UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from _____ to _____
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) |
(Zip Code) |
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(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of May 3, 2024, the registrant had
Table of Contents
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PART I. |
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Item 1. |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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PART II. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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2
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of present and historical facts contained in this Quarterly Report on Form 10-Q, including, without limitation, statements regarding our future results of operations and financial position, business strategy and approach, including related results, prospective products, use and development of licensed products, planned preclinical studies and clinical trials, or discontinuance thereof, the status and results of our preclinical studies, expected release of interim data, expectations regarding the use and effects of ARCUS, including in connection with in vivo genome editing, collaborations and potential new partnerships or alternative opportunities for our product candidates, potential new application filings and regulatory approvals, research and development costs, timing, expected results and likelihood of success, as well as plans and objectives of management for future operations may be forward-looking statements. Without limiting the foregoing, in some cases, you can identify forward-looking statements by terms such as “aim,” “may,” “will,” “should,” “expect,” “exploring,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential,” “seeks,” or “continue” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. No forward-looking statement is a guarantee of future results, performance, or achievements, and one should avoid placing undue reliance on such statements.
Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to us. Such beliefs and assumptions may or may not prove to be correct. Additionally, such forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, and actual results may differ materially from those expressed or implied in the forward-looking statements due to various factors, including, but not limited to, those identified in Part II. Item 1A. “Risk Factors” and Part I. Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These risks and uncertainties include, but are not limited to:
3
Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties.
You should read this Quarterly Report on Form 10-Q and the documents that we reference herein completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. All forward-looking statements contained herein speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
As used in this Quarterly Report on Form 10-Q, unless otherwise stated or the context requires otherwise, references to “Precision,” the “Company,” “we,” “us,” and “our,” refer to Precision BioSciences, Inc.
4
RISK FACTOR SUMMARY
Our business is subject to numerous risks and uncertainties, including those described in Part II. Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. You should carefully consider these risks and uncertainties when investing in our common stock. Some of the principal risks and uncertainties include the following.
5
Part I. Financial information
Item 1. Financial Statements.
Precision Biosciences, Inc.
Condensed Balance Sheets
(In thousands, except share and per share amounts)
(Unaudited)
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March 31, 2024 |
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December 31, 2023 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable |
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Prepaid expenses |
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Convertible note receivable |
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Assets held for sale |
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Contract asset |
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— |
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Other current assets |
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Total current assets |
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Property, equipment, and software—net |
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Intangible assets—net |
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Right-of-use assets—net |
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Investment in equity securities |
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Note receivable—net |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued compensation |
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Accrued research and development expenses |
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Deferred revenue |
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Loan payable-net |
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Lease liabilities |
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Other current liabilities |
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Current liabilities of discontinued operations |
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Total current liabilities |
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Deferred revenue |
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Lease liabilities |
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Warrant liability |
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— |
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Contract liabilities |
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Noncurrent liabilities of discontinued operations |
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— |
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Total liabilities |
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(Note 4) |
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Stockholders’ equity: |
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Preferred stock: $ |
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Common stock: $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
) |
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( |
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Treasury stock |
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( |
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( |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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6
See notes to condensed financial statements
7
Precision Biosciences, Inc.
Condensed Statements of Operations
(In thousands, except share and per share amounts)
(Unaudited)
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For the Three Months Ended March 31, |
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2024 |
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2023 |
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Revenue |
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$ |
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$ |
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Operating expenses |
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Research and development |
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General and administrative |
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Total operating expenses |
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Operating loss |
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( |
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( |
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Other income (expense): |
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Gain (loss) from equity method investment |
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( |
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Loss on changes in fair value |
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( |
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( |
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Gain on change in fair value of warrant liability |
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— |
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Interest expense |
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( |
) |
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( |
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Interest income |
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Loss on disposal of assets |
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( |
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( |
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Total other income (expense) |
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( |
) |
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Income (loss) from continuing operations |
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$ |
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$ |
( |
) |
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Loss from discontinued operations |
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— |
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( |
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Net income (loss) |
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$ |
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$ |
( |
) |
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Net income (loss) per share |
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Basic |
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$ |
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$ |
( |
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Diluted |
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$ |
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$ |
( |
) |
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Weighted-average shares of common stock outstanding |
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Basic |
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Diluted |
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See notes to condensed financial statements
8
Precision Biosciences, Inc.
Condensed Statements of Changes in
Stockholders’ Equity
(In thousands, except share amounts)
(Unaudited)
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Common Stock |
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Additional |
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Accumulated |
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Treasury |
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Total |
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Shares |
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Amount |
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Capital |
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Deficit |
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Stock |
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Equity |
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Balance- December 31, 2022 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Stock option exercises |
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— |
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— |
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— |
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Issuance of common stock under employee stock purchase plan |
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— |
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— |
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— |
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Share-based compensation expense |
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— |
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— |
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— |
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— |
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Proceeds from issuance of common stock, net of issuance cost |
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— |
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— |
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— |
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Restricted stock units vested |
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- |
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Net loss |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Balance- March 31, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Balance- December 31, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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Issuance of common stock under employee stock purchase plan |
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— |
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— |
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— |
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Share-based compensation expense |
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— |
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— |
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— |
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— |
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Proceeds from issuance of common stock to collaboration partners and licensees |
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— |
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— |
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— |
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Proceeds from issuance of common stock and warrants through underwritten offering, net of issuance cost |
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— |
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— |
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— |
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Proceeds from issuance of common stock through ATM facility, net of issuance cost |
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— |
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— |
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— |
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Restricted stock units vested |
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— |
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— |
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— |
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— |
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— |
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Net income |
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— |
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— |
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— |
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— |
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Balance- March 31, 2024 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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See notes to condensed financial statements
9
Precision Biosciences, Inc.
Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
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For the Three Months Ended March 31, |
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2024 |
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2023 |
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Cash flows used in operating activities: |
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Net income (loss) |
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$ |
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$ |
( |
) |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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Share-based compensation |
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Loss on disposal of assets |
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Non-cash interest expense |
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Amortization of right-of-use assets |
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Gain on changes in fair value |
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(Gain) loss from equity method investment |
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( |
) |
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Amortization of discount on note receivable |
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( |
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( |
) |
Gain on change in fair value of warrant liability |
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( |
) |
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— |
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Changes in operating assets and liabilities: |
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Prepaid expenses |
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( |
) |
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( |
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Accounts receivable |
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Contract asset |
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( |
) |
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— |
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Other assets and other current assets |
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( |
) |
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( |
) |
Accounts payable |
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( |
) |
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( |
) |
Other liabilities and other current liabilities |
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( |
) |
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( |
) |
Deferred revenue |
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( |
) |
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( |
) |
Lease liabilities |
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( |
) |
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( |
) |
Net cash used in operating activities |
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( |
) |
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( |
) |
Cash flows used in investing activities: |
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Purchases of property, equipment and software |
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( |
) |
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( |
) |
Purchases of intangible assets |
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— |
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( |
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Proceeds from sale of equipment |
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— |
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Net cash used in investing activities |
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( |
) |
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( |
) |
Cash flows provided by financing activities: |
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Proceeds from stock option exercises |
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— |
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Proceeds from employee stock purchase plan |
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Proceeds from offering of common stock and warrants, net of issuance costs |
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Proceeds from issuance of common stock to collaboration partners and licensees |
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— |
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Net cash provided by financing activities |
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Net increase (decrease) in cash and cash equivalents |
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( |
) |
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Cash and cash equivalents—beginning of period |
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Cash and cash equivalents —end of period |
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$ |
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$ |
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Supplemental disclosures of cash flow information: |
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Property, equipment and software additions included in accounts payable and other current liabilities |
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$ |
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$ |
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Cash paid for interest |
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$ |
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$ |
|
See notes to condensed financial statements
10
Precision BioSciences, Inc.
Notes to Condensed Financial Statements (Unaudited)
NOTE 1: DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Precision BioSciences, Inc. (the “Company”) was incorporated on
Since its inception, the Company has devoted substantially all of its efforts to research and development activities, recruiting skilled personnel, establishing its intellectual property portfolio and providing general and administrative support for these operations. The Company is subject to a number of risks similar to those of other companies conducting 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. The Company’s success is dependent upon its ability to continue to raise additional capital in order to fund ongoing research and development, obtain regulatory approval of its products, successfully commercialize its products, generate revenue, meet its obligations, and, ultimately, attain profitable operations.
Unaudited Interim Financial Information
The accompanying unaudited condensed financial statements and notes have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in the annual financial statements, prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”), have been condensed or omitted pursuant to those rules and regulations. These unaudited condensed financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on March 27, 2024.
The unaudited condensed financial statements have been prepared on the same basis as the audited financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of the Company’s condensed financial position as of March 31, 2024 and condensed results of operations for the three months ended March 31, 2024 and 2023 and the condensed cash flows for the three months ended March 31, 2024 and 2023, have been made. The Company’s condensed results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2024.
Discontinued Operations
In August 2023, the Company announced its strategic decision to operate as a single platform company focused exclusively on developing in vivo gene editing therapies with the completion of the sale of its chimeric antigen receptor (“CAR”) T infrastructure to Imugene Limited, an Australian corporation (“Imugene Limited”), and its wholly-owned subsidiary Imugene (USA) Inc. (“Imugene US”), a Nevada corporation (collectively, “Imugene”). Additionally, the Company licensed its lead allogeneic CAR T candidate for cancer, azercabtagene zapreleucel (“azer-cel”), to Imugene.
Accordingly, the accompanying condensed financial statements have been recast for all periods presented to reflect the assets, liabilities and expenses related to the Company’s CAR T programs as discontinued operations (see Note 8, Discontinued Operations). The accompanying condensed financial statements are generally presented in conformity with the Company’s historical format.
11
Reverse Stock Split
On February 13, 2024, the Company amended its amended and restated certificate of incorporation in order to effect a 1-for-
Summary of Significant Accounting Policies
The Company’s complete listing of significant accounting policies is set forth in Note 1, Description of Business and Summary of Significant Accounting Policies, to the Notes to Condensed Financial Statements on its Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Revenue Recognition for Contracts with Customers
The Company’s revenues are generated primarily through collaborative research, license, development and commercialization agreements.
ASC 606, Revenue from Contracts with Customers (“ASC 606”) applies to all contracts with customers, except for contracts that are within the scope of other standards. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. 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.
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. Goods or services that meet these criteria are considered distinct performance obligations. If both these criteria are not met, the goods and services are combined into a single performance obligation. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options. The Company assesses if these options provide a material right to the customer and if so, these options are considered performance obligations. The exercise of a material right is accounted for as a contract modification for accounting purposes.
The Company recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) each performance obligation is satisfied at a point in time or over time, and if over time this is based on the use of an output or input method. For the three months ended March 31, 2024, the Company did
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 the accompanying condensed balance sheets. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as noncurrent deferred
12
revenue. Amounts recognized as revenue, but not yet invoiced are generally recognized as contract assets in the other current assets line item in the accompanying condensed balance sheets.
Milestone Payments – If an arrangement includes development and regulatory milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the Company’s or the licensee’s control, such as regulatory approvals, are not considered probable of being achieved until those approvals are received and therefore revenue recognized is constrained as management is unable to assert that a reversal of revenue would not be probable. The transaction price is then allocated to each performance obligation on a relative standalone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such development milestones and any related constraint, and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect collaboration revenues and earnings in the period of adjustment.
Royalties – For arrangements that include sales-based royalties, including milestone payments based on a level of sales, which are the result of a customer-vendor relationship and for which the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation linked to some or all of the royalty has been satisfied or partially satisfied. To date, the Company has not recognized any royalty revenue resulting from any of its licensing arrangements.
Significant Financing Component – In determining the transaction price, the Company adjusts consideration for the effects of the time value of money if the timing of payments provides the Company with a significant benefit of financing. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the licensees and the transfer of the promised goods or services to the licensees will be one year or less. The Company assessed each of its revenue arrangements in order to determine whether a significant financing component exists and concluded that a significant financing component does not exist in any of its arrangements.
Collaborative Arrangements – The Company has entered into collaboration agreements, which are within the scope of ASC 606, to discover, develop, manufacture and commercialize product candidates. The terms of these agreements typically contain multiple promises or obligations, which may include: (1) licenses, or options to obtain licenses, to use the Company’s 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 the Company receives 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.
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. This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For collaboration arrangements within the scope of ASC 808 that contain multiple elements, the Company first determines which elements of the collaboration are deemed to be within the scope of ASC 808 and those that are more reflective of a vendor-customer relationship and, therefore, are within the scope of ASC 606. For elements of collaboration arrangements that are accounted for pursuant to ASC 808, an appropriate recognition method is determined and applied consistently, generally by analogy to ASC 606. For those elements of the arrangement that are accounted for pursuant to ASC 606, the Company applies the five-step model described above.
For additional discussion of accounting for collaboration revenues, see Note 6, Collaboration and License Agreements.
Derivative Financial Instruments
On March 1, 2024, the Company entered into an Underwriting Agreement with Guggenheim Securities, LLC (the “Underwriting Agreement”), relating to the offering, issuance and sale (the “March 2024 Public Offering”) of (a)
13
an aggregate of
The Company evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480, Distinguishing Liabilities from Equity (“ASC 480”), and ASC 815, Derivatives and Hedging (“ASC 815”). The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, will be re-assessed at the end of each reporting period.
The warrants issued in the March 2024 Public Offering were recognized as derivative warrant liabilities in accordance with ASC 815. Accordingly, the Company recognized the warrant instruments as liabilities at fair value and will remeasure the instruments to fair value at each balance sheet date, with changes in fair value recognized in in the Company’s condensed statements of operations, until exercised or expiration. The fair value of the warrants were initially estimated using a Black-Scholes option pricing model. Derivative warrant liabilities are classified as non-current liabilities as their liquidation is not reasonably expected to require the use of current assets or require the creation of current liabilities.
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks.
14
NOTE 2: FAIR VALUE MEASUREMENTS
The following represents assets and liabilities measured at fair value on a recurring basis by the Company (in thousands):
March 31, 2024 |
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
Investment in iECURE |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Imugene convertible note |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Assets held for sale |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Final payment fee |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
Warrant liability |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
December 31, 2023 |
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
Investment in iECURE |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Imugene convertible note |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Assets held for sale |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Final payment fee |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
The following represents a reconciliation of assets measured and carried at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) for the three months ended March 31, 2024 (in thousands):
|
Investment in |
|
Assets held for sale |
|
|||
Balance December 31, 2023 |
|
$ |
|
$ |
|
||
Gains from changes in fair value included in earnings |
|
— |
|
— |
|
||
Assets sold |
|
— |
|
|
|
||
Balance March 31, 2024 |
|
$ |
|
$ |
|
The carrying amounts of the Company’s accounts receivable, accounts payable, and accrued expenses and other current liabilities, approximate their respective fair values due to their short-term nature. The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis and to minimize the use of unobservable inputs when determining their fair value. The three tiers are defined as follows:
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 data, which require the Company to develop its own assumptions
Cash Equivalents
As of March 31, 2024 and December 31, 2023, the Company held cash equivalents which were composed of investments in money market funds. The Company classifies investments in money market funds within Level 1 of the fair value hierarchy as the prices are available from quoted prices in active markets.
Investment in iECURE
15
In August 2021, the Company entered into an Equity Issuance Agreement with iECURE, Inc. (“iECURE”), pursuant to which iECURE issued the Company common stock in iECURE (the “iECURE equity”) as additional consideration for a license to use the Company’s PCSK9-directed ARCUS nuclease to insert genes into the PCSK9 locus to develop treatments for four pre-specified rare genetic diseases. On issuance, the Company accounted for the iECURE equity at fair value under ASC 825, Financial Instruments. Accordingly, 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). There was
The Company classifies the iECURE equity within Level 3 of the fair value hierarchy as the assessed fair value was based on significant unobservable inputs given iECURE equity is not traded on a public exchange.
Assets Held for Sale
The fair values of property, plant, and equipment held for sale are classified as Level 3 in the fair value hierarchy due to a mix of unobservable inputs utilized such as independent research in the market as well as actual quotes from market participants.
Imugene Convertible Note
As partial consideration for the assets acquired by Imugene in connection with the asset purchase agreement (the "Imugene Purchase Agreement"), Imugene issued to the Company convertible notes pursuant to the terms and conditions set forth in a convertible note subscription deed (collectively, the “Imugene Convertible Note”) in an aggregate principal amount of $
The Company classifies the Imugene Convertible Note within Level 2 of the fair value hierarchy as the assessed fair value is based on observable market inputs including the risk-free rate and the ordinary share price, volume, and volatility.
Final Payment Fee
The Company is required to pay a final payment fee upon maturity of the Revolving Line (as defined in Note 3, Debt, below). The final payment fee was determined to be a derivative under ASC 815, Derivatives and Hedging (“ASC 815”), therefore these fees were initially measured at fair value and recorded as debt discount to be amortized to interest expense over the term of the Revolving Line. 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). There was an assessed loss on change in fair value of the final payment fee of less than $
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 on the Revolving Line. The final payment fee is included in the other current liabilities within the condensed balance sheet as of March 31, 2024 and December 31, 2023.
Warrant Liability
As of March 31, 2024, warrants representing
NOTE 3: DEBT
Revolving Line
Pursuant to the terms of the loan and security agreement with Banc of California (formerly known as Pacific Western Bank) the Company may request advances on a revolving line of credit of up to an aggregate principal of $
16
Revolving Line) and (b)
The Revolving Line maturity date is June 23, 2024 and all outstanding principal amounts are due upon maturity. The Company must also maintain an aggregate balance of unrestricted cash at Banc of California (not including amounts in certain specified accounts) equal to or greater than $
As of March 31, 2024 and December 31, 2023, $
NOTE 4: COMMITMENTS AND CONTINGENCIES
Litigation
The Company is subject to various legal matters and claims in the ordinary course of business. 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.
Servier Program Purchase Agreement
On April 9, 2021, the Company entered into a program purchase agreement (the “Program Purchase Agreement”) with Les Laboratoires Servier and Institut de Recherches Internationales Servier (collectively, “Servier”), pursuant to which the Company reacquired all of its global development and commercialization rights previously granted to Servier pursuant to the Development and Commercial License Agreement by and between Servier and the Company, dated February 24, 2016, as amended (the “Servier Agreement”), and mutually terminated the Servier Agreement.
The Program Purchase Agreement requires the Company to make certain payments to Servier based on the achievement of regulatory and commercial milestones for each product. Management assessed the likelihood of each of the regulatory and commercial milestones included in the Program Purchase Agreement in accordance with ASC 450, Contingencies. 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 condensed financial statements.
Accordingly, contingent liabilities of $
Leases
The Company has an operating lease for real estate in North Carolina and does not have any finance leases.
On October 16, 2023, the Company and Venable Historic, LLC, successor-in-interest to Venable Tenant, LLC (the “Landlord”), entered into a Tenth Amendment to Lease Agreement (the “Lease Amendment”), which amended certain terms of the Lease Agreement dated April 5, 2010, as amended (the “Original Lease”) with respect to the Company’s headquarters facilities located in Durham, North Carolina. Among other things, the Lease Amendment
The Company has existing leases in which the non-lease components (e.g., common area maintenance, consumables, etc.) are paid separately from rent based on actual costs incurred and therefore are not included in the right-of-use assets and lease liabilities but rather are reflected as an expense in the period incurred.
17
The elements of lease expense were as follows:
|
|
For the Three Months Ended March 31, |
|
|||||
(in thousands) |
|
2024 |
|
|
2023 |
|
||
Lease Cost |
|
|
|
|
|
|
||
Operating lease cost |
|
$ |
|
|
$ |
|
||
Short-term lease cost |
|
|
|
|
||||
Variable lease cost |
|
|
|
|
|
|
||
Sublease income |
|
|
( |
) |
|
— |
|
|
Total Lease Cost |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Other Information |
|
|
|
|
|
|
||
Operating cash flows used for operating leases |
|
|
|
|
|
|
||
Operating right-of-use assets obtained in exchange for lease obligations |
|
— |
|
|
— |
|
||
Operating lease liabilities arising from obtaining right-of-use assets |
|
— |
|
|
— |
|
||
|
|
|
|
|
|
|
||
Operating Leases |
|
|
|
|
|
|
||
Weighted-average remaining lease term (in years) |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Operating Leases |
|
|
|
|
|
|
||
Weighted-average discount rate |
|
|
% |
|
|
% |
Pursuant to the Imugene Purchase Agreement, Imugene subleases from the Company space at the Company’s headquarters (the “Imugene Sublease”). As the Company is not relieved of its primary obligation to the lessor under the terms of the Imugene Sublease, the Company will continue to carry the related right-of-use assets and lease liabilities on its Condensed Balance Sheets and will net sublease income with lease cost in its condensed statements of operations.
Future lease payments under non-cancelable operating leases with terms of greater than one year as of March 31, 2024, were as follows:
(in thousands) |
|
March 31, 2024 |
|
|
2024 (excluding the three months ended March 31, 2024) |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 and beyond |
|
|
|
|
Total lease payments |
|
|
|
|
Less: imputed interest |
|
|
|
|
Total operating lease liabilities |
|
$ |
|
Guarantees
The Company agreed to act as a guarantor of Imugene’s assumption of the Company’s lease for its Manufacturing Center for Advanced Therapeutics (the “MCAT Lease”) through the lease expiration date of
As of March 31, 2024, the Company’s guarantee consists of a contingent liability for aggregate minimum lease payments of approximately $
Supply Agreements
The Company enters into contracts in the normal course of business with contract manufacturing organizations (“CMOs”) for the manufacture of clinical trial materials and contract research organizations (“CROs”) for clinical trial services. These agreements
18
provide for termination at the request of either party with less than
NOTE 5: STOCKHOLDERS’ EQUITY
Capital Structure
As a result of the Reverse Stock Split, every
On March 1, 2024, the Company entered into the Underwriting Agreement relating to the March 2024 Public Offering of (a)
NOTE 6: COLLABORATION AND LICENSE AGREEMENTS
TG Therapeutics
On January 7, 2024, the Company entered into a license agreement (the “TG License Agreement”) with TG Cell Therapy, Inc. (“TG Subsidiary”) and its parent company, TG Therapeutics, Inc. (“TG Parent” and, together with TG Subsidiary, “TG Therapeutics”), pursuant to which the Company granted TG Subsidiary certain exclusive and non-exclusive license rights to develop, manufacture, and commercialize the Company’s allogeneic CAR T therapy azer-cel for autoimmune diseases and other indications outside of cancer.
Under the TG License Agreement, the Company is entitled to receive an upfront cash payment of $
The Company is also entitled to an additional cash payment of $
The Additional TG Milestone Payments become due upon the achievement of certain milestones as specified in the TG License Agreement. Included within the Additional TG Milestone Payments is a potential payment of $
Subject to the terms and conditions of the TG License Agreement, TG Therapeutics is permitted to pay up to
19
the issuance of $
If a licensed product under the TG License Agreement is approved and sold, TG Therapeutics is also required to pay the Company tiered royalties ranging from high-single-digit to low-double-digit percentages on net sales of the licensed product. TG Therapeutics’ 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 (i) the expiration of the last-to-expire valid claim in such country covering such licensed product; (ii) the expiration of any period of data, regulatory, or market exclusivity, or supplemental protection certificates (other than patents) covering the licensed product in such country; and (iii) a period of ten years following the first commercial sale of the respective licensed product in such country.
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 Company may terminate the TG License Agreement if TG Therapeutics fails to initiate certain development activities with respect to the licensed product by a specified date or ceases active development of the licensed product for a specified period of time. In addition, the Company may terminate the TG License Agreement if TG Therapeutics or any of its affiliates or sublicensees challenges the validity of any patents controlled by the Company. Each of the Company and TG Therapeutics may terminate the TG License Agreement (i) for material breach by the other party and a failure to cure such breach within the time period specified in the TG License Agreement or (ii) due to the other party’s insolvency.
The Company assessed the TG License Agreement in accordance with ASC 606 and concluded that the promises in the TG License represent a transaction with a customer. The Company has concluded that the TG License Agreement contains the following promises: (i) the license to develop, manufacture, and commercialize non-oncological applications of azer-cel, (ii) deliver to TG Therapeutics a single batch of released clinical trial material (“CTM”) for azer-cel, (iii) designation of TG Therapeutics as the party with which Imugene must enter into a clinical supply agreement, and (iv) joint steering committee (“JSC”) participation. The designation of TG Therapeutics to Imugene and JSC participation were determined to be immaterial promises as the time commitment and related costs associated with performance are expected to be inconsequential to the total consideration in the contract. Accordingly, the Company concluded that the promise of the license and single batch of CTM are the two performance obligations.
The Company concluded the TG License Agreement represents functional intellectual property in accordance with ASC 606 as the Company will not be providing any additional services to TG Therapeutics outside of the right to use the licensed intellectual property and supply of CTM. During the three months ended March 31, 2024, the Company recognized revenue under the TG License Agreement of $
Sale of Azer-cel CAR T Platform to Imugene for Cancer
On August 15, 2023, the Company entered into the Imugene Purchase Agreement. Pursuant to and simultaneously with the execution of the Imugene Purchase Agreement, on August 15, 2023 (the “Closing Date”), Imugene US acquired the Company’s manufacturing infrastructure used in the development and manufacture of azer-cel, including assuming the lease to the Company’s manufacturing facility and certain contracts of the Company with respect to the Company’s manufacturing facility, and related equipment, supplies, azer-cel clinical trial inventory and other assets related to the Company’s CAR T cell therapy platform. As part of the Imugene Purchase Agreement, Imugene US hired a number of employees of the Company who were associated with the Company’s historical CAR T cell therapy operations.
In consideration for the assets acquired under the Imugene Purchase Agreement, Imugene US assumed certain liabilities of the Company, paid the Company $
Additionally, the Company and Imugene US entered into a license agreement (the “Imugene License Agreement”) on the Closing Date, pursuant to which the Company granted Imugene US certain exclusive and non-exclusive license rights to develop, manufacture, and commercialize oncological applications of the Company’s allogeneic CAR T therapy, azer-cel, and up to three additional research product candidates directed to targets that Imugene US may nominate prior to the fifth anniversary of the effective date of the Imugene License Agreement, pursuant to the terms of the Imugene License Agreement.
20
In addition, under the Imugene License Agreement, the Company is eligible to receive milestone payments of up to an aggregate of $
Unless earlier terminated, the Imugene 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 Company may terminate the entire Imugene License Agreement due to a challenge to its patents brought by Imugene and a breach by Imugene in any material respect of the Imugene License Agreement, the Imugene Purchase Agreement or any related transaction documents. The Company may also terminate the Imugene License Agreement with respect to azer-cel if Imugene fails to initiate certain development activities with respect to azer-cel by a specified date, if Imugene fails to expend certain amounts on the development of azer-cel or if Imugene ceases active development of azer-cel for a specified period of time. Either party may terminate the 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) due to the other party’s insolvency.
The Company assessed the Imugene License Agreement in accordance with ASC 606 and concluded that the promises in the Imugene License Agreement represent a transaction with a customer. The Company has concluded that the Imugene License Agreement contains the following promises: (i) the license to develop, manufacture, and commercialize oncological applications of the azer-cel and up to three additional research product candidates and (ii) JSC participation. 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. Accordingly, the Company concluded that the promise of the license is a single performance obligation.
The Company concluded the Imugene License Agreement represents functional intellectual property in accordance with ASC 606 given the Company will not be providing any additional services to Imugene outside of the right to use the licensed intellectual property. As of March 31, 2024, management has constrained all variable consideration related to milestone payments in the Imugene License Agreement given the level of uncertainty associated with achievement of the milestone payments. Accordingly,
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 the Company’s custom ARCUS nucleases for the purpose of seeking to research and develop potential treatments for certain diseases (collectively referred to as licensed products). Any initial licensed products under the Novartis Agreement 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. Novartis will receive an exclusive license for and be required to use commercially reasonable efforts to conduct all subsequent research, development, manufacture and commercialization activities with respect to the licensed products. The Company will initially develop a single, custom ARCUS nuclease for a defined “safe harbor” target site for insertion of specified therapeutic payloads in a patient’s genome (the “Initial Nuclease”) for Novartis to further develop as a potential in vivo treatment option for certain hemoglobinopathies, including sickle cell disease and beta thalassemia. Pursuant to the terms of the Novartis Agreement, Novartis may elect, subject to payment of a fee to the Company, to replace licensed products based on the Initial Nuclease with licensed products based on a second custom ARCUS nuclease the Company designs for gene editing of a specified human gene target associated with hemoglobinopathies (the “Replacement Nuclease”). Additionally, Novartis has the option, upon payment of a fee to the Company for each exercise of the option, to include licensed products utilizing the Initial Nuclease for insertion of up to three additional specified therapeutic payloads at the “safe harbor” target site, each intended to treat a particular genetic disease. The exercise period for such option ends on the earlier of (a) the fourth anniversary of the Novartis Effective Date and (b) the replacement of the Initial Nuclease with the Replacement Nuclease as described above.
21
In July 2022, the Company received a $
On the Novartis Effective Date, the Company and Novartis also entered into a registration rights agreement (the “Registration Rights Agreement”) pursuant to which the Company has agreed, within the time periods specified in the Registration Rights Agreement, to register the resale of the Novartis Shares on a registration statement to be filed with the SEC. The Registration Rights Agreement contains customary indemnification provisions, and all registration rights terminate in their entirety effective on the first date on which there cease to be any Registrable Securities (as defined in the Registration Rights Agreement) outstanding.
The Company will also be eligible to receive milestone payments of up to an aggregate of approximately $
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. 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. The Company may also terminate the Novartis Agreement in the event that Novartis brings a challenge to its patents.
The Company assessed the Novartis Agreement in accordance with ASC 606 and concluded that the promises in the agreement represent transactions with a customer. The Company has determined that the promises associated with the research and development activities for each of the targets are not distinct because they are all based on the ARCUS proprietary genome editing platform. The Company has concluded that the Novartis Agreement contains the following promises: (i) license of intellectual property, (ii) performance of research and development (“R&D”) services, and (iii) JSC participation. The Company determined that the license of intellectual property and R&D services were not distinct from each other, as the license and R&D services are highly interdependent upon one another. 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 recognizes revenue from the $
During the three months ended March 31, 2024, and 2023, the Company recognized revenue under the Novartis Agreement of $
22
million as of March 31, 2024 and December 31, 2023, respectively, of which $
Development and License Agreement with Prevail
On November 19, 2020, the Company entered into a development and license agreement with Eli Lilly and Company (“Lilly”) to collaborate to discover and develop in vivo gene editing products incorporating the Company’s ARCUS nucleases to utilize ARCUS for the research and development of potential in vivo therapies for genetic disorders, which was subsequently assigned to Prevail Therapeutics Inc., a wholly-owned subsidiary of Eli Lilly and Company (“Prevail”), effective November 1, 2022 (the “Original Prevail Agreement”).
On June 30, 2023, the Company entered into an amended and restated development and license agreement (the “Prevail Agreement”) with Prevail. The Prevail Agreement amended and restated the Original Prevail Agreement. Pursuant to the terms of the Prevail Agreement, Prevail and the Company continued to collaborate on developing the Company’s ARCUS nucleases for the research and development of potential in vivo therapies for genetic disorders, including Duchenne muscular dystrophy, a liver-directed target, and a central nervous system directed target. Pursuant to the Prevail Agreement, manufacturing initial clinical trial material for the first licensed product, which was previously the Company’s responsibility to conduct at Prevail’s expense, instead became Prevail’s responsibility at Prevail’s expense. Prevail continued to be responsible for, and was required to use commercially reasonable efforts with respect to, conducting clinical development and commercialization activities for licensed products resulting from the collaboration. Prevail also retained the right to nominate up to three additional gene targets for genetic disorders over the initial nomination period of four years.
On April 11, 2024, the Company received written notice from Prevail of its termination of the Prevail Agreement. Prevail’s notice informed the Company that Prevail was exercising its right pursuant to Section 15.3.2 of the Prevail Agreement to terminate the Prevail Agreement in its entirety without cause upon 90 days’ prior written notice to the Company. The Company subsequently exercised its rights to the return of the three programs. The termination will be effective on July 10, 2024.
In connection with the closing of the Original Prevail Agreement on January 6, 2021, the Company received an upfront cash payment of $
The Company assessed this arrangement in accordance with ASC 606 and concluded that the promises in the agreement represent transactions with a customer. The Company has determined that the promises associated with the research and development activities for each of the targets are not distinct because they are all based on the ARCUS proprietary genome editing platform. The Company concluded that the agreement with Prevail contained the following promises: (i) license of intellectual property; (ii) performance of R&D services, (iii) JSC participation, and (iv) regulatory responsibilities. 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. 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 recognized revenue from the $
23
relative to expected time to be incurred in the future to satisfy the performance obligation. Management evaluated and adjusted the total expected research effort for the performance obligation on a quarterly basis based upon actual research progress to date relative to research progress forecasts. The transfer of control occurs over this time period and, in management’s judgment, is the best measure of progress towards satisfying the performance obligation.
During the three months ended March 31, 2024 and 2023, the Company recognized revenue under the Prevail Agreement of $
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, Phenylketonuria, and another program focused on liver disease. 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. Management concluded that the iECURE Equity Agreement was to be combined with the iECURE DLA 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.
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). There was
License Agreement with Caribou
In February 2024, the Company announced it had granted Caribou Biosciences, Inc. (“Caribou”), a leading CRISPR genome-editing cell therapy company, a non-exclusive, worldwide license, with the right to sublicense, to one of the Company’s foundational cell therapy patent families for use with CRISPR-based therapies in the field of human therapeutics. Under the terms of the agreement, the Company received an upfront payment that has been recognized as revenue and, upon commercialization by Caribou, will receive royalties on net sales of licensed products. In addition, for each occurrence of certain strategic transactions involving Caribou, the Company is entitled to receive a specific tiered milestone payment.
NOTE 7: SHARE-BASED COMPENSATION
The Company previously granted stock options under its 2015 Stock Incentive Plan (the “2015 Plan”). As of March 31, 2024 there were
On March 12, 2019, the Company’s board of directors adopted, and, on March 14, 2019 the Company’s stockholders approved, the Precision BioSciences, Inc. 2019 Incentive Award Plan (“2019 Plan”) and the 2019 Employee Stock Purchase Plan (“2019 ESPP”), both of which became effective on March 27, 2019.
The 2019 Plan provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units and other share-based awards. The 2019 Plan had
The number of shares available for issuance under the 2019 Plan initially equaled
24
so unused, will become available for award grants under the 2019 Plan. As of March 31, 2024,
Up to
On August 9, 2021, the Company’s board of directors approved the adoption of the Precision BioSciences, Inc. 2021 Employment Inducement Incentive Award Plan (as amended, the “Inducement Award Plan”).
The Inducement Award Plan provides for the grant of non-qualified stock options, stock appreciation rights, restricted stock, RSUs and other share-based awards to newly hired employees who have not previously been an employee or member of the board, or an employee who is being rehired following a bona fide period of non-employment by the Company. No more than
The Company recorded employee and nonemployee share-based compensation expense as follows (in thousands):
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Three Months Ended March 31, |
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2024 |
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2023 |
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Employee |
$ |