What’s the Fool’s “Newly IPO’d Canadian Disruptor” with a Peter Thiel connection? (2024)

This ad actually came through a couple weeks ago, but it caught my eye this morning when I was trying to decide what to cover today… mostly because of the big Peter Thiel pitch they use to get our attention.

The ad is from the Motley Fool’s Stock Advisor Canada service (C$99/yr), which essentially tries to emulate the US Stock Advisor strategy, and sometimes has overlapping picks, but recommends at least one Canada-listed stock per month along the way.

And this is one of those Canadian companies, apparently.

The ad does include a good spiel about Thiel, whose reputation grew mostly from the early success he had in founding PayPal and then, to oversimplify, using the wealth from that to get into venture capital, including becoming the first outside investor in Facebook and working, sometimes with other members of the “PayPal Mafia” (Elon Musk, Max Levchin, Reid Hoffman, etc.) to build and fund other technology companies…

“Here are just some of the other companies that Thiel has helped lift off the ground:
AirBnB
LinkedIn
Palantir Technologies (as the company founder!)
Yelp
Spotify
SpaceX (Fun Fact: By the time Thiel backed SpaceX, he’d already known Elon Musk for years. Musk was one of PayPal’s co-founders.)

“With such a stellar track record of discovering amazing companies early and growing them into mammoths, you may be wondering—where is Peter Thiel investing today?”

… and then they drop some hints about this secret stock:

“[Peter Thiel] recently gobbled up 14.3 MILLION shares of a little-known company based right here in Canada.

“This groundbreaking organization specializes in a world-changing technology that a Shark Tank billionaire predicts will create the world’s first trillionaire!

“And right now, they’re using this technology to serve one of the fastest-growing markets on the entire planet—a market that experts predict will nearly triple to $350.1 billion USD by 2027!”

OK, so that narrows it down to “something to do with artificial intelligence” — whenever you hear that “first trillionaire” bit, it’s pretty much always a reference to Mark Cuban, who is often quoted as saying some variation of this, I think the first time he said it was in 2017:

“The world’s first trillionaires are going to come from somebody who masters A.I. and all its derivatives and applies it in ways we never thought of.”

Other clues?

“This Thiel-backed Canadian company has just gone public, which means we have a unique opportunity to get in early and experience potentially record-breaking returns! ….

“Here at Motley Fool Canada, we just released an exclusive new BUY report on this potentially massive Thiel-backed stock.

“In this report, you’ll learn:

“Why we believe this company could soon lead their $2.44 trillion industry

“Why the US Department Of Defense contacted them to create a technology-backed solution to fight viral pandemics…years before the emergence of COVID-19

“Why their balance sheet is currently loaded with cash….”

So what’s the stock? This is, sez the Thinkolator, the US-listed Canadian biotech AbCellera Biologics (ABCL), for whom Peter Thiel is still a Director… and he did invest fairly heavily in AbCellera last year, before it went public, participating in their convertible preferred share and convertible note offerings, and did control roughly 14.3 million shares as of the last update in April.

And the good news? If you were excited about this Thiel-backed company going public but missed out on it at the time… well, it’s a LOT cheaper now. The actual IPO offering priced at $20 back in December, but the stock never traded anywhere near that level, opening in the high $50s thanks at least in part to enthusiasm about their connection to COVID treatments. It has gone pretty steadily down since, so now sits at about $15.

So I can answer at least one of those questions for you… why is their balance sheet loaded up with cash? Because they just raised $500 million in December in their IPO. And will end up with probably a total of close to $500 million more in net royalty payments from their COVID-19 antibodies (more on that in a minute).

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And why did the DoD work with them pre-COVID to fight pandemics? Because their system for rapid human antibody discovery was appealing enough to seem like a potentially important part of pandemic response plans.

This is a company I’ve looked at before, most recently when they came up in my coverage of a Stansberry teaser in March, and there hasn’t been much to really change my opinion — so this is pretty similar to what I said at the time:

ABCL is another of the AI-powered “drug discovery” platforms that we’ve looked at a few times (most recently Schrodinger (SDGR) here) — here’s how they describe themselves:

“AbCellera is a technology company that searches, decodes, and analyzes natural immune systems to find antibodies that its partners can develop into drugs to prevent and treat disease. AbCellera’s full-stack, AI-powered drug discovery platform integrates modern technologies from engineering, microfluidics, single-cell analysis, high-throughput genomics, machine learning, and hyper-scale data science. AbCellera partners with drug developers of all sizes, from large pharmaceutical to small biotechnology companies, empowering them to move quickly, reduce costs, and tackle the toughest problems in drug development.”

The latest investor presentation is here, should you wish to dig deeper. They think of themselves as a technology company, and like a lot of the drug discovery firms they have at least some partnership connections to pretty much all the big pharmaceutical companies.

And while there’s not much of a steady state or predictable revenue stream, as far as I can tell, they did surge immediately to profitability in their first quarter as a public company, with $202 million in revenue consisting almost entirely ($172 million) of royalties from their initial COVID-19 antibody drug, so that’s the other source of cash.

And, probably, part of the reason for the decline in share price since… I have no idea how to predict what might happen with royalties on an antibody treatment as we continue to try to come hesitantly out of the pandemic in most of the US (and as it rages in some other places), I could easily see them having anywhere from $300 million to $1 billion in revenue this year depending on how that program goes, including their second COVID antibody, and depending on how the pandemic proceeds and whether demand for treatment drugs shoots much higher or falls off a cliff. Lots of unknowns.

There are only a few analysts covering this company, and they are penciling in $345 million in revenue and 60 cents in earnings per share this year (down from $360 million predicted a few months ago), which would be pretty impressive for even an $8 billion biotech software company that should have high margins eventually and had essentially no revenue a year ago… but not enough to keep that $8 billion company (the valuation they had last quarter) from drifting down and becoming a $4 billion company now. Probably because those same analysts are also penciling in a huge 60%+ drop in revenues to $122 million in 2022, falling again in 2023, since there isn’t necessarily another “emergency” royalty drug candidate up next to keep the growth going. If you’re not dealing with emergency use authorizations, drug development and the approval process take a lot longer.

The beauty of the emergency response was the speed — AbCellera got a sample from one of the early patients who recovered from COVID, to track down the antibodies, screened millions of cells, identified leads, and then, within 90 days, pinpointed one human antibody, bamlanivimab, for Eli Lilly to develop and, after emergency authorization in November, begin selling, and it became, according to AbCellera, the most broadly used antibody for COVID-19 globally (400,000 patients treated). They also have what they say is a potentially long-term solution for COVID, including the variants, in LY-COV1404, and I expect those two will be the lead drivers of revenue in the near future. Certainly they are generating the lion’s share of ABCL’s revenue today.

The company is obviously aware that these emergency authorizations are a one-time thing, and that the money will very likely dry up from those COVID-related programs in the next year or two, perhaps sooner… this is how they say they’re thinking of it in their Q1 update:

“Royalty revenue from our COVID-19 program continues to provide us with non-dilutive funding, bolstering our strong cash position as we execute on our long-term growth strategies.”

So that’s probably the best way to think about the company… ignore the lucrative COVID business they had over the past year and may continue to have for a little while this year, and try to model out how you would value a company that does now have a very good cash cushion, likely closing in on $900 million (last quarter it was $686 million in cash and $193 million in receivables, presumably mostly royalties yet to be paid, so that would be $879 million, and positive cash inflows should continue for another little while at least, which means they ought to have more than $3.25 per share in cash, a lot for a $15 company). The analysts expect that they will probably, in a return to some kind of normalcy, have about $120 million in revenue next year, which might be almost enough to get them close to profitability. If you ignore the wild past nine months for this company, how does that future look?

And that means, basically, what value do you place on those drug discovery programs and partnerships that may pay off in the future? Their core business model is to build a portfolio of partnered drugs — they do earn a little bit on “discovery fees,” basically doing research for hire, but the real potential comes with discovery and development contracts… the partner supplies the target, they supply and help develop the antibody, and then AbCellera earns milestone payments as the drug goes through the approval process and earn royalties on any commercialized drugs.

But it might be really slow — they do have 120 programs under contract with 29 partners, but as of last quarter there was only one program that had reached the clinic for human testing, which we know is at best an early step in the 5-10 year FDA approval process, so approvals and any royalties for the non-COVID stuff is a long way off. Most of their revenue will probably come from milestone payments for progress on those programs over the next few years. Last quarter, they earned $7 million in milestone payments and $4 million in research fees, so that was almost enough to cover their R&D expenses (not nearly enough to cover the rest of their overhead), but the major driver, of course, was $171.5 million in royalties from those COVID antibodies that we’re now trying to ignore when thinking about the future prospects (the rest, ~$20 million, was from licensing fees from the mouse platform they bought when they acquired Trianni).

We’ll see how that changes over time… and there will be news soon. So… not to rush you, but they report tomorrow after the market close. Personally, I’ll stay away from this one, mostly because I like to have a little more stability to cash flow and some more established clinical progress if I dabble in drug discovery (as with Schrodinger, for example, which can almost make a profit by selling its software and computational work while they wait for milestone payments and royalties years down the road), but that’s mostly because I like the safety net — and because I don’t have the expertise to really evaluate the potential of these many-years-in-the-future drug discovery programs.

If you’ve got more of a handle on AbCellera and why you think it’s worth a gamble, or have other favorites in the space, by all means, jump in with a comment below and share your thoughts. I’ll pass on this one, but I’d generally be more willing to invest in an idea like this than into an actual early-stage biotech fighting through clinical trials and incurring big costs for an uncertain future.

And I will admit that at a low enough price, even companies that are hard to model or predict get somewhat tantalizing — it’s not that hard to build a case for a Thiel-backed drug discovery platform, with some COVID bona-fides and a couple dozen good partners, that’s got more than $800 million available to fund future work and is trading at all-time lows. It could easily become a powerful business someday for the wise and patient, I just don’t know when, or what the odds are. For someone as biotech-dumb as me, the price would probably have to keep drifting down as the cash hoard piles up for temptation to finally strike.

P.S. Yes, in case you’re wondering, AbCellera has also had some insider selling — nothing big by Peter Thiel at this point, according to SEC filings, but a few of the C-suite folks and other backers of the company did sell about 15 million shares once the IPO lockup period ended in June. Insiders sell for lots of reasons, sez the conventional wisdom, so insider selling is not definitively bad… and those major insiders, including Peter Thiel, do still own about 30% of the company, so they’ve got “skin in the game” for sure, but if insider buying is a positive signal then insider selling is, at best, the absence of a positive.