Absci Corporation — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Absci develops an integrated drug creation platform combining biologics discovery and cell-line development. The period’s financial statements are unaudited. The July 2021 IPO and related conversions occurred after quarter-end.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $0.728 million | $0.564 million | $1.791 million | $1.136 million |
| Operating expenses | $17.420 million | $3.378 million | $29.631 million | $6.440 million |
| Operating loss | $16.692 million | $2.814 million | $27.840 million | $5.304 million |
| Net loss | $41.198 million | $3.008 million | $52.160 million | $5.666 million |
| Net loss per common share, basic and diluted | $2.39 | $1.12 | $3.13 | $2.02 |
Revenue grew 29% in Q2 and 58% in the first half year over year, mainly from greater program activity and project milestones. Technology development revenue was $0.592 million for Q2 and $1.532 million for the half; collaboration revenue was $0.136 million and $0.259 million, respectively. Revenue remains small relative to costs; the filing does not present a gross-margin measure.
Research and development expense rose to $11.040 million in Q2 and $18.090 million for the half, reflecting higher headcount, lab operations, facilities and platform investment. Selling, general and administrative expense was $5.179 million and $9.864 million, respectively; Q2 included $0.9 million in Totient acquisition costs. Other expense included a $25.1 million increase in the fair value of convertible notes and a $3.0 million Q2 increase in the preferred-stock warrant liability. These noncash fair-value charges substantially increased reported losses. Income tax benefits were $5.617 million in Q2 and $6.094 million for the half.
Cash, liquidity and financing
- At June 30, cash and cash equivalents were $99.450 million; restricted cash totaled $27.347 million. Cash, cash equivalents and restricted cash together were $126.797 million.
- First-half cash used in operating activities was $21.772 million; investing activities used $52.241 million, including $24.111 million for property and equipment and $28.130 million for acquisitions. Financing activities provided $129.102 million, principally from $125 million of convertible notes.
- At June 30, the notes had a $150.107 million fair value carrying amount; the $125 million principal notes converted into 9,732,593 common shares at the July IPO. Term-loan principal outstanding was $4.9 million, with a June 2023 maturity. The company reported compliance with the loan covenant at quarter-end.
- In July, the IPO raised approximately $210.3 million net from 14,375,000 shares sold at $16.00 per share. All outstanding preferred stock also converted into 46,266,256 common shares. These transactions are subsequent events and are not included in June 30 balances.
- Management stated that cash resources, including IPO proceeds, were expected to cover operating, working-capital and capital-expenditure needs for at least 12 months from the filing date.
Business developments, outlook and risks
- Absci reported 17 cumulative partners, 31 cumulative programs and nine Active Programs at June 30, versus 16, 29 and eight, respectively, at year-end 2020. Active Programs do not guarantee that partners will license or advance candidates.
- The company had no partner license for clinical or commercial use of platform-generated intellectual property as of the filing, and had agreed clinical or commercial license terms for only four Active Programs, subject to partner options. It had not received downstream milestone or royalty revenue to date.
- Denovium was acquired in January for estimated consideration of $3.0 million. Totient was acquired in June; the preliminary estimated purchase price was $61.3 million, including stock, cash and $12 million of estimated contingent consideration. Totient holders may receive up to an additional $15 million in cash on milestone achievement. Purchase-price allocations remained preliminary, and acquired intangibles and goodwill are significant.
- Management expected expenses to increase with platform development, partnership growth, facility operations and public-company costs. No specific revenue or earnings guidance was provided. The company’s model depends on partner adoption, licensing decisions and partners’ eventual development and commercialization of candidates—activities largely outside Absci’s control.
- Key risks include substantial ongoing losses, uncertain revenue and milestone timing, customer concentration (three partners represented 95% of Q2 and 97% of first-half technology development revenue), reliance on critical single-source lab suppliers, acquisition integration and valuation uncertainty, and COVID-19-related supply, hiring and operating disruptions.
- Disclosure controls were found ineffective as of June 30 due to a material weakness involving insufficient accounting and finance personnel with expertise in complex transactions. Remediation was in progress and not complete. Management said additional analyses and procedures supported fair presentation of the reported statements.
- The company reported no material litigation. It disclosed ordinary-course claims for which management did not consider losses probable or reasonably estimable; an unfavorable outcome could still have a material effect.
Most important facts for investors to verify
- Whether Active Programs convert into licenses with meaningful milestone and royalty terms, and whether partners advance candidates.
- How quickly revenue grows relative to rising R&D, staffing, facility and public-company costs; the filing provides no profitability timetable.
- Post-IPO cash use and runway, including acquisition, facility and capital-expenditure needs.
- Final Totient and Denovium purchase-price allocations, contingent consideration and integration outcomes.
- Progress in remediating the material weakness and making disclosure controls effective.
- Partner and supplier concentration, and any effects of COVID-19 or other disruptions on program timelines.