Absci Corporation — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Unaudited financial statements; filed August 14, 2023.
Business context
Absci is a generative AI drug-creation company combining deep learning and synthetic biology to discover and develop biologic drug candidates. It earns revenue mainly from partner technology-development agreements, with potential future milestone and royalty income dependent on partner licensing, development, and commercialization decisions.
Financial results and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $3.4 million | $1.0 million | $4.6 million | $1.8 million |
| Operating loss | $43.0 million | $28.9 million | $67.5 million | $57.7 million |
| Net loss | $41.7 million | $28.7 million | $65.0 million | $58.2 million |
| Net loss per share | $0.45 | $0.32 | $0.71 | $0.64 |
| Operating cash used | Not stated for quarter | Not stated for quarter | $39.4 million | $43.7 million |
- Q2 revenue rose 236% year over year, primarily due to program progress, milestone timing, and program mix. Six-month revenue increased 155%. All 2023 revenue shown was technology-development revenue; collaboration revenue was zero.
- Q2 operating expenses were $46.4 million, including a $21.3 million non-cash goodwill impairment. Excluding that charge, operating expenses were lower than the prior-year quarter; the filing does not provide a formal adjusted operating result. Research and development expense fell 25% in Q2 and 23% for the first half; SG&A fell 10% and 11%, respectively.
- The filing does not provide a clear gross profit or gross margin measure. Revenue remains small relative to operating expenses.
- At June 30, cash and cash equivalents were $61.0 million, short-term investments $63.5 million, and restricted cash $17.0 million. Cash, cash equivalents, and short-term investments totaled $124.6 million. Total assets were $254.2 million; stockholders’ equity was $215.4 million.
- Debt was approximately $9.5 million, including current and noncurrent long-term debt. Equipment financing carries imputed interest rates of 8%–10%; the company reported compliance with applicable financial covenants. Finance lease obligations were additional.
- Six-month investing cash flow was positive $42.9 million, mainly reflecting $135.9 million of investment maturities, partly offset by $92.6 million of investment purchases. Financing cash used was $2.3 million. Cash, cash equivalents, and restricted cash increased $1.2 million during the period.
Material changes and unusual items
- Goodwill was fully impaired at June 30, resulting in the $21.3 million charge. The trigger was a sustained share-price decline and market capitalization below cash and short-term investments for a period during Q2. Valuation relied on significant Level 3 assumptions, including forecasts, partner licensing and development probabilities, and discount rates.
- Despite the impairment, the company concluded long-lived assets were not impaired as of June 30; it cautioned that future operating results, cash flows, or market conditions could prompt reassessment.
- Other income increased substantially, to $1.6 million in Q2 and $3.0 million in the first half, primarily from investment income. Interest expense also rose, attributed mainly to equipment financing.
- Partners increased from 19 to 20, cumulative programs from 47 to 48, and active programs from 16 to 17. The 17 active programs span six partners; partner decisions and development outcomes remain outside Absci’s control.
Outlook, risks, and contingencies
- Management believes available cash, cash equivalents, and short-term investments will fund operating, working-capital, and capital needs for at least 12 months after the filing date. The company expects continued significant expenses and losses.
- Revenue is expected to fluctuate with new partnerships, milestone timing, program activity, and partner decisions. Management identifies new partnerships, expansion of existing programs, licensing elections, and partner success in developing and commercializing candidates as key drivers; it provides no quantified revenue or earnings guidance.
- If spending exceeds resources or revenue and funding are insufficient, the company may seek partnerships with greater near-term payments or additional equity or debt financing. Its $100 million at-the-market program was authorized under a sales agreement, but no shares had been sold under the shelf registration statement as of the filing.
- Risks include reliance on partners for licensing, clinical advancement, regulatory approvals, and commercialization; uncertain platform adoption and development outcomes; continuing operating losses; and possible future asset impairments. The filing reported no material changes to previously disclosed risk factors, no material litigation, and effective disclosure controls.
- A $12.75 million contingent-consideration liability related to the Totient acquisition was recorded in accrued expenses. The associated $15 million held in escrow is included in restricted cash and is payable upon specified milestones. Future lease payments are secured by $1.9 million of standby letters of credit.
Key facts for investors to verify
- Whether the $124.6 million of cash and short-term investments, after operating cash burn, supports management’s stated runway and whether restricted cash is available for operations.
- Future quarterly cash burn, expense trends, and the timing or terms of any ATM equity sales or other financing.
- Progress and continuation of the 17 active programs, partner licensing elections, and any resulting milestone or royalty economics.
- Assumptions behind the goodwill impairment valuation and whether subsequent market or operating developments create additional impairment risk.
- Equipment-financing covenants and repayment obligations, and the milestone conditions governing the contingent consideration.