AbCellera Biologics Inc

1. Nature of operations

AbCellera Biologics Inc.’s (the “Company”) mission is to bring better antibody drugs to patients faster, solve long-standing problems, and transform how antibody drugs are discovered. The Company aims to bring antibody therapeutics from target to clinic by combining expertise, technologies, and infrastructure to build an engine for antibody drug discovery and development. The Company uses the engine to both work with partners to build a large and diversified portfolio of royalty (and equivalent) stakes in future antibody drugs and to develop its own pipeline of future antibody drugs. The Company partners with companies of all sizes - from innovative biotechnology companies to leading pharmaceutical companies - propelling programs to the clinic, together.

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 Securities and Exchange Commission (the “SEC”) for interim financial information. Accordingly, the year-end condensed consolidated financial statement data was derived from audited financial statements and these financial statements do not include all the information and footnotes required for complete financial statements. These statements 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, 2023.

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 and nine months ended September 30, 2023 and 2024 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, 2023.

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 consolidated 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 estimated timing of completion of performance obligations and determining whether an option for additional goods or services represents a material right, the impairment assessment of intangible assets and goodwill, and 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.

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 no material impact is expected in the condensed consolidated financial statements as a result of future adoption.

4. Net loss per share

Basic and diluted net loss per share was calculated as follows:

The Company’s potentially dilutive securities, which include stock options and restricted share units (“RSUs”), have been excluded from the computation of diluted net loss per share for the three and nine months ended September 30, 2023 and September 30, 2024 as the effect would be to reduce the net loss per share. Therefore, the weighted-average number of common shares outstanding for the three and nine months ended September 30, 2023 and September 30, 2024 used to calculate both basic and diluted net loss per share is the same.

The Company excluded 50,081,069 and 50,544,294 potential common shares for the three and nine months ended September 30, 2023, and 58,027,706 and 58,543,314 potential common shares for the three and nine months ended September 30, 2024, from the computation of diluted net loss per share because including them would have had an anti-dilutive effect.

5. Property and equipment, net

Property and equipment, net consisted of the following:

As of December 31, 2023 and September 30, 2024, property and equipment includes leasehold improvements and construction in progress in the amount of $91.0 million and $93.0 million, respectively, and construction deposits of $13.7 million and $15.4 million, respectively, that have not commenced depreciation. Depreciation expense on property and equipment for the three and nine months ended September 30, 2023 was $3.1 million and $8.9 million, respectively, and $3.8 million and $10.4 million for the three and nine months ended September 30, 2024, respectively.

6. Intangible assets

Intangible assets consisted of the following:

For the quarter ended September 30, 2024, the Company recorded a full impairment charge of the carrying value of $32.0 million (or $23.3 million, net of deferred income tax) associated with the IPR&D acquired through the 2020 acquisition of Trianni. The impairment was due to our ongoing internal program prioritization which resulted in the discontinuance of the development of the next-generation transgenic mice.

In the quarter ended June 30, 2024, the Company recorded a full impairment charge of the carrying value of $32.0 million (or $23.7 million, net of deferred income tax) associated with the IPR&D acquired through the 2021 acquisition of TetraGenetics. The impairment was a result of the Company's ongoing internal program prioritization. Details of a corresponding impact to contingent consideration associated with the TetraGenetics acquisition are disclosed in Note 11.

The impairments are reflected within Depreciation, amortization, and impairment expense.

Amortization expense on intangible assets subject to amortization is estimated to be as follows for each of the next five years ended September 30:

7. Investments in equity accounted investees, and other long-term assets

The Company has entered intotwo separate 50% joint ventures, Dayhu JV and Beedie JV, as part of the construction of future office and laboratory headquarters. The Company recorded immaterial amounts of proportionate income or loss with respect to either venture in the three and nine months ended September 30, 2023 and 2024.

Dayhu JV

As of December 31, 2023 and September 30, 2024, the equity investment balance was $42.1 million and $42.8 million, respectively. Substantially all the assets in the Dayhu JV are comprised of property and equipment. As of December 31, 2023 and September 30, 2024, the Company recorded a right-of-use asset of $49.1 million and $49.5 million, respectively, and an operating lease liability of $50.4 million and $50.1 million, respectively, associated with an office lease with the Dayhu JV. In the three and nine months ended September 30, 2023, the Company incurred lease expense of $1.3 million and $4.0 million, respectively, and $1.3 million and $4.0 million in the three and nine months ended September 30, 2024, respectively, to the Dayhu JV included within operating expenses.

At December 31, 2023 and September 30, 2024, the Company had a loan receivable balance of CAD $45.9 million ($34.7 million) and CAD $46.3 million ($34.0 million), respectively, directly with our JV partner, Dayhu, included in other long-term assets.

Beedie JV

As of December 31, 2023 and September 30, 2024, the equity investment balance was$23.8 million and$41.2 million, respectively, of which substantially all the assets in the Beedie JV is comprised of property and equipment.

At December 31, 2023 and September 30, 2024, the Company had a loan receivable balance of CAD$18.4 million ($13.9 million) and CAD$40.4 million ($29.9 million), respectively, directly with our JV partner, Beedie, which relates to the land and construction loan and is included in other long-term assets.

8. Other current assets and liabilities

Other current assets

Current accounts payable and other current liabilities

9. Shareholders’ equity

The following table summarizes the Company’s stock option activity under the Pre-IPO Plan since December 31, 2023:

The following table summarizes the Company’s stock option activity under the 2020 Plan since December 31, 2023:

The following table summarizes the Company’s RSU activity under the 2020 Plan since December 31, 2023:

As of September 30, 2024, the number of shares available for issuance under the 2020 Plan was 33,842,104, which includes awards granted and outstanding under the Pre-IPO Plan that are forfeited after December 10, 2020.

Stock-based compensation:

Stock-based compensation expense was classified in the condensed consolidated statements of loss and comprehensive loss as follows:

10. Revenue

The disaggregated revenue categories are presented on the face of the condensed consolidated statements of loss and comprehensive loss. Deferred revenue outstanding in each respective period is as follows:

During the three and nine months ended September 30, 2023, the Company recognized $4.1 million and $11.0 million, respectively, and $5.9 million and $18.9 million, respectively, in the three and nine months ended September 30, 2024, of revenue that had been included in deferred revenue as of December 31, 2022 and December 31, 2023.

11. Financial instruments

Fair Value Measurements

The Company categorizes its financial assets and liabilities measured at fair value into a three-level hierarchy established by U.S. GAAP that prioritizes those inputs to valuation techniques used to measure fair value based on the degree to which they are observable. The three levels of the fair value hierarchy are as follows: Level 1 inputs are quoted prices in active markets for identical assets and liabilities; Level 2 inputs, other than quoted prices included within Level 1, are observable for the asset or liability either directly or indirectly; and Level 3 inputs are not observable in the market.

The Company’s financial instruments consist of cash and cash equivalents, restricted cash, marketable securities, accounts receivable, loans receivable, accounts payable and other liabilities, and contingent consideration payable. The carrying values of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and other liabilities, and loans receivable approximate their fair values, and are primarily classified as Level 2.

At September 30, 2024, the Company also held non-marketable securities included in other long term assets of $32.3 million (December 31, 2023 - $32.3 million). These non-marketable securities are measured at cost less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. In the quarter ended September 30, 2024, one of the Company's non-marketable securities was disposed of, resulting in a recognized gain of $16.5 million reflected within other income.

Contingent Consideration

Contingent consideration related to business acquisitions is recorded at fair value on the acquisition date and adjusted on a recurring basis for changes in its fair value. Changes in the fair value of contingent consideration liabilities can result from changes in anticipated payments and changes in assumed discount periods and rates. These inputs are unobservable in the market and are therefore categorized as Level 3 inputs. There were no changes to the valuation technique and inputs used in these fair value measurements since acquisition.

The following table presents the changes in fair value of the liability for contingent consideration:

i)The estimated fair value of the earn-out payments relates to a specific customer license and the fair value was determined by estimating the payout of the expected future net cash flows associated to the specific customer license during the earn-out period. The significant assumptions inherent in the development of the value include the amount and timing of projected future net revenues received by us from the specific customer license, and the discount rate selected to measure the risks inherent in the future cash flows, which was approximately 22.0%.

ii)The estimated fair value of potential future successful milestone payouts was determined by estimating the expected future cash flows associated with the potential milestone events. The significant assumptions include the amount and timing of projected future cash flows, risk adjusted for various factors including probability of success, discounted at 12.8%, the rate that measures the risks inherent in the future cash flows. In the quarter ended June 30, 2024, the fair value of the contingent consideration was adjusted to reflect the expected value of the Company's ongoing internal program prioritization, resulting in a reduction of $32.4 million recognized as a non-cash fair value gain through other income.

In-Process Research and Development Assets

As discussed in Note 6, the estimated fair values in support of the TetraGenetics full impairment charge were categorized within Level 3 of the fair value hierarchy and were determined using an income-based approach, which was based on a probability-adjusted present value of the future estimated after-tax cash flows attributable to the intangible assets. The significant assumptions inherent in estimating the fair values, from the perspective of a market participant, include a probability-adjusted success rate of its continued development through to clinical trials, future revenue, operating and development costs, milestone and regulatory success, obsolescence, and profitability. A de-risked discount rate of 12.8% for TetraGenetics was used to present value the probability of success risk adjusted after-tax cash flows attributable to the IPR&D.

Marketable Securities

As part of the Company’s cash management strategy, the Company holds high credit quality marketable securities that are available to support the Company’s current operations. As of September 30, 2024, our marketable securities were rated A- or higher (or its equivalent) by at least two of the major rating agencies with a weighted average life of approximately 0.5 years.

Level 2 marketable securities in the fair value hierarchy were based on quoted market prices to the extent available or alternative pricing sources and models utilizing market observable inputs to determine fair value. There were no transfers between Level 1, Level 2 and Level 3 during the period.

The following table presents information about the Company’s marketable securities that are measured at fair value on a recurring basis and indicates the level of the fair value hierarchy used to determine such fair values:

12. Commitments and contingencies

From time to time, the Company may become involved in routine litigation arising in the ordinary course of business. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company does not have contingency reserves established for any litigation liabilities and any of the costs related to such legal proceedings are expensed as incurred.

The Company may enter into certain agreements with strategic partners in the ordinary course of operations that may include investments in collaborative arrangements, contractual milestone payments related to the achievement of pre-specified research, development, regulatory and commercialization events and indemnification provisions, which are common in such agreements.

Pursuant to the agreements, the Company may be obligated to make research and development and regulatory milestone payments upon the occurrence of certain events and upon receipt of royalty payments in the low single-digits to mid-twenties based on certain net sales targets. No amounts were expensed during the three and nine months ended September 30, 2023 or September 30, 2024.

13. Government contributions

Government Contribution 1

In May of 2020, the Company received a funding commitment from the Government of Canada under Innovation, Science and Economic Development’s (ISED) Strategic Innovation Fund (SIF) for a total of CAD $175.6 million ($125.6 million), collectively "Government Contribution 1" which is intended to support research and development efforts related to the discovery of antibodies to treat COVID-19, and to build technology and manufacturing infrastructure for antibody therapeutics against future pandemic threats. From inception to September 30, 2024, the Company incurred CAD $169.4 million ($130.2 million) in expenditures in respect of the Canadian government's Strategic Innovation Fund (SIF), of which CAD $58.7 million ($46.1 million) and CAD $110.7 million ($84.1 million) relate to phase 1 and 2, respectively as defined in the agreement. Spending under phase 1 of the agreement and such amounts are non-repayable, while repayment on phase 2 of the funding is conditional on achieving certain revenue thresholds over a specified period of time as prescribed in the agreement. As of September 30, 2024, no amounts have been accrued related to the repayment terms.

Government Contribution 2

In May of 2023, the Company entered into multi-year contribution agreements with the Government of Canada and the Government of British Columbia for a total of CAD $300.0 million ($222.3 million), collectively "Government Contribution 2." These investments are intended to build new capabilities in Canada to develop, manufacture, and deliver antibody medicines to patients through Phase 1 clinical trials and build expertise in translational science, technical operations, and clinical operations and research.

The Government of Canada has committed up to CAD $225.0 million ($166.7 million) of which CAD $56.2 million ($41.6 million) is non-repayable, CAD $78.8 million ($58.4 million) is repayable and CAD $90.0 million ($66.7 million) is conditionally repayable. Both the repayable and conditionally repayable amounts are repayable starting in 2033. The repayable funding is payable over fifteen years and the conditionally repayable portion repaid is based on a computed percentage rate of the Company’s revenue over a period of up tofifteen years, at a factor of up to 1.4 times the original conditionally repayable grant. The agreement will expire on the later of April 30, 2047, or the date of the last repayment, unless earlier terminated. From inception to September 30, 2024, the Company has recorded CAD $57.2 million ($42.4 million) in respect of the funding.

The Government of British Columbia has committed up to CAD $75.0 million ($55.6 million) which includes partial reimbursement of certain eligible expenditures up to CAD $37.5 million ($27.8 million) towards eligible infrastructure investments paid over five years; and a CAD $37.5 million ($27.8 million) conditional portion paid upon achievement of certain defined milestones, including upon the Company’s undertaking of certain clinical trial activities in British Columbia. Up to a maximum of CAD $64.0 million ($48.0 million) may become payable starting in 2032, over up tofifteen years, conditional to the Company achieving revenue exceeding a given threshold. The agreement will expire on the earlier of 2047, or the date of the last payment, unless earlier terminated, as prescribed in the agreement. From inception to September 30, 2024, the Company has recorded CAD $37.2 million ($27.6 million) in respect of the funding commitment.

Impact to Consolidated Financial Statements

The Company recognized the following on the consolidated balance sheets:

1 Government Contributions are amortized into other income over the weighted average life of approximately 8 years.

2 No amounts have been accrued related to the repayment terms as the conditions are estimated to be non-probable.