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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 June 30, 2023
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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock. $0.0001 par value ABSIThe 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 Exchange Act).        Yes        N 
The registrant had outstanding 92,710,954 shares of $0.0001 par value common stock as of July 31, 2023.
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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,” “might,” “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 our ability to leverage our Integrated Drug Creation platform to shorten preclinical development of biologics;
our expectations regarding the markets for our services and technologies, including the growth rate of the biologics market;
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 and developing lead drug candidates for our internal drug discovery efforts;
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 additional revenue;
our estimates of the sufficiency of our cash and cash equivalents and short-term investments;
our calculations and estimates related to the valuation of our intangible assets;
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;
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our expectations regarding use of our cash and cash equivalents and short-term investments, 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;
our competitive position and the development of and projections relating to our competitors or our industry;
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
global economic conditions, including market volatility, acts of war and civil and political unrest, 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’s stylized A logo, HiPrBind, Bionic proteins, Translating Ideas into Drugs, Bionic SoluPro, Integrated Drug Creation, Unlimit with us, Creating drugs at the speed of Ai, Better biologics for patients, faster, Breakthrough therapeutics at the click of a button, for everyone, 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
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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 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
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
June 30,December 31,
(In thousands, except for share and per share data)20232022
ASSETS
Current assets:
Cash and cash equivalents$61,048 $59,955 
Restricted cash15,066 15,023 
Short-term investments63,539 104,476 
Receivables under development arrangements, net3,157 1,550 
Prepaid expenses and other current assets5,227 5,859 
Total current assets148,037 186,863 
Operating lease right-of-use assets4,886 5,319 
Property and equipment, net47,850 52,723 
Intangibles, net49,938 51,622 
Goodwill 21,335 
Restricted cash, long-term1,902 1,864 
Other long-term assets1,540 1,282 
TOTAL ASSETS$254,153 $321,008 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable$1,851 $2,412 
Accrued expenses16,713 20,481 
Long-term debt3,145 2,946 
Operating lease obligations1,734 1,690 
Financing lease obligations1,541 2,296 
Deferred revenue500 445 
Total current liabilities25,484 30,270 
Long-term debt - net of current portion6,378 7,984 
Operating lease obligations - net of current portion6,423 7,317 
Finance lease obligations - net of current portion246 750 
Deferred tax, net223 238 
Other long-term liabilities 35 
TOTAL LIABILITIES38,754 46,594 
Commitments (See Note 8)
STOCKHOLDERS' EQUITY
Preferred stock, $0.0001 par value; 10,000,000 shares authorized as of June 30, 2023 and December 31, 2022; 0 shares issued and outstanding as of June 30, 2023 and December 31, 2022
  
Common stock, $0.0001 par value; 500,000,000 shares authorized as of June 30, 2023 and December 31, 2022; 92,590,593 and 92,411,103 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively
9 9 
Additional paid-in capital576,492 570,454 
Accumulated deficit(360,956)(295,929)
Accumulated other comprehensive loss(146)(120)
TOTAL STOCKHOLDERS' EQUITY215,399 274,414 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$254,153 $321,008 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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ABSCI CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For the Three Months Ended June 30,For the Six Months Ended June 30,
(In thousands, except for share and per share data)2023202220232022
Revenues
Technology development revenue$3,367 $636 $4,636 $1,090 
Collaboration revenue 366  731 
Total revenues3,367 1,002 4,636 1,821 
Operating expenses
Research and development12,112 16,241 24,769 32,068 
Selling, general and administrative9,410 10,507 19,003 21,396 
Depreciation and amortization3,498 3,141 7,002 6,047 
Goodwill impairment21,335  21,335  
Total operating expenses46,355 29,889 72,109 59,511 
Operating loss(42,988)(28,887)(67,473)(57,690)
Other income (expense)
Interest expense(256)(211)(577)(406)
Other income, net1,583 148 3,041 273 
Total other income (expense), net1,327 (63)2,464 (133)
Loss before income taxes(41,661)(28,950)(65,009)(57,823)
Income tax (expense) benefit(11)270 (18)(351)
Net loss$(41,672)$(28,680)$(65,027)$(58,174)
Net loss per share:
Basic and diluted
$(0.45)$(0.32)$(0.71)$(0.64)
Weighted-average common shares outstanding:
Basic and diluted
91,827,780 90,669,499 91,654,578 90,471,950 
Comprehensive loss:
Net loss$(41,672)$(28,680)$(65,027)$(58,174)
Foreign currency translation adjustments(42)(40)(56)(50)
Unrealized (loss) gain on investments(9)2 30 2 
Comprehensive loss$(41,723)$(28,718)$(65,053)$(58,222)
The accompanying notes are an integral part of these condensed consolidated financial statements.
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ABSCI CORPORATION
UNAUDITED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands, except for share and per share data)Common StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal Stockholders' Equity
SharesAmount
Balances - December 31, 202292,411,103 $9 $570,454 $(295,929)$(120)$274,414 
Issuance of shares under stock plans, net of shares withheld for tax payments171,899 — 229 — — 229 
Stock-based compensation— — 2,652 — — 2,652 
Forfeiture of common stock(101,030)— — — — — 
Foreign currency translation adjustments— — — — (14)(14)
Unrealized gain on investments— — — — 39 39 
Net loss— — — (23,355)— (23,355)
Balances - March 31, 202392,481,972 $9 $573,335 $(319,284)$(95)$253,965 
Issuance of shares under stock plans, net of shares withheld for tax payments108,621 — 116 — — 116 
Stock-based compensation— — 3,041 — — 3,041 
Foreign currency translation adjustments— — — — (42)(42)
Unrealized loss on investments— — — — (9)(9)
Net loss— — — (41,672)— (41,672)
Balances - June 30, 202392,590,593 $9 $576,492 $(360,956)$(146)$215,399 

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(In thousands, except for share and per share data)Common StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal Stockholders' Equity
SharesAmount
Balances - December 31, 202192,648,036 $9 $557,136 $(191,025)$(13)$366,107 
Issuance of shares under stock plans, net of shares withheld for tax payments187,151 213 — — 213 
Stock-based compensation— — 3,680 — — 3,680 
Foreign currency translation adjustments— — — — (10)(10)
Net loss— — — (29,494)— (29,494)
Balances - March 31, 202292,835,187 $9 $561,029 $(220,519)$(23)$340,496 
Issuance of shares under stock plans, net of shares withheld for tax payments195,418 — 215 — — 215 
Stock-based compensation— — 4,200 — — 4,200 
Forfeiture of common stock(249,618)— — — — — 
Foreign currency translation adjustments— — — — (40)(40)
Unrealized gain on investments— — — — 2 2 
Other1 — — — — — 
Net loss— — — (28,680)— (28,680)
Balances - June 30, 202292,780,988 $9 $565,444 $(249,199)$(61)$316,193 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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ABSCI CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30,
(In thousands)20232022
Cash Flows From Operating Activities
Net loss(65,027)(58,174)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization7,002 6,047 
Deferred income taxes(15)342 
Stock-based compensation5,693 7,949 
Goodwill impairment21,335  
Accretion of discount on short-term investments(1,646) 
Other(615)645 
Changes in operating assets and liabilities:
Receivables under development arrangements(1,584)1,115 
Prepaid expenses and other current assets632 1,701 
Operating lease right-of-use assets and liabilities(417)(277)
Other long-term assets(78)(47)
Accounts payable(885)659 
Accrued expenses and other liabilities(3,803)(5,132)
Deferred revenue55 1,444 
Net cash used in operating activities(39,353)(43,728)
Cash Flows From Investing Activities
Purchases of property and equipment(536)(10,745)
Acquisitions, net of cash acquired (8,000)
Investment in short-term investments(92,627) 
Proceeds from maturities of short-term investments135,897  
Proceeds from sales of property and equipment117 15 
Proceeds from property insurance settlements 650 
Net cash provided by (used in) investing activities42,851 (18,080)
Cash Flows From Financing Activities
Proceeds from issuance of long-term debt 9,407 
Principal payments on long-term debt(1,407)(3,698)
Principal payments on finance lease obligations(1,262)(1,372)
Proceeds from issuance of common stock, net of issuance costs345 428 
Net cash (used in) provided by financing activities(2,324)4,765 
Net increase (decrease) in cash, cash equivalents, and restricted cash1,174 (57,043)
Cash, cash equivalents and restricted cash - Beginning of year76,842 279,926 
Cash, cash equivalents, and restricted cash - End of period$78,016 $222,883 
Supplemental Disclosure of Cash Flow Information
Cash paid for amounts included in the measurement of operating lease liabilities1,206 1,141 
Property and equipment purchases included in accounts payable267 1,990 
Deferred offering costs included in accounts payable180  
The accompanying notes are an integral part of these condensed consolidated financial statements.
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ABSCI CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.Organization and nature of operations
Absci Corporation (the “Company”) is a generative AI drug creation company harnessing deep learning and synthetic biology to expand the therapeutic potential of proteins. Absci leverages its integrated drug creation platform (the “Integrated Drug Creation Platform”) to identify novel drug targets and create promising biotherapeutic candidates. 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.
Unaudited interim financial information
The Company prepared its interim condensed consolidated financial statements that accompany these notes in conformity with U.S. GAAP, consistent in all material respects with those applied in its Annual Report on Form 10-K for the year ended December 31, 2022.
The Company has made estimates and judgments affecting the amounts reported in its condensed consolidated financial statements and the accompanying notes. The actual results that the Company experiences may differ materially from its estimates. The interim financial information is unaudited and reflects all normal adjustments that are, in the Company’s opinion, necessary to provide a fair statement of results for the interim periods presented. This report should be read in conjunction with the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 where the Company includes additional information about its 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.
There have been no 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, 2022, which was filed with the SEC on March 30, 2023.
3.Revenue recognition
Contract balances
Contract assets are generated when contractual billing schedules differ from revenue recognition timing and the Company records a contract asset when it has an unconditional right to consideration. As of June 30, 2023 and December 31, 2022, contract assets were $0.9 million and $1.1 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 June 30, 2023 and December 31, 2022, contract liabilities were $0.5 million and $0.4 million, respectively. During the three and six months ended June 30, 2023, the Company recognized $0.3 million and $0.4 million, respectively, as revenue that had been included in deferred revenue at the beginning of the period. During the three and six months ended June 30, 2022, the Company recognized $0.4 million and $0.8 million, respectively, as revenue that had been included in deferred revenue at the beginning of the period.
4.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
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ABSCI CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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):
June 30, 2023
Amortized costGross unrealized gainsGross unrealized lossesFair market value
Assets
Money market funds$23 $ $ $23 
U.S. treasury bills63,550 3 (14)63,539 
Total$63,573 $3 $(14)$63,562 
Classified as:
Cash equivalents$23 
Short-term investments63,539 
Long-term investments 
Total$63,562 
December 31, 2022
Amortized costGross unrealized gainsGross unrealized lossesFair market value
Assets
Money market funds$5,050 $ $ $5,050 
Certificates of deposit27,740   27,740 
U.S. treasury bills76,777 2 (43)76,736 
Total$109,567 $2 $(43)$109,526 
Classified as:
Cash equivalents$5,050 
Short-term investments104,476 
Long-term investments 
Total$109,526 
Investments held as of June 30, 2023 consist of cash equivalents with contractual maturities of three months or less and U.S. treasury bills with original maturities between three and seven months. Proceeds from maturities of short-term investments were $93.9 million and $135.9 million for the three and six months ended June 30, 2023, respectively. There were no proceeds from maturities of short-term investments for the three and six months ended June 30, 2022. There were no realized gains and losses on securities for the three and six months ended June 30, 2023 and June 30, 2022. Unrealized gains and losses on securities were primarily due to changes in interest rates.
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ABSCI CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The fair values of investments in an unrealized loss position are as follows (in thousands):
June 30, 2023
Less than 12 Months12 Months or Greater
Fair valueUnrealized lossFair valueUnrealized loss
U.S. treasury bills$48,550 $(14)$ $ 
Total$48,550 $(14)$ $ 
December 31, 2022
Less than 12 Months12 Months or Greater
Fair valueUnrealized lossFair valueUnrealized loss
U.S. treasury bills$61,845 $(43)$ $ 
Total$61,845 $(43)$ $ 
The Company does not intend to sell securities that are in an unrealized loss position and believes that it is not more likely than not that it will be required to sell these securities before recovery of amortized cost.
5.Property and equipment, net
Property and equipment consist of the following (in thousands):
June 30,December 31,
20232022
Construction in progress$ $293 
Lab Equipment34,451 34,168 
Software298 298 
Furniture, Fixtures and Other6,378 6,307 
Leasehold Improvements27,048 26,860 
Total Cost68,175 67,926 
Less accumulated depreciation and amortization(20,325)(15,203)
Property and equipment, net$47,850 $52,723 

Depreciation expense was $2.7 million and $5.3 million for the three and six months ended June 30, 2023, respectively. Depreciation expense was $2.3 million and $4.4 million for the three and six months ended June 30, 2022, respectively.
For details regarding the interim impairment assessment performed for long-lived assets see Note 6: Goodwill and Intangibles, net.
6.Goodwill and intangibles, net
Goodwill is tested for impairment on an annual basis in the fourth quarter, or sooner if an indicator of impairment exists. The Company may elect to first assess qualitative factors to determine whether it is more-likely-than-not that the fair value of goodwill at the reporting unit level is less than the carrying amount. The qualitative assessment includes consideration of relevant events and circumstances that would affect the Company’s single reporting unit, including macroeconomic, industry and market conditions, overall financial performance, and trends in the market price of the Company’s common stock.
The Company performed an interim qualitative impairment assessment of goodwill as of June 30, 2023 and concluded that the duration and extent of the sustained decline in the Company’s stock price and resulting
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ABSCI CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
market capitalization below cash and short-term investments for a period of time within the three months ended June 30, 2023 are indicators of impairment that trigger 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;
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 our 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 unaudited condensed consolidated statement of operations and comprehensive loss.
Goodwill assets are as follows (in thousands):
June 30, 2023December 31, 2022
Gross AssetsAccumulated ImpairmentNetGross AssetsAccumulated ImpairmentNet
Goodwill$21,335 $(21,335)$ $21,335 $ $21,335 
In conjunction with, and in advance of, the interim test of goodwill of the single reporting unit, the Company also performed an interim qualitative impairment assessment of long-lived assets as of June 30, 2023 which indicated that the carrying amount of the long-lived assets might not be recoverable. To test these long-lived assets for recoverability, the Company compared the estimated future cash flows (on an undiscounted basis) to be generated from the use and residual value of the entity-wide asset group to its carrying value and concluded that the long-lived assets were not impaired as of June 30, 2023. It is reasonably possible that changes in future operating results, cash flows, or market capitalization, as well as future changes related to the asset group may result in the need to write down the asset group to fair value. The Company will
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ABSCI CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continue to monitor for events occurring or circumstances changing which may suggest that long-lived assets should be reevaluated.
Intangible assets are as follows (in thousands):
June 30, 2023December 31, 2022
Gross AssetsAccumulated AmortizationNetGross AssetsAccumulated AmortizationNet
Denovium Engine2,507 (1,225)1,282 2,507 (975)1,532 
Monoclonal antibody library46,300 (4,797)41,503 46,300 (3,640)42,660 
Developed software platform and the related methods patents8,300 (1,147)7,153 8,300 (870)7,430 
Intangible assets, net$57,107 $(7,169)$49,938 $57,107 $(5,485)$51,622 
Amortization expense related to intangible assets was $0.8 million for the three months ended June 30, 2023 and 2022 and $1.7 million for the six months ended June 30, 2023 and 2022 and is reflected within depreciation and amortization expense on the condensed consolidated statement of operations and comprehensive loss.
Future amortization expense for the Company’s intangible assets as of June 30, 2023 are estimated as follows (in thousands):
Years Ending December 31:
2023 (six months remaining)$1,686 
20243,370 
20253,370 
20262,897 
20272,868 
7.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 Company was in compliance with all applicable financial covenants as of June 30, 2023.
The carrying amount of the long-term debt approximates fair value.
8.Commitments and contingencies
As of June 30, 2023, future lease payments are secured by irrevocable standby letters of credit totaling $1.9 million. The irrevocable standby letters of credit are expected to be pledged for the full lease terms which extend through 2024 and 2028 for each of the Company’s facility leases.
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.
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ABSCI CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9.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”) as awards to incentivize employee service. On January 1, 2023, the number of shares of common stock reserved for future issuance under the 2021 Plan was increased by 4,620,555 shares pursuant to an automatic annual increase. As of June 30, 2023, 7,756,018 shares were available for issuance under the 2021 Plan.
Total stock-based compensation expense related to all of the Company’s stock-based awards was recorded in the condensed consolidated statements of operations and comprehensive loss as follows (in thousands):
For the Three Months Ended June 30,For the Six Months Ended June 30,
2023202220232022
Research and development1,243 1,697 $2,436 $3,120 
Selling, general and administrative1,811 2,550 3,284 4,906 
Total stock-based compensation expense$3,054 $4,247 $5,720 $8,026 
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. Certain options have alternative vesting schedules including ratably over 1-4 years and immediate vesting. The Company recognizes forfeitures as they occur and uses the straight-line expense recognition method. Activity for stock options is shown below:
Number of OptionsWeighted Average Exercise Price per ShareWeighted Average Remaining Contractual Term (in years)Aggregate Intrinsic Value (in thousands $)
Outstanding at December 31, 202211,429,399 $4.49 8.4$2,949 
Granted7,244,685 2.03 
Exercised(161,983)1.10 86
Canceled/Forfeited(1,399,292)4.13 
Expired(91,939)6.72 
Outstanding at June 30, 202317,020,870 3.50 8.61,111 
Exercisable at June 30, 20234,250,026 $4.07 6.7$888 
Vested and expected to vest as of June 30, 202317,020,870 $3.50 8.6$1,111 
The aggregate intrinsic value of outstanding stock options as of June 30, 2023 was calculated based on the fair value of common stock of $1.52 per share.
The weighted-average grant date fair value of stock options granted during the three and six months ended June 30, 2023 was $1.18 and $1.44, respectively, per share. The weighted-average grant date fair value of stock options granted during the three and six months ended June 30, 2022 was $3.16 and $4.21, respectively, per share. The aggregate grant date fair value of options vested during the three and six months ended June 30, 2023 was $2.4 million and $6.0 million, respectively. The aggregate grant date fair value of options vested during the three and six months ended June 30, 2022 was $5.0 million and $5.8 million, respectively. As of June 30, 2023, total unrecognized stock-based compensation related to stock options was $26.8 million, which the Company expects to recognize over a remaining weighted average period of 2.8 years.
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ABSCI CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Determination of fair value
The estimated grant-date fair value of all the Company’s stock options was calculated using the Black-Scholes option pricing model, based on the following assumptions:
For the Three Months Ended June 30,For the Six Months Ended June 30,
2023202220232022
Expected term (in years)
5.5-6.1
5.5-6.8
5.3-6.1
5.5-7.0
Volatility
80%
63%-64%
79%-80%
63%-67%
Risk-free interest rate
3.5%-4.0%
2.5%-3.0%
3.4%-4.2%
0.8%-3.0%
Dividend Yield%%%%

Restricted stock
Activity for the shares of restricted stock is shown below:
Number of shares
Unvested as of December 31, 20221,013,308 
Forfeitures(101,030)
Vested(321,569)
Unvested as of June 30, 2023590,709 
As of June 30, 2023, there was $1.3 million of unrecognized compensation expense related to the outstanding shares of restricted stock expected to be recognized over a remaining weighted-average period of 1.5 years.
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 June 30, 2023 is $0.6 million based on the Company’s closing stock price of $1.52 per share as reported on the Nasdaq Global Select Market on such date.
Under the Company’s 2020 Stock Option and Grant 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 June 30, 2023, 202,570 of these SARs were outstanding with a weighted average exercise price of $4.34 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 condensed consolidated statements of operations and comprehensive loss for such period. As of June 30, 2023 and December 31, 2022, the Company had recognized no liability for SARs classified within other long-term liabilities on the condensed consolidated balance sheets.
Employee stock purchase plan
In July 2021, the Company’s Board of Directors adopted the 2021 Employee Stock Purchase Plan (“2021 ESPP”), which was subsequently approved by the Company’s stockholders and became effective in connection with the Company’s initial public offering. 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. A total of 903,750 shares of common stock were reserved for issuance under the 2021 ESPP. On January 1, 2023, the number of shares of common stock reserved for issuance under the 2021 ESPP was increased by 924,111 shares pursuant to an automatic annual increase. As of June 30, 2023, 1,713,090 shares were available for issuance under the 2021 ESPP.
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ABSCI CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
10.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 June 30, 2023 and December 31, 2022 (in thousands):
June 30, 2023
Level 1Level 2Level 3Total
Assets:
Debt Securities:
Money market funds$23 $ $ $23 
U.S. treasury bills63,539   63,539 
Total assets$63,562 $ $ $63,562 
Liabilities:
Contingent consideration$ $ $12,750 $12,750 
Total liabilities$ $ $12,750 $12,750 

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ABSCI CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
Level 1Level 2Level 3Total
Assets
Debt Securities:
Money market funds$5,050 $ $ $5,050 
Certificates of deposit27,740   27,740 
U.S. treasury bills76,736   76,736 
Total assets$109,526 $ $ $109,526 
Liabilities:
Contingent consideration$ $ $12,750 $12,750 
Total liabilities$ $ $12,750 $12,750 
The following table provides reconciliation for all liabilities measured at fair value using significant unobservable inputs (Level 3) for the six months ended June 30, 2023 (in thousands):
Contingent considerationTotal liabilities
Balance at December 31, 2022$12,750 $12,750 
Change in fair value during 2023  
Balance at June 30, 2023$12,750 $12,750 
We review trading activity and pricing for our available-for-sale securities as of the measurement date.
The contingent consideration liability is related to the acquisition of Totient, Inc. and is included in accrued expenses on the condensed consolidated balance sheet as of June 30, 2023. The fair value estimate is based on a probability-weighted approach. Changes in fair value of the contingent consideration liability are included within research and development expense on the condensed consolidated statement of operations. The contingent consideration of $15.0 million held in escrow shall be paid upon the achievement of specific milestones and is included in restricted cash on the condensed consolidated balance sheet as of June 30, 2023.
There are significant judgments, assumptions and estimates inherent in the determination of the fair value of each of the instruments described above. In the future, depending on the valuation approaches used and the expected timing and weighting of each, the inputs described above, or other inputs, may have a greater or lesser impact on the Company’s estimates of fair value.
11.Net loss per share
Basic net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period.
The following table sets forth the computation of the Company’s basic and diluted net loss per share attributable to common stockholders (in thousands, except share and per share amounts):
For the Three Months Ended June 30,For the Six Months Ended June 30,
2023202220232022
Numerator:
Net loss$(41,672)$(28,680)$(65,027)$(58,174)
Denominator:
Weighted-average common shares outstanding91,827,780 90,669,499 91,654,578 90,471,950 
Net loss per share, basic and diluted$(0.45)$(0.32)$(0.71)$(0.64)
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Table of Contents
ABSCI CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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.
Potentially dilutive securities not included in the calculation of diluted net loss per share because to do so would be anti-dilutive are as follows (in common stock equivalent shares):
For the Three Months Ended June 30,For the Six Months Ended June 30,
2023202220232022
Stock options17,200,138 10,785,909 15,494,819 10,139,442 
Restricted stock units22,415 68,175 28,447 48,589 
Unvested restricted stock706,279 2,123,409 791,097 2,296,359 
Employee stock purchase plan63,299  83,823  

12.Income taxes
The Company's effective income tax rate from continuing operations was 0.0% and 0.6% for the six months ended June 30, 2023 and 2022, 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.
The Company estimates an annual effective income tax rate based on projected results for the year and applies this rate to income before taxes to calculate income tax expense. When applicable, the income tax provision also includes adjustments for discrete tax items. Any refinements made due to subsequent information that affects the estimated annual effective income tax rate are reflected as adjustments in the current period.
The Company recognizes the effect of income tax positions only if those positions are “more likely than not” of being sustained. As of June 30, 2023, the Company has $1.8 million of unrecognized tax benefits. Interest and penalties accrued on unrecognized tax benefits are recorded as tax expense within the condensed consolidated financial statements. The Company does not expect a significant increase or decrease to the total amounts of unrecognized tax benefits within the next twelve months.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We are a generative AI drug creation company harnessing deep learning and synthetic biology to expand the therapeutic potential of proteins. We leverage our Integrated Drug Creation platform to identify novel drug targets and create encouraging biotherapeutic candidates. We believe our approach enables us, and our partners, to develop novel biologics that are optimized for many traits at disruptive speed.
We couple our powerful deep learning AI models, built to understand and predict determinants of protein function, with our proprietary synthetic biology capabilities, which include high-throughput single-cell assays that can evaluate billions of drug sequence variants, each within its production cell line, for target binding affinity, protein quality, and production level (titer). This combination of in silico modeling with wet lab testing allows us to generate immense real-world datasets that we harness to train and refine our deep learning models. These models guide our protein and cell line designs and enable in silico optimization of multiple attributes. Our target platform technology (formerly “Totient”) uses machine learning computational methods to evaluate patient tissue samples and, without biological bias, identify disease-relevant fully human antibodies and their disease- and tissue-specific molecular targets. In addition to the direct utility of these antibodies and targets as drug discovery assets, these data comprising antibody-epitope recognition elements expand our AI models’ training sets and may improve predictive capabilities for future discovery campaigns.
Through iterative AI predictions, wet lab validation, and AI training, we enable a virtuous cycle that we believe will accelerate us toward fully in silico biologic drug discovery. Our unique Integrated Drug Creation approach has the potential to significantly shorten preclinical development timelines and expand therapeutic possibilities.
Our goal is to become the technology leader in biologic drug creation. Our business model is to use our platform for the rapid creation of biologic drug candidates by:
Establishing partnerships with stakeholders in the drug development life cycle: We develop drug candidates for partners, including those who are responsible for preclinical and clinical testing of biologics generated through our platform. Our partnerships will provide us with the opportunity to participate in the future success of the biologics generated utilizing our platform, through potential clinical, regulatory and commercial milestone payments as well as royalties on net sales of approved products. We aim to assemble economic interests in a diversified portfolio of partners’ biologics across multiple indications.
Developing our own drug discovery pipeline: We intend to develop drug candidates for our own drug discovery pipeline. With the ability to find both targets and lead candidates, we intend to develop promising lead candidates up to the investigational drug application IND stage or later. This will increase the value of our assets and serve as further validation of our platform. We may enter into clinical trials and/or manufacturing partnerships to advance a lead candidate.
Total revenue was $3.4 million and $4.6 million for the three and six months ended June 30, 2023, respectively, compared to $1.0 million and $1.8 million for the three and six months ended June 30, 2022, due to timing of project-based milestones achieved and the mix of ongoing programs utilizing our Integrated Drug Creation platform. For the three and six months ended June 30, 2023 we incurred net losses of $41.7 million and $65.0 million, respectively, which include a non-cash goodwill impairment charge in the amount of $21.3 million. Research and development expenses decreased by $7.3 million, or 23%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022. As of June 30, 2023, we had an accumulated deficit of $361.0 million and cash and cash equivalents and short-term investments totaling $124.6 million.
We expect to continue to incur significant expenses in connection with our ongoing activities, including as we:
implement an effective business development strategy to drive adoption of our Integrated Drug Creation platform by new and existing partners;
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continue to engage in research and development efforts and scale our technology development activities to meet potential demand at a reasonable cost;
develop, acquire, in-license or otherwise obtain technologies that enable us to expand our platform capabilities;
attract, retain and motivate highly qualified personnel;
implement operational, financial and management information systems; and
continue to operate as a public company.
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 operations. Our ability to successfully address these challenges is subject to various risks and uncertainties, including those described in the section of this Quarterly Report titled “Risk Factors”.
Establish new partnerships: Our potential to grow revenue and long-term earnings will require us to successfully identify and establish technology development arrangements with new partners. We have been expanding and expect to continue to expand our business development team and our capabilities to find new partners.
Increase the number of programs under existing partnerships: The execution of our long-term strategy relies substantially on the value our partners believe can be recognized from our programs. Our continued growth depends on our ability to expand the scope of our existing partnerships and add new molecules for Discovery or CLD partnerships with current partners.
Successfully complete our technology development activities and enter licensing arrangements with our partners: Our business model depends upon entering into licensing arrangements with our partners to advance the drug candidates which we generate through clinical development to commercialization. Both our ability to successfully complete technology development activities to meet the needs of a partner, and the partner’s prioritization of the subject program, impact the likelihood and timing of any election by a partner to enter into a licensing arrangement. There is no assurance that a partner will elect to license.
Our partners successfully developing and commercializing the drug candidates generated with our technology: Our business model is dependent on the eventual progression of biologic drug candidates discovered or initially developed utilizing our Integrated Drug Creation platform into clinical trials and commercialization. Given the nature of our relationships with our partners, we do not control the progression, clinical development, regulatory strategy, public disclosure or eventual commercialization, if approved, of these product candidates. As a result, our future success and our potential eligibility to receive milestone payments and royalties are entirely 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 technologies can significantly impact our results of operations and future performance.
Continued significant investments in our research and development of new technologies and platform expansion: We are seeking to further refine and expand our platform and 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, incorporation of non-standard amino acids (Bionic protein creation), and application of artificial intelligence across our Integrated Drug Creation platform. We may also invest significantly in developing our own proprietary lead drug candidates and advancing
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them through preclinical, or later, validation. We expect to incur significant expenses to advance these research and development efforts or to invest in or acquire complementary technologies, but these efforts may not be successful.
Create our proprietary asset pipeline. We intend to selectively create our own lead drug candidates and advance them up to the IND stage or later. In some cases we may out-license or transfer drug candidates for clinical advancement by a partner, with the expectation of a greater share in the economics relative to the milestones and royalties we may secure for our core platform technology development licenses.
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 platform capabilities including new molecules to existing partners or help deliver our platform to new markets.
Key Business Metrics
We continue to identify key business metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions. Currently, given our stage of development, we believe that the following metrics are the most important for understanding our current business trajectory. These metrics may change or may be substituted for additional or different metrics as our business develops. For example, as our business matures and to the extent drug candidates generated with our technologies enter clinical development, or as we may enter partnerships addressing programs over multiple years, or as certain programs may be discontinued by partners, we anticipate updating these metrics to reflect such changes.
June 30,December 31,
20232022
Partners, Cumulative (1)
20 19 
Programs, Cumulative (2)
48 47 
Active Programs (3)
17 16 

(1) Partners represents the unique number of partners with whom we have executed technology development agreements. We view this metric as an indication of our ability to execute our business development activities and level of our market penetration.
(2) Programs represents the number of molecules we have addressed or are addressing with our platform. We view this metric as an indication of the robustness of our technology and the commercial success of our platform.
(3) Active Programs represents the number of programs that are subject to ongoing technology development activities intended to determine if the program can be pursued by our partner for future clinical development, as well as any program for which our partner obtains and maintains a license to our technology to advance the program after completion of the technology development phase. There is no assurance, however, that our partners will advance any drug 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 technology development 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 drug candidates generated from our platform. As we are notified of such terminations, we will remove the subject programs from our Active Programs count.
We classify our applications into two key categories: Discovery and Cell Line Development (“CLD”). We define “Discovery” as any projects for which we are evaluating variants of the protein-of-interest, which may include generation of the production cell line, and we define CLD as a program for which the production cell line alone is the goal of the partnership.
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As of June 30, 2023, we had drug candidates in 17 Active Programs across six current partners’ preclinical or clinical pipelines. We have negotiated license agreements, or expect to negotiate license agreements upon completion of certain technology development activities, with potential downstream milestone payments and royalties for all Active Programs.
We have 14 Active Programs comprising Discovery applications consisting of three through our agreement with Merck & Co., Inc., three through our agreement with EQRx, seven with an undisclosed biotechnology company, and one with an undisclosed biotechnology company leveraging our platform capabilities to optimize pharmacokinetic properties for a Phase II candidate. Three Active Programs are focused on developing production cell lines for drug candidates that our partners are developing. Two of these CLD Active Programs are preclinical and one is in Phase 3 (PhaseBio Pharmaceuticals’ drug candidate, bentracimab, assumed by SFJ Pharmaceuticals, Inc. in January 2023).
Exclusive of our 17 Active Programs with partners, we have utilized our platform to perform technology development activities related to 31 additional molecules. These programs include both internal research programs and technology development programs with third parties intended to demonstrate our platform’s capabilities as we address successively broader ranges of biologics and modalities. We have not transferred technology or granted licenses related to these programs.
We have not negotiated terms for a sufficient number of royalty- and milestone-bearing licenses to enable us to make accurate predictions regarding our potential revenue and financial performance.
Components of Results of Operations
Revenue
Our revenue currently consists primarily of fees earned from our partners in conjunction with technology development agreements (TDAs) and partnership agreements, which are delineated as technology development 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 revenue to increase over time as we enter into additional partnership agreements and as our partnerships continue to include more drug discovery activities. We expect revenue to increase over time as we grant licenses to our partners for the clinical and commercial use of intellectual property rights to the biological assets we create, and as the partners advance product candidates into and through clinical development and commercialization. We expect that our revenue will fluctuate from period to period due to the timing of executing additional partnerships, the uncertainty of the timing of milestone achievements and our dependence on the program decisions of our partners.
Operating Expenses
Research and development
Research and development expenses include the cost of materials, personnel-related costs (comprised of salaries, benefits and share-based compensation) for personnel performing research and development functions, consulting fees, equipment and allocated facility costs (including occupancy and information technology). These expenses are exclusive of depreciation and amortization. Research and development activities consist of continued development of our Integrated Drug Creation platform, internal pipeline, target discovery and technology development for partners. We derive improvements to our platform from each type of activity. Research and development efforts apply to our platform broadly and across programs.
We expect research and development expenses to continue to increase in absolute dollars over the long-term as we enter into additional partnerships, continue to invest in platform enhancements, and develop our internal pipeline.
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, alliance management, legal, finance, marketing and other administrative functions. Marketing and business development expenses include costs associated with attending conferences and all promotion efforts of our Integrated Drug Creation platform. Professional service expenses such as external legal expenses, accounting and tax service expenses, and other
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consultants, and allocated facilities costs (including occupancy and information technology) are also included within selling, general and administrative expenses. These expenses are exclusive of depreciation and amortization.
We expect our selling costs to increase in absolute dollars as we continue to grow our business development efforts and increase marketing activities to drive awareness and adoption of our platform. We expect selling costs to fluctuate as a percentage of total revenue due to the timing and magnitude of these expenses, and to decrease as a percentage of total revenue in the long term.
We expect general and administrative expenses to stabilize as we more effectively control costs associated with operating as a public company, including expenses related to legal, accounting, regulatory, maintaining compliance with exchange listing and requirements of the U.S. Securities and Exchange Commission (SEC), director and officer insurance premiums and investor relations. 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 proprietary cell lines and protein expression technologies, non-standard amino acid technology, 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.
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 stabilize following the completion of the build-out of our primary facility, though it may fluctuate in the future in line with continued growth and compute demands in absolute dollars if 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 may elect to first assess qualitative factors to determine whether it is more-likely-than-not that the fair value of goodwill at the reporting unit level is less than the carrying amount. The qualitative assessment includes our consideration of relevant events and circumstances that would affect our single reporting unit, including macroeconomic, industry and market conditions, our overall financial performance, and trends in the market price of our common stock.
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
Other income consists primarily of interest income from our investments.
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Results of Operations
The results of operations presented below should be reviewed in conjunction with our condensed consolidated financial statements and notes included elsewhere in this Quarterly Report. The following tables set forth our results of operations for the periods presented (In thousands):
For the Three Months Ended June 30,For the Six Months Ended June 30,
2023202220232022
Revenues
Technology development revenue$3,367 $636 $4,636 $1,090 
Collaboration revenue— 366 — 731 
Total revenues3,367 1,002 4,636 1,821 
Operating expenses
Research and development12,112 16,241 24,769 32,068 
Selling, general and administrative9,410 10,507 19,003 21,396 
Depreciation and amortization3,498 3,141 7,002 6,047 
Goodwill impairment21,335 — 21,335 — 
Total operating expenses46,355 29,889 72,109 59,511 
Operating loss(42,988)(28,887)(67,473)(57,690)
Other income (expense)
Interest expense(256)(211)(577)(406)
Other income, net1,583 148 3,041 273 
Total other income (expense), net1,327 (63)2,464 (133)
Loss before income taxes(41,661)(28,950)(65,009)(57,823)
Income tax (expense) benefit(11)270 (18)(351)
Net loss$(41,672)$(28,680)$(65,027)$(58,174)
Comparison of the Three and Six Months Ended June 30, 2023 and 2022
The following table summarizes our results of operations for the three and six months ended June 30, 2023 and 2022 (In thousands, except for percentages):
Revenue
For the Three Months Ended June 30,
20232022$ Change% Change
Revenues
Technology development revenue$3,367 $636 $2,731 429 %
Collaboration revenue— 366 (366)(100)%
Total revenues$3,367 $1,002 $2,365 236 %
For the Six Months Ended June 30,
20232022$ Change% Change
Revenues
Technology development revenue$4,636 $1,090 $3,546 325 %
Collaboration revenue— 731 (731)(100)%
Total revenues$4,636 $1,821 $2,815 155 %
Total revenue was $3.4 million for the three months ended June 30, 2023, representing an increase of approximately $2.4 million, or 236%, compared to $1.0 million for the three months ended June 30, 2022.
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Total revenue was $4.6 million for the six months ended June 30, 2023, representing an increase of approximately $2.8 million, or 155%, compared to $1.8 million for the six months ended June 30, 2022.
Technology development revenue increased by $2.7 million, or 429%, for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 and by $3.5 million, or 325%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022, driven by a combination of overall program progress, the timing of project-based milestones achieved, and the mix of ongoing programs activity.
Operating expenses
The following table summarizes our operating expenses for the three and six months ended June 30, 2023 and 2022 (In thousands, except for percentages):
For the Three Months Ended June 30,
20232022$ Change% Change
Operating expenses
Research and development$12,112 $16,241 $(4,129)(25)%
Selling, general and administrative9,410 10,507 (1,097)(10)%
Depreciation and amortization3,498 3,141 357 11 %
Goodwill impairment21,335 — 21,335 100 %
Total operating expenses$46,355 $29,889 $16,466 55 %
For the Six Months Ended June 30,
20232022$ Change% Change
Operating expenses
Research and development$24,769 $32,068 $(7,299)(23)%
Selling, general and administrative19,003 21,396 (2,393)(11)%
Depreciation and amortization7,002 6,047 955 16 %
Goodwill impairment21,335 — 21,335 100 %
Total operating expenses$72,109 $59,511 $12,598 21 %
Research and development