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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

OR

☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to __________

Commission file number 001-40646

ABSCI CORPORATION

(Exact name of registrant as specified in its charter)

Delaware						85-3383487
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)
18105 SE Mill Plain Blvd Vancouver, WA						98683
(Address of Principal Executive Offices)						(Zip Code)

(360) 949-1041

Registrant's telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock. $0.0001 par value

ABSI

The Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes   ☒  No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer			☐			Accelerated filer			☐
Non-accelerated filer			☒			Smaller reporting company			☒
						Emerging growth company			☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).        Yes   ☐     No  ☒

The registrant had outstanding 92,394,909 shares of $0.0001 par value common stock as of October 31, 2022.

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Table of Contents

Table of Contents

						Page No.
Part I Financial Information (Unaudited)						6
Item 1.			Condensed Consolidated Financial Statements			6
			Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021			6
			Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2022 and 2021			7
			Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the Three and Nine Months Ended September 30, 2022 and 2021			8
			Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021			10
			Notes to Unaudited Condensed Consolidated Financial Statements			11
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			27
Item 3.			Quantitative and Qualitative Disclosure About Market Risk			41
Item 4.			Controls and Procedures			41
Part II Other Information						42
Item 1.			Legal Proceedings			42
Item 1A.			Risk Factors			42
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			43
Item 3.			Defaults Upon Senior Securities			44
Item 4.			Mine Safety Disclosures			44
Item 5.			Other Information			44
Item 6.			Exhibits			44
Signatures						46

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements that may relate to our plans, objectives, goals, strategies, future events, future revenue or performance, capital expenditures, financing needs and other information that is not historical information. Many of these statements appear, in particular, under the headings “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Risk Factors”. Forward-looking statements can often be identified by the use of terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. In addition, any statements or information that refer to expectations, beliefs, plans, projections, objectives, performance or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking. In particular, these forward-looking statements include, but are not limited to:

•our expectations regarding our further development of, successful application of, and the rate and degree of market acceptance of, our Integrated Drug Creation Platform, including progress towards fully in silico biologic drug discovery;

•our expectations regarding the markets for our services and technologies, including the growth rate of the biologics and next-generation biologics markets;

•our ability to attract new partners and enter into technology development agreements that contain milestone and royalty obligations in favor of us;

•our potential to receive revenue from the achievement of milestones and from royalties on net sales under agreements with our partners with respect to products originating from our Integrated Drug Creation Platform;

•our ability to enter into license agreements for our existing Active Programs with those partners who do not have current milestone payment and royalty obligations to us;

•our ability to manage and grow our business by expanding our relationships with existing partners or introducing our Integrated Drug Creation Platform to new partners;

•our expectations regarding our current and future partners’ continued development of, and ability to commercialize, biologic drugs generated utilizing our platform;

•our estimates of our expenses, ongoing losses, future revenue, capital requirements and our need for or ability to obtain additional funding before we can expect to generate any revenue;

•our estimates of the sufficiency of our cash and cash equivalents and short-term investments;

•our ability to establish, maintain or expand collaborations, partnerships or strategic relationships;

•our ability to provide our partners with a full biologic drug discovery and cell line development solution from target to Investigational New Drug application (IND)-ready, including non-standard amino acid incorporation capabilities;

•our ability to obtain, maintain and enforce intellectual property protection for our platform, products and technologies, the duration of such protection and our ability to operate our business without infringing on the intellectual property rights of others;

•our ability to attract, hire and retain key personnel and to manage our growth effectively;

•our expectations regarding use of our cash and cash equivalents, including the proceeds from our initial public offering;

•our financial performance and that of companies in our industry and the financial markets generally;

•the volatility of the trading price of our common stock;

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•our competitive position and the development of and projections relating to our competitors or our industry;

•the potential impact of the ongoing COVID-19 pandemic, including supply chain issues arising from the pandemic and the emergence of new variants and sub variants of the virus on our business or operations;

•the impact of laws and regulations;

•our expectations regarding the time during which we will be an emerging growth company under the Jumpstart Our Business Startups Act of 2012 (JOBS Act); and

•our expectations about market trends and effects from inflation.

We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions, and expectations disclosed in the forward-looking statements we make. Moreover, we operate in a competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, collaborations, joint ventures, or investments we may make or enter into.

You should read this Quarterly Report and the documents that we file with the Securities and Exchange Commission, or the SEC, with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained in this Quarterly Report are made as of the date of this Quarterly Report, and we do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

Except as otherwise indicated, references in this Quarterly Report on Form 10-Q to “Absci,” the “Company,” “we,” “us” and “our” refer to Absci Corporation and its subsidiaries.

Trademarks

This Quarterly Report on Form 10-Q contains references to our trademarks and service marks and to those belonging to third parties. Absci®, SoluPro® and SoluPure® are our registered trademarks with the U.S. Patent and Trademark Office. We also use various other trademarks, service marks and trade names in our business, including the Absci logo, ACE assay, HiPrBind, Bionic proteins, Translating Ideas into Drugs, Bionic SoluPro, Integrated Drug Creation, Unlimit with us, Denovium, and Denovium Engine. All other trademarks, service marks or trade names referred to in this Quarterly Report on Form 10-Q are the property of their respective owners. Solely for convenience, the trademarks and trade names in this Quarterly Report on Form 10-Q may be referred to with or without the ® and ™ symbols, but references which omit the ® and ™ symbols should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.

Availability of Other Information about Absci

Investors and others should note that we routinely communicate with investors and the public using our website (www.absci.com) and our investor relations website (investors.absci.com) free of charge, including without limitation, through the posting of investor presentations, SEC filings (including amendments and exhibits to such filings as soon as reasonably practicable after filed with or furnished to the SEC), press releases, public conference calls and webcasts on these websites, as well as on Twitter, LinkedIn and YouTube. The information that we post on these websites and social media outlets could be deemed to be material information. As a result, investors, the media, and others interested in Absci are encouraged to review this

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information on a regular basis. The contents of our website and social media postings, or any other website that may be accessed from our website or social media postings, shall not be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended.

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Part I. Financial Information

Item 1. Financial Statements

ABSCI CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

						September 30,						December 31,
(In thousands, except for share and per share data)						2022						2021
ASSETS
Current assets:
Cash and cash equivalents						$	107,324					$	252,569
Restricted cash						15,020						10,513
Short-term investments						73,988						—
Receivables under development arrangements, net						210						1,425
Prepaid expenses and other current assets						4,839						8,572
Total current assets						201,381						273,079
Operating lease right-of-use assets						5,597						6,538
Property and equipment, net						55,466						52,114
Intangibles, net						52,465						54,992
Goodwill						21,335						21,335
Restricted cash, long-term						1,852						16,844
Other long-term assets						1,291						1,293
TOTAL ASSETS						$	339,387					$	426,195
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable						$	1,858					$	8,385
Accrued expenses						20,981						17,434
Long-term debt, current						2,354						2,400
Operating lease obligations						1,643						1,502
Financing lease obligations						2,513						2,785
Deferred revenue						679						1,353
Total current liabilities						30,028						33,859
Long-term debt - net of current portion						6,517						1,124
Operating lease obligations - net of current portion						7,848						8,969
Finance lease obligations - net of current portion						1,263						3,231
Deferred tax, net						756						743
Other long-term liabilities						33						12,162
TOTAL LIABILITIES						46,445						60,088
Commitments (See Note 8)
STOCKHOLDERS' EQUITY
Preferred stock, $0.0001 par value; 10,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 0 shares issued and outstanding as of September 30, 2022 and December 31, 2021						—						—
Common stock, $0.0001 par value; 500,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 92,884,775 and 92,648,036 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively						9						9
Additional paid-in capital						569,365						557,136
Accumulated deficit						(276,458)						(191,025)
Accumulated other comprehensive income (loss)						26						(13)
TOTAL STOCKHOLDERS' EQUITY						292,942						366,107
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY						$	339,387					$	426,195

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ABSCI CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)

						For the Three Months Ended September 30,												For the Nine Months Ended September 30,
(In thousands, except for share and per share data)						2022						2021						2022						2021
Revenues
Technology development revenue						$	2,004					$	1,390					$	3,094					$	2,922
Collaboration revenue						365						149						1,096						408
Total revenues						2,369						1,539						4,190						3,330
Operating expenses
Research and development						15,525						10,730						47,593						28,820
Selling, general and administrative						11,407						9,733						32,803						19,597
Depreciation and amortization						3,404						2,218						9,451						3,895
Total operating expenses						30,336						22,681						89,847						52,312
Operating loss						(27,967)						(21,142)						(85,657)						(48,982)
Other income (expense)
Interest expense						(279)						(768)						(685)						(3,232)
Other income (expense), net						675						(3,427)						948						(31,377)
Total other income (expense), net						396						(4,195)						263						(34,609)
Loss before income taxes						(27,571)						(25,337)						(85,394)						(83,591)
Income tax (expense) benefit						312						1,703						(39)						7,797
Net loss						(27,259)						(23,634)						(85,433)						(75,794)
Cumulative undeclared preferred stock dividends						—						(242)						—						(2,284)
Net loss applicable to common stockholders						$	(27,259)					$	(23,876)					$	(85,433)					$	(78,078)
Net loss per share attributable to common stockholders: Basic and diluted						$	(0.30)					$	(0.33)					$	(0.94)					$	(2.16)
Weighted-average common shares outstanding: Basic and diluted						91,105,265						73,291,288						90,686,517						36,177,105
Comprehensive loss:
Net loss						$	(27,259)					$	(23,634)					$	(85,433)					$	(75,794)
Foreign currency translation adjustments						(27)						(4)						(77)						(15)
Unrealized gain on investments						114						—						116						—
Comprehensive loss						$	(27,172)					$	(23,638)					$	(85,394)					$	(75,809)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ABSCI CORPORATION

STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’

EQUITY (DEFICIT) (UNAUDITED)

(In thousands, except for share and per share data)												Redeemable Convertible Preferred Stock																					Common Stock												Additional Paid-In Capital						Accumulated Deficit						Accumulated Other Comprehensive Loss						Condensed Total Stockholders’ Equity
																		Shares						Amount																								Shares												Amount
Balances - December 31, 2021																		—						$	—																				92,648,036						$	9					$	557,136					$	(191,025)					$	(13)					$	366,107
Issuance of shares under stock plans, net of shares withheld for tax payments																		—						—																					187,151												213						—						—						213
Stock-based compensation																		—						—																					—						—						3,680						—						—						3,680
Foreign currency translation adjustments																		—						—																					—						—						—						—						(10)						(10)
Net loss																		—						—																					—						—						—						(29,494)						—						(29,494)
Balances - March 31, 2022																		—						$	—																				92,835,187						$	9					$	561,029					$	(220,519)					$	(23)					$	340,496
Issuance of shares under stock plans, net of shares withheld for tax payments																		—						—																					195,418						—						215						—						—						215
Issuance of restricted stock																		—						—																					—						—						—						—						—						—
Stock-based compensation																		—						—																					—						—						4,200						—						—						4,200
Repurchase of common stock																		—						—																					(249,618)						—						—						—						—						—
Foreign currency translation adjustments																		—						—																					—						—						—						—						(40)						(40)
Unrealized gain on investments																		—						—																					—						—						—						—						2						2
Other																		—						—																					1						—						—						—						—						—
Net loss																		—						—																					—						—						—						(28,680)						—						(28,680)
Balances - June 30, 2022																		—						—																					92,780,988						$	9					$	565,444					$	(249,199)					$	(61)					$	316,193
Issuance of shares under stock plans, net of shares withheld for tax payments																		—						—																					103,787						—						162						—						—						162
Stock-based compensation																		—						—																					—						—						3,759						—						—						3,759
Foreign currency translation adjustments																		—						—																					—						—						—						—						(27)						(27)
Unrealized gain on investments																		—						—																					—						—						—						—						114						114
Net loss																		—						—																					—						—						—						(27,259)						—						(27,259)
Balances - September 30, 2022																		—						—																					92,884,775						$	9					$	569,365					$	(276,458)					$	26					$	292,942

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ABSCI CORPORATION

STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’

EQUITY (DEFICIT) (UNAUDITED)

(In thousands, except for share and per share data)												Redeemable Convertible Preferred Stock																					Common Stock												Additional Paid-In Capital						Accumulated Deficit						Accumulated Other Comprehensive Loss						Condensed Total Stockholders’ Deficit
																		Shares						Amount																								Shares												Amount
Balances - December 31, 2020																		13,752,043						$	156,433																				17,887,631						$	2					$	635					$	(90,065)					$	—					$	(89,428)
Issuance of Series E preferred stock, net of issuance costs																		254,886						4,944																					—						—						—						—						—						—
Issuance of restricted stock																		—						—																					703,425						—						—						—						—						—
Stock-based compensation																		—						—																					—						—						1,519						—						—						1,519
Issuance of shares in acquisition of Denovium																		—						—																					1,010,296						—						368						—						—						368
Net loss																		—						—																					—						—						—						(10,962)						—						(10,962)
Balances - March 31, 2021																		14,006,929						$	161,377																				19,601,352						$	2					$	2,522					$	(101,027)					$	—					$	(98,503)
Issuance of shares upon option exercise																		—						—																					62,613						—						69						—						—						69
Stock-based compensation																		—						—																					—						—						1,490						—						—						1,490
Issuance of shares in acquisition of Totient																		—						—																					2,212,208						—						13,891						—						—						13,891
Foreign currency translation adjustments																		—						—																					—						—						—						—						(11)						(11)
Net loss																		—						—																					—						—						—						(41,198)						—						(41,198)
Balances - June 30, 2021																		14,006,929						$	161,377																				21,876,173						$	2					$	17,972					$	(142,225)					$	(11)					$	(124,262)
Stock-based compensation																		—						—																					—						—						3,735						—						—						3,735
Issuance of common shares upon initial public offering, net of issuance costs of																		—						—																					14,375,000						1						210,163						—						—						210,164
Conversion of convertible note																		—						—																					9,732,593						1						155,721						—						—						155,722
Conversion of redeemable convertible preferred stock																		(14,006,929)						(161,377)																					46,266,256						5						161,372						—						—						161,377
Conversion of warrant liability																		—						—																					—						—						4,822						—						—						4,822
Foreign currency translation adjustments																		—						—																					—						—						—						—						(4)						(4)
Issuance of shares upon warrant exercise																		—						—																					307,211						—						93						—						—						93
Net loss																		—						—																					—						—						—						(23,634)						—						(23,634)
Balances - September 30, 2021																		—						—																					92,557,233						$	9					$	553,878					$	(165,859)					$	(15)					$	388,013

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ABSCI CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

			For the Nine Months Ended September 30,
(In thousands)			2022						2021
Cash Flows From Operating Activities
Net loss			(85,433)						(75,794)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			9,451						3,895
Deferred income taxes			13						(7,797)
Stock-based compensation			11,516						7,376
Change in fair value of convertible promissory notes			—						30,722
Change in fair value of contingent consideration			750						—
Gain on extinguishment of loan payable			—						(636)
Other			103						4
Preferred stock warrant liability expense			—						4,124
Changes in operating assets and liabilities:
Receivables under development arrangements			965						940
Prepaid expenses and other current assets			3,436						(8,472)
Operating lease right-of-use assets and liabilities			(467)						2,570
Other long-term assets			—						110
Accounts payable			(1,224)						1,545
Accrued expenses and other liabilities			(1,207)						(1,567)
Deferred revenue			(674)						(539)
Net cash used in operating activities			(62,771)						(43,519)
Cash Flows From Investing Activities
Purchases of property and equipment			(15,615)						(29,731)
Acquisitions, net of cash acquired			(8,000)						(28,130)
Investment in equity securities			—						(1,200)
Investment in short-term investments			(73,853)						—
Proceeds from property insurance settlements			665						—
Net cash used in investing activities			(96,803)						(59,061)
Cash Flows From Financing Activities
Proceeds from issuance of redeemable convertible preferred units and stock, net of issuance costs			—						4,944
Proceeds from issuance of long-term debt			9,407						—
Principal payments on long-term debt			(4,086)						(1,000)
Principal payments on finance lease obligations			(2,067)						(1,780)
Proceeds from issuance of common stock, net of issuance costs			590						210,325
Proceeds from issuance of convertible promissory notes			—						125,000
Net cash provided by financing activities			3,844						337,489
Net (decrease) increase in cash, cash equivalents, and restricted cash			(155,730)						234,909
Cash, cash equivalents and restricted cash - Beginning of year			279,926						71,708
Cash, cash equivalents, and restricted cash - End of period			$	124,196					$	306,617
Supplemental Disclosure of Cash Flow Information
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Property and equipment purchased under finance lease			$	—					$	4,313
Right-of-use assets obtained in exchange for operating lease obligation			109						3,330
Cash paid for amounts included in the measurement of operating lease liabilities			1,717						1,069
Property and equipment purchases included in accounts payable			261						3,580

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ABSCI CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.Organization and nature of operations

Absci Corporation (the “Company”) has developed an integrated drug creation platform (the “Integrated Drug Creation Platform”) by merging deep learning artificial intelligence and synthetic biology. The Integrated Drug Creation Platform enables the creation of biologics by unifying the drug discovery and cell line development processes into one process. 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 “LLC Conversion”). The Company’s headquarters are located in Vancouver, Washington.

Authorized shares of common stock

In June 2021, the Company’s board of directors (the “Board”) and stockholders increased the number of authorized shares of common stock to 78,320,000.

Initial Public Offering

In July 2021, we completed our initial public offering (the “IPO”) and issued 14.4 million shares of our common stock, including 1.9 million shares pursuant to the full exercise of the underwriters’ option to purchase additional shares, at a price of $16.00 per share and received net proceeds of $210.1 million from the IPO. Immediately prior to the completion of the IPO, all shares of redeemable convertible preferred stock then outstanding were converted into 46.3 million shares of common stock and all convertible notes issued in March 2021 were converted into 9.7 million shares of common stock.

Amendments to Certificate of Incorporation or Bylaws

In connection with the consummation of the IPO, the Company filed an amended and restated certificate of incorporation (the “Restated Certificate”) with the Secretary of State of the State of Delaware. The Board and stockholders previously approved the Restated Certificate to be filed in connection with, and to be effective upon, the consummation of the IPO. The Restated Certificate amended and restated the Company’s existing amended and restated certificate of incorporation, as amended, in its entirety to, among other things: (i) authorize 500,000,000 shares of common stock; (ii) eliminate all references to the previously-existing series of preferred stock; (iii) authorize 10,000,000 shares of undesignated preferred stock that may be issued from time to time by the Board in one or more series; (iv) establish a classified board divided into three classes, with each class serving staggered three-year terms and (v) require the approval of holders of at least 75% of the voting power of the Company’s outstanding shares of voting stock to amend or repeal certain provisions of the Restated Certificate.

Stock split

On July 16, 2021, the Board and stockholders approved an amendment to the Company’s amended and restated certificate of incorporation to effect a forward stock split of the Company’s issued and outstanding common stock at a 3.3031-to-1 ratio, which was effected on July 19, 2021. The par value and convertible preferred stock were not adjusted as a result of the forward stock split. All issued and outstanding common stock, options to purchase common stock and units, and per share and unit amounts contained in the financial statements have been retroactively adjusted to reflect the forward stock split for all periods presented. The financial statements have also been retroactively adjusted to reflect a proportional adjustment to the conversion ratio for each series of preferred stock that was effected in connection with the forward stock split.

Unaudited Interim Financial Information

We prepared our interim condensed consolidated financial statements that accompany these notes in conformity with U.S. GAAP, consistent in all material respects with those applied in our Annual Report on Form 10-K for the year ended December 31, 2021.

We have made estimates and judgments affecting the amounts reported in our condensed consolidated financial statements and the accompanying notes. The actual results that we experience may differ materially from our estimates. The interim financial information is unaudited and reflects all normal adjustments that are, in our opinion, necessary to provide a fair statement of results for the interim periods presented. This

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ABSCI CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

report should be read in conjunction with the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021 where we include additional information about our critical accounting estimates.

2.Summary of significant accounting policies

Basis of presentation

The condensed consolidated financial statements are prepared in accordance with U.S. GAAP as defined by the Financial Accounting Standards Board (“FASB”). The condensed consolidated financial statements include the Company’s wholly-owned subsidiaries and entities under its control. The Company has eliminated all intercompany transactions and accounts.

Cash and cash equivalents

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.

Investments

The Company’s short-term investments include funds invested in highly liquid money market funds, U.S. Treasury securities and corporate debt securities with original maturities at the date of purchase greater than three months but less than one year. These investments are classified as available-for-sale debt securities, which are recorded at fair value based on quoted prices in active markets.

If the estimated fair value of a debt security is below its amortized cost basis, the Company evaluates whether it is more likely than not that the Company will be required to sell the security before its anticipated recovery in market value and whether credit losses exist for the related securities. A credit loss exists if the present value of expected cash flows is less than the amortized cost basis of the security. Credit-related losses are recognized as an allowance for credit losses on the balance sheet with a corresponding adjustment to earnings. Unrealized gains and losses that are unrelated to credit deterioration are reported in accumulated other comprehensive income (loss). 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 our condensed consolidated statements of operations and comprehensive loss. The Company uses the specific identification method to compute gains and losses on investments.

There have been no other material changes in the accounting policies from those disclosed in the audited consolidated financial statements and the related notes included in the Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on March 22, 2022.

3.Revenue recognition

Contract balances

Contract assets are generated when contractual billing schedules differ from revenue recognition timing and the Company records a contract receivable when it has an unconditional right to consideration. As of September 30, 2022 and December 31, 2021, contract assets were $0.2 million and $0.6 million, respectively.

Contract liabilities are recorded in deferred revenue when cash payments are received or due in advance of the satisfaction of performance obligations. As of September 30, 2022 and December 31, 2021, contract liabilities were $0.7 million and $1.4 million, respectively. During the three and nine months ended September 30, 2022, the Company recognized $0.4 million and $1.2 million, respectively, as revenue that had been included in deferred revenue at the beginning of the period. During the three and nine months ended September 30, 2021, the Company recognized $0.2 million and $1.3 million, respectively, as revenue that had been included in deferred revenue at the beginning of the period.

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KBI BioPharma, Inc. Collaboration agreement

In December 2019, the Company executed a four-year Joint Marketing Agreement (“JMA”) with KBI BioPharma, Inc. (“KBI”) to co-promote technologies through joint marketing efforts. The JMA provides for a non-refundable upfront payment of $0.8 million and milestone payments of $2.8 million in the aggregate, of which $2.3 million had been received as of September 30, 2022, upon the achievement of specific milestones. Upfront payments that relate to ongoing collaboration efforts required throughout the contract term such as joint marketing are recognized ratably throughout the contract term. The Company fully constrains revenue associated with the milestone payments until the specified milestones are probable of achievement. Additionally, KBI is obligated to make royalty payments to the Company during the fourth year of the JMA representing a percentage of its sales generated through the arrangement. Any costs incurred to KBI through the duration of the JMA are recognized as a reduction to collaboration revenue in the period in which they are incurred.

In September 2021, the JMA was amended to shorten the term to approximately three years, while all remaining payments, including potential royalty payments, were replaced with a one-time fee due from KBI in the amount of $0.3 million. The Company determined the remaining services were distinct from those provided prior to the modification and therefore recognizes the total remaining transaction price prospectively over the remaining contractual term.

As of September 30, 2022 and December 31, 2021, deferred revenues related to the JMA were $0.1 million and $1.2 million, respectively.

4.Acquisitions

Acquisition of Denovium

In January 2021, the Company completed its acquisition of the common stock of Denovium, Inc. (“Denovium”), an artificial intelligence deep learning company focused on protein discovery and design. The Company is integrating Denovium’s technology into its Integrated Drug Creation Platform. The acquisition has been accounted for as a business combination.

Pursuant to the terms of the agreement, the Company acquired all outstanding equity of Denovium for estimated total consideration of $3.0 million, which consists of (in thousands):

Cash consideration			$	2,670
Equity consideration			368
Total purchase consideration			$	3,038

Cash consideration included a $2.5 million upfront payment and a payment for working capital adjustments.

In addition to the $2.5 million paid upfront, $2.5 million was placed into escrow subject to the continued service and/or employment of Denovium’s co-founders over a one-year period. This amount is not included in the total consideration and is accounted for as compensation expense over the one-year service period, and was included in current restricted cash and accrued expenses on the condensed consolidated balance sheet as of December 31, 2021. The $2.5 million deferred payment was disbursed from escrow in January 2022.

The Company issued 1,010,296 shares of its common stock to the Denovium co-founders, of which 80% or 808,238 shares is subject to a Stock Restriction Agreement and vests monthly over a four-year term subject to a service condition. The fair value of these shares of $1.5 million will be recognized as compensation cost over the four-year service period. The remaining 20%, or 202,058 shares, vested immediately and is included in the total consideration.

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The following table summarizes the allocation of the purchase consideration to the fair value of the assets acquired and liabilities assumed (in thousands):

Cash and cash equivalents			$	158
Accounts receivable			59
Other current assets			1
Intangible assets			2,507
Goodwill			1,055
TOTAL ASSETS			3,780
Accounts payable and accrued expenses			109
Deferred tax liability			633
TOTAL LIABILITIES			742
Fair value of net assets acquired and liabilities assumed			$	3,038

Goodwill arising from the acquisition of $1.1 million was attributable to the assembled workforce and expected synergies between the Integrated Drug Creation platform and the Denovium Engine. The goodwill is not deductible for tax purposes. As of December 31, 2021, the Company had fully completed the analysis to assign fair values to all assets acquired and liabilities assumed.

The following table reflects the fair values of the identified intangible assets of Denovium and their respective weighted-average estimated amortization periods.

			Estimated Fair Value (in thousands)						Estimated Amortization Period (years)
Denovium Engine			$	2,507					5
			$	2,507

Acquisition of Totient

On June 4, 2021, the Company entered into a merger agreement with Totient, Inc. (“Totient”), under which, at the effective time, a wholly owned entity, or Merger Sub, merged with Totient, with Merger Sub surviving as a wholly owned subsidiary of the Company.

Pursuant to the merger agreement, at closing, Totient shareholders became eligible to receive an aggregate payment of $55.0 million in cash, of which $40.0 million in cash was paid at closing, subject to customary purchase price adjustments and escrow restrictions, and $15.0 million in cash shall be paid upon the achievement of specified milestones, and 2,212,208 shares of the Company’s common stock. The $40.0 million cash consideration included $8.0 million of deferred cash payment, due in one year. This amount was included in current restricted cash and accrued expenses on the condensed consolidated balance sheet as of December 31, 2021. The $8.0 million of deferred cash payment was disbursed from escrow in June 2022. All common stock issued is unrestricted, except for those shares granted to certain members of Totient’s management, of which 25% of the shares issued were vested upon the closing of the transaction and the remaining 75% will vest over 2.5 years, in six-month installments subject to their respective continuing service relationships with the Company.

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The following table summarizes the purchase price (in thousands):

Estimated cash payment to Totient stockholders			$	35,368		(i)
Estimated stock payment to Totient stockholders			13,891			(ii)
Estimated cash payment contingent on achieving specified milestone			12,000			(iii)
Total			$	61,259

(i)Pursuant to the merger agreement, the initial purchase price includes $40.0 million of cash adjusted for the agreed upon working capital value which includes the payment of Totient’s transaction and other expenses as well as payments to Totient stock option holders for the cancellation and extinguishment of Totient stock options.

(ii)Pursuant to the merger agreement, 2,212,208 shares of common stock issued in payment to Totient stockholders with 1,282,747 vesting immediately and therefore included in the purchase price consideration. The remaining 929,461 shares will vest ratably, every six months over 5 equal installments of a 2.5 years service period and will be expensed over the service period. These shares are subject to stock restriction agreements that require certain former key Totient executives to maintain a continued service relationship with Absci throughout the service period.

(iii)Represents the estimated fair value of the contingent consideration that is payable upon the achievement of the milestone of (A) Absci’s entering into one or more definitive commercialization agreements, or technology partnering or licensing agreements, or collaboration agreements, with third parties using, or related to, Totient’s technology, a target discovered or identified by using Totient’s technology, or a peptide, protein complex or amino acid sequence assembled using Totient’s technology, including any Totient product or enabled product, pursuant to which (I) Absci is entitled to receive at least $2.0 million in aggregate upfront cash or equity payments (provided, that the minimum upfront payment under any individual agreement shall be $1.0 million and (II) an option for a license or a license or similar right is granted to the third party; or (B) first commercial sale of a Totient product or enabled product. The fair value estimate is based on a probability-weighted approach and will be updated as we obtain more information. The $12.0 million of contingent consideration originally measured was adjusted to reflect the increased probability of achievement. As of September 30, 2022 the fair value is $12.8 million and is included in accrued expenses on the condensed consolidated balance sheet as of September 30, 2022. Changes in the contingent consideration liability fair value are reflected within research and development expenses on the condensed consolidated statement of operations and comprehensive loss.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table summarizes the allocation of the estimated consideration to the identifiable assets and liabilities acquired by us as of June 4, 2021 (in thousands).

Current assets:
Cash and cash equivalents			$	1,751
Prepaid expenses and other current assets			189
Total current assets			1,940
Operating lease right-of-use assets			266
Property and equipment, net			118
Goodwill			20,280			(i)
Intangible assets			54,600			(ii)
Other long-term assets			23
TOTAL ASSETS			77,227
Current liabilities:
Accounts payable			78
Accrued expenses			6,588
Operating lease obligations			122
Total current liabilities			6,788
Operating lease obligations - net of current portion			144
Deferred tax, net			9,012
Other long-term liabilities			24
TOTAL LIABILITIES			15,968
Fair value of net assets acquired and liabilities assumed			$	61,259

(i)Goodwill represents the excess of the estimated purchase price over the estimated fair value of Totient’s identifiable assets acquired and liabilities assumed. Goodwill also reflects the requirement to record deferred tax balances for the difference between the assigned values and the tax bases of assets acquired and liabilities assumed in the business combination. Goodwill is not deductible for tax purposes.

(ii)The estimated fair value of and useful lives of the intangible assets acquired is as follows:

			Estimated fair value (in thousands)(i)						Estimated useful lives (in years)(ii)
Monoclonal antibody library			$	46,300					20
Developed software platform and the related methods patents			8,300						15
Total			$	54,600

(i)The estimated fair values were categorized within Level 3 of the fair value hierarchy and were determined using an income-based approach, which was based on the present value of the future estimated after-tax cash flows attributable to each intangible asset. The significant assumptions inherent in the development of the values, from the perspective of a market participant, include the amount and timing of projected future cash flows (including revenue, regulatory success and profitability), and the discount rate selected to measure the risks inherent in the future cash flows, which was between 18%-23%. These fair values are based on the most recent estimate of the fair value available and will be updated as we obtain more information.

(ii)The estimate of the useful life was based on an analysis of the expected use of the asset by us, any legal, regulatory or contractual provisions that may limit the useful life, the effects of obsolescence, competition and other relevant economic factors, and consideration of the expected cash flows used to measure the fair value of the intangible asset.

As of March 31, 2022, the Company had fully completed the analysis to assign fair values to all assets acquired and liabilities assumed and recorded no adjustments to the preliminary purchase price allocation in the nine months ended September 30, 2022. During the year ended December 31, 2021, the Company recorded adjustments to goodwill of $1.6 million primarily related to deferred taxes.

The Company’s results of operations for the three and nine months ended September 30, 2022 include the operating results of Totient within the condensed consolidated statement of operations and comprehensive loss. The operating results of Totient are included within the condensed consolidated statement of operations

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and comprehensive loss from June 4, 2021 through September 30, 2021 for the three and nine months ended September 30, 2021.

Acquisition costs of $0.9 million were included in the condensed consolidated statement of operations and comprehensive loss as selling, general and administrative for the nine months ended September 30, 2021.

The financial information in the table below summarizes the combined results of operations of the Company and Totient on a pro forma basis, as though the companies had been combined as of January 1, 2020. These pro forma results were based on estimates and assumptions, which we believe are reasonable. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of our fiscal year 2020. The pro forma financial information includes adjustments to share-based compensation expense, amortization for acquired intangible assets, interest expense, and transaction costs, and related tax effects.

The pro forma financial information for the three and nine months ended September 30, 2021 combines our results, which include the results of Totient subsequent to June 4, 2021, and the historical results for Totient for the periods prior to acquisition.

The following table summarizes the pro forma financial information (in thousands):

															For the Three Months Ended September 30,									For the Nine Months Ended September 30,
																					2021												2021
Net loss applicable to common stockholders and unitholders																					$	(25,579)											$	(86,695)

5.Investments

Cash equivalents, marketable securities and deposits are classified as available-for-sale and are, therefore, recorded at fair value on the condensed consolidated balance sheet, with any unrealized gains and losses reported in accumulated other comprehensive income (loss), which is reflected as a separate component of stockholders’ equity in the Company’s condensed consolidated balance sheet, 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):

			September 30, 2022
			Amortized cost						Gross unrealized gains						Gross unrealized losses						Fair market value
Assets
Money market funds			$	1,476					$	—					$	—					$	1,476
Certificates of deposit			27,560						—						—						27,560
U.S. treasury bills			76,198						116						—						76,314
Total			$	105,234					$	116					$	—					$	105,350
Classified as:
Cash equivalents																					$	31,362
Short-term investments																					73,988
Long-term investments																					—
Total																					$	105,350

Investments held as of September 30, 2022 consist of cash equivalents with contractual maturities of three months or less and U.S. treasury bills with original maturities between four and six months. Proceeds and realized gains from maturities of U.S. treasury bills classified as cash equivalents were $50.0 million and

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$0.2 million, respectively, for the three and nine months ended September 30, 2022. Unrealized gains on securities were primarily due to changes in interest rates. We did not have any investments in a continuous unrealized loss position for more than twelve months as of September 30, 2022. The Company held no investments as of December 31, 2021.

6.Property and equipment, net

Property and equipment as of September 30, 2022 and December 31, 2021 consists of the following (in thousands):

						September 30,						December 31,
						2022						2021
Construction in progress						$