Business context and reporting period
Absci Corporation filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2021. The company develops an integrated drug-creation platform combining biologic discovery and cell-line development, primarily for biopharmaceutical partners. It reported 17 cumulative partners, 31 cumulative programs, and 9 Active Programs at quarter-end. Absci completed its IPO in July 2021 and acquired Denovium in January and Totient in June.
Financial results and liquidity
Amounts below are in millions of dollars unless stated otherwise. Revenue is principally technology-development fees; the filing does not present a separate cost-of-revenue or gross-margin measure.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $1.54 | $0.92 | $3.33 | $2.05 |
| Operating expenses | $22.68 | $4.28 | $52.31 | $10.72 |
| Operating loss | $(21.14) | $(3.36) | $(48.98) | $(8.67) |
| Net loss | $(23.63) | $(3.75) | $(75.79) | $(9.41) |
| Net loss per share, basic and diluted | $(0.33) | $(0.85) | $(2.16) | $(2.88) |
- Revenue increased 68% in Q3 and 62% for the nine months, driven by more and larger technology-development programs and project milestones. The filing attributes the larger losses mainly to expanded R&D, hiring, stock-based compensation, facilities and public-company costs.
- Cash and cash equivalents were $279.3 million at September 30, 2021, versus $69.9 million at December 31, 2020. Restricted cash was $27.4 million; cash, cash equivalents and restricted cash totaled $306.6 million.
- For the first nine months, operating cash use was $43.5 million, investing cash use was $59.1 million, and financing provided $337.5 million. Investing included $29.7 million for property and equipment and $28.1 million for acquisitions, net of acquired cash.
- Total assets were $449.1 million and total liabilities $61.1 million. Term debt was $4.1 million, including $2.4 million current; finance-lease obligations totaled $6.8 million and operating-lease obligations $10.8 million. The company reported compliance with its loan financial covenant.
- The company reported an accumulated deficit of $165.9 million. It stated that cash and IPO proceeds should fund operating, working-capital and capital-expenditure needs for at least the next 12 months following the filing date.
Material changes and unusual items
- The July IPO raised $210.2 million net from 14.375 million shares sold at $16 per share. Before closing, preferred stock converted into 46.3 million common shares and $125 million of convertible notes plus accrued interest converted into 9.7 million common shares.
- Nine-month other expense, net, was $31.4 million, largely from fair-value adjustments to convertible notes ($30.7 million) and preferred-stock warrant liability ($4.1 million); these instruments were converted or settled in connection with the IPO. The company also recorded a $0.6 million gain from forgiveness of its PPP loan.
- Totient’s preliminary acquisition accounting included $54.6 million of intangible assets, $22.0 million of goodwill and $12.0 million of estimated contingent consideration. The purchase-price allocation remained preliminary and could change. Denovium added a $2.5 million intangible asset and $1.1 million of goodwill.
- After quarter-end, Absci announced an EQRx drug-discovery collaboration in October 2021, with potential additional investment by Absci in exchange for a greater share of product sales.
Outlook, commentary and principal risks
Absci expects substantial expense growth as it expands R&D, platform capabilities, partnerships, staffing and facilities, and operates as a public company. It provided no specific revenue or earnings guidance. Management’s liquidity outlook is subject to execution, partnership activity and spending needs.
- The business model depends on partners licensing and advancing candidates and, ultimately, achieving development milestones or commercial sales. As of the filing, no partner had entered a clinical or commercial license for platform-generated candidates or cell lines; license terms had been agreed for only four Active Programs subject to partner options.
- Revenue is concentrated: two partners represented 73% of Q3 and 79% of nine-month 2021 technology-development revenue. Three partners represented 78% of receivables at quarter-end.
- Partners control clinical development, regulatory strategy and commercialization. Candidate failure, program discontinuation, delayed milestones, or failure to secure licenses could limit downstream milestone and royalty revenue.
- COVID-19 could disrupt supplies, facility expansion, hiring and partner negotiations. The company also relies on a limited number of critical equipment and consumables suppliers.
- Disclosure controls were deemed ineffective at September 30, 2021 because of an unremediated material weakness involving insufficient accounting and finance personnel with technical expertise. Management reported additional review procedures and ongoing remediation.
- Other key risks include early-stage operations and continuing losses, competition, acquisition integration, intellectual-property protection, and the possibility of additional financing needs or dilution. Management said ordinary-course legal matters were not considered probable or estimable as material; no material litigation was pending.
Important facts for investors to verify
- Progress toward partner licenses, clinical advancement, and milestone or royalty-bearing agreements, especially given the lack of clinical or commercial licenses to date.
- Revenue concentration, partner program decisions, and receivable collection as the company scales its partnership base.
- Cash consumption, planned use of IPO proceeds, and whether the stated 12-month liquidity outlook remains adequate.
- Final Totient purchase-price allocation and any changes in contingent consideration, acquired intangibles or goodwill.
- Remediation and operating effectiveness of financial-reporting controls after the disclosed material weakness.
- Execution and economics of the EQRx collaboration and integration of Denovium and Totient technologies and teams.