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AbCellera Biologics (ABCL -0.48%)
Q4 2023 Earnings Call
Feb 20, 2024, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good afternoon. Thank you for attending the AbCellera Biologics, Inc. FY 2023 earnings result and business update call. My name is Matt, and I'll be your moderator for today's call.

All lines will be muted during the presentation portion of the call and an opportunity for questions and answers at the end. [Operator instructions] I would now like to pass the conference over to our host, Tryn Stimart, chief legal and compliance officer with AbCellera. Tryn, please go ahead.

Tryn Stimart -- Chief Legal and Compliance Officer

Thank you. Good morning, good afternoon, and good evening to everyone listening around the world. Thank you for joining us for AbCellera's full year 2023 earnings call. I'm Tryn Stimart, AbCellera's chief legal and compliance officer.

Joining me on today's call are Dr. Carl Hansen, AbCellera's president and chief executive officer; and Andrew Booth, AbCellera chief financial officer. During this call, we anticipate making projections and forward-looking statements based on our current expectations and pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Our actual results could differ materially due to several factors as set forth in our latest Form 10-K and subsequent Forms 10-Q and 8-K filed with the Security and Exchange Commission.

The seller does not undertake any obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise. Our presentation today, including our earnings press release issued earlier today, and our SEC filings are available on our investor relations website. The information we provide about our pipeline is for the benefit of the investment community and is not intended to be promotional. As we transition to our prepared remarks, please note that all dollars referred to during the call are in U.S.

dollars. After our prepared remarks, we will open the lines for questions and answers. Now, I'll turn the call over to Carl.

Carl Hansen -- President and Chief Executive Officer

Thank you, Tryn, and thanks, everyone, for joining us today. On today's call, I'll share some perspective on the state of AbCellera's business, review the progress we made last year, and lay out our priorities for 2024. First, the state of the business. As we enter 2024 and after nearly 12 years of investment, we are now in the final stages of building our engine, with the remaining efforts concentrated on our manufacturing capabilities.

Through this work, we have built a competitive advantage in the discovery and preclinical development of antibody therapies, and we will soon be fully integrated from target through to the clinic. We have tested and proven our capabilities across more than 100 programs, and we have done this in partnerships with the top tier of biotech and pharma companies. Through these partnerships, we have built a portfolio of passive royalty positions in therapeutic programs. We believe this portfolio represents a growing and unrecognized store of value that will mature into future high-margin revenue streams.

Over the past three years, we have increasingly focused on only those partnerships that we see as strategic and that we believe will yield the highest value. This has included the addition of multiple co-development programs in which we have the option to maintain a 50% ownership stake. Alongside of our partnership business, we have made internal R&D investments over the last five years to unlock difficult target classes, including GPCRs and ion channels. This work is now bearing fruit.

And last year, we announced our first internal program from this effort that has advanced into IND-enabling studies. We believe this is just the beginning and that it foreshadows a series of potential first-in-class therapies over the coming years. In 2021, we launched a second long-range R&D effort to build a highly differentiated platform for the creation of precision T-cell engagers for indications in cancer and autoimmunity. This work has progressed quickly and has laid a strong foundation for both internal programs and strategic partnerships.

Although we did not complete a major partnership on TCE last year, as we had anticipated, our conviction in this effort is undiminished. In the fourth quarter of 2023, we made a strategic decision to shift more resources to our internal pipeline, and we completed a reorganization to align with this priority. This decision was made in light of the progress in our internal programs and in response to a persistent macroeconomic headwind for biotech. While we will continue to engage in strategic partnerships that add to our portfolio of royalty positions, our No.

1 priority is to advance and build a pipeline of first-in-class and best-in-class therapeutics. We believe this has the highest-value potential over the coming years. Last year, we secured $220 million in nondilutive funding from the governments of Canada and British Columbia to support this priority. With a cash balance of over $780 million, this brings our total available liquidity to over $1 billion.

With this liquidity and a platform that is capable of reproducibly delivering first-in-class therapeutic candidates, we have a rare opportunity to transition from a platform company to a vertically integrated clinical stage biotech, and to do this from a base of value and without taking on binary risk. Now, turning to what we achieved in 2023. At the start of last year, we communicated that our investments would be focused on three pillars of the business. The first is expanding the capabilities of our engine with forward integration.

This includes manufacturing, late-stage preclinical, and clinical capabilities; second, continuing our technology development efforts to unlock new target classes and modalities, including T-cell engagers, GPCRs, and ion channels; and third, advancing high-quality programs and partnerships to build our portfolio. With respect to the first, investments in our engine were focused on our manufacturing capabilities, including construction of our facility, building our platform, and building our process development, manufacturing, and quality teams. As mentioned, manufacturing is the final piece of our engine. We expect the bulk of further investment to be made this year.

We anticipate process development activities and pilot runs to begin in 2024, and that our GMP facility will come online near the end of 2025. Turning to R&D progress in 2023. We continue to invest in technologies that we believe can open up new market segments in antibody therapeutics. For a T-cell engager platform, we presented data demonstrating the potential for solving two important problems in the field.

In the first, we showed that our platform can produce TCEs that achieve high tumor cell killing with low cytokine release, which helps to address the problem of dose-limiting toxicity associated with cytokine release syndrome. In the second, we showed that our platform can generate TCR mimetic antibodies that specifically recognize MHC peptide antigens. Importantly, we believe the speed and ease with which we are able to find MHC peptide specific binders has potential to greatly expand the reach of TCEs in cancer therapy. Moving to our GPCR and ion channel efforts, I would like to remind you that we previously said we would elect at least one candidate from this platform for IND-enabling studies in 2023.

We achieved this with ABCL635, which is the first program in our pipeline. Last year, we also said we would move one of our co-development programs into IND--enabling studies. We achieved this with ABCL575, a program that we launched as part of a co-development partnership with EQRx in 2021, and that we took control of after EQRx was acquired by Revolution Medicines. ABCL635 and ABCL575 are both on track to enter clinical trials in 2025.

ABCL635 is against an undisclosed target and is being developed as a potential first-in-class therapy for an indication in metabolic and endocrine conditions with an addressable market estimated at more than $2 billion in annual sales. There are a number of reasons why we are excited about 635. First, it targets a pathway that is well validated and presents low biological risk relative to a typical program. Second, we are not aware of any competing antibody drug programs against this target and therefore believe 635 has the potential to be a first-in-class therapy.

Third, we have obtained compelling proof-of-concept data from studies in nonhuman primates. And finally, for this indication, we expect to obtain data on both safety and efficacy in early clinical development. As we discussed previously, we will disclose more details on this program only once it reaches the clinic. Our second program, ABCL575, targets OX40 ligand.

It is being developed as a potential best-in-class therapy for the treatment of atopic dermatitis and has potential across a broad range of autoimmune and inflammatory conditions with high unmet medical need, including asthma, alopecia, systemic sclerosis, and inflammatory bowel disease. ABCL575 is differentiated from Amgen's rocatinlimab in that it targets OX40 ligand on antigen-presenting cells, not OX40 on T-cells. Further, 575 works through receptor blocking rather than killing immune cells, which we believe will provide a better safety profile. 575 is also distinct from biologics currently approved for the treatment of atopic dermatitis.

First, it blocks signaling upstream of currently targeted Th2 signaling molecules, including IL-13, impacting a broader portion of the inflammatory response. Second, blockade of OX40/OX40 ligand signaling is believed to promote T regulatory cells, offering the potential for immune reset and a more durable response. At present, we believe 575 is positioned to be the second OX40 ligand antibody into the clinic. It is following Sanofi's omalizumab, which has shown excellent safety and efficacy in atopic dermatitis and is now being developed for multiple indications.

ABCL575 has been designed with potency, PK, and developability to enable less frequent dosing, which we believe provides an important potential for differentiation. Our focus is now to move ABCL575 into clinical testing as quickly as possible. Considering the potential development across multiple indications, we believe it is likely that maximizing the value of this asset will require engagement with a large partner for later-stage trials and commercialization. This stands in contrast to ABCL635 where, pending positive clinical data, we believe it may be better for us to advance it independently.

Turning now to partnerships. Through 2023, we continue to prioritize strategic partnerships. As part of building relationships with large and highly enabled partners, we expanded our work with Regeneron and started a new collaboration with Incyte. At the same time, we continue to look for opportunities to access new technology and new biology.

In 2023, this included our collaboration with Prelude to co-develop first-in-class precision antibody drug conjugates. And at the same time, we continue to build in our collaboration with Abdera, a company that we helped create in 2021 that is advancing a pipeline of radioisotope conjugates toward the clinic. Looking forward to 2024, our priorities for the year are as follows. First, advancing our internal pipeline.

This includes moving ABCL635 and 575 toward clinical testing in 2025 and bringing at least one and, perhaps, two additional programs into IND-enabling studies in the second half of the year. Second is completing the final stages of building our engine with the majority of investment directed to establishing our manufacturing capabilities. And third, on the partnering front, our focus is to expand relationships with large biopharma, including deals related to our TCE platform. In addition, we will continue to be opportunistic in co-development deals that provide access to new targets or technologies and by engaging with strategic investors in company creation.

And with that, I will hand it over to Andrew to discuss our financials. Andrew?

Andrew Booth -- Chief Financial Officer

Thanks, Carl. As carl pointed out, AbCellera continues to be in a strong liquidity position with over $780 million in cash and equivalents and over $200 million in available government funding to execute on our strategy. Over the past several years, AbCellera has been in building mode. As we enter 2024, we are nearing the end of that build.

Our team is largely in place and we expect our departmental expenses in R&D and in SG&A in 2024 to be similar to what we saw in 2023. 2024 will also be our last major capital expenditure year of this multiyear build as we complete our CMC and GMP manufacturing investments. 2024 investments in capex are expected to be similar to what they were in 2023 and be significantly reduced thereafter as we move from building these capabilities to using them on our own programs and programs with our strategic partners. Looking at results, first let me highlight some progress made on and changes to our key business metrics as we have detailed in our 10-K submission.

In Q4, we added 21 new programs under contract and ended 2023 with 203 programs under contract with 46 unique partners. All new programs include downstream participation. Consistent with our direction over the past number of years, we are focusing on strategic partnerships and high-quality programs rather than deal volume in our partnering activity. In addition, we expect to increasingly drive value from our pipeline of internal and co-development programs.

We believe that the focus of our execution is not well represented with the number of discovery partners and programs under contract metrics. As such, going forward, we will no longer be reporting on these metrics. We will keep reporting on program starts. In 2023, we started work on 12 partner-initiated programs, three of which were in the last quarter.

That is a rate of starts that broadly reflects our ongoing focus on strategic partnerships and high-quality programs. This takes us to a cumulative total of 112 total partner-initiated program starts, of which a total of 87 have downstream participation. Note that as described in our 10-K, we have also narrowed the definition of program starts business metric. As our strategy is unfolding, our main focus for partner-initiated programs is on adding value to our portfolio of participation in the future success of molecules that we discover.

We have refined this metric to only include programs with such downstream participation. We would also like to share with you a closer look at the progression of those 87 partner-initiated programs with downstream participation that we have started. As of December 31st, we were actively working on 23 of these programs. We have completed the agreed scope of work on the other 64 programs and have transferred the resulting antibody sequences and data to our partners for evaluation and further development.

To the best of our knowledge, our partners are progressing 38 of those programs. Of these, we believe that 30 are in late-stage discovery, five are in preclinical development, and three have reached clinical development. Based on the best information available to us, we believe that our partners have decided not to progress a total of 26 programs. Overall, we viewed the progress of the molecules we have discovered in our partners' hands positively and the attrition is consistent with our expectations.

We look forward to more molecules from our programs reaching the clinic over time, and we will continue to report on these progressions to the clinic on a quarterly basis. In Q4 2023, we saw three new molecules advance to the clinic for a cumulative total of 13 molecules to have reached the clinic. Two undisclosed molecules from partner-initiated discovery in animal health were advanced into clinical field studies, and Arsenal Bio received an IND authorization for AB2100. AB2100 is an antibody with an indication in oncology that was derived by Arsenal Bio from a Trianni Mouse under a license from AbCellera.

Beginning this quarter, we are also indicating which of our molecules in the clinic are not expected to progress further. These include bamlanivimab, bebtelovimab, and DNL919 as molecules discovered by AbCellera. Additionally, one molecule discovered under Trianni license is not expected to progress. We continue to view our growing list of progressing molecules in the clinic as specific examples of our near and midterm potential revenue from downstream milestone fees and royalty payments in the longer term.

Looking broadly across the program starts in our partner-initiated portfolio, as well as our AbCellera-initiated internal programs, we see significant diversification across therapeutic indications. Of our 87 partner-initiated programs with downstreams, over 90 are in human health. The majority of our partner programs are in oncology, neurology, and immunology, broadly reflecting activity in the industry. As of December 2023, we also have 19 AbCellera-initiated programs, up from 12 at the beginning of the year.

All of the AbCellera-initiated programs are in human health. We believe that the value we add to programs and the value of our partnered portfolio is reflected largely in the royalty rates we negotiate. We continue to prioritize more valuable programs instead of maximizing the number of programs under contract. As a result, our result is that the range and average of negotiated royalty rates in our portfolio are shifting favorably.

As we reported last year, between 2015 and 2019, our mean royalty rate was 2.4% across 37 partner-initiated discovery programs with downstreams. And between 2020 and 2023, the mean royalty rate has increased to 4.3% across 141 programs with downstream participation. A quarter of the programs with downstream participation that we signed in this period have the potential to achieve royalty rates above 5%. These royalty rates do not reflect the value of programs in our internal pipeline, which we fully or substantially own.

Turning to revenue, revenue in the year was approximately $38 million, almost entirely driven by research fees relating to work on partner-initiated programs. This compares to research fee revenue of approximately $41 million in 2022. This year's revenue also includes approximately $2.5 million in a combination of licensing fees and milestone payments. And unlike in 2022, we earned no royalties in 2023.

Turning to operating expenses. Our research and development expenses for the year were approximately $176 million, representing a roughly $68 million increase over the same period of the previous year. This increase reflects the growth in program execution, continuing platform development, and our increasing investment in our internal program pipeline. In sales and marketing expenses for 2023, we're approximately $14 million compared to just over $11 million in 2022.

And general and administration expenses were over $61 million compared to roughly $56 million in 2022, reflecting good operating leverage supporting the growing business. As I mentioned previously, 2020 to 2023 were significant years of building our team. Now, that team is largely in place, and we expect our departmental expenses in R&D and in SG&A in 2024 to be relatively flat compared to 2023. Looking at earnings, we are reporting a net loss of roughly $146 million.

This compares to earnings of approximately $159 million in 2022. The loss reflects our continued investment in our business and the absence of royalty revenues that were present in 2022. In terms of earnings per share, this year's result works out to a loss of $0.51 per share on a basic and diluted basis. Looking at cash flows, operating activities for 2023 used roughly $44 million.

In the absence of regular royalty revenues, we would expect our operating cash flow to be irregular and often negative as we continue to invest in the growth and capabilities of the company. Of note, cash flow excluding the purchase of marketable securities used approximately $130 million for all of 2023. As a part of our treasury strategy, we have nearly $630 million invested in short-term marketable securities. Our investment activities for the year include an approximately $127 million net increase in these holdings.

All other investment activities amounted to approximately $111 million, including approximately $77 million invested in property and equipment, and approximately $45 million in other long-term investments. Investments in property and equipment are, of course, driven largely in part by our ongoing work to establish CMC and GMP manufacturing capabilities. We expect these investments to be substantially complete in early 2025. We anticipate that 2024 investments in property and equipment will be similar to those of in 2023.

As a reminder, we own 50% of our large office and lab facilities and have financed from our balance sheet their construction. In addition, we own 100% of our GMP manufacturing facility, and AbCellera does not have any debt. Altogether, we finished the year with about $788 million of total cash, cash equivalents, and marketable securities. As a reminder, our continuing GMP facility buildout is separately co-funded by the government of Canada's Strategic Innovation Fund.

In addition, in 2023, we secured 220 million from the governments of Canada and British Columbia. This available capital does not show up on our balance sheet. With over $780 million on the balance sheet and the unused portion of our secured government funding, we continue to have approximately $1 billion in total available liquidity to execute on our strategy. This is more than our liquidity position from one year ago when we reported our December 2022 financials.

With respect to our overall operating expenditures, our capital needs are very manageable, and we remain in a strong liquidity position that allows us to execute on our strategy with excellent visibility and runway. This includes advancing AbCellera-led programs toward and into the clinic and working with strategic partners. We continue to believe that we have sufficient liquidity to fund well beyond the next three years of pipeline and platform investments. And with that, we'll be happy to take your questions.

Operator?

Questions & Answers:


Operator

[Operator instructions] The first question is from the line of Robyn Karnauskas with Truist. Your line is now open.

Robyn Karnauskas -- Truist Securities -- Analyst

Hi. Thanks, guys. I think I'm really focused on like how you're moving toward going to IND and building out that platform. Can you think -- can you help us focus on how to monetize that revenue stream and how to think about the amount of royalties you may get doing that and when we can learn about what drugs you may -- are you going to highlight them? Are you going to say what they are as you go through that process? I think that would help the biotech investors actually understand how to monetize that and model those.

Thank you.

Carl Hansen -- President and Chief Executive Officer

Hey, Robyn. Carl here. Happy to take that. So, you know, first, let me just frame this with the strategy that we've been communicating since becoming a public company and long before, which is first to invest in building capabilities that allow us to repeatedly generate molecules that have potential to be first-in-class and best-in-class therapies, and then to use that platform with partners to work on programs that build a portfolio of positions in future therapeutic programs.

Now, within that broader frame, we have a growing portfolio of programs that we've done through what we would call partner-initiated programs. These are now converting, as Andrew detailed, into potential passive royalty streams that are going to mature over time. Over the past three years, we've started to evolve that business model to include co-development programs, we have a bigger stake. And for the last five years, we have been working consistently on technology projects that are now yielding wholly owned potential first-in-class, best-in-class assets that we're taking forward into the clinic.

So, on the portfolio side, there is, you know, let's say single-digit royalty positions that add up in aggregate to what we believe will be long-term predictable and high-margin cash flow. On the programs that we are bringing forward ourselves, we would view that like you would view a typical integrated biotech. So, each of these has the potential to generate huge upside in value. And we have taken our time to find the opportunities that we're excited about, and we believe there's an excellent chance of getting to value inflections.

Now, for those, we're going to look at each of them, independently decide how we're going to prosecute those moving forward into the clinic. Both we are committed to take forward into phase 1. As I mentioned in my prepared remarks, for 635, we are very excited about that program, and we see the potential to take that beyond phase 1, given the nature of development. For ABCL575, in the area of atopic dermatitis and other inflammation autoimmune conditions, we think the value of that program would benefit from a partnership.

So, to your question, you know, as you bring molecules forward, you get them closer to revenue, you get them derisked at IND and then past phase 1. Obviously, the potential terms for out-licensing are going to grow commensurately, and we're making a decision on every program based on capital allocation and based on options to maximize the value for that. So, we expect that ABCL575 could be a very valuable program for out-licensing, but right now we're focused on getting that through to Phase 1.

Robyn Karnauskas -- Truist Securities -- Analyst

All right, two follow-ups. Attrition rate is beyond, I think it's around 40%, if I recall. Do you expect it to become similar or higher over the period? And more color on -- you know, you have this discontinued program, could you take that in-house? You know, you can develop that. Now, you have capabilities.

Could you opine on that? And like, what would you do with those programs?

Andrew Booth -- Chief Financial Officer

Hey, Robyn, Andrew here. So, the first part of that question, yeah, we're showing what we believe is going to be an annual disclosure now on the progress of the pipeline in the hands of our partners. We've been able to provide that because of investments over the last number of years in, you know, alliance management, so we have much better visibility, much stronger connections with those partners. And you were saying that the attrition rate of about 40%, what do we expect it to be going forward? I mean, I think we're quite optimistic about the remaining ones in that.

And like I said --

Robyn Karnauskas -- Truist Securities -- Analyst

Exactly. Sorry about that.

Andrew Booth -- Chief Financial Officer

Pardon me.

Robyn Karnauskas -- Truist Securities -- Analyst

No, my daughter was shushing you. She's in the background. Don't worry.

Andrew Booth -- Chief Financial Officer

OK.

Robyn Karnauskas -- Truist Securities -- Analyst

She's shushing. But the attrition rate, it's to go higher, correct? Like, will it go lower?

Andrew Booth -- Chief Financial Officer

That's right. I think if we --

Robyn Karnauskas -- Truist Securities -- Analyst

How are you thinking about like --

Andrew Booth -- Chief Financial Officer

I think -- I mean, of course, we would be delighted if the attrition rate was only 40% and the rest of those made it to the clinic. So, we would expect some additional attrition on top of that. So, when we said in the prepared remarks, it's within our expectations. And of course, it's still -- there's some time before those other ones and, you know, are matured and invested in by the partners and make it to the clinic.

So, we would expect not all of the rest of them to make it to the clinic. But we'll continue to report on that on an annual basis.

Robyn Karnauskas -- Truist Securities -- Analyst

And discontinued programs, like how do you think about those? Would you take them in-house?

Carl Hansen -- President and Chief Executive Officer

Carl here, Robyn. So, you know, for most of the programs that are not being advanced, we don't have a contractual right to take those in-house. And I would also highlight that, you know, as Andrew said, we expect there to be considerable attrition between the initiation of discovery and clinical development. Certainly, anyone with experience in the industry would expect well below 50% of programs will actually make it into clinical development.

Those programs will fail for a whole variety of reasons. There could be scientific data that comes in based on animal models. There could be competing programs out there. For some companies, it will be a matter of pipeline prioritization and capital allocation.

You know, thus far, of the ones that we've seen that are not advancing, you know, we have not contemplated taking them in-house. And we honestly have high conviction in the programs that we've generated internally, and that's where our focus is for our internal pipeline.

Robyn Karnauskas -- Truist Securities -- Analyst

All right, great. Thank you, guys. Thank you for my daughter listening to the calls. It's great.

Thank you.

Operator

Thank you for your question. Next question is from the line of Andrea Tan with Goldman Sachs. Your line is now open.

Andrea Tan -- Goldman Sachs -- Analyst

Good afternoon, thanks for taking my question. Carl, maybe, first, can you speak a little bit more about what you think will be necessary to show for the TCE platform such that it will enable a major partnership?

Carl Hansen -- President and Chief Executive Officer

Thanks Andrea. Yeah, so that's a great question. You know, as I said in my prepared remarks, we launched that in about 2021. And we are very pleased with the progress of the science and the data that we've been able to bring forward.

So, we've been, you know, attending ACR and SITC, and we're able to raise the bar at every one of those conferences. At this point, you know, what we really have in hand is the broadest, most well-characterized panel of CD3. We've shown we can pair those with different TAAs to tune in the combination of cell killing and cytokine release. And we have shown that we can use our platform to generate highly specific TCR mimetic antibodies that bind MHC peptide targets.

That work has been done in large part through internal R&D and work on a series of targets that we have been advancing. And as that work matures and gets close to the clinic, we're seeing the appetite from industry increase. I think, you know, it's difficult to know when that will get to the point where we consummate a deal. Every indication is that we're talking to the right people and the response from scientists at really, I'd say that some of the top if not the top firms in the space, has been universally positive.

And so we're hopeful that that will continue to move forward. But I wouldn't speculate on what is going to be the key piece of data that makes that happen because it's a combination of science and priorities of the partner and, of course, business terms.

Andrea Tan -- Goldman Sachs -- Analyst

Got it. Thank you. And then, Andrew, maybe one for you. Just given the 40% capital allocation that you laid out for the buildout of your engine and manufacturing, just curious if you would ever look to monetize the latter via contract manufacturing?

Andrew Booth -- Chief Financial Officer

Thanks, Andrea. So, I think in the first two programs that we're talking about, so 635 and 575, we are actually using contract manufacturers in order to move those through to IND-enabling study. And if you're talking about would we be using our own internal and contract them -- contracted out, that -- it is not our intention to be a service organization or a CDMO that we are expecting to use this facility for our own internal programs, prioritizing internal programs, co-development programs, and the programs of our partners. And I think given the scale of the facility and the pipeline that we have there, that'll be sufficient to keep the facility active.

Andrea Tan -- Goldman Sachs -- Analyst

Perfect, thanks so much.

Operator

Thank you for your question. Next question is from the line of Allison Bratzel with Piper Sandler. Your line is now open.

Allison Bratzel -- Piper Sandler -- Analyst

Hey, good afternoon, and thank you for taking the questions. So, two from me. First on the T-cell engager platform, I'm hoping you could characterize interest in this approach for autoimmune indications relative to oncology indications and just overall what kind of updates or disclosures we can expect out of this platform over the next year or so. And then second, just kind of a follow up on a prior question about the new business metrics you'll be providing, could you clarify just the metrics you'll provide going forward on a quarterly and annual basis? And also, just how we should think about research fees and milestone revenues, both near and longer term.

Thank you.

Carl Hansen -- President and Chief Executive Officer

Thanks, Allison. Maybe I'll start and I'll hand it over to Andrew for the metrics and the financials. So, I think the first question was about interest in T-cell engagers for autoimmune. That has been, you know, I'd say over the last year, a hot topic of discussion with a variety of partners.

As you're probably aware, there's been some exciting data in the CAR T space, particularly on CD19 for autoimmune conditions and lupus. And many people have recognized that if CAR T can work in this indication, then there's a real opportunity to bring by specifics as a substitute that would have all the advantages of being much more like a drug and easier to get to patients and easier to make a business out of. So, we think that's a very exciting opportunity, one that we are well positioned to move on. Beyond that, I don't have much to add on autoimmune conditions.

Second, you asked about updates on the TCE platform. As I said, we are, you know, continuing to advance that platform and get proof points on internal programs that are being done with the TCE platform. We currently have four abstracts that have been submitted to ACR. We're hopeful that those will all be accepted and that we'll be able to share data shortly in public there.

And I think that was the scientific part. Maybe I'll hand over to Andrew for the last pieces.

Andrew Booth -- Chief Financial Officer

Yeah, hey, Allison. So, thanks for the question on the business metrics. So, going forward on a quarterly basis will continue to report out on our program starts and our molecules in the clinic. And on an annual basis, we will be continuing to report out on the the royalty rate sort of our average royalty rates and aggregate milestones that we've accumulated, which are reported also in our 10-K, as well as it'd be our intention to report on this attrition graph on what the progression of molecules are that we've handed back to our partners.

Allison Bratzel -- Piper Sandler -- Analyst

Excellent. Thank you.

Operator

Thank you for your question. Next question is from the line of Steve Willey with Stifel. Your line is now open.

Steve Willey -- Stifel Financial Corp. -- Analyst

Yeah, good afternoon. Thanks for taking the question. It'd be a couple. So, I guess now that you just have a line of sight into completing this forward integration process via the completion of manufacturing, I think you're talking about having pilot runs going before the end of this year.

Can you start engaging potential partners or even co-development partners on the PD front with kind of a proposed workflow that now contemplates the manufacturing of an end product? Or do you have to wait until those pilot runs are done before you can start engaging on those kinds of deals?

Carl Hansen -- President and Chief Executive Officer

Hi, Steve. Carl here. No, I think you're exactly right. So, once a development candidate has been picked, the first step is to move that into the generation of cell lines and then start to develop a process ahead of the manufacturing.

So, we have been building our PD teams ahead of that, and we are certainly in a position this year to begin working on process development leading to manufacturing and have every confidence that the pilot runs and the facility will be online to support that. So, that's -- those are conversations that we can begin having right now. I'll also add that, you know, as I mentioned in my prepared remarks, we do -- we are targeting to bring at least one additional development candidate forward ourselves this year. And it is our expectation that we'd be able to do the manufacturing from that one -- on that one from start to finish.

Steve Willey -- Stifel Financial Corp. -- Analyst

OK, and maybe just on the TCE partnership, just to follow up, I guess, have any of the PD conversations that you've had to date either, I guess, shaped the kind of deal you want to do and or the type of deal that you think you can do just kind of given the data that you shared today to the progress that you've made with this panel of CD3 variants? And is it your preference to do something exclusive versus nonexclusive? I'm just kind of curious as to how you're thinking about this.

Carl Hansen -- President and Chief Executive Officer

Yeah, I mean, it's always dangerous to speculate on deals and what exactly the structure is going to be. You know, you're exactly right that if you're talking to the companies that have a strong interest in this, then that will certainly help you get smarter about the types of deals that you should do and how you should think about maximizing value on the platform. And those conversations have been helpful. The real question again -- Andrew asked something similar, like what is the key data? It's really a combination of moving the data forward enough and finding the right partner with a good alignment and then making sure that you're doing a deal that really captures the value of the platform.

If we wanted to execute TCE deals, we could have done several TCE deals last year. And we passed because we think that that's not in the best interest of the long-term value of that platform. And so, that's an issue that we're continually evaluating and that we'll navigate going forward. And while we do want to get that deal out and have the validation, it's much more important for the long-term state of the business that we do the right deal and make sure we're not selling this cheap.

Steve Willey -- Stifel Financial Corp. -- Analyst

And maybe just one quick follow up, I guess the one or maybe two additional candidates that you might be moving forward kind of past discovery this year in addition to 575 and I think it's 635. Do those also kind of fall into the either TCE or GPCR ion channel bucket in terms of being, I guess "higher value?"

Carl Hansen -- President and Chief Executive Officer

Sure. So, I don't think that I mentioned it, but probably the most likely source of those candidates is going to be from our work in GPCRs and ion channels. You know, 635, we are wildly excited about. We love that program.

I'm probably every bit as excited about the prospect of that effort that's been going for a long time to start to generate some very exciting molecules. So, we're hoping that we'll be able to deliver on at least one, perhaps, two out of that platform. There is, I think, a side chance that it could also come from a TCE program, and that's really on our side about prioritization and deciding where we like the data and the opportunity the best.

Steve Willey -- Stifel Financial Corp. -- Analyst

All right. Thanks for taking the question.

Operator

Thank you for your question. Next question is from the line of Steve Dechert with KeyCorp. Your line is now open.

Steve Dechert -- KeyBanc Capital Markets -- Analyst

Hey, guys. Is there any additional color you can provide on the three new partner initiative programs that were started in the fourth quarter?

Carl Hansen -- President and Chief Executive Officer

Only that I would say, you know, most often, you can see we had some PD activity in the second half of the year. Most often the starts are following recent deal activity. But we don't normally go into any detail, Steve, on what quarter to quarter are the specific deals and starts that we have.

Steve Dechert -- KeyBanc Capital Markets -- Analyst

OK, thank you.

Operator

Thank you for your question. Next question is from the line of Puneet Souda with Leerink Partners. Your line is now open.

Unknown speaker

Hi, yeah, you have Michael on for Puneet. I was just wondering. So, with this pickup in the [Inaudible] later in this year, I was wondering if that's like a typical seasonality in BD activity or if you're seeing a pickup now that there's been a decent amount of biopharma M&A and if that influences kind of your outlook for how much co-development or asset sale you might have kind of in the near term.

Carl Hansen -- President and Chief Executive Officer

Hey, Michael. Thanks for joining for Puneet there. No, I think it's just there's no sort of predictable seasonality with the BD deal flow. It just -- you know, it can be irregular and it has been in the past also irregular.

So, we don't -- I wouldn't read into anything regarding that, you know, quite robust quarter. And as I mentioned, we're going to -- we don't consider the programs under contract to be really the meaningful business metric for people turning people's attention to going forward. And we're going to stop reporting on that on a quarterly basis.

Unknown speaker

Got it. And then, I was wondering if you had any visibility on whether those five preclinical assets, if they might be getting into the clinic sometime in 2024 or 2025.

Carl Hansen -- President and Chief Executive Officer

Hi, thanks for the follow up. I mean, we would hope so, but they're in the hands of our partners and they're moving them at their own pace. I would say like the progression as we have seen in the past can take any number of years. One that we are particularly excited about because they have -- well, we could expect in 2024, let's say, because they have already disclosed this themselves Abdera, the company we worked with on radioisotope conjugates, they have indicated that I think at least one would come into the clinic in 2024.

So, we're definitely keeping our eye out for that. For other ones, we don't have any particular insight on what their schedules are.

Unknown speaker

Got it. Thank you very much.

Operator

Thank you for your question. Next question is from the line of Steven Mah with Cowen. Your line is now open.

Steven Mah -- TD Cowen -- Analyst

Great, thanks for taking the questions. Hey, how should we think about the R&D expense going forward in 2024, especially in light of, you know, you're advancing two internal programs with IND-enabling studies. And then, second part of the question, you know, given the cadence of INDs in 2024 of one or two, could you give us some color on what's driving that cadence? And could you do more if you had enough -- if you had multiple compelling candidates? Seems like you have the cash and the manufacturing capacity to accelerate if you wanted it. Is that a fair statement?

Andrew Booth -- Chief Financial Officer

Hey, Steve. So, I'll take each of those. I think Carl will chime in on the second one as well at the end. So, on the R&D expense in 2024, as I mentioned in the prepared remarks, we would expect it to be relatively flat versus last year's expense.

Last year, we did have some expenses related to clinical development of a certain number of programs, certainly bringing 575 and 635 to where it is in IND-enabling studies. And we would expect it to actually be similar in 2024, so relatively flat overall. Regarding the second question, as what Carl mentioned is that we would expect two additional programs getting into development candidate and toward IND-enabling studies in 2024, and actually that 635 and 575 would reach IND in 2025. And then, that's when their phase 1s would be expected to start.

We're on a pace of roughly that those two development candidates from this year would have INDs -- or going to IND-enabling studies with expected INDs in 2026. That appears to be the pace and cadence that we're getting into. I'll let Carl talk about what the capacity is and what are maybe the limiting features on that.

Carl Hansen -- President and Chief Executive Officer

Sure. I'm happy to do that. So, maybe just first emphasizing, as I did in my prepared remarks, that we believe that advancing internal portfolios is going to be the biggest value driver in the long run for AbCellera. Now, our focus is on making sure that we're building that portfolio and moving it forward effectively.

This is not about numbers. It's not about putting a certain number of INDs on the board. It is completely about being able to look at the data, look at the opportunity, look at the commercial case and get excited that you have a much better than average chance of bringing forward a molecule that's going to be a drug that helps patients. So, the fundamental bottleneck here is in finding the opportunities and getting the science to the point where you really have conviction and believe that this is a program that deserves to be added to the portfolio.

That's, by far, the bottleneck. Now, the other piece is -- in the event that you're working on many programs, as we are, and a lot of them happen to hit in the same year, I could imagine that, you know, there is a number at which we would run into a bottleneck operationally in being able to manage the manufacturing and get the IND packages together, do the preclinical work. Frankly, that would be, you know, a problem that we would welcome. And given the nature of what we're working on, we could pace those out.

Most of these programs are against targets that the industry has known about for many years and where we're not seeing antibodies move forward because people have not been able to solve those problems. So, we would love to have a backup of exciting first-in-class molecules to move forward. That's not currently the place, but we are putting our necks out a little bit and saying, "Hey, this year we're hoping to get at least one breakthrough and, perhaps, two and add two more programs in development candidates."

Steven Mah -- TD Cowen -- Analyst

OK, great. That's a really helpful color. And then, last one is a follow-up question on manufacturing. You know, given the recent discussions by the U.S.

government on the bio economy and securing domestic and allied supply chains, are you guys applying for any U.S. government funding for bio manufacturing or, you know, bio production? Thank you.

Carl Hansen -- President and Chief Executive Officer

That's a good question. You know, as you probably know, we have had some close interactions with DARPA and the U.S. government in the past, and we certainly would welcome that again. We're not currently engaged in those types of conversations.

What has been interesting, as I'm sure you've seen, is that there are some geopolitical factors that are making it more and more important to have manufacturing in-house and have them in North America. So, we think that that's really playing well into the strategy. And we believe that, in the long run, you know, if you have the ability to continue to generate first-in-class assets, it is highly strategic to be able to control the supply chain through PD and manufacturing. And so, we view the GMP manufacturing, you know, not so much as a revenue center as a key strategic asset to execute on the vision of building a vertically integrated clinical stage biotech.

Steven Mah -- TD Cowen -- Analyst

OK, great, thank you.

Operator

Thank you for your question. Next question is from the line of Evan Seigerman with BMO. Your line is now open.

Evan Seigerman -- BMO Capital Markets -- Analyst

Hi, guys. Thank you so much for taking my questions. Bigger picture one that I want to ask, one on 635. So, bigger picture, as you think about kind of your transition to this more of a drug development type company, how do you decide what assets you're going to put through a phase 1, maybe it's a phase 2 versus partnering out? Is it really just the sheer size of resources, the economics, mostly through kind of that thinking? And then, maybe on 635, can you walk us through kind of the genesis of this? I know you're not going to disclose the target or kind of what you're going after here, but metabolic is obviously very hot.

What do you see is differentiated about 635? And maybe how -- you know, how does that fit into kind of a rapidly evolving metabolic space? Thank you very much.

Carl Hansen -- President and Chief Executive Officer

Sure. Happy to take those questions in turn. So, the first question was about how do you decide, you know, which programs you're working on, how far you take them, and when you look to partner out. You know, so first of all, you know, deciding at every point in development we further invest in a program, we're looking at four key dimensions.

We're looking at science. We're looking at the commercial opportunity. We're looking at the potential for differentiation. And we're looking at a practical path for development.

So, every asset, every opportunity needs to be looked at through those four dimensions at each step. Now, as you start to get further into clinical development, I think one of the big questions as to whether it's better to keep it in-house or better to look for partnerships depends on the scale of resources you need to commit. So, we are definitely not in the game of betting everything on a single asset. We have been diversifying our portfolio from the beginning, and we're going to continue to do that.

But it's also the clinical development capability and, you know, for some indications, particularly indications that are competitive in terms of patient enrollment, these are much better done by a large and established company. I think atopic dermatitis is probably a pretty good example of that. So, there's some combination of resource allocation and just what is practical, and do you believe that you can do it effectively and that you're going to create the most value for patients and for the company by keeping it in your own hands or by finding the right partner. And then, when you find the right partner, then the question is what exactly is the nature of that partnership.

And those are the things that need to be evaluated, not as a omnibus strategy, but rather on a case-by-case basis based on the best information you have at the time.

Evan Seigerman -- BMO Capital Markets -- Analyst

That's helpful. And then, I guess more on 635 or kind of what else you'd want to share.

Carl Hansen -- President and Chief Executive Officer

Yeah, I don't have too much more to share on 635. I mean, the highlights are we think this is a potentially first-in-class antibody therapy against a GPCR or ion channel target. It's in the area of metabolic and endocrine disorders. And we have, you know, compelling data in nonhuman primates that we believe has high likelihood of translating to humans.

And the nature of the indication is that we believe we can get both safety and efficacy data early in clinical development. That's the focus right now. Once we get to that point, we'll have to reevaluate what's the next best step.

Evan Seigerman -- BMO Capital Markets -- Analyst

OK, no, that's very helpful. And then, kind of just one more to add in. So, as you think about kind of, you know, rightsizing or kind of reconciling your business priorities, you know, what's driven by, you know, not -- I don't want to say pressure from, you know, the government, but kind of priority from the Canadian government versus investors and pushing forward kind of assets that you think could be most profitable? How do you balance that? Because it's clearly an important strategic priority for the Canadian government, which is great. But we also want to make sure you're balancing that resource allocation with, you know, high potential assets.

Andrew Booth -- Chief Financial Officer

Hey, thanks for the question, Evan. I think it's important that, of course, the government has been -- the government of Canada and the government of British Columbia have been excellent funding partners here. Importantly, you know, we still have full operational control of the company, and we're making the decisions which are best for the company to advance our assets and establish ourselves as an anchor company here in Canada. And that is exactly what the Canadian government and the government of British Columbia are looking for.

So, I think our interests are very well aligned there. And of course, we have certain commitments for -- to the Canadian government, which are highlighted in some of the documents that we've provided previously on the nature of that funding. But I think those are all also right in line with what the strategic objectives are of the company. So, I think we find ourselves not at odds with any sort of competing, let's say, motivation between what we're doing that's right for the company and for shareholders and what the government of Canada funding is allowing us to do.

Carl Hansen -- President and Chief Executive Officer

I would go even further and say, the government of Canada and British Columbia, I think that the top priority is to make sure that, here, we are building an anchor company that is building an ecosystem in clinical trials and clinical development, and that it's already successful. So, we are 100% aligned in maximizing shareholder value, bringing great drugs to patients. and building programs that really make a difference and move the needle for the industry. So, there is no misalignment.

This is all one thing.

Evan Seigerman -- BMO Capital Markets -- Analyst

Well, thank you so much.

Operator

Thank you for your question. There are no additional questions waiting at this time, so I'll pass the call back to the management team for any closing remarks.

Carl Hansen -- President and Chief Executive Officer

Thank you, everyone, for joining the call. We are very pleased to share progress, and look forward to speaking with you again.

Operator

That concludes the conference call. Thank you for your participation. [Operator signoff]

Duration: 0 minutes

Call participants:

Tryn Stimart -- Chief Legal and Compliance Officer

Carl Hansen -- President and Chief Executive Officer

Andrew Booth -- Chief Financial Officer

Robyn Karnauskas -- Truist Securities -- Analyst

Andrea Tan -- Goldman Sachs -- Analyst

Allison Bratzel -- Piper Sandler -- Analyst

Steve Willey -- Stifel Financial Corp. -- Analyst

Steve Dechert -- KeyBanc Capital Markets -- Analyst

Unknown speaker

Steven Mah -- TD Cowen -- Analyst

Evan Seigerman -- BMO Capital Markets -- Analyst

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