AbCellera Biologics (ABCL) intends to raise $357 million in an IPO of its common stock, according to an S-1 registration statement.

Vancouver, Canada-based AbCellera was founded to develop a machine learning-powered drug discovery platform to find antibodies that can be developed as drugs.

Management is headed by co-founder and Chief Executive Officer Carl Hansen, Ph.D., who was previously a scientific co-founder of Precision NanoSystems

Below is a brief overview video of one view of the future of antibody discovery:

Source: Charles River Labs

AbCellera has received at least $88 million from investors including Thermopylae Holdings, DCVC Bio and Viking Global Opportunities.

The firm pursues client relationships with companies of all sizes that seek to develop drugs more quickly and at reduced cost.

As of September 30, 2020, ABCL had '94 discovery programs that are either completed, in progress or under contract with 26 partners.'

Sales and Marketing expenses as a percentage of total revenue have been uneven but trending lower as revenues have increased.

The Sales and Marketing efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Sales and Marketing spend, increased sharply to 10.5x in the most recent reporting period.

According to a 2020 market research report by Grand View Research, the global market for research antibodies was valued at an estimated $3.4 billion in 2019 and is expected to reach $5.5 billion by 2027.

This represents a forecast CAGR of 6.2% from 2020 to 2027.

The main drivers for this expected growth are a growth in demand for antibodies to study the function of proteins in cells.

Also, the rise in the global population of elderly persons and the lack of available treatments across a range of diseases is spurring the focus on the proteome.

Major competitive or other industry participants include:

  • Berkeley Lights (BLI)
  • HiFiBio
  • Ligand Pharmaceuticals (LGND)
  • Sphere Fluidics
  • 10x Genomics (TXG)
  • Adaptive BIotechnologies (ADPT)
  • Atreca (BCEL)
  • Other companies in other verticals

AbCellera’s recent financial results can be summarized as follows:

  • Sharply growing topline revenue
  • Growing operating loss but reduced negative operating margin
  • Sharp increase in cash flow from operations

Below are relevant financial results derived from the firm’s registration statement:

abcellerapl

Source: Company registration statement

As of September 30, 2020, AbCellera had $91.1 million in cash and $53.1 million in total liabilities.

Free cash flow during the twelve months ended September 30, 2020, was $13.1 million.

AbCellera intends to raise $357 million in gross proceeds from an IPO of its common stock, offering 23 million shares at a proposed midpoint price of $15.50 per share.

New investor Capital World Investors affiliates have indicated an interest to purchase shares of up to 20% of the IPO shares, or up to 4.6 million shares, at the IPO price.

Assuming a successful IPO, the company’s enterprise value at IPO would approximate $4.1 billion, excluding the effects of underwriter over-allotment options.

Excluding effects of underwriter options and private placement shares or restricted stock, if any, the float to outstanding shares ratio will be approximately 8.65%.

Management says it will use the net proceeds from the IPO as follows:

We currently intend to use the net proceeds from this offering, together with our existing cash and cash equivalents, to continue making investments in research and development efforts towards deepening our technology and expertise along our technology stack, to continue making investments in building our business development team and marketing our solutions to new and existing partners, as well as for general corporate purposes, including working capital, operating expenses and capital expenditures.

The company believes the IPO net proceeds plus its existing resources will provide it with about 2 years of runway before potentially needing to raise additional funding.

Management’s presentation of the company roadshow is not available.

Listed bookrunners of the IPO are Credit Suisse, Stifel, Berenberg, SVB Leerink and BMO Capital Markets.

Commentary

AbCellera is seeking public capital market financing for its continued R&D efforts and expansion initiatives.

The company’s financials indicate strong revenue growth from a relatively low base, continued operating losses but positive cash flow from operations.

Sales and Marketing expenses as a percentage of total revenue have been uneven but trending lower; its Sales and Marketing efficiency rate has jumped markedly, indicating increased capital efficiency in this regard.

The market opportunity for antibody research is large and expected to grow substantially over the coming years as the biopharma industry focuses more on understanding the proteome.

This provides AbCellera with a favorable market backdrop for its expansion plans but the firm faces a variety of competitors in the various spaces it operates in.

Credit Suisse is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 55.0% since their IPO. This is a top-tier performance for all major underwriters during the period.

As to valuation, compared to partial competitor Berkeley Lights (BLI), ABCL is asking IPO investors to pay quite high revenue multiples.

In essence, the IPO is priced for perfection, as the firm is generating an annual revenue run rate of about $34 million while management thinks the company is worth $4 billion.

Although I wish ABCL well, I generally shy away from IPOs with extremely high valuations.

My opinion on the IPO is NEUTRAL due to excessive valuation.

NEUTRAL

Expected IPO Pricing Date: December 10, 2020

Glossary Of Terms

(I have no position in any stocks mentioned as of the article date, no plans to initiate any positions within the next 48 hours, and no business relationship with any company whose stock is mentioned in this article. IPO stocks can be very volatile in the days immediately after an IPO. Information provided is for educational purposes only, may be in error, incomplete or out of date, and does not constitute financial, legal, or investment advice. Past performance is no guarantee of future results.)

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