ABSI US Equity☆

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

Overview

We are a data-first generative AI drug creation company with the mission to design differentiated antibody therapeutics. Our Integrated Drug Creation platform comprises, in part, cutting edge generative AI models aimed at designing better antibody therapeutics, including against hard-to-drug targets. Antibody therapeutics represent a growing market and significant medical opportunity, yet the biopharmaceutical industry faces challenges in bringing these potentially life-changing medicines to patients. Leveraging our synthetic biology roots, we expect our Integrated Drug Creation platform 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. Through these efforts, we aim to shorten time to clinic, while increasing 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.

Traditional drug discovery and preclinical development can take 4–6 years to go from discovery to clinical development. Moreover, success rates for traditional drug discovery, as defined by successfully reaching a marketed product, are estimated at less than 5%. In all, it can take as much as 12–15 years, with costs estimated to exceed more than $1 billion to bring a drug to market.

Progress in AI has been building for decades, with increasing application in drug discovery. In May 2023, the U.S. Food and Drug Administration (FDA) acknowledged that AI will undoubtedly play a critical role in drug development and recognized its potential to enhance drug development in many ways, including to help bring safe and effective drugs to patients faster. A June 2023 study estimated that AI could yield time and cost savings of at least 25–50% in drug discovery up to the preclinical stage. Some analysts point specifically to generative AI as a promising approach to creating novel drugs with improved attributes, allowing drug development to move closer to drug design, speeding up the process and creating better-targeted drugs. However, generative AI depends on massive high-quality 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. This type of dataset is more limited and not as accessible for biologics drug discovery.

With the data to learn, the AI to create, and the wet lab to validate, we believe we can create billions of antibody designs and screen millions of ranked antibody sequences in weeks, allowing us to go from AI-designed to wet lab-validated product candidates in as little as six weeks. Our proprietary Integrated Drug Creation platform enables us to build a strong pipeline of both internal and partnered programs that can expand therapeutic possibilities.

Our business model is focused on monetizing our Integrated Drug Creation platform by generating internally developed programs that are later partnered or out-licensed following certain value inflection points (anywhere from preclinical through clinical development) or by partnering with third parties who wish to leverage our Integrated Drug Creation platform for early discovery efforts in a variety of deal structures.

Internally Developed Programs: We believe that by developing our own pipeline, we will create optionality for enhanced monetization and validation of our Integrated Drug Creation platform. With the ability to selectively choose both novel and fast-follower targets, in addition to develop potentially best-in-class attributes, we aim to take our internally developed programs to certain value inflection points before considering partnering or out-licensing opportunities.

Partnered Programs:

•Drug Creation Programs: We enter into collaborations with third parties who are seeking to leverage our platform to solve challenging problems. We work closely with our partners on single and multi-target programs to develop product candidates against targets they have selected. We aim to expand and diversify our portfolio of partnered programs through these collaborations, each of

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which may include up-front fees and research fees, as well as potential clinical and/or commercial milestones and royalties.

•Co-development Programs: We enter into co-development partnerships with third parties who may offer perceived synergies with our Integrated Drug Creation platform. Our co-development programs are based on a clear alignment to take these programs through to certain value inflection points before considering partnering or out-licensing opportunities. Our co-development partnerships may be directed to either single and multi-target programs and may include mutual cost-sharing and/or technology contributions. We aim to further expand and diversify our portfolio of partnered programs through these co-development partnerships. By sharing both the risks and rewards of these programs, we ensure both parties are motivated for success.

Our evolving business model is underpinned by our Integrated Drug Creation platform which supports a strategic diversification of our program portfolio through internally developed programs, partnered drug creation programs and co-development programs. This strategic diversification allows us the potential to balance our program portfolio between internally developed programs for which we have more control and may provide more significant economic returns, and partnered programs which broaden our reach into therapeutic areas where our partner has established capabilities and expertise. Thus, the cornerstone of this business model evolution lies in the diversification of risk and potential return on investment. Our business model not only secures a focused set of therapeutic areas, 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 $4.5 million for the year ended December 31, 2024, compared to $5.7 million for the year ended December 31, 2023, a decrease of $1.2 million due to the number of ongoing partnered programs and respective timing of project-based milestones achieved. We incurred a net loss of $103.1 million for the year ended December 31, 2024, compared to a net loss of $110.6 million for the year ended December 31, 2023. Research and development expenses increased by $15.8 million, or 33%, for the year ended December 31, 2024 compared to the year ended December 31, 2023. The net loss for the year ended December 31, 2023 included a non-cash goodwill impairment charge in the amount of $21.3 million recorded during the quarter ended June 30, 2023.

As of December 31, 2024, we had an accumulated deficit of $509.6 million and cash and cash equivalents and short-term investments totaling $112.4 million.

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

•develop our internally developed programs across diverse indications, including the advancement of these product candidates through preclinical and clinical development;

•continue to engage in discovery, research and development efforts and scale our activities to meet potential demand from both new and existing partners;

•execute an effective business development strategy to drive adoption of our Integrated Drug Creation platform by new and existing partners and, as relevant, to identify partners for internally developed programs;

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

•attract, retain and motivate highly qualified personnel.

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 sections of this Annual Report on Form 10-K for the year ended December 31, 2024 titled “Risk Factors”.

•Build out our internally developed programs: We are in the process of selectively creating our own programs and intend to advance them to certain value inflection points anywhere from preclinical validation through clinical development prior to out-licensing for further clinical advancement by a partner or other third party. We may also utilize significant resources in the design and execution of clinical trials to support our internally developed programs.

•Establish new partnerships: Our potential to grow revenue and long-term earnings will require us to successfully identify, establish and maintain programs with new and existing partners.

•Successfully complete our drug creation activities with partners and enter into licensing agreements:Our business model relies upon entering into licensing agreements with our partners to advance the product candidates we generate through preclinical validation 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 relevant program, impact the likelihood and timing of any election by a partner to enter into a follow-on licensing agreement. There is no assurance that a partner will elect to license our intellectual property for the development of any product candidates.

•Developing and commercializing product candidates generated with our Integrated Drug Creationplatform: Our business model is dependent on the eventual progression of product candidates discovered or initially developed utilizing our Integrated Drug Creation platform into clinical trials by us or our partners and through commercialization by our partners or other third parties. 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 programs. 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 can significantly impact our results of operations and future performance.

•Continued significant investments in our research and development of new technologies and expansion of our Integrated Drug Creation platform: We are seeking to further refine and expand 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, and application of artificial intelligence across our Integrated Drug Creation platform. We expect to incur significant expenses to advance our discovery, research and development efforts or to invest in and/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 capabilities, including to discover and validate new product candidates for existing partners or help expand our capabilities to support new markets.

Key Business Metrics

We have historically identified key business metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions. Our key business metrics have changed as our business strategy has evolved and may be substituted for additional or different metrics as our business continues to develop. We have historically applied the number of Active Programs to assess the adoption of our Integrated Drug Creation platform and our ability to generate future revenues; however, as our business strategy has evolved to have a greater focus on internally developed programs, we currently do not intend to continue using or reporting on Active Programs as a key business metric. We continue to evaluate our key business metrics in light of our current strategy and determine how

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to accurately measure the initiation, advancement, and overall progress of our partnered and internally developed programs.

During the years ended December 31, 2024 and 2023, we believed the following metrics were the most important for understanding our business trajectory.

December 31, December 31,

Partners, Cumulative (1) 28 24

(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) Active Programs represents partnered programs that are subject to ongoing development activities intended to determine if the program can be pursued by our partner for future preclinical or clinical development, as well as any program for which our partner obtains and maintains a license to our technology to advance such program after completion of the drug creation phase. There is no assurance, however, that our partners will advance any product 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 product candidates generated from our Integrated Drug Creation platform. As Active Programs terminate, we have historically removed the subject programs from our Active Programs count.

As of December 31, 2024, our Active Programs were as follows:

Partner Contract Date Active Programs Therapeutic Area

Owkin December 2024 1 Undisclosed

Invetx December 2024 1 Animal Health

Twist Bioscience October 2024 1 Undisclosed

Memorial Sloan Kettering Cancer Center July 2024 6 Oncology

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 25

Internally Developed Programs

Our pipeline reflects internally developed programs which highlight our differentiated capabilities, including in de novo antibody design, multi-parametric lead optimization, and reverse immunology, with an initial focus on cytokine biology. As of December 31, 2024, we have identified four wholly owned, internally developed programs focusing on cytokine biology, as well as several undisclosed internal pipeline programs currently in early discovery phases

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ABS-101

Our first development candidate, ABS-101 is in development as a potential treatment for Inflammatory Bowel Disease (IBD). IBD is a chronic condition characterized by inflammation within the gastrointestinal tract and encompasses two main disorders: ulcerative colitis (UC) and Crohn’s Disease (CD). UC primarily affects the colon and the rectum, and symptoms include bloody diarrhea, abdominal pain, bowel urgency, and frequent bowel movements. CD can affect any part of the gastrointestinal tract, from the mouth to the anus, and symptoms include abdominal pain, diarrhea, weight loss, fatigue, and complications such as strictures or fistulas. Both conditions can significantly impact patients’ quality of life in terms of physical health, emotional well-being, and the unpredictability of symptom onset.

IBD affects millions of individuals worldwide, with increasing prevalence and incidence in both developed and developing countries. In the United States, it is estimated that approximately 2.4 million individuals currently have IBD, with approximately 70,000 patients newly diagnosed every year. Based on research from the Crohn's and Colitis Foundation of America, the market for IBD therapeutics is expected to experience steady growth, driven by rising disease prevalence, increasing diagnosis rates, and evolving treatment paradigms.

We believe ABS-101 may present a significant market opportunity for the treatment of IBD. Current IBD treatments face limitations such as lack of response in some patients, diminishing effectiveness over time, and a therapeutic efficacy ceiling. ABS-101 has the potential to address these limitations by providing a novel mechanism of action through blocking TL1A-driven activation of immune responses and potentially fibrosis. Additionally, ABS-101 is being developed for potential longer dosing intervals and subcutaneous injections, which we believe may improve patient compliance and quality of life. Beyond IBD, ABS-101's therapeutic relevance may extend to a range of immune-related indications, further broadening its market potential.

Preclinical development of ABS-101 is ongoing in preparation for a potential regulatory filing in the first half of 2025, and an anticipated interim clinical readout in the second half of 2025.

ABS-201

Our second development candidate, ABS-201 is in development as a potential treatment for androgenic alopecia (AGA). AGA is an indication with a significant clinical unmet need and a potential patient population of approximately 80 million individuals in the United States alone. AGA is a genetically predetermined disorder that can affect over 50 percent of men and over 40% of women by age 50. It is characterized by progressive loss of terminal hair of the scalp any time after puberty, and follows a characteristic distribution in both males and females. Hair loss is most prominent in the vertex and frontotemporal regions in males. In women, the frontal hairline is typically spared with diffuse hair loss at the crown and top of the head, with loss often marked by a wider center part.

Current FDA-approved treatments for AGA are limited due to variable efficacy, lack of patient compliance, potential sexual and neurological side effects. Additionally, incremental limitations exist for women of reproductive age. We believe that an antibody therapeutic that is safe and efficacious with durable effects

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and convenient dosing has the potential to unlock a significant commercial market for hair-regrowth therapy.

Preclinical development of ABS-201 is ongoing in preparation for a potential regulatory filing in the first half of 2026.

Components of Results of Operations

Revenue

Our revenue currently consists primarily of fees earned from our partners in conjunction with drug creation agreements utilizing our Integrated Drug Creation platform, which are presented as partner program 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 that our revenue will fluctuate from period to period due to, for example, the timing of executing additional partnerships, the contractual structure of future partnerships, the uncertainty of the timing of milestone achievements and dependence on our partners’ program-related decisions. We expect revenue to increase over time as we grant licenses to our partners for the clinical and commercial use of product candidates, and as the partnered product candidates advance into and through clinical development and commercialization.

Operating Expenses

Research and development

Research and development expenses include the personnel-related costs (comprised of salaries, benefits and share-based compensation), contract research services, contract manufacturing, consulting fees, laboratory supplies and facilities, and certain technology costs. These expenses are exclusive of depreciation and amortization. Research and development activities consist of continued development of our Integrated Drug Creation platform, internally developed programs, and partnered programs. We derive improvements to our Integrated Drug Creation platform from each type of activity. Research and development efforts apply to our Integrated Drug Creation platform broadly, as well as and across programs.

We expect research and development expenses to increase in absolute dollars over the long term as we develop and advance our internally developed programs, enter into additional partnerships, and continue to invest in technology enhancements.

Selling, general, and administrative

Selling, general, and administrative expenses include personnel-related costs (comprised of salaries, benefits and share-based compensation) for executive, business development, legal, finance, human resources, information technology and other administrative functions. Business development expenses include costs associated with attending conferences and other promotion efforts of our Integrated Drug Creation platform. General and administrative expenses include certain professional service expenses such as, external legal, accounting, and other consultants, as well as certain technology costs and allocated facility costs. These expenses are exclusive of depreciation and amortization.

As we grow our operations, we expect personnel-related costs to increase in absolute dollars and we expect to actively manage other general and administrative expenses. 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 internally developed programs, product candidates proprietary cell lines and protein expression technologies, proprietary screening assays, antibody discovery methods, and generative AI models. We regularly file patent applications to protect innovations arising from our research and development. We also hold trademarks and trademark applications in the United States and foreign jurisdictions. Costs to secure and defend our intellectual property are expensed as incurred and are classified as selling, general and administrative expenses.

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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 fluctuate in future periods in line with continued growth and compute demands in absolute dollars as 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, net

Other income, net 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

Operating expenses

Goodwill impairment — 21,335

Other income (expense)

Income tax expense (70) (100)

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Comparison of the Years Ended December 31, 2024 and 2023

The following table summarizes our results of operations for the years ended December 31, 2024 and 2023 (In thousands, except for percentages):

Revenue

For the Years Ended December 31,

Revenues

Partner program revenue decreased by $1.2 million, or 21%, for the year ended December 31, 2024 compared to the year ended December 31, 2023, driven by a combination of the timing of achieving project-based milestones and the mix of ongoing program activity under our drug creation agreements. For the years ended December 31, 2024 and 2023, two partners represented approximately 99% and 89% of partner program revenue, respectively.

Operating expenses

The following table summarizes our operating expenses for the years ended December 31, 2024 and 2023 (In thousands, except for percentages):

For the Years Ended December 31,

Operating expenses

Research and development

Research and development expenses increased by $15.8 million, or 33%, for the year ended December 31, 2024 compared to the year ended December 31, 2023. The increase was primarily attributable to the advancement of our drug creation programs representing $11.8 million of this increase, which also included direct costs associated with IND-enabling studies for ABS-101, an increase in stock-based compensation of $2.8 million, and an increase in impairment expense of $0.9 million for assets.

Selling, general and administrative expenses

Selling, general, and administrative expenses decreased by $1.7 million, or 4%, for the year ended December 31, 2024 compared to the year ended December 31, 2023. The decrease was primarily attributable to a decrease in personnel costs of $4.2 million, decreased other administrative costs of $2.7 million, offset by a $5.2 million increase in stock-based compensation.

Depreciation and amortization

Depreciation and amortization expense decreased by $0.6 million, or 4%, for the year ended December 31, 2024 compared to the year ended December 31, 2023, remaining relatively consistent between periods.

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.

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Other income (expense)

Interest expense

Interest expense was $0.6 million for the year ended December 31, 2024, compared to $1.0 million for the year ended December 31, 2023, representing a decrease of $0.4 million, or 44%, primarily attributable to decreased finance lease and long-term debt obligations.

Other income, net

Other income, net, was $6.4 million for the year ended December 31, 2024, compared to $6.1 million for the year ended December 31, 2023, representing an increase of $0.3 million, or 6%, primarily attributable to increases in investment income from cash, cash equivalents and short-term investments due to higher balances and interest rates, offset by impairment of a non-marketable equity investment.

Liquidity and Capital Resources

Overview

As of December 31, 2024, we had $112.4 million of cash, cash equivalents and short-term investments.

We have incurred net operating losses since inception. As of December 31, 2024, our accumulated deficit was $509.6 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, the development of our internally developed programs including the progress and strategy of any pre-clinical and clinical activities, 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 advancement of technology development activities with existing and future partners, the successful preclinical and clinical development by us and our partners of product candidates generated using our Integrated Drug Creation platform, and the successful commercialization by us and our partners of any such product candidates that are approved. If we are unable to execute on our business plan and adequately fund operations, or if our business plan requires a level of spending in excess of cash resources, we may be required to change our strategies related to pre-clinical and clinical development and our approach to negotiating partnerships. 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 programs, making product acquisitions, making capital expenditures, or declaring dividends. If we are unable to generate sufficient revenue or raise additional capital when desired, our business, financial condition, results of operations and prospects would be adversely affected.

Sources of liquidity

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

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, 2024, the combined outstanding balance on these agreements is $4.0 million.

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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. As of December 31, 2024, we have issued 377,996 shares and received $1.6 million net proceeds from the sale of securities registered pursuant to the Sales Agreement. Subsequent to December 31, 2024, the Company issued and sold 5,269,192 shares of common stock for net proceeds of $21.7 million pursuant to the Sales Agreement.

On March 1, 2024, we closed the sale of an aggregate of 19,205,000 shares of our 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. We received total net proceeds from the offering of $80.8 million after deducting underwriting discounts and commissions and offering expenses payable by us.

Private Investment in Public Equity

On January 7, 2025, we closed the sale of an aggregate of 5,714,285 shares of our common stock, through a private investment in public equity (PIPE) to Advanced Micro Devices, Inc. (AMD), at an offering price of $3.50 per share. We received total net proceeds from the offering of $20.0 million.

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, 2024, net cash used in operating activities was $72.4 million and consisted primarily of a net loss of $103.1 million adjusted for non-cash items, including depreciation and amortization expense of $13.4 million, stock-based compensation of $19.5 million, and impairment of $1.4 million for assets that met the held for sale criteria during the period, partially offset by $3.7 million of accretion of discount on short-term investments. Net cash used in operations increased by $7.8 million year-over-year primarily due to increased research and development costs, including ABS-101 IND-enabling studies.

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, and goodwill impairment of $21.3 million, partially offset by $2.7 million of accretion of discount on short-term investments.

Cash flows from investing activities

In the year ended December 31, 2024, net cash used in investing activities was $41.6 million primarily from purchases of short-term investments of $186.1 million, partially offset by cash provided by maturities of short-term investments of $144.0 million.

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In the year ended December 31, 2023, net cash provided by investing activities was $81.9 million 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.

Cash flows from financing activities

In the year ended December 31, 2024, net cash provided by financing activities was $82.5 million. The net cash provided resulted primarily from proceeds of $82.4 million from the issuance of common stock from a public offering and the Sales Agreement, pursuant to the “at the market offering” program, and proceeds of $4.2 million from the issuance of common stock from stock option exercises and our 2021 ESPP, partially offset by principal payments of $4.0 million made for financed equipment.

In the year ended December 31, 2023, net cash used in financing activities was $4.5 million primarily from cash used for principal payments of $5.3 million made for financed equipment, partially offset by proceeds of $0.9 million from the issuance of common stock from option exercises and our 2021 ESPP.

Income taxes

Income tax expense for the year ended December 31, 2024 represents state income tax obligations and taxes in foreign jurisdictions for which we conduct business. Income tax expense for the year ended December 31, 2023 represents our federal and certain state income tax obligations and taxes in foreign jurisdictions for which we conduct business. As of December 31, 2024, we have recorded a full valuation allowance on our U.S. federal and state deferred tax assets.

Our effective income tax rate from continuing operations was (0.1)% and (0.1)% for the years ended December 31, 2024 and 2023, 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.

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 liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses 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.

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. Partner program 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.

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Partner program revenue

Our drug creation agreements related to our partnered programs 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, product candidate creation, and development or optimization of a product candidate(s). 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 product candidate, or supply a specified product 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 actual costs incurred and estimated cost to complete at each reporting date 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 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 contingent consideration on the consolidated balance sheets. As of December 31, 2024 and 2023, contingent consideration payable was $12.8 million. 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

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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 we qualify as a “large accelerated filer,” which requires the market value of our common stock that are held by non-affiliates to exceed $700.0 million as of the prior June 30th.

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) 97

Consolidated Balance Sheets as of December 31, 2024 and 2023 98

Notes to the Consolidated Financial Statements 102

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Report of Independent Registered Public Accounting Firm

To the Stockholders 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, 2024 and 2023, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for the years then ended, 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, 2024 and 2023, and the results of its operations and its cash flows for the years then ended, 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

San Jose, California

March 18, 2025

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CONSOLIDATED BALANCE SHEETS

December 31, December 31,

(In thousands, except for share and per share data) 2024 2023

ASSETS

Current assets:

Accounts receivable, net — 2,189

Prepaid expenses and other current assets 5,459 4,537

Operating lease right-of-use assets 3,968 4,490

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Financing lease obligations 78 641

Long-term debt, net of current portion 1,257 4,660

Operating lease obligations, net of current portion 4,429 5,643

Deferred revenue, long-term — 966

Other long-term liabilities 133 295

Commitments (See Note 10)

STOCKHOLDERS' EQUITY

Accumulated other comprehensive loss (4) (37)

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 213,608 $ 217,298

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) 2024 2023

Revenues

Operating expenses

Goodwill impairment — 21,335

Other income (expense)

Income tax expense (70) (100)

Net loss per share:Basic and diluted $ (0.94) $ (1.20)

Comprehensive loss:

Foreign currency translation adjustments (26) 40

Unrealized gain on investments 59 43

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 (101,030) — — — — —

Foreign currency translation adjustments — — — — 40 40

Unrealized gain on investments — — — — 43 43

Forfeiture of common stock (37,886) — — — — —

Foreign currency translation adjustments — — — — (26) (26)

Unrealized gain on investments — — — — 59 59

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:

Goodwill impairment — 21,335

Accretion of discount on short-term investments (3,743) (2,671)

Changes in operating assets and liabilities:

Accounts receivable, net 2,239 (666)

Prepaid expenses and other current assets (484) 1,598

Operating lease right-of-use assets and liabilities (762) (856)

Other long-term assets (68) (255)

Accrued expenses and other liabilities (295) (1,213)

Net cash used in operating activities (72,402) (64,636)

Cash Flows From Investing Activities

Purchases of property and equipment (404) (860)

Proceeds from maturities of short-term investments 144,000 229,897

Proceeds from sales of property and equipment 939 254

Net cash (used in) provided by investing activities (41,577) 81,944

Cash Flows From Financing Activities

Principal payments on long-term debt (3,388) (3,012)

Principal payments on finance lease obligations (643) (2,333)

Proceeds from issuance of common stock through follow-on offering, net 80,827 —

Net cash provided by (used in) financing activities 82,526 (4,483)

Cash, cash equivalents and restricted cash - Beginning of year 89,667 76,842

Cash, cash equivalents, and restricted cash - End of period $ 58,214 $ 89,667

Supplemental Disclosure of Cash Flow Information

Cash paid during the period for interest 561 970

Supplemental Disclosure of Non-Cash Investing and Financing Activities

Right-of-use assets obtained in exchange for operating lease obligation 433 —

Payments on long-term debt by third-party through sale of equipment 540 —

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 design differentiated antibody therapeutics. 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 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 (see Note 17: Segment Reporting).

Cash, cash equivalents and restricted cash

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

Restricted cash represents amounts pledged as collateral for future property lease payments via standby letters of credit (see Note 10: Commitments and contingencies) and amounts held in escrow related to acquisitions by the Company (see Note 13: 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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

recognized as an allowance for credit losses on the balance sheet with a corresponding adjustment to earnings. Unrealized gains and losses that are unrelated to credit deterioration are reported in accumulated other comprehensive loss 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. Investments in non-marketable equity securities are classified as other long-term assets on the consolidated balance sheets.

Accounts receivable, net and allowances for credit losses

Accounts receivable, net consists of amounts contractually due and outstanding from its partners, 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.

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 accounts receivable. 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, 2024 and 2023, two partners represented approximately 99% and 89% of partner program revenue, respectively. For the year ended December 31, 2024, substantially all partner program revenue was attributable to foreign customers.

As of December 31, 2024, there were no accounts receivable outstanding. As of December 31, 2023, one partner represented approximately 91% of total accounts receivable.

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. Partner program 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.

Partner program 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 agreements’ 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 actual cost incurred to date and estimated cost to complete at each reporting date 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 accounts receivable 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, 2024 and 2023.

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, 2024 and 2023.

We recognize uncertain tax positions taken or expected to be taken on a tax return. Tax positions are initially recognized when it is more likely than not that the position will be sustained upon examination by the tax authorities. Such tax positions are initially and subsequently measured as the largest amount of tax benefit that is more likely than not of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.

Research and development expenses

Research and development expenses include the personnel-related costs (comprised of salaries, benefits and share-based compensation), contract research services, contract manufacturing, consulting fees, laboratory supplies and facilities, and certain technology costs. 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 pipelines, and drug creation for partners. The Company derives improvements to its platform from each type of activity. Research and development efforts apply to the Company’s platform broadly and across programs.

Stock-based compensation

Stock-based compensation includes compensation expense for stock options, restricted stock and restricted stock units granted to employees and non-employees and is measured on the grant date based on the fair value of the award and recognized over the requisite service period. The fair value of options to purchase common stock are measured using the Black-Scholes option-pricing model. The fair value of performance restricted stock units are measured using a Monte-Carlo simulation model and the expense is recorded using the accelerated expense attribution method. When determining the grant date fair value of stock-based

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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.

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 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 has not yet adopted ASU 2023-09 and is evaluating the impact of adoption on its income tax disclosures.

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40) which requires disclosure of disaggregated income statement expense information about specific categories (including purchases of inventory, employee compensation, depreciation, and intangible asset amortization) in the notes to the financial statements. Additionally, in January 2025, the FASB issued ASU No. 2025-01, to clarify the effective date. The amendments in ASU 2024-03 are required to be adopted for fiscal years beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted and the amendments should be applied either prospectively to the financial statements issued for reporting periods after the effective date or retrospectively for any or all prior periods presented in the financial statements. The Company is currently evaluating the effect of adopting the new disclosure requirements.

3.Revenue recognition

Contract balances

Contract liabilities are recorded as deferred revenue when cash payments are received or due in advance of the satisfaction of performance obligations. As of December 31, 2024 and December 31, 2023, contract liabilities were $1.1 million and $4.1 million, respectively. During the year ended December 31, 2024, the Company recognized $3.3 million as revenue that had been included in deferred revenue at the beginning of the period. During the year ended December 31, 2023, the Company recognized $0.4 million as revenue that had been included in deferred revenue at the beginning of the period.

4.Collaborative Arrangements

As of December 31, 2024, the Company has collaborative arrangements with PrecisionLife, Memorial Sloan Kettering Cancer Center, Twist Bioscience, and Owkin that involve joint research and development activities and for which the parties are exposed to significant risks and rewards dependent on the commercial success of such activities. The Company performs drug creation activities to co-develop product candidates. These arrangements include rights for the parties to share in the potential value created by the programs, as well as cost sharing which may result in payments between the parties. The Company’s accounting policy is to present cost sharing payments to and from the Company’s collaborators within research and development expense on the consolidated statements of operations and comprehensive loss. The Company did not have cost sharing payments related to such agreements during the years ended December 31, 2024 and 2023.

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5.Investments

Cash equivalents, marketable securities and deposits are classified as available-for-sale and are, therefore, recorded at fair value on the consolidated balance sheets, with any unrealized gains and losses reported in accumulated other comprehensive 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.

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 $ 2,134 $ — $ — $ 2,134

Classified as:

Cash equivalents $ 2,134

Short-term investments 71,212

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

Investments held as of December 31, 2024 have a remaining maturity of less than one year. Proceeds from maturities of available-for-sale securities were $177.1 million and $241.6 million for the years ended December 31, 2024 and 2023, respectively. There were no realized gains or losses on securities for the years ended December 31, 2024 and 2023. Unrealized gains and losses on securities were primarily due to changes in interest rates.

In 2024, the Company recognized an impairment of $0.9 million on a non-marketable equity investment, which is included in other income, net on the consolidated statements of operations and comprehensive loss.

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6.Property and equipment, net

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

December 31, December 31,

Furniture, Fixtures and Other 6,193 6,001

Less accumulated depreciation and amortization (31,569) (23,991)

Depreciation expense was $10.0 million and $10.6 million for the years ended December 31, 2024 and 2023, respectively.

During the years ended December 31, 2024 and 2023, the Company determined certain laboratory equipment 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 $1.4 million and $0.5 million for the years ended December 31, 2024 and 2023, respectively, presented within research and development expense on the consolidated statement of operations and comprehensive loss. As of December 31, 2024 and 2023, $0.7 million and $0.3 million, respectively, 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.

For details regarding the interim impairment assessment performed in 2023 for long-lived assets see Note 7: Goodwill and intangibles, net.

7.Goodwill and intangibles, net

As of December 31, 2024 and 2023, there was no goodwill balance recorded on the consolidated balance sheets.

During the year ended December 31, 2023, the Company performed an interim qualitative impairment assessment of goodwill 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;

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•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.

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.

Intangible assets are as follows (in thousands):

Amortization expense related to intangible assets was $3.4 million for the years ended December 31, 2024 and 2023 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, 2024 is estimated as follows (in thousands):

Years Ending December 31:

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

Future undiscounted payments for the Company’s financing liabilities as of December 31, 2024 are as follows (in thousands):

Years ending December 31:

Total future payments 4,252

Less: Imputed interest (262)

Total long-term debt $ 3,990

9.Leases

Facility leases

The Company leases its corporate headquarters and primary research and development facility located in Vancouver, Washington in a 77,974 square foot facility that includes general administrative office and laboratory space. The corporate headquarters lease commenced in December 2020 and ends in April 2028, with an option to renew the lease for an additional five-year term, at then-current market rates. 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. For the Company’s facility lease agreement, 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,

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows related to operating leases $ 2,266 $ 2,361

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Future undiscounted lease payments for the Company’s lease liabilities as of December 31, 2024 are as follows (in thousands):

Operating leases Finance leases

Thereafter — —

Total future lease payments 6,906 81

Less: Imputed interest (869) (3)

Present value of lease liabilities $ 6,037 $ 78

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

Weighted average remaining lease term (in years)

Operating leases 3.2 4.1

Finance leases 0.5 0.9

Weighted average discount rate

Operating leases 8 % 8 %

Finance leases 9 % 8 %

10.Commitments and contingencies

As of December 31, 2024, future lease payments are secured by an irrevocable standby letter of credit totaling $1.1 million. The irrevocable standby letter of credit is expected to be pledged for the full lease term which extends through April 2028 for each of the Company’s facility leases.

Other Commitments

In November 2024, the Company entered into an agreement with Oracle Cloud Infrastructure (OCI) for access to compute capacity and other services through early 2028. The financial commitment for the years 2025, 2026, 2027, and 2028 are $1.6 million, $4.0 million, $7.8 million, and $2.2 million, respectively.

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

11.Common Stock

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.

Public Offering of Common Stock

In March 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 Company

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received total net proceeds from the offering of $80.8 million after deducting underwriting discounts and commissions and offering expenses payable.

At-The-Market Offering

On June 16, 2023, the Company entered into a Sales Agreement with Cowen and Company, LLC, as Sales Agent, with respect to an “at the market offering” program under which the Company may offer and sell, from time to time at its sole discretion, shares of its common stock, par value $0.0001 per share, having an aggregate offering price of up to $100.0 million through the Sales Agent. The Company will pay the Sales Agent a commission up to 3.0% of the gross sales proceeds of any shares sold under the Sales Agreement. As of December 31, 2024, the Company has issued 377,996 shares and received $1.6 million net proceeds from the sale of securities registered pursuant to the Sales Agreement.

12.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”) and the 2023 Inducement Plan (the “2023 Inducement Plan”). On January 1, 2024, the number of shares of common stock reserved for future issuance under the 2021 Plan was increased by 4,654,384 shares pursuant to an automatic annual increase. As of December 31, 2024, 4,271,248 shares were available for issuance under the 2021 Plan. As of December 31, 2024, 1,887,000 shares were available for issuance under the 2023 Inducement Plan.

Total stock-based compensation expense related to 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 12,043 6,850

Total stock-based compensation expense $ 19,469 $ 11,454

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 or ratably over three years in three equal installments. The Company recognizes forfeitures as they occur and uses the straight-line expense recognition method. Activity for stock options is shown below:

The weighted-average grant date fair value of stock options granted during the years ended December 31, 2024 and 2023 was $3.00 and $1.38, respectively. The aggregate grant date fair value of options vested

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during the years ended December 31, 2024 and 2023 was $9.4 million and $10.2 million, respectively. As of December 31, 2024, total unrecognized stock-based compensation related to stock options was $21.6 million, which the Company expects to recognize over a remaining weighted average period of 2.2 years.

Determination of Fair Value

The estimated grant-date fair value of 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 3.5%-4.6% 3.4%-4.7%

Dividend Yield —% —%

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 judgment and estimation by management.

Expected Term—The Company’s historical option exercise data is limited and did not provide a sufficient 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 we do not have sufficient trading history for our 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.

Restricted Stock

In connection with certain business combinations and as compensation for other service relationships, the Company has issued shares of restricted stock that vest over time subject to continued service by the stockholder. Shares of restricted stock that have not yet vested are subject to the Company’s right of repurchase or forfeiture by the stockholder.

Activity for the shares of restricted stock is shown below:

Number of shares

As of December 31, 2024, there was $0.1 million of unrecognized compensation expense related to the outstanding shares of restricted stock expected to be recognized over a remaining weighted-average period of 0.2 years.

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Restricted stock units

Restricted stock units subject to time-based vesting 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

The weighted-average grant date fair value of restricted stock units granted during the years ended December 31, 2024 and 2023 was $3.93 and $1.38 per share, respectively. The aggregate grant date fair value of restricted stock units vested during the years ended December 31, 2024 and 2023 was $1.0 million and 0.1 million, respectively

As of December 31, 2024, there was $5.7 million of unrecognized compensation expense related to the outstanding restricted stock units expected to be recognized over a remaining weighted-average period of 1.5 years.

Restricted stock unit award with market conditions

In March 2024, the Company granted 1,500,000 performance restricted stock units to its Founder and Chief Executive Officer that contained market conditions (the “2024 Market Award”). Subject to the holder’s continued service, the 2024 Market Award provided for vesting in tranches once the Company’s closing stock price meets or exceeds certain thresholds established by the Company’s Compensation Committee of the Board of Directors. The original grant-date fair value of the 2024 Market Award of $5.5 million was determined using a Monte Carlo simulation model using an expected volatility of 97% and risk-free rate of 4.5%. The stock-based compensation expense is being recognized over the derived service period for each tranche over periods up to 1.3 years. As of December 31, 2024, none of the stock price thresholds for the 2024 Market Award had been met resulting in no shares vesting. Any unvested tranches of the 2024 Market Award will expire in March 2027 if the vesting conditions are not met.

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, 2024 is $1.0 million based on the Company’s closing stock price of $2.62 per share as reported on the Nasdaq Global Select Market on such date.

Under the 2020 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, 2024, 195,000 of these SARs were outstanding with a weighted average exercise price of $4.64 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, 2024 and 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.

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Employee Stock Purchase Plan

In July 2021, the Company’s Board of Directors adopted the 2021 Employee Stock Purchase Plan (“2021 ESPP”). 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. On January 1, 2024, the number of shares of common stock reserved for issuance under the 2021 ESPP was increased by 930,877 shares pursuant to an automatic annual increase. As of December 31, 2024, 2,312,255 shares were available for issuance under the 2021 ESPP.

13.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.

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, 2024 and December 31, 2023 (in thousands):

Level 1 Level 2 Level 3 Total

Assets:

Debt Securities:

Money market funds $ 2,134 $ — $ — $ 2,134

Liabilities:

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Assets

Debt Securities:

Money market funds $ 1,158 $ — $ — $ 1,158

Liabilities:

The Company reviews trading activity and pricing for its available-for-sale securities as of the measurement date.

There was no change to the value of liabilities measured at fair value using significant unobservable inputs (Level 3) for the year ended December 31, 2024. The contingent consideration liability is related to the acquisition of Totient, Inc. and is included in contingent consideration on the consolidated balance sheet as of December 31, 2024 and December 31, 2023. The fair value estimate is based on a probability-weighted approach. The contingent consideration of $15.0 million held in escrow 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. The contingent consideration held in escrow is included in restricted cash on the consolidated balance sheets as of December 31, 2024 and December 31, 2023.

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

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.

14.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 to both plans in the aggregate for the each of the years ended December 31, 2024 and 2023.

15.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.

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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.

The following, potentially dilutive securities, presented based on amounts outstanding at period end, were excluded from the calculation of diluted net loss per share attributable to common stockholders because including them would be anti-dilutive:

December 31, December 31,

16.Income taxes

Provision for income taxes:

The Company incurred net losses for the years ended December 31, 2024 and 2023.

The significant components of income tax expense (benefit) are as follows (in thousands):

Years Ended December 31,

Current

Federal $ — $ —

Deferred expense/(benefit)

State — —

Total deferred (65) (52)

The components of income (loss) before income taxes by tax jurisdiction for the years ended December 31, 2024 and 2023 are as follows (in thousands):

The income tax expense for the years ended December 31, 2024 and 2023 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, 2024 and 2023:

Statutory federal income tax rate 21.0 % 20.6 %

State income taxes, net of federal benefits 0.1 5.1

Rate adjustment (2.1) —

Tax contingencies, net of reversals (0.5) (0.5)

Section 162(m) limitation (1.5) (0.4)

Stock-based compensation 0.1 (1.4)

Research and development credits 2.0 1.9

Return-to-provision (2.7) (0.7)

Change in valuation allowance (16.1) (19.8)

Goodwill impairment — (4.1)

Deemed foreign inclusion (0.3) (0.4)

Effective tax rate (0.1) % (0.1) %

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, 2024 and 2023 are as follows (in thousands):

Deferred tax assets:

Research and development credits 7,357 6,014

Capitalized research and development expenses 26,904 21,867

Accrued expenses and other 853 537

Deferred tax liabilities:

Property and equipment (927) (2,139)

Right-of-use lease asset (889) (2,349)

Deferred tax liabilities, net $ (121) $ (186)

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As of December 31, 2024, the Company has remaining federal net operating losses of $205.4 million and has state net operating loss carryforwards of approximately $102.9 million to offset against future taxable income for state tax purposes. Under the Tax Cuts and Jobs Act of 2017 (“TCJA”), federal net operating losses incurred in 2018 and future years may be carried forward indefinitely, but the deductibility of such federal NOLs is subject to an annual limitation. NOLs generated prior to 2018 are eligible to be carried forward up to 20 years. State net operating losses can be carried forward for 5 to 20 years depending on the jurisdiction and will begin to expire in years 2036-2044. The company also has Federal research credit carryforwards of approximately $9.9 million that will begin to expire in 2039.

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred assets will be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Evaluating the need for a valuation allowance for deferred tax assets often requires judgment and analysis of all the positive and negative evidence available, including cumulative losses in recent years and projected future taxable income, to determine whether all or some portion of the deferred tax assets will not be realized. As of December 31, 2024, the Company has recorded a full valuation allowance to offset the net deferred tax assets as the Company believes it is not more likely than not that the net deferred tax assets will be fully realizable. The valuation allowance increased $16.7 million during the year ended December 31, 2024 and $22.3 million during the year ended December 31, 2023.

Under the provisions of the Internal Revenue Code, certain substantial changes in the company's ownership may result in a limitation on the amount of net operating loss carryforwards and research and development credit carryforwards which could be utilized annually to offset future taxable income and taxes payable. We completed a study of our changes in ownership through December 31, 2024 and determined that no material limitations exist on the utilization of the Company’s tax attributes.

The Company maintained undistributed earnings overseas as of December 31, 2024, and the Company believed the funds held by all non-U.S. subsidiaries will be permanently reinvested outside of the U.S. However, if these funds were repatriated to the U.S. or used for U.S. operations, the Company may be subject to withholding taxes in the foreign countries. The Company’s unrepatriated earnings are not subject to federal income tax in the U.S. when distributed.

The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. The Company had unrecognized tax benefits of $2.6 million and $2.1 million as of December 31, 2024 and 2023, respectively.

The Company recognizes penalties and interest related to unrecognized tax benefits as a component of income tax expense. All unrecognized tax benefits would currently not have an impact on the effective rate if recognized.