UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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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:
Precision BioSciences, Inc.
(Exact Name of Registrant as Specified in its Charter)
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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(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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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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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, 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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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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
As May 3, 2022, the registrant had
Table of Contents
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Page |
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3 |
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5 |
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PART I. |
6 |
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Item 1. |
6 |
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6 |
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7 |
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Condensed Consolidated Statements of Changes in Stockholders’ Equity |
8 |
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9 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
10 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
21 |
Item 3. |
32 |
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Item 4. |
32 |
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PART II. |
33 |
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Item 1. |
33 |
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Item 1A. |
33 |
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Item 2. |
82 |
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Item 3. |
82 |
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Item 4. |
82 |
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Item 5. |
82 |
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Item 6. |
83 |
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84 |
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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, planned preclinical studies and clinical trials, or discontinuance thereof, the status and results of our preclinical and clinical studies, including, the potential of our product candidates, if approved, to become best-in-class or first-in-class, 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, potential new application filings and 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 the COVID-19 pandemic 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 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:
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our ability to become profitable; |
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our ability to procure sufficient funding and requirements under our current debt instruments and effects of restrictions thereunder; |
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risks associated with raising additional capital; |
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our operating expenses and our ability to predict what those expenses will be; |
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our limited operating history; |
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the success of our programs and product candidates in which we expend our resources; |
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our dependence on our ARCUS technology; |
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the risk that other genome-editing technologies may provide significant advantages over our ARCUS technology; |
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the initiation, cost, timing, progress, achievement of milestones and results of research and development activities and preclinical and clinical studies; |
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public perception about genome editing technology and its applications; |
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competition in the genome editing, biopharmaceutical, and biotechnology fields; |
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our or our collaborators’ ability to identify, develop and commercialize product candidates; |
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pending and potential liability lawsuits and penalties against us or our collaborators related to our technology and our product candidates; |
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the U.S. and foreign regulatory landscape applicable to our and our collaborators’ development of product candidates; |
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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; |
3
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our or our collaborators’ ability to advance product candidates into, and successfully design, implement and complete, clinical trials; |
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potential manufacturing problems associated with the development or commercialization of any of our product candidates; |
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our ability to obtain an adequate supply of T cells from qualified donors; |
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our ability to achieve our anticipated operating efficiencies at our manufacturing facility; |
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delays or difficulties in our and our collaborators’ ability to enroll patients; |
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changes in interim “top-line” data that we announce or publish; |
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if our product candidates do not work as intended or cause undesirable side effects; |
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risks associated with applicable healthcare, data privacy and security regulations and our compliance therewith; |
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the rate and degree of market acceptance of any of our product candidates; |
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the success of our existing collaboration agreements and our ability to enter into new collaboration arrangements; |
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our current and future relationships with third parties including suppliers and manufacturers; |
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our ability to obtain and maintain intellectual property protection for our technology and any of our product candidates; |
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potential litigation relating to infringement or misappropriation of intellectual property rights; |
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our ability to effectively manage the growth of our operations; |
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our ability to attract, retain, and motivate key scientific and management personnel; |
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market and economic conditions; |
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effects of system failures and security breaches; |
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effects of natural and manmade disasters, public health emergencies and other natural catastrophic events; |
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effects of the COVID-19 pandemic and variants thereof, or any pandemic, epidemic, or outbreak of an infectious disease; |
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insurance expenses and exposure to uninsured liabilities; |
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effects of tax rules; and |
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risks related to ownership of our common stock, including fluctuations in our stock price. |
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-Qs, 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.
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.
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We have incurred significant operating losses since our inception and expect to continue to incur losses for the foreseeable future. We have not been profitable and may not achieve or maintain profitability. |
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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. |
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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. |
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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. |
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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. |
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Adverse public perception of genome editing may negatively impact the developmental progress or commercial success of products that we develop alone or with collaborators. |
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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. |
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Our future profitability, if any, will depend in part on our ability and the ability of our collaborators to commercialize any products that we or our collaborators may develop in markets throughout the world. Commercialization of products in various markets could subject us to risks and uncertainties. |
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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. |
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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. |
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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. |
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Any product candidates that we or our collaborators may develop will be novel and may be complex and difficult to manufacture, and if we experience manufacturing problems, it could result in delays in development and commercialization of such product candidates or otherwise harm our business. |
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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. |
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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. |
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The ongoing novel coronavirus disease, COVID-19 has impacted, and may continue to impact, 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. |
5
Part I. Financial information
Item 1. Financial Statements.
Precision Biosciences, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
(Unaudited)
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March 31, 2022 |
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December 31, 2021 |
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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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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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Equity method investments |
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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 clinical and research and development expenses |
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Deferred revenue |
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Lease liabilities |
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Other current liabilities |
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Total current liabilities |
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Deferred revenue |
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Lease liabilities |
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Long term debt—net |
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Contract liabilities |
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Other noncurrent liabilities |
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Total liabilities |
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Commitments and contingencies (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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( |
) |
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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See notes to condensed consolidated financial statements
6
Precision Biosciences, Inc.
Condensed Consolidated 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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2022 |
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2021 |
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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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Loss from equity method investments |
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( |
) |
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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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Total other income (expense), net |
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( |
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Net loss and net loss attributable to common stockholders |
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$ |
( |
) |
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$ |
( |
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Net loss per share attributable to common stockholders- basic and diluted |
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$ |
( |
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$ |
( |
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Weighted average shares of common stock outstanding- basic and diluted |
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See notes to condensed consolidated financial statements
7
Precision Biosciences, Inc.
Condensed Consolidated Statements of Changes in
Stockholders’ Equity
(In thousands, except share amounts)
(Unaudited)
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Common Stock |
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Additional Paid-In |
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Accumulated |
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Treasury |
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Total Stockholder's |
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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- January 1, 2021 |
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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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Issuance of common stock to collaboration partners |
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— |
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— |
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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, 2021 |
|
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$ |
— |
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$ |
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$ |
( |
) |
|
$ |
( |
) |
|
$ |
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Balance- January 1, 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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Net loss |
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— |
|
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— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balance- March 31, 2022 |
|
|
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
See notes to condensed consolidated financial statements
8
Precision Biosciences, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
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For the Three Months Ended March 31, |
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2022 |
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2021 |
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Cash flows from operating activities: |
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Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
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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— |
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Amortization of right-of-use assets |
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Loss from equity method investments |
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|
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— |
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Amortization of discount on note receivable |
|
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( |
) |
|
|
— |
|
Changes in operating assets and liabilities: |
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Prepaid expenses |
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( |
) |
Accounts receivable |
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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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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 and right-of-use assets |
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|
( |
) |
|
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( |
) |
Net cash provided by (used in) operating activities |
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( |
) |
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Cash flows from investing activities: |
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Purchases of property, equipment and software |
|
|
( |
) |
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( |
) |
Net cash used in investing activities |
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( |
) |
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( |
) |
Cash flows from financing activities: |
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Proceeds from stock option exercises |
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Proceeds from employee stock purchase plan |
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Proceeds from issuance of common stock to collaboration partners |
|
|
— |
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Proceeds from offering of common stock, net of issuance costs |
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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 |
|
|
( |
) |
|
|
|
|
Cash and cash equivalents—beginning of period |
|
|
|
|
|
|
|
|
Cash and cash equivalents —end of period |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of noncash activities: |
|
|
|
|
|
|
|
|
Property, equipment and software additions included in accounts payable and other current liabilities |
|
$ |
|
|
|
$ |
|
|
Unsettled at-the-market issuances of common stock included in other current assets |
|
$ |
|
|
|
|
— |
|
See notes to condensed consolidated financial statements
9
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
The Company’s
The Company’s
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 fund its operating expense and capital expenditure requirements into mid-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, 2021, filed with the SEC on March 15, 2022.
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 March 31, 2022 and condensed consolidated results of operations for the three months ended March 31, 2022 and 2021 and the condensed consolidated cash flows for the three months ended March 31, 2022 and 2021, have been made. The Company’s condensed consolidated results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2022.
10
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.
Accounting standards codification (“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, 2022, the Company recorded cumulative catch up adjustments on its contracts with customers that decreased revenue by $
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 payment by the licensees and the transfer of the promised goods or services to the licensees will be one year or less. The Company
11
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 9, “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
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 March 31, 2022 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 number of shares available for issuance under the 2019 Plan initially equaled
Up to
12
purchase price of the shares under the 2019 ESPP, in the absence of a contrary designation, will be
On August 9, 2021, the Company’s board of directors approved the adoption of the Precision BioSciences, Inc. 2021 Employment Inducement Incentive Award Plan (“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):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Employee |
|
$ |
|
|
|
$ |
|
|
Nonemployee |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
Share-based compensation expense is included in the following line items in the condensed consolidated statements of operations (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Research and development |
|
$ |
|
|
|
$ |
|
|
General and administrative |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
Determining the appropriate fair value model to measure the fair value of the stock option grants on the date of grant and the related assumptions requires judgment.
|
|
Three Months Ended March 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Estimated dividend yield |
|
|
|
% |
|
|
|
% |
Weighted-average expected stock price volatility |
|
|
|
% |
|
|
|
% |
Weighted-average risk-free interest rate |
|
|
|
% |
|
|
|
% |
Expected term of options (in years) |
|
|
|
|
|
|
|
|
Weighted-average fair value per option |
|
$ |
|
|
|
$ |
|
|
The expected volatility rates are estimated based on the actual volatility of a peer group comprised of the Company and other comparable public companies over the expected term. The expected term represents the average time that stock options that vest are expected to be outstanding. The Company does not have sufficient history of exercising stock options to estimate the expected term of employee stock options and thus utilizes a weighted value considering actual history and estimated expected term based on the midpoint of final vest date and expiration date. The risk-free rate is based on the United States Treasury yield curve at the time of grant for the expected term of the option.
13
The following table summarizes activity in the Company’s stock option plans for the three months ended March 31, 2022:
|
|
Outstanding Option Shares |
|
|
Weighted-Average Exercise Price |
|
||
Balance as of January 1, 2022 |
|
|
|
|
|
$ |
|
|
Granted |
|
|
|
|
|
|
|
|
Exercised |
|
|
( |
) |
|
|
|
|
Forfeited/canceled |
|
|
( |
) |
|
|
|
|
Balance as of March 31, 2022 |
|
|
|
|
|
$ |
|
|
The intrinsic value of stock options exercised was $
During the three months ended March 31, 2022, the Company granted
The following table summarizes the Company’s RSU activity for the three months ended March 31, 2022:
|
|
RSU Awards |
|
|
Weighted-Average Grant Date Fair Value |
|
||
Unvested RSUs as of January 1, 2022 |
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
$ |
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
Vested |
|
|
— |
|
|
|
— |
|
Unvested RSUs as of March 31, 2022 |
|
|
|
|
|
$ |
|
|
There was approximately $
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 consolidated financial condition, results of operations or cash flows of the Company.
COVID-19 Pandemic
In March 2020, the World Health Organization designated the outbreak of the novel strain of coronavirus known as COVID-19 as a global pandemic. The Company has taken steps in line with guidance from the U.S. Centers for Disease Control and Prevention and the State of North Carolina to protect the health and safety of its employees and the community.
The Company is working closely with its clinical sites, physician partners and the patient community to monitor and manage the ongoing impact of the COVID-19 pandemic and variants thereof. The Company remains committed to its clinical programs and development plans, however, disruptions, competing resource demands and safety concerns caused by the COVID-19 pandemic and variants thereof have caused, and are likely to continue to cause, delays in the Company’s clinical trial site activation and impacted its ability to enroll patients. The Company may also experience other difficulties, disruptions or delays in conducting preclinical studies, initiating, enrolling, conducting or completing its planned and ongoing clinical trials or supply chain disruptions, and the Company may incur other unforeseen costs as a result. While the extent to which the COVID-19 pandemic and variants thereof may continue to impact the Company’s future results will depend on future developments, the pandemic and associated economic impacts could result in a material impact to the Company’s future financial condition, results of operations and cash flows.
Servier Program Purchase Agreement
On April 9, 2021, the Company entered into a 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”).
14
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, and a low- to mid-single-digit percentage royalty (subject to certain reductions) based on net sales of approved products, if any, resulting from any continued development and commercialization of the programs by the Company, for a period not to exceed
Regulatory and Commercial Milestones
Management assessed the likelihood of each of the regulatory and commercial milestones included in the Program Purchase Agreement in accordance with ASC 450, Contingencies (“ASC 450”). 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 consolidated financial statements. Accordingly, a $
Product Partnering Transaction Consideration Due to Servier
Per the terms of the Program Purchase Agreement, should the Company enter into a product partnering transaction with respect to any of the targets previously nominated by Servier, the Company will pay Servier a percentage of the proceeds received. In accordance with ASC 450 management concluded that the amount of proceeds due to Servier as a result of a future product partnering transaction, if any, cannot be reasonably estimated as of the date of this Quarterly Report on Form 10-Q. As such,
Leases
The Company has operating leases for real estate in North Carolina and does not have any finance leases.
Many of the Company’s leases contain options to renew and extend lease terms and options to terminate leases early. Reflected in the right-of-use asset and lease liabilities on the Company’s condensed consolidated balance sheet are the periods provided by renewal and extension options that the Company is reasonably certain to exercise, as well as the periods provided by termination options that the Company is reasonably certain to not exercise.
The Company has existing leases that include variable lease payments that are not included in the right-of-use asset and lease liabilities and are reflected as an expense in the period incurred. Such payments primarily include common area maintenance charges. These variable lease payments 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 reflected as an expense in the period incurred.
Future lease payments under non-cancelable operating leases with terms of greater than one year as of March 31, 2022, were as follows:
(in thousands) |
|
March 31, 2022 |
|
|
2022 (excluding the three months ended March 31, 2022) |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 and beyond |
|
|
|
|
Total lease payments |
|
|
|
|
Less: imputed interest |
|
|
|
|
Total operating lease liabilities |
|
$ |
|
|
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 provide for termination at the request of either party with less than condensed consolidated financial condition, results of operations, or cash flows of the Company.
notice and are, therefore, cancelable contracts and, if canceled, are not anticipated to have a material effect on the15
NOTE 5: |
DEBT |
Revolving Line
Pursuant to the terms of the loan and security agreement with Pacific Western Bank (the “Revolving Line”) the Company may request advances on a revolving line of credit of up to an aggregate principal of $
The Revolving Line matures on
In December 2021, the Company borrowed $
NOTE 6: |
Income Taxes |
The Company estimates an annual effective tax rate of
Due to the Company's history of losses since inception, there is not enough evidence at this time to support that the Company will generate future income of a sufficient amount and nature to utilize the benefits of its net deferred tax assets. Accordingly, the deferred tax assets have been reduced by a full valuation allowance, since the Company does not currently believe that realization of its deferred tax assets is more likely than not.
As of March 31, 2022, the Company had
NOTE 7: |
FAIR VALUE MEASUREMENTS |
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, 2022 and December 31, 2021, the Company held an insignificant amount of 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
In August 2021, the Company entered into an Equity Issuance Agreement with iECURE, Inc. (“iECURE”), pursuant to which iECURE granted the Company partial equity ownership in iECURE (the “iECURE equity”) as partial 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 (the “PCSK9 license”). On issuance, the Company accounted for the iECURE equity at fair value under ASC 825, Financial Instruments (“ASC 825”). 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
16
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. For additional discussion of accounting for the iECURE Development and License agreement (as defined below) and the iECURE Equity Issuance Agreement (as defined below), refer to Note 9, “Collaboration and License Agreements.”
The following represents assets and liabilities measured at fair value on a recurring basis by the Company (in thousands):
March 31, 2022 |
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
Investment in iECURE |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
December 31, 2021 |
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
Investment in iECURE |
|
|
|
|
|
|
— |
|
|