AbCellera Biologics (ABCL) Risk Analysis

Our discovery and development capabilities utilize animals to discover and produce antibodies. We cannot completely eliminate the risks of animals contracting disease, or a natural or man-made disaster that could cause death to valuable production animals, or those of the CRO that maintain our mouse colonies. We cannot make any assurance that we or our CROs will be able to contain or reverse any such instance of disease. Although we maintain backup colonies of our animals, disease or death on a broad scale could materially interrupt business operations as animals are a key part of our antibody discovery and development programs, which could have a material adverse effect on our results of operations and financial condition. Further, genetic engineering and testing of animals has been the subject of controversy and adverse publicity. Animal rights groups and other organizations and individuals in the United States, the EU and other jurisdictions have attempted to stop animal testing activities by pressing for legislation and regulation in these areas and by disrupting these activities through protests and other means. To the extent the activities of these groups are successful, our research and development activities and the ability for us and our partners to use our discovery and development capabilities could be interrupted or delayed, our costs could increase, and our reputation could be harmed.

We allocate our resources to certain research programs and drug candidates. As a result, we may forgo or delay pursuit of opportunities with other drug candidates or for our current development candidates in other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable and profitable market opportunities. Our spend on current and future research and development programs and ongoing clinical development of drug candidates for specific indications may not yield commercially viable medicines.

We have used our discovery and development capabilities to offer antibodies to partners who are engaged in antibody discovery and development. These partners include pharmaceutical companies, biotechnology companies, and non-profit and government organizations. While we receive upfront payments from our partners generated through technology access and discovery research fees, we estimate that the vast majority of the economic value of the contracts with our partners is in the downstream payments that are payable if certain milestones are met or approved drugs are sold. Due to our reliance on our partners, the risks relating to drug development, regulatory clearance, authorization or approval, and commercialization apply to us derivatively through the activities of our partners. While we believe our discovery and development capabilities are capable of identifying high quality antibodies, there can be no assurance that our partnerships will successfully develop, secure marketing approvals for, and commercialize any drugs based on the antibodies that we discover. As a result, we may not realize the intended benefits of our partnerships. Due to the uncertain, time-consuming and costly clinical development and regulatory approval process, there may not be successful development of any drug candidates with the antibodies that we discover, or we and our partners may choose to discontinue the development of these drug candidates for a variety of reasons, including due to safety, risk versus benefit profile, exclusivity, competitive landscape, commercialization potential, production limitations or prioritization of their resources. It is possible that none of these drug candidates will ever receive regulatory approval and, even if approved, such drug candidates may never be successfully commercialized. While we have received milestone and royalty payments in the past, there can be no assurance that we will receive additional milestone payments or any royalties in the future. In addition, even if such drug candidates receive regulatory approval in the United States, the drug candidates may never obtain approval or be commercialized outside of the United States, which would limit their full market potential and therefore our ability to realize full potential downstream value. Furthermore, approved drugs may not achieve broad market acceptance among physicians, patients, the medical community, and third-party payors, in which case revenue generated from their sales would be limited. Likewise, we or our partners have to make decisions about which clinical stage and preclinical drug candidates to develop and advance, and we or our partners may not have the resources to invest in all of the drug candidates that contain antibodies discovered using our platform, or clinical data and other development considerations may not support the advancement of one or more drug candidates. Decision-making about which drug candidates to prioritize involves inherent uncertainty, and our partners' development program decision-making and resource prioritization decisions, which are outside of our control, may adversely affect the potential value of our economic stakes in drug programs. Additionally, subject to contractual obligations to us, if one more of our partners is involved in a business combination, the partner might de-emphasize or terminate the development or commercialization of any drug candidate that utilizes an antibody that we have discovered. The failure to effectively advance, market, and commercialize drug candidates with the antibodies that we discover could have a material adverse effect on our business, financial condition, results of operations, and prospects, and cause the market price of our common shares to decline. In addition to the inherent uncertainty in drug development addressed above, our ability to forecast our future revenues may be limited.

We utilize our antibody discovery and development capabilities to identify antibodies for further development and potential commercialization by us and our partners. As a result, the quality and sophistication of our discovery and development capabilities is critical to our ability to conduct our research discovery activities and to deliver promising drug candidates. In particular, our business depends, among other things, on: - our discovery and development capabilities to successfully identify drug candidates on the desired timeframes that can ultimately be used as medicines to prevent and treat diseases;- our capabilities to successfully advance our current and future drug candidates through clinical trials;- our ability to successful employ our newly constructed GMP facility to advance our pipeline;- our ability to utilize our discovery and development capabilities to build a robust pipeline of potential development candidates;- our ability to partner drug candidates from our internally developed pipeline;- the rate at which partners continue to develop molecules in which we hold an economic stake;- the timing and scope of any approval that may be required by regulatory bodies for drugs that are developed based on antibodies discovered by us;- the impact of our investments in innovation and commercial growth. There can be no assurance that we will successfully address any of these or other factors that may affect the ability of our discovery and development capabilities to create viable molecules that ultimately lead to commercially viable drugs. If we cannot create commercially viable drugs, our business, financial condition, results of operations, and prospects could be adversely affected.

From time to time, we may make public statements regarding the expected timing of certain milestones and key events, as well as regarding developments and milestones under our partnerships, to the extent that our partners have publicly disclosed such information or permit us to make such disclosures. Certain of our partners have also made public statements regarding their expectations for the development of programs under partnership with us and they and other partners may in the future make additional statements about their goals and expectations for partnerships with us. The actual timing of these events can vary due to a number of factors such as delays or failures in our or our current and future partners' antibody discovery and development programs, the amount of time, effort, and resources committed by us and our current and future partners, and the numerous uncertainties inherent in the development of drugs. As a result, there can be no assurance that our partners' current and future programs in which we hold economic stakes will advance or be completed in the time frames we or they expect. If our partners fail to achieve one or more of these milestones or other key events as planned, our business could be materially adversely affected and the price of our common shares could decline.

Our business model is dependent on the eventual progression of drug candidates discovered or initially developed utilizing our discovery and development capabilities into clinical trials and commercialization. This requires us to find partners and enter into agreements with them that contain obligations for the partners to pay us milestone payments as well as royalties on sales of approved drugs for the drug candidates they develop that are generated utilizing our discovery and development capabilities. Given the nature of our relationships with our partners, we do not control the progression, clinical development, regulatory strategy or eventual commercialization, if approved, of these drug candidates. As a result, our future success and the potential to receive milestones and royalties are entirely dependent on our partners' efforts over which we have no control. Additionally, unless publicly disclosed by our partners, we do not have access to information related to our partners' preclinical studies or clinical trial results, including serious adverse events, or ongoing communications with the relevant health authorities regarding our partners' development strategy, which limits our visibility into how such programs may be progressing. If our partners determine not to proceed with the development of a drug candidate discovered or initially developed utilizing our discovery and development capabilities, or if they implement preclinical, clinical or regulatory strategies that ultimately do not result in the further development or approval of the drug candidate, we will not receive the benefits of our partnerships, which may have a material and adverse effect on our operations.

We may not be able to file applications (e.g., clinical trial applications ("CTA") or investigational new drug applications "IND") for our internal pipeline candidates on the timelines we expect. Specifically, we are currently conducting Phase 1/2 clinical trials for ABCL635 and ABCL575 in Canada under Health Canada CTAs, and we intend to submit IND applications to the FDA to initiate Phase 3 trials in the United States upon their completion. There is no guarantee that the FDA will accept data from these foreign Phase 1/2 trials as sufficient to support a U.S. Phase 3 start. The FDA may require us to conduct additional bridging studies or repeat Phase 1/2 trials within the United States, which would prevent us from initiating Phase 3 trials on our expected timeline. Moreover, we cannot be sure that submission of a CTA or IND will result in allowing the start of clinical trials, or that, once begun, issues will not arise that suspend or terminate clinical trials. Additionally, even if such regulatory authorities agree with the design and implementation of the clinical trials set forth in an application, we cannot guarantee that such regulatory authorities will not change their requirements in the future. These considerations also apply to new clinical trials we may submit as amendments to a new application. Any failure to file a clinical trial application on the timelines we expect or to obtain regulatory approvals for our trials may prevent us from completing our clinical trials or commercializing our drug candidates on a timely basis, if at all.

As a company, we have no previous experience in completing clinical trials, and navigating and complying with the related regulatory requirements, including with respect to the submission of a New Drug Application, or NDA, or equivalent submission. We have not yet demonstrated our ability to independently conduct late-stage clinical development and obtain regulatory approval. To execute on our business plan, we will need to successfully reach agreement with multiple regulatory agencies on clinical and preclinical studies required for registration, execute our clinical development and manufacturing plans; and manage our spending as costs and expenses increase due to clinical trials, and regulatory approvals. If we are unsuccessful in accomplishing these objectives, we will not be able to develop any future drug candidates independently and could fail to realize the potential advantages of doing so.

We intend to use our drug discovery and development platform to build a pipeline of drug candidates and progress these drug candidates through clinical development for the treatment of a variety of diseases and medical conditions. As of the date of this report, our research and development efforts have resulted in a pipeline of drug candidates targeting various conditions and diseases; however, we may not be able to develop drugs that are safe and effective. In addition, although we expect that our platform will allow us to develop further drug candidates, we may not prove to be successful at doing so. Even if we are successful in continuing to build our pipeline, the potential drug candidates that we identify may not be suitable for clinical development, including as a result of being shown to have harmful side effects or other characteristics that indicate that they are unlikely to be drugs that will receive marketing approval and achieve market acceptance. If we do not continue to successfully develop and begin to commercialize drug candidates, we will face difficulty in obtaining drug revenue in future periods, which could result in significant harm to our financial position and adversely affect our share price.

All of our drug candidates are required to undergo ongoing safety testing in humans as part of clinical trials. Unforeseen side effects from any of our drug candidates could arise either during clinical development or, if approved by regulatory authorities, after the approved drug has been marketed. Even if we believe that our clinical trials and preclinical studies demonstrate the safety and efficacy of our drug candidates, only the relevant health authority and regulatory agencies may ultimately make such determination. If any of our drug candidates receive marketing approval and we or others later identify undesirable or unacceptable side effects caused by such drugs: - regulatory authorities may require us to take our approved drug off the market;- regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians and pharmacies, or impose a risk evaluation and mitigation strategy that includes restrictions and conditions on drug product distribution, prescribing and/or dispensing;- we may be required to change the way the drug is administered, conduct additional clinical trials or change the labeling of the drug;- we may be subject to limitations on how we may promote the drug;- sales of the drug may decrease significantly;- we may be subject to litigation or product liability claims; and - our reputation may suffer. Any of these events could prevent us or our current or future partners from achieving or maintaining market acceptance of the affected drug or could substantially increase commercialization costs and expenses, which in turn could delay or prevent us from generating revenue from the sale of any future drugs.

Before obtaining regulatory approval for the commercial distribution of our drug candidates, we must conduct, at our own expense, extensive preclinical tests and clinical trials to demonstrate the safety and efficacy of our drug candidates in humans. Preclinical and clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. Additionally, the results from non-clinical testing or early clinical trials of a drug candidate may not predict the results that will be obtained in subsequent human clinical trials of that drug candidate. There is a high failure rate for drugs proceeding through clinical studies. In our pipeline updates, we may outline our belief that preclinical data of our clinical programs support a potential ‘first-in-class' or ‘best-in-class' profile. However, these designations and the scientific rationale supporting them are contingent upon the replication of preclinical findings in human clinical trials. For instance, although small molecules have validated the target for ABCL635, our antibody candidate faces distinct scientific considerations and may fail to demonstrate sufficient target engagement to achieve comparable therapeutic efficacy. If our clinical trials fail to support the 'first-in-class' or 'best-in-class' profiles we have disclosed, our business and valuation would be materially adversely affected. Alternatively, management may elect to discontinue development of certain drug candidates to accommodate a shift in corporate strategy, despite positive clinical results. Based on our operating results and business strategy, among other factors, we may discontinue the development of any of our drug candidates under development or reprioritize our focus on other drug candidates at any time and at our discretion. Additionally, because we have limited financial and managerial resources, we focus on research programs, our drug discovery and development platform and drug candidates that we identify for specific indications. As a result, we may forgo or delay pursuit of opportunities with other drug discovery and development capabilities or drug candidates or for other indications that later prove to have greater commercial potential. If we do not accurately evaluate the commercial potential or target market for a particular drug candidate, we may relinquish valuable rights to that drug candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights.

Patient enrollment is a significant factor in the timing of clinical trials and is affected by many factors including the size and nature of the patient population, the proximity of subjects to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, ability to obtain and maintain patient consents, risk that enrolled subjects will drop out before completion, competing clinical trials, and clinicians' and patients' perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved or developed for the indications we are investigating. If we, or any of our partners that perform clinical tests for our drug candidates, are unable to enroll a sufficient number of patients to complete clinical testing, we will be unable to gain marketing approval for such drug candidates and our business will be harmed. In addition, the U.S. federal Right to Try Act ("RTA"), provides a federal framework for patients to access certain investigational new drug candidates that have completed a Phase 1 clinical trial. Similarly, Health Canada's special access program ("SAP") provides a similar pathway for eligible Canadian patients. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining approval from the relevant health authority under the authority's expanded access program. While there is no obligation to make drug candidates available to eligible patients as a result of these programs (e.g., RTA and SAP), new and emerging legislation regarding expanded access to unapproved drugs could negatively impact enrollment in our clinical trials and our business in the future.

Our future operating results are dependent in part on our ability to successfully discover, develop, obtain regulatory approval for, and commercialize drug candidates. A drug candidate can unexpectedly fail at any stage of preclinical and clinical development. Our investments in our early-stage research and development efforts may not yield any promising drug candidates. Even if our research and development efforts yield drug candidates that advance into clinical studies, the historical failure rate for drug candidates is high due to risks relating to safety, efficacy, clinical execution, changing standards of medical care, and other unpredictable variables. The results from preclinical testing or early clinical trials of a drug candidate may not be predictive of the results that will be obtained in later stage clinical trials of the drug candidate. The success of drug candidates we may develop will depend on many factors, including the following: - generating sufficient data to support the initiation or continuation of clinical trials;- obtaining regulatory permission to initiate clinical trials;- contracting with the necessary parties to conduct clinical trials;- successful enrollment of patients in, and the completion of, clinical trials on a timely basis;- the timely manufacture of sufficient quantities of the drug candidate for use in clinical trials; and - adverse events in the clinical trials. Even if we successfully advance drug candidates into clinical development, their success will be subject to all of the clinical, regulatory, and commercial risks described elsewhere in this "Risk Factors" section. Accordingly, we may never be able to discover, develop, obtain regulatory approval of, commercialize, or generate significant revenue from drug candidates.

We have not previously submitted an application seeking approval for a drug based on antibodies that we have discovered. An application for approval (e.g. biologics license application ("BLA")) must include extensive preclinical and clinical data and supporting information to establish the drug candidate's safety and efficacy for each desired indication. The application for approval must also include significant information regarding the manufacturing controls for the drug. Even if we eventually complete clinical testing and receive approval of any regulatory filing for our drug candidates, the regulatory authority may approve our drug candidates for a more limited indication or a narrower patient population than we originally requested. We may experience delays in future preclinical studies or clinical trials, and we do not know whether future preclinical studies or clinical trials will begin on time, need to be redesigned, enroll an adequate number of patients on time or be completed on schedule, if at all. Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during clinical development, and, because our drug candidates are in an early stage of development, there is a high risk of failure and we may never succeed in developing marketable drugs. The results of preclinical studies and early clinical trials of our drug candidates may not be predictive of the results of later-stage clinical trials, particularly because early trials have smaller numbers of subjects tested. In addition, it is not uncommon for drug candidates to exhibit unforeseen safety or efficacy issues, such as immunogenicity, when tested in humans despite promising results in preclinical animal models. Any clinical trials that we may conduct may not demonstrate the safety and efficacy profiles necessary to obtain regulatory approval to market our drug candidates. As we continue developing our drug candidates, serious adverse events, undesirable side effects, or unexpected characteristics may emerge, causing us to abandon these drug candidates or limit their development to more narrow uses or subpopulations in which the risk-benefit ratio is more acceptable. Patients treated with our drug candidates may experience side effects or adverse events that are unrelated to our drug candidates but may still impact the success of our clinical trials. The inclusion of patients with significant co-morbidities in our clinical trials may result in deaths or other adverse medical events due to an underlying condition or other therapies or medications that such patients may be using. Any of these events could prevent us from obtaining regulatory approval or achieving or maintaining market acceptance and impair our ability to commercialize our drug candidates. In some instances, there can be significant variability in safety and efficacy results between different clinical trials of the same drug candidate due to a variety of factors, including, but not limited to, changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the clinical trial protocols, and the rate of dropout among clinical trial participants. The commencement or completion of these planned clinical trials could be substantially delayed or prevented by many factors, including: - further discussions with the relevant health or regulatory authorities regarding the scope or design of our clinical trials;- the limited number of, and competition for, suitable sites to conduct our clinical trials, many of which may already be engaged in other clinical trial programs, including some that may be for the same indication as our drug candidates;- any delay or failure to obtain approval or agreement to commence a clinical trial in any of the countries where enrollment is planned;- inability to obtain sufficient funds required for a clinical trial;- clinical holds on, or other regulatory objections to, a new or ongoing clinical trial;- delay or failure to manufacture sufficient supplies of the drug candidates for our clinical trials;- delay or failure to reach agreement on acceptable clinical trial agreement terms or clinical trial protocols with prospective sites or contract research organizations ("CROs"), the terms of which can be subject to extensive negotiation and may vary significantly among different sites or CROs;- delay or failure to obtain approval from the relevant human subjects review board (e.g., institutional review board or research ethics boards) to conduct a clinical trial in humans at a prospective site;- slower than expected rates of patient recruitment and enrollment;- failure of patients to complete the clinical trial;- the inability to enroll a sufficient number of patients in studies to ensure adequate statistical power to detect statistically significant treatment effects;- unforeseen safety issues, including severe or unexpected drug-related adverse effects experienced by patients, including possible deaths;- lack of efficacy during clinical trials;- termination of our clinical trials by one or more clinical trial sites;- inability or unwillingness of patients or clinical investigators to follow our clinical trial protocols;- inability to monitor patients adequately during or after treatment by us or our CROs;- our CROs or clinical study sites failing to comply with the trial protocol or regulatory requirements or meet their contractual obligations to us in a timely manner, or at all, deviating from the protocol or dropping out of a study;- the inability to address any noncompliance with regulatory requirements or safety concerns that arise during the course of a clinical trial;- third-party contractors becoming debarred or suspended or otherwise penalized by the relevant health authorities for violations of applicable regulatory requirements;- delays in the testing, validation, manufacturing and delivery of our drug candidates to the clinical trial sites, including due to a facility manufacturing any of our drug candidates or any of their components being ordered by the relevant health authorities to temporarily or permanently shut down due to violations of cGMP regulations or other applicable requirements, or cross-contaminations of drug candidates in the manufacturing process;- the need to repeat or terminate clinical trials as a result of inconclusive or negative results or unforeseen complications in testing;- our clinical trials may be suspended or terminated upon a breach or pursuant to the terms of any agreement with, or for any other reason by, current or future partners that have responsibility for the clinical development of any of our drug candidates; and - receiving untimely or unfavorable feedback from applicable regulatory authorities regarding the trial or requests from regulatory authorities to modify the design of a trial. We could also experience delays in physicians enrolling patients in clinical trials of our drug candidates in lieu of prescribing existing treatments or other clinical trials. Furthermore, a clinical trial may be suspended or terminated by us, the relevant human subjects review board for the institutions in which such trials are being conducted, the Data Monitoring Committee for such trial, or by the relevant health authorities due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the relevant health authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug candidate, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. If we experience termination of, or delays in the completion of, any clinical trial of our drug candidates, the commercial prospects for our drug candidates will be harmed, and our ability to generate drug revenue will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our drug development and approval process and jeopardize our ability to commence drug sales and generate revenue. Securing regulatory approval also requires the submission of information about the manufacturing processes and inspection of manufacturing facilities by the relevant regulatory authority. The relevant health authorities may reject our manufacturing processes or facilities, whether run by us or our contract manufacturing organizations. In addition, if we make manufacturing changes to our drug candidates in the future, we may need to conduct additional preclinical and/or clinical studies to bridge our modified drug candidates to earlier versions. Changes in regulatory requirements, policies and guidelines may also occur and we may need to significantly amend clinical trial protocols to reflect these changes with appropriate regulatory authorities. These changes may require us to renegotiate terms with CROs or resubmit clinical trial protocols to the relevant human subjects review board for re-consideration, which may impact the costs, timing or successful completion of a clinical trial. In addition, even if the trials are successfully completed, clinical data are often susceptible to varying interpretations and analyses, and we cannot guarantee that the relevant health authorities will interpret the results as we do, and more trials could be required before we submit our drug candidates for approval. We cannot guarantee that the relevant health authorities will view any of our drug candidates as having adequate safety and efficacy profiles even if favorable results are observed in these clinical trials, and we may receive unexpected or unfavorable feedback from the relevant health authorities regarding satisfaction of safety, purity, and potency (including clinical efficacy), amongst other factors. To the extent that the results of the trials are not satisfactory to the relevant health authorities for support of a marketing application, approval of our drug candidates may be significantly delayed, or we may be required to expend significant additional resources, which may not be available to us, to conduct additional trials in support of potential approval of our drug candidates.