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What changed in PRECISION BIOSCIENCES INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of PRECISION BIOSCIENCES INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+652 added−661 removedSource: 10-K (2024-03-27) vs 10-K (2023-03-09)

Top changes in PRECISION BIOSCIENCES INC's 2023 10-K

652 paragraphs added · 661 removed · 424 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

132 edited+83 added−47 removed99 unchanged
Biggest changeCONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) For the Years Ended December 31, 2022 2021 Cash flows from operating activities: Net loss $ ( 111,637 ) $ ( 30,602 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 7,798 8,981 Share-based compensation 19,197 16,514 Loss on disposal of assets 106 26 Non-cash interest expense 295 59 Amortization of right-of-use assets 1,206 1,216 Non-cash consideration received from collaboration partners — ( 17,894 ) Loss (Gain) on changes in fair value 510 ( 2,555 ) Gain on deconsolidation of subsidiary — ( 5,985 ) Loss (Income) from equity method investment 1,579 ( 184 ) Amortization of discount on note receivable ( 355 ) ( 13 ) Impairment charges 11,438 — Changes in operating assets and liabilities: Prepaid expenses ( 962 ) 5,616 Accounts receivable ( 232 ) 9,512 Other assets and other current assets 1,431 ( 2,734 ) Accounts payable 153 867 Other liabilities and other current liabilities ( 1,816 ) 1,423 Deferred revenue 27,358 ( 3,164 ) Lease liabilities ( 1,822 ) ( 1,936 ) Contract liabilities — 10,000 Net cash used in operating activities ( 45,753 ) ( 10,853 ) Cash flows from investing activities: Property, equipment and software ( 3,319 ) ( 5,053 ) Intangibles assets — ( 750 ) Net cash used in investing activities ( 3,319 ) ( 5,803 ) Cash flows from financing activities: Stock option exercises 392 6,783 Employee stock purchase plan 443 804 Issuance of common stock to collaboration partners 25,000 35,000 Offering of common stock, net of issuance costs 49,345 25,477 Issuance of term loan, net of issuance costs — 2,465 Payments of debt issuance costs — ( 13 ) Payment of term loan — ( 2,500 ) Borrowings from revolving credit facility, net of issuance costs 19,805 2,505 Net cash provided by financing activities 94,985 70,521 Net increase in cash and cash equivalents 45,913 53,865 Cash and cash equivalents—beginning of period 143,663 89,798 Cash and cash equivalents —end of period $ 189,576 $ 143,663 Supplemental disclosures of noncash financing and investing activities: Property, equipment and software additions included in accounts payable, accrued expenses and other current liabilities $ 103 $ 103 Cash paid for interest $ 824 $ 68 Unsettled at-the-market issuances of common stock included in other current assets $ — $ 37 Contract liability accrual related to Servier Program Purchase Agreement milestones $ — $ 10,000 Non-cash consideration received from collaboration partners $ — $ 17,894 See notes to consolidated financial statements F- 5 Precision BioSciences, Inc.
Biggest changeSTATEMENTS OF CASH FLOWS (In thousands) For the Years Ended December 31, 2023 2022 Cash flows from operating activities: Net loss $ ( 61,319 ) $ ( 111,637 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 6,817 7,798 Share-based compensation 14,040 19,197 Loss on disposal of assets 563 106 Gain on disposal of business ( 8,446 ) — Non-cash interest expense 368 295 Amortization of right-of-use assets 1,438 1,206 (Gain) Loss on changes in fair value ( 1,145 ) 510 Loss from equity method investment 4,931 1,579 Amortization of discount on note receivable ( 515 ) ( 355 ) Impairment charges 641 11,438 Changes in operating assets and liabilities: Prepaid expenses 1,051 ( 962 ) Accounts receivable ( 181 ) ( 232 ) Other assets and other current assets 1,752 1,431 Accounts payable 1,508 153 Other liabilities and other current liabilities ( 724 ) ( 1,816 ) Deferred revenue ( 43,947 ) 27,358 Lease liabilities ( 946 ) ( 1,822 ) Contract liabilities — — Net cash used in operating activities ( 84,114 ) ( 45,753 ) Cash flows from investing activities: Proceeds from disposal of business 8,000 — Proceeds from sale of equipment 107 — Purchases of property, equipment and software ( 1,957 ) ( 3,319 ) Purchases of intangibles assets ( 321 ) — Net cash provided by (used in) investing activities 5,829 ( 3,319 ) Cash flows from financing activities: Proceeds from stock option exercises 31 392 Proceeds from employee stock purchase plan 370 443 Proceeds from offering of common stock, net of issuance costs 4,986 49,345 Proceeds from offering of common stock to collaboration partners — 25,000 Borrowings from revolving credit facility, net of issuance costs paid to lender — 19,805 Net cash provided by financing activities 5,387 94,985 Net (decrease) increase in cash and cash equivalents ( 72,898 ) 45,913 Cash and cash equivalents—beginning of period 189,576 143,663 Cash and cash equivalents —end of period $ 116,678 $ 189,576 Supplemental disclosures of noncash financing and investing activities: Property, equipment and software additions included in accounts payable, accrued expenses and other current liabilities $ 14 $ 103 Cash paid for interest $ 2,018 $ 824 Unsettled at-the-market issuances of common stock included in other current assets $ 320 $ — See notes to financial statements F- 7 Precision BioSciences, Inc.
The JSC participation was determined to be an immaterial promise as the time commitment and related cost associated with performance of JSC participation is expected to be inconsequential to the total consideration in the contract. As such, the Company determined that these promises should be combined into a single performance obligation.
The JSC participation was determined to be an immaterial promise as the time commitment and related cost associated with performance of JSC participation is expected to be inconsequential to the total consideration in the contract. As such, the Company determined that these promises should be combined into a single performance obligation.
The Company’s objective is to reflect the appropriate research and development expenses in its consolidated statements of operations by matching those expenses with the period in which the services and efforts are expended. There may be instances in which payments made to the Company’s vendors will exceed the level of services provided and result in a prepayment of the expense.
The Company’s objective is to reflect the appropriate research and development expenses in its statements of operations by matching those expenses with the period in which the services and efforts are expended. There may be instances in which payments made to the Company’s vendors will exceed the level of services provided and result in a prepayment of the expense.
If the access to use the technology rights is one year or less, the cost is recorded as a prepaid expense and amortized over the period identified in the agreement. Amortization expense for licensed technology and capitalized patent costs is included in research and development expenses within the accompanying consolidated statement of operations.
If the access to use the technology rights is one year or less, the cost is recorded as a prepaid expense and amortized over the period identified in the agreement. Amortization expense for licensed technology and capitalized patent costs is included in research and development expenses within the accompanying statement of operations.
These agreements provide for termination at the request of either party with less than one-year notice and are, therefore, cancelable contracts and, if canceled, are not anticipated to have a material effect on the consolidated financial condition, results of operations, or cash flows of the Company.
These agreements provide for termination at the request of either party with less than one-year notice and are, therefore, cancelable contracts and, if canceled, are not anticipated to have a material effect on the financial condition, results of operations, or cash flows of the Company.
Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and disclosures made in the accompanying notes to the consolidated financial statements. Actual results could differ from those estimates.
Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and disclosures made in the accompanying notes to the financial statements. Actual results could differ from those estimates.
The Company reflects in the accompanying consolidated financial statements the benefit of positions taken in a previously filed tax return or expected to be taken in a future tax return only if it is considered ‘more-likely-than-not’ that the position taken will be sustained by the appropriate taxing authority.
The Company reflects in the accompanying financial statements the benefit of positions taken in a previously filed tax return or expected to be taken in a future tax return only if it is considered ‘more-likely-than-not’ that the position taken will be sustained by the appropriate taxing authority.
Investments in Equity Securities The Company carries investments in equity securities for which it does not possess the ability to exercise significant influence or control at fair value in the consolidated balance sheets and records changes in fair value in the consolidated statements of operations as a component of other income or expense.
Investments in Equity Securities The Company carries investments in equity securities for which it does not possess the ability to exercise significant influence or control at fair value in the balance sheets and records changes in fair value in the statements of operations as a component of other income or expense.
Although the results of legal proceedings and claims cannot be predicted with certainty, in the opinion of management, there are currently no such known matters that will have a material effect on the consolidated financial condition, results of operations or cash flows of the Company.
Although the results of legal proceedings and claims cannot be predicted with certainty, in the opinion of management, there are currently no such known matters that will have a material effect on the financial condition, results of operations or cash flows of the Company.
As of December 31, 2022 and December 31, 2021, the Company had no such accruals. In November 2021, North Carolina enacted the 2021 Appropriations Act, which included a gradual corporate income tax rate decrease from the current 2.5 % to 0 % by 2030.
As of December 31, 2023 and December 31, 2022 , the Company had no such accruals. In November 2021, North Carolina enacted the 2021 Appropriations Act, which included a gradual corporate income tax rate decrease from the current 2.5 % to 0 % by 2030.
No tes to Consolidated Financial Statements NOTE 1: DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business Precision BioSciences, Inc. (the “Company”) was incorporated on January 26, 2006 under the laws of the State of Delaware and is based in Durham, North Carolina.
No tes to Financial Statements NOTE 1: DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business Precision BioSciences, Inc. (the “Company”) was incorporated on January 26, 2006 under the laws of the State of Delaware and is based in Durham, North Carolina.
Income Taxes Deferred tax assets and liabilities are determined based on the temporary differences between the consolidated financial statement carrying amounts and the tax basis of assets and liabilities using the enacted tax rates in effect in the years in which the differences are expected to reverse.
Income Taxes Deferred tax assets and liabilities are determined based on the temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities using the enacted tax rates in effect in the years in which the differences are expected to reverse.
The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used to value the assets and liabilities: • Level 1 - Observable inputs based on unadjusted quoted prices in active markets for identical assets or liabilities • Level 2 - Inputs, other than quoted prices in active markets, that are observable either directly or indirectly F- 7 • Level 3 - Unobservable inputs for which there is little or no market date, which require the Company to develop its own assumptions To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment.
The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used to value the assets and liabilities: • Level 1 - Observable inputs based on unadjusted quoted prices in active markets for identical assets or liabilities • Level 2 - Inputs, other than quoted prices in active markets, that are observable either directly or indirectly • Level 3 - Unobservable inputs for which there is little or no market date, which require the Company to develop its own assumptions To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment.
The tax benefits recognized in the consolidated financial statements from such a position is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.
The tax benefits recognized in the financial statements from such a position is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.
Simultaneously with the entry into the iECURE Agreement, the Company and iECURE entered into an Equity Issuance Agreement (the “iECURE Equity Issuance Agreement”), pursuant to which iECURE issued the Company common stock in iECURE as additional consideration for the PCSK9 license.
Simultaneously with the entry into the iECURE DLA, the Company and iECURE entered into an Equity Issuance Agreement (the “iECURE Equity Agreement”), pursuant to which iECURE issued the Company common stock in iECURE as additional consideration for the PCSK9 license.
Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue within current liabilities in the accompanying consolidated balance sheets. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as noncurrent deferred revenue.
Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue within current liabilities in the accompanying balance sheets. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as noncurrent deferred revenue.
Significant estimates include recording revenue for performance obligations recognized over time, determination of the fair value of share-based compensation grants, estimating services expended by third-party service providers used to recognize research and development expense and determination of the fair value of investments in equity securities. Basis of Presentation These financial statements have been prepared in accordance with GAAP.
Significant estimates include recording revenue for performance obligations recognized over time, determination of the fair value of share-based compensation grants, estimating services expended by third-party service providers used to recognize research and development expense and determination of the fair value of investments. Basis of Presentation These financial statements have been prepared in accordance with GAAP.
Amounts recognized as revenue, but not yet invoiced are generally recognized as contract assets in the other current assets line item in the accompanying consolidated balance sheets.
Amounts recognized as revenue, but not yet invoiced are generally recognized as contract assets in the other current assets line item in the accompanying balance sheets.
The Company analyzes its collaboration arrangements to assess whether the collaboration agreements are within the scope of ASC 808, Collaborative Arrangements (“ASC 808”) to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial F- 9 success of such activities.
The Company analyzes its collaboration arrangements to assess whether the collaboration agreements are within the scope of ASC 808, Collaborative Arrangements (“ASC 808”) to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities.
An impairment charge is recognized for the amount by which the carrying amount exceeds the fair value of the asset. Fair Value Measurements Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
An impairment charge is recognized for the amount by which the carrying amount exceeds the fair value of the asset. F- 9 Fair Value Measurements Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
F- 8 At contract inception, once the contract is determined to be within the scope of ASC 606, the Company evaluates the performance obligations promised in the contract that are based on goods and services that will be transferred to the customer and determines whether those obligations are both (i) capable of being distinct and (ii) distinct in the context of the contract.
At contract inception, once the contract is determined to be within the scope of ASC 606, the Company evaluates the performance obligations promised in the contract that are based on goods and services that will be transferred to the customer and determines whether those obligations are both (i) capable of being distinct and (ii) distinct in the context of the contract.
Employee contributions to the Retirement Plan can be 100 % of annual compensation up to the prescribed annual maximum under the Internal Revenue Code. Administrative fees of less than $ 0.1 million were paid by the Company for the years ended December 31, 2022 and December 31, 2021.
Employee contributions to the Retirement Plan can be 100 % of annual compensation up to the prescribed annual maximum under the Internal Revenue Code. Administrative fees of less than $ 0.1 million were paid by the Company for the years ended December 31, 2023 and December 31, 2022.
Expected volatility is estimated based on the historical volatility of the Company F- 10 and other comparable publicly traded peer companies. The expected term of the options has been determined utilizing a weighted average value considering actual exercise history and estimated expected term based on the midpoint of final vest date and expiration date.
Expected volatility is estimated based on the historical volatility of the Company and other comparable publicly traded peer companies. The expected term of the options has been determined utilizing a weighted average value considering actual exercise history and estimated expected term based on the midpoint of final vest date and expiration date.
Unless earlier terminated, the Novartis Agreement will remain in effect on a Licensed Product-by-Licensed Product and country-by-country basis until the expiration of a defined royalty term for each Licensed Product and country. Novartis has the right to terminate the Novartis Agreement without cause by providing advance notice to the Company.
F- 16 Unless earlier terminated, the Novartis Agreement will remain in effect on a licensed product-by-licensed product and country-by-country basis until the expiration of a defined royalty term for each licensed product and country. Novartis has the right to terminate the Novartis Agreement without cause by providing advance notice to the Company.
The Note Receivable matures on the earlier of (i) December 1, 2028 or (ii) a Deemed Liquidation Event (as defined in the New Elo’s Amended and Restated Certificate of Incorporation). The Note accrues interest at 2.00 % per annum and is payable annually in December.
Note Receivable The Note Receivable matures on the earlier of (i) December 1, 2028 or (ii) a Deemed Liquidation Event (as defined in the Elo’s Amended and Restated Certificate of Incorporation). The Note Receivable accrues interest at 2.00 % per annum and is payable annually on December 17th.
If Licensed Products resulting from the collaboration are approved and sold, the Company will also be entitled to F- 20 receive tiered royalties ranging from the mid-single digit to low-double digit percentages on net sales of Licensed Products, subject to customary potential reductions.
If licensed products resulting from the collaboration are approved and sold, the Company will also be entitled to receive tiered royalties ranging from the mid-single digit to low-double digit percentages on net sales of licensed products, subject to customary potential reductions.
During the year ended December 31, 2022, the Company recorded a $ 0.5 million decrease in the carrying value of its iECURE equity to adjust to fair value as a result of dilution from iECURE's Series A-1 equity raise in such period.
During the year ended December 31, 2022, the Company recorded a $ 0.5 million decrease in the carrying value of its iECURE equity to adjust to fair value as a result of dilution from iECURE’s Series A-1 equity issued in such period.
The Company’s diluted net loss per share is the same as basic net loss per share for the years ended December 31, 2022 and December 31, 2021 , given all potential shares of common stock are anti-dilutive as a result of the net loss.
The Company’s diluted net loss per share is the same as basic net loss per share for the years ended December 31, 2023 and December 31, 2022 , given all potential shares of common stock are anti-dilutive as a result of the net loss.
The following table summarizes certain information about stock options granted under the stock option plans which are vested or expected to vest as of December 31, 2022 and December 31, 2021.
The following table summarizes certain information about stock options granted under the stock option plans which are vested or expected to vest as of December 31, 2023 and December 31, 2022.
As of December 31, 2022 and December 31, 2021, the Company had no unrecognized income tax benefits. The Company’s policy for recording interest and penalties relating to uncertain income tax positions is to record them as a component of income tax expense in the accompanying consolidated statements of operations.
As of December 31, 2023 and December 31, 2022 , the Company had no unrecognized income tax benefits. The Company’s policy for recording interest and penalties relating to uncertain income tax positions is to record them as a component of income tax expense in the accompanying statements of operations.
Research and development expenses are comprised of costs incurred in performing research and development activities including salaries, benefits, share-based compensation, allocations for rent and facility costs, depreciation, preclinical manufacturing expenses, costs of services provided by contract research organizations ("CROs") in connection with clinical trials and contract manufacturing organizations ("CMOs") engaged to manufacture clinical trial material, costs of licensing technology, and costs of services provided by research and development service providers.
Research and development expenses are comprised of costs incurred in performing research and development activities including salaries, benefits, share-based compensation, allocations for rent and facility costs, depreciation, preclinical manufacturing expenses, costs of services provided by contract research organizations (“CROs”) in connection with clinical trials and contract manufacturing organizations (“CMOs”) engaged to manufacture clinical trial material, costs of licensing technology, and costs of services provided by research and development service providers.
Cash Equivalents As of December 31, 2022, the Company held cash equivalents which are composed of money market funds and repurchase agreements that were purchased through repurchase intermediary banks and collateralized by deposits in the form of government F- 12 securities and obligations.
As of December 31, 2022, the Company held cash equivalents which were composed of money market funds and repurchase agreements that were purchased through repurchase intermediary banks and collateralized by deposits in the form of government securities and obligations.
Intangible Assets Intangible assets primarily include licenses and patents. The Company capitalizes license fees paid to acquire access to proprietary technology if the technology is expected to have alternative future use in multiple research and development projects. The cost of licensed technology rights is amortized using the straight-line method over the estimated useful life of the technology.
Intangible Assets Intangible assets primarily include in-licenses and capitalized patent costs. The Company capitalizes license fees paid to acquire access to proprietary technology if the technology is expected to have alternative future use in multiple research and development projects. The cost of licensed technology rights is amortized using the straight-line method over the estimated useful life of the technology.
As of December 31, 2022 and December 31, 2021, the Company had federal contribution carryforwards of $ 0.2 million which began to expire in 2022 .
As of December 31, 2023 and December 31, 2022 , the Company had federal contribution carryforwards of $ 0.2 million which began to expire in 2023 .
The Company has elected to account for GILTI in the year the tax is incurred. The Company does not have a GILTI inclusion in years ends December 31, 2021 or December 31, 2021 and therefore, no GILTI tax has been recorded for the years then ended.
The Company has elected to account for GILTI in the year the tax is incurred. The Company does not have a GILTI inclusion in years ends December 31, 2023 or December 31, 2022 and therefore, no GILTI tax has been recorded for the years then ended.
Management concluded that the iECURE Equity Issuance Agreement was to be combined with the iECURE Development and License Agreement (together, the “iECURE Agreements”) for accounting purposes. Additionally, the Company is eligible to receive milestone and mid-single digit to low double digit royalty payments on sales of iECURE products developed with ARCUS.
Management concluded that the iECURE Equity Agreement was to be combined with the iECURE DLA (together, the “iECURE Agreements”) for accounting purposes. Additionally, the Company is eligible to receive milestone and mid-single digit to low double digit royalty payments on sales of iECURE products developed with ARCUS.
Lilly’s obligation to F- 21 pay royalties to the Company expires on a country-by-country and licensed product-by-licensed product basis, upon the latest to occur of certain events related to expiration of patents, regulatory exclusivity or a period of ten years following first commercial sale of the licensed product.
Prevail’s obligation to pay royalties to the Company expires on a country-by-country and licensed product-by-licensed product basis, upon the latest to occur of certain events related to expiration of patents, regulatory exclusivity or a period of ten years following first commercial sale of the licensed product.
Management concluded that the Lilly Share Purchase Agreement was to be combined with the Lilly Agreement for accounting purposes.
Management concluded that the Lilly Share Purchase Agreement was to be combined with the Original Prevail Agreement for accounting purposes.
NOTE 12: ELO TRANSACTION In December 2021, the Company and its then wholly owned subsidiary, Elo Life Systems, Inc., entered into an agreement with a syndicate of investors, pursuant to which the Company contributed substantially all of the assets of Elo Life Systems, Inc. to a newly formed entity (the “Elo Transaction”).
NOTE 11: ELO TRANSACTION On December 17, 2021, the Company and its then wholly-owned subsidiary, Elo Life Systems, Inc., entered into an agreement with a syndicate of investors, pursuant to which the Company contributed substantially all of the assets of Elo Life Systems, Inc. to a newly formed entity (the “Elo Transaction”).
Amortization expense for intangible assets with definite lives will be less than $ 0.1 million for each of the next five years with the remaining $ 0.9 million amortized to expense in 2027 and beyond.
Amortization expense for intangible assets with definite lives will be less than $ 0.1 million for each of the next five years with the remaining $ 0.2 million amortized to expense in 2029 and beyond.
The fair value of the costs to be incurred by iECURE to progress the Company’s PBGENE-PCSK9 candidate through the Phase 1 clinical trial (the “PCSK9 Prepaid”) was assessed to be $ 17.4 million and was recorded to the prepaid expenses and other assets line items of the consolidated balance sheets.
The fair value of the costs to be incurred by iECURE to progress the Company’s PBGENE-PCSK9 candidate through the Phase 1 clinical trial (the “PCSK9 Prepaid”) was recorded to the prepaid expenses and other assets line items of the Company's balance sheets.
As of December 31, 2022 the Company held cash equivalents which are composed of money market funds and repurchase agreements that were purchased through repurchase intermediary banks and collateralized by deposits in the form of government securities and obligations. As of December 31, 2021 , the Company held an insignificant amount of cash equivalents.
As of December 31, 2022, the Company held cash equivalents which were composed of money market funds and repurchase agreements that were purchased through repurchase intermediary banks and collateralized by deposits in the form of government securities and obligations.
F- 19 The Retirement Plan includes a safe-harbor matching employer contribution equal to 100 % of participants’ deferral contributions up to 4 %. The Company made contributions of $ 0.9 million and $ 1.0 million to the Retirement Plan during the years ended December 31, 2022 and December 31, 2021 , respectively.
F- 21 The Retirement Plan includes a safe-harbor matching employer contribution equal to 100 % of participants’ deferral contributions up to 4 %. The Company made contributions of $ 0.9 million to the Retirement Plan during each of the years ended December 31, 2023 and December 31, 2022 , respectively.
If the assessment of a contingency indicates that it is probable that the milestone will be achieved and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated balance sheets.
If the assessment of a contingency indicates that it is probable that the milestone will be achieved and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements.
NOTE 10: COLLABORATION AND LICENSE AGREEMENTS Collaboration and License Agreement with Novartis On June 14, 2022, the Company entered into a collaboration and license agreement (the “Novartis Agreement”) with Novartis Pharma AG (“Novartis”), which became effective on June 15, 2022 (the “Novartis Effective Date”), to collaborate to discover and develop in vivo gene editing products incorporating our custom ARCUS nucleases for the purpose of seeking to research and develop potential treatments for certain diseases (as defined in the Novartis Agreement, the “Licensed Products”).
F- 15 Collaboration and License Agreement with Novartis On June 14, 2022, the Company entered into a collaboration and license agreement (the “Novartis Agreement”) with Novartis Pharma AG (“Novartis”), which became effective on June 15, 2022 (the “Novartis Effective Date”), to collaborate to discover and develop in vivo gene editing products incorporating our custom ARCUS nucleases for the purpose of seeking to research and develop potential treatments for certain diseases (collectively referred to as licensed products).
Additionally, on the Novartis Effective Date, Novartis made an equity investment in the Company’s common stock pursuant to a stock purchase agreement (the “Novartis Stock Purchase Agreement”) pursuant to which, on the Novartis Effective Date, the Company issued and sold to Novartis 12,407,440 shares of the Company’s common stock (the “Novartis Shares”) in a private placement transaction for an aggregate purchase price of $ 25.0 million, or approximately $ 2.01 per share.
Additionally, on the Novartis Effective Date, Novartis made an equity investment in the Company’s common stock pursuant to a stock purchase agreement (the “Novartis Stock Purchase Agreement”) pursuant to which, on the Novartis Effective Date, the Company issued and sold to Novartis 413,581 shares of the Company’s common stock (the “Novartis Shares”) in a private placement transaction for an aggregate purchase price of $ 25.0 million, or approximately $ 60.30 per share.
The Company determined that the license of intellectual property, R&D services, manufacture of pre-clinical development material, and regulatory responsibilities were not distinct from each other, as the license, R&D services, pre-clinical supply, and regulatory responsibilities are highly interdependent upon one another.
The Company determined that the license of intellectual property, R&D services, and regulatory responsibilities were not distinct from each other, as the license, R&D services, and regulatory responsibilities are highly interdependent upon one another.
As of December 31, 2022 and December 31, 2021 the Company held common stock in iECURE with a fair value of $ 2.6 million and $ 3.1 million, respectively.
As of December 31, 2023 and December 31, 2022 the Company held common stock in iECURE (defined below) with a fair value of $ 3.2 million and $ 2.6 million, respectively.
During the year ended December 31, 2022 , the Company recorded $ 15.4 million in revenue that was included in deferred revenue as of December 31, 2021. Invoices issued as stipulated in contracts prior to revenue recognition are recorded as deferred revenue.
During the year ended December 31, 2023 , the Company recorded $ 48.7 million in revenue that was included in deferred revenue as of December 31, 2022. Invoices issued as stipulated in contracts prior to revenue recognition are recorded as deferred revenue.
The Company is a clinical stage gene editing company dedicated to improving life by developing ex vivo allogeneic CAR T immunotherapies and in vivo therapies for genetic and infectious diseases with the application of the Company’s wholly owned proprietary ARCUS genome editing platform.
The Company is a gene editing company dedicated to improving life by developing in vivo therapies for genetic and infectious diseases with the application of the Company’s wholly-owned proprietary ARCUS genome editing platform.
F- 24 NOTE 13: INCOME TAXES The Company recorded no federal or state income tax expense and due to the operating losses incurred for the years ended December 31, 2022 and December 31, 2021.
F- 29 NOTE 14: INCOME TAXES The Company recorded no federal or state income tax expense and due to the operating losses incurred for the years ended December 31, 2023 and December 31, 2022.
Simultaneously with the entry into the Lilly Agreement, the Company and Lilly entered into a Share Purchase Agreement (the “Lilly Share Purchase Agreement”), pursuant to which Lilly purchased 3,762,190 shares of the Company’s common stock for a purchase price of $ 35.0 million.
Simultaneously with the entry into the Original Prevail Agreement, the Company and Lilly entered into a Share Purchase Agreement (the “Lilly Share Purchase Agreement”), pursuant to which Lilly purchased 125,406 shares of the Company’s common stock for a purchase price of $ 35.0 million.
The fair value of each stock option grant is estimated using a Black-Scholes option-pricing model on the date of grant as follows: Years Ended December 31, 2022 2021 Estimated dividend yield 0.00 % 0.00 % Weighted-average expected stock price volatility 79.66 % 73.02 % Weighted-average risk-free interest rate 2.57 % 1.07 % Expected term of options (in years) 6.07 6.25 Weighted-average fair value per option $ 1.86 $ 6.91 The expected volatility rates are estimated based on the actual volatility of a peer group comprising the Company and other comparable public companies over the expected term.
The fair value of each stock option grant is estimated using a Black-Scholes option-pricing model on the date of grant as follows: Years Ended December 31, 2023 2022 Estimated dividend yield 0.00 % 0.00 % Weighted-average expected stock price volatility 87.15 % 79.66 % Weighted-average risk-free interest rate 3.89 % 2.57 % Expected term of options (in years) 5.78 6.07 Weighted-average fair value per option $ 17.41 $ 55.91 The expected volatility rates are estimated based on the actual volatility of a peer group comprising the Company and other comparable public companies over the expected term.
The Company has concluded that the agreement with Lilly contains the following promises: (i) license of intellectual property; (ii) performance of R&D services, (iii) the manufacture of pre-clinical supply, (iv) JSC Participation, and (v) regulatory responsibilities.
The Company has concluded that the agreement with Prevail contains the following promises: (i) license of intellectual property; (ii) performance of R&D services, (iii) JSC Participation, and (iv) regulatory responsibilities.
NOTE 11: IMPAIRMENT CHARGES During the twelve months ended December 31, 2022 , the Company recorded impairment charges of $ 10.8 million related to the PCSK9 Prepaid as the Company made the decision to cease pursuit of PBGENE-PCSK9 for FH with iECURE as its partner. T he impairment charge represents the remaining unamortized balance of the PCSK9 Prepaid.
During the year ended December 31, 2022, the Company recorded impairment charges of $ 10.8 million related to the PCSK9 Prepaid as the Company made the decision to cease pursuit of PBGENE-PCSK9 for FH with iECURE as its partner. The impairment charge represented the remaining unamortized balance of the PCSK9 Prepaid.
Concentrations of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and notes receivable. All of the Company’s cash and cash equivalents are held at financial institutions that management believes to be of high credit quality. The Company may maintain cash deposits in financial institutions in excess of government insured limits.
Concentrations of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, and notes receivable. All of the Company’s cash and cash equivalents are held at financial institutions that management believes to be of high credit quality.
The Company recorded employee and nonemployee share-based compensation expense as follows (in thousands): Years Ended December 31, 2022 2021 Employee $ 15,921 $ 14,963 Nonemployee 3,276 1,551 $ 19,197 $ 16,514 F- 17 Share-based compensation expense is included in the following line items in the consolidated statements of operations (in thousands): Years Ended December 31, 2022 2021 Research and development $ 7,973 $ 9,101 General and administrative 11,224 7,413 $ 19,197 $ 16,514 Determining the appropriate fair value model to measure the fair value of the stock option grants on the date of grant and the related assumptions requires judgment.
The Company recorded employee and nonemployee share-based compensation expense as follows (in thousands): Years Ended December 31, 2023 2022 Employee $ 12,364 $ 15,921 Nonemployee 1,676 3,276 $ 14,040 $ 19,197 F- 19 Share-based compensation expense is included in the following line items in the statements of operations (in thousands): Years Ended December 31, 2023 2022 Research and development $ 4,355 $ 7,973 General and administrative 9,685 11,224 $ 14,040 $ 19,197 Determining the appropriate fair value model to measure the fair value of the stock option grants on the date of grant and the related assumptions requires judgment.
The net increase in the valuation allowance for the year ended December 31, 2022 of $ 27.3 million is comprised of an increase in the valuation allowance recorded against the deferred tax assets, primarily related to tax credits and net operating loss ("NOL") carryforwards for the year.
The net increase in the valuation allowance for the year ended December 31, 2023 of $ 17.8 million is comprised of an increase in the valuation allowance recorded against the deferred tax assets, primarily related to tax credits and net operating loss (“NOL”) carryforwards for the year.
The state NOL carryforwards begin to expire in 2027 . As of December 31, 2022, the Company had federal and state R&D tax credits of $ 13.2 million and an amount less than $ 0.1 million, which begin to expire in 2027 and 2030 , respectively.
As of December 31, 2023 , the Company had federal and state R&D tax credits of $ 17.2 million and an amount less than $ 0.1 million, which begin to expire in 2029 and 2030 , respectively.
The CODM reviews financial information presented on a consolidated basis. Additionally, resource allocation and key market strategy decisions are made by the CODM based on consolidated results. As such, it was concluded that the Company operates as one segment. F- 27
Additionally, resource allocation and key market strategy decisions are made by the CODM based on consolidated results. As such, it was concluded that the Company operates as one segment.
The reasons for the difference between actual income tax benefit for the years ended December 31, 2022 and December 31, 2021 and the amount computed by applying the statutory federal income tax rate to losses before income tax benefit are as follows (in thousands): Year Ended December 31, 2022 Year Ended December 31, 2021 Amount % of Pre-Tax Loss Amount % of Pre-Tax Loss Income tax expense at statutory rate $ ( 23,444 ) 21.0 % $ ( 6,677 ) 21.8 % State income taxes, net of federal tax benefit ( 250 ) 0.2 % ( 634 ) 2.1 % Non-deductible expenses 33 0.0 % 121 ( 0.4 %) Stock compensation - nondeductible 599 ( 0.5 %) ( 2,094 ) 6.8 % Stock compensation - forfeitures 2,233 ( 2.0 %) — 0.0 % R&D and orphan drug credits ( 3,790 ) 3.4 % ( 5,239 ) 17.1 % Other 314 ( 0.3 %) 567 ( 1.9 %) Change in state tax rate ( 3,004 ) 2.7 % ( 843 ) 2.8 % Change in valuation allowance 27,309 ( 24.5 %) 14,799 ( 48.3 %) Income tax (benefit) expense $ — 0.0 % $ — 0.0 % As of December 31, 2022 , the Company had federal and state NOL carryforwards of approximately $ 159.5 million and $ 119.1 million respectively.
The reasons for the difference between actual income tax benefit for the years ended December 31, 2023 and December 31, 2022 and the amount computed by applying the statutory federal income tax rate to losses before income tax benefit are as follows (in thousands): Year Ended December 31, 2023 Year Ended December 31, 2022 Amount % of Pre-Tax Loss Amount % of Pre-Tax Loss Income tax expense at statutory rate $ ( 12,877 ) 21.0 % $ ( 23,444 ) 21.0 % State income taxes, net of federal tax benefit ( 1,774 ) 2.9 % ( 250 ) 0.2 % Non-deductible expenses 85 0.0 % 33 0.0 % Stock compensation - nondeductible 681 ( 1.2 %) 599 ( 0.5 %) Stock compensation - forfeitures 3,176 ( 5.2 %) 2,233 ( 2.0 %) R&D and orphan drug credits ( 6,078 ) 9.9 % ( 3,790 ) 3.4 % Other 657 ( 1.1 %) 314 ( 0.3 %) Change in state tax rate ( 1,632 ) 2.7 % ( 3,004 ) 2.7 % Change in valuation allowance 17,762 ( 29.0 %) 27,309 ( 24.5 %) Income tax (benefit) expense $ — 0.0 % $ — 0.0 % As of December 31, 2023 , the Company had federal and state NOL carryforwards of approximately $ 195.0 million and $ 166.8 million respectively.
During the years ended December 31, 2022 and 2021, the Company recognized revenue under the Lilly Agreement of $ 15.6 million and $ 21.0 million, respectively.
During the years ended December 31, 2023 and 2022, the Company recognized revenue under the Prevail Agreement of $ 26 .0 million and $ 15.6 million, respectively.
As of December 31, 2022 , the aggregate number of shares available for issuance under the 2019 Plan has been increased by 6,589,999 pursuant to this provision.
As of December 31, 2023 , the aggregate number of shares available for issuance under the 2019 Plan has been increased by 367,616 pursuant to this provision.
As of December 31, 2022 , the aggregate number of shares available for issuance under the 2019 ESPP has been increased by 1,647,499 shares pursuant to this provision.
As of December 31, 2023 , the aggregate number of shares available for issuance under the 2019 ESPP has been increased by 91,903 shares pursuant to this provision.
The number of shares available for issuance under the 2019 Plan initially equaled 4,750,000 shares of common stock.
The number of shares available for issuance under the 2019 Plan initially equaled 158,333 shares of common stock.
In connection with the Elo Transaction, the Company granted the newly formed entity ("New Elo") an exclusive license to certain of the Company’s intellectual property for use in non-medical applications with respect to plants, farm animals and certain other organisms. In addition, all of the Company’s employees in its former food segment, including its management, became employees of New Elo.
In connection with the Elo Transaction, the Company granted the newly formed entity (“Elo”) an exclusive license to certain of the Company’s intellectual property for use in non-medical applications with respect to plants, farm animals and certain other organisms.
During the year ended December 31, 2022, the Company granted 3,327,107 RSUs with a grant date fair value of $ 8.7 million. The fair value of the RSUs will be recognized as expense over the requisite vesting period.
During the year ended December 31, 2023, the Company granted 161,161 RSUs with a grant date fair value of $ 5.6 million. The fair value of the RSUs will be recognized as expense over the requisite vesting period.
Deferred revenue related to the Lilly Agreement amounted to $ 74.8 million and $ 88.3 million as of December 31, 2022 and December 31, 2021, respectively, of which $ 18.3 million and $ 21.2 million, respectively, was included in current liabilities within the consolidated balance sheets.
Deferred revenue related to the Prevail Agreement amounted to $ 52.7 million and $ 74.8 million as of December 31, 2023 and December 31, 2022, respectively, of which $ 4.7 million and $ 18.3 million, respectively, was included in current liabilities within the balance sheets.
F- 22 As further discussed in Note 11, Impairment Charges, the remaining unamortized PCSK9 Prepaid was fully impaired during the year ended December 31, 2022 as the Company made the decision to cease pursuit of PBGENE-PCSK9 for FH with iECURE as its partner. Accordingly, there was no PCSK9 Prepaid balance as of December 31, 2022.
The remaining unamortized PCSK9 Prepaid was fully impaired during the year ended December 31, 2022 as the Company made the decision to cease pursuit of PBGENE-PCSK9 for familial hypercholesterolemia with iECURE as its partner in December 2022. Accordingly, there was no PCSK9 Prepaid balance as of December 31, 2023 or December 31, 2022.
Significant components of the Company’s deferred tax assets and deferred tax liabilities are as follows (in thousands): Years Ended December 31, 2022 2021 Noncurrent deferred tax assets: Net operating loss carryforwards $ 36,457 $ 41,162 Contribution carryforwards 48 48 Lease liability 1,120 1,526 Deferred revenue 30,022 20,294 Capitalized R&D costs 15,893 — Other assets 14,279 11,647 Tax credits 24,721 20,942 Less: valuation allowance ( 121,372 ) ( 94,071 ) Total deferred tax assets, noncurrent 1,168 1,548 Noncurrent deferred tax liability: Investments and other 476 587 Right of use asset 692 961 Total deferred tax liabilities, noncurrent 1,168 1,548 Net deferred tax assets $ — $ — As of December 31, 2022 and December 31, 2021, the Company has provided a valuation allowance for the full amount of the net deferred tax assets as the realization of the net deferred tax assets is not determined to be more likely than not.
Significant components of the Company’s deferred tax assets and deferred tax liabilities are as follows (in thousands): Years Ended December 31, 2023 2022 Noncurrent deferred tax assets: Net operating loss carryforwards $ 45,472 $ 36,457 Contribution carryforwards 34 48 Lease liability 2,116 1,120 Deferred revenue 20,337 30,022 Capitalized R&D costs 28,732 15,893 Other assets 14,962 14,279 Tax credits 30,757 24,721 Less: valuation allowance ( 139,133 ) ( 121,372 ) Total deferred tax assets, noncurrent 3,277 1,168 Noncurrent deferred tax liability: Investments and other — 476 Deferred gain - Imugene 1,303 — Right of use asset 1,974 692 Total deferred tax liabilities, noncurrent 3,277 1,168 Net deferred tax assets $ — $ — As of December 31, 2023 and December 31, 2022, the Company has provided a valuation allowance for the full amount of the net deferred tax assets as the realization of the net deferred tax assets is not determined to be more likely than not.
The Company is subject to a number of risks similar to those of other companies conducting high-risk, early-stage research and development of product candidates. Principal among these risks are dependence on key individuals and intellectual property, competition from other products and companies, and the technical risks associated with the successful research, development and clinical manufacturing of its product candidates.
Principal among these risks are dependence on key individuals and intellectual property, competition from other products and companies, and the technical risks associated with the successful research, development and clinical manufacturing of its product candidates.
As of December 31, 2022 , 231,039 shares were available to be issued under the 2019 Plan. Up to 525,000 shares of the Company’s common stock were initially reserved for issuance under the 2019 ESPP.
As of December 31, 2023 , 122,630 shares were available to be issued under the 2019 Plan. Up to 17,500 shares of the Company’s common stock were initially reserved for issuance under the 2019 ESPP.
Any initial Licensed Products will be developed for the potential treatment of certain hemoglobinopathies, including sickle cell disease and beta thalassemia. Pursuant to the terms of the Novartis Agreement, the Company will develop an ARCUS nuclease and conduct in vitro characterization for the Licensed Products, with Novartis then assuming responsibility for all subsequent development, manufacturing and commercialization activities.
Pursuant to the terms of the Novartis Agreement, the Company will develop an ARCUS nuclease and conduct in vitro characterization for the licensed products, with Novartis then assuming responsibility for all subsequent development, manufacturing and commercialization activities.
Development and License Agreement with iECURE In August 2021, the Company entered into a development and license agreement with iECURE (the “iECURE Development and License Agreement”) under which iECURE was to advance the Company’s PBGENE-PCSK9 candidate through the Phase 1 clinical trial in order to gain access to Precision’s PCSK9-directed ARCUS nuclease to develop four other pre-specified gene editing therapies for rare genetic diseases (the “iECURE Agreement”).
Development and License Agreement with iECURE In August 2021, the Company entered into a development and license agreement with iECURE (the “iECURE DLA”) under which iECURE was to advance the Company’s PBGENE-PCSK9 candidate through preclinical activities as well as a Phase 1 clinical trial in order to gain access to Precision’s PCSK9-directed ARCUS nuclease to develop four other pre-specified gene editing therapies for rare genetic diseases (the “PCSK9 License”), including ornithine transcarbamylase (“OTC”) deficiency, Citrullinemia Type 1 (“CTLN1”), Phenylketonuria, and another program focused on liver disease.
Accordingly, the Company will adjust the carrying value of the final payment fee to fair value each reporting period with any changes in fair value recorded to other income (expense).
The Company adjusts the carrying value of the iECURE equity to fair value each reporting period with any changes in fair value recorded to other income (expense).
F- 16 NOTE 8: SHARE-BASED COMPENSATION The Company previously granted stock options under its 2006 Stock Incentive Plan (the “2006 Plan”) and its 2015 Stock Incentive Plan (the “2015 Plan”). As of December 31, 2022 there were 1,932,584 stock options outstanding under the 2006 Plan and 2015 Plan and no remaining stock options available to be granted under such plans.
NOTE 3: SHARE-BASED COMPENSATION The Company previously granted stock options under its 2015 Stock Incentive Plan (the “2015 Plan”). As of December 31, 2023 there were 36,552 stock options outstanding under the 2015 Plan and no remaining stock options available to be granted under the 2015 Plan.
If the Company does not become profitable in North Carolina prior to 2025, or it becomes more certain that the Company will not be able to utilize its North Carolina net operating losses before the tax rate drops to 0 %, the Company will then remeasure its deferred tax asset at that time.
If the Company does not become profitable in North Carolina prior to 2025, or it becomes more certain that the Company will not be able to utilize its North Carolina net operating losses before the tax rate drops to 0 %, the Company will then remeasure its deferred tax asset at that time The TCJA of 2017 subjects a U.S. shareholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries.
During the year ended December 31, 2022, the Company recognized revenue under the Novartis Agreement of $ 9.5 million. Deferred revenue related to the Novartis Agreement amounted to $ 54.2 million as of December 31, 2022, of which $ 27.9 million, was included in current liabilities within the consolidated balance sheets.
Deferred revenue related to the Novartis Agreement amounted to $ 32.4 million and $ 54.2 million as of December 31, 2023 and December 31, 2022, respectively, of which $ 7.4 million and $ 27.9 million, respectively, was included in current liabilities within the balance sheets.
The Company must also maintain an aggregate balance of unrestricted cash at PWB (not including amounts in certain specified accounts) equal to or greater than $ 10.0 million. In December 2021, the Company borrowed $ 2.5 million under the Revolving Line to pay all outstanding principal on the Elo Loan.
The Company must also maintain an aggregate balance of unrestricted cash at PWB (not including amounts in certain specified accounts) equal to or greater than $ 10.0 million.
The Company classifies the final payment fee within Level 2 of the fair value hierarchy as the assessed fair value was based on observable market inputs including the Company’s current borrowing rate on the Revolving Line. The final payment fee is included in the other noncurrent liabilities within the consolidated balance sheet as of December 31, 2022.
The Company classifies the final payment fee within Level 2 of the fair value hierarchy as the assessed fair value is based on observable market inputs including the Company’s current borrowing rate.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAmong other things, these provisions include those establishing: • a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors; • no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; • the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from filling vacancies on our board of directors; • the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; • the ability of our board of directors to alter our bylaws without obtaining stockholder approval; • the required approval of the holders of at least two-thirds of the shares entitled to vote at an election of directors to adopt, amend or repeal our bylaws or repeal the provisions of our amended and restated certificate of incorporation regarding the election and removal of directors; • a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders; • the requirement that a special meeting of stockholders may be called only by the chairman of the board of directors, our chief executive officer (or our president, in the absence of a chief executive officer) or a majority of our board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and • advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.
Biggest changeAmong other things, these provisions include those establishing: • a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors; • no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; • the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from filling vacancies on our board of directors; • the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; • the ability of our board of directors to alter our bylaws without obtaining stockholder approval; • the required approval of the holders of at least two-thirds of the shares entitled to vote at an election of directors to adopt, amend or repeal our bylaws or repeal the provisions of our amended and restated certificate of incorporation regarding the election and removal of directors; • a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders; • the requirement that a special meeting of stockholders may be called only by the chairman of the board of directors, our chief executive officer (or our president, in the absence of a chief executive officer) or a majority of our board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and • advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us. 82 Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the General Corporation Law of the State of Delaware, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.
Physician Payments Sunshine Act, which requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to CMS information related to payments or other “transfers of value” made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), certain non-physician practitioners such as physician assistants and nurse practitioners, and teaching hospitals, and requires applicable manufacturers and group purchasing organizations to report annually to the Centers for Medicare and Medicaid Services (“CMS”), ownership and investment interests held by the physicians described above and their immediate family members; and • analogous state and foreign laws and regulations, such as state anti-kickback and anti-corruption and false claims laws, which may apply to our business practices, including, but not limited to, research, distribution, sales and marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, or by the patients themselves; state laws and foreign laws and regulations that require pharmaceutical and device companies to comply with the industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the U.S. government or foreign governmental authorities, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state and local laws and regulations and foreign. laws and regulations that require manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures and pricing information; state and local laws and foreign laws and regulations which require the registration of pharmaceutical sales representatives.
Physician Payments Sunshine Act, which requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to CMS information related to payments or other “transfers of value” made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), certain non-physician practitioners such as physician assistants and nurse practitioners, and teaching hospitals, and requires applicable manufacturers and group purchasing organizations to report annually to the Centers for Medicare and Medicaid Services (“CMS”), ownership and investment interests held by the physicians described above and their immediate family members; and 54 • analogous state and foreign laws and regulations, such as state anti-kickback and anti-corruption and false claims laws, which may apply to our business practices, including, but not limited to, research, distribution, sales and marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, or by the patients themselves; state laws and foreign laws and regulations that require pharmaceutical and device companies to comply with the industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the U.S. government or foreign governmental authorities, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state and local laws and regulations and foreign. laws and regulations that require manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures and pricing information; state and local laws and foreign laws and regulations which require the registration of pharmaceutical sales representatives.
Commercialization of products in various markets could subject us to risks and uncertainties, including: • obtaining, on a country-by-country basis, the applicable marketing authorization from the competent regulatory authority; • the burden of complying with complex and changing regulatory, tax, accounting, labor and other legal requirements in each jurisdiction that we or our collaborators pursue; • reduced protection for intellectual property rights; • differing medical practices and customs affecting acceptance in the marketplace; • import or export licensing requirements; • governmental controls, trade restrictions or changes in tariffs; • economic weakness, including inflation, political instability in particular foreign economies and markets, or civil unrest or war, such as the current conflict between Russia and Ukraine; • production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; • longer accounts receivable collection times; • longer lead times for shipping; • language barriers; • foreign currency exchange rate fluctuations; • foreign reimbursement, pricing and insurance regimes; and • the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute.
Commercialization of products in various markets could subject us to risks and uncertainties, including: • obtaining, on a country-by-country basis, the applicable marketing authorization from the competent regulatory authority; • the burden of complying with complex and changing regulatory, tax, accounting, labor and other legal requirements in each jurisdiction that we or our collaborators pursue; • reduced protection for intellectual property rights; 43 • differing medical practices and customs affecting acceptance in the marketplace; • import or export licensing requirements; • governmental controls, trade restrictions or changes in tariffs; • economic weakness, including inflation, political instability in particular foreign economies and markets, or civil unrest or war, such as the current conflict between Russia and Ukraine; • production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; • longer accounts receivable collection times; • longer lead times for shipping; • language barriers; • foreign currency exchange rate fluctuations; • foreign reimbursement, pricing and insurance regimes; and • the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute.
The market price of our common stock is likely to be highly volatile and may fluctuate substantially due to many factors, including: • inconsistent trading volume levels of our common stock; • announcements or expectations regarding debt or equity financing efforts; • sales of common stock by us, our insiders or our other stockholders; • actual or anticipated fluctuations in our financial condition and operating results; • failure to meet or exceed financial estimates and projections of the investment community or that we provide to the public; • results from or delays in our studies or trials, or those of our collaborators, competitors or companies perceived to be similar to us; • delay, failure or discontinuation of any of our product development and research programs, or those of our collaborators, competitors or companies perceived to be similar to us; • announcements about new research programs or product candidates from us or our collaborators, our competitors or companies perceived to be similar to us; • announcements by us, our collaborators, our competitors or companies perceived to be similar to us relating to significant acquisitions, strategic partnerships or alliances, joint ventures, collaborations or capital commitments; 89 • actual or anticipated changes in our growth rate relative to our competitors or companies perceived to be similar to us; • fluctuations in the valuation of our collaborators, our competitors or companies perceived to be comparable to us; • a lack of, limited or withdrawal of coverage by security analysts, or positive or negative recommendations by them; • actual or expected changes in estimates as to financial results, development timelines or recommendations by securities analysts; • publication of research reports about us, genome editing or the biopharmaceutical industries; • developments or changing views regarding the use of genomic products, including those that involve genome editing; • our ability to effectively manage our growth; • the recruitment or departure of key personnel; • the results of any efforts by us to identify, develop, acquire or in-license additional product candidates, products or technologies; • unanticipated serious safety concerns related to the use of any of our product candidates, or those of our competitors or companies perceived to be similar to us; • the termination of a collaboration agreement, licensing agreement or other strategic arrangement or the inability to establish additional strategic arrangements on favorable terms, or at all; • regulatory actions with respect to any of our product candidates, or those of our competitors or companies perceived to be similar to us; • developments or disputes concerning patent applications, issued patents or other proprietary rights; • regulatory or legal developments in the United States and other countries; • changes in physician, hospital, or healthcare provider practices that may make our or our collaborators’ products less useful; • changes in the structure of healthcare payment systems; • significant lawsuits, such as products liability, patent or stockholder litigation; • short sales of our common stock; and • general economic, industry and market conditions.
The market price of our common stock is likely to be highly volatile and may fluctuate substantially due to many factors, including: • inconsistent trading volume levels of our common stock; • announcements or expectations regarding debt or equity financing efforts; • sales of common stock by us, our insiders or our other stockholders; • actual or anticipated fluctuations in our financial condition and operating results; • failure to meet or exceed financial estimates and projections of the investment community or that we provide to the public; • results from or delays in our studies or trials, or those of our collaborators, competitors or companies perceived to be similar to us; • delay, failure or discontinuation of any of our product development and research programs, or those of our collaborators, competitors or companies perceived to be similar to us; • announcements about new research programs or product candidates from us or our collaborators, our competitors or companies perceived to be similar to us; • announcements by us, our collaborators, our competitors or companies perceived to be similar to us relating to significant acquisitions, strategic partnerships or alliances, joint ventures, collaborations or capital commitments; • actual or anticipated changes in our growth rate relative to our competitors or companies perceived to be similar to us; • fluctuations in the valuation of our collaborators, our competitors or companies perceived to be comparable to us; • a lack of, limited or withdrawal of coverage by security analysts, or positive or negative recommendations by them; • actual or expected changes in estimates as to financial results, development timelines or recommendations by securities analysts; • publication of research reports about us, genome editing or the biopharmaceutical industries; • developments or changing views regarding the use of genomic products, including those that involve genome editing; • our ability to effectively manage our growth; • the recruitment or departure of key personnel; • the results of any efforts by us to identify, develop, acquire or in-license additional product candidates, products or technologies; • unanticipated serious safety concerns related to the use of any of our product candidates, or those of our competitors or companies perceived to be similar to us; • the termination of a collaboration agreement, licensing agreement or other strategic arrangement or the inability to establish additional strategic arrangements on favorable terms, or at all; 85 • regulatory actions with respect to any of our product candidates, or those of our competitors or companies perceived to be similar to us; • developments or disputes concerning patent applications, issued patents or other proprietary rights; • regulatory or legal developments in the United States and other countries; • changes in physician, hospital, or healthcare provider practices that may make our or our collaborators’ products less useful; • changes in the structure of healthcare payment systems; • significant lawsuits, such as products liability, patent or stockholder litigation; • short sales of our common stock; and • general economic, industry and market conditions.
Such identification could also have several additional significant negative consequences, such as: • regulatory authorities may suspend, withdraw or limit approvals of such product, or seek an injunction against its manufacture or distribution; • regulatory authorities may require additional warnings on the label, including “boxed” warnings, or issue safety alerts, Dear Healthcare Provider letters, press releases or other communications containing warnings or other safety information about the product; • we may be required to create a medication guide outlining the risks of such side effects for distribution to patients; • we may be required to change the way a product is administered or conduct additional trials; • the product may become less competitive; • we or our collaborators may decide to remove the product from the marketplace; • we may be subject to fines, injunctions or the imposition of civil or criminal penalties; • we could be sued and be held liable for harm caused to patients; and • our reputation may suffer.
Such identification could also have several additional significant negative consequences, such as: • regulatory authorities may suspend, withdraw or limit approvals of such product, or seek an injunction against its manufacture or distribution; • regulatory authorities may require additional warnings on the label, including “boxed” warnings, or issue safety alerts, Dear Healthcare Provider letters, press releases or other communications containing warnings or other safety information about the product; 53 • we may be required to create a medication guide outlining the risks of such side effects for distribution to patients; • we may be required to change the way a product is administered or conduct additional trials; • the product may become less competitive; • we or our collaborators may decide to remove the product from the marketplace; • we may be subject to fines, injunctions or the imposition of civil or criminal penalties; • we could be sued and be held liable for harm caused to patients; and • our reputation may suffer.
Our ability to obtain and maintain patent protection for ARCUS and our product candidates is uncertain due to a number of factors, including that: • we may not have been the first to invent the technology covered by our pending patent applications or issued patents; • we may not be the first to file patent applications covering product candidates, including their compositions or methods of use, as patent applications in the United States and most other countries are confidential for a period of time after filing; • our compositions and methods may not be patentable; • our disclosures in patent applications may not be sufficient to meet the statutory requirements for patentability; • any or all of our pending patent applications may not result in issued patents; • others may independently develop identical, similar or alternative technologies, products or compositions or methods of use thereof; • others may design around our patent claims to produce competitive technologies or products that fall outside of the scope of our patents; • we may fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection; • we may not seek or obtain patent protection in countries that may eventually provide us a significant business opportunity; • any patents issued to us may not provide a basis for commercially viable products, may not provide any competitive advantages or may be successfully challenged by third parties; • others may identify prior art or other bases upon which to challenge and ultimately invalidate our patents or otherwise render them unenforceable; and • the growing scientific and patent literature relating to engineered endonucleases, including our own patents and publications, may make it increasingly difficult or impossible to patent new engineered nucleases in the future. 78 Even if we have or obtain patents covering ARCUS or any product candidates or compositions, we and our collaborators may still be barred from making, using and selling such product candidates or technologies because of the patent rights of others.
Our ability to obtain and maintain patent protection for ARCUS and our product candidates is uncertain due to a number of factors, including that: • we may not have been the first to invent the technology covered by our pending patent applications or issued patents; • we may not be the first to file patent applications covering product candidates, including their compositions or methods of use, as patent applications in the United States and most other countries are confidential for a period of time after filing; • our compositions and methods may not be patentable; • our disclosures in patent applications may not be sufficient to meet the statutory requirements for patentability; • any or all of our pending patent applications may not result in issued patents; • others may independently develop identical, similar or alternative technologies, products or compositions or methods of use thereof; • others may design around our patent claims to produce competitive technologies or products that fall outside of the scope of our patents; • we may fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection; • we may not seek or obtain patent protection in countries that may eventually provide us a significant business opportunity; • any patents issued to us may not provide a basis for commercially viable products, may not provide any competitive advantages or may be successfully challenged by third parties; • others may identify prior art or other bases upon which to challenge and ultimately invalidate our patents or otherwise render them unenforceable; and • the growing scientific and patent literature relating to engineered endonucleases, including our own patents and publications, may make it increasingly difficult or impossible to patent new engineered nucleases in the future. 73 Even if we have or obtain patents covering ARCUS or any product candidates or compositions, we and our collaborators may still be barred from making, using and selling such product candidates or technologies because of the patent rights of others.
Regardless of merit or eventual outcome, liability claims may result in: • significant time and costs to defend the related litigation; • injury to our reputation and significant negative media attention; • diversion of management’s attention from pursuing our strategy; • withdrawal of clinical trial participants; • delay or termination of clinical trials; • decreased demand for any products that we develop alone or with collaborators; • substantial monetary awards to trial participants or patients; • product recalls, withdrawals or labeling, marketing or promotional restrictions; • loss of revenue; and • the inability to further develop or commercialize any products.
Regardless of merit or eventual outcome, liability claims may result in: • significant time and costs to defend the related litigation; • injury to our reputation and significant negative media attention; • diversion of management’s attention from pursuing our strategy; • withdrawal of clinical trial participants; • delay or termination of clinical trials; • decreased demand for any products that we develop alone or with collaborators; 44 • substantial monetary awards to trial participants or patients; • product recalls, withdrawals or labeling, marketing or promotional restrictions; • loss of revenue; and • the inability to further develop or commercialize any products.
Even if a therapeutic product candidate receives regulatory approval, future revenues for such product candidate will depend upon many factors, such as, as applicable, the size of any markets in which such product candidate is approved for sale, the market share captured by such product candidate, including as a result of the market acceptance of such product candidate and the effectiveness of manufacturing, sales, marketing and distribution operations related to such product candidate, the terms of any collaboration or other strategic arrangement we may have with respect to such product candidate and levels of reimbursement from third-party payors.
Even if a therapeutic product candidate receives regulatory approval, future revenues for such product candidate will depend upon many factors, such as, as applicable, the size of any markets in which such product candidate is approved for sale, the market share captured by such product candidate, including as a result of the market acceptance of such product candidate and the effectiveness of manufacturing, sales, marketing and distribution operations related to such product candidate, the terms of any collaboration, license, or other strategic arrangement we may have with respect to such product candidate and levels of reimbursement from third-party payors.
Furthermore, our or our collaborators’ ability to successfully initiate, enroll and conduct a clinical trial outside the United States is subject to numerous additional risks, including: • difficulty in establishing or managing relationships with CROs and physicians; • differing standards for the conduct of clinical trials; • differing standards of care for patients with a particular disease; • an inability to locate qualified local consultants, physicians and partners; and • the potential burden of complying with a variety of foreign laws, medical standards and regulatory requirements, including the regulation of pharmaceutical and biotechnology products and treatments.
Furthermore, our or our collaborators’ ability to successfully initiate, enroll and conduct a clinical trial outside the United States is subject to numerous additional risks, including: 51 • difficulty in establishing or managing relationships with CROs and physicians; • differing standards for the conduct of clinical trials; • differing standards of care for patients with a particular disease; • an inability to locate qualified local consultants, physicians and partners; and • the potential burden of complying with a variety of foreign laws, medical standards and regulatory requirements, including the regulation of pharmaceutical and biotechnology products and treatments.
Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement, in connection with the delivery of, or payment for, healthcare benefits, 56 items or services.
Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement, in connection with the delivery of, or payment for, healthcare benefits, items or services.
Although we intend to employ multiple steps to control the manufacturing process, we may experience manufacturing issues with any of our product candidates that could cause production interruptions, including contamination, equipment or reagent failure, improper installation or operation of equipment, facility contamination, raw material shortages or contamination, natural disasters, disruption in utility services, human 51 error, disruptions in the operations of our suppliers, inconsistency in cell growth and variability in product characteristics.
Although we intend to employ multiple steps to control the manufacturing process, we may experience manufacturing issues with any of our product candidates that could cause production interruptions, including contamination, equipment or reagent failure, improper installation or operation of equipment, facility contamination, raw material shortages or contamination, natural disasters, disruption in utility services, human error, disruptions in the operations of our suppliers, inconsistency in cell growth and variability in product characteristics.
The aforementioned third parties with which we have relationships include service providers and vendors who provide to us a broad array of software and other technologies as well as products, services and functions (e.g., human resources, finance, communications, data transmission, risk, compliance) that enable us to conduct, monitor and/or protect our business, operations, systems and data assets.
The aforementioned third parties with which we have relationships include service providers and vendors who provide to us a broad array 66 of software and other technologies as well as products, services and functions (e.g., human resources, finance, communications, data transmission, risk, compliance) that enable us to conduct, monitor and/or protect our business, operations, systems and data assets.
Exclusive marketing rights in the United States may be limited if we or our collaborators seek approval for a disease or condition broader than the orphan designated disease or condition and may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition.
Exclusive marketing rights in the United States may be limited if we or our collaborators or licensees seek approval for a disease or condition broader than the orphan designated disease or condition and may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition.
We are also currently using our 43 ARCUS technology to develop our lead in vivo gene editing programs targeting HBV, DMD, and certain hemoglobinopathies, among other indications. Our future success is dependent on our ability to successfully develop and, where applicable, obtain regulatory approval for, including marketing approval for, and then successfully commercialize, product candidates, either alone or with collaborators.
We are also currently using our ARCUS technology to develop our lead in vivo gene editing programs targeting HBV, DMD, and certain hemoglobinopathies, among other indications. Our future success is dependent on our ability to successfully develop and, where applicable, obtain regulatory approval for, including marketing approval for, and then successfully commercialize, product candidates, either alone or with collaborators.
Manufacturing defects, errors in product distribution or storage processes, improper administration or application and known or unknown side effects of product usage may result in liability claims against us or third parties with which we have 46 relationships. These actions could include claims resulting from acts by our collaborators, licensees and subcontractors over which we have little or no control.
Manufacturing defects, errors in product distribution or storage processes, improper administration or application and known or unknown side effects of product usage may result in liability claims against us or third parties with which we have relationships. These actions could include claims resulting from acts by our collaborators, licensees and subcontractors over which we have little or no control.
Furthermore, because the technologies used to obtain unauthorized access to, or to sabotage or disrupt, systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative 70 measures. We may also experience security breaches that may remain undetected for an extended period.
Furthermore, because the technologies used to obtain unauthorized access to, or to sabotage or disrupt, systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. We may also experience security breaches that may remain undetected for an extended period.
A successful liability claim or series of claims brought against us could require us to pay substantial amounts and cause our share price to decline and, if judgments exceed our insurance coverage, could adversely affect our 71 results of operations and business, including preventing or limiting the development and commercialization of any product candidates that we or our collaborators may develop.
A successful liability claim or series of claims brought against us could require us to pay substantial amounts and cause our share price to decline and, if judgments exceed our insurance coverage, could adversely affect our results of operations and business, including preventing or limiting the development and commercialization of any product candidates that we or our collaborators may develop.
Furthermore, any capital raising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to advance research programs, product development activities or product candidates. We have a limited operating history, which makes it difficult to evaluate our current business and future prospects and may increase the risk of your investment.
Furthermore, any capital 39 raising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to advance research programs, product development activities or product candidates. We have a limited operating history, which makes it difficult to evaluate our current business and future prospects and may increase the risk of your investment.
Moreover, success in commercializing any therapeutic product candidates that receive regulatory approval will depend upon physicians prescribing, and their patients being willing to receive, treatments that involve the use of such product candidates in lieu of, or in addition to, existing treatments with which they are already familiar and for which greater clinical data may be available.
Moreover, success in commercializing any therapeutic product candidates that receive regulatory approval will depend upon physicians prescribing, and their patients being willing to receive, treatments that 42 involve the use of such product candidates in lieu of, or in addition to, existing treatments with which they are already familiar and for which greater clinical data may be available.
In addition to the submission of an IND to the FDA, before initiation of a clinical trial in the United States, certain human clinical trials subject to the NIH Guidelines are subject to review and oversight by an institutional biosafety committee (“IBC”), a local 47 institutional committee that reviews and oversees research utilizing recombinant or synthetic nucleic acid molecules at that institution.
In addition to the submission of an IND to the FDA, before initiation of a clinical trial in the United States, certain human clinical trials subject to the NIH Guidelines are subject to review and oversight by an institutional biosafety committee (“IBC”), a local institutional committee that reviews and oversees research utilizing recombinant or synthetic nucleic acid molecules at that institution.
For example, the holder of an approved 63 BLA in the United States is obligated to monitor and report adverse events and any failure of a product to meet the specifications in the BLA. FDA guidance advises that patients treated with some types of gene therapy undergo follow-up observations for potential adverse events for as long as 15 years.
For example, the holder of an approved BLA in the United States is obligated to monitor and report adverse events and any failure of a product to meet the specifications in the BLA. FDA guidance advises that patients treated with some types of gene therapy undergo follow-up observations for potential adverse events for as long as 15 years.
Any failure or perceived failure by us or our employees, representatives, contractors, consultants, CROs, collaborators, or other third parties to comply with such requirements or adequately address privacy and security concerns, even if unfounded, could result in additional cost and liability to us, damage our reputation, and adversely affect our business and results of operations.
Any failure or perceived failure by us or our employees, representatives, contractors, consultants, CROs, collaborators, or other third parties to comply with such 56 requirements or adequately address privacy and security concerns, even if unfounded, could result in additional cost and liability to us, damage our reputation, and adversely affect our business and results of operations.
For example, legislation enacted in 2017, informally titled the Tax Cuts and Jobs Act (the “TCJA”), significantly revised the Internal Revenue Code of 1986, as amended. Future guidance from the IRS and other tax authorities with respect to the TCJA may affect us, and certain aspects of the TCJA could be repealed or modified in future legislation.
For example, legislation enacted in 2017, informally titled the Tax Cuts and Jobs Act (the “TCJA”), significantly revised the Internal Revenue Code of 1986, as amended (the “Code”). Future guidance from the IRS and other tax authorities with respect to the TCJA may affect us, and certain aspects of the TCJA could be repealed or modified in future legislation.
The process of identifying product candidates and conducting preclinical studies and clinical trials is time-consuming, expensive, uncertain and takes years to complete. We expect our expenses to increase in connection with our ongoing activities, particularly as we identify, continue the research and development of, initiate and continue clinical trials of, and seek marketing approval for, product candidates.
The process of identifying product candidates and conducting preclinical studies and potential clinical trials is time-consuming, expensive, uncertain and takes years to complete. We expect our expenses to increase in connection with our ongoing activities, particularly as we identify, continue the research and development of, initiate potential clinical trials of, and seek marketing approval for, product candidates.
In addition, if any therapeutic product candidate that we develop alone or with collaborators obtains marketing approval, we may incur significant commercialization expenses related to product manufacturing, sales, marketing and distribution efforts. Furthermore, we have incurred, and expect to continue to incur, additional costs associated with operating as a public company.
In addition, if any therapeutic product candidate that we develop alone or with collaborators obtains marketing approval, we may incur significant commercialization expenses related to product manufacturing, sales, marketing and distribution 37 efforts. Furthermore, we have incurred, and expect to continue to incur, additional costs associated with operating as a public company.
Such scrutiny has resulted in several Congressional inquiries and proposed and enacted federal and 62 state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies, rebates and price negotiation for pharmaceutical products.
Such scrutiny has resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies, rebates and price negotiation for pharmaceutical products.
For example, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) modified certain provisions of the TCJA. Under the CARES Act, NOLs arising in a tax year beginning after December 31, 2017, and before January 1, 2021, generally may now be carried back five years.
For example, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) modified certain provisions of the TCJA. Under the CARES Act, NOLs arising in a tax 69 year beginning after December 31, 2017, and before January 1, 2021, generally may now be carried back five years.
If we are unable to obtain a patent term extension, or if the term of any such extension is less than our request, the period during which we can enforce our patent rights for that product will be in effect shortened and our competitors may obtain approval to market competing products sooner.
If we are unable to obtain a patent term extension, or if the term of any such extension is less than our request, the period during which we can enforce 76 our patent rights for that product will be in effect shortened and our competitors may obtain approval to market competing products sooner.
Such measures may not provide adequate protection for our proprietary information. For example, our security measures may not prevent an employee or consultant with authorized access 84 from misappropriating our trade secrets and providing them to a competitor, and the recourse we have available against such misconduct may not provide an adequate remedy to protect our interests fully.
Such measures may not provide adequate protection for our proprietary information. For example, our security measures may not prevent an employee or consultant with authorized access from misappropriating our trade secrets and providing them to a competitor, and the recourse we have available against such misconduct may not provide an adequate remedy to protect our interests fully.
There is significant uncertainty related to the insurance coverage and reimbursement of newly approved drugs and biologics. In the United States, third-party payors, including private and governmental payors, such as the Medicare and Medicaid programs, play an 67 important role in determining the extent to which new drugs and biologics will be covered.
There is significant uncertainty related to the insurance coverage and reimbursement of newly approved drugs and biologics. In the United States, third-party payors, including private and governmental payors, such as the Medicare and Medicaid programs, play an important role in determining the extent to which new drugs and biologics will be covered.
The amount of our future net losses will depend, in part, on the amount and growth rate of our expenses and our ability to generate revenues. 39 All of our current or future product candidates will require substantial additional development time and resources before we may realize revenue from product sales, if at all.
The amount of our future net losses will depend, in part, on the amount and growth rate of our expenses and our ability to generate revenues. All of our current or future product candidates will require substantial additional development time and resources before we may realize revenue from product sales, if at all.
We also conduct joint research and product development activities that may require us to share trade secrets under the terms of our research and development collaborations or similar agreements. In addition to contractual measures, we try to protect the confidential nature of our proprietary information using physical and technological security measures.
We also conduct joint research and product development activities that may require us to share trade secrets under the terms of our research and development collaborations or similar agreements. In addition to contractual measures, we try to protect the confidential nature of 79 our proprietary information using physical and technological security measures.
If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. Item 1B. Unresolve d Staff Comments None. 90
If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. Item 1B. Unresolve d Staff Comments. None.
If we or our collaborators elect, or are required, to delay, 55 suspend or terminate any clinical trial or commercialization efforts, the commercial prospects of such product candidates or products may be harmed, and our ability to generate product revenues from them or other product candidates that we develop may be delayed or eliminated.
If we or our collaborators elect, or are required, to delay, suspend or terminate any clinical trial or commercialization efforts, the commercial prospects of such product candidates or products may be harmed, and our ability to generate product revenues from them or other product candidates that we develop may be delayed or eliminated.
Accordingly, in markets outside the United States, the reimbursement for such products may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenue and profits. Our product candidates for which we intend to seek approval as biologic products may face competition sooner than anticipated.
Accordingly, in markets outside the United States, the reimbursement 64 for such products may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenue and profits. Our product candidates for which we intend to seek approval as biologic products may face competition sooner than anticipated.
We also expect that operating as a public company will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage.
We also expect that operating as a public company will make it more expensive for us to obtain director and officer liability insurance, and we 67 may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage.
Under these agreements, we are focused on research and development of in vivo gene editing products that utilize or incorporate our ARCUS nucleases. Our likely collaborators for other product research and development arrangements include large and mid-size pharmaceutical and biotechnology companies, and our likely collaborators for other technology research and development arrangements include universities and other research institutions.
Under these agreements, we are focused on research and development of in vivo gene editing products that utilize or incorporate our ARCUS nucleases. Our potential collaborators for other product research and development arrangements likely include large and mid-size pharmaceutical and biotechnology companies, and our potential collaborators for other technology research and development arrangements likely include universities and other research institutions.
If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business. 86 We do not currently intend to pay dividends on our common stock. We do not intend to pay any dividends to holders of our common stock for the foreseeable future.
If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business. We do not currently intend to pay dividends on our common stock. We do not intend to pay any dividends to holders of our common stock for the foreseeable future.
While the Regulation entered into force in January 2022, it will only begin to apply from January 2025 onwards, with preparatory and implementation-related steps to take place in the interim. Once the Regulation becomes applicable, it will have a phased implementation depending on the concerned products.
While the Regulation entered into force in January 2022, it will only begin to apply from January 2025 onwards, with preparatory and implementation-related steps to take place in the interim. Once applicable, it will have a phased implementation depending on the concerned products.
We have financed our operations primarily through proceeds from upfront and milestone payments from collaboration and licensing agreements, our IPO, private placements of our common stock, convertible preferred stock and convertible debt financings, underwritten and at-the-market offerings of common stock, and borrowings on credit facilities.
We have financed our operations primarily through proceeds from upfront and milestone payments from collaboration and licensing agreements, our IPO, private placements of our common stock, convertible preferred stock and convertible debt financings, underwritten and at-the-market (“ATM”) offerings of common stock, and borrowings on credit facilities.
Our future capital requirements will depend on many factors, including: • the timing, scope, progress, costs, results and analysis of results of research activities, preclinical studies and clinical trials for any of our product candidates; • the costs of future activities, including product manufacturing, sales, marketing and distribution activities for any product candidates that receive regulatory approval; • the success of our existing collaborative relationships; • the extent to which we exercise any development or commercialization rights under collaborative relationships; • our ability to establish and maintain additional collaborative relationships on favorable terms, or at all; • the extent to which we expand our operations and the timing of such expansion, including with respect to facilities, employees and product development platforms; • the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property and proprietary rights and defending intellectual property-related claims; • the extent to which we acquire or in-license other technologies or product candidates; • the extent to which we acquire or invest in other businesses; • the costs of continuing to operate as a public company; and • the amount of revenues, if any, received from commercial sales of any products that we develop alone or with collaborators that receive regulatory approval.
Our future capital requirements will depend on many factors, including: • the timing, scope, progress, costs, results and analysis of results of research activities, preclinical studies and potential clinical trials for any of our product candidates; • the costs of future activities, including product manufacturing, sales, marketing and distribution activities for any product candidates that receive regulatory approval; • the success of our existing collaborative and other out-licensing relationships; • the extent to which we exercise any development or commercialization rights under collaborative relationships; • our ability to establish and maintain additional collaborative or other out-licensing relationships on favorable terms, or at all; • the extent to which we expand our operations and the timing of such expansion, including with respect to facilities, employees and product development platforms; • the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property and proprietary rights and defending intellectual property-related claims; • the extent to which we acquire or in-license other technologies or product candidates; • the extent to which we acquire or invest in other businesses; • the costs of continuing to operate as a public company; and • the amount of revenues, if any, received from commercial sales of any products that we develop alone or with collaborators that receive regulatory approval.
It is currently unclear to what extent the United Kingdom ("UK") will seek to align its regulations with the EU. The UK regulatory framework in relation to clinical trials is derived from existing EU legislation (as implemented into UK law, through secondary legislation).
It is currently unclear to what extent the United Kingdom (“UK”) will seek to align its regulations with the EU. The UK regulatory framework in relation to clinical trials is derived from existing EU legislation (as implemented into UK law, through secondary legislation).
Disputes may arise regarding intellectual property subject to a license agreement, including: 80 • the scope of rights granted under the license agreement and other interpretation-related issues; • the amounts of royalties, milestones or other payments due to our licensors; • the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the license agreement; • the sublicensing of patent and other rights under our collaborative development relationships; • our diligence obligations under the license agreement and what activities satisfy those diligence obligations; • the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our collaborators; and • the priority of invention of patented technology.
Disputes may arise regarding intellectual property subject to a license agreement, including: 75 • the scope of rights granted under the license agreement and other interpretation-related issues; • the amounts of royalties, milestones or other payments due to our licensors; • the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the license agreement; • the sublicensing of patent and other rights under our collaborative development relationships; • our diligence obligations under the license agreement and what activities satisfy those diligence obligations; • the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our collaborators; and • the priority of invention of patented technology.
Under the BPCIA, an application for a biosimilar product may not be submitted until four years following the date that the reference product was first licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years after the reference product was first licensed by 68 the FDA.
Under the BPCIA, an application for a biosimilar product may not be submitted until four years following the date that the reference product was first licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years after the reference product was first licensed by the FDA.
Clinical trials of any of our product candidates may never commence despite the expenditure of significant resources in pursuit of their development, and our spending on current and future research and development programs, product candidates and product 42 development platforms may not yield any commercially viable products.
Clinical trials of any of our product candidates may never commence despite the expenditure of significant resources in pursuit of their development, and our spending on current and future research and development programs, product candidates and product development platforms may not yield any commercially viable products.
If we or our collaborators are slow or unable to adapt to changes in existing requirements or the adoption of new requirements, 64 or if we or our collaborators are unable to maintain regulatory compliance, we or they may be subject to enforcement action and we may not achieve or sustain profitability.
If we or our collaborators are slow or unable to adapt to changes in existing requirements or the adoption of new requirements, or if we or our collaborators are unable to maintain regulatory compliance, we or they may be subject to enforcement action and we may not achieve or sustain profitability.
It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations, agency guidance or case law involving applicable fraud 72 and abuse or other healthcare laws and regulations.
It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations, agency guidance or case law involving applicable fraud and abuse or other healthcare laws and regulations.
The resulting reduction of years of revenue from applicable products could be substantial. 81 Patents and patent applications involve highly complex legal and factual questions, which, if determined adversely to us, could negatively impact our patent position.
The resulting reduction of years of revenue from applicable products could be substantial. Patents and patent applications involve highly complex legal and factual questions, which, if determined adversely to us, could negatively impact our patent position.
We expect that our operations focused on developing 45 products for in vivo gene editing will face substantial competition from others focusing on gene therapy treatments, especially those that may focus on conditions that our product candidates target.
We expect that our operations focused on developing products for in vivo gene editing will face substantial competition from others focusing on gene therapy treatments, especially those that may focus on conditions that our product candidates target.
The ability to achieve acceptable levels of coverage and reimbursement for any potential products that may be approved by governmental authorities will have an effect on our and our collaborators’ ability to successfully commercialize such products.
The ability to achieve acceptable levels of coverage and 63 reimbursement for any potential products that may be approved by governmental authorities will have an effect on our and our collaborators’ ability to successfully commercialize such products.
We may not be able to submit INDs to the FDA or CTAs to comparable foreign authorities to commence additional clinical trials on the timelines we expect, and even if we are able to, the FDA or comparable foreign authorities may not permit us to proceed.
We may not be able to submit INDs to the FDA or CTAs to comparable foreign authorities to commence clinical trials on the timelines we expect, and even if we are able to, the FDA or comparable foreign authorities may not permit us to proceed.
In addition, approval policies, regulations or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions.
In addition, approval policies, regulations or the type and amount of 46 clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions.
If we or our collaborators do not receive or maintain orphan drug designation for product candidates for which we seek such designation, it could limit our ability to realize revenues from such product candidates.
If we or our collaborators or licensees do not receive or maintain orphan drug designation for product candidates for which we seek such designation, it could limit our ability to realize revenues from such product candidates.
If a prolonged government shutdown occurs, or if global health concerns continue to prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions, which could have a material adverse effect on our business. 65 Even if any product we develop alone or with collaborators receives marketing approval, such product may fail to achieve the degree of market acceptance by physicians, patients, healthcare payors and others in the medical community necessary for commercial success.
If a prolonged government shutdown occurs, or if global health concerns prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions, which could have a material adverse effect on our business. 61 Even if any product we develop alone or with collaborators receives marketing approval, such product may fail to achieve the degree of market acceptance by physicians, patients, healthcare payors and others in the medical community necessary for commercial success.
We plan to submit INDs and CTAs to enable us to conduct clinical trials for additional product candidates in the future, and we expect to file IND amendments to enable us to conduct additional clinical trials under existing INDs.
We plan to submit INDs and CTAs to enable us to conduct clinical trials for product candidates in the future, and we expect to file IND amendments to enable us to conduct clinical trials under existing INDs.
Clinical trials have been and may in the future be delayed, suspended or terminated for a variety of reasons, including in connection with: • the inability to generate sufficient preclinical, toxicology or other in vivo or in vitro data to support the initiation of clinical trials; • applicable regulatory authorities disagreeing as to the design or implementation of the clinical trials; • obtaining regulatory authorization to commence a trial; • reaching an agreement on acceptable terms with prospective contract research organizations (“CROs”) and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; • obtaining IRB or ethics committee approval or positive opinion at each site; • developing and validating the companion diagnostic to be used in a clinical trial, if applicable; • insufficient or inadequate supply or quality of product candidates or other materials, including identification of lymphocyte donors meeting regulatory standards necessary for use in clinical trials, or delays in sufficiently developing, characterizing or controlling a manufacturing process suitable for clinical trials; • recruiting and retaining enough suitable patients to participate in a trial; • having enough patients complete a trial or return for post-treatment follow-up; • adding a sufficient number of clinical trial sites; • inspections of clinical trial sites or operations by applicable regulatory authorities, or the imposition of a clinical hold; • clinical sites deviating from trial protocol or dropping out of a trial; • the inability to demonstrate the efficacy and benefits of a product candidate; • discovering that product candidates have unforeseen safety issues, undesirable side effects or other unexpected characteristics; • addressing patient safety concerns that arise during the course of a trial; • receiving untimely or unfavorable feedback from applicable regulatory authorities regarding the trial or requests from regulatory authorities to modify the design of a trial; • non-compliance with applicable regulatory requirements by us or third parties or changes in such regulations or administrative actions; • suspensions or terminations by IRBs of the institutions at which such trials are being conducted, by the Data Safety Monitoring Board (“DSMB”) for such trial or by the FDA or other foreign regulatory authorities due to a number of factors, including those described above; • third parties being unable or unwilling to satisfy their contractual obligations to us; • competitive pressures and other market conditions; • changes in our financial priorities, greater than anticipated costs of completing a trial or our inability to continue funding the trial; or 50 • unforeseen events, such as natural or manmade disasters, public health emergencies, such as the COVID-19 pandemic and its variants, which has and may continue to impact our operations, or other natural catastrophic events.
Clinical trials have been and may in the future be delayed, suspended or terminated for a variety of reasons, including in connection with: • the inability to generate sufficient preclinical, toxicology or other in vivo or in vitro data to support the initiation of clinical trials; • applicable regulatory authorities disagreeing as to the design or implementation of the clinical trials; • obtaining regulatory authorization to commence a trial; • reaching an agreement on acceptable terms with prospective contract research organizations (“CROs”) and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; • obtaining IRB or ethics committee approval or positive opinion at each site; • developing and validating the companion diagnostic to be used in a clinical trial, if applicable; • insufficient or inadequate supply or quality of product candidates or other materials, including identification of lymphocyte donors meeting regulatory standards necessary for use in clinical trials, or delays in sufficiently developing, characterizing or controlling a manufacturing process suitable for clinical trials; • recruiting and retaining enough suitable patients to participate in a trial; • having enough patients complete a trial or return for post-treatment follow-up; • adding a sufficient number of clinical trial sites; • inspections of clinical trial sites or operations by applicable regulatory authorities, or the imposition of a clinical hold; • clinical sites deviating from trial protocol or dropping out of a trial; • the inability to demonstrate the efficacy and benefits of a product candidate; • discovering that product candidates have unforeseen safety issues, undesirable side effects or other unexpected characteristics; • addressing patient safety concerns that arise during the course of a trial; • receiving untimely or unfavorable feedback from applicable regulatory authorities regarding the trial or requests from regulatory authorities to modify the design of a trial; • non-compliance with applicable regulatory requirements by us or third parties or changes in such regulations or administrative actions; • suspensions or terminations by IRBs of the institutions at which such trials are being conducted, by the Data Safety Monitoring Board (“DSMB”) for such trial or by the FDA or other foreign regulatory authorities due to a number of factors, including those described above; 48 • third parties being unable or unwilling to satisfy their contractual obligations to us; • competitive pressures and other market conditions; • changes in our financial priorities, greater than anticipated costs of completing a trial or our inability to continue funding the trial; or • unforeseen events, such as natural or manmade disasters, public health emergencies, such as natural catastrophic events.
These laws and regulations restrict or prohibit a wide range of pricing, discounting, marketing, promotion, sales commission and customer incentive programs and other business arrangements.
These laws 68 and regulations restrict or prohibit a wide range of pricing, discounting, marketing, promotion, sales commission and customer incentive programs and other business arrangements.
If we do not receive the funding we expect under these agreements, our development of product candidates or technologies could be delayed, and we may need additional resources to 75 develop such product candidates or technologies. For example, we waived earned, but unpaid milestone payments in connection with the termination of the Servier Agreement.
If we do not receive the funding we expect under these agreements, our development of product candidates or technologies could be delayed, and we may need additional resources to develop such product candidates or technologies. For example, we waived earned, but unpaid, milestone payments in connection with 70 the termination of the Servier Agreement.
Any such acquisitions or in-licenses may not strengthen our competitive position, and these transactions may be viewed negatively by customers or investors.
Any such acquisitions, investments or in-licenses may not strengthen our competitive position, and these transactions may be viewed negatively by customers or investors.
In addition, our cross-license agreement with Cellectis, or the Cellectis License, imposes various obligations on us in order to maintain the license. In particular, if we participate in or provide assistance to a third party challenging the validity, enforceability and/or patentability of any claim of any patent licensed to us by Cellectis under this agreement, Cellectis may terminate the agreement.
In addition, our cross-license agreement with Cellectis (the “Cellectis License”) imposes various obligations on us in order to maintain the license. In particular, if we participate in or provide assistance to a third party challenging the validity, enforceability and/or patentability of any claim of any patent licensed to us by Cellectis under this agreement, Cellectis may terminate the agreement.
It is uncertain if and to what extent various states will conform to the to the TCJA or the CARES Act. As of December 31, 2022, we have a valuation allowance for the full amount of our net deferred tax assets as the realization of the net deferred tax assets is not determined to be more likely than not.
It is uncertain if and to what extent various states will conform to the to the TCJA or the CARES Act. As of December 31, 2023, we have a valuation allowance for the full amount of our net deferred tax assets as the realization of the net deferred tax assets is not determined to be more likely than not.
Our operating plans and other demands on our cash resources may change as a result of many factors, including factors unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings or other sources, such as strategic collaborations.
Our operating plans and other demands on our cash resources may change as a result of many factors, including factors unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings or other sources, such as strategic collaborations and licensing arrangements.
While we are not aware of any downgrades, material losses or other significant deterioration in the fair value of our cash equivalents since December 31, 2022, deterioration of the global credit and financial markets could negatively impact our current portfolio of cash equivalents or our ability to meet our financing objectives.
While we are not aware of any downgrades, material losses or other significant deterioration in the fair value of our cash equivalents since December 31, 2023, deterioration of the global credit and financial markets could negatively impact our current portfolio of cash equivalents or our ability to meet our financing objectives.
We may decide to incur debt in connection with an acquisition or in-license, which may negatively impact our financial condition and restrict our operations, or issue our common stock or other equity securities to the stockholders of the acquired company, which would reduce the percentage ownership of our existing stockholders.
We may decide to incur debt in connection with an acquisition, investment or in-license, which may negatively impact our financial condition and restrict our operations, or issue our common stock or other equity securities to the stockholders of the acquired company, which would reduce the percentage ownership 65 of our existing stockholders.
While we expect that we will continue to be able to patent our ARCUS nucleases 79 for the foreseeable future, as the scientific and patent literature relating to engineered endonucleases increases, including our own patents and publications, it may become more difficult or impossible to patent new engineered endonucleases in the future.
While we expect that we will continue to be able to patent our ARCUS nucleases 74 for the foreseeable future, as the scientific and patent literature relating to engineered endonucleases increases, including our own patents and publications, it may become more difficult or impossible to patent new engineered endonucleases in the future.
For example, we have granted exclusive rights or options to Lilly and Novartis for certain targets, and during the term of our collaboration agreements we will be restricted from granting rights to other parties to use our ARCUS technology to pursue potential products that address those targets.
For example, we have granted exclusive rights or options to Prevail and Novartis for certain targets, and during the term of our collaboration agreements we will be restricted from granting rights to other parties to use our ARCUS technology to pursue potential products that address those targets.
If any of the analysts who cover us issue an adverse or misleading opinion regarding us, our business model, our intellectual property or our stock performance, or if our preclinical studies and clinical trials and operating results fail to meet the expectations of analysts, our stock price would likely decline.
If any of the analysts who cover us issue an adverse or misleading opinion regarding us, our business model, our intellectual property or our stock performance, or if our preclinical studies and operating results fail to meet the expectations of analysts, our stock price would likely decline.
If we are not able to effectively manage the expansion of our operations, it may result in weaknesses in our infrastructure, increase our expenses more than expected, or give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity.
If we are not able to effectively manage our operations, it may result in weaknesses in our infrastructure, increase our expenses more than expected, or give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity.
Even if we or our collaborators obtain orphan drug designation for a product candidate, we may not be the first to obtain marketing approval for any particular orphan indication due to the uncertainties associated with developing pharmaceutical products.
Even if we or our collaborators or licensees obtain orphan drug designation for a product candidate, we or they may not be the first to obtain marketing approval for any particular orphan indication due to the uncertainties associated with developing pharmaceutical products.
We may not be able to utilize all, or any, of our net operating loss carryforwards. We have incurred substantial losses during our history, do not expect to become profitable in the near future, and we may not achieve profitability.
We may not be able to utilize all of our net operating loss carryforwards. We have incurred substantial losses during our history, do not expect to become profitable in the near future, and we may not achieve profitability.
These licenses may not be available on reasonable 82 terms or at all. Even if a license can be obtained on reasonable terms, the rights may be nonexclusive, which would give our competitors access to the same intellectual property rights.
These licenses 77 may not be available on reasonable terms or at all. Even if a license can be obtained on reasonable terms, the rights may be nonexclusive, which would give our competitors access to the same intellectual property rights.
We have sought in the past, and anticipate that we will continue to seek in the future, third-party collaborators for the research, development and commercialization of certain product candidates and the research and development of certain technologies. For example, we are party to the Lilly Agreement and Novartis Agreement.
We have sought in the past, and anticipate that we will continue to seek in the future, third-party collaborators for the research, development and commercialization of certain product candidates and the research and development of certain technologies. For example, we are party to the Prevail Agreement and Novartis Agreement.
Patient enrollment may also be affected by many factors, including: • severity and difficulty of diagnosing of the disease under investigation; • the difficulty in recruiting and/or identifying eligible patients suffering from rare diseases being evaluated under our trials; • size of the patient population and process for identifying subjects; • eligibility and exclusion criteria for the trial in question, including unforeseen requirements by the FDA or other regulatory authorities that we restrict one or more entry criteria for the study for safety reasons; • our or our collaborators’ ability to recruit clinical trial investigators with the appropriate competencies and experience; • design of the trial protocol; • availability and efficacy of approved medications or therapies, or other clinical trials, for the disease or condition under investigation; • perceived risks and benefits of the product candidate under trial or testing, or of the application of genome editing to human indications; • availability of genetic testing for potential patients; • efforts to facilitate timely enrollment in clinical trials; 53 • patient referral practices of physicians; • ability to obtain and maintain subject consent; • risk that enrolled subjects will drop out before completion of the trial; • ability to monitor patients adequately during and after treatment; • proximity and availability of clinical trial sites for prospective patients; and • unforeseen events, such as natural or manmade disasters, public health emergencies, such as the COVID-19 pandemic and its variants which has and may continue to impact our operations, or other natural catastrophic events.
Patient enrollment may also be affected by many factors, including: • severity and difficulty of diagnosing of the disease under investigation; • the difficulty in recruiting and/or identifying eligible patients suffering from rare diseases being evaluated under our trials; • size of the patient population and process for identifying subjects; • eligibility and exclusion criteria for the trial in question, including unforeseen requirements by the FDA or other regulatory authorities that we restrict one or more entry criteria for the study for safety reasons; • our or our collaborators’ ability to recruit clinical trial investigators with the appropriate competencies and experience; • design of the trial protocol; • availability and efficacy of approved medications or therapies, or other clinical trials, for the disease or condition under investigation; • perceived risks and benefits of the product candidate under trial or testing, or of the application of genome editing to human indications; • availability of genetic testing for potential patients; • efforts to facilitate timely enrollment in clinical trials; • patient referral practices of physicians; • ability to obtain and maintain subject consent; • risk that enrolled subjects will drop out before completion of the trial; • ability to monitor patients adequately during and after treatment; • proximity and availability of clinical trial sites for prospective patients; and • unforeseen events, such as natural or manmade disasters, public health emergencies may impact our operations, or other natural catastrophic events.
We anticipate our expenses will increase if and as we: • continue our current research and development programs, including conducting laboratory and preclinical studies for product candidates; • continue to conduct or initiate clinical trials for product candidates; • seek to identify, assess, acquire or develop additional research programs or product candidates; • maintain, expand and protect our intellectual property portfolio; • seek marketing approvals for any product candidates that may successfully complete development; • establish a sales, marketing and distribution infrastructure to commercialize any products that may obtain marketing approval; • further develop and refine the manufacturing process for our product candidates; • change or add additional manufacturers or suppliers of biological materials or product candidates; • further develop our genome editing technology; • acquire or in-license other technologies; • seek to attract new and retain existing personnel; • expand our facilities; and • incur increased costs as a result of operating as a public company.
We anticipate our expenses will increase if and as we: • continue our current research and development programs, including conducting laboratory and preclinical studies for product candidates; • initiate potential clinical trials for product candidates; • seek to identify, assess, acquire or develop additional research programs or product candidates; • maintain, expand and protect our intellectual property portfolio; • seek marketing approvals for any product candidates that may successfully complete development; • establish a sales, marketing and distribution infrastructure to commercialize any products that may obtain marketing approval; • change or add additional manufacturers or suppliers of biological materials or product candidates; • further develop our genome editing technology; • acquire or in-license other technologies; • seek to attract new and retain existing personnel; • expand our facilities; and • incur increased costs as a result of operating as a public company.
We have not yet caused any product candidates to be manufactured or processed on a commercial scale and may not be able to do so. We will make changes as we work to optimize the manufacturing process, and we cannot be sure that even minor changes in the process will result in products that are safe and effective.
We have not yet caused any product candidates to be manufactured or processed on a commercial scale and may not be able to do so. We anticipate making changes as we work to optimize the manufacturing process, and we cannot be sure that even minor changes in the process will result in products that are safe and effective.
Our future profitability, if any, will depend in part on our ability and the ability of our collaborators to commercialize any products that we or our collaborators may develop in markets throughout the world.
Our future profitability, if any, will depend in part on our ability and the ability of our collaborators or other licensees to commercialize any products that we, our collaborators, or our other licensees may develop in markets throughout the world.
The regulation will permit EU member states to use common HTA tools, methodologies, and procedures across the EU, working together in four main areas, including joint clinical assessment of the innovative health technologies with the most potential impact for patients, joint scientific consultations whereby developers can seek advice from HTA authorities, identification of emerging health technologies to identify promising technologies early, and continuing voluntary cooperation in other areas.
It will permit EU member states to use common HTA tools, methodologies, and procedures across the EU, working together in four main areas, including joint clinical assessment of the innovative health technologies with the highest potential impact for patients, joint scientific consultations whereby developers can seek advice from HTA authorities, identification of emerging health technologies to identify promising technologies early, and continuing voluntary cooperation in other areas.
In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of these accounting standards until they would otherwise apply to private companies. We have elected to take advantage of this extended transition period.
In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of these accounting standards until they would otherwise apply to private companies.
Pursuant to the terms of the Revolving Line, we may request advances on a revolving line of credit of up to an aggregate principal of $30.0 million and the maturity date of the Revolving Line is June 23, 2024. As of December 31, 2022, we had $22.5 million in borrowings under our Revolving Line.
Pursuant to the terms of the Revolving Line, we may request advances on a revolving line of credit of up to an aggregate principal amount of $30.0 million and the maturity date of the Revolving Line is June 23, 2024. As of December 31, 2023, we had $22.5 million in borrowings under our Revolving Line.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, including in underwritten and at-the-market offerings, stockholders' ownership interest will be diluted, and the terms of such securities may include liquidation or other preferences that adversely affect common stockholders' rights.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, including in underwritten and ATM offerings, stockholders' ownership interest will be diluted, and the terms of such securities may include liquidation or other preferences that adversely affect common stockholders' rights.

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Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings. From time to time we may be involved in claims and proceedings arising in the course of our business. The outcome of any such claims or proceedings, regardless of the merits, is inherently uncertain. We are not currently party to any material legal proceedings. Item 4. Mine Safe ty Disclosures. Not applicable. 91 PART II
Biggest changeItem 3. Legal Proceedings. From time to time we may be involved in claims and proceedings arising in the course of our business. The outcome of any such claims or proceedings, regardless of the merits, is inherently uncertain. We are not currently party to any material legal proceedings. Item 4. Mine Safe ty Disclosures. Not applicable. 88 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeItem 5. Market for Registrant’s Common Equity, Related Stock holder Matters and Issuer Purchases of Equity Securities. Our common stock trades on The Nasdaq Global Select Market under the symbol “DTIL.” Holders of Common Stock As of March 1, 2023, there were approximately 26 holders of record of our common stock.
Biggest changeItem 5. Market for Registrant’s Common Equity, Related Stock holder Matters and Issuer Purchases of Equity Securities. Our common stock trades on The Nasdaq Capital Market under the symbol “DTIL.” Holders of Common Stock As of March 21, 2024, there were approximately 25 holders of record of our common stock.
Any future determination related to our dividend policy will be made at the discretion of our board of directors after considering our financial condition, results of operations, capital requirements, business prospects and other factors our board of directors deems relevant, and subject to any restrictions applicable to us contained in any future financing instruments. Item 6. [Reserved]. 92
Any future determination related to our dividend policy will be made at the discretion of our board of directors after considering our financial condition, results of operations, capital requirements, business prospects and other factors our board of directors deems relevant, and subject to any restrictions applicable to us contained in any future financing instruments. Item 6. [Reserved] 89

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeResults of Operations Comparison of the Years Ended December 31, 2022 and December 31, 2021 The following table summarizes our results of operations for the years ended December 31, 2022 and December 31, 2021, together with the changes in those items in dollars: Years ended December 31, (in thousands) 2022 2021 Change Revenue $ 25,098 $ 115,529 $ (90,431 ) Operating expenses: Research and development 83,939 115,238 (31,299 ) General and administrative 41,525 39,667 1,858 Total operating expenses 125,464 154,905 (29,441 ) Loss from operations (100,366 ) (39,376 ) (60,990 ) Other (expense) income, net: Impairment charges (11,438 ) — (11,438 ) Loss on disposal of assets (106 ) (26 ) (80 ) (Loss) gain from changes in fair value (510 ) 2,555 (3,065 ) Gain on deconsolidation of subsidiary — 5,985 (5,985 ) (Loss) income from equity method investment (1,579 ) 184 (1,763 ) Interest expense (1,111 ) (132 ) (979 ) Interest income 3,473 208 3,265 Total other (expense) income, net (11,271 ) 8,774 (20,045 ) Net loss $ (111,637 ) $ (30,602 ) $ (81,035 ) 101 Revenue Revenue for the year ended December 31, 2022 was $25.1 million, compared to $115.5 million for the year ended December 31, 2021.
Biggest changeResults of Operations Comparison of the Years Ended December 31, 2023 and December 31, 2022 The following table summarizes our results of operations for the years ended December 31, 2023 and December 31, 2022, together with the changes in those items in dollars: Years ended December 31, (in thousands) 2023 2022 Change Revenue $ 48,727 $ 25,098 $ 23,629 Operating expenses: Research and development 53,375 46,122 7,253 General and administrative 39,088 41,284 (2,196 ) Total operating expenses 92,463 87,406 5,057 Loss from operations (43,736 ) (62,308 ) 18,572 Other income (expense), net: Impairment charges — (10,844 ) 10,844 Loss on disposal of assets (461 ) (30 ) (431 ) Gain (loss) on changes in fair value 1,145 (510 ) 1,655 Loss from equity method investment (4,931 ) (1,579 ) (3,352 ) Interest expense (2,230 ) (1,111 ) (1,119 ) Interest income 7,686 3,473 4,213 Total other income (expense), net 1,209 (10,601 ) 11,810 Loss from continuing operations (42,527 ) (72,909 ) 30,382 Loss from discontinued operations (including gain on disposal of $8,446 during the year ended December 31, 2023) (18,792 ) (38,728 ) 19,936 Net loss $ (61,319 ) $ (111,637 ) $ 50,318 Revenue Revenue for the year ended December 31, 2023 was $48.7 million, compared to $25.1 million for the year ended December 31, 2022.
Since our inception, we have incurred significant operating losses and have not generated any revenue from the sale of products.
We have incurred significant operating losses since our inception and have not generated any revenue from the sale of products.
The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advance payments. We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time.
The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advance payments. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time.
In connection with this partnership, we are developing a custom ARCUS nuclease that will be designed to insert, in vivo , a therapeutic transgene at a “safe harbor” location in the genome as a potential one-time transformative treatment option for diseases including certain hemoglobinopathies such as sickle cell disease and beta thalassemia.
In connection with this partnership, we are developing 91 a custom ARCUS nuclease that will be designed to insert, in vivo , a therapeutic transgene at a “safe harbor” location in the genome as a potential one-time transformative treatment option for diseases including certain hemoglobinopathies such as sickle cell disease and beta thalassemia.
The terms of these agreements typically contain multiple promises or obligations, which may include: (1) licenses, or options to obtain licenses, to use our technology, (2) research and development activities to be performed on behalf of the collaboration partner, and (3) in certain cases, services in connection with the manufacturing of preclinical and clinical material.
The terms of these agreements typically contain multiple promises or 104 obligations, which may include: (1) licenses, or options to obtain licenses, to use our technology, (2) research and development activities to be performed on behalf of the collaboration partner, and (3) in certain cases, services in connection with the manufacturing of preclinical and clinical material.
Payments we receive under these arrangements typically include one or more of the following: non-refundable, upfront license fees; option exercise fees; funding of research and/or development efforts; clinical and development, regulatory, and sales milestone payments; and royalties on future product sales. We classify payments received under these agreements as revenues within our consolidated statements of operations.
Payments we receive under these arrangements typically include one or more of the following: non-refundable, upfront license fees; option exercise fees; funding of research and/or development efforts; clinical and development, regulatory, and sales milestone payments; and royalties on future product sales. We classify payments received under these agreements as revenues within our statements of operations.
Components of Our Results of Operations Revenue To date, we have not generated any revenue from product sales and do not expect to generate any revenue from product sales in the foreseeable future. We record revenue from collaboration agreements, including amounts related to upfront payments, milestone payments, annual fees for licenses of our intellectual property and research and development funding.
Components of Our Results of Operations Revenue To date, we have not generated any revenue from product sales and do not expect to generate any revenue from product sales in the foreseeable future. We record revenue from collaboration agreements, including amounts related to upfront payments, milestone payments, fees for licenses of our intellectual property and research and development funding.
Examples of estimated accrued research and development expenses include fees paid to the following: • CROs and other third parties in connection with performing research and development activities, conducting preclinical studies and clinical trials on our behalf; • Vendors in connection with preclinical development activities; and • CMOs and other vendors in connection with product manufacturing and development and distribution of preclinical supplies.
Examples of estimated accrued research and development expenses include fees paid to the following: • third parties in connection with performing research and development activities, conducting preclinical studies and clinical trials on our behalf; • Vendors in connection with preclinical development activities; and • CMOs and other vendors in connection with product manufacturing and development and distribution of preclinical supplies.
Section 107 of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with those 109 standards. We have elected to take advantage of the extended transition period for complying with new or revised accounting standards.
Section 107 of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with those standards. We have elected to take advantage of the extended transition period for complying with new or revised accounting standards.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and the related notes to those statements included elsewhere in this Annual Report on Form 10-K.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Financial Statements and the related notes to those statements included elsewhere in this Annual Report on Form 10-K.
Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as noncurrent deferred revenue. Amounts recognized as revenue, but not yet invoiced are generally recognized as contract assets in the other current assets line item in our consolidated balance sheets.
Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as noncurrent deferred revenue. Amounts recognized as revenue, but not yet invoiced are generally recognized as contract assets in the other current assets line item in our balance sheets.
Alternatively, if we were to decrease total estimated effort required to satisfy the performance obligations by 10%, it would result in cumulative catch up adjustments that increase revenue recognition by $5.1 million in the current year.
Alternatively, if we were to decrease total estimated effort required to satisfy the performance obligations by 10%, it would result in cumulative catch up adjustments that increase revenue recognition by $10.5 million in the current year.
Invoices issued as stipulated in contracts prior to revenue recognition are recorded as deferred revenue. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue within current liabilities in our consolidated balance sheets.
Invoices issued as stipulated in contracts prior to revenue recognition are recorded as deferred revenue. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue within current liabilities in our balance sheets.
Simultaneously with the entry into the iECURE Agreement, we and iECURE entered into an Equity Issuance Agreement (the “iECURE Equity Issuance Agreement”), pursuant to which iECURE issued us common stock in iECURE as additional consideration for the PCSK9 license.
Simultaneously with the entry into the iECURE DLA, we and iECURE entered into an equity issuance agreement (the “iECURE Equity Agreement”), pursuant to which iECURE issued us common stock in iECURE as additional consideration for the PCSK9 license.
The price per share of our common stock under the Novartis Stock Purchase Agreement represented a 20% premium over the volume-weighted-average-price of our common stock over the 10 trading days preceding the execution date of the Novartis Stock Purchase Agreement.
The price per share of our common stock under the Novartis Stock Purchase Agreement represented a 94 20% premium over the volume-weighted-average-price of our common stock over the 10 trading days preceding the execution date of the Novartis Stock Purchase Agreement.
Accrued Research and Development Expenses As part of the process of preparing our consolidated financial statements, we are required to make certain estimates and judgements in our accrued research and development expenses.
Accrued Research and Development Expenses As part of the process of preparing our financial statements, we are required to make certain estimates and judgements in our accrued research and development expenses.
Since our formation in 2006, we have devoted substantially all of our resources to developing ARCUS, conducting research and development activities, recruiting skilled personnel, developing manufacturing processes, establishing our intellectual property portfolio and providing general and administrative support for these operations.
Liquidity and Capital Resources Since our formation in 2006, we have devoted substantially all of our resources to developing ARCUS, conducting research and development activities, recruiting skilled personnel, developing manufacturing processes, establishing our intellectual property portfolio and providing general and administrative support for these operations.
Lilly’s obligation to pay royalties to us expires on a country-by-country and licensed product-by-licensed product basis, upon the latest to occur of certain events related to expiration of patents, regulatory exclusivity or a period of ten years following first commercial sale of the licensed product.
Prevail’s obligation to pay royalties to us expires on a country-by-country and licensed product-by-licensed product basis, upon the latest to occur of certain events related to expiration of patents, regulatory exclusivity or a period of ten years following first commercial sale of the licensed product.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, shareholders’ ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our shareholders.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, our stockholders’ ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our shareholders.
We base our expenses related to preclinical studies on our estimates of the services received and efforts expended pursuant to quotes and contracts with CROs that conduct and manage preclinical studies and clinical trials and CMOs that manufacture product for our research and development activities on our behalf.
We base our expenses related to preclinical studies on our estimates of the services received and efforts expended pursuant to quotes and contracts with CROs that conduct and manage preclinical studies and CMOs that manufacture product for our research and development activities on our behalf.
A discussion regarding our financial condition and results of operation, including liquidity and capital resources, for the year ended December 31, 2022 compared to the year ended December 31, 2021 is presented below.
A discussion regarding our financial condition and results of operation, including liquidity and capital resources, for the year ended December 31, 2023 compared to the year ended December 31, 2022 is presented below.
(Loss) Gain from C hanges in Fair Value The loss from changes in fair value was $0.5 million for the year ended December 31, 2022 which primarily represents the change in fair value of the iECURE equity investment as a result of dilution from iECURE's Series A-1 equity raise during the year ended December 31, 2022.
The loss from changes in fair value was $0.5 million for the year ended December 31, 2022, which primarily represents the change in fair value of the iECURE equity investment as a result of dilution from iECURE's Series A-1 equity raise during the year ended December 31, 2022.
If we were to increase total estimated effort required to satisfy the performance obligations by 10%, it would result in cumulative catch up adjustments that decrease revenue recognition by $4.2 million in the current year and those amounts would be recognized in the future as the incremental effort is provided.
If we were to increase total estimated effort required to satisfy the performance obligations by 10%, it would result in cumulative catch up adjustments that decrease revenue recognition by $8.6 million in the current year and those amounts would be recognized in the future as the incremental effort is provided.
(Loss) Income from Equity Method Investments Loss from equity method investments was $1.6 million during the year ended December 31, 2022 and represented our proportionate share of New Elo’s net loss for such period, partially offset by a gain recorded from an increase in our proportionate share of New Elo's net assets resulting from an equity issuance by New Elo.
Loss from equity method investment was $1.6 million during the year ended December 31, 2022 and represented our proportionate share of Elo’s net loss for such period, partially offset by a gain recorded from an increase in our proportionate share of Elo's net assets resulting from an equity issuance by Elo.
Cash Used in Investing Activities Cash used in investing activities primarily relates to cash expenditures to acquire leasehold additions, equipment, software, and intangible assets. Net cash used in investing activities during the year ended December 31, 2022 was $3.3 million, compared to $5.8 million in the year ended December 31, 2021.
Cash used in investing activities primarily relates to cash expenditures to acquire leasehold additions, equipment, software and intangible assets. Net cash provided by investing activities during the year ended December 31, 2023 was $5.8 million, compared to $3.3 million net cash used in investing activities during the year ended December 31, 2022.
The terms of these agreements generally contain multiple elements, or deliverables, which may include (1) licenses, or options to obtain licenses, to use our technology, (2) research and development activities to be performed on behalf of the collaborative partner, and (3) in certain cases, services in connection with the manufacturing of preclinical and clinical material.
The terms of these agreements generally contain multiple elements, or deliverables, which may include (i) licenses, or options to obtain licenses, to use our technology, (ii) research and development activities to be performed on behalf of the collaborative partner, and (iii) in certain cases, services in connection with the manufacturing of preclinical and clinical material.
The Company analyzes its collaboration arrangements to assess whether they are within the scope of ASC 808, Collaborative Arrangements , to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities.
We analyze our collaboration arrangements to assess whether they are within the scope of ASC 808, Collaborative Arrangements , to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities.
Impairment Charges Impairment charges were $11.4 million during the year ended December 31, 2022 which includes the $10.8 million impairment of the iECURE PCSK9 Prepaid as we have made the decision to cease pursuit of PBGENE-PCSK9 for FH with iECURE as our partner. The impairment charge represented the remaining unamortized balance of the PCSK9 Prepaid.
Impairment charges were $10.8 million during the year ended December 31, 2022 which is comprised of the $10.8 million impairment of the iECURE PCSK9 Prepaid as we made the decision to cease pursuit of PBGENE-PCSK9 for FH with iECURE as our partner. The impairment charge represented the remaining unamortized balance of the PCSK9 Prepaid.
Cash Provided by Financing Activities Net cash provided by financing activities during the year ended December 31, 2022 was $95.0 million, compared to $70.5 million during the year ended December 31, 2021.
Cash Provided by Financing Activities Net cash provided by financing activities during the year ended December 31, 2023 was $5.4 million, compared to $95.0 million during the year ended December 31, 2022.
We will remain an “emerging growth company” until the earliest of (1) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more, (2) December 31, 2024, (3) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years or (4) the date on which we are deemed to be a large accelerated filer under the rules of the SEC, which means the market value of our common stock held by non-affiliates exceeds $700 million as of the prior June 30th, we have been a public company for at least 12 months and have filed one Annual Report on Form 10-K.
We will remain an “emerging growth company” until the earliest of (1) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more, (2) December 31, 2024, (3) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years or (4) the date on which we are deemed to be a large accelerated filer under the rules of the SEC, which means the market value of our common stock held by non-affiliates exceeds $700 million as of the prior June 30th.
Additionally, on the Novartis Effective Date, Novartis made an equity investment in our common stock pursuant to a stock purchase agreement (the “Novartis Stock Purchase Agreement”) pursuant to which, on the Novartis Effective Date, we issued and sold to Novartis 12,407,440 shares of our common stock (the “Novartis Shares”) in a private placement transaction for an aggregate purchase price of $25.0 million, or approximately $2.01 per share.
Additionally, on the Novartis Effective Date, Novartis made an equity investment in our common stock pursuant to a stock purchase agreement (the “Novartis Stock Purchase Agreement”) pursuant to which, on the Novartis Effective Date, we issued and sold to Novartis 413,581 shares of our common stock (the “Novartis Shares”) in a private placement transaction for an aggregate purchase price of $25.0 million, or approximately $60.30 per share.
Under the terms of the Novartis Agreement, we will develop an ARCUS nuclease and conduct in vitro characterization, with Novartis then assuming responsibility for all subsequent research, development, manufacturing and commercialization activities.
Pursuant to the terms of the Novartis Agreement, we will develop an ARCUS nuclease and conduct in vitro characterization for the licensed products, with Novartis then assuming responsibility for all subsequent development, manufacturing and commercialization activities.
We expect that our research and development and general and administrative costs will continue to increase over the long term, including in connection with conducting preclinical studies and clinical trials for our product candidates, contracting with CROs and CMOs, the addition of laboratory equipment to MCAT in support of preclinical studies and clinical trials, expanding our intellectual property portfolio and providing general and administrative support for our operations.
We expect that our research and development and general and administrative costs will increase over the long term, including in connection with conducting preclinical studies and potential clinical trials for our product candidates, contracting with 100 CROs and CMOs, expanding our intellectual property portfolio and providing general and administrative support for our operations.
We cannot determine with certainty the duration and costs of ongoing and future clinical trials of our azer-cel and PBCAR19B product candidates, or any other product candidate we may develop or if, when or to what extent we will generate revenue from the commercialization and sale of any product candidate for which we obtain marketing approval.
We cannot determine with certainty the duration and costs of future clinical trials for our product candidates we may develop or if, when or to what extent we will generate revenue from the commercialization and sale of any product candidate for which we obtain marketing approval. We may never succeed in obtaining marketing approval for any product candidate.
General and Administrative Expenses General and administrative expenses consist primarily of salaries and other related costs, including share-based compensation, for personnel in our executive, finance, business development, legal and administrative functions.
General and Administrative Expenses General and administrative expenses consist primarily of salaries, consulting fees, recruitment-related costs and other employee-related costs, including share-based compensation, for personnel in our executive, finance, business development, operations and administrative functions.
Our future funding requirements will depend on many factors, including: • the progress, costs and results of our clinical development for our azer-cel and PBCAR19B programs as we progress clinical trials, including CRO costs; • the progress, costs and results of our additional research and preclinical development programs including our in vivo and ex vivo pipeline and our planned IND or CTA submissions and potential BLA filings; 105 • the outcome, timing and cost of meeting regulatory requirements established by the FDA and other comparable foreign regulatory authorities; • the costs and timing of internal process development and manufacturing scale-up activities and contract with CMOs associated with our azer-cel and PBCAR19B programs and other programs we advance through preclinical and clinical development; • our ability to establish and maintain strategic collaborations, licensing or other agreements and the financial terms of such agreements; • the scope, progress, results and costs of any product candidates that we may derive from ARCUS or any other product candidates we may develop alone or with collaborators; • the extent to which we in-license or acquire rights to other products, product candidates or technologies; • the costs and timing of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending against any intellectual property-related claims; and • the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any product candidates for which we or our collaborators obtain marketing approval.
Our future funding requirements will depend on many factors, including: • the ability to collaborate and partner with third parties to fund any or all of our programs; • the progress, costs and results of our additional research and preclinical development programs including our in vivo pipeline and our planned IND or CTA submissions and potential BLA submissions; • the outcome, timing and cost of meeting regulatory requirements established by the FDA and other comparable foreign regulatory authorities; • our ability to establish and maintain strategic collaborations, licensing or other agreements and the financial terms of such agreements; • the scope, progress, results and costs of any product candidates that we may derive from ARCUS or any other product candidates we may develop alone or with collaborators; • the extent to which we in-license or acquire rights to other products, product candidates or technologies; • the costs and timing of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending against any intellectual property-related claims; and 102 • the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any product candidates for which we or our collaborators obtain marketing approval.
As of December 31, 2022, the outstanding principal balance on the Revolving Line was $22.5 million, the stated interest rate was 8.25% and the effective interest rate was 9.27%.
As of December 31, 2023, the outstanding principal balance on the Revolving Line was $22.5 million, the stated interest rate was 9.25% and the effective interest rate was 10.3%.
There are no assurances that we will be successful in obtaining an adequate level of financing as and when needed to finance our operations on terms acceptable to us or at all, particularly in light of the global macroeconomic conditions and ongoing uncertainty related to the COVID-19 pandemic and variants thereof.
There are no assurances that we will be successful in obtaining an adequate level of financing as and when needed to finance our operations on terms acceptable to us or at all, particularly in light of current global macroeconomic conditions.
We will also be eligible to receive milestone payments of up to an aggregate of $420.0 million per licensed product as well as nomination fees for additional targets and certain research funding.
Under the Prevail Agreement, we will also be eligible to receive milestone payments of up to an aggregate of $390 million to $395 million per licensed product as well as nomination fees for additional targets and certain research funding.
The fair value of the costs to be incurred by iECURE to progress our PBGENE-PCSK9 candidate through Phase 1 clinical trial (the “PCSK9 Prepaid”) was assessed to be $17.4 million and was recorded to the prepaid expenses and other assets line items of the consolidated balance sheets.
The fair value of the costs to be incurred by iECURE to progress the Company’s PBGENE-PCSK9 candidate through the Phase 1 clinical trial (the “PCSK9 Prepaid”) were recorded to the prepaid expenses and other assets line items of the balance sheets.
General and administrative expenses also include legal fees relating to intellectual property and corporate matters; professional fees for accounting, auditing, tax and consulting services; insurance costs; travel expenses; and facility-related expenses, which include expenses for rent and maintenance of facilities and other operating costs that are not specifically attributable to research activities.
General and administrative expenses also include legal fees relating to intellectual property and corporate matters; information technology costs; insurance costs; travel expenses; and facility-related expenses, which include direct depreciation costs and expenses for rent and maintenance of facilities and other operating costs that are not specifically attributable to research activities.
If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves.
If we are unable to raise additional funds through equity or debt financings when needed, we may be required to significantly delay, alter reduce or eliminate one or more of our research or product development programs and/or commercialization efforts, or to grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves.
As of December 31, 2022, we had federal and state NOL carryforwards of $159.5 million and $119.1 million, respectively, which may be available to offset future taxable income. The U.S. federal NOLs carryforward indefinitely. The state NOL carryforwards begin to expire in 2027.
As of December 31, 2023, we had federal and state NOL carryforwards of $195.0 million and $166.8 million respectively, which may be available to offset future taxable income. The U.S. federal NOLs carryforward indefinitely. The state NOL carryforwards begin to expire in 2027.
Either party may terminate the Novartis Agreement for material breach by the other party and a failure to cure such breach within the time period specified in the Novartis Agreement.
Either party may terminate the Novartis Agreement for material breach by the other party and a failure to cure such breach within the time period specified in the Novartis Agreement. We may also terminate the Novartis Agreement in the event that Novartis brings a challenge to our patents.
These include the following: • salaries, benefits and other related costs, including share-based compensation expense, for personnel engaged in research and development functions; • expenses incurred under agreements with third parties, including CROs and other third parties that conduct preclinical research and development activities and clinical trials on our behalf; • costs of developing and scaling our manufacturing process and manufacturing drug products for use in our preclinical studies and ongoing and future clinical trials, including the costs of CMOs, and our MCAT facility that will manufacture our clinical trial material for use in our preclinical studies and ongoing and potential future clinical trials; • costs of outside consultants, including their fees and related travel expenses; • costs of laboratory supplies and acquiring, developing and manufacturing preclinical study and clinical trial materials; • license payments made for intellectual property used in research and development activities; and • facility-related expenses, which include expenses for rent and maintenance of facilities and other operating costs if specifically identifiable to research activities.
These include the following: • salaries, benefits and other related costs, including share-based compensation expense, for personnel engaged in research and development functions; • expenses incurred under agreements with third parties, including third parties that conduct preclinical research and development activities on our behalf; • costs of manufacturing drug products for use in our preclinical studies, including the costs of contract manufacturing organizations (“CMOs”); • costs of outside consultants; 96 • costs of laboratory supplies and acquiring, developing and manufacturing preclinical study materials; • license payments made for intellectual property used in research and development activities; and • facility-related expenses, which include direct depreciation costs and expenses for rent and maintenance of facilities and other operating costs if specifically identifiable to research activities.
During the years ended December 31, 2022 and 2021, we recognized revenue under the Lilly Agreement of approximately $15.6 million and $21.0 million, respectively.
During the years ended December 31, 2023 and 2022, we recognized revenue under the Prevail Agreement of $26.0 million and $15.6 million, respectively.
Deferred revenue related to the Novartis Agreement amounted to $54.2 million as of December 31, 2022, of which $27.9 million was included in current liabilities within the consolidated balance sheets.
Deferred revenue related to the Novartis Agreement amounted to $32.4 million and $54.2 million as of December 31, 2023 and December 31, 2022, respectively, of which $7.4 million and $27.9 million, respectively, was included in current liabilities within the balance sheets. Prevail Therapeutics, Inc.
Loss on Disposal of Assets Loss on disposal of assets was $0.1 million during the year ended December 31, 2022 compared to less than $0.1 for the year ended December 31, 2021 which represented the remaining net book value of property, equipment and software at the time of their disposal.
Loss on disposal of assets was less than $0.1 million for the year ended December 31, 2022 which represented the remaining net book value at the time of the equipment’s disposal.
Our ability to generate any product revenue or product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more of our product candidates or the product candidates of our collaborators for which we may receive milestone payments or royalties. As of December 31, 2022, we had an accumulated deficit of $428.3 million.
Our ability to generate any product revenue or product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more of our product candidates or the product candidates of our collaborators or other licensees for which we may receive milestone payments or royalties.
Either party may terminate the Lilly Agreement (i) for material breach by the other party and a failure to cure such breach within the time period specified in the agreement or (ii) due to a challenge to its patents brought by the other party.
Either party may terminate the Imugene License Agreement (i) for material breach by the other party and a failure to cure such breach within the time period specified in the agreement or (ii) the other party’s insolvency.
As of December 31, 2022, we also had federal and state R&D tax credit carryforwards of $13.2 million and an amount less than $0.1 million, which begin to expire in 2027 and 2030, respectively.
As of December 31, 2023, we also had federal and state R&D tax credits of $17.2 million and an amount less than $0.1 million, which begin to expire in 2029 and 2030, respectively. As of December 31, 2023 we had federal Orphan Drug credits of $13.5 million which begin to expire in 2038.
Overview We are a clinical stage gene editing company dedicated to improving life by developing ex vivo allogeneic chimeric antigen receptor ("CAR") T immunotherapies and in vivo therapies for genetic and infectious diseases with the application of our wholly owned proprietary ARCUS genome editing platform.
Overview We are an advanced gene editing company dedicated to improving life by developing in vivo therapies for genetic and infectious diseases with the application of our wholly-owned proprietary ARCUS genome editing platform.
As further discussed in Note 11, Impairment Charges, to our Financial Statements, the remaining unamortized PCSK9 Prepaid was fully impaired during the year ended December 31, 2022, as we have made the decision to cease pursuit of PBGENE-PCSK9 for FH with iECURE as our partner. Accordingly, there was no PCSK9 Prepaid balance as of December 31, 2022.
The remaining unamortized PCSK9 Prepaid was fully impaired during the year ended December 31, 2022 as we made the decision to cease pursuit of PBGENE-PCSK9 for familial hypercholesterolemia with iECURE as our partner in December 2022. Accordingly, there was no PCSK9 Prepaid balance as of December 31, 2023 or 2022.
Cash Flows Our cash and cash equivalents totaled $189.6 million as of December 31, 2022, compared to $143.7 million as of December 31, 2021.
Cash Flows Our cash and cash equivalents totaled $116.7 million and $189.6 as of December 31, 2023, and 2022, respectively.
Unless earlier terminated, the Lilly Agreement will remain in effect on a licensed product-by-licensed product and country-by-country basis until the expiration of a defined royalty term for each licensed product and country. Lilly has the right to terminate the Lilly Agreement for convenience by providing advance notice to us.
Unless earlier terminated, the TG License Agreement will remain in effect on a licensed product-by-licensed product and country-by-country basis until the expiration of a defined royalty term for each licensed product and country.
The duration, costs and timing of clinical trials and development of our azer-cel and PBCAR19B product candidates, and any other our product candidate we may develop will depend on a variety of factors, including: • the scope, rate of progress, expense and results of clinical trials of our product candidates, as well as of any future clinical trials of other product candidates and other research and development activities that we may conduct; • increased costs of additional clinical sites to address slowed enrollment due to the impact of the COVID-19 pandemic and variants thereof or any similar pandemic; • uncertainties in clinical trial design and patient enrollment rates; • the actual probability of success for our product candidates, including their safety and efficacy, early clinical data, competition, manufacturing capability and commercial viability; • significant and changing government regulation and regulatory guidance; • the timing and receipt of any marketing approvals; and • the expense of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights.
The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors, including: • the scope, rate of progress, expense and results of future clinical trials of our product candidates and other research and development activities that we may conduct; • the ability to collaborate and partner with third parties to fund any or all of our programs; • uncertainties in clinical trial design and patient enrollment rates; • the actual probability of success for our product candidates, including their safety and efficacy, early clinical data, competition, manufacturing capability and commercial viability; • significant and changing government regulation and regulatory guidance; • the timing and receipt of any marketing approvals; and • the expense of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate.
The PCSK9 Prepaid was amortized to research and development expense on a pro-rata basis as iECURE incurred costs to progress the PBGENE-PCSK9 candidate through the Phase 1 clinical trial.
The PCSK9 Prepaid was amortized to research and development expense on a pro-rata basis as iECURE incurred costs to progress the PBGENE-PCSK9 candidate through the Phase 1 clinical trial. During the year ended December 31, 2022, we recognized $2.1 million of research and development expense related to amortization of the PCSK9 Prepaid.
To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. 107 At contract inception, once the contract is determined to be within the scope of ASC 606, we evaluate the performance obligations promised in the contract that are based on goods and services that will be transferred to the customer and determine whether those obligations are both (i) capable of being distinct and (ii) distinct in the context of the contract.
To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation.
Our sources of funding have historically included proceeds from third parties through a combination of financings including our IPO, preferred stock and convertible note financings, underwritten offerings of our common stock, at-the-market offerings of our common stock as part of our shelf registration statement, upfront and milestone payments from customers, borrowings under bank facilities and funding from other strategic alliances and grants.
Our sources of funding to finance our cash needs include proceeds from third parties through a combination of financings including our initial public offering (“IPO”), preferred stock and convertible note financings, underwritten offerings of our common stock, ATM offerings of our common stock as part of our shelf registration statement, upfront and milestone payments from partners, borrowings under bank facilities and funding from other strategic alliances and grants.
An impairment loss is assessed when future undiscounted cash flows are less than the assets’ carrying value and recognized when the carrying value of the asset exceeds fair value. An impairment charge is recognized for the amount by which the carrying amount exceeds the fair value of the asset.
Impairment Charges Impairment charges represents our impairment of intangible assets and long-term prepaid assets. An impairment loss is assessed when future undiscounted cash flows are less than the assets’ carrying value and is recognized when the carrying value of the asset exceeds fair value.
General and Administrative Expenses General and administrative expenses were $41.5 million for the year ended December 31, 2022 compared to $39.7 million for the year ended December 31, 2021. The increase of $1.8 million was primarily due to an increase of $3.8 million in share-based compensation expense.
Additionally share based compensation expenses decreased $1.8 million due to forfeitures. General and Administrative Expenses General and administrative expenses were $39.1 million for the year ended December 31, 2023 compared to $41.3 million for the year ended December 31, 2022.
We expect to incur significant expenses and operating losses for the foreseeable future as we advance the preclinical and clinical development of our product candidates.
As of December 31, 2023, we had an accumulated deficit of $489.6 million. We expect to incur significant expenses and operating losses for the foreseeable future as we advance the development of our product candidates.
The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model, which uses as inputs the fair value of our common stock and assumptions we make for the expected volatility of our common stock, the expected term of the stock options, the risk-free interest rate for a period that approximates the expected term of the stock options and the our expected dividend yield.
Share-Based Compensation We measure stock options and other share-based awards granted to our employees, directors, consultants and advisors based on the fair value on the date of the grant and recognize compensation expense for those awards, net of actual forfeitures, over the requisite service period, which is generally the vesting period of the respective award. 105 The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model, which uses as inputs the fair value of our common stock and assumptions we make for the expected volatility of our common stock, the expected term of the stock options, the risk-free interest rate for a period that approximates the expected term of the stock options and the our expected dividend yield.
Funding Requirements As a clinical stage company, we will continue to have funding requirements in connection with the continuation of our current clinical trials and planned initiation of additional clinical trials, potential IND, CTA and BLA filings, and expected growth in our ex vivo and in vivo portfolios.
Funding Requirements We will continue to have funding requirements in connection with the continuation of our research and development efforts, potential IND and CTA submissions, potential clinical trials, and expected growth in our in vivo portfolios.
The $1.0 million increase in interest expense was the result of an increase in debt outstanding coupled with higher stated and effective interest rates on our debt. Interest Income Interest income was $3.5 million during the year ended December 31, 2022 compared to $0.2 million during the year ended December 31, 2021.
The $1.1 million increase in interest expense was primarily the result of a higher average balance on our debt and with higher interest rates during the year ended December 31, 2023 as compared to the year ended December 31, 2022.
“Risk Factors” of this Annual Report on Form 10-K, our actual results could differ materially from the results described in, or implied by, these forward-looking statements.
“Risk Factors” of this Annual Report on Form 10-K, our actual results could differ materially from the results described in, or implied by, these forward-looking statements. As used in this Annual Report on Form 10-K, unless the context otherwise requires, references to “we,” “us,” “our,” the “Company” and “Precision” refer to Precision BioSciences, Inc.
We have based these estimates on assumptions that may prove to be imprecise, and we could utilize our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, it is difficult to estimate with certainty the amount of our working capital requirements.
Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, it is difficult to estimate with certainty the amount of our working capital requirements.
ARCUS is also unique in its relatively small size which potentially allows delivery to a wider range of cells and tissues using viral and non-viral gene delivery methods.
The foundation of ARCUS is a natural homing endonuclease which allows us to replicate precise gene editing as it evolved in nature for sophisticated gene edits, including gene insertion, excision, and elimination. ARCUS is also unique in its relatively small size which potentially allows delivery to a wider range of cells and tissues using viral and non-viral gene delivery methods.
In June 2022, we announced we entered into an exclusive in vivo gene editing research and development collaboration and license agreement (the “Novartis Agreement”) with Novartis Pharma AG (“Novartis”).
We also shared data for another Prevail program during the R&D Day highlighting high efficiency gene insertion in adult non-human primates (“NHPs”). In June 2022, we announced we entered into an exclusive in vivo gene editing research and development collaboration and license agreement (the “Novartis Agreement”) with Novartis Pharma AG (“Novartis”).
For example, in in the year ended December 31, 2022, we recorded cumulative catch up adjustments that decreased revenue recognition by $5.9 108 million as a result of changes in total estimated effort required to satisfy performance obligations.
For example, in in the year ended December 31, 2023, we recorded cumulative catch up adjustments that increased revenue by $7.6 million related to the Prevail Agreement and decreased revenue by $6.0 million related to the Novartis Agreement as a result of changes in total estimated effort required to satisfy performance obligations and changes in variable consideration included in the transaction price related to estimated fees to be received from partners.
The use of cash in operating activities during the years ended December 31, 2022 and December 31, 2021 resulted from our net loss adjusted for non-cash items and changes in working capital. 104 Cash used in operating activities during the year ended December 31, 2022 was $45.8 million, compared to $10.9 million during the year ended December 31, 2021.
Cash Used in Operating Activities Our primary use of cash is to fund operating expenses, which consist primarily of research and development and general and administrative costs. The use of cash in operating activities during the years ended December 31, 2023 and December 31, 2022 resulted from our net loss adjusted for non-cash items and changes in working capital.
In the year ended December 31, 2022 we recorded a $0.5 million decrease in the carrying value of our iECURE equity to adjust to fair value as a result of dilution from iECURE's Series A-1 equity raise in such period.
During the year ended December 31, 2023, we recorded a $0.6 million increase in the carrying value of our iECURE equity to adjust to fair value.
We expect that our research and development expenses will increase over the long term and will comprise a larger percentage of our total expenses as we continue our clinical trials for our ex vivo allogeneic CAR T immunotherapies and development of our in vivo therapies for genetic and infectious diseases.
We expect that our research and development expenses will increase over the long term and will comprise a larger percentage of our total expenses as we progress development of our product candidates.
Our actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in the notes to our Financial Statements, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our Financial Statements.
While our significant accounting policies are described in more detail in the notes to our Financial Statements, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our Financial Statements. 103 Revenue Recognition Our revenues are generated primarily through collaborative research, license, development and commercialization agreements.
If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be required to raise additional capital on terms that are unfavorable to us or we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations. 95 Collaborations Novartis Pharma AG On June 14, 2022, we entered into the Novartis Agreement, which became effective on June 15, 2022 (the “Novartis Effective Date”), to collaborate to discover and develop in vivo gene editing products incorporating our custom ARCUS nucleases for the purpose of seeking to research and develop potential treatments for certain diseases (as defined in the Novartis Agreement, the “Licensed Products”).
Novartis Pharma AG On June 14, 2022, we entered into the Novartis Agreement, which became effective on June 15, 2022 (the “Novartis Effective Date”), to collaborate to discover and develop in vivo gene editing products incorporating our custom ARCUS nucleases for the purpose of seeking to research and develop potential treatments for certain diseases (collectively referred to as licensed products).
Lilly may extend the Nomination Period for an additional two years from the date on which the Nomination Period ends, upon Lilly’s election and payment of an extension fee.
Prevail also continues to have the right to nominate up to three additional gene targets for genetic disorders over the initial nomination period of four years. Prevail may extend the nomination period for an additional two years from the date on which such initial nomination period ends, upon Prevail’s election and payment of an extension fee.
The increase in cash used in operating activities in the year ended December 31, 2022 was primarily driven by the $100.0 million upfront payment received from Lilly in January 2021, partially offset by the $50.0 million upfront payment received from Novartis in July 2022.
The $38.3 million increase in cash used in operating activities was primarily driven by the $50.0 million upfront payment received from Novartis pursuant to the terms of the Novartis Agreement during the year ended December 31, 2022. 101 Cash Provided by (Used in) Investing Activities Cash provided by investing activities relates to proceeds received from disposed assets.
The following table summarizes our sources and uses of cash for the periods presented: For the Years Ended December 31, (in thousands) 2022 2021 Net cash used in operating activities $ (45,753 ) $ (10,853 ) Net cash used in investing activities (3,319 ) (5,803 ) Net cash provided by financing activities 94,985 70,521 Increase in cash and cash equivalents $ 45,913 $ 53,865 Cash Used in Operating Activities Our primary use of cash is to fund operating expenses, which consist primarily of research and development and general and administrative expenses.
The following table summarizes our sources and uses of cash for the periods presented: For the Years Ended December 31, (in thousands) 2023 2022 Net cash used in operating activities $ (84,114 ) $ (45,753 ) Net cash provided by (used in) investing activities 5,829 (3,319 ) Net cash provided by financing activities 5,387 94,985 (Decrease) increase in cash and cash equivalents $ (72,898 ) $ 45,913 We experienced a decrease in cash and cash equivalents during the year ended December 31, 2023 of $72.9 million, compared to a $45.9 million increase in cash and cash equivalents during the year ended December 31, 2022.
We have recorded a full valuation allowance against our net deferred tax assets at each balance sheet date.
As of December 31, 2023, we also have federal contribution carryforwards of $0.2 million, which began to expire in 2023. We have recorded a full valuation allowance against our net deferred tax assets at each balance sheet date.
(Loss) Income from Equity Method Investments (Loss) income from equity method investments represents changes in the carrying value of our investment in New Elo. Interest Expense Interest expense consists of interest payments incurred and discount amortization on debt outstanding. Interest Income Interest income consists of interest income earned on our cash and cash equivalents and Note Receivable.
Loss from Equity Method Investment Loss from equity method investment represents our proportionate share of the net loss of our equity method investee, Elo Life Systems, Inc. (“Elo”). Interest Expense Interest expense consists of interest payments incurred and discount amortization on debt outstanding.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeA hypothetical 10% change in existing interest rates would not have had a material impact on the value of our cash and cash equivalents as of December 31, 2022. We are also exposed to foreign exchange rate risk with respect to foreign currency transactions.
Biggest changeA hypothetical 10% change in existing interest rates would not have had a material impact on the value of our cash and cash equivalents as of December 31, 2023.
We had cash and cash equivalents of $189.6 million, or 80% of our total assets, on December 31, 2022 and $143.7 million, or 68% of our total assets, on December 31, 2021. Interest income earned on these assets was $3.5 million and $0.2 million for the years ended December 31, 2022 and December 31, 2021, respectively.
We had cash and cash equivalents of $116.7 million, or 73% of our total assets, on December 31, 2023 and $189.6 million, or 80% of our total assets, on December 31, 2022. Interest income earned on our assets was $7.7 million and $3.5 million for the years ended December 31, 2023 and December 31, 2022, respectively.
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We do not anticipate foreign exchange rate risk to have a material impact on our financial statements.

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