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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are a generative AI drug creation company harnessing deep learning and synthetic biology to expand the therapeutic potential of proteins. We leverage our Integrated Drug Creation platform to identify novel drug targets and create encouraging biotherapeutic candidates. We believe our approach enables us, and our partners, to develop novel biologics that are optimized for many traits at disruptive speed.

We couple our powerful deep learning AI models, built to understand and predict determinants of protein function, with our proprietary synthetic biology capabilities, which include high-throughput single-cell assays that can evaluate billions of drug sequence variants, each within its production cell line, for target binding affinity, protein quality, and production level (titer). This combination of in silico modeling with wet lab testing allows us to generate immense real-world datasets that we harness to train and refine our deep learning models. These models guide our protein and cell line designs and enable in silico optimization of multiple attributes. Our target platform technology (formerly “Totient”) uses machine learning computational methods to evaluate patient tissue samples and, without biological bias, identify disease-relevant fully human antibodies and their disease- and tissue-specific molecular targets. In addition to the direct utility of these antibodies and targets as drug discovery assets, these data comprising antibody-epitope recognition elements expand our AI models’ training sets and may improve predictive capabilities for future discovery campaigns.

Through iterative AI predictions, wet lab validation, and AI training, we enable a virtuous cycle that we believe will accelerate us toward fully in silico biologic drug discovery. Our unique Integrated Drug Creation approach has the potential to significantly shorten preclinical development timelines and expand therapeutic possibilities.

Our goal is to become the technology leader in biologic drug creation. Our business model is to use our platform for the rapid creation of biologic drug candidates by:

Establishing partnerships with stakeholders in the drug development life cycle: We develop drug candidates for partners, including those who are responsible for preclinical and clinical testing of biologics generated by our platform. Our partnerships will provide us with the opportunity to participate in the future success of the biologics generated utilizing our platform, through potential clinical, regulatory and commercial milestone payments as well as royalties on net sales of approved products. We aim to assemble economic interests in a diversified portfolio of partners’ biologics across multiple indications.

Developing our own drug discovery pipeline: We intend to develop drug candidates for our own drug discovery pipeline. With the ability to find both targets and lead candidates, we intend to develop promising lead candidates to up to the investigational drug application IND stage or later. This will increase the value of our assets and serve as further validation of our platform. We may enter into clinical trials and/or manufacturing partnerships to advance a lead candidate.

Total revenue was $5.7 million for the year ended December 31, 2022, respectively, compared to $4.8 million for the year ended December 31, 2021, due to timing of project-based milestones achieved and the mix of ongoing programs utilizing our Integrated Drug Creation platform. Throughout 2021 and 2022, we have continued making investments in our operating capacity which has enabled us to achieve additional project-based milestones in our technology development and partnership agreements. Since our inception in 2011, we have devoted substantially all of our resources to research and development activities, including with respect to our Integrated Drug Creation platform, establishing and maintaining our intellectual property portfolio, hiring personnel, raising capital and providing general and administrative support for these activities. As a result, we have incurred net losses in each year. For the years ended December 31, 2022 and 2021, we incurred net losses of $104.9 million and $101.0 million, respectively. Research and development expenses increased by $14.3 million, or 32%, for the year ended December 31, 2022 compared to the year

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ended December 31, 2021. As of December 31, 2022, we had an accumulated deficit of $295.9 million and cash and cash equivalents and short-term investments totaling $164.4 million.

Prior to our initial public offering (IPO), we financed our operations primarily through private placements of redeemable convertible preferred stock and convertible notes. From the date of our company formation up to the IPO, we had raised aggregate gross proceeds of $230.0 million. In July 2021, we consummated our IPO and issued 14,375,000 shares of common stock, including a full exercise of the overallotment option, for net proceeds of $210.1 million, after deducting underwriting discounts and offering related expenses.

We expect to continue to incur significant expenses in connection with our ongoing activities, including as we:

•implement an effective business development strategy to drive adoption of our Integrated Drug Creation platform by new and existing partners;

•continue to engage in research and development efforts and scale our technology development activities to meet potential demand at a reasonable cost;

•develop, acquire, in-license or otherwise obtain technologies that enable us to expand our platform capabilities;

•attract, retain and motivate highly qualified personnel;

•implement operational, financial and management information systems; and

•continue to operate as a public company.

Our corporate headquarters and primary research and development facilities are located in Vancouver, Washington in a 77,974 square foot facility that includes general administrative office space and laboratory space. Our AI Research Lab is located in New York, New York and our Innovation Center is located in Zug, Switzerland. Additionally, we have research and development presence in Belgrade, Serbia. We believe our facilities are adequate and suitable for our current needs and that should it be needed, suitable additional or alternative space will be available to accommodate our operations.

Key Factors Affecting Our Results of Operations and Future Performance

We believe that our future financial performance will be primarily driven by multiple factors as described below, each of which presents growth opportunities for our business. These factors also pose important challenges that we must successfully address in order to sustain our growth and improve our results of operations. Our ability to successfully address these challenges is subject to various risks and uncertainties, including those described in the section of this Annual Report titled “Risk Factors”.

•Establish new partnerships: Our potential to grow revenue and long-term earnings will require us to successfully identify and establish technology development arrangements with new partners. We have been expanding and expect to continue to expand our business development team and our capabilities to find new partners.

•Increase the number of programs under existing partnerships: The execution of our long-term strategy relies substantially on the value our partners believe can be recognized from our programs. Our continued growth depends on our ability to expand the scope of our existing partnerships and add new molecules for Discovery or CLD partnerships with current partners.

•Successfully complete our technology development activities and enter licensing arrangements with our partners:Our business model depends upon entering into licensing arrangements with our partners to advance the drug candidates which we generate through clinical development to commercialization. Both our ability to successfully complete technology development activities to meet the needs of a partner, and the partner’s prioritization of the subject program, impact the likelihood and timing of any election by a partner to enter into a licensing arrangement. There is no assurance that a partner will elect to license.

•Our partners successfully developing and commercializing the drug candidates generated with our technology: Our business model is dependent on the eventual progression of biologic drug candidates discovered or initially developed utilizing our Integrated Drug Creation platform into

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clinical trials and commercialization. Given the nature of our relationships with our partners, we do not control the progression, clinical development, regulatory strategy, public disclosure or eventual commercialization, if approved, of these product candidates. As a result, our future success and our potential eligibility to receive milestone payments and royalties are entirely dependent on our partners’ efforts over which we have no control. The timing and scope of any approval that may be required by the U.S. Food and Drug Administration (FDA), or any other regulatory body, for drugs that are developed based on molecules discovered and/or manufactured using our Integrated Drug Creation platform technologies can significantly impact our results of operations and future performance.

•Continued significant investments in our research and development of new technologies and platform expansion: We are seeking to further refine and expand our platform and the scope of our capabilities, which may or may not be successful. This includes, but is not limited to, novel target identification, de novo discovery, incorporation of non-standard amino acids (Bionic protein creation), and application of artificial intelligence across our Integrated Drug Creation platform. We may also invest significantly in developing our own proprietary lead drug candidates and advancing them through preclinical or later validation. We expect to incur significant expenses to advance these research and development efforts or to invest in or acquire complementary technologies, but these efforts may not be successful.

•Create our proprietary asset pipeline. We intend to selectively create our own lead drug candidates and advance them up to the IND stage or later. In some cases we may out-license or transfer drug candidates for clinical advancement by a partner, with the expectation of a greater share in the economics relative to the milestones and royalties we may secure for our core platform technology development licenses.

•Drive commercial adoption of our Integrated Drug Creation platform capabilities: Driving the adoption of our Integrated Drug Creation platform across existing and new markets will require significant investment. We plan to further invest in research and development to support the expansion of our platform capabilities including new molecules to existing partners or help deliver our platform to new markets.

Key Business Metrics

We continue to identify key business metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions. Currently, given our stage of development, we believe that the following metrics are the most important for understanding our current business trajectory. These metrics may change or may be substituted for additional or different metrics as our business develops. For example, as our business matures and to the extent drug candidates generated with our technologies enter clinical development, or as we may enter partnerships addressing programs over multiple years, or as certain programs may be discontinued by partners, we anticipate updating these metrics to reflect such changes.

December 31, December 31,

Partners, Cumulative (1) 19 18

Programs, Cumulative (2) 47 34

(1) Partners represents the unique number of partners with whom we have executed technology development agreements. We view this metric as an indication of our ability to execute our business development activities and level of our market penetration.

(2) Programs represents the number of molecules we have addressed or are addressing with our platform. We view this metric as an indication of the robustness of our technology and the commercial success of our platform.

(3) Active Programs represents the number of programs that are subject to ongoing technology development activities intended to determine if the program can be pursued by our partner for future clinical

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development, as well as any program for which our partner obtains and maintains a license to our technology to advance the program after completion of the technology development phase. There is no assurance, however, that our partners will advance any drug candidates that are currently the subject of Active Programs into further preclinical or clinical development or that our partners will elect to license our technologies upon completion of the technology development phase in a timely manner, or at all. In light of the inherent risks and uncertainties associated with drug development, we anticipate that our partners may from time to time abandon or terminate the development of one or more drug candidates generated from our platform. As we are notified of such terminations, we will remove the subject programs from our Active Programs count.

As of December 31, 2022, we had drug candidates in 16 Active Programs across five current partners’ preclinical or clinical pipelines. We have negotiated license agreements, or expect to negotiate license agreements upon completion of certain technology development activities, with potential downstream milestone payments and royalties for all Active Programs.

We have thirteen Active Programs comprising Discovery applications include three through our agreement with Merck & Co., Inc., three through our agreement with EQRx and seven with an undisclosed biotechnology company. Three Active Programs are focused on developing production cell lines for drug candidates that our partners are developing. Two of these cell line development (“CLD”) Active Programs are preclinical and one is in Phase 3 (PhaseBio Pharmaceuticals’ drug candidate, bentracimab, assumed by SFJ Pharmaceuticals, Inc. in January 2023).

Exclusive of our 16 Active Programs with partners, we have utilized our platform to perform technology development activities related to 31 additional molecules. These programs include both internal research programs and technology development programs with third parties intended to demonstrate our platform’s capabilities as we address successively broader ranges of biologics and modalities. We have not transferred technology or granted licenses related to these programs.

We have not negotiated terms for a sufficient number of royalty- and milestone-bearing licenses to enable us to make accurate predictions regarding our potential revenue and financial performance.

Components of Results of Operations

Revenue

Our revenue currently consists primarily of fees earned from our partners in conjunction with technology development agreements (TDAs) and partnership agreements, which are delineated as technology development revenue in our results of operations. These fees are earned and paid at various points throughout the terms of these agreements including upfront, upon the achievement of specified project-based milestones, and throughout the program.

We expect revenue to increase over time as we enter into additional partnership agreements and as our partnerships continue to include more drug discovery activities. We expect revenue to increase over time as we grant licenses to our partners for the clinical and commercial use of intellectual property rights to the biological assets we create, and as the partners advance product candidates into and through clinical development and commercialization. We expect that our revenue will fluctuate from period to period due to the timing of executing additional partnerships, the uncertainty of the timing of milestone achievements and our dependence on the program decisions of our partners.

KBI BioPharma, Inc. Collaboration Agreement

In December 2019, we executed a four-year Joint Marketing Agreement (JMA) with KBI BioPharma, Inc. (KBI) to co-promote technologies through joint marketing efforts. In September 2021, the JMA was amended to shorten the term to approximately three years, ending in October 2022. Pursuant to the JMA, we received a non-refundable upfront payment of $0.8 million and milestone and other payments of $2.6 million in the aggregate, which had been received as of December 31, 2022, upon the achievement of specific milestones.

Operating Expenses

Research and Development

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functions, consulting fees, equipment and allocated facility costs (including occupancy and information technology). These expenses are exclusive of depreciation and amortization. Research and development activities consist of continued development of our Integrated Drug Creation platform, internal pipeline, target discovery and technology development for partners. We derive improvements to our platform from each type of activity. Research and development efforts apply to our platform broadly and across programs.

We expect research and development expenses to continue to increase in absolute dollars over the long-term as we enter into additional partnerships and continue to invest in platform enhancements.

Selling, General, and Administrative

Selling, general, and administrative expenses include personnel-related costs (comprised of salaries, benefits and share-based compensation) for executive, business development, alliance management, legal, finance, marketing and other administrative functions. Marketing and business development expenses include costs associated with attending conferences and all promotion efforts of our Integrated Drug Creation platform. Professional service expenses such as external legal expenses, accounting and tax service expenses, and other consultants, and allocated facilities costs (including occupancy and information technology) are also included within selling, general and administrative expenses. These expenses are exclusive of depreciation and amortization.

We expect our selling costs to increase in absolute dollars as we continue to grow our business development efforts and increase marketing activities to drive awareness and adoption of our platform. We expect selling costs to fluctuate as a percentage of total revenue due to the timing and magnitude of these expenses, and to decrease as a percentage of total revenue in the long term.

We expect general and administrative expenses to stabilize as we more effectively control costs associated with operating as a public company, including expenses related to legal, accounting, regulatory, maintaining compliance with exchange listing and requirements of the U.S. Securities and Exchange Commission (SEC), director and officer insurance premiums and investor relations. We expect these expenses to vary from period to period as a percentage of revenue in the near term, and to decrease as a percentage of revenue in the long term.

We have a comprehensive intellectual property portfolio directed towards the many aspects of our Integrated Drug Creation platform, including those related to our proprietary cell lines and protein expression technologies, non-standard amino acid technology, proprietary screening assays, antibody discovery methods, and generative AI models. We regularly file patent applications to protect innovations arising from our research and development. We also hold trademarks and trademark applications in the United States and foreign jurisdictions. Costs to secure and defend our intellectual property are expensed as incurred and are classified as selling, general and administrative expenses.

Depreciation and amortization

Depreciation and amortization expense consists of the depreciation expense of our property and equipment and amortization of our intangibles. Our equipment is used most actively as part of our lab operations.

We expect depreciation expense to stabilize following the completion of the build-out of our primary facility, though it may fluctuate in the future in line with continued growth and compute demands in absolute dollars if we purchase additional equipment.

Other Income (Expense)

Interest Expense

Interest expense, net, consists primarily of interest related to borrowings under our term debt and financed laboratory equipment. Prior to our initial public offering in 2021, interest expense also included convertible note interest.

Other Income (Expense)

Other income (expense) consists primarily of interest income from our investments. Prior to our initial public offering in 2021, other income (expense) also included adjustments of our convertible notes and preferred stock warrant liability to fair value.

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Results of Operations

The results of operations presented below should be reviewed in conjunction with our consolidated financial statements and notes included elsewhere in this Annual Report. The following tables set forth our results of operations for the periods presented (In thousands):

For the Years Ended December 31,

Revenues

Technology development revenue $ 4,529 $ 4,009

Operating expenses

Other income (expense)

Total other income (expense), net 1,385 (34,621)

Comparison of the Years Ended December 31, 2022 and 2021

The following table summarizes our results of operations for the years ended December 31, 2022 and 2021 (In thousands, except for percentages):

Revenue

For the Years Ended December 31,

Revenues

Total revenue was $5.7 million for the year ended December 31, 2022, representing an increase of approximately $1.0 million, or 20%, compared to $4.8 million for the year ended December 31, 2021.

Technology development revenue increased by $0.5 million, or 13%, for the year ended December 31, 2022 compared to the year ended December 31, 2021, driven by a combination of overall program progress, the timing of project-based milestones achieved, and the mix of ongoing programs activity, most significantly the result of progress and milestone achievement associated with our Merck partnership utilizing our non-standard amino acid technology.

Collaboration revenue increased by $0.4 million, or 58%, for the year ended December 31, 2022 compared to the year ended December 31, 2021. In September 2021, the JMA was amended to shorten the term to approximately three years, ending in October 2022.

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Operating Expenses

The following table summarizes our operating expenses for the years ended December 31, 2022 and 2021 (In thousands, except for percentages):

For the Years Ended December 31,

Operating expenses

Research and development

Research and development expenses increased by $14.3 million, or 32%, for the year ended December 31, 2022 compared to the year ended December 31, 2021. The increase was generally driven by increased costs associated with increased technology development activity with our partners and increased costs associated with continued platform development. These increased costs were primarily attributable to increased average headcount and related personnel costs in the amount of $7.0 million and increased purchases of supplies and services related to lab operations of $7.9 million specifically for our technology development agreements and internal research and platform development activities, offset by a $0.7 million decrease in facility overhead.

Selling, General and Administrative Expenses

Selling, general, and administrative expenses increased by $11.8 million, or 41%, for the year ended December 31, 2022 compared to the year ended December 31, 2021. The increase was primarily driven by increased personnel costs in the amount of $3.4 million, increased stock-based compensation of $2.0 million, and increased administrative costs of $6.5 million. The increases in the administrative expenses include professional services, insurance costs, and other expenses that are primarily the result of our operating as a public company for a full year.

Depreciation and amortization

Depreciation and amortization expense increased by $6.4 million, or 96%, for the year ended December 31, 2022 compared to the year ended December 31, 2021. The increase was primarily due to the increased purchases of lab equipment necessary to complete our increased level of technology development agreements and research and development, purchases of property, equipment, and leasehold improvements related to our new corporate headquarters, and the amortization of intangible assets acquired in 2021.

Other Income (Expense)

The following table summarizes our other income (expense) for the years ended December 31, 2022 and 2021 (In thousands, except for percentages):

For the Years Ended December 31,

Other income (expense)

Interest Expense

Interest expense was $1.0 million for the year ended December 31, 2022 compared to $3.4 million for the year ended December 31, 2021, representing a decrease of $2.4 million, or 72%. During the year ended December 31, 2021, we recognized interest expense related to the convertible promissory notes issued in March 2021.

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These notes converted into common stock in connection with the IPO in July 2021, resulting in decreased interest expense for the year ended December 31, 2022.

Other income (expense), net

Other income (expense), net, was $2.4 million income for the year ended December 31, 2022 compared to $31.2 million expense for the year ended December 31, 2021, representing a change of $33.5 million, or 108%. For the year ended December 31, 2021, other income included the adjustment of the fair value of our convertible notes for $28.0 million, and the change in the preferred stock warrant liability’s fair value in the amount of $4.1 million, offset by recognition of a gain on extinguishment for the forgiveness of our Payroll Protection Plan loan in the amount of $0.6 million. For the year ended December 31, 2022, other income primarily included interest income.

Liquidity and Capital Resources

Overview

As of December 31, 2022, we had $164.4 million of cash and cash equivalents and short-term investments.

We have incurred net operating losses since inception. As of December 31, 2022, our accumulated deficit was $295.9 million. To date, we have funded operations through issuances and sales of equity securities and debt, in addition to revenue generated from our technology development agreements. We believe that our cash and cash equivalents and short-term investments will be sufficient to meet our operating expenses, working capital and capital expenditure needs over at least the next 12 months following the date of this filing.

Our future capital requirements will depend on many factors, including, but not limited to our ability to raise additional capital through equity or debt financing, our ability to successfully secure additional partnerships under contract with new partners and increase the number of programs covered under contracts with existing partners, the successful preclinical and clinical development by our partners of product candidates generated using our Integrated Drug Creation platform and the successful commercialization by our partners of any such product candidates that are approved. If we are unable to execute on our business plan and adequately fund operations, or if our business plan requires a level of spending in excess of cash resources, we may be required to negotiate partnerships in which we receive greater near-term payments at the expense of potential downstream revenue. Alternatively, we may need to seek additional equity or debt financing, which may not be available on terms acceptable to us or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants restricting our ability to take specific actions, such as incurring additional debt, selling or licensing our assets, making product acquisitions, making capital expenditures, or declaring dividends. If we are unable to generate sufficient revenue or raise additional capital when desired, our business, financial condition, results of operations and prospects would be adversely affected.

Sources of Liquidity

Since our inception, we have financed our operations primarily from the issuance and sale of our redeemable convertible preferred stock, issuances of equity securities, borrowings under long-term debt agreements, and to a lesser extent, cash flow from operations.

Redeemable convertible preferred stock

Prior to our IPO in July 2021, we had raised a total of $104.3 million from the issuance of redeemable convertible preferred stock, net of issuance costs, which included shares of Series E redeemable convertible preferred stock for net proceeds of $4.9 million in February 2021. Immediately prior to our IPO in July 2021, all convertible preferred stock was converted into an aggregate of 46,266,256 shares of common stock.

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Bridge Bank Loan and Security Agreement

In June 2018, we entered into a Loan and Security Agreement (LSA) with Bridge Bank (Bank), a division of Western Alliance Bank. We initially borrowed the first tranche of $0.3 million in June 2018. We increased our borrowings to $3.0 million in March 2019, and to $5.0 million in May 2020. The loan was to mature in May 2022, at which time all outstanding principal and accrued and unpaid interest would have been due and payable. In June 2021, we entered into a fifth amendment to the LSA. This amendment modified the term loan’s maturity date to June 16, 2023. This loan was secured by substantially all our tangible assets; intellectual property were excluded from this secured collateral, but was subject to a negative pledge in favor of Bank. In June 2022, we paid off the remaining outstanding balance of $2.4 million of the LSA, which terminated the LSA and extinguished all of our obligations therein.

Convertible notes

In March 2021, we issued $125.0 million aggregate principal amount of convertible notes to certain existing and new investors. In July 2021, the convertible notes converted into an aggregate of 9,732,593 shares of common stock immediately prior to our IPO, at a price per share calculated based on 82% of the IPO price of $16.00.

Initial Public Offering

In July 2021, we completed our IPO and issued 14.4 million shares of our common stock, including 1.9 million shares pursuant to the full exercise of the underwriters’ option to purchase additional shares, at a price of $16.00 per share and received net proceeds of $210.1 million from the IPO.

Equipment Financing

In 2022, we received a total of $12.0 million of proceeds from equipment financing arrangements. Terms of the agreements require monthly payments over 42-48 month periods with imputed interest rates ranging from 8%-10%. As of December 31, 2022, the combined outstanding balance on these agreements is $10.9 million.

Shelf Registration Statement on Form S-3

On August 24, 2022, we filed a shelf registration statement on Form S-3 (the Shelf Registration Statement) with the SEC relating to the registration of up to an aggregate of $250.0 million in shares of our common stock, preferred stock, debt securities, warrants and units or any combination thereof. The Shelf Registration Statement was declared effective by the SEC on September 2, 2022. To date, we have not issued any securities or received any proceeds from the sale of any securities registered pursuant to the Shelf Registration Statement.

Cash Flows

The following summarizes our cash flows (In thousands):

For the Years Ended December 31,

Net cash provided by (used in)

Cash Flows from Operating Activities

In the year ended December 31, 2022, net cash used in operating activities was $81.3 million and consisted primarily of a net loss of $104.9 million adjusted for non-cash items, including depreciation and amortization expense of $13.0 million, stock-based compensation of $12.5 million, and a net increase in operating assets and liabilities in the amount of $1.5 million.

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In the year ended December 31, 2021, net cash used in operating activities was $60.6 million and consisted primarily of a net loss of $101.0 million adjusted for non-cash items, including depreciation and amortization expense of $6.7 million stock-based compensation of $10.6 million, an increase to our convertible note liability of $30.7 million, an increase to our preferred stock warrant liability of $4.1 million, and a net increase in operating assets and liabilities in the amount of $3.1 million.

Cash Flows from Investing Activities

In the year ended December 31, 2022, net cash used in investing activities was $127.0 million. The net cash used resulted primarily from purchases of short-term investments of $108.6 million, purchases of lab equipment of $16.2 million, and cash paid as part of our acquisition of Totient of $8.0 million, partially offset by cash provided by maturities of short-term investments of $5.0 million.

In the year ended December 31, 2021, net cash used in investing activities was $67.4 million primarily from purchases of lab equipment and leasehold improvements of $38.0 million, cash paid as part of our acquisitions of Denovium and Totient of $28.1 million and an investment in equity securities of $1.2 million.

Cash Flows from Financing Activities

In the year ended December 31, 2022, net cash provided by financing activities was $5.2 million. The net cash provided resulted primarily from new equipment financing agreements of $12.0 million, partially offset by cash used for principal payments of $7.5 million made for financed equipment and long-term debt.

In the year ended December 31, 2021, net cash provided by financing activities was $336.2 million. The net cash provided resulted primarily from total net proceeds of $210.1 million from the IPO, the issuance of $125.0 million of convertible promissory notes and Series E redeemable convertible preferred stock, net of issuance costs, in the amount of $4.9 million, partially offset by principal payments made for financed equipment and long-term debt in the amount of $4.1 million.

Income taxes

Our effective income tax rate from continuing operations was 0.4% and 8.1% for the years ended December 31, 2022 and 2021, respectively. The difference between the effective rate and the statutory rate is primarily attributed to the change in the valuation allowance against net deferred tax assets.

We estimate an annual effective income tax rate based on projected results for the year and apply this rate to income before taxes to calculate income tax expense. When applicable, the income tax provision also includes adjustments for discrete tax items. Any refinements made due to subsequent information that affects the estimated annual effective income tax rate are reflected as adjustments in the current period.

Critical Accounting Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with United States Generally Accepted Accounting Principles (US GAAP). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in Note 2: Summary of Significant Accounting Policies to our financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates. Critical accounting policies and estimates are those that we consider the most important to the portrayal of our financial condition and results of operations because they require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of the matters that are inherently uncertain.

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Goodwill

Goodwill is tested for impairment on an annual basis in the fourth fiscal quarter, or sooner if an indicator of impairment exists. We may elect to first assess qualitative factors to determine whether it is more-likely-than-not that the fair value of goodwill at the reporting unit level is less than the carrying amount. The qualitative assessment includes our consideration of relevant events and circumstances that would affect our single reporting unit, including macroeconomic, industry and market conditions, our overall financial performance, and trends in the market price of our common stock.

We perform a qualitative assessment of goodwill at the reporting unit level by comparing the carrying amount to the estimated fair value of the reporting unit, including an estimated control premium. Assumptions are subject to change as a result of changing economic and competitive conditions. Based on our assessment in the fourth quarter of the fiscal year ended December 31, 2022 using the qualitative approach, we concluded that the fair value of the reporting unit exceeded the carrying value and that there was no impairment of goodwill.

Revenue recognition

We recognize revenue as control of our products and services are transferred to our customers in an amount that reflects the consideration expected to be received in exchange for those products and services. This process involves identifying the contract with a customer, determining the performance obligations in the contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing revenue when or as the performance obligations are satisfied. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. We consider a performance obligation satisfied once control of a good or service has been transferred to the customer, meaning the customer has the ability to use and obtain the benefit of the good or service. Technology development revenue includes revenue associated to the discovery, development and technology readiness phases of technology development and partnership agreements. We refer to our customers as “partners” when describing our relationship in an agreement.

Technology development revenue

Our TDAs generally include multiple phases of Discovery and/or CLD; such as target discovery, library design, assay development, strain screening, fermentation optimization, purification, and analytics that typically all represent a single performance obligation. These agreements may include options for additional goods and services such as readying the technology to transfer to the partner and licensing terms. The transaction prices for these arrangements include fixed and variable consideration for the single performance obligation as well as variable consideration for success-based achievements. Any variable consideration is constrained to the extent that it is probable that a significant reversal of cumulative revenue will not occur. Primarily all of our contracts with our partners include an enforceable right to payment. While there is no alternative use for the asset created, the agreement’s terms vary as to whether an enforceable right to payment exists for performance completed as of that date.

We measure progress toward the completion of the performance obligations satisfied over time using an input method based on an overall estimate of the effort incurred to date at each reporting period to satisfy a performance obligation. This method provides an appropriate depiction of completed progress toward fulfilling our performance obligations for each respective arrangement. In certain TDAs that require a portion of the contract consideration to be received in advance at the commencement of the contract, such advance payment is initially recorded as a contract liability.

Business combinations

We utilize the acquisition method of accounting for business combinations and allocate the purchase price of an acquisition to the various tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. We primarily establish fair value using the replacement cost approach or the income approach based upon a discounted cash flow model. The replacement cost approach measures the value of an asset by the cost to reconstruct or replace it with another of like utility. The income approach requires the

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use of many assumptions and estimates including future revenues and expenses, as well as discount factors and income tax rates. Other estimates include:

•The use of carrying value as a proxy for fair values of fixed assets and liabilities assumed from the target; and

•Fair values of intangible assets and contingent consideration.

While we use best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the business acquisition date, these estimates and assumptions are inherently uncertain and subject to refinement. As a result, during the purchase price measurement period, which is no more than one year from the business acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. We recorded adjustments during the year ended December 31, 2021 related to our Totient acquisition. Business combinations also require us to estimate the useful life of certain intangible assets acquired and this estimate requires significant judgment.

Stock-based compensation

Stock-based compensation includes compensation expense for restricted stock and stock option grants to employees and is measured on the grant date based on the fair value of the award and recognized on a straight-line basis over the requisite service period. The fair value of options to purchase common stock are measured using the Black-Scholes option-pricing model. We account for forfeitures as they occur.

See Note 12: Stock-based compensation to our financial statements included elsewhere in this Annual Report on Form 10-K for more information concerning certain of the specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our stock options. Certain of such assumptions involve inherent uncertainties and the application of significant judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our stock-based compensation could be materially different.

Emerging Growth Company Status

We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. Section 107 of the JOBS Act provides that an emerging growth company may take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933 for complying with new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. Section 107 of the JOBS Act provides that we can elect to opt out of the extended transition period at any time, which election is irrevocable. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

Subject to certain conditions, as an emerging growth company, we may rely on certain other exemptions and reduced reporting requirements, including without limitation (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board (PCAOB) regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the consolidated financial statements, known as the auditor discussion and analysis. We will remain an emerging growth company until the earlier of (a) the last day of the fiscal year in which we have total annual gross revenue of $1.235 billion or more; (b) December 31, 2026, the last day of the fiscal year following the fifth anniversary of the date of the completion of our IPO; (c) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (d) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

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Item 7A. Quantitative and Qualitative Disclosure About Market Risk

Inflation rates have increased during the periods covered by this Annual Report on Form 10-K, and macroeconomic factors are expected to continue to contribute to increased inflationary pressure for the near future. Inflationary factors, such as increases in the cost of labor, laboratory consumables, interest rates and other overhead costs may adversely affect our operating results. We cannot predict how long these inflationary pressures will continue, or how they might change over time, but we expect to see continued impacts on the global economy. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we have experienced some effect from inflation. If inflationary pressures continue to persist, they may have an adverse impact on our operating results.

We have exposure to interest rate risk that relates to our cash and cash equivalents and investments held in money market funds, U.S. Treasury securities, commercial paper and corporate securities. The primary objectives of our investment policy are liquidity and capital preservation. We believe that we do not have any material exposure to changes in the fair value of these assets as a result of changes in interest rates due to the short-term nature of our cash and cash equivalents and investments.

Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) 84

Consolidated Balance Sheets as of December 31, 2022 and 2021 85

Notes to the Consolidated Financial Statements 89

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Absci Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Absci Corporation (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, changes in redeemable convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the two years in the period ended December 31, 2022, and the related notes(collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2021

Seattle, Washington

March 30, 2023

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ABSCI CORPORATION

CONSOLIDATED BALANCE SHEETS

December 31, December 31,

(In thousands, except for share and per share data) 2022 2021

ASSETS

Current assets:

Short-term investments 104,476 —

Receivables under development arrangements, net 1,550 1,425

Prepaid expenses and other current assets 5,859 8,572

Operating lease right-of-use assets 5,319 6,538

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Long-term debt - net of current portion 7,984 1,124

Operating lease obligations - net of current portion 7,317 8,969

Finance lease obligations - net of current portion 750 3,231

Other long-term liabilities 35 12,162

Commitments (See Note 10)

STOCKHOLDERS' EQUITY

Accumulated other comprehensive loss (120) (13)

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 321,008 $ 426,195

The accompanying notes are an integral part of these consolidated financial statements.

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ABSCI CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

For the Years Ended December 31,

(In thousands, except for share and per share data) 2022 2021

Revenues

Technology development revenue $ 4,529 $ 4,009

Operating expenses

Other income (expense)

Total other income (expense), net 1,385 (34,621)

Cumulative undeclared preferred stock dividends — (2,284)

Net loss applicable to common stockholders $ (104,904) $ (103,244)

Comprehensive loss:

Foreign currency translation adjustments (66) (13)

Unrealized loss on investments (41) —

The accompanying notes are an integral part of these consolidated financial statements.

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ABSCI CORPORATION

STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’

EQUITY (DEFICIT)

Shares Amount Shares Amount

Issuance of restricted stock — — 703,425 — — — — —

Issuance of shares upon option exercise — — 153,416 — 169 — — 169

Stock-based compensation — — — — 9,932 — — 9,932

Conversion of warrant liability — — — — 4,822 — — 4,822

Foreign currency translation adjustments — — — — — — (13) (13)

Issuance of shares upon warrant exercise — — 307,211 — 93 — — 93

Repurchase and forfeiture of common stock — — (789,846) — — — — —

Foreign currency translation adjustments — — — — — — (66) (66)

Unrealized loss on investments — — — — — — (41) (41)

The accompanying notes are an integral part of these consolidated financial statements.

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ABSCI CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31,

Cash Flows From Operating Activities

Adjustments to reconcile net loss to net cash used in operating activities:

Change in fair value of convertible promissory notes — 30,722

Accretion of discount on short-term investments (688) —

Preferred stock warrant liability expense — 4,124

Changes in operating assets and liabilities:

Receivables under development arrangements (148) 230

Prepaid expenses and other current assets 2,382 (7,636)

Operating lease right-of-use assets and liabilities (640) 3,256

Other long-term assets 13 126

Accrued expenses and other liabilities (1,707) 581

Net cash used in operating activities (81,339) (60,598)

Cash Flows From Investing Activities

Purchases of property and equipment (16,175) (38,047)

Acquisitions, net of cash acquired (8,000) (28,130)

Investment in equity securities — (1,200)

Investment in short-term investments (108,590) —

Proceeds from maturities of short-term investments 5,000 —

Proceeds from sales of property and equipment 133 —

Proceeds from property insurance settlements 650 —

Net cash used in investing activities (126,982) (67,377)

Cash Flows From Financing Activities

Proceeds from issuance of long-term debt 12,031 —

Principal payments on long-term debt (4,651) (1,600)

Principal payments on finance lease obligations (2,799) (2,547)

Proceeds from issuance of common stock, net of issuance costs 656 210,396

Proceeds from issuance of convertible promissory notes — 125,000

Net cash provided by financing activities 5,237 336,193

Cash, cash equivalents and restricted cash - Beginning of year 279,926 71,708

Cash, cash equivalents, and restricted cash - End of period $ 76,842 $ 279,926

Supplemental Disclosure of Cash Flow Information

Cash paid during the period for interest $ 895 $ 652

Supplemental Disclosure of Non-Cash Investing and Financing Activities

Property and equipment purchased under finance lease — 4,313

Property and equipment purchases included in accounts payable 123 5,565

The accompanying notes are an integral part of these consolidated financial statements.

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ABSCI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.Organization and nature of operations

Absci Corporation (the “Company”) is a generative AI drug creation company harnessing deep learning and synthetic biology to expand the therapeutic potential of proteins. Absci leverages its integrated drug creation platform (the “Integrated Drug Creation Platform”) to identify novel drug targets and create promising biotherapeutic candidates. The Company was organized in the State of Oregon in August 2011 as a limited liability company and converted to a limited liability company (“LLC”) in Delaware in April 2016. In October 2020, the Company converted from a Delaware LLC to a Delaware corporation (the “LLC Conversion”). The Company’s headquarters are located in Vancouver, Washington.

Authorized shares of common stock

In June 2021, the Company’s board of directors (the “Board”) and stockholders increased the number of authorized shares of common stock to 78,320,000.

Initial Public Offering

In July 2021, the Company completed its initial public offering (the “IPO”) and issued 14.4 million shares of its common stock, including 1.9 million shares pursuant to the full exercise of the underwriters’ option to purchase additional shares, at a price of $16.00 per share and received net proceeds of $210.1 million from the IPO. Immediately prior to the completion of the IPO, all shares of redeemable convertible preferred stock then outstanding were converted into 46.3 million shares of common stock and all convertible notes issued in March 2021 were converted into 9.7 million shares of common stock.

Amendments to Certificate of Incorporation or Bylaws

In connection with the consummation of the IPO, the Company filed an amended and restated certificate of incorporation (the “Restated Certificate”) with the Secretary of State of the State of Delaware. The Board and stockholders previously approved the Restated Certificate to be filed in connection with, and to be effective upon, the consummation of the IPO. The Restated Certificate amended and restated the Company’s existing amended and restated certificate of incorporation, as amended, in its entirety to, among other things: (i) authorize 500,000,000 shares of common stock; (ii) eliminate all references to the previously-existing series of preferred stock; (iii) authorize 10,000,000 shares of undesignated preferred stock that may be issued from time to time by the Board in one or more series; (iv) establish a classified board divided into three classes, with each class serving staggered three-year terms and (v) require the approval of holders of at least 75% of the voting power of the Company’s outstanding shares of voting stock to amend or repeal certain provisions of the Restated Certificate.

Stock split

On July 16, 2021, the Board and stockholders approved an amendment to the Company’s amended and restated certificate of incorporation to effect a forward stock split of the Company’s issued and outstanding common stock at a 3.3031-to-1 ratio, which was effected on July 19, 2021. The par value and convertible preferred stock were not adjusted as a result of the forward stock split. All issued and outstanding common stock, options to purchase common stock and units, and per share and unit amounts contained in the financial statements have been retroactively adjusted to reflect the forward stock split for all periods presented. The financial statements have also been retroactively adjusted to reflect a proportional adjustment to the conversion ratio for each series of preferred stock that was effected in connection with the forward stock split.

2.Summary of significant accounting policies

Basis of presentation

The consolidated financial statements are prepared in accordance with US GAAP as defined by the Financial Accounting Standards Board (“FASB”). The consolidated financial statements include the Company’s wholly-owned subsidiaries and entities under its control. The Company has eliminated all intercompany transactions and accounts.

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ABSCI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Emerging growth company

The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

Business combinations

The Company utilizes the acquisition method of accounting for business combinations and allocates the purchase price of an acquisition to the various tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The Company primarily establishes fair value using the replacement cost approach or the income approach based upon a discounted cash flow model. The replacement cost approach measures the value of an asset by the cost to reconstruct or replace it with another of like utility. The income approach requires the use of many assumptions and estimates including future revenues and expenses, as well as discount factors and income tax rates. Other estimates include:

•The use of carrying value as a proxy for fair values of fixed assets and liabilities assumed from the target; and

•Fair values of intangible assets and contingent consideration.

While the Company uses best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the business acquisition date, these estimates and assumptions are inherently uncertain and subject to refinement. As a result, during the purchase price measurement period, which is no more than one year from the business acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Business combinations also require the Company to estimate the useful life of certain intangible assets acquired and this estimate requires significant judgment.

Use of estimates

The preparation of financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates include, but are not limited to, revenue recognition including estimated timing of the satisfaction of performance obligations, purchase price allocations in conjunction with business combinations, and the fair value of stock-based compensation awards. The Company bases its estimates on historical experiences, and other relevant factors that it believes to be reasonable under the circumstances. Actual results could differ from those estimates.

Segment information

The Company operates as a single operating segment. The Company’s chief operating decision maker, its Chief Executive Officer, manages the Company’s operations on a consolidated basis for the purposes of allocating resources, making operating decisions and evaluating performance.

Cash, cash equivalents and restricted cash

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents consist of deposits with commercial banks in checking and interest-bearing accounts, highly liquid money market funds, and U.S. Treasury securities.

Restricted cash represents amounts pledged as collateral for future property lease payments via standby letters of credit (see Note 10: Commitments and contingencies) and amounts held in escrow related to acquisitions by the Company (see Note 4: Acquisitions).

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ABSCI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Investments

The Company’s short-term investments may include funds invested in highly liquid money market funds, U.S. Treasury securities and corporate debt securities with original maturities at the date of purchase greater than three months but less than one year. These investments are classified as available-for-sale debt securities, which are recorded at fair value based on quoted prices in active markets.

If the estimated fair value of a debt security is below its amortized cost basis, the Company evaluates whether it is more likely than not that the Company will be required to sell the security before its anticipated recovery in market value and whether credit losses exist for the related securities. A credit loss exists if the present value of expected cash flows is less than the amortized cost basis of the security. Credit-related losses are recognized as an allowance for credit losses on the balance sheet with a corresponding adjustment to earnings. Unrealized gains and losses that are unrelated to credit deterioration are reported in accumulated other comprehensive loss. Purchase premiums and discounts are recognized as interest income using the interest method over the terms of the securities. Realized gains and losses, and declines in fair value deemed to be other than temporary, are reflected in our consolidated statements of operations and comprehensive loss. The Company uses the specific identification method to compute gains and losses on investments.

Receivables under development arrangements and allowances for credit losses

Receivables under development arrangements consist of amounts due from partners for services performed, net of estimates for credit allowance. The Company reviews accounts receivable for credit impairment and regularly analyzes the status of significant past due receivables to determine if any will potentially be uncollectible to estimate the amount of allowance necessary to reduce accounts receivable to its estimated net realizable value. Credit losses are included in selling, general and administrative expenses on the consolidated statements of operations and comprehensive loss. See contract asset discussion in Note 3: Revenue Recognition regarding unbilled receivables.

Fair value of financial instruments

Certain assets and liabilities are carried at fair value under US GAAP. The carrying amounts of cash equivalents, accounts payable, and accrued liabilities approximate their related fair values due to the short-term nature of these instruments. The Company measures certain financial assets at fair value on a recurring basis, including available-for-sale debt securities, which are recorded at fair value based on quoted prices in active markets. None of the Company’s non-financial assets or liabilities are recorded at fair value on a recurring basis.

As permitted under Accounting Standards Codification (“ASC”) 825, Financial Instruments, (“ASC 825”), the Company elected the fair value option to account for its convertible promissory notes issued during the year ended December 31, 2021. In accordance with ASC 825, the Company recorded these convertible promissory notes at fair value on its consolidated balance sheet. Changes in fair value of the warrant to purchase convertible preferred stock and the convertible promissory notes were recorded in the consolidated statements of operations and comprehensive loss. As a result of applying the fair value option, direct costs and fees related to the convertible promissory notes were recognized as incurred and not deferred.

There are significant judgments and estimates inherent in the determination of the fair value of certain liabilities. If the Company had made different assumptions including, among others, those related to the timing and probability of various corporate scenarios, discount rates, volatilities and exit valuations, the carrying values of the fee in lieu of warrant, warrant liability, and net loss and net loss per common share could have been significantly different.

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ABSCI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Prior to its IPO, the Company primarily utilized the probability of a liquidity event and the expected IPO price to estimate fair value of the fee-in-lieu of warrant liability, the convertible note, and the preferred stock warrant liability.

Concentration risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, restricted cash, and receivables under development arrangements. The Company maintains its cash and cash equivalents and restricted cash in bank accounts, which at times may exceed federally insured limits. The Company has not experienced any losses on these accounts. For the years ended December 31, 2022 and 2021, three partners represented approximately 98% and two partners represented approximately 73% of technology development revenue, respectively.

As of December 31, 2022, two partners represented approximately 100% of total receivables under technology development arrangements. As of December 31, 2021, four partners represented approximately 84% of total receivables under technology development arrangements.

Supplies

Supplies, comprised principally of supplies and other materials used in the Company’s laboratory, are stated at the lower of cost or net realizable value and using the first-in, first-out method, applied on a consistent basis. The supplies inventory is included in prepaid expenses and other current assets on the consolidated balance sheet.

Property and equipment, net

Property and equipment are stated at cost less accumulated depreciation and amortization. Additions and improvements to property and equipment are capitalized. The costs of maintenance and repairs are expensed as incurred. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the underlying assets, which vary from 3 to 7 years. Leasehold improvements are amortized over the shorter of the term of the lease or the estimated useful lives of the assets. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation or amortization are removed from their respective accounts, and the resulting gain or loss is reported as operating expense in the consolidated statements of operations and comprehensive loss.

Impairment of long-lived assets

Management reviews long-lived assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability is measured by comparison of the carrying amount to the future undiscounted net cash flows expected to result from the use of the asset and its eventual disposition. If these estimated cash flows were less than the carrying amount of the asset, an impairment loss would be recognized in order to write down the asset to its estimated fair value and reported as operating expense in the consolidated statements of operations and comprehensive loss.

Goodwill

Goodwill is evaluated for impairment on an annual basis as of October 1, or more frequently if an indicator of impairment is present. As part of the impairment evaluation, the Company may elect to perform an assessment of qualitative factors. If this qualitative assessment indicates that it is more likely than not that the fair value of the reporting unit that includes the goodwill is less than its carrying value, then a quantitative impairment test would be prepared to compare this fair value to the carrying value and record an impairment charge if the carrying value exceeds the fair value.

Redeemable convertible preferred stock warrant liability

Outstanding warrants that were related to the Company’s redeemable convertible preferred stock were classified as liabilities on the consolidated balance sheets. As the warrants were exercisable for redeemable convertible preferred stock, prior to its IPO, the Company recognized a liability for the fair value of its warrants on the consolidated balance sheets upon issuance and subsequently remeasured the liability to fair

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ABSCI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

value at the end of each reporting period until the earlier of the expiration or exercise of the warrants. See Note 11: Redeemable convertible preferred stock for further discussion.

Revenue recognition

The Company recognizes revenue as control of its products and services are transferred to its customers in an amount that reflects the consideration expected to be received in exchange for those products and services. This process involves identifying the contract with a customer, determining the performance obligations in the contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing revenue when or as the performance obligations are satisfied. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. The Company considers a performance obligation satisfied once control of a good or service has been transferred to the customer, meaning the customer has the ability to use and obtain the benefit of the good or service. Technology development revenue includes revenue associated to the development and technology readiness phases of technology development agreements. The Company refers to its customers as “partners” when describing their relationship in an agreement.

Technology development revenue

The Company’s Technology Development Agreements (“TDAs”) generally include multiple phases of drug discovery and/or Cell Line Development (“CLD”) such as library design, assay development, strain screening, fermentation optimization, purification, and analytics that all represent a single performance obligation. These agreements may include options for additional goods and services such as readying the technology to transfer to the partner and licensing terms. The transaction prices for these arrangements include fixed and variable consideration for the single performance obligation as well as variable consideration for success-based achievements. Any variable consideration is constrained to the extent that it is probable that a significant reversal of cumulative revenue will not occur. Primarily all of the Company’s contracts with its partners include an enforceable right to payment. While there is no alternative use to the Company for the asset created, the agreement’s terms vary as to whether an enforceable right to payment exists for performance completed as of that date.

The Company measures progress toward the completion of the performance obligations satisfied over time using an input method based on an overall estimate of the effort incurred to date at each reporting period to satisfy a performance obligation. This method provides an appropriate depiction of completed progress toward fulfilling its performance obligations for each respective arrangement. In certain technology development agreements that require a portion of the contract consideration to be received in advance at the commencement of the contract, such advance payment is initially recorded as a contract liability. Contract assets are included in receivables under development arrangements on the consolidated balance sheets.

Income taxes

The Company accounts for income taxes using the asset and liability method whereby deferred tax asset and liability accounts are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are currently in effect. Valuation allowances are established where necessary to reduce deferred tax assets to the amounts expected to be realized.

The Company files income tax returns in federal, state and various foreign tax jurisdictions.

The Company recognizes interest and penalties related to income tax matters as a component of tax expense. The Company did not record any interest or penalties related to income tax during the years ended December 31, 2022 and 2021.

Leases

At the inception of a contractual arrangement, the Company determines whether the contract contains a lease by assessing whether there is an identified asset and whether the contract conveys the right to control the use of the identified asset in exchange for consideration over a period of time. If both criteria are met, the Company records the associated lease liability and corresponding right-of-use asset upon commencement

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ABSCI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

of the lease using the implicit rate or a discount rate based on a credit adjusted secured borrowing rate commensurate with the term of the lease.

The Company additionally evaluates leases at their inception to determine if they are to be accounted for as an operating lease or a finance lease. Operating lease assets represent a right to use an underlying asset for the lease term and operating lease liabilities represent an obligation to make lease payments arising from the lease. Operating lease obligations with a term greater than one year and their corresponding right-of-use assets are recognized on the consolidated balance sheet at the commencement date of the lease based on the present value of lease payments over the expected lease term. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received.

As the Company’s operating leases do not typically provide an implicit rate, the Company utilizes the appropriate incremental borrowing rate, determined as the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term and in a similar economic environment. The lease cost is recognized on a straight-line basis over the lease term and variable lease payments are recognized as operating expenses in the period in which the obligation for those payments is incurred. Variable lease payments primarily include common area maintenance, utilities, real estate taxes, insurance and other operating costs that are passed on from the lessor in proportion to the space leased by the Company.

The Company accounts for its finance leases by calculating an implied interest rate in the lease contract and recognizing a finance lease right of use asset and lease liability. The right of use asset is recognized in property and equipment, net, in the asset category in which the underlying asset relates. The lease liability is recognized in the consolidated balance sheet as a finance lease obligation.

Research and development expenses

Research and development expenses include the cost of materials, personnel-related costs (comprised of salaries, benefits and share-based compensation) for personnel performing research and development functions, consulting fees, equipment and allocated facility costs (including occupancy and information technology). These expenses are exclusive of depreciation and amortization. Research and development activities consist of continued development of the Company’s Integrated Drug Creation Platform, internal pipeline, target discovery and technology development for partners. The Company derives improvements to its platform from each type of activity. Research and development efforts apply to the Company’s platform broadly and across programs.

Stock-based compensation

Stock-based compensation includes compensation expense for incentive units, restricted stock, and stock option grants to employees and is measured on the grant date based on the fair value of the award and recognized on a straight-line basis over the requisite service period. The fair value of options to purchase common stock are measured using the Black-Scholes option-pricing model. The Company accounts for forfeitures as they occur. Prior to the LLC Conversion, the Company also granted phantom units which due to the presence of an exercise condition contingent upon a liquidity event, the Company determined that it was not probable that the phantom units would become exercisable.

Net Loss Per Share Attributable to Common Stockholders

Basic and diluted net loss per common share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period, without consideration for common stock equivalents. The Company was in a loss position for all periods presented, therefore basic net loss per share and diluted net loss per share are the same for all periods as the inclusion of all potential common securities outstanding would have been anti-dilutive.

Recently adopted accounting pronouncements

In August 2020, the FASB issued ASU No. 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU No. 2020-06”). The new guidance eliminates two of the three models in ASC 470-20 that require separating embedded conversion features from convertible instruments. As a result, only conversion features accounted for under the substantial premium model in ASC 470-20 and those that require bifurcation in accordance with

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ABSCI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ASC 815-15 will be accounted for separately. For contracts in an entity’s own equity, the new guidance eliminates some of the requirements in ASC 815-40 for equity classification. The guidance also addresses how convertible instruments are accounted for in the diluted earnings per share calculation and requires enhanced disclosures about the terms of convertible instruments and contracts in an entity’s own equity. ASU 2020-06 is effective for the Company after December 15, 2023. Early adoption is permitted for fiscal periods beginning after December 15, 2020. The Company adopted this standard as of January 1, 2021, and the adoption of this standard did not have a material impact on its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes. The amended guidance is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company adopted this standard in 2022 on a prospective basis. The adoption did not have a material impact on its consolidated financial statements.

3.Revenue recognition

Contract balances

Contract assets are generated when contractual billing schedules differ from revenue recognition timing and the Company records a contract asset when it has an unconditional right to consideration. As of December 31, 2022 and December 31, 2021, contract assets were $1.1 million and $0.6 million, respectively.

Contract liabilities are recorded in deferred revenue when cash payments are received or due in advance of the satisfaction of performance obligations. As of December 31, 2022 and December 31, 2021, contract liabilities were $0.4 million and $1.4 million, respectively. During the years ended December 31, 2022 and 2021, the Company recognized $1.4 million and $1.5 million, respectively, as revenue that had been included in deferred revenue at the beginning of the period.

KBI BioPharma, Inc. Collaboration agreement

In December 2019, the Company executed a four-year Joint Marketing Agreement (“JMA”) with KBI BioPharma, Inc. (“KBI”) to co-promote technologies through joint marketing efforts. In September 2021, the JMA was amended to shorten the term to approximately three years, ending in October 2022. Pursuant to the JMA, the Company received a non-refundable upfront payment of $0.8 million and milestone and other payments of $2.6 million in the aggregate upon the achievement of specific milestones.

4.Acquisitions

Acquisition of Denovium

In January 2021, the Company completed its acquisition of the common stock of Denovium, Inc.. (“Denovium”), an artificial intelligence deep learning company focused on protein discovery and design. The Company integrated Denovium’s technology into its Integrated Drug Creation Platform. The acquisition has been accounted for as a business combination.

Pursuant to the terms of the agreement, the Company acquired all outstanding equity of Denovium for estimated total consideration of $3.0 million, which consisted of (in thousands):

Cash consideration $ 2,670

Equity consideration 368

Total purchase consideration $ 3,038

Cash consideration included a $2.5 million upfront payment and a payment for working capital adjustments.

In addition to the $2.5 million paid upfront, $2.5 million was placed into escrow subject to the continued service and/or employment of Denovium’s co-founders over a one-year period. This amount is not included in the total consideration and is accounted for as compensation expense over the one-year service period, and was included in current restricted cash and accrued expenses on the consolidated balance sheet as of December 31, 2021. The $2.5 million deferred payment was disbursed from escrow in January 2022.

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The Company issued 1,010,296 shares of its common stock to the Denovium co-founders, of which 80% or 808,238 shares is subject to a Stock Restriction Agreement and vests monthly over a four-year term subject to a service condition. The fair value of these shares of $1.5 million will be recognized as compensation cost over the four-year service period. The remaining 20%, or 202,058 shares, vested immediately and is included in the total consideration.

The following table summarizes the allocation of the purchase consideration to the fair value of the assets acquired and liabilities assumed (in thousands):

Cash and cash equivalents $ 158

Accounts receivable 59

Other current assets 1

Intangible assets 2,507

Accounts payable and accrued expenses 109

Deferred tax liability 633

TOTAL LIABILITIES 742

Fair value of net assets acquired and liabilities assumed $ 3,038

Goodwill arising from the acquisition of $1.1 million was attributable to the assembled workforce and expected synergies between the Integrated Drug Creation Platform and the Denovium Engine. The goodwill is not deductible for tax purposes. As of December 31, 2021, the Company had fully completed the analysis to assign fair values to all assets acquired and liabilities assumed.

The following table reflects the fair values of the identified intangible assets of Denovium and their respective weighted-average estimated amortization periods.

Estimated Fair Value (in thousands) Estimated Amortization Period (years)

Acquisition of Totient

On June 4, 2021, the Company entered into a merger agreement with Totient, Inc. (“Totient”), a discovery company harnessing human immune responses to identify novel antibodies and their therapeutic targets.

Pursuant to the merger agreement, at closing, Totient shareholders became eligible to receive an aggregate payment of $55.0 million in cash, of which $40.0 million in cash was paid at closing, subject to customary purchase price adjustments and escrow restrictions, and $15.0 million in cash shall be paid upon the achievement of specified milestones, and 2,212,208 shares of the Company’s common stock. The $40.0 million cash consideration included $8.0 million of deferred cash payment, due in one year. This amount was included in current restricted cash and accrued expenses on the consolidated balance sheet as of December 31, 2021. The $8.0 million of deferred cash payment was disbursed from escrow in June 2022. All common stock issued is unrestricted, except for those shares granted to certain members of Totient’s management, of which 25% of the shares issued were vested upon the closing of the transaction and the remaining 75% will vest over 2.5 years, in six-month installments subject to their respective continuing service relationships with the Company. In October 2022, 540,229 restricted shares were forfeited back to the Company due to certain former members of Totient’s management’s service relationship ceasing.

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The following table summarizes the purchase price (in thousands):

Estimated cash payment to Totient stockholders $ 35,368 (i)

Estimated stock payment to Totient stockholders 13,891 (ii)

Estimated cash payment contingent on achieving specified milestone 12,000 (iii)

(i)Pursuant to the merger agreement, the initial purchase price includes $40.0 million of cash adjusted for the agreed upon working capital value which includes the payment of Totient’s transaction and other expenses as well as payments to Totient stock option holders for the cancellation and extinguishment of Totient stock options.

(ii)Pursuant to the merger agreement, 2,212,208 shares of common stock issued in payment to Totient stockholders with 1,282,747 vesting immediately and therefore included in the purchase price consideration.

(iii)Represents the estimated fair value of the contingent consideration that is payable upon the achievement of the milestone of (A) Absci’s entering into one or more definitive commercialization agreements, or technology partnering or licensing agreements, or collaboration agreements, with third parties using, or related to, Totient’s technology, a target discovered or identified by using Totient’s technology, or a peptide, protein complex or amino acid sequence assembled using Totient’s technology, including any Totient product or enabled product, pursuant to which (I) Absci is entitled to receive at least $2.0 million in aggregate upfront cash or equity payments (provided, that the minimum upfront payment under any individual agreement shall be $1.0 million and (II) an option for a license or a license or similar right is granted to the third party; or (B) first commercial sale of a Totient product or enabled product. The fair value estimate is based on a probability-weighted approach and will be updated as we obtain more information. The $12.0 million of contingent consideration originally measured was adjusted to reflect the increased probability of achievement. As of December 31, 2022 the fair value is $12.8 million and is included in accrued expenses on the consolidated balance sheet. Changes in the contingent consideration liability fair value are reflected within research and development expenses on the consolidated statement of operations and comprehensive loss.

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The following table summarizes the allocation of the estimated consideration to the identifiable assets and liabilities acquired by us as of June 4, 2021 (in thousands).

Current assets:

Cash and cash equivalents $ 1,751

Prepaid expenses and other current assets 189

Total current assets 1,940

Operating lease right-of-use assets 266

Property and equipment, net 118

Intangible assets 54,600 (ii)

Other long-term assets 23

Current liabilities:

Accounts payable 78

Accrued expenses 6,588

Operating lease obligations 122

Total current liabilities 6,788

Operating lease obligations - net of current portion 144

Deferred tax, net 9,012

Other long-term liabilities 24

Fair value of net assets acquired and liabilities assumed $ 61,259

(i)Goodwill represents the excess of the estimated purchase price over the estimated fair value of Totient’s identifiable assets acquired and liabilities assumed. Goodwill also reflects the requirement to record deferred tax balances for the difference between the assigned values and the tax bases of assets acquired and liabilities assumed in the business combination. Goodwill is not deductible for tax purposes.

(ii)The estimated fair value of and useful lives of the intangible assets acquired is as follows:

Estimated fair value (in thousands)(i) Estimated useful lives (in years)(ii)

Monoclonal antibody library $ 46,300 20

Developed software platform and the related methods patents 8,300 15

(i)The estimated fair values were categorized within Level 3 of the fair value hierarchy and were determined using an income-based approach, which was based on the present value of the future estimated after-tax cash flows attributable to each intangible asset. The significant assumptions inherent in the development of the values, from the perspective of a market participant, include the amount and timing of projected future cash flows (including revenue, regulatory success and profitability), and the discount rate selected to measure the risks inherent in the future cash flows, which was between 18%-23%. These fair values are based on the most recent estimate of the fair value available and will be updated as we obtain more information.

(ii)The estimate of the useful life was based on an analysis of the expected use of the asset by us, any legal, regulatory or contractual provisions that may limit the useful life, the effects of obsolescence, competition and other relevant economic factors, and consideration of the expected cash flows used to measure the fair value of the intangible asset.

As of March 31, 2022, the Company had fully completed the analysis to assign fair values to all assets acquired and liabilities assumed and recorded no adjustments to the preliminary purchase price allocation in the year ended December 31, 2022. During the year ended December 31, 2021, the Company recorded adjustments to goodwill of $1.6 million primarily related to deferred taxes.

The Company’s results of operations for the year ended December 31, 2022 include the operating results of Totient within the consolidated statement of operations and comprehensive loss. The operating results of

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Totient are included within the consolidated statement of operations and comprehensive loss from June 4, 2021 through December 31, 2021 for the year ended December 31, 2021.

Acquisition costs of $0.9 million were included in the consolidated statement of operations and comprehensive loss as selling, general and administrative for the year ended December 31, 2021.

The financial information in the table below summarizes the combined results of operations of the Company and Totient on a pro forma basis, as though the companies had been combined as of January 1, 2020. These pro forma results were based on estimates and assumptions, which we believe are reasonable. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of our fiscal year 2020. The pro forma financial information includes adjustments to share-based compensation expense, amortization for acquired intangible assets, interest expense, and transaction costs, and related tax effects.

The pro forma financial information for the year ended December 31, 2021 combines the Company’s results, which include the results of Totient subsequent to June 4, 2021, and the historical results for Totient for the periods prior to acquisition.

The following table summarizes the pro forma financial information (in thousands):

For the year ended December 31, 2021

Net loss applicable to common stockholders $ (113,119)

5.Investments

Cash equivalents, marketable securities and deposits are classified as available-for-sale and are, therefore, recorded at fair value on the consolidated balance sheet, with any unrealized gains and losses reported in accumulated other comprehensive income (loss), which is reflected as a separate component of stockholders’ equity in the Company’s consolidated balance sheet, until realized. The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

The amortized cost and fair value of investments are as follows (in thousands):

Amortized cost Gross unrealized gains Gross unrealized losses Fair market value

Assets

Money market funds $ 5,050 $ — $ — $ 5,050

Classified as:

Cash equivalents $ 5,050

Long-term investments —

Investments held as of December 31, 2022 consist of cash equivalents with contractual maturities of three months or less and U.S. treasury bills with original maturities between four and six months. Proceeds and interest income from maturities of U.S. treasury bills were $85.0 million and $0.4 million, respectively, for the year ended December 31, 2022. Unrealized gains and losses on securities were primarily due to changes in interest rates. There are no investments in a continuous unrealized loss position for more than twelve months as of December 31, 2022. The Company does not intend to sell securities that are in an unrealized loss

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position and believes that it is not more likely than not that it will be required to sell these securities before recovery of amortized cost. The Company held no investments as of December 31, 2021.

6.Property and equipment, net

Property and equipment consists of the following (in thousands):

December 31, December 31,

Construction in progress $ 293 $ 933

Furniture, Fixtures and Other 6,307 4,804

Less accumulated depreciation and amortization (15,203) (6,381)

Depreciation expense was $9.7 million and $4.5 million for the years ended December 31, 2022 and 2021, respectively.

7.Goodwill and Intangibles, net

In January 2021, the Company completed its acquisition of the common stock of Denovium, Inc.(“Denovium”), an artificial intelligence deep learning company focused on protein discovery and design. The Company integrated Denovium’s technology into its Integrated Drug Creation Platform. Goodwill arising from the acquisition was attributable to the assembled workforce and expected synergies between the Integrated Drug Creation Platform and the Denovium Engine (“AI Engine”). In June 2021, the Company entered into a merger agreement with Totient, Inc. (“Totient”), a discovery company harnessing human immune responses to identify novel antibodies and their therapeutic targets, surviving as a wholly owned subsidiary of the Company. Goodwill represents the excess of the estimated purchase price over the estimated fair value of Totient’s identifiable assets acquired and liabilities assumed. Refer to Note 4: Acquisitions for further information.

Goodwill is as follows (in thousands):

December 31, December 31,

Goodwill is tested for impairment on an annual basis in the fourth quarter, or sooner if an indicator of impairment exists. The Company may elect to first assess qualitative factors to determine whether it is more-likely-than-not that the fair value of goodwill at the reporting unit level is less than the carrying amount. The qualitative assessment includes consideration of relevant events and circumstances that would affect the Company’s single reporting unit, including macroeconomic, industry and market conditions, overall financial performance, and trends in the market price of the Company’s common stock.

The Company performed its annual goodwill impairment test on October 1, 2022 utilizing the qualitative assessment allowable under ASC 350 Intangibles – Goodwill and Other at the reporting unit level. This analysis included comparing the entity’s carrying amount to its estimated fair value, including an estimated control premium. The Company’s annual qualitative assessment determined that a quantitative analysis was

100

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not necessary. There were no impairment losses netted against the goodwill balance for the years ended December 31, 2022 and 2021.

Intangible assets are as follows (in thousands):

Amortization expense related to intangible assets was $3.4 million and $2.1 million for the years ended December 31, 2022 and 2021, respectively, and is reflected within depreciation and amortization expense on the consolidated statement of operations and comprehensive loss.

Future amortization expense for the Company’s intangible assets as of December 31, 2022 are estimated as follows (in thousands):

Years Ending December 31:

8.Long-term debt and other borrowings

Loan and Security Agreement (“LSA”)

In June 2018, the Company signed a Loan and Security Agreement (“LSA”) with Bridge Bank (“Bank”), a division of Western Alliance Bank. The purpose of the LSA was to provide long-term financing to the Company through term loans available for borrowing in three tranches up to a maximum of $3.0 million through December 2019 upon the attainment of certain milestones as delineated in the LSA. The first tranche of $0.3 million was borrowed in 2018. Interest on outstanding borrowings under the LSA was charged at a rate of 6% per annum. This loan was secured by substantially all tangible assets of the Company; intellectual property was excluded from the secured collateral but was subject to a negative pledge in favor of the Bank.

The Company was permitted to prepay all, but not less than all, of the term loans at any time upon 10 days written notice, with a prepayment premium beginning at 1.0% initially and declining to 0% after May 11, 2022. The Company was required to pay a final payment equal to 3% of the principal amount funded, which was payable upon the earliest to occur of (i) the maturity date, (ii) acceleration and (iii) the prepayment of the loan.

The Company was required to pay a fee of 3.5% of the aggregate amount of term loans funded by Bank under the LSA within three business days of a sale or other disposition of substantially all of the Company’s assets, a merger or consolidation, a change in control or an initial public offering. This fee became payable upon completion of the Company’s IPO on July 26, 2021 and was paid during the year ended December 31, 2021.

This loan was scheduled to originally mature in May 2022, at which time all outstanding principal and accrued and unpaid interest was due and payable.

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In March 2019, the Company entered into a first amendment to the LSA that increased total borrowings to $3.0 million and added a financial liquidity covenant. The amendment was accounted for as a debt modification and no gain or loss was recognized in the Company’s financial statements.

In May 2020, the Company entered into a second amendment to the LSA that increased total borrowings to $5.0 million. The maturity date of the loan was extended to May 11, 2024. The amendment was accounted for as a debt modification and no gain or loss was recognized in the Company’s financial statements. As part of the second amendment, the Company paid a one-time amendment fee and a pro-rated final payment in connection with the amendment. The final payment represents an additional principal payment and is accounted for as a debt discount that will be accreted through the maturity date of the loan based on the effective interest method. The second amendment extended the term of the fee to May 11, 2030.

In August 2020, the Company entered into a third amendment to the LSA that waived an event of default due to failure to meet a financial covenant. The amendment also expanded the definition of permitted indebtedness to include Payroll Protection Plan (“PPP”) loans, and modified financial and restrictive covenants.

In February 2021, the Company entered into a fourth amendment to the LSA. This amendment gave effect to the Company’s conversion to a corporation and its purchase of Denovium, including permitting certain cash and equity consideration linked to continued employment and service requirements, and adding Denovium as co-borrower to the LSA.

In June 2021, the Company entered into a fifth amendment to the LSA. This amendment modified the term loan’s maturity date to June 16, 2023.

In February 2022, the Company entered into a sixth amendment to the LSA. This amendment modified various definitions and terms within the agreement, with no adjustments to the financial terms.

In June 2022, the Company paid off the remaining $2.4 million outstanding balance of the LSA.

Convertible Notes

In March 2021, the Company entered into a Note Purchase Agreement to issue and sell $125.0 million convertible promissory notes (the “2021 Notes”) to certain investors. The 2021 Notes accrued interest at 6% per annum. Due to certain embedded features within the 2021 Notes, the Company elected to account for these notes, including all of their embedded features, under the fair value option. The Company has elected to recognize interest expense based on the 6% per annum coupon rate of the Notes, which was included in other long-term liabilities on the consolidated balance sheet through the date of the IPO. Based on the terms of the agreement, the 2021 Notes converted at an 18% discount from the offering price to the public in the IPO. Prior to the conversion, the Company recorded a final fair value adjustment of the 2021 Notes using the Company's common stock price at the IPO. Immediately prior to the completion of the IPO, all outstanding principal under the 2021 Notes and the related accrued interest expense were converted into an aggregate of 9,732,593 shares of our common stock based on an initial public offering price of $16.00 per share.

Equipment Financing

In 2022, the Company received a total of $12.0 million of proceeds from equipment financing arrangements. Terms of the agreements require monthly payments over 42-48 month maturities with imputed interest rates ranging 8%-10%. All outstanding principal and accrued and unpaid interest are due and payable at maturity. These loans are secured by certain tangible assets of the Company and include certain financial liquidity covenants. The Company was in compliance with all applicable financial covenants as of December 31, 2022.

The carrying amount of the long-term debt approximates fair value.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Future undiscounted payments for the Company’s financing liabilities as of December 31, 2022 are as follows (in thousands):

Years ending December 31:

Total future payments 12,604

Less: Imputed interest (1,674)

Total long-term debt $ 10,930

9.Leases

Facility leases

The Company leases its corporate headquarters and primary research and development facility located in Vancouver, Washington in a 77,974 square foot facility that includes general administrative office and laboratory space. The corporate headquarters lease commenced in December 2020 and ends in April 2028, with an option to renew the lease for an additional five-year term, at then-current market rates. The lease agreement provides for annual base rent of approximately $1.4 million in the first year of the lease term which increases on an annual basis to approximately $2.0 million in the final year of the initial lease term. As part of the lease agreement, the lessor provided tenant incentives in the amount of $3.1 million. The Company has a one-time option to terminate the lease after five years.

The Company moved from its former office and laboratory facility during the second quarter of 2021, for which the Company’s lease continues through August 2024. The Company determined it would no longer utilize the space and during the years ended December 31, 2022 and 2021, the Company recognized $0.4 million and $0.9 million, respectively, in impairment expense of certain operating lease right-of-use assets and related leasehold improvements resulting from the discontinued use.

For each of the Company’s facility lease agreements, the Company is responsible for taxes, insurance and maintenance costs.

The components of lease expense are as follows (in thousands):

For the Years Ended December 31,

Equipment leases

The Company leases certain laboratory equipment under finance leases. Property and equipment includes approximately $7.0 million and $8.8 million of assets under finance leases as of December 31, 2022 and December 31, 2021, respectively. Accumulated depreciation related to assets under finance leases was approximately $3.1 million and $1.8 million as of December 31, 2022 and December 31, 2021, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Future undiscounted lease payments for the Company’s lease liabilities as of December 31, 2022 are as follows (in thousands):

Operating leases Finance leases

Thereafter 672 —

Less: Imputed interest (2,002) (187)

Present value of lease liabilities $ 9,007 $ 3,046

Additional information related to the Company’s leases is as follows:

Weighted average remaining lease term (in years)

Operating leases 4.9 6.0

Finance leases 1.6 2.2

Weighted average discount rate

Operating leases 8 % 8 %

Finance leases 8 % 7 %

10.Commitments and contingencies

As of December 31, 2022, future lease payments are secured by irrevocable standby letters of credit totaling $1.9 million. The irrevocable standby letters of credit are expected to be pledged for the full lease terms which extend through 2024 and 2028 for each of the Company’s facility leases.

The Company is not currently party to any material claims or legal proceedings. At each reporting date, the Company evaluates whether or not a potential loss or a potential range of loss is both probable and reasonably estimable.

11.Redeemable convertible preferred stock

Redeemable Convertible Preferred Stock

Prior to its conversion to common stock in connection with the Company’s IPO, the convertible preferred stock was classified as temporary equity on the accompanying consolidated balance sheets since the shares contained certain redemption features that were not solely within the control of the Company. The Company had not previously accreted the convertible preferred stock to its redemption value since the shares were not redeemable and redemption was not deemed to be probable.

Immediately prior to the completion of the IPO, all shares of redeemable convertible preferred stock then outstanding were converted into 46,266,256 shares of common stock.

Preferred stock warrants

As part of the Class A-1 funding in 2016, a warrant for the purchase of 93,007 Class A-1 Preferred Units at an exercise price of $1 per unit and exercisable at any time before April 2026 was granted to an investor. This warrant was exchanged for a warrant to purchase Class A-1 preferred stock at equivalent terms in October 2020. Because the underlying shares are redeemable for conditions outside of the Company’s control, the

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warrant was classified within other long-term liabilities on the consolidated balance sheets and recognized at fair value at each reporting period with the change in fair value recorded in other expense on the consolidated statement of operations and comprehensive loss prior to the IPO. The warrant was converted into a warrant to purchase 307,211 shares of the Company’s common stock upon the closing of the IPO. The warrant holder fully exercised the warrant to purchase common stock for cash during the year ended December 31, 2021, following the IPO.

12.Stock-based compensation

Prior to the LLC Conversion, the Company granted incentive units and phantom units under its 2015 Equity-Based Incentive Plan (“2015 Plan”) to employees and non-employee service providers. In October 2020, in conjunction with the LLC Conversion, the Company adopted the 2020 Stock Option and Grant Plan (“2020 Plan”) under which it granted stock options, restricted shares, and stock appreciation rights (“SARs”) as replacement awards for outstanding awards under the 2015 Plan and as new awards to incentivize employee service. Upon completion of the IPO, the Company adopted the 2021 Stock Option and Incentive Plan (“2021 Plan”).

Total stock-based compensation expense related to all of the Company’s stock-based awards was recorded in the consolidated statements of operations and comprehensive loss as follows (in thousands):

For the Years Ended December 31,

ABSI US Equity

ABSI · 10-K · period ended 2022-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosure About Market Risk

Item 8. Financial Statements and Supplementary Data

ABSI US Equity☆

ABSI · 10-K · period ended 2022-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosure About Market Risk

Item 8. Financial Statements and Supplementary Data

ABSI US Equity