Absci Corp: Form 10-Q for the period ended Jun 30, 2024

Overview

Absci is a data-first generative AI drug creation company that combines AI with scalable wet lab technologies to create better biologics for patients, faster. With the data to train, the AI to create, and the wet lab to validate, our Integrated Drug Creation platform aims to engineer better biologics with design-in functionality and best-in-class properties.

Antibody-based therapeutics represent an extraordinary medical and economic opportunity, yet the biopharmaceutical industry faces significant challenges in bringing these life-changing medicines to patients. Our proprietary Integrated Drug Creation platform is designed to improve upon traditional biologic drug discovery by using AI to simultaneously optimize multiple drug characteristics that may be important to development and therapeutic benefit. This has the potential to significantly shorten time to clinic and increase the probability of success. Our approach expands the possibilities in biopharmaceuticals — shifting from a paradigm of drug discovery to drug creation — with the goal of bringing best-in-class and first-in-class antibody therapeutics to the patients who need them.

Generative AI depends on massive training datasets to generate quality results. For example, GPT-4, a well-known generative AI model, was trained on data at scale readily available through public sources such as the internet. Small molecule drugs’ simpler structures allows the synthesis and screening of million-member chemical libraries, which can then provide training data for generative AI models. In contrast, using AI models to design biologic drugs is more challenging because biologic drugs are inherently more complex and the existing biological datasets are much smaller, meaning there is less training data available for developing highly predictive AI models. Biologic drugs, however, tend to be more selective than small molecules and may generally provide better safety profiles in patients. Hence, building large training data sets for biologic drugs interactions offers the potential for AI models to design highly specific, safe therapeutics for a wide variety of disease targets less addressable by small molecules.

Our AI models accelerate the design and optimization of potential biologic drug candidates, including for example, antibody drug candidates, with potentially novel, best-in-class attributes. We then use our proprietary wet lab assays to validate those drug candidates at scale. 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.

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. With the data to learn, the AI to create, and the wet lab to validate, Absci can create billions of biologic drug designs, including, for example, antibody designs, and screen millions of ranked sequences in weeks, allowing us to go from AI-designed candidates to wet lab-validated candidates in as little as six weeks. Our unique Integrated Drug Creation platform has the potential to significantly shorten preclinical development timelines from 5-7 years in benchmarked timelines to 18-24 months, enabling us to build a strong pipeline of both partnered and wholly-owned drug candidates that can expand therapeutic possibilities.

Our business model is to use our platform technology, including our Integrated Drug Creation platform, for rapid creation of drug candidates. The cornerstone of this business model lies in the potential for diversification of risk and return on investment. We aim to achieve this by:

Establishing partnerships with stakeholders in the drug discovery and development life cycle: We create drug candidates with partners, including pharmaceutical and biotechnology companies, providing us with the opportunity to participate in the future success of the drug candidates generated utilizing our platform. We structure partnerships to reflect the needs of the program and contributions from each partner. These partnerships may provide us with potential upfront payments, clinical and commercial milestones, and royalties on net sales or may take the form of programs where both parties contribute to discovery and development activities in which costs and downstream economic potential are shared based on the parties’ respective ongoing program participation. We aim to assemble economic interests in a diversified portfolio of partnered pipeline assets of drug candidates across diverse indications.

Developing our own proprietary asset pipeline: We also aim to create our own internal pipeline comprising drug candidates across diverse indications. With the ability to identify targets and develop potential best-in-class assets, we intend to develop promising drug candidates to value inflection points, anywhere from preclinical validation through clinical trials, before partnering or selling them. We may enter into clinical trials and/or manufacturing partnerships to advance specific assets to target such value inflection points.

We balance the portfolio between partnered programs that broaden our reach into diverse indications with a variety of economic structures and internal programs for which we have more control and the potential for partnerships or asset sales that provide greater economic returns.

Total revenue was $1.3 million and $2.2 million for the three and six months ended June 30, 2024, respectively, and $3.4 million and $4.6 million for the three and six months ended June 30, 2023, respectively, due to timing of project-based milestones achieved and the mix of ongoing programs utilizing our Integrated Drug Creation platform. We incurred a net loss of $24.8 million and $46.7 million for the three and six months ended June 30, 2024, respectively, compared to a net loss of $41.7 million and $65.0 million for the three and six months ended June 30, 2023, respectively, which include a non-cash goodwill impairment charge in the amount of $21.3 million recorded during the quarter ended June 30, 2023. Research and development expenses increased by $2.7 million, or 11%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. As of June 30, 2024, we had an accumulated deficit of $453.2 million and cash and cash equivalents and short-term investments totaling $145.2 million.

We expect to continue to incur significant expenses in connection with our ongoing activities, including as we:

• develop our internal pipeline of drug candidates across diverse indications, including the advancement of these candidates through preclinical and clinical development;
• continue to engage in discovery, research and development efforts and scale our activities to meet potential demand from both new and existing partners at a reasonable cost;
• execute an effective business development strategy to drive adoption of our Integrated Drug Creation platform by new and existing partners;
• develop, acquire, in-license or otherwise obtain technologies that enable us to expand our platform capabilities; and
• attract, retain and motivate highly qualified personnel.

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 sections of our Annual Report on Form 10-K for the year ended December 31, 2023 and of this Quarterly Report titled “Risk Factors”.

• Develop our internal pipeline: We are in the process of selectively creating our own drug candidates and intend to advance them to value inflection points anywhere from preclinical validation through to clinical trials prior to out-licensing for further clinical advancement by a partner or other third party.
• Establish new partnerships: Our potential to grow revenue and long-term earnings will require us to successfully identify, establish and maintain collaborations with new and existing partners, including through drug creation partnerships and further clinical development of our internal programs for drug candidates.
• Successfully complete our drug creation activities with partners and enter into licensing arrangements: Our business model relies upon entering into licensing arrangements with our partners to advance the drug candidates we generate through preclinical validation and clinical trials thru to commercialization. Both our ability to successfully complete drug creation activities to meet the needs of a partner, and the partner’s prioritization of the relevant program, impact the likelihood and timing of any election by a partner to enter into a follow-on licensing arrangement. There is no assurance that a partner will elect to license our technology for the development of any drug candidates.
• Developing and commercializing the drug candidates generated with our proprietary Integrated Drug Creation technology: Our business model is dependent on the eventual progression of drug candidates discovered or initially developed utilizing our Integrated Drug Creation platform into clinical trials by us or our partners and through commercialization by our partners or other third parties. Given the nature of our relationships with our partners, we often do not fully control the progression, clinical development, regulatory strategy, public disclosure or eventual commercialization, if approved, of our partnered product candidates. As a result, our future success and our potential eligibility to receive milestone payments and royalties are significantly 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 technology expansion: We are seeking to further refine and expand our proprietary platform technology 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 clinical trials. We expect to incur significant expenses to advance our discovery, research and development efforts or to invest in and/or acquire complementary technologies, but these efforts may not be successful.
• Drive commercial adoption of our proprietary 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 capabilities to discover and validate new drug candidates for existing partners or help expand the capabilities of our platform to support 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. 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.

(1) Partners represents the unique number of partners with whom we have executed drug creation agreements. We view this metric as an indication of our ability to execute our business development activities and level of our market penetration.

(2) Active Programs represents drug candidate creation programs that are subject to ongoing development activities intended to determine if the program can be pursued by our partner for future preclinical or clinical development, as well as any program for which our partner obtains and maintains a license to our technology to advance such program after completion of the drug creation 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 drug creation 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.

As of June 30, 2024, our Active Programs are as follows:

Our proprietary Integrated Drug Creation platform is primarily utilized in our partnerships for drug candidate creation across diverse indications using AI to simultaneously optimize multiple drug characteristics that may be important to future development and/or therapeutic benefit. One of our Active Programs with an undisclosed partner is leveraging our proprietary Integrated Drug Creation platform to optimize pharmacokinetic properties for a Phase II candidate and one of our Active Programs with an undisclosed partner is leveraging our proprietary Integrated Drug Creation platform. We also have three Active Programs focused on our legacy model of developing production cell lines for drug candidates that our partners are developing. Two of these legacy cell line development Active Programs are in preclinical development and one is in Phase 3 clinical development (PhaseBio Pharmaceuticals’ drug candidate, Bentracimab, which was acquired by SFJ Pharmaceuticals, Inc. in January 2023).

We have negotiated license agreements, or expect to negotiate license agreements upon completion of certain drug creation activities, with potential downstream milestone payments and royalties for all Active Programs. We have not negotiated terms for a sufficient number of royalty- and milestone-bearing licenses, however, to enable us to make accurate predictions regarding our potential revenue and financial performance.

Internal Pipeline

Our internal pipeline reflects our differentiated capabilities in de novo antibody creation, multi-parameteric lead optimization, and reverse immunology. We are developing a diversified portfolio of programs with a focus on cytokine biology as we scale our Integrated Drug Creation platform and strive to impact millions of lives.

As of June 30, 2024, we have identified three wholly-owned internal pipeline programs focusing on cytokine biology, as well as several other undisclosed pipeline programs under evaluation.

We are aware of clinical stage assets targeting TL1A that are being developed by third parties, including Merck, Roche, and Sanofi. For purposes of comparing the potential clinical attributes of drug candidates in our ABS-101 program to certain of these other competitive clinical stage assets, we generated putative molecules and performed a head-to-head preclinical comparison against several of our drug candidates in our ABS-101 program. In these preclinical studies, ABS-101 candidates exhibited attributes consistent with a potentially superior product profile by demonstrating equal or superior potency data from multiple biophysical and cellular assays, in addition to improved developability properties. Further preclinical studies demonstrated ABS-101 candidates' abilities to bind both the TL1A monomer and trimer, which could potentially lead to differentiated clinical efficacy. We believe these attributes support the program’s potential to create an efficacious candidate conducive to subcutaneous dosing. Furthermore, in vitro and preliminary in vivo PK studies demonstrated the potential for extended half-life, supporting the objective for significantly improved dosing intervals. While we are encouraged by these preclinical results, we cannot assure you that similar results will be observed in clinical studies of ABS-101. Additionally, while we endeavored to create molecules with the same attributes as those of competitive product candidates under development, we cannot assure that the molecules we created are similar or better than those being developed by our competitors, nor can we assure that direct comparisons of our clinical product candidate to those of our competitors will produce similar results.

In February 2024, we initiated IND-enabling studies to further evaluate certain properties of ABS-101. Based on these IND-enabling studies, we expect to initiate Phase 1 clinical studies for ABS-101 in early 2025, subject to clearance of an IND or equivalent regulatory filing.

Our Active Programs, internal asset programs, and historical programs demonstrate our platform’s capabilities to successively address broad ranges of biologics and modalities.

Components of Results of Operations

Revenue

Our revenue currently consists primarily of fees earned from our partners in conjunction with drug creation partnership agreements utilizing our Integrated Drug Creation platform, 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 that our revenue will fluctuate from period to period due to, for example, the timing of executing additional partnerships, the contractual structure of future partnerships, the uncertainty of the timing of milestone achievements and dependence on our partners’ program-related decisions. 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 partnered program product candidates advance into and through clinical development and commercialization.

Operating Expenses

Research and development

Research and development expenses include the cost of materials, third-party vendor services, personnel-related costs (comprised of salaries, benefits and share-based compensation), consulting fees, equipment, certain information technology costs and allocated facility costs. These expenses are exclusive of depreciation and amortization. Research and development activities consist of continued development of our Integrated Drug Creation platform, internal pipeline, and drug creation 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 increase in absolute dollars over the long term as we develop and advance our internal asset pipeline, enter into additional drug creation partnerships, and continue to invest in platform enhancements.

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, legal, finance, human resources, information technology and other administrative functions. Business development expenses include costs associated with attending conferences and other promotion efforts of our Integrated Drug Creation platform. General and administrative expenses include certain professional service expenses such as, external legal, accounting, and other consultants, as well as certain information technology costs and allocated facility costs. 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 to drive awareness and adoption of our platform. As we grow our operations, we expect personnel-related costs to increase in absolute dollars and we expect to actively manage other general and administrative expenses. 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 performed a quantitative impairment evaluation of goodwill as of June 30, 2023 and recorded a full impairment charge in the amount of $21.3 million.

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 cash, cash equivalents and short-term investments.

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):

23

Comparison of the Three and Six Months Ended June 30, 2024 and 2023

The following table summarizes our results of operations for the three and six months ended June 30, 2024 and 2023 (In thousands, except for percentages):

Revenue

Technology development revenue decreased by $2.1 million, or 62% for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 and decreased by $2.5 million, or 53%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023, driven by a combination of overall program progress, the timing of project-based milestones achieved, and the mix of ongoing program activity.

Operating expenses

The following table summarizes our operating expenses for the three and six months ended June 30, 2024 and 2023 (In thousands, except for percentages):

Research and development

Research and development expenses increased by $3.1 million, or 26%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The increase was primarily attributable to an increase in lab operations costs, including direct costs associated with IND-enabling studies for ABS-101, of $2.3 million, an increase in stock-based compensation of $0.7 million, an increase in administrative costs of $0.1 million, and an increase in personnel costs of less than $0.1 million.

Research and development expenses increased by $2.7 million, or 11%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The increase was primarily attributable to an increase in lab operations costs of $2.3 million, an increase in stock-based compensation of $1.1 million, offset by a decrease in personnel costs of $0.7 million.

Selling, general and administrative expenses

Selling, general, and administrative expenses decreased by $0.1 million, or 1%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The decrease was primarily attributable to decreased insurance and other administrative costs of $1.0 million, a decrease in personnel costs of $0.6 million, offset by an increase in stock-based compensation of $1.6 million.

Selling, general, and administrative expenses decreased by $0.9 million, or 5%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The decrease was primarily attributable to decreased insurance and other administrative costs of $2.1 million, a decrease in personnel costs of $0.9 million, offset by a $2.0 million increase in stock-based compensation.

Depreciation and amortization

Depreciation and amortization expense decreased by $0.1 million, or 3% for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 and decreased by $0.2 million, or 3%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023, remaining relatively consistent between periods.

Goodwill impairment

We performed a quantitative impairment evaluation of goodwill as of June 30, 2023 and recorded an impairment charge in the amount of $21.3 million.

Other income (expense)

The following table summarizes our other income (expense) for the three and six months ended June 30, 2024 and 2023 (In thousands, except for percentages):

Interest expense

Interest expense was $0.2 million for the three months ended June 30, 2024, compared to $0.3 million for the three months ended June 30, 2023, representing a decrease of $0.1 million, or 41% and $0.3 million for the six months ended June 30, 2024, compared to $0.6 million for the six months ended June 30, 2023, representing a decrease of $0.3 million, or 44%, primarily attributable to decreased finance lease and long-term debt obligations.

Other income, net

Other income, net, was $2.1 million for the three months ended June 30, 2024, compared to $1.6 million for the three months ended June 30, 2023, representing an increase of $0.5 million, or 34% and $3.8 million for the six months ended June 30, 2024 compared to $3.0 million for the six months ended June 30, 2023, representing an increase of approximately $0.8 million, or 26%, primarily attributable to increases in investment income from cash, cash equivalents and short-term investments due to higher balances and interest rates.

Liquidity and Capital Resources

Overview

As of June 30, 2024, we had $145.2 million of cash, cash equivalents and short-term investments.

We have incurred net operating losses since inception. As of June 30, 2024, our accumulated deficit was $453.2 million. To date, we have funded operations through issuances and sales of equity securities and debt, in addition to revenue generated from our drug creation agreements. We believe that our cash, cash equivalents and short-term investments will be sufficient to meet our operating expenses, working capital and capital expenditure needs over at least the next 12 months following the date of this filing.

Our future capital requirements will depend on many factors, including, but not limited to our ability to raise additional capital through equity or debt financing, the development of our internal program assets including the progress and strategy of any pre-clinical and clinical activities, our ability to successfully secure additional partnerships under contract with new partners and increase the number of programs covered under contracts with existing partners, the advancement of technology development activities with existing and future partners, the successful preclinical and clinical development by us and our partners of product candidates generated using our Integrated Drug Creation platform, and the successful commercialization by us and our partners of any such product candidates that are approved. If we are unable to execute on our business plan and adequately fund operations, or if our business plan requires a level of spending in excess of cash resources, we may be required to change our strategies related to pre-clinical and clinical development and our approach to negotiating partnerships. Alternatively, we may need to seek additional equity or debt financing, which may not be available on terms acceptable to us or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants restricting our ability to take specific actions, such as incurring additional debt, selling or licensing our assets, making product acquisitions, making capital expenditures, or declaring dividends. If we are unable to generate sufficient revenue or raise additional capital when desired, our business, financial condition, results of operations and prospects would be adversely affected.

Sources of liquidity

Since our inception, we have financed our operations primarily from the issuance and sale of our redeemable convertible preferred stock, issuances of equity securities, borrowings under long-term debt agreements, and to a lesser extent, cash flow from operations.

Equipment financing

In 2022, we received a total of $12.0 million of proceeds from equipment financing arrangements. Terms of the agreements require monthly payments over 42-48 month periods with imputed interest rates ranging from 8%-10%. As of June 30, 2024, the combined outstanding balance on these agreements is $6.2 million.

Shelf registration statement on form S-3

On August 24, 2022, we filed a shelf registration statement on Form S-3 (the Shelf Registration Statement) with the SEC relating to the registration of up to an aggregate of $250.0 million in shares of our common stock, preferred stock, debt securities, warrants and units or any combination thereof. The Shelf Registration Statement was declared effective by the SEC on September 2, 2022.

On June 16, 2023, we entered into a Sales Agreement with Cowen and Company, LLC, as Sales Agent, with respect to an “at the market offering” program under which we may offer and sell, from time to time at our sole discretion, shares of our common stock, par value $0.0001 per share, having an aggregate offering price of up to $100.0 million through the Sales Agent. We will pay the Sales Agent a commission up to 3.0% of the gross sales proceeds of any shares sold under the Sales Agreement. As of June 30, 2024, we have not issued any securities or received any proceeds from the sale of any securities registered pursuant to the Sales Agreement. There can be no assurance that any financing will be available on terms acceptable to us.

On March 1, 2024, we closed the sale of an aggregate of 19,205,000 shares of our common stock, pursuant to an underwriting agreement with Morgan Stanley & Co. LLC and Cowen and Company, LLC at a public offering price of $4.50 per share, before underwriting discounts and commissions. We received total net proceeds from the offering of $80.8 million after deducting underwriting discounts and commissions and offering expenses payable by us.

Cash Flows

The following summarizes our cash flows (In thousands):

Cash flows from operating activities

In the six months ended June 30, 2024, net cash used in operating activities was $34.7 million and consisted primarily of a net loss of $46.7 million adjusted for non-cash items, including depreciation and amortization expense of $6.8 million, stock-based compensation of $8.9 million, and a net increase in operating assets and liabilities in the amount of $1.8 million.

In the six months ended June 30, 2023, net cash used in operating activities was $39.4 million and consisted primarily of a net loss of $65.0 million adjusted for non-cash items, including depreciation and amortization expense of $7.0 million, stock-based compensation of $5.7 million, goodwill impairment of $21.3 million, and a net increase in operating assets and liabilities in the amount of $6.1 million.

Cash flows from investing activities

In the six months ended June 30, 2024, net cash used in investing activities was $75.4 million primarily from purchases of short-term investments of $131.2 million, partially offset by cash provided by maturities of short-term investments of $56.0 million.

In the six months ended June 30, 2023, net cash provided by investing activities was $42.9 million primarily from maturities of short-term investments of $135.9 million, partially offset by cash used for purchases of short-term investments of $92.6 million.

Cash flows from financing activities

In the six months ended June 30, 2024, net cash provided by financing activities was $81.1 million. The net cash provided resulted primarily from proceeds of $80.8 million from the issuance of common stock from a public offering and proceeds of $2.4 million from the issuance of common stock from stock option exercises and our 2021 ESPP, partially offset by principal payments of $2.2 million made for financed equipment.

In the six months ended June 30, 2023, net cash used in financing activities was $2.3 million primarily from cash used for principal payments of $2.7 million made for financed equipment, partially offset by proceeds of $0.3 million from the issuance of common stock from option exercises and our 2021 ESPP.

Critical Accounting Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (US GAAP). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

This report should be read in conjunction with the consolidated financial statements in our 2023 Annual Report on Form 10-K where we include additional information on our business, operating segments, risk factors, critical accounting estimates, policies, and the methods and assumptions used in our estimates, among other important information.

There were no material changes in our critical accounting policies and estimates during the six months ended June 30, 2024.

Emerging Growth Company Status

We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. Section 107 of the JOBS Act provides that an emerging growth company may take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933 for complying with new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. Section 107 of the JOBS Act provides that we can elect to opt out of the extended transition period at any time, which election is irrevocable. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

Subject to certain conditions, as an emerging growth company, we may rely on certain other exemptions and reduced reporting requirements, including without limitation (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying with any requirement by the Public Company Accounting Oversight Board (PCAOB) regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the consolidated financial statements, known as the auditor discussion and analysis. We will remain an emerging growth company until the earlier of (a) the last day of the fiscal year in which we have total annual gross revenue of $1.235 billion or more; (b) December 31, 2026, the last day of the fiscal year following the fifth anniversary of the date of the completion of our IPO; (c) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (d) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

There have been no material changes in our reported market risks or risk management policies since the filing of our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on March 21, 2024.

Evaluation of disclosure controls and procedures

Our “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), are designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, to allow timely decisions regarding required disclosure.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on its evaluation, management concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective at the reasonable assurance level.

Changes in internal control over financial reporting

There was no change in our internal control over financial reporting that occurred during the three months ended June 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Factors that could cause or contribute to differences in our future financial and operating results include those discussed in the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on March 21, 2024. The risks described in our Annual Report and this Quarterly Report on Form 10-Q are not the only risks that we face. Additional risks not presently known to us or that we do not currently consider significant may also have an adverse effect on the Company. If any of the risks actually occur, our business, results of operations, cash flows or financial condition could suffer.

There have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on March 21, 2024.