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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended June 30, 2021

OR

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

For the transition period from to

Commission File Number: 001-38841

 

Precision BioSciences, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

20-4206017

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

302 East Pettigrew St., Suite A-100

Durham, North Carolina

27701

(Address of principal executive offices)

(Zip Code)

 

(919) 314-5512

(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:

 

 

 

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.000005 per share

DTIL

The Nasdaq Global Select Market

 

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

 

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

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

As August 3, 2021, the registrant had 59,577,779 shares of common stock, $0.000005 par value per share, outstanding.

 

 

 


 

Table of Contents

 

 

 

Page

 

Forward-Looking Statements

3

 

Risk Factor Summary

6

PART I.

FINANCIAL INFORMATION

7

Item 1.

Financial Statements

7

 

Condensed Consolidated Balance Sheets

7

 

Condensed Consolidated Statements of Operations

8

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity

9

 

Condensed Consolidated Statements of Cash Flows

10

 

Notes to Unaudited Condensed Consolidated Financial Statements

11

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

37

Item 4.

Controls and Procedures

37

PART II.

OTHER INFORMATION

39

Item 1.

Legal Proceedings

39

Item 1A.

Risk Factors

39

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

90

Item 3.

Defaults Upon Senior Securities

90

Item 4.

Mine Safety Disclosures

90

Item 5.

Other Information

90

Item 6.

Exhibits

91

 

Signatures

93

 

 

 

 

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, planned preclinical or greenhouse studies and clinical or field trials, the status and results of our preclinical and clinical studies, expected release of interim data, expectations regarding our allogeneic chimeric antigen receptor T cell immunotherapy product candidates, expectations regarding the use and effects of ARCUS, including in connection with in vivo genome editing, potential new partnerships or alternative opportunities for our product candidates, capabilities of our manufacturing facility, regulatory approvals, research and development costs, timing, expected results and likelihood of success, plans and objectives of management for future operations, as well as the impact of COVID-19 and variants thereof 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 I. Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II. Item 1A. “Risk Factors.” These risks and uncertainties include, but are not limited to:

 

our ability to become profitable;

 

our ability to procure sufficient funding and requirements under our current debt instruments and effects of restrictions thereunder;

 

risks associated with raising additional capital;

 

our operating expenses and our ability to predict what those expenses will be;

 

our limited operating history;

 

the success of our programs and product candidates in which we expend our resources;

 

our dependence on our ARCUS technology;

 

the risk that other genome-editing technologies may provide significant advantages over our ARCUS technology;

 

the initiation, cost, timing, progress, achievement of milestones and results of research and development activities, preclinical or greenhouse studies and clinical or field trials;

 

public perception about genome editing technology and its applications;

 

competition in the genome editing, biopharmaceutical, biotechnology and agricultural biotechnology fields;

 

our or our collaborators’ ability to identify, develop and commercialize product candidates;

3


 

 

pending and potential liability lawsuits and penalties against us or our collaborators related to our technology and our product candidates;

 

the U.S. and foreign regulatory landscape applicable to our and our collaborators’ development of product candidates;

 

our or our collaborators’ ability to obtain and maintain regulatory approval of our product candidates, and any related restrictions, limitations and/or warnings in the label of an approved product candidate;

 

our or our collaborators’ ability to advance product candidates into, and successfully design, implement and complete, clinical or field trials;

 

potential manufacturing problems associated with the development or commercialization of any of our product candidates;

 

our ability to obtain an adequate supply of T cells from qualified donors;

 

our ability to achieve our anticipated operating efficiencies at our manufacturing facility;

 

delays or difficulties in our and our collaborators’ ability to enroll patients;

 

changes in interim “top-line” data that we announce or publish;

 

if our product candidates do not work as intended or cause undesirable side effects;

 

risks associated with applicable healthcare, data privacy and security regulations and our compliance therewith;

 

the rate and degree of market acceptance of any of our product candidates;

 

the success of our existing collaboration agreements, and our ability to enter into new collaboration arrangements;

 

our current and future relationships with third parties including suppliers and manufacturers;

 

our ability to obtain and maintain intellectual property protection for our technology and any of our product candidates;

 

potential litigation relating to infringement or misappropriation of intellectual property rights;

 

our ability to effectively manage the growth of our operations;

 

our ability to attract, retain, and motivate key scientific and management personnel;

 

market and economic conditions;

 

effects of system failures and security breaches;

 

effects of natural and manmade disasters, public health emergencies and other natural catastrophic events;

 

effects of COVID-19 and variants thereof, or any pandemic, epidemic, or outbreak of an infectious disease;

 

insurance expenses and exposure to uninsured liabilities;

 

effects of tax rules; and

 

risks related to ownership of our common stock, including fluctuations in our stock price.

4


 

 

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. and its subsidiaries on a consolidated basis.

 


5


 

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.

 

We have incurred significant operating losses since our inception and expect to continue to incur losses for the foreseeable future. We may never achieve or maintain profitability.

 

We will need substantial additional funding, and if we are unable to raise a sufficient amount of capital when needed on acceptable terms, or at all, we may be forced to delay, reduce or eliminate some or all of our research programs, product development activities and commercialization efforts.

 

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.

 

ARCUS is a novel technology, making it difficult to predict the time, cost and potential success of product candidate development. We have not yet been able to assess the safety and efficacy of most of our product candidates in humans, and have only limited safety and efficacy information in humans to date regarding three of our product candidates.

 

We are heavily dependent on the successful development and translation of ARCUS, and due to the early stages of our product development operations, we cannot give any assurance that any product candidates will be successfully developed and commercialized.

 

Adverse public perception of genome editing may negatively impact the developmental progress or commercial success of products that we develop alone or with collaborators.

 

We face significant competition in industries experiencing rapid technological change, and there is a possibility that our competitors may achieve regulatory approval before us or develop product candidates or treatments that are safer or more effective than ours, which may harm our financial condition and our ability to successfully market or commercialize any of our product candidates.

 

Our future profitability, if any, depends in part on our and our collaborators’ ability to penetrate global markets, where we would be subject to additional regulatory burdens and other risks and uncertainties associated with international operations that could materially adversely affect our business.

 

Product liability lawsuits against us could cause us to incur substantial liabilities and could limit commercialization of any products that we develop alone or with collaborators.

 

The regulatory landscape that will apply to development of therapeutic product candidates by us or our collaborators is rigorous, complex, uncertain and subject to change, which could result in delays or termination of development of such product candidates or unexpected costs in obtaining regulatory approvals.

 

Clinical trials are difficult to design and implement, expensive, time-consuming and involve an uncertain outcome, and the inability to successfully and timely conduct clinical trials and obtain regulatory approval for our product candidates would substantially harm our business.

 

Even if we obtain regulatory approval for any products that we develop alone or with collaborators, such products will remain subject to ongoing regulatory requirements, which may result in significant additional expense.

 

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.

 

The ongoing novel coronavirus disease, COVID-19, has impacted our business and any other pandemic, epidemic or outbreak of an infectious disease may materially and adversely impact our business, including our preclinical studies and clinical trials.

6


 

Part I. Financial information

 

Item 1.  Financial Statements.

Precision Biosciences, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

June 30, 2021

 

 

December 31, 2020

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

173,943

 

 

$

89,798

 

Accounts receivable

 

 

488

 

 

 

10,000

 

Prepaid expenses

 

 

8,457

 

 

 

5,762

 

Other current assets

 

 

5,416

 

 

 

4

 

Total current assets

 

 

188,304

 

 

 

105,564

 

Property, equipment, and software—net

 

 

32,780

 

 

 

35,090

 

Intangible assets—net

 

 

1,343

 

 

 

1,373

 

Right-of-use assets—net

 

 

5,822

 

 

 

6,410

 

Other assets

 

 

1,865

 

 

 

1,721

 

Total assets

 

$

230,114

 

 

$

150,158

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

478

 

 

$

792

 

Accrued compensation

 

 

3,612

 

 

 

5,745

 

Accrued clinical and research and development expenses

 

 

3,840

 

 

 

3,269

 

Deferred revenue

 

 

22,221

 

 

 

30,236

 

Lease liabilities

 

 

2,060

 

 

 

1,933

 

Loan payable—net

 

 

2,431

 

 

 

 

Other current liabilities

 

 

1,609

 

 

 

854

 

Total current liabilities

 

 

36,251

 

 

 

42,829

 

Deferred revenue

 

 

75,301

 

 

 

53,926

 

Lease liabilities

 

 

7,522

 

 

 

8,586

 

Contract liabilities

 

 

10,000

 

 

 

 

Other liabilities

 

 

487

 

 

 

392

 

Total liabilities

 

 

129,561

 

 

 

105,733

 

Commitments and contingencies (Note 4)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value— 10,000,000 shares authorized as of June 30, 2021 and December 31, 2020; no shares issued and outstanding as of June 30, 2021 and December 31, 2020

 

 

 

 

 

 

Common stock; $0.000005 par value— 200,000,000 shares authorized as of June 30, 2021 and December 31, 2020; 60,093,422 shares issued and 59,282,950 shares outstanding as of June 30, 2021; 53,503,124 shares issued and 52,692,652 shares outstanding as of December 31, 2020

 

 

 

 

 

 

Additional paid-in capital

 

 

384,611

 

 

 

331,450

 

Accumulated deficit

 

 

(283,106

)

 

 

(286,073

)

Treasury stock

 

 

(952

)

 

 

(952

)

Total stockholders’ equity

 

 

100,553

 

 

 

44,425

 

Total liabilities and stockholders’ equity

 

$

230,114

 

 

$

150,158

 

 

See notes to condensed consolidated financial statements

7


Precision Biosciences, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenue

 

$

68,805

 

 

$

1,078

 

 

$

85,154

 

 

$

8,076

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

37,235

 

 

 

25,183

 

 

 

62,828

 

 

 

50,062

 

General and administrative

 

 

9,938

 

 

 

8,703

 

 

 

19,436

 

 

 

18,318

 

Total operating expenses

 

 

47,173

 

 

 

33,886

 

 

 

82,264

 

 

 

68,380

 

Operating income (loss)

 

 

21,632

 

 

 

(32,808

)

 

 

2,890

 

 

 

(60,304

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(24

)

 

 

 

 

 

(24

)

 

 

 

Interest income

 

 

48

 

 

 

107

 

 

 

101

 

 

 

767

 

Total other income, net

 

 

24

 

 

 

107

 

 

 

77

 

 

 

767

 

Net income (loss) and net income (loss) attributable to common stockholders

 

$

21,656

 

 

$

(32,701

)

 

$

2,967

 

 

$

(59,537

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share attributable to common stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.38

 

 

$

(0.63

)

 

$

0.05

 

 

$

(1.15

)

Diluted

 

$

0.36

 

 

$

(0.63

)

 

$

0.05

 

 

$

(1.15

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares used in calculation of net income (loss) per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

57,739,622

 

 

 

51,909,240

 

 

 

57,185,402

 

 

 

51,611,005

 

Diluted

 

 

59,841,638

 

 

 

51,909,240

 

 

 

59,647,367

 

 

 

51,611,005

 

 

See notes to condensed consolidated financial statements

 

 

8


 

Precision Biosciences, Inc.

Condensed Consolidated Statements of Changes in

Stockholders’ Equity

(In thousands, except share amounts)

(Unaudited)

 

 

 

See notes to condensed consolidated financial statements

 

 

Common Stock

 

 

Additional

Paid-In

 

 

 

 

Accumulated

 

 

Treasury

 

 

Total

Stockholder's

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

 

 

Deficit

 

 

Stock

 

 

Equity

 

Balance- January 1, 2020

 

 

51,965,708

 

 

$

 

 

$

316,333

 

 

 

 

$

(177,067

)

 

$

(952

)

 

$

138,314

 

Stock option exercises

 

 

244,999

 

 

 

 

 

 

212

 

 

 

 

 

 

 

 

 

 

 

212

 

Issuance of common stock under employee

   stock purchase plan

 

 

42,620

 

 

 

 

 

 

239

 

 

 

 

 

 

 

 

 

 

 

239

 

Share-based compensation expense

 

 

 

 

 

 

 

 

3,105

 

 

 

 

 

 

 

 

 

 

 

3,105

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(26,836

)

 

 

 

 

 

(26,836

)

Balance- March 31, 2020

 

 

52,253,327

 

 

$

 

 

$

319,889

 

 

 

 

$

(203,903

)

 

$

(952

)

 

$

115,034

 

Stock option exercises

 

 

725,574

 

 

 

 

 

 

148

 

 

 

 

 

 

 

 

 

 

 

148

 

Share-based compensation expense

 

 

 

 

 

 

 

 

3,118

 

 

 

 

 

 

 

 

 

 

 

3,118

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(32,701

)

 

 

 

 

 

(32,701

)

Balance- June 30, 2020

 

 

52,978,901

 

 

$

 

 

$

323,155

 

 

 

 

$

(236,604

)

 

$

(952

)

 

$

85,599

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance- January 1, 2021

 

 

53,503,124

 

 

$

 

 

$

331,450

 

 

 

 

$

(286,073

)

 

$

(952

)

 

$

44,425

 

Stock option exercises

 

 

676,791

 

 

 

 

 

 

1,297

 

 

 

 

 

 

 

 

 

 

 

1,297

 

Issuance of common stock under employee stock purchase plan

 

 

90,796

 

 

 

 

 

 

418

 

 

 

 

 

 

 

 

 

 

 

418

 

Share-based compensation expense

 

 

 

 

 

 

 

 

3,632

 

 

 

 

 

 

 

 

 

 

 

3,632

 

Issuance of common stock to collaboration partners

 

 

3,762,190

 

 

 

 

 

 

 

27,739

 

 

 

 

 

 

 

 

 

 

 

 

27,739

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,689

)

 

 

 

 

 

(18,689

)

Balance- March 31, 2021

 

 

58,032,901

 

 

$

 

 

$

364,536

 

 

 

 

$

(304,762

)

 

$

(952

)

 

$

58,822

 

Stock option exercises

 

 

766,767

 

 

 

 

 

 

1,353

 

 

 

 

 

 

 

 

 

 

 

1,353

 

Share-based compensation expense

 

 

 

 

 

 

 

 

3,896

 

 

 

 

 

 

 

 

 

 

 

3,896

 

Proceeds from issuance of common stock, net of issuance

cost

 

 

1,293,754

 

 

 

 

 

 

 

14,826

 

 

 

 

 

 

 

 

 

 

 

 

14,826

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

21,656

 

 

 

 

 

 

21,656

 

Balance- June 30, 2021

 

 

60,093,422

 

 

$

 

 

$

384,611

 

 

 

 

$

(283,106

)

 

$

(952

)

 

$

100,553

 

 

See notes to condensed consolidated financial statements

 

 

9


 

 

Precision Biosciences, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

For the Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

2,967

 

 

$

(59,537

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

4,542

 

 

 

4,358

 

Share-based compensation

 

 

7,528

 

 

 

6,223

 

Loss on disposal of assets

 

 

23

 

 

 

 

Non-cash interest expense

 

 

19

 

 

 

 

Amortization of right-of-use assets

 

 

588

 

 

 

485

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses

 

 

(2,695

)

 

 

(687

)

Accounts receivable

 

 

9,512

 

 

 

882

 

Other assets and other current assets

 

 

(200

)

 

 

1,913

 

Accounts payable

 

 

192

 

 

 

(121

)

Other liabilities and other current liabilities

 

 

(905

)

 

 

(226

)

Deferred revenue

 

 

6,099

 

 

 

(4,160

)

Lease liabilities and right-of-use assets

 

 

(937

)

 

 

(841

)

Contract liabilities

 

 

10,000

 

 

 

 

Net cash provided by (used in) operating activities

 

 

36,733

 

 

 

(51,711

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property, equipment and software

 

 

(2,815

)

 

 

(2,888

)

Net cash used in investing activities

 

 

(2,815

)

 

 

(2,888

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from stock option exercises

 

 

2,647

 

 

 

360

 

Proceeds from employee stock purchase plan

 

 

418

 

 

 

239

 

Proceeds from issuance of common stock to collaboration partners

 

 

35,000

 

 

 

 

Proceeds from at-the-market offering of common stock, net of issuance costs and commissions

 

 

9,705

 

 

 

 

Proceeds from issuance of term loan, net of issuance costs paid to lender

 

 

2,470

 

 

 

 

Payments of debt issuance costs

 

 

(13

)

 

 

 

 

Net cash provided by financing activities

 

 

50,227

 

 

 

599

 

Net increase (decrease) in cash and cash equivalents

 

 

84,145

 

 

 

(54,000

)

Cash and cash equivalents—beginning of period

 

 

89,798

 

 

 

180,886

 

Cash and cash equivalents —end of period

 

$

173,943

 

 

$

126,886

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of noncash activities:

 

 

 

 

 

 

 

 

Property, equipment and software additions included in accounts payable and other current liabilities

 

$

308

 

 

$

471

 

Unsettled at-the-market issuances of common stock included in other current assets

 

$

5,121

 

 

 

 

Contract liability accrual related to Servier Program Purchase Agreement milestones

 

$

10,000

 

 

 

 

 

See notes to condensed consolidated financial statements

 

10


 

 

Precision BioSciences, Inc.

Notes to Unaudited Condensed Consolidated 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 January 26, 2006 under the laws of the State of Delaware and is based in Durham, North Carolina. The Company is dedicated to improving life through the application of its pioneering, proprietary ARCUS genome editing platform to treat human diseases and create healthy and sustainable food and agricultural solutions.  The Company is actively developing product candidates through two reportable segments: Therapeutics and Food.  The Therapeutics segment is focused on allogeneic chimeric antigen receptor T (“CAR T”) cell immunotherapy and in vivo gene correction.  The Food segment focuses on applying ARCUS to develop food and nutrition products through collaboration agreements with consumer-facing companies.

The Company’s 100% owned subsidiary, Precision PlantSciences, Inc., was incorporated on January 4, 2012. Precision PlantSciences, Inc. amended its certificate of incorporation on January 16, 2018 to change its name to Elo Life Systems, Inc (“Elo”). Elo Life Systems Australia Pty Ltd was incorporated on May 29, 2018 as a 100% owned subsidiary of Elo Life Systems, Inc. Additionally, the Company’s 100% owned subsidiary Precision BioSciences UK Limited was incorporated on June 17, 2019. The accompanying condensed consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany balances and transactions have been eliminated in consolidation.

Since its inception, the Company has devoted substantially all of its efforts to research and development activities, recruiting skilled personnel, developing manufacturing processes, 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 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. 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.

Management believes that, as of the time these financial statements were issued, existing cash and cash equivalents, expected operational receipts and available credit will allow the Company to continue its operations into 2023. In the absence of a significant source of recurring revenue, the continued viability of the Company beyond that point is dependent on its ability to continue to raise additional capital to finance its operations. There can be no assurance that the Company will be able to obtain sufficient capital to cover its costs on acceptable terms, if at all.

Unaudited Interim Financial Information

The accompanying unaudited condensed consolidated 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 consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on March 18, 2021.

The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated 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 consolidated financial position as of June 30, 2021 and condensed consolidated results of operations for the three and six months ended June 30, 2021 and 2020 and the condensed consolidated cash flows for the six months ended June 30, 2021 and 2020, have been made. The Company’s condensed consolidated results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2021.

11


 

Summary of Significant Accounting Policies

Revenue Recognition for Contracts with Customers

The Company’s revenues are generated primarily through collaborative research, license, development and commercialization agreements.

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 six months ended June 30, 2021, the Company recorded cumulative catch up adjustments on its contracts with customers that increased revenue recognition by $62.5 million; the cumulative catch-up adjustments resulted from a change in the transaction price related to variable consideration for development milestones as well as changes in total estimated effort required to satisfy performance obligations. During the six months ended June 30, 2021, the Company recorded $74.2 million in revenue that was included in deferred revenue as of December 31, 2020.

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 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 the accompanying condensed consolidated 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

12


 

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 accounting standards codification (“ASC”) 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 8, “Collaboration and License Agreements.”

NOTE 2:

STOCKHOLDERS’ EQUITY

Capital Structure

On April 1, 2019, the Company filed an amendment to its amended and restated certificate of incorporation pursuant to which, among other things, the Company increased its authorized shares to 210,000,000 shares of capital stock, of which 200,000,000 shares were designated as $0.000005 par value common stock and 10,000,000 shares were designated as $0.0001 par value preferred stock.

NOTE 3:

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 June 30, 2021 there were 3,557,824 stock options outstanding under the 2006 Plan and 2015 Plan and no remaining stock options available to be granted under such plans.

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 number of shares available for issuance under the 2019 Plan initially equaled 4,750,000 shares of common stock. The 2019 Plan provides for an annual increase to the number of shares of common stock available for issuance on the first day of each calendar year beginning January 1, 2020 and ending on and including January 1, 2029 by an amount equal to the lesser of (i) 4% of the aggregate number of shares of common stock outstanding on the final day of the immediately preceding calendar year and (ii) such smaller number of shares of common stock as determined by the board of directors. As of June 30, 2021, the aggregate number of shares available for issuance under the 2019 Plan has been increased by 4,153,915 pursuant to this provision. Any shares that are subject to awards outstanding under the Company’s 2006 Plan and 2015 Plan as of the effective date of the 2019 Plan that expire, lapse, or are terminated, exchanged for cash, surrendered, repurchased, or canceled without having been fully exercised or forfeited, to the extent so unused, will become available for award grants under the 2019 Plan. As of June 30, 2021, 1,282,440 shares were available to be issued under the 2019 Plan. The 2019 Plan had 7,034,643 stock options and 823,883 restricted stock units (“RSUs”) outstanding as of June 30, 2021.

Up to 525,000 shares of the Company’s common stock were initially reserved for issuance under the 2019 ESPP. The 2019 ESPP provides for an annual increase to the number of shares available for issuance on the first day of each calendar year beginning January 1, 2020 and ending on and including January 1, 2029 by an amount equal to the lesser of (i) 1% of the shares outstanding on the final day of the immediately preceding calendar year and (ii) such smaller number of shares as is determined by our board of directors. As of June 30, 2021, the aggregate number of shares available for issuance under the 2019 ESPP has been increased by 1,038,478 shares

13


 

pursuant to this provision. No more than 5,250,000 shares of our common stock may be issued under our 2019 ESPP. The purchase price of the shares under the 2019 ESPP, in the absence of a contrary designation, will be 85% of the lower of the fair market value of our common stock on the first trading day of the offering period or on the purchase date. As of June 30, 2021, the Company had issued 217,024 shares under the 2019 ESPP. As of June 30, 2021, 1,346,454 shares were available to be issued under the 2019 ESPP. The Company recognized share-based compensation expense related to the ESPP of $0.2 million during each of the six months ended June 30, 2021 and 2020.

The Company recorded employee and nonemployee share-based compensation expense as follows (in thousands):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Employee

 

$

3,513

 

 

$

2,850

 

 

$