million ($61.5 million) to the Dayhu JV to fund the construction at a rate referenced to an applicable Canadian bank prime rate plus 0.6%, and repayment on the earlier of thirty months from the date of initial advancement and September 1, 2023, or upon the trigger of certain liquidity events as defined in the agreement. The loan is secured by the underlying land and future assets of the joint venture. As of December 31, 2021, and March 31, 2022, the outstanding related party loan balance was $18.0 million and $24.4 million, respectively, to the joint venture.

8. Accounts payable and other liabilities

Accounts payable and other liabilities consisted of the following:

	December 31, 2021		March 31, 2022
Accounts payable and accrued liabilities	$	14,924	$	10,352
Liability for in-licensing agreement		4,933		-
Operating lease liability		3,652		3,920
Payroll liabilities		4,035		6,395
Current portion of deferred grant funding		4,473		5,050
Total accounts payable and other liabilities	$	32,017	$	25,717

7

9. Shareholders’ equity

Sixth Amended and Restated Stock Option Plan:

The Company maintains the AbCellera Biologics Inc. Sixth Amended and Restated Stock Option Plan and our Pre-IPO Plan. Any awards granted under the Pre-IPO Plan will remain subject to the terms of our Pre-IPO Plan and applicable award agreements.

2020 Share Option and Incentive Plan:

Our 2020 Share Option and Incentive Plan, or 2020 Plan, was approved by our board of directors on November 18, 2020, and approved by our shareholders on December 1, 2020.

As of March 31, 2022, the number of shares available for issuance under the 2020 Plan was 24,796,663, which includes awards granted and outstanding under the Pre-IPO Plan that are forfeited after December 10, 2020.

The following table summarizes the Company’s stock option activity under the Pre-IPO Plan since December 31, 2021:

	Number of Shares			Weighted- Average Exercise Price
Outstanding as of December 31, 2021		39,206,307		$	0.86
Granted		-			-
Exercised		(1,220,690	)		0.33
Forfeited		(451,917	)		0.27
Outstanding as of March 31, 2022		37,533,700			0.89
Options exercisable as of March 31, 2022		19,832,636		$	0.58

The following table summarizes the Company’s stock option activity under the 2020 Plan since December 31, 2021:

	Number of Shares			Weighted- Average Exercise Price
Outstanding as of December 31, 2021		5,284,347		$	19.19
Granted		3,089,624			11.29
Exercised		-			-
Forfeited		(54,134	)		18.61
Outstanding as of March 31, 2022		8,319,837		$	16.26
Options exercisable as of March 31, 2022		461,055			25.90

As part of the 2020 Plan, restricted share units (RSUs) were available to be granted and are subject to annual vesting. The following table summarizes the Company’s RSU activity under the 2020 Plan since December 31, 2021:

	Number of Shares		Weighted- Average Grant Date Fair Value
Outstanding as of December 31, 2021		1,080,413	$	23.62
Granted