SEC Filing | Precision BioSciences

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10-Q

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 March 31, 2023

☐ 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 of May 2, 2023, the registrant had 113,793,338 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 (unaudited)	7
	Condensed Balance Sheets	7
	Condensed Statements of Operations	8
	Condensed Statements of Changes in Stockholders’ Equity	9
	Condensed Statements of Cash Flows	10
	Notes to Condensed Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	36
PART II.	OTHER INFORMATION	37
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	89
Item 3.	Defaults Upon Senior Securities	89
Item 4.	Mine Safety Disclosures	89
Item 5.	Other Information	89
Item 6.	Exhibits	89
	Signatures	91

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of present and historical facts contained in this Quarterly Report on Form 10-Q, including, without limitation, statements regarding our future results of operations and financial position, business strategy and approach, including related results, prospective products, use and development of Licensed Products (as defined herein), 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, collaborations and 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:

•

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 limited ability or inability to assess the safety and efficacy of our product candidates;

•

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

•

our dependence on our ARCUS technology;

•

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

•

public perception about genome editing technology and its applications;

•

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

•

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

•

pending and potential product 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 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” and initial 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 protection, privacy and security regulations and our compliance therewith;

•

our ability to obtain orphan drug designation or fast track designation for our product candidates or to realize the expected benefits of these designations;

•

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;

•

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

•

our ability to effectively manage the growth of our operations;

•

our ability to attract, retain, and motivate executives and personnel;

•

effects of system failures and security breaches;

•

insurance expenses and exposure to uninsured liabilities;

•

effects of tax rules;

•

effects of any pandemic, epidemic, or outbreak of an infectious disease;

•

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

•

our current and future relationships with and reliance on 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;

•

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

•

effects of sustained inflation, supply chain disruptions and major central bank policy actions;

•

market and economic conditions; and

•

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-Q, unless otherwise stated or the context requires otherwise, references to “Precision,” the “Company,” “we,” “us,” and “our,” refer to Precision BioSciences, Inc.

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 have not been profitable and may not 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, 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.

•

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.

•

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.

•

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.

•

Our future success depends on our key executives, as well as attracting, retaining and motivating qualified personnel.

Part I. Financial information

Item 1. Financial Statements.

Precision Biosciences, Inc.

Condensed Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited)


	March 31, 2023			December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	158,132		$	189,576
Accounts receivable		694			720
Prepaid expenses		8,424			7,552
Other current assets		1,767			1,257
Total current assets		169,017			199,105
Property, equipment, and software—net		18,591			20,190
Intangible assets—net		1,525			1,348
Right-of-use assets—net		2,649			2,974
Investment in equity securities		1,807			2,576
Equity method investment		831			2,172
Note receivable—net		7,328			7,234
Other assets		2,754			2,570
Total assets	$	204,502		$	238,169
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	701		$	1,225
Accrued compensation		1,954			6,259
Accrued clinical and research and development expenses		2,430			3,206
Deferred revenue		38,268			46,192
Lease liabilities		2,094			2,037
Other current liabilities		1,412			745
Total current liabilities		46,859			59,664
Deferred revenue		82,764			82,872
Lease liabilities		2,233			2,776
Long term debt—net		22,270			22,223
Contract liabilities		10,000			10,000
Other noncurrent liabilities		199			201
Total liabilities		164,325			177,736
Commitments and contingencies (Note 4)
Stockholders’ equity:
Preferred stock, $0.0001 par value— 10,000,000 shares authorized as of March 31, 2023 and December 31, 2022; no shares issued and outstanding as of March 31, 2023 and December 31, 2022		—			—
Common stock; $0.000005 par value— 200,000,000 shares authorized as of March 31, 2023 and December 31, 2022; 113,149,893 shares issued and 112,339,421 shares outstanding as of March 31, 2023; 111,774,507 shares issued and 110,964,035 shares outstanding as of December 31, 2022		1			1
Additional paid-in capital		494,500			489,696
Accumulated deficit		(453,372	)		(428,312	)
Treasury stock		(952	)		(952	)
Total stockholders’ equity		40,177			60,433
Total liabilities and stockholders’ equity	$	204,502		$	238,169

See notes to condensed financial statements

Precision Biosciences, Inc.

Condensed Statements of Operations

(In thousands, except share and per share amounts)

(Unaudited)


	For the Three Months Ended March 31,
	2023			2022
Revenue	$	8,780		$	3,317
Operating expenses
Research and development		22,158			19,972
General and administrative		11,086			10,680
Total operating expenses		33,244			30,652
Operating loss		(24,464	)		(27,335	)
Other income (expense):
Loss from equity method investment		(1,341	)		(952	)
Change in fair value of equity investment		(769	)		—
Interest expense		(522	)		(42	)
Interest income		2,043			172
Loss on disposal of assets		(7	)		(11	)
Total other expense		(596	)		(833	)
Net loss	$	(25,060	)	$	(28,168	)

Net loss per share - basic and diluted	$	(0.23	)	$	(0.46	)
Weighted-average shares of common stock outstanding - basic and diluted		111,301,409			61,031,775

See notes to condensed financial statements

Precision Biosciences, Inc.

Condensed Statements of Changes in

Stockholders’ Equity

(In thousands, except share amounts)

(Unaudited)


	Common Stock				Additional Paid-In		Accumulated			Treasury			Total Stockholders'
	Shares		Amount		Capital		Deficit			Stock			Equity
Balance- December 31, 2021		61,712,577	$	—	$	408,795	$	(316,675	)	$	(952	)	$	91,168
Stock option exercises		233,001		—		340		—			—			340
Issuance of common stock under employee stock purchase plan		78,060		—		282		—			—			282
Share-based compensation expense		—		—		4,390		—			—			4,390
Proceeds from issuance of common stock, net of issuance cost		561,405		—		1,647		—			—			1,647
Net loss		—		—		—		(28,168	)		—			(28,168	)
Balance- March 31, 2022		62,585,043	$	—	$	415,454	$	(344,843	)	$	(952	)	$	69,659


Balance- December 31, 2022		111,774,507	$	1	$	489,696	$	(428,312	)	$	(952	)		60,433
Stock option exercises		51,492		—		30		—			—			30
Issuance of common stock under employee stock purchase plan		280,196		—		266		—			—			266
Share-based compensation expense		—		—		4,092		—			—			4,092
Restricted stock units vested		503,214		—		—		—			—			—
Proceeds from issuance of common stock, net of issuance cost		540,484		—		416		—			—			416
Net loss		—		—		—		(25,060	)		—			(25,060	)
Balance- March 31, 2023		113,149,893	$	1	$	494,500	$	(453,372	)	$	(952	)	$	40,177

See notes to condensed financial statements

Precision Biosciences, Inc.

Condensed Statements of Cash Flows

(In thousands)

(Unaudited)


	For the Three Months Ended March 31,
	2023			2022
Cash flows used in operating activities:
Net loss	$	(25,060	)	$	(28,168	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,953			1,968
Share-based compensation		4,092			4,390
Loss on disposal of assets		7			11
Non-cash interest expense		213			17
Amortization of right-of-use assets		325			288
Change in fair value of equity investment		769			—
Loss from equity method investment		1,341			952
Amortization of discount on note receivable		(94	)		(87	)
Changes in operating assets and liabilities:
Prepaid expenses		(872	)		374
Accounts receivable		26			—
Other assets and other current assets		(571	)		171
Accounts payable		(559	)		(374	)
Other liabilities and other current liabilities		(4,516	)		(5,150	)
Deferred revenue		(8,032	)		(2,830	)
Lease liabilities		(486	)		(434	)
Net cash used in operating activities		(31,464	)		(28,872	)
Cash flows used in investing activities:
Purchases of property, equipment and software		(521	)		(818	)
Purchases of intangible assets		(200	)		—
Net cash used in investing activities		(721	)		(818	)
Cash flows provided by financing activities:
Proceeds from stock option exercises		30			340
Proceeds from employee stock purchase plan		266			282
Proceeds from offering of common stock, net of issuance costs		445			1,627
Net cash provided by financing activities		741			2,249
Net decrease in cash and cash equivalents		(31,444	)		(27,441	)
Cash and cash equivalents—beginning of period		189,576			143,663
Cash and cash equivalents —end of period	$	158,132		$	116,222

Supplemental disclosures of noncash activities:
Property, equipment and software additions included in accounts payable and other current liabilities	$	43		$	74
Cash paid for interest	$	464		$	32
Unsettled at-the-market issuances of common stock included in other current assets		—		$	217

See notes to condensed financial statements

Precision BioSciences, Inc.

Notes to Condensed Financial Statements (Unaudited)

NOTE 1: DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Precision BioSciences, Inc. (the “Company”) was incorporated on January 26, 2006 under the laws of the State of Delaware and is based in Durham, North Carolina. The Company is a clinical stage gene editing company dedicated to improving life by developing ex vivo allogeneic CAR T immunotherapies and in vivo therapies for genetic and infectious diseases with the application of the Company’s wholly owned proprietary ARCUS genome editing platform.

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 early-stage research and development of product candidates. Principal among these risks are dependence on key individuals and intellectual property, competition from other products and companies, and the technical risks associated with the successful research, development and clinical manufacturing of its product candidates. The Company’s success is dependent upon its ability to continue to raise additional capital in order to fund ongoing research and development, obtain regulatory approval of its products, successfully commercialize its products, generate revenue, meet its obligations, and, ultimately, attain profitable operations.

Unaudited Interim Financial Information

The accompanying unaudited condensed financial statements and notes have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in the annual financial statements, prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”), have been condensed or omitted pursuant to those rules and regulations. These unaudited condensed financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 9, 2023.

The unaudited condensed financial statements have been prepared on the same basis as the audited financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of the Company’s condensed financial position as of March 31, 2023 and condensed results of operations for the three months ended March 31, 2023 and 2022 and the condensed cash flows for the three months ended March 31, 2023 and 2022, have been made. The Company’s condensed results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2023.

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 three months ended March 31, 2023, the Company recorded cumulative catch up adjustments on its contracts with customers that decreased revenue recognition by $1.7 million; the cumulative catch-up adjustments resulted from a change in total estimated effort required to satisfy performance obligations. During the three months ended March 31, 2023, the Company recorded $8.7 million in revenue that was included in deferred revenue as of December 31, 2022.

Invoices issued as stipulated in contracts prior to revenue recognition are recorded as deferred revenue. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue within current liabilities in the accompanying condensed balance sheets. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as noncurrent deferred revenue. Amounts recognized as revenue, but not yet invoiced are generally recognized as contract assets in the other current assets line item in the accompanying condensed balance sheets.

Milestone Payments – If an arrangement includes development and regulatory milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the Company’s or the licensee’s control, such as regulatory approvals, are not considered probable of being achieved until those approvals are received and therefore revenue recognized is constrained as management is unable to assert that a reversal of revenue would not be probable. The transaction price is then allocated to each performance obligation on a relative standalone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such development milestones and any related constraint, and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect collaboration revenues and earnings in the period of adjustment.

Royalties – For arrangements that include sales-based royalties, including milestone payments based on a level of sales, which are the result of a customer-vendor relationship and for which the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation linked to some or all of the royalty has been satisfied or partially satisfied. To date, the Company has not recognized any royalty revenue resulting from any of its licensing arrangements.

Significant Financing Component – In determining the transaction price, the Company adjusts consideration for the effects of the time value of money if the timing of payments provides the Company with a significant benefit of financing. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the licensees and the transfer of the promised goods or services to the licensees will be one year or less. The Company assessed each of its revenue arrangements in order to determine whether a significant financing component exists and concluded that a significant financing component does not exist in any of its arrangements.

Collaborative Arrangements – The Company has entered into collaboration agreements, which are within the scope of ASC 606, to discover, develop, manufacture and commercialize product candidates. The terms of these agreements typically contain multiple promises or obligations, which may include: (1) licenses, or options to obtain licenses, to use the Company’s technology, (2) research and development activities to be performed on behalf of the collaboration partner, and (3) in certain cases, services in connection with the manufacturing of preclinical and clinical material. Payments the Company receives under these arrangements typically include one or more of the following: non-refundable, upfront license fees; option exercise fees; funding of research and/or development efforts; clinical and development, regulatory, and sales milestone payments; and royalties on future product sales.

The Company analyzes its collaboration arrangements to assess whether the collaboration agreements are within the scope of ASC 808, Collaborative Arrangements (“ASC 808”) to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities. This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For collaboration arrangements within the scope of ASC 808 that contain multiple elements, the Company first determines which elements of the collaboration are deemed to be within the scope of ASC 808 and those that are more reflective of a vendor-customer relationship and, therefore, are within the scope of ASC 606. For elements of collaboration arrangements that are accounted for pursuant to ASC 808, an appropriate recognition method is determined and applied consistently, generally by analogy to ASC 606. For those elements of the arrangement that are accounted for pursuant to ASC 606, the Company applies the five-step model described above.

For additional discussion of accounting for collaboration revenues, see Note 6, Collaboration and License Agreements.

NOTE 2: FAIR VALUE MEASUREMENTS

The following represents assets and liabilities measured at fair value on a recurring basis by the Company (in thousands):


March 31, 2023	Fair Value		Level 1		Level 2		Level 3
Assets:
Money market funds	$	22	$	22	$	—	$	—
Repurchase agreements		—		—		—		—
Investment in iECURE		1,807		—		—		1,807
	$	1,829	$	22	$	—	$	1,807

Liabilities:
Final payment fee	$	199	$	—	$	199	$	—
	$	199	$	—	$	199	$	—


December 31, 2022	Fair Value		Level 1		Level 2		Level 3
Assets:
Money market funds	$	868	$	868	$	—	$	—
Repurchase agreements		40,000		—		40,000		—
Investment in iECURE		2,576		—		—		2,576
	$	43,444	$	868	$	40,000	$	2,576