Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Absci is a data-first generative AI drug creation company that combines AI with scalable wet lab technologies to create better biologics for patients, faster. With the data to train, the AI to create, and the wet lab to validate, our Integrated Drug Creation platform aims to engineer better biologics with design-in functionality and best-in-class properties.
Antibody-based therapeutics represent an extraordinary medical and economic opportunity, yet the biopharmaceutical industry faces significant challenges in bringing these life-changing medicines to patients. Our Integrated Drug Creation platform is designed to improve upon traditional biologic drug discovery by using AI to simultaneously optimize multiple drug characteristics that may be important to development and therapeutic benefit. This has the potential to significantly shorten time to clinic and increase the probability of success. Our approach expands the possibilities in biopharmaceuticals — shifting from a paradigm of drug discovery to drug creation — with the goal of bringing best-in-class and first-in-class antibody therapeutics to the patients who need them.
Generative AI depends on massive training datasets to generate quality results. For example, GPT-4, a well-known generative AI model, was trained on data at scale readily available through public sources such as the internet. Such a data set does not exist for drug discovery. For this reason, current AI drug discovery mainly focuses on small-molecule drugs. Their simpler structure allows the synthesis and screening of million-member chemical libraries, which can then provide training data for generative AI models. In contrast, using AI models to design biologic drugs is more challenging because the existing biological datasets are much smaller, meaning there is less training data available for developing highly predictive AI models. Biologic drugs, however, are inherently more selective than small molecules and hence have in general better safety profiles in patients. Hence, building large training data sets for biologic drugs interactions offers the potential for AI models to design highly specific, safe therapeutics for a wide variety of disease targets less addressable by small molecules.
Our AI models accelerate the design and optimization of antibody candidates with potentially novel, best-in-class attributes. We then use our proprietary wet lab assays to validate those antibody candidates at scale. 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.
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. With the data to learn, the AI to create, and the wet lab to validate, Absci can create billions of antibody designs and screen millions of ranked antibody sequences in weeks, allowing us to go from AI-designed antibodies to wet lab-validated candidates in as little as six weeks. Our unique Integrated Drug Creation approach has the potential to significantly shorten preclinical development timelines from 5-7 years in benchmarked timelines to 18-24 months, enabling us to build a strong pipeline of both partnered and wholly-owned candidates that can expand therapeutic possibilities.
Our business model is to use our platform for rapid creation of biologic drug candidates by:
Establishing partnerships with stakeholders in the drug discovery and development life cycle: We create drug candidates with partners, including pharmaceutical and biotechnology companies who are responsible for preclinical and clinical testing of biologic candidates generated through our platform. Our partnerships will provide us with the opportunity to participate in the future success of the biologic candidates generated utilizing our platform, including 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 partnered pipeline assets of biologics across multiple indications.
Developing our own proprietary asset pipeline: We aim to create therapeutic assets comprising our own internal program pipeline. With the ability to find targets and develop potential best-in-class
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assets, we intend to develop promising assets to value inflection points, anywhere from preclinical validation through clinical trials, before partnering or selling them. We may enter into clinical trials and/or manufacturing partnerships to advance specific therapeutic assets to target such value inflection points. We believe that by developing our own pipeline, we will create optionality for enhanced monetization and validation of our platform.
Our evolving business model is underpinned by a strategic shift towards diversifying our program portfolio through both partnered drug creation programs and internal asset development programs. Our approach is to balance the portfolio between partnered programs that broaden our reach into various indications and provide R&D and upfront funding, and internal programs for which we have more control and the potential for partnerships or asset sales that provide more significant economic returns. The cornerstone of this business model evolution lies in the diversification of risk and potential return on investment. Engaging in drug creation partnerships may enable us to reach broader indications and markets, whereas internal asset development may be more advantageous in terms of greater control over program selection, development timeline, and return on investment. Our dual-faceted model not only secures a focused set of indications but also gives us greater optionality, enhancing our ability to pivot and adapt as the programs progress. We believe we will grow and diversify our portfolio of programs through our model, ultimately driving innovation and delivering value for all stakeholders.
Total revenue was $5.7 million for the years ended December 31, 2023 and 2022, which included an increase in technology development revenue of $1.2 million due to timing of project-based milestones achieved and the mix of ongoing programs utilizing our Integrated Drug Creation platform and a decrease in collaboration revenue of $1.2 million due to completion of our collaboration program in 2022. For the year ended December 31, 2023 we incurred a net loss of $110.6 million, which includes a non-cash goodwill impairment charge of $21.3 million. Research and development expenses decreased by $10.8 million, or 18%, for the year ended December 31, 2023 compared to the year ended December 31, 2022. As of December 31, 2023, we had an accumulated deficit of $406.5 million and cash and cash equivalents and short-term investments totaling $97.7 million.
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;
•develop our internal proprietary asset pipeline of lead drug candidates;
•continue to engage in research and development efforts and scale our drug creation 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; and
•implement operational, financial and management information systems.
In September 2023, we announced a plan to realign internal investments and operations to further focus on and allocate resources to our internal pipeline of drug creation programs and our Integrated Drug Creation platform. In connection with this decision, we announced a reduction in our global workforce of 15%.
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 a research and development presence in Belgrade, Serbia.
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
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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 drug creation arrangements with 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 drug creation partnerships with current partners.
•Create our proprietary asset pipeline. We are in the process of selectively creating our own lead drug candidates and intend to advance them up to value inflection points anywhere from preclinical validation through clinical trials. 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.
•Successfully complete our drug creation 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 drug creation 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 clinical trials and commercialization. Given the nature of our relationships with our partners, we often do not fully control the progression, clinical development, regulatory strategy, public disclosure or eventual commercialization, if approved, of our partnered product candidates. As a result, our future success and our potential eligibility to receive milestone payments and royalties are significantly 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.
•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. 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
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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) 24 19
Programs, Cumulative (2) 59 47
(1) Partners represents the unique number of partners with whom we have executed drug creation 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 drug creation programs that are subject to ongoing technology development activities intended to determine if the program can be pursued by our partner for future clinical 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 drug creation 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 drug creation 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, 2023, our Active Programs are as follows:
Partner Contract Date Active Programs Therapeutic Area
PrecisionLife December 2023 5 Undisclosed
Almirall November 2023 2 Dermatology
AstraZeneca November 2023 1 Oncology
Undisclosed July 2023 1 Undisclosed
Undisclosed March 2023 1 Undisclosed
Merck January 2022 3 Undisclosed
Merck December 2019 1 Undisclosed
Alpha Cancer Technologies August 2019 1 Oncology
SFJ Pharmaceuticals April 2019 1 Hematology
Total Active Programs 16
Our Integrated Drug Creation platform is primarily utilized in our partnerships for drug creation across indications using AI to simultaneously optimize multiple drug characteristics that may be important to development and therapeutic benefit. One of our Active Programs with an undisclosed partner is leveraging our platform capabilities to optimize pharmacokinetic properties for a Phase II candidate and one of our Active Programs with an undisclosed partner is leveraging our platform capabilities including our antibody library. We also have three Active Programs focused on our legacy model of developing production cell lines for drug candidates that our partners are developing. Two of these legacy cell line development Active Programs are preclinical and one is in Phase 3 clinical development (PhaseBio Pharmaceuticals’ drug candidate, bentracimab, assumed by SFJ Pharmaceuticals, Inc. in January 2023).
We have negotiated license agreements, or expected to negotiate license agreements upon completion of certain drug creation activities, with potential downstream milestone payments and royalties for all Active
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Programs. We have not negotiated terms for a sufficient number of royalty- and milestone-bearing licenses, however, to enable us to make accurate predictions regarding our potential revenue and financial performance.
Internal Pipeline
Our biologics pipeline reflects our differentiated capabilities in de novo antibody creation, multi-parameteric lead optimization, and reverse immunology. We’re developing a diversified portfolio of programs with a focus on cytokine biology as we scale our Integrated Drug Creation platform and strive to impact millions of lives.
Internal Asset Programs
As of December 31, 2023, we have identified three wholly-owned internal asset programs focusing on cytokine biology as well as several undisclosed internal pipeline programs under evaluation.
Program Name Target Description
ABS-101 Candidate targeting TL1A in inflammatory bowel disease
We are aware of clinical stage assets targeting TL1A that are being developed by Merck, Roche and Sanofi. For purposes of comparing the anticipated attributes of ABS-101 to these competitive product candidates, we generated putative clinical competitor molecules and performed a head to head comparison against several potential ABS-101 molecules. In these preclinical studies, ABS-101 potential candidates exhibited properties consistent with a potentially superior product profile by demonstrating equal or superior potency data from multiple biophysical and cellular assays, in addition to improved developability properties. We believe these attributes support the program’s potential to create an efficacious candidate conducive to subcutaneous dosing. Furthermore, in vitro and preliminary in vivo PK studies confirm the potential for extended half-life, supporting the objective for significantly improved dosing intervals. While we are encouraged by these preclinical results, we cannot assure you that similar results will be obtained in clinical studies of ABS-101. Additionally, while we endeavored to create molecules with the same attributes as those of competitive product candidates under development, we cannot assure you that the molecules we created are similar or better than those being developed by our competitors, nor can we assure you that direct comparisons of our clinical product candidate to those of our competitors will produce similar results.
In February 2024, we initiated IND-enabling studies to further evaluate certain properties of ABS-101. Based on these IND-enabling studies, we plan to submit an IND in the first quarter of 2025 and potentially initiate a Phase 1 clinical trial in the first half of 2025.
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Our Active Programs, internal asset programs, and historical programs demonstrate our platform’s capabilities to successively address broad ranges of biologics and modalities.
Components of Results of Operations
Revenue
Our revenue currently consists primarily of fees earned from our partners in conjunction with drug creation partnership agreements utilizing our integrated drug creation platform, 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 drug creation partnership agreements. 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.
Operating Expenses
Research and development
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 our Integrated Drug Creation platform, internal pipeline, and drug creation 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 increase in absolute dollars over the long-term as we enter into additional drug creation partnerships, continue to invest in platform enhancements, and develop and advance our internal asset pipeline.
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 general and administrative expenses to continue 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. Following an initial reduction due to the September 2023 realignment and resulting reduction in our global workforce, 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
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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.
Goodwill impairment
Goodwill is tested for impairment on an annual basis in the fourth fiscal quarter, or sooner if an indicator of impairment exists. We performed a quantitative impairment evaluation of goodwill as of June 30, 2023 and recorded a full impairment charge in the amount of $21.3 million.
Other income (expense)
Interest expense
Interest expense, net, consists primarily of interest related to borrowings under our term debt and financed laboratory equipment.
Other income
Other income consists primarily of interest income from our cash, cash equivalents and short-term investments.
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 $ 5,718 $ 4,529
Collaboration revenue — 1,218
Operating expenses
Goodwill impairment 21,335 —
Other income (expense)
Income tax (expense) benefit (100) 461
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Comparison of the Years Ended December 31, 2023 and 2022
The following table summarizes our results of operations for the years ended December 31, 2023 and 2022 (In thousands, except for percentages):
Revenue
For the Years Ended December 31,
Revenues
Technology development revenue increased by $1.2 million, or 26%, for the year ended December 31, 2023 compared to the year ended December 31, 2022, driven by a combination of overall program progress, the timing of project-based milestones achieved, and the mix of ongoing programs activity.
Collaboration revenue decreased by $1.2 million, or 100%, for the year ended December 31, 2023 compared to the year ended December 31, 2022. In September 2021, the JMA was amended to shorten the term to approximately three years, ending in October 2022.
Operating expenses
The following table summarizes our operating expenses for the years ended December 31, 2023 and 2022 (In thousands, except for percentages):
For the Years Ended December 31,
Operating expenses
Research and development
Research and development expenses decreased by $10.8 million, or 18%, for the year ended December 31, 2023 compared to the year ended December 31, 2022. The decrease was primarily attributable to a decrease in laboratory operational costs of $8.0 million and a $2.8 million decrease in personnel costs, including stock-based compensation.
Selling, general and administrative expenses
Selling, general, and administrative expenses decreased by $2.7 million, or 7%, for the year ended December 31, 2023 compared to the year ended December 31, 2022. The decrease was primarily driven by decreased stock-based compensation of $1.1 million and decreased insurance and other administrative costs of $2.2 million.
Depreciation and amortization
Depreciation and amortization expense increased by $1.0 million, or 7%, for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase was primarily due to a full year of depreciation for the year ended December 31, 2023 on leasehold improvement additions in 2022.
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Goodwill impairment
We performed a quantitative impairment evaluation of goodwill as of June 30, 2023 and recorded an impairment charge in the amount of $21.3 million during the second quarter. See Note 6: Goodwill and intangibles, net to our consolidated financial statements in this Annual Report on Form 10-K for further discussion.
Other income (expense)
The following table summarizes our other income (expense) for the years ended December 31, 2023 and 2022 (In thousands, except for percentages):
For the Years Ended December 31,
Other income (expense)
Interest expense
Interest expense was $1.0 million for the years ended December 31, 2023 and 2022, remaining consistent between periods.
Other income, net
Other income, net, was $6.1 million income for the year ended December 31, 2023 compared to $2.4 million income for the year ended December 31, 2022, representing a change of $3.7 million, or 157%, primarily attributable to increases in investment income from cash, cash equivalents and short-term investments.
Liquidity and Capital Resources
Overview
As of December 31, 2023, we had $97.7 million of cash,cash equivalents and short-term investments.
We have incurred net operating losses since inception. As of December 31, 2023, our accumulated deficit was $406.5 million. To date, we have funded operations through issuances and sales of equity securities and debt, in addition to revenue generated from our drug creation agreements. We believe that our cash, 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, the successful commercialization by our partners of any such product candidates that are approved, and the progress of any IND-enabling studies for our internal program assets. 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.
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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.
Initial public offering
In July 2021, we completed our initial public offering (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, 2023, the combined outstanding balance on these agreements is $7.9 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.
On June 16, 2023, we entered into a Sales Agreement with Cowen and Company, LLC, as Sales Agent, with respect to an “at the market offering” program under which we may offer and sell, from time to time at our sole discretion, shares of our common stock, par value $0.0001 per share, having an aggregate offering price of up to $100.0 million through the Sales Agent. We will pay the Sales Agent a commission up to 3.0% of the gross sales proceeds of any shares sold under the Sales Agreement.To date, we have not issued any securities or received any proceeds from the sale of any securities registered pursuant to the Sales Agreement. There can be no assurance that any financing will be available on terms acceptable to us.
On March 1, 2024, the Company closed the sale of an aggregate of 19,205,000 shares of its common stock, pursuant to an underwriting agreement with Morgan Stanley & Co. LLC and Cowen and Company, LLC at a public offering price of $4.50 per share, before underwriting discounts and commissions. The total estimated net proceeds to the Company from the offering are expected to be approximately $80.8 million after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company.
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, 2023, net cash used in operating activities was $64.6 million and consisted primarily of a net loss of $110.6 million adjusted for non-cash items, including depreciation and amortization expense of $14.0 million, stock-based compensation of $11.4 million, goodwill impairment of $21.3 million, and a net decrease in operating assets and liabilities in the amount of $1.5 million.
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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.
Cash flows from investing activities
In the year ended December 31, 2023, net cash provided by investing activities was $81.9 million. The net cash provided resulted primarily from maturities of short-term investments of $229.9 million, partially offset by cash used for purchases of short-term investments of $147.3 million and purchases of lab equipment of $0.9 million.
In the year ended December 31, 2022, net cash used in investing activities was $127.0 million primarily from purchases of short-term investments of $108.6 million, purchases of lab equipment of $16.2 million as we expanded our operations and overall capacity and cash paid as part of our acquisition of Totient, Inc. of $8.0 million, partially offset by cash provided by maturities of short-term investments of $5.0 million.
Cash flows from financing activities
In the year ended December 31, 2023, net cash used in financing activities was $4.5 million. The net cash used resulted primarily from principal payments of $5.3 million made for financed equipment, partially offset by proceeds from the issuance of common stock of $0.9 million from stock option exercises and our 2021 ESPP.
In the year ended December 31, 2022, net cash provided by financing activities was $5.2 million primarily from proceeds from equipment financing agreements of $12.0 million and proceeds from the issuance of common stock of $0.7 million, partially offset by cash used for principal payments of $7.5 million made for financed equipment and long-term debt.
Income taxes
Our effective income tax rate from continuing operations was (0.1)% and 0.4% for the year ended December 31, 2023 and 2022, 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, 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.
Long-lived asset impairment
We tested long-lived assets for recoverability as of June 30, 2023 by comparing the estimated future cash flows (on an undiscounted basis) to be generated from the use and residual value of the entity wide asset
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group to its carrying value and concluded that the long-lived assets were not impaired. For details regarding the interim impairment assessment performed for long-lived assets see Note 6: Goodwill and intangibles, net.
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.
We performed a quantitative impairment evaluation of goodwill as of June 30, 2023 and recorded an impairment charge of $21.3 million reported as goodwill impairment on the consolidated statement of operations and comprehensive loss. For details regarding the impairment assessments performed for goodwill see Note 6: Goodwill and intangibles, net.
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 drug creation agreements. We refer to our customers as “partners” when describing our relationship in an agreement.
Technology development revenue
Our drug creation agreements generally include multiple stages of drug creation that combined represent a single performance obligation. The primary goal of the drug creation phase includes target creation, lead or candidate creation, and development or optimization of a lead candidate or set of lead candidates. For the drug creation phase partners may request a scope that includes, but is not limited to: a specified disease area, a target for creation of a new biologic, or supply a specified lead candidate for AI-driven optimization. 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 drug creation 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.
Contingent Consideration
We utilized the acquisition method of accounting for our business combination related to the Totient acquisition which included allocating the purchase price of the acquisition to the various tangible and
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intangible assets acquired and liabilities assumed based on their estimated fair values. The contingent consideration of $15.0 million held in escrow is included in restricted cash on the consolidated balance sheets. The contingent consideration shall be paid upon the achievement of the milestone of either entering into agreements meeting certain financial criteria with third parties using, or relating to, Totient technology or the first commercial sale of a Totient product. We utilize a probability-weighted approach to estimate the fair value of the liability included in accrued expenses on the consolidated balance sheets. Changes in fair value of the contingent consideration liability are included within research and development expense on the consolidated statements of operations and comprehensive loss.
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 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.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) 92
Consolidated Balance Sheets as of December 31, 2023 and 2022 93
Notes to the Consolidated Financial Statements 97
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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, 2023 and 2022, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, 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 21, 2024
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CONSOLIDATED BALANCE SHEETS
December 31, December 31,
(In thousands, except for share and per share data) 2023 2022
ASSETS
Current assets:
Receivables under development arrangements, net 2,189 1,550
Prepaid expenses and other current assets 4,537 5,859
Operating lease right-of-use assets 4,490 5,319
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Financing lease obligations 641 2,296
Long-term debt, net of current portion 4,660 7,984
Operating lease obligations, net of current portion 5,643 7,317
Finance lease obligations, net of current portion 76 750
Deferred tax liability, net 186 238
Deferred revenue, long-term 966 —
Other long-term liabilities 33 35
Commitments (See Note 9)
STOCKHOLDERS' EQUITY
Accumulated other comprehensive loss (37) (120)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 217,298 $ 321,008
The accompanying notes are an integral part of these consolidated financial statements.
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CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For the Years Ended December 31,
(In thousands, except for share and per share data) 2023 2022
Revenues
Technology development revenue $ 5,718 $ 4,529
Collaboration revenue — 1,218
Operating expenses
Goodwill impairment 21,335 —
Other income (expense)
Income tax (expense) benefit (100) 461
Net loss per share:Basic and diluted $ (1.20) $ (1.15)
Comprehensive loss:
Foreign currency translation adjustments 40 (66)
Unrealized gain on investments 43 (41)
The accompanying notes are an integral part of these consolidated financial statements.
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STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Shares Amount
Forfeiture of common stock (789,846) — — — — —
Foreign currency translation adjustments — — — — (66) (66)
Unrealized loss on investments — — — — (41) (41)
Forfeiture of common stock (101,030) — — — — —
Foreign currency translation adjustments — — — — 40 40
Unrealized gain on investments — — — — 43 43
The accompanying notes are an integral part of these consolidated financial statements.
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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:
Deferred income taxes (52) (505)
Goodwill impairment 21,335 —
Accretion of discount on short-term investments (2,671) (688)
Changes in operating assets and liabilities:
Receivables under development arrangements (666) (148)
Prepaid expenses and other current assets 1,598 2,382
Operating lease right-of-use assets and liabilities (856) (640)
Other long-term assets (255) 13
Accrued expenses and other liabilities (1,213) (1,707)
Net cash used in operating activities (64,636) (81,339)
Cash Flows From Investing Activities
Purchases of property and equipment (860) (16,175)
Acquisitions, net of cash acquired — (8,000)
Proceeds from maturities of short-term investments 229,897 5,000
Proceeds from sales of property and equipment 254 133
Proceeds from property insurance settlements — 650
Net cash provided by (used in) investing activities 81,944 (126,982)
Cash Flows From Financing Activities
Proceeds from issuance of long-term debt — 12,031
Principal payments on long-term debt (3,012) (4,651)
Principal payments on finance lease obligations (2,333) (2,799)
Proceeds from issuance of common stock, net of issuance costs 862 656
Net cash (used in) provided by financing activities (4,483) 5,237
Cash, cash equivalents and restricted cash - Beginning of year 76,842 279,926
Cash, cash equivalents, and restricted cash - End of period $ 89,667 $ 76,842
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest $ 970 $ 895
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Right-of-use assets obtained in exchange for operating lease obligation — 111
Property and equipment purchases included in accounts payable — 123
The accompanying notes are an integral part of these consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.Organization and nature of operations
Absci Corporation (the “Company”) is a data-first generative AI drug creation company that combines AI with scalable wet lab technologies to create better biologics for patients, faster. Absci leverages its integrated drug creation platform (the “Integrated Drug Creation Platform”) to improve upon traditional biologic drug discovery by using AI to simultaneously optimize multiple drug characteristics important to development and therapeutic benefit. 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 Company’s headquarters are located in Vancouver, Washington.
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. Certain amounts in prior years' financial statements have been reclassified to conform to the current year's presentation.
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, the fair value of stock-based compensation awards, quantitative impairment evaluations of goodwill and recoverability of long-lived assets, and the fair value of contingent consideration. 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 9: Commitments and contingencies) and amounts held in escrow related to acquisitions by the Company (see Note 11: Fair value measurements).
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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
earnings. Unrealized gains and losses that are unrelated to credit deterioration are reported in accumulated other comprehensive loss on the consolidated balance sheets. 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 the consolidated statements of operations and comprehensive loss. The Company uses the specific identification method to compute realized 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.
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, net loss and net loss per common share could have been significantly different.
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, 2023 and 2022, two partners represented approximately 89% and three partners represented approximately 98% of technology development revenue, respectively.
As of December 31, 2023, one partner represented approximately 91% of total receivables under technology development arrangements. As of December 31, 2022, two partners represented approximately 100% of total receivables under technology development arrangements.
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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Assets held for sale
The Company classifies its long-lived assets to be sold as held for sale in the period the following conditions are met: (i) management has approved and committed to a plan to sell; (ii) the asset is available for immediate sale in its present condition; (iii) an active program to locate a buyer and other actions required to sell the asset have been initiated; (iv) it is probable that a sale will occur within one year; (v) the asset is being actively marketed for sale at a reasonable price in relation to its current fair value; and (vi) there is a low likelihood of significant changes to the plan or that the plan will be withdrawn. If all of the criteria are met as of the balance sheet date, the assets are presented separately on the consolidated balance sheets as held for sale. The Company initially measures a long-lived asset that is classified as held for sale at the lower of the carrying amount or fair value less costs to sell. Any loss resulting from this measurement is recognized in the period in which the held for sale criteria are met as an asset impairment charge on the consolidated statements of operations and comprehensive loss. Any gains are not recognized until date of sale. The assets are no longer depreciated nor amortized while classified as held for sale. The Company assesses the fair value of a long-lived asset, less any costs to sell, at each reporting period and until the asset is no longer classified as held for sale.
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. The Company performed a quantitative impairment evaluation of goodwill as of June 30, 2023 and recorded a full impairment charge in the amount of $21.3 million on the consolidated statement of operations and comprehensive loss.
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 drug creation phases of drug creation agreements. The Company refers to its customers as “partners” when describing their relationship in an agreement.
Technology development revenue
The Company’s drug creation agreements generally include multiple stages of drug creation that combined 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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 drug creation 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.
Collaboration agreements
The Company analyzes its drug creation agreements to assess whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and that are exposed to significant risks and rewards dependent on the commercial success of such activities. Payments to and from the Company’s collaborators are presented within research and development expense on the consolidated statements of operations and comprehensive loss. The Company did not have payments related to such agreements during the years ended December 31, 2023 and 2022.
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, 2023 and 2022.
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 asset pipeline programs, and partnered drug creation programs. 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. When determining the grant date fair value of stock-based awards, management considers whether an adjustment is required to the observable market price or volatility of the Company’s common stock that is used in the valuation as a result of material non-public information. The Company accounts for forfeitures as they occur.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net Loss Per Share
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.
Recent accounting pronouncements
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures to improve reportable segment disclosure requirements through enhanced disclosures about significant segment expenses on an interim and annual basis. All disclosure requirements of ASU 2023-07 are required for entities with a single reportable segment. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods for the fiscal years beginning after December 15, 2024, and should be applied on a retrospective basis to all periods presented. Early adoption is permitted. The Company does not expect the adoption of this new guidance to have a material impact on its consolidated financial statements and is currently evaluating the effect of adopting the ASU on its disclosures.
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures. The ASU requires that an entity disclose specific categories in the effective tax rate reconciliation as well as provide additional information for reconciling items that meet a quantitative threshold. Further, the ASU requires certain disclosures of state versus federal income tax expense and taxes paid. The amendments in this ASU are required to be adopted for fiscal years beginning after December 15, 2024. Early adoption is permitted and the amendments should be applied on a prospective basis. The Company does not expect the adoption of this new guidance to have a material impact on its consolidated financial statements and is currently evaluating the effect of adopting the ASU on its disclosures.
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, 2023 there were no contract assets. As of December 31, 2022, contract assets were $1.1 million Contract assets are included in receivables under development arrangements on the consolidated balance sheets.
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, 2023 and December 31, 2022, contract liabilities were $4.1 million and $0.4 million, respectively. During the years ended December 31, 2023 and 2022, the Company recognized $0.4 million and $1.4 million, respectively, as revenue that had been included in deferred revenue at the beginning of the period.
Collaboration revenue
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.
4.Investments
Cash equivalents, marketable securities and deposits are classified as available-for-sale and are, therefore, recorded at fair value on the consolidated balance sheets, with any unrealized gains and losses reported in accumulated other comprehensive income (loss), which is reflected as a separate component of stockholders’ equity on the Company’s consolidated balance sheets, until realized. The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $ 1,158 $ — $ — $ 1,158
Classified as:
Short-term investments 25,297
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
Investments held as of December 31, 2023 have a remaining maturity of less than one year. Proceeds from maturities of available for sale securities were $241.6 million and $85.0 million for the years ended December 31, 2023 and 2022, respectively. There were no realized gains and losses on securities for the years ended December 31, 2023 and 2022. Unrealized gains and losses on securities were primarily due to changes in interest rates.
5.Property and equipment, net
Property and equipment consist of the following (in thousands):
December 31, December 31,
Construction in progress $ — $ 293
Furniture, Fixtures and Other 6,001 6,307
Less accumulated depreciation and amortization (23,991) (15,203)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Depreciation expense was $10.6 million and $9.7 million for years ended December 31, 2023 and 2022, respectively.
For details regarding the interim impairment assessment performed for long-lived assets see Note 6: Goodwill and intangibles, net.
During the fourth quarter of 2023, the Company committed to a plan to actively sell specific assets within its entity wide asset group, primarily laboratory equipment located at its Vancouver headquarters. For the lab equipment that met all of the prescribed criteria required to classify it as held for sale, the Company determined the carrying value exceeded the fair value less costs to sell each asset, which resulted in a write down of $0.5 million for the year ended December 31, 2023, presented within research and development expense on the consolidated statement of operations and comprehensive loss. As of December 31, 2023, $0.3 million of lab equipment is classified as current assets held for sale within prepaid expenses and other current assets on the consolidated balance sheet as the disposal is expected to be consummated within one year of the balance sheet date.
6.Goodwill and intangibles, net
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.
During the second quarter, the Company performed an interim qualitative impairment assessment of goodwill as of June 30, 2023 and concluded that the duration and extent of the sustained decline in the Company’s stock price and resulting market capitalization below cash and short-term investments for a period of time within the three months ended June 30, 2023 were indicators of impairment that triggered a quantitative assessment.
The Company performed a quantitative impairment evaluation of goodwill as of June 30, 2023 utilizing both income and market approaches. The income approach utilized the estimated discounted cash flows for the single reporting unit while the market approach utilized comparable company information. The fair value of equity was derived using a discount rate commensurate with the related risk and an estimate of a control premium applied to the Company’s implied enterprise value. The discounted cash flow method requires significant judgments, including estimation of future cash flows, which is dependent on internally developed forecasts, estimation of the long-term rate of growth for the business, and determination of weighted average cost of capital. The models used to estimate the fair value of the single reporting unit are reflective of significant assumptions, including the following:
•Forecasted revenues from current and future programs;
•Probability of the Company’s partners electing licensing options for clinical development, clinical success, and obtaining regulatory approval;
•Forecasted research and development and general and administrative expenses to sustain forecasted program growth which are reflective of efficiencies gained as the business and platform evolve;
•A discount rate reflecting the Company’s weighted average cost of capital and specific entity risk; and
•A control premium based upon recently observed transactions in technology platform-based companies in the life science industry.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The estimates and assumptions used to determine fair value include determinations that are categorized as Level 3 in the fair value hierarchy due to use of internal projections and unobservable measurement inputs. The assumptions used in the Company’s impairment analysis are inherently subject to uncertainty and the Company notes that small changes in these assumptions could have a significant impact on the concluded value. In order to further validate the reasonableness of the fair value concluded for the reporting unit, a reconciliation to market capitalization was performed by estimating a reasonable implied control premium and other market factors. The control premium was estimated based upon control premiums observed in recent comparable market transactions. The Company reconciled the estimated fair value of the reporting unit utilizing the market capitalization based on the stock price as of June 30, 2023.
The Company concluded the fair value of the single reporting unit was less than its carrying value and that the Company’s recorded goodwill was fully impaired as of June 30, 2023. The Company recognized a non-cash, pre-tax goodwill impairment charge of $21.3 million during the three months ended June 30, 2023 reported as goodwill impairment on the consolidated statement of operations and comprehensive loss.
In conjunction with, and in advance of, the interim test of goodwill of the single reporting unit, the Company also performed an interim qualitative impairment assessment of long-lived assets as of June 30, 2023 which indicated that the carrying amount of the long-lived assets might not be recoverable. To test these long-lived assets for recoverability, the Company compared the estimated future cash flows (on an undiscounted basis) to be generated from the use and residual value of the entity-wide asset group to its carrying value and concluded that the long-lived assets were not impaired as of June 30, 2023. The Company’s annual qualitative assessment determined that a quantitative analysis was not necessary. It is reasonably possible that changes in future operating results, cash flows, or market capitalization, as well as future changes related to the asset group may result in the need to write down the asset group to fair value. The Company will continue to monitor for events occurring or circumstances changing which may suggest that long-lived assets should be reevaluated.
Intangible assets are as follows (in thousands):
Amortization expense related to intangible assets was $3.4 million for the years ended December 31, 2023 and 2022 and is reflected within depreciation and amortization expense on the consolidated statements of operations and comprehensive loss.
Future amortization expense for the Company’s intangible assets as of December 31, 2023 is estimated as follows (in thousands):
Years Ending December 31:
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7.Long-term debt and other borrowings
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 from 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, include certain financial covenants, and contain subjective acceleration clauses that allow for outstanding amounts under the agreement to become immediately due in the event of a material adverse change in the Company's business condition or change in control. The Company was in compliance with all applicable financial covenants as of December 31, 2023.
The carrying amount of the long-term debt approximates fair value.
Future undiscounted payments for the Company’s financing liabilities as of December 31, 2023 are as follows (in thousands):
Years ending December 31:
Total future payments 8,770
Less: Imputed interest (852)
Total long-term debt $ 7,918
8.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. 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 year ended December 31, 2022 the Company recognized $0.4 million 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,
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Equipment leases
The Company leases certain laboratory equipment under finance leases. Property and equipment includes approximately $4.3 million and $7.0 million of assets under finance leases as of December 31, 2023 and December 31, 2022, respectively. Accumulated depreciation related to assets under finance leases was approximately $3.0 million and $3.1 million as of December 31, 2023 and December 31, 2022, respectively.
Future undiscounted lease payments for the Company’s lease liabilities as of December 31, 2023 are as follows (in thousands):
Operating leases Finance leases
Thereafter — —
Total future lease payments 8,663 747
Less: Imputed interest (1,341) (30)
Present value of lease liabilities $ 7,322 $ 717
Additional information related to the Company’s leases is as follows:
Weighted average remaining lease term (in years)
Operating leases 4.1 4.9
Finance leases 0.9 1.6
Weighted average discount rate
Operating leases 8 % 8 %
Finance leases 8 % 8 %
9.Commitments and contingencies
As of December 31, 2023, 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.
10.Stock-based compensation
The Company grants stock options, restricted stock units, and stock appreciation rights (“SARs”) under the 2021 Stock Option and Incentive Plan (“2021 Plan”) as awards to incentivize employee service. On January 1, 2023, the number of shares of common stock reserved for future issuance under the 2021 Plan was increased by 4,620,555 shares pursuant to an automatic annual increase. As of December 31, 2023, 5,082,189 shares were available for future grants under the 2021 Plan. On December 5, 2023, the Company’s Board of Directors approved an inducement equity incentive plan (the “2023 Inducement Plan”) effective January 1, 2024. The maximum aggregate number of shares that may be issued under the 2023 Inducement Plan is 2,500,000 shares of the Company’s common stock.
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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,
Selling, general and administrative 6,850 7,924
Total stock-based compensation expense $ 11,454 $ 12,658
Stock options
Stock options generally vest 25% after one year from the date of the grant with the remainder vesting monthly over the following three-year period. Certain options have alternative vesting schedules including ratably over 1-4 years and immediate vesting. The Company recognizes forfeitures as they occur and uses the straight-line expense recognition method. Activity for stock options is shown below:
The aggregate intrinsic value of outstanding stock options as of December 31, 2023 was calculated based on the Company’s closing stock price of $4.20 per share as reported on the Nasdaq Global Select Market on such date.
The weighted-average grant date fair value of stock options granted during the years ended December 31, 2023 and 2022 was $1.38 and $3.18, respectively, per share. The aggregate grant date fair value of options vested during the years ended December 31, 2023 and 2022 was $10.2 million and $9.6 million, respectively. As of December 31, 2023, total unrecognized stock-based compensation related to stock options was $20.2 million, which the Company expects to recognize over a remaining weighted average period of 2.7 years.
Determination of fair value
The estimated grant-date fair value of all the Company’s stock options was calculated using the Black-Scholes option pricing model, based on the following assumptions:
For the Years Ended December 31,
Risk-free interest rate 3.4%-4.7% 1.6%-4.2%
Dividend Yield —% —%
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The fair value of each stock option was determined by the Company using the methods and assumptions discussed below. Each of these inputs is subjective and generally requires significant judgment and estimation by management.
Expected Term—The expected term represents the period that stock-based awards are expected to be outstanding. The Company’s stock options have a 10 years contractual term. The Company’s historical option exercise data is limited and did not provide a reasonable basis upon which to estimate an expected term. The expected term for options was derived by using the simplified method which uses the midpoint between the average vesting term and the contractual expiration period of the stock-based award.
Expected Volatility—As the Company does not have sufficient trading history for its common stock, the expected volatility was derived from the historical stock volatilities of comparable peer public companies within the Company’s industry. These companies are considered to be comparable to the Company’s business over a period equivalent to the expected term of the stock-based awards.
Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the stock options’ expected term.
Expected Dividend Rate—The expected dividend is zero as the Company has not paid nor does it anticipate paying any dividends on its common stock underlying its stock options in the foreseeable future.
The Company estimated the fair value of its common stock underlying the stock-based awards when performing fair value calculations using the Black-Scholes option pricing model.
Restricted stock
Prior to the IPO, the Company issued shares of restricted stock. Shares of restricted stock that do not vest are subject to the Company’s right of repurchase or forfeiture. In connection with its acquisitions of Denovium, Inc. and Totient, Inc., the Company issued restricted shares of common stock that vest over time subject to continued service. Activity for restricted shares is shown below:
Number of shares
As of December 31, 2023, there was $0.8 million of unrecognized compensation expense related to the outstanding shares of restricted shares expected to be recognized over a remaining weighted-average period of 1.1 years.
Restricted stock units generally vest ratably over a term of 1-4 years. The Company recognizes forfeitures as they occur and uses the straight-line expense recognition method. Activity for restricted stock units is shown below:
Number of Shares Weighted Average Grant Date Fair Value
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The weighted-average grant date fair value of restricted stock units granted during the years ended December 31, 2023 and 2022 was $1.38 and $8.27 per share, respectively. The aggregate grant date fair value of restricted stock units vested during the years ended December 31, 2023 and 2022 was $0.1 million and $0.2 million, respectively. As of December 31, 2023, there was $2.9 million of unrecognized compensation expense related to the outstanding shares of restricted stock units expected to be recognized over a remaining weighted-average period of 2.7 years. Fair value of restricted stock units is calculated based on the Company’s closing stock price per share as reported on the Nasdaq Global Select Market on date of grant.
Stock appreciation rights
In January 2021, the Company issued SARs that are contingent upon a liquidity event that is not probable of occurrence; accordingly, no compensation expense has been recognized for these awards. The aggregate intrinsic value of the 394,736 SARs outstanding as of December 31, 2023 is $1.7 million based on the Company’s closing stock price of $4.20 per share as reported on the Nasdaq Global Select Market on such date.
Under the Company’s 2020 Stock Option and Grant Plan and 2021 Plan, the Company has also granted a limited quantity of cash-settled SARs to certain employees and consultants based outside the United States. As of December 31, 2023, 192,617 of these SARs were outstanding with a weighted average exercise price of $4.36 per share. The fair value is remeasured at the end of each reporting period based on the Company’s stock price, with remeasurements reflected as an adjustment to compensation expense in the consolidated statements of operations and comprehensive loss for such period. As of December 31, 2023, the Company had recognized a less than $0.1 million liability for SARs classified within other long-term liabilities on the consolidated balance sheets. As of December 31, 2022, the Company had no liability for SARs.
Employee stock purchase plan
In July 2021, the Company’s Board of Directors adopted the 2021 Employee Stock Purchase Plan (“2021 ESPP”), which was subsequently approved by the Company’s stockholders and became effective in connection with the Company’s initial public offering. The ESPP allows eligible employees to purchase shares of the Company’s common stock through payroll deductions of up to 15% of their regular compensation at a discount of 85% of the fair market value of the Company’s common stock on the first day or last day, whichever is less, of the applicable offering period, subject to any plan limitations. A total of 903,750 shares of common stock were reserved for issuance under the 2021 ESPP. On January 1, 2023, the number of shares of common stock reserved for issuance under the 2021 ESPP was increased by 924,111 shares pursuant to an automatic annual increase. As of December 31, 2023, 1,625,609 shares were available for future purchases under the 2021 ESPP.
11.Fair value measurements
The Financial Accounting Standards Board (“FASB”) has defined fair value to establish a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1: Observable inputs such as quoted prices in active markets.
Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
When quoted market prices are available in active markets, the fair value of assets and liabilities is estimated within Level 1 of the valuation hierarchy.
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If quoted prices are not available, then fair values are estimated by using pricing models, quoted prices of assets and liabilities with similar characteristics, or discounted cash flows, within Level 2 of the valuation hierarchy. In cases where Level 1 or Level 2 inputs are not available, the fair values are estimated by using inputs within Level 3 of the hierarchy.
The following tables summarize the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2023 and December 31, 2022 (in thousands):
Level 1 Level 2 Level 3 Total
Assets:
Debt Securities:
Money market funds $ 1,158 $ — $ — $ 1,158
Liabilities:
Level 1 Level 2 Level 3 Total
Assets
Debt Securities:
Money market funds $ 5,050 $ — $ — $ 5,050
Liabilities:
The following table provides reconciliation for all liabilities measured at fair value using significant unobservable inputs (Level 3) for the year ended December 31, 2023 (in thousands):
Contingent consideration Total liabilities
Change in fair value during 2023 — —
The Company reviews trading activity and pricing for its available-for-sale securities as of the measurement date.
The contingent consideration liability is related to the acquisition of Totient, Inc. and is included in accrued expenses on the consolidated balance sheet as of December 31, 2023 and December 31, 2022. The fair value estimate is based on a probability-weighted approach. Changes in fair value of the contingent consideration liability are included within research and development expense on the consolidated statements of operations and comprehensive loss for the year ended December 31, 2022. The contingent consideration of $15.0 million held in escrow shall be paid upon the achievement of the milestone of either entering into agreements
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
meeting certain financial criteria with third parties using, or relating to, Totient technology or the first commercial sale of a Totient product. The contingent consideration held in escrow is included in restricted cash on the consolidated balance sheets as of December 31, 2023 and December 31, 2022.
See Note 2: Summary of significant accounting policies, Note 5: Property and equipment, net, andNote 6: Goodwill and intangibles, net of these notes to our consolidated financial statements for fair value measurements of certain assets and liabilities recorded at fair value on a non-recurring basis. These include the fair value of assets acquired and liabilities assumed in a business combination, and goodwill and other long-lived assets when they are held for sale or determined to be impaired.
There are significant judgments, assumptions and estimates inherent in the determination of the fair value of each of the instruments described above. In the future, depending on the valuation approaches used and the expected timing and weighting of each, the inputs described above, or other inputs, may have a greater or lesser impact on the Company’s estimates of fair value.
12.Employee benefit plan
The Company sponsors a 401(k) tax-deferred savings plan for all U.S. employees who meet certain eligibility requirements. Participants may contribute, on a pre-tax or post-tax basis, a percentage of their annual compensation, not to exceed a maximum contribution amount pursuant to Section 401(k) of the Internal Revenue Code. The Company match is 100% of the employees’ first contribution of 3%, plus 50% of the next 2% of eligible compensation contributed by the employee, up to a maximum Company match of 4% of compensation for each employee. The Company also sponsors a retirement plan for employees of Absci GmbH, the Company’s wholly-owned subsidiary based in Switzerland. The Swiss plan is a government-mandated retirement fund that provides employees with a minimum investment return. The Company contributed $1.2 million and $1.0 million to both plans in the aggregate for the years ended December 31, 2023 and 2022, respectively.
13.Net loss per share
Basic net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period.
The following table sets forth the computation of the Company’s basic and diluted net loss per share attributable to common stockholders (in thousands, except share and per share amounts):
For the Years Ended December 31,
Numerator:
Denominator:
Net loss per share, basic and diluted $ (1.20) $ (1.15)
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The common stock issuable upon the conversion or exercise of the following dilutive securities has been excluded from the diluted net loss per share calculation because their effect would have been anti-dilutive. Diluted net loss per share, therefore, does not differ from basic net loss per share for the periods presented.
Potentially dilutive securities not included in the calculation of diluted net loss per share because to do so would be anti-dilutive are as follows (in common stock equivalent shares):
For the Years Ended December 31,
Employee stock purchase plan 75,795 —
On March 1, 2024, the Company closed the sale of an aggregate of 19,205,000 shares of the Company’s common stock pursuant to its shelf registration statement (see Note 15: Subsequent events).
14.Income taxes
Provision for income taxes:
The Company incurred net losses for the years ended December 31, 2023 and 2022.
The significant components of income tax expense (benefit) are as follows (in thousands):
Years Ended December 31,
Current
Federal $ — $ —
Deferred expense/(benefit)
State — —
The components of income (loss) before income taxes by tax jurisdiction for the years ended December 31, 2023 and 2022 are as follows (in thousands):
The income tax expense (benefit) for the years ended December 31, 2023 and 2022 primarily relate to state taxes and taxes in foreign jurisdictions, offset by the change in valuation allowance.
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The provision for income taxes results in effective tax rates which are different than the federal income tax statutory rate. The following include the nature of the differences for the years ended December 31, 2023 and 2022:
Statutory federal income tax rate 20.6 % 21.0 %
State income taxes, net of federal benefits 5.1 5.9
Tax contingencies, net of reversals (0.5) (0.6)
Section 162(m) limitation (0.4) (0.2)
Stock-based compensation (1.4) (0.5)
Research and development credits 1.9 2.4
Return-to-provision (0.7) 0.6
Change in valuation allowance (19.8) (27.1)
Goodwill impairment (4.1) —
Deemed foreign inclusion (0.4) —
Effective tax rate (0.1) % 0.4 %
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and amounts used for income tax purposes.
Significant components of the Company’s deferred income tax assets and liabilities as of December 31, 2023 and 2022 are as follows (in thousands):
Deferred tax assets:
Research and development credits 6,014 3,835