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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and the related notes to those statements included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many important factors, including those set forth in Part I. Item 1A. “Risk Factors” of this Annual Report on Form 10-K, our actual results could differ materially from the results described in, or implied by, these forward-looking statements. As used in this Annual Report on Form 10-K, unless the context otherwise requires, references to “we,” “us,” “our,” the “Company” and “Precision” refer to Precision BioSciences, Inc. and its subsidiaries, as applicable, on a consolidated basis.

A discussion regarding our financial condition and results of operation, including liquidity and capital resources, for the year ended December 31, 2022 compared to the year ended December 31, 2021 is presented below. A discussion regarding our financial condition and results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2020 is included under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on 10-K for the year ended December 31, 2021 filed on March 15, 2022.

Overview

We are a clinical stage gene editing company dedicated to improving life by developing ex vivo allogeneic chimeric antigen receptor ("CAR") T immunotherapies and in vivo therapies for genetic and infectious diseases with the application of our wholly owned proprietary ARCUS genome editing platform. The foundation of ARCUS is a natural homing endonuclease which allows us to replicate precise gene editing as it evolved in nature. ARCUS is designed to be precise in its specificity and versatile in its design for gene knock out as well as complex edits with gene insertion and gene repair. ARCUS is also unique in its relatively small size which potentially allows delivery to a wider range of cells and tissues using viral and non-viral gene delivery methods.

We believe our CAR T cells are the only allogeneic CAR T cells in human clinical trials made with a single gene editing step designed to specifically avoid the potentially deleterious effects of making multiple edits to T cells. We are simultaneously conducting a Phase 1b/2a clinical trial evaluating PBCAR0191, azercabtagene zapreleucel ("azer-cel"), as a potential first-in-class, if approved, and a Phase 1 clinical trial evaluating PBCAR19B as a potential best-in-class, if approved, CD19-targeting CAR T cell therapy in adult patients with relapsed or refractory (“R/R”), B-cell malignancies.

Made from donor-derived T cells modified using our ARCUS genome editing technology, azer-cel recognizes the well characterized tumor cell surface protein CD19, an important and validated target in several B-cell cancers. Azer-cel is designed to avoid graft-versus-host disease, a significant complication associated with donor-derived, cell-based therapies. In June 2022, we provided an interim clinical update and outlined the opportunity for azer-cel for the growing CAR T relapsed patient population with aggressive lymphomas. As of the May 31, 2022 data cutoff, positive efficacy results, including high overall and complete response (“CR”) rates and duration of response, and an improved adverse event profile have been observed among evaluable CAR T relapsed subjects. This included six subjects who received azer-cel Dose Level (“DL”) 3 of 3 × 106 cells/kg with enhanced lymphodepletion of fludarabine 30 mg/m2/day × 4 days + cyclophosphamide 1000 mg/m2/day × 3 days (the “ASH Cohort”) and six subjects who received azer-cel DL4b, a flat dose of 500 × 106 cells, with reduced dose lymphodepletion of fludarabine 30 mg/m2/day × 4 days + cyclophosphamide 750 mg/m2/day × 3 days since January 2022 (the “New Cohort”). Among 11 subjects evaluable for response, the program update reported efficacy results across both the ASH Cohort and New Cohort, including a 100% (11/11) overall response rate (“ORR”) and 73% (8/11) CR rate. Six subjects were in ongoing response (up to 18+ months). In the ASH Cohort, 50% (3/6) of evaluable subjects had a response duration greater than six months. Among subjects treated with DL4b and reduced intensity lymphodepletion in the New Cohort, a 100% CR rate was achieved among evaluable subjects (5/5). One subject was non-evaluable at the Day 28 assessment due to death from suspected fludarabine-associated neurotoxicity on Day 23. The subject had complete resolution of disease according to a CT scan on Day 21.

No Grade 3 or greater cytokine release syndrome was observed in either dosing cohort. One Grade 3 immune effector cell-associated neurotoxicity syndrome was recorded in each cohort that rapidly resolved to Grade 1 within 24 to 48 hours. Two Grade 5 events associated with late occurring encephalopathy suspected to be related to fludarabine-associated neurotoxicity occurred in the New Cohort. There was no evidence of graft versus host disease in either cohort. Grade 3 or greater infections occurred less frequently in the New Cohort with one out of six (17%) subjects compared to four out of six (67%) subjects in the ASH Cohort.

A poster presented at the 64th ASH Annual Meeting in December 2022 evaluated the relationship between healthy cell dose and functional attributes of azer-cel to the efficacy and safety of the product in patients with R/R B-cell lymphoma. This poster showed that post-thaw product composition and healthy CAR T cell dose are predictive for response to treatment with azer-cel. Based on these findings, we have applied optimizations across all allogeneic CAR T platforms with the goal of improving those product attributes and characteristics that drive predictability, reliability, and performance.

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In January 2023, we announced we received FDA feedback that we believe signaled alignment with our proposed chemistry, manufacturing and controls ("CMC") plan for azer-cel. In 2023, we intend to progress azer-cel to a decision point for a Phase 2 trial in non-Hodgkin lymphoma ("NHL") subjects who have relapsed following autologous CAR T treatment by completing the Phase 1b cohort to identify a dosing schedule for further study and we plan to seek feedback from the FDA on the azer-cel clinical program once more data become available.

PBCAR19B is a novel immune-evading stealth cell candidate employing a single-gene edit designed to knock-down beta-2 microglobulin in an effort to evade T cell rejection, while also inserting a human leukocyte antigen E transgene to further evade rejection from natural killer cells. As of the June 2022 program update, a flat dose of 270 million cells (DL1) following standard lymphodepletion of fludarabine 30 mg/m2/day × 3 days + cyclophosphamide 500 mg/m2/day × 3 days has been administered to three subjects with R/R diffuse large B-cell lymphoma. We are continuing to recruit patients in the PBCAR19B clinical program at DL2 (flat dose of 540 million cells) with the intent to complete the Phase 1 dose escalation in the earlier line NHL setting in 2023.

We plan to provide a CAR T program update once investigators complete enrollment of the current azer-cel cohort of six CAR T relapsed subjects with sufficient follow-up to support a meeting with the FDA to discuss clinical plans. Subjects are being treated with optimized azer-cel product at the planned final dose level (500 million CAR T cells following a lymphodepletion regimen consisting of 3 days of fludarabine and cyclophosphamide). Based on current enrollment, the update is expected to occur in the April/May 2023 time frame, once appropriate follow-up from the current cohort is available. We plan to provide additional long term follow up from the azer-cel cohorts presented at ASH 2021 and ASCO 2022, as well as data from subjects in the current cohort. The CAR T update is also expected to include interim efficacy and safety data from the PBCAR19B Phase 1 trial at Dose Level 2 (540 million CAR T cells following 3 days of fludarabine and cyclophosphamide) with an expectation of durability data to follow this year.

PBCAR269A, an investigational allogeneic CAR T cell candidate targeting B-cell maturation antigen (“BCMA”) for R/R multiple myeloma, when used in combination with nirogacestat, a gamma secretase inhibitor (“GSI”) developed by SpringWorks Therapeutics, Inc., resulted in improved cell expansion, which correlated with increased clinical activity when compared to dose-matched PBCAR269A monotherapy treatment. However, in light of the competitive landscape of BCMA targeted therapies in multiple myeloma, we have made the strategic decision not to continue the PBCAR269A clinical program. All subjects enrolled in the study and evaluated for treatment with PBCAR269A and nirogacestat had acceptable tolerability results.

In vivo gene editing is complex and involves the delivery of ARCUS nucleases directly into a patient’s cells to treat disease at the level of the underlying DNA. We expect the development of in vivo therapies for genetic and infectious diseases to be a significant focus of our operations long-term. We believe these applications are particularly well suited to ARCUS because they require extremely low levels of off-target editing and efficient delivery. As a gene editing tool, we believe ARCUS can be differentiated by unique attributes which are designed for precise, specific and versatile gene editing. By nature of its origin from a homing endonuclease, we believe ARCUS has the potential to be particularly applicable to gene insertion and complex edits designed for gene repair aimed at restoring function, as well as more simple gene knock outs. ARCUS is also unique in its relatively small size which potentially allows delivery to a wider range of cells and tissues using viral and non-viral gene delivery methods.

We, along with partners, intend to continue to evaluate the ARCUS platform with regards to safety, on-target editing, gene insertion, complex gene edits, and compatibility with viral and non-viral delivery. Our PBGENE-HBV for the potential treatment of chronic hepatitis B virus (“HBV”) program remains a top priority, and we intend to submit a Clinical Trial Application ("CTA") or Investigational New Drug application ("IND") in 2024. Our gene editing program for chronic HBV applies ARCUS to knock out persistent covalently closed circular DNA and inactivate integrated HBV genomes, potentially achieving durable HBV S-antigen (“HBsAg”) loss and reducing viral persistence. Preclinical data from this program were presented at an oral presentation at the European Society of Gene & Cell Therapy 29th Congress in October 2022 and showed that ARCUS efficiently targeted and degraded HBV cccDNA in HBV-infected primary human hepatocytes and reduced expression of HBV S-antigen (“HBsAg”) by as much as 95%. Similar levels of HBsAg reduction were observed in a newly developed mouse model of HBV infection following administration of ARCUS mRNA using LNP delivery. We plan to present additional data at a scientific conference in 2023.

In June 2022, we announced we entered into an exclusive in vivo gene editing research and development collaboration and license agreement (the “Novartis Agreement”) with Novartis Pharma AG (“Novartis”). In connection with this partnership, we are developing a custom ARCUS nuclease that will be designed to insert, in vivo, a therapeutic transgene at a “safe harbor” location in the genome as a potential one-time transformative treatment option for diseases including certain hemoglobinopathies such as sickle cell disease and beta thalassemia. Under the terms of the Novartis Agreement, we will develop an ARCUS nuclease and conduct in vitro characterization, with Novartis then assuming responsibility for all subsequent research, development, manufacturing and commercialization activities.

We continue our in vivo gene editing collaboration with Eli Lilly and Company (“Lilly”) in applying ARCUS nucleases to three initial targets, including Duchenne muscular dystrophy in muscle, a central nervous system directed target and a liver directed target.

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In partnership with iECURE, Inc. (“iECURE”), an ARCUS-mediated gene insertion approach is being pursued as a potential treatment for neonatal onset ornithine transcarbamylase ("OTC") deficiency. Non-human primate data presented by researchers from the University of Pennsylvania’s Gene Therapy Program demonstrated sustained gene insertion of a therapeutic OTC transgene one-year post-dosing in newborn and infant non-human primates with high efficiency. A CTA and/or IND filing by iECURE for neonatal onset OTC deficiency is planned for submission in the second half of 2023.

The strategic prioritization exercise for our in vivo research pipeline, announced in November 2022, is ongoing to assess diseases with highest unmet need in an increasingly dynamic regulatory and competitive gene editing landscape. We are making trade-offs and further honing our focus on disease areas where we believe ARCUS, more than any other technology, can have the greatest and most profound impact. While we intend to continue to pursue gene knock-out programs opportunistically, the proof of concept data continues to lead toward prioritizing programs involving complex edits and gene insertion (adding a functional copy of a gene) as exemplified by our partnered OTC program. While we remain committed to patients with cardiovascular diseases, we have made the decision to cease pursuit of PBGENE-PCSK9 for familial hypercholesterolemia ("FH") with iECURE as our partner. PCSK9 for FH remains a wholly-owned program, and we are monitoring the regulatory landscape as we consider FH as well as several potential cardiovascular disease indications in our pipeline prioritization exercise.

Work on the PBGENE-PH1 program progressed as planned in 2022. We have clinical candidates ready to proceed to the next stage of IND enabling studies. Based on our new prioritized focus as well as the evolving treatment paradigm for PH1, we have made the choice to look for a partner in the kidney disease arena for further development of PBGENE-PH1 and will no longer develop the program on our own.

In December 2021, we announced our entry into an agreement with a syndicate of investors led by ACCELR8 to separate our then wholly owned subsidiary, Elo Life Systems, Inc. (“Elo”), and create an independent food and agriculture business (“New Elo”). As of December 31, 2022, we held 37% of New Elo's voting shares.

Since our formation in 2006, we have devoted substantially all of our resources to developing ARCUS, conducting research and development activities, recruiting skilled personnel, developing manufacturing processes, establishing our intellectual property portfolio and providing general and administrative support for these operations. We have financed our operations primarily through proceeds from upfront and milestone payments from collaboration and licensing agreements, our IPO, private placements of our common stock, convertible preferred stock and convertible debt financings, underwritten and at-the-market offerings of common stock, and borrowings on credit facilities.

Since our inception, we have incurred significant operating losses and have not generated any revenue from the sale of products. Our ability to generate any product revenue or product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more of our product candidates or the product candidates of our collaborators for which we may receive milestone payments or royalties. As of December 31, 2022, we had an accumulated deficit of $428.3 million.

We expect our operating expenses to increase in connection with our ongoing CAR T clinical trials and the expansion of our in vivo product development programs and capabilities. We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for one of our product candidates or the product candidates of our collaborators for which we may receive milestone payments or royalties. If we obtain regulatory approval for any of our product candidates, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing and distribution. In addition, we expect to continue to incur additional costs associated with operating as a public company.

As a result of these anticipated expenditures, we will need additional financing to support our continuing operations. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our cash needs through a combination of public equity, debt financings or other sources, which may include current and new collaborations with third parties. Adequate additional financing may not be available to us on acceptable terms, or at all. Our inability to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. We cannot assure you that we will ever generate significant revenue to achieve profitability.

Because of the numerous risks and uncertainties associated with the development of therapeutic products, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate revenue from product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be required to raise additional capital on terms that are unfavorable to us or we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

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Collaborations

Novartis Pharma AG

On June 14, 2022, we entered into the Novartis Agreement, which became effective on June 15, 2022 (the “Novartis Effective Date”), to collaborate to discover and develop in vivo gene editing products incorporating our custom ARCUS nucleases for the purpose of seeking to research and develop potential treatments for certain diseases (as defined in the Novartis Agreement, the “Licensed Products”). Any initial Licensed Products will be developed for the potential treatment of certain hemoglobinopathies, including sickle cell disease and beta thalassemia.

Pursuant to the terms of the Novartis Agreement, we will develop an ARCUS nuclease and conduct in vitro characterization for the Licensed Products, with Novartis then assuming responsibility for all subsequent development, manufacturing and commercialization activities. Novartis will receive an exclusive license for, and be required to use commercially reasonable efforts to conduct all subsequent research, development, manufacture and commercialization activities with respect to the Licensed Products. We will initially develop a single, custom ARCUS nuclease for a defined “safe harbor” target site for insertion of specified therapeutic payloads in the patient’s genome (the “Initial Nuclease”) for Novartis to further develop as a potential in vivo treatment option for certain hemoglobinopathies, including sickle cell disease and beta thalassemia. Pursuant to the terms of the Novartis Agreement, Novartis may elect, subject to payment of a fee to us, to replace Licensed Products based on the Initial Nuclease with Licensed Products based on a second custom ARCUS nuclease we design for gene editing of a specified human gene target associated with hemoglobinopathies (the “Replacement Nuclease”). Additionally, Novartis has the option, upon payment of a fee to us for each exercise of the option, to include Licensed Products utilizing the Initial Nuclease for insertion of up to three additional specified therapeutic payloads at the “safe harbor” target site, each intended to treat a particular genetic disease. The exercise period for such option ends on the earlier of (a) the fourth anniversary of the Novartis Effective Date and (b) the replacement of the Initial Nuclease with the Replacement Nuclease as described above.

In July 2022, we received a $50.0 million upfront cash payment under the Novartis Agreement. Additionally, on the Novartis Effective Date, Novartis made an equity investment in our common stock pursuant to a stock purchase agreement (the “Novartis Stock Purchase Agreement”) pursuant to which, on the Novartis Effective Date, we issued and sold to Novartis 12,407,440 shares of our common stock (the “Novartis Shares”) in a private placement transaction for an aggregate purchase price of $25.0 million, or approximately $2.01 per share. The price per share of our common stock under the Novartis Stock Purchase Agreement represented a 20% premium over the volume-weighted-average-price of our common stock over the 10 trading days preceding the execution date of the Novartis Stock Purchase Agreement.

Pursuant to the Novartis Stock Purchase Agreement, subject to certain exceptions, Novartis may not sell the Novartis Shares without our approval for a period of two years following the Novartis Effective Date. In addition, for a period of two years following the Novartis Effective Date, Novartis and its affiliates may not (a) effect or otherwise participate in, directly or indirectly, any acquisition of any of our securities or material assets, any tender offer or exchange offer, merger or other business combination or change of control involving us, any recapitalization, restructuring, liquidation, dissolution or other extraordinary transaction with respect to us, or any solicitation of proxies or consents to vote any of our securities or (b) act with any other person, or publicly disclose any intention, to do any of the foregoing. The Novartis Stock Purchase Agreement also contains customary representations, warranties, and covenants of both parties.

On the Novartis Effective Date, we and Novartis also entered into a registration rights agreement (the “Registration Rights Agreement”) pursuant to which we have agreed, within the time periods specified in the Registration Rights Agreement, to register the resale of the Novartis Shares on a registration statement to be filed with the SEC. The Registration Rights Agreement contains customary indemnification provisions, and all registration rights terminate in their entirety effective on the first date on which there cease to be any Registrable Securities (as defined in the Registration Rights Agreement) outstanding.

We will also be eligible to receive milestone payments of up to an aggregate of approximately $1.4 billion as well as certain research funding. If Licensed Products resulting from the collaboration are approved and sold, we will also be entitled to receive tiered royalties ranging from the mid-single digit to low-double digit percentages on net sales of Licensed Products, subject to customary potential reductions. Novartis’s obligation to pay royalties to us expires on a country-by-country and Licensed Product-by-Licensed Product basis, upon the latest to occur of certain events related to expiration of patents, regulatory exclusivity or a period of ten years following the first commercial sale of the Licensed Product.

Unless earlier terminated, the Novartis Agreement will remain in effect on a Licensed Product-by-Licensed Product and country-by-country basis until the expiration of a defined royalty term for each Licensed Product and country. Novartis has the right to terminate the Novartis Agreement without cause by providing advance notice to us. Either party may terminate the Novartis Agreement for material breach by the other party and a failure to cure such breach within the time period specified in the Novartis Agreement. We may also terminate the Novartis Agreement in the event that Novartis brings a challenge to our patents.

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During the year ended December 31, 2022 we recognized revenue under the Novartis Agreement of $9.5 million. Deferred revenue related to the Novartis Agreement amounted to $54.2 million as of December 31, 2022, of which $27.9 million was included in current liabilities within the consolidated balance sheets.

Eli Lilly and Company

In January 2021, we closed a development and license agreement, subsequently amended by the First Amendment to the Development and License Agreement dated August 9, 2021 (as amended, the “Lilly Agreement”) with Lilly to utilize ARCUS for the research and development of potential in vivo therapies for genetic disorders. Lilly has initially nominated Duchenne muscular dystrophy (“DMD”), a liver-directed target and a central nervous system directed target, and has the right to nominate up to three additional gene targets for genetic disorders over the initial nomination period of four years (the "Nomination Period"). Lilly may extend the Nomination Period for an additional two years from the date on which the Nomination Period ends, upon Lilly’s election and payment of an extension fee. Under the terms of the Lilly Agreement, Lilly received an exclusive license to research, develop, manufacture and commercialize the resulting licensed products to diagnose, prevent and treat any and all diseases by in vivo gene editing directed against the applicable gene target. The Development and License Agreement provides that we will be responsible for conducting certain pre-clinical research and IND-enabling activities with respect to the gene targets nominated by Lilly to be subject to the collaboration, including manufacture of initial clinical trial material for the first licensed product. Lilly will be responsible for, and must use commercially reasonable efforts with respect to, conducting clinical development and commercialization activities for licensed products resulting from the collaboration, and may engage us for additional clinical and/or initial commercial manufacture of licensed products.

In connection with the closing, we received an upfront cash payment of $100.0 million as well as $35.0 million from Lilly’s purchase of 3,762,190 newly issued shares of our common stock pursuant to a stock purchase agreement (the “Lilly Share Purchase Agreement”). We will also be eligible to receive milestone payments of up to an aggregate of $420.0 million per licensed product as well as nomination fees for additional targets and certain research funding. If licensed products resulting from the collaboration are approved and sold, we will also be entitled to receive tiered royalties ranging from the mid-single digit percentages to the low-teens percentages on world-wide net sales of the licensed products, subject to customary potential reductions. Lilly’s obligation to pay royalties to us expires on a country-by-country and licensed product-by-licensed product basis, upon the latest to occur of certain events related to expiration of patents, regulatory exclusivity or a period of ten years following first commercial sale of the licensed product.

We have the right to elect to co-fund the clinical development of one licensed product, which may be selected from among the third or any subsequent licensed products to reach IND or CTA filing. If we elect to co-fund such licensed product, we would reimburse Lilly for a portion of the clinical development expenses for such product and, in exchange, each royalty tier with respect to net sales of such licensed product would be increased by a low single digit percentage. During the term of the Lilly Agreement, we may not (and may not license or collaborate with any third party to) research, develop, or commercialize any in vivo gene editing product directed against any gene targets that have been nominated and are subject to the Lilly Agreement.

Unless earlier terminated, the Lilly Agreement will remain in effect on a licensed product-by-licensed product and country-by-country basis until the expiration of a defined royalty term for each licensed product and country. Lilly has the right to terminate the Lilly Agreement for convenience by providing advance notice to us. Either party may terminate the Lilly Agreement (i) for material breach by the other party and a failure to cure such breach within the time period specified in the agreement or (ii) due to a challenge to its patents brought by the other party.

During the years ended December 31, 2022 and 2021, we recognized revenue under the Lilly Agreement of approximately $15.6 million and $21.0 million, respectively. Deferred revenue related to the Lilly Agreement amounted to $74.8 million and $88.3 million as of December 31, 2022 and 2021, of which $18.3 million and $21.2 million, respectively, was included in current liabilities within the consolidated balance sheets.

iECURE

In August 2021, we entered into the iECURE Agreement. We have made the decision to cease pursuit of PBGENE-PCSK9 for FH with iECURE as our partner. Pursuant to the iECURE Agreement, we retain the rights to PBGENE-PCSK9, including all products developed for genetic indications with increased risk of severe cardiovascular events such as FH. In conjunction with the iECURE Agreement, we also granted iECURE a license to use our PCSK9-directed ARCUS nuclease to insert genes into the PCSK9 locus to develop treatments for four other pre-specified rare genetic diseases, including OTC deficiency, Citrullinemia Type 1 (“CTLN1”), Phenylketonuria (“PKU”), and another program focused on liver disease. Simultaneously with the entry into the iECURE Agreement, we and iECURE entered into an Equity Issuance Agreement (the “iECURE Equity Issuance Agreement”), pursuant to which iECURE issued us common stock in iECURE as additional consideration for the PCSK9 license. Additionally, the Company is eligible to receive milestone and mid-single digit to low double digit royalty payments on sales of iECURE products developed with ARCUS.

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The fair value of the iECURE equity at inception of the iECURE agreements was assessed to be $0.5 million and was initially recorded to the investment in equity securities line item of the consolidated balance sheets. As further discussed in Note 4, Fair Value Measurements, to our Financial Statements, on issuance, Management elected to account for the iECURE equity at fair value under accounting standards codification ("ASC") 825. Accordingly, we adjust the carrying value of the iECURE equity to fair value each reporting period with any changes in fair value recorded to other income (expense). In the year ended December 31, 2022 we recorded a $0.5 million decrease in the carrying value of our iECURE equity to adjust to fair value as a result of dilution from iECURE's Series A-1 equity raise in such period. The fair value of the costs to be incurred by iECURE to progress our PBGENE-PCSK9 candidate through Phase 1 clinical trial (the “PCSK9 Prepaid”) was assessed to be $17.4 million and was recorded to the prepaid expenses and other assets line items of the consolidated balance sheets. The PCSK9 Prepaid was amortized to research and development expense on a pro-rata basis as iECURE incurred costs to progress the PBGENE-PCSK9 candidate through the Phase 1 clinical trial.

As further discussed in Note 11, Impairment Charges, to our Financial Statements, the remaining unamortized PCSK9 Prepaid was fully impaired during the year ended December 31, 2022, as we have made the decision to cease pursuit of PBGENE-PCSK9 for FH with iECURE as our partner. Accordingly, there was no PCSK9 Prepaid balance as of December 31, 2022. As of December 31, 2021 the remaining balance of the PCSK9 Prepaid was $13.0 million, which was included in the prepaid expenses and other assets line items of the consolidated balance sheets in the amounts of $10.4 million and $2.6 million, respectively.

During the year ended December 31, 2022, we recognized no revenue under the iECURE agreements. During the year ended December 31, 2021, we recognized $17.9 million of revenue under the iECURE agreements. During the years ended December 31, 2022 and 2021, we recognized $2.1 million and $4.4 million of research and development expense related to amortization of the PCSK9 Prepaid.

Servier

In February 2016, we entered into the Servier Agreement with Servier, pursuant to which we agreed to develop allogeneic CAR T cell therapies for five unique antigen targets. One target was selected at the Servier Agreement’s inception. Two additional hematological cancer targets beyond CD19 and two new solid tumor targets were selected in 2020. With the addition of these new targets, we received development milestone payments in 2020. Upon selection of an antigen target under the Servier Agreement, we agreed to perform early-stage research and development on individual T cell modifications for the selected target, develop the resulting therapeutic product candidates through Phase 1 clinical trials and prepare initial clinical trial material of such product candidates for use in Phase 2 clinical trials.

On April 9, 2021, we entered into the Program Purchase Agreement with Servier, pursuant to which we reacquired all of our global development and commercialization rights previously granted to Servier pursuant to the Servier Agreement, and mutually terminated the Servier Agreement.

Pursuant to the Servier Agreement, we had developed certain allogeneic CAR T candidates, including azer-cel and the stealth cell PBCAR19B, each targeting CD19, as well as four additional product targets under the Servier Agreement. Pursuant to the terms of the Program Purchase Agreement, we regained full global rights to research, develop, manufacture and commercialize products resulting from such programs, with sole control over all activities. Additionally, per the terms of the Program Purchase Agreement we do not have an obligation to continue development of the Servier Targets. With respect to products directed to CD19, Servier has certain rights of negotiation, which may be exercised during a specified time period if we elect to initiate a process or entertain third party offers for partnering such products.

Pursuant to the terms of the Program Purchase Agreement, we made a payment of $1.25 million in cash to Servier and agreed to waive earned milestones totaling $18.75 million that would have been otherwise payable to us.

The Program Purchase Agreement also requires us 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 our continued development and commercialization of the programs, for a period not to exceed ten years after first commercial sale of the applicable product in the United States or certain countries in Europe. If we enter into specified product partnering transactions, the Program Purchase Agreement requires us to pay to Servier a portion of certain consideration received pursuant to such product partnering transactions in lieu of the foregoing milestones (with the exception of a one-time clinical phase development milestone) and royalties. For additional discussion of accounting for payment obligations arising from the Program Purchase Agreement, refer to Note 6, Commitments and Contingencies, to our Financial Statements.

We recognized no revenue under the agreement with Servierduring the year ended December 31, 2022. During the year ended December 31, 2021, we recognized revenue under the agreement with Servier of approximately $72.9 million.We did not have deferred revenue related to the agreement with Servier as of December 31, 2022 or December 31, 2021.

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Tiziana

In September 2021, we entered into an exclusive license agreement to evaluate Tiziana’s foralumab, a fully human anti-CD3 monoclonal antibody, as a lymphodepleting agent in conjunction with our allogeneic CAR T cells for the potential treatment of cancers. We plan to assess foralumab use in combination with an allogeneic CAR T.

SpringWorks Therapeutics

In September 2020, we entered into a Clinical Trial Collaboration Agreement with SpringWorks Therapeutics, Inc. Pursuant to such agreement, PBCAR269A was evaluated in combination with nirogacestat, SpringWorks’ investigational gamma secretase inhibitor, in patients with R/R multiple myeloma. Under the terms of the agreement, we were responsible for all costs associated with the conduct of the clinical trial including providing PBCAR269A for use in the trial, and SpringWorks was responsible for providing nirogacestat at its sole cost and expense. The combination therapy and increased dose of PBCAR269A resulted in improved cell expansion, which correlated with increased clinical activity when compared to dose-matched PBCAR269A monotherapy treatment. However, in light of the competitive landscape of BCMA targeted therapies in multiple myeloma, we have made the strategic decision not to continue the PBCAR269A clinical program.

Trustees of the University of Pennsylvania

In January 2018, we entered into a research, collaboration and license agreement with the Trustees of the University of Pennsylvania (“Penn”) to collaborate on the preclinical development for gene editing products involving the delivery of an ARCUS nuclease. In April 2020, both parties agreed to coordinate a wind-down of all activities in their entirety under the agreement, effective as of June 2020, however, in August 2020 and subsequently in January 2021, both parties agreed to extend certain portions of the agreement through 2022. We will not be required to make termination payments to Penn.

Components of Our Results of Operations

Revenue

To date, we have not generated any revenue from product sales and do not expect to generate any revenue from product sales in the foreseeable future. We record revenue from collaboration agreements, including amounts related to upfront payments, milestone payments, annual fees for licenses of our intellectual property and research and development funding.

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts and the development of our product candidates. These include the following:

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salaries, benefits and other related costs, including share-based compensation expense, for personnel engaged in research and development functions;

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expenses incurred under agreements with third parties, including CROs and other third parties that conduct preclinical research and development activities and clinical trials on our behalf;

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costs of developing and scaling our manufacturing process and manufacturing drug products for use in our preclinical studies and ongoing and future clinical trials, including the costs of CMOs, and our MCAT facility that will manufacture our clinical trial material for use in our preclinical studies and ongoing and potential future clinical trials;

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costs of outside consultants, including their fees and related travel expenses;

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costs of laboratory supplies and acquiring, developing and manufacturing preclinical study and clinical trial materials;

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license payments made for intellectual property used in research and development activities; and

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facility-related expenses, which include expenses for rent and maintenance of facilities and other operating costs if specifically identifiable to research activities.

We expense research and development costs as incurred. We track external research and development costs, including the costs of laboratory supplies and services, outsourced research and development, clinical trials, contract manufacturing, laboratory equipment and maintenance and certain other development costs, by product candidate when the program IND application is accepted by the FDA. Internal and external costs associated with infrastructure resources, other research and development costs, facility related costs and depreciation and amortization that are not identifiable to a specific product candidate are included in the platform development and early-stage research expenses category.

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Research and development activities are central to our business model. We expect that our research and development expenses will increase over the long term and will comprise a larger percentage of our total expenses as we continue our clinical trials for our ex vivo allogeneic CAR T immunotherapies and development of our in vivo therapies for genetic and infectious diseases.

We cannot determine with certainty the duration and costs of ongoing and future clinical trials of our azer-cel and PBCAR19B product candidates, or any other product candidate we may develop or if, when or to what extent we will generate revenue from the commercialization and sale of any product candidate for which we obtain marketing approval. We may never succeed in obtaining marketing approval for any product candidate. The duration, costs and timing of clinical trials and development of our azer-cel and PBCAR19B product candidates, and any other our product candidate we may develop will depend on a variety of factors, including:

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the scope, rate of progress, expense and results of clinical trials of our product candidates, as well as of any future clinical trials of other product candidates and other research and development activities that we may conduct;

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increased costs of additional clinical sites to address slowed enrollment due to the impact of the COVID-19 pandemic and variants thereof or any similar pandemic;

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uncertainties in clinical trial design and patient enrollment rates;

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the actual probability of success for our product candidates, including their safety and efficacy, early clinical data, competition, manufacturing capability and commercial viability;

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significant and changing government regulation and regulatory guidance;

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the timing and receipt of any marketing approvals; and

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the expense of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights.

A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in our clinical trials due to slower than expected patient enrollment or other reasons, we would be required to expend significant additional financial resources and time on the completion of clinical development.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and other related costs, including share-based compensation, for personnel in our executive, finance, business development, legal and administrative functions. General and administrative expenses also include legal fees relating to intellectual property and corporate matters; professional fees for accounting, auditing, tax and consulting services; insurance costs; travel expenses; and facility-related expenses, which include expenses for rent and maintenance of facilities and other operating costs that are not specifically attributable to research activities.

We expect that our general and administrative expenses will increase in the future to meet our growing infrastructure needs as we progress our clinical trials and move toward commercialization.

Impairment Charges

Impairment charges represents our impairment of intangible assets and long-term prepaid assets. An impairment loss is assessed when future undiscounted cash flows are less than the assets’ carrying value and recognized when the carrying value of the asset exceeds fair value. An impairment charge is recognized for the amount by which the carrying amount exceeds the fair value of the asset.

Loss on Disposal of Assets

Loss on disposal of assets represents the remaining net book value of disposed assets at the time of their disposal.

(Loss) Gain from Changes in Fair Value

(Loss) gain from changes in fair value represents the assessed change in fair value of assets and liabilities carried at fair value between reporting periods.

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Gain on Deconsolidation of Subsidiary

The gain on deconsolidation of subsidiary was determined based on the difference between the book value of the net assets that we contributed to New Elo as part of the Elo Transaction as well as the fair value of the promissory note we received from New Elo ("Note Receivable") and the fair value of our ownership in New Elo as of December 17, 2021.

(Loss) Income from Equity Method Investments

(Loss) income from equity method investments represents changes in the carrying value of our investment in New Elo.

Interest Expense

Interest expense consists of interest payments incurred and discount amortization on debt outstanding.

Interest Income

Interest income consists of interest income earned on our cash and cash equivalents and Note Receivable.

Income Taxes

Since our inception in 2006, we have generated cumulative federal and state NOL and R&D credit carryforwards for which we have not recorded any net tax benefit due to the uncertainty around utilizing these tax attributes within their respective carryforward periods. As of December 31, 2022, we had federal and state NOL carryforwards of $159.5 million and $119.1 million, respectively, which may be available to offset future taxable income. The U.S. federal NOLs carryforward indefinitely. The state NOL carryforwards begin to expire in 2027. As of December 31, 2022, we also had federal and state R&D tax credit carryforwards of $13.2 million and an amount less than $0.1 million, which begin to expire in 2027 and 2030, respectively. As of December 31, 2022 and December 31, 2021, we had federal Orphan Drug credits of $11.6 million and $9.5 million, respectively, which begin to expire in 2038. As of December 31, 2022, we also have federal contribution carryforwards of $0.2 million, which began to expire in 2022. We have recorded a full valuation allowance against our net deferred tax assets at each balance sheet date.

Results of Operations

Comparison of the Years Ended December 31, 2022 and December 31, 2021

The following table summarizes our results of operations for the years ended December 31, 2022 and December 31, 2021, together with the changes in those items in dollars:

Years ended December 31,

Operating expenses:

Other (expense) income, net:

Loss on disposal of assets (106 ) (26 ) (80 )

(Loss) gain from changes in fair value (510 ) 2,555 (3,065 )

Gain on deconsolidation of subsidiary — 5,985 (5,985 )

(Loss) income from equity method investment (1,579 ) 184 (1,763 )

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Revenue

Revenue for the year ended December 31, 2022 was $25.1 million, compared to $115.5 million for the year ended December 31, 2021. The decrease of $90.4 million in revenue during the year ended December 31, 2022 was primarily the result of $72.9 million in revenue recognized under the Servier Agreement in 2021 that did not occur in 2022, following satisfaction of the performance obligation upon the execution of the Program Purchase Agreement in April 2021, a $17.9 million decrease in revenue recognized under the iECURE Agreement as the performance obligation was deemed fully satisfied in August 2021 upon the grant of the PCSK9 license to iECURE, a $5.4 million decrease in revenue recognized under the Lilly Agreement as a result of an increase in total estimated effort required to satisfy the performance obligation, and a $3.7 million decrease in revenue recognized from agriculture partnering collaborations given the collaboration transferred to New Elo upon separation in December 2021. These decreases in revenue were partially offset by a $9.5 million increase in revenue recognized under the Novartis Agreement, as work thereunder began during 2022.

Research and Development Expenses

Years ended December 31,

Direct research and development expenses by product candidate:

Azer-cel external development costs $ 5,502 $ 8,486 $ (2,984 )

Platform development and early-stage research expenses:

Program Purchase Agreement costs and contract liability — 11,250 (11,250 )

Other research and development costs 85 401 (316 )

Research and development expenses for the year ended December 31, 2022 were $83.9 million, compared to $115.2 million for the year ended December 31, 2021. The decrease of $31.3 million was primarily due to a decrease of $11.3 million in expense related to the Program Purchase Agreement, which was comprised of a $10.0 million financial contract liability that was accrued as it was deemed probable to occur and a $1.3 million cash payment to Servier that was recorded to expense in the year ended December 31, 2021.

Additionally, there was a decrease of $8.9 million in direct research and development expenses related to our allogeneic CAR T product candidates, including $1.7 million and $3.3 million decreases in BCMA and CD20 external development costs, respectively, as the result of our decision not to continue clinical development of PBCAR269A and PBCAR20A, a $3.0 million decrease in azer-cel external development expense driven by lower CRO expense as a result of lower patient activity as IRBs reviewed our updated lymphodepletion regimen and operational efficiencies, and a $0.8 million decrease in PBCAR19B external development costs driven by a milestone fee paid in the year ended December 31, 2021 related to patient dosing.

Further contributing to the decrease in research and development expenses during the year ended December 31, 2022 were decreases of $2.6 million, $1.1 million, $1.4 million, $1.0 million, and $0.6 million in employee-related costs, share based compensation, laboratory supplies and services, depreciation and amortization expense, and facility-related costs, respectively, driven by the separation of Elo in 2021. Additionally, unallocated CMO and research organization expense related to our preclinical studies decreased $4.5 million which was primarily driven by the completion of CMO manufacturing programs, and expense related to the amortization of the iECURE PCSK9 Prepaid decreased by $2.3 million as a result of the decision to cease pursuit of PBGENE-PCSK9 for FH with iECURE as our partner. These decreases were partially offset by a $2.9 million increase in outsourced research and

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development costs in the year ended December 31, 2022 as compared to the year ended December 31, 2021, which were primarily related to preclinical studies for our in vivo gene editing programs and consulting fees.

General and Administrative Expenses

General and administrative expenses were $41.5 million for the year ended December 31, 2022 compared to $39.7 million for the year ended December 31, 2021. The increase of $1.8 million was primarily due to an increase of $3.8 million in share-based compensation expense. This increase was partially offset by a $0.7 million decrease in insurance expense primarily driven by a reduction in director and officer insurance premiums, a $0.8 million decrease in legal expense, and a $0.5 million decrease in information technology expense related to software subscriptions.

Impairment Charges

Impairment charges were $11.4 million during the year ended December 31, 2022 which includes the $10.8 million impairment of the iECURE PCSK9 Prepaid as we have made the decision to cease pursuit of PBGENE-PCSK9 for FH with iECURE as our partner. The impairment charge represented the remaining unamortized balance of the PCSK9 Prepaid. Additionally included in impairments of long lived assets during the year ended December 31, 2022 were intangible asset impairment charges of $0.6 million related to licensed technology rights that are no longer in use. There were no impairment charges in the year ended December 31, 2021.

Loss on Disposal of Assets

Loss on disposal of assets was $0.1 million during the year ended December 31, 2022 compared to less than $0.1 for the year ended December 31, 2021 which represented the remaining net book value of property, equipment and software at the time of their disposal.

(Loss) Gain from Changes in Fair Value

The loss from changes in fair value was $0.5 million for the year ended December 31, 2022 which primarily represents the change in fair value of the iECURE equity investment as a result of dilution from iECURE's Series A-1 equity raise during the year ended December 31, 2022. The change in fair value of investment was $2.6 million for the year ended December 31, 2021 which was attributed to an increase in the assessed fair value of our equity investment in iECURE from issuance in August 2021 to December 31, 2021.

Gain on Deconsolidation of Subsidiary

There was no gain on deconsolidation of subsidiary in the year ended December 31, 2022. The gain on deconsolidation of subsidiary was $6.0 million for the year ended December 31, 2021 and represents the difference between the book value of the net assets that we contributed to New Elo as part of the Elo Transaction and the sum of the fair value of the Note Receivable and the fair value of our Ownership in New Elo as of December 17, 2021.

(Loss) Income from Equity Method Investments

Loss from equity method investments was $1.6 million during the year ended December 31, 2022 and represented our proportionate share of New Elo’s net loss for such period, partially offset by a gain recorded from an increase in our proportionate share of New Elo's net assets resulting from an equity issuance by New Elo. For the year ended December 31, 2021, we had income from equity method investments of $0.2 million which represented our proportionate share of New Elo’s net income from December 18, 2021 through December 31, 2021.

Interest Expense

Interest expense was $1.1 million for the year ended December 31, 2022 compared to $0.1 million during the year ended December 31, 2021. The $1.0 million increase in interest expense was the result of an increase in debt outstanding coupled with higher stated and effective interest rates on our debt.

Interest Income

Interest income was $3.5 million during the year ended December 31, 2022 compared to $0.2 million during the year ended December 31, 2021. The $3.3 million increase in interest income during the year ended December 31, 2022 was driven by a larger cash balance and higher interest rates as compared to the year ended December 31, 2021 coupled with interest income on the $10.0 million Note Receivable due from New Elo that was issued in December 2021.

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Liquidity and Capital Resources

Since our inception, we have incurred significant operating losses. We expect to incur significant expenses and operating losses for the foreseeable future as we advance the preclinical and clinical development of our product candidates. We expect that our research and development and general and administrative costs will continue to increase over the long term, including in connection with conducting preclinical studies and clinical trials for our product candidates, contracting with CROs and CMOs, the addition of laboratory equipment to MCAT in support of preclinical studies and clinical trials, expanding our intellectual property portfolio and providing general and administrative support for our operations. As a result, we will need additional capital to fund our operations, which we may obtain from additional equity or debt financings, collaborations, licensing arrangements or other sources.

As of December 31, 2022, we had cash and cash equivalents of $189.6 million and available borrowings of $7.5 million. Our sources of funding have historically included proceeds from third parties through a combination of financings including our IPO, preferred stock and convertible note financings, underwritten offerings of our common stock, at-the-market offerings of our common stock as part of our shelf registration statement, upfront and milestone payments from customers, borrowings under bank facilities and funding from other strategic alliances and grants. We also currently have an effective shelf registration statement on Form S-3 (No. 333-238857) filed with the SEC on June 1, 2020 (the “Form S-3”) under which we may offer from time to time in one or more offerings any combination of common and preferred stock, debt securities, warrants and units of up to $200.0 million in the aggregate. As of December 31, 2022, we had sold 3,187,508 shares of our common stock in at-the-market offerings as part of our shelf registration statement, resulting in net proceeds of $28.1 million, after deducting agent commissions and issuance costs. Additionally, in June 2022, pursuant to our Form S-3, we issued and sold 35,971,224 shares of our common stock at an offering price of $1.39 per share, less underwriting discounts and commissions, and received approximately $46.7 million in net proceeds.

There are no assurances that we will be successful in obtaining an adequate level of financing as and when needed to finance our operations on terms acceptable to us or at all, particularly in light of the global macroeconomic conditions and ongoing uncertainty related to the COVID-19 pandemic and variants thereof. If we are unable to secure adequate additional funding as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more product candidates. In addition, the magnitude and duration of the COVID-19 pandemic and variants thereof and its impact on our liquidity and future funding requirements remains uncertain as of the filing date of this Annual Report on Form 10-K, as the pandemic continues to evolve globally. See “Impact of the COVID-19 Pandemic” above and “Risk Factors—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” in Part I. Item 1A. of this Annual Report on Form 10-K for a further discussion of the potential impact of the COVID-19 pandemic and its variants on our business.

We do not currently have any approved products and have never generated any revenue from product sales. Through the date of filing this Annual Report on Form 10-K, we have financed our operations primarily through proceeds from upfront and milestone payments from collaboration and licensing agreements, our IPO, private placements of our common stock, convertible preferred stock and convertible debt financings, underwritten and at-the-market offerings of common stock, and borrowings on credit facilities.

Cash Flows

Our cash and cash equivalents totaled $189.6 million as of December 31, 2022, compared to $143.7 million as of December 31, 2021.

The following table summarizes our sources and uses of cash for the periods presented:

For the Years Ended December 31,

Net cash used in operating activities $ (45,753 ) $ (10,853 )

Net cash used in investing activities (3,319 ) (5,803 )

Net cash provided by financing activities 94,985 70,521

Increase in cash and cash equivalents $ 45,913 $ 53,865

Cash Used in Operating Activities

Our primary use of cash is to fund operating expenses, which consist primarily of research and development and general and administrative expenses. Our losses have resulted from expenses incurred in connection with our research and development activities, including our clinical programs, preclinical development activities, and general and administrative costs associated with our operations. The use of cash in operating activities during the years ended December 31, 2022 and December 31, 2021 resulted from our net loss adjusted for non-cash items and changes in working capital.

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Cash used in operating activities during the year ended December 31, 2022 was $45.8 million, compared to $10.9 million during the year ended December 31, 2021. The increase in cash used in operating activities in the year ended December 31, 2022 was primarily driven by the $100.0 million upfront payment received from Lilly in January 2021, partially offset by the $50.0 million upfront payment received from Novartis in July 2022.

Cash Used in Investing Activities

Cash used in investing activities primarily relates to cash expenditures to acquire leasehold additions, equipment, software, and intangible assets. Net cash used in investing activities during the year ended December 31, 2022 was $3.3 million, compared to $5.8 million in the year ended December 31, 2021. The $2.5 million decrease in cash used in investing activities during the year ended December 31, 2022 was driven by a decrease in cash expenditures for purchases of laboratory equipment for our MCAT facility as well as a $0.8 million cash expenditure for the license to evaluate Tiziana’s foralumab as a lymphodepletion agent in conjunction with our allogeneic CAR T therapeutics, which was capitalized as an intangible asset during the year ended December 31, 2021.

Cash Provided by Financing Activities

Net cash provided by financing activities during the year ended December 31, 2022 was $95.0 million, compared to $70.5 million during the year ended December 31, 2021. The increase in cash provided by financing activities during the year ended December 31, 2022 was primarily due to a $23.9 million increase in net proceeds from offerings of common stock in the year ended December 31, 2022 as compared to the year ended December 31, 2021. Additionally contributing to the increase in cash provided by financing activities in the year ended December 31, 2022 was an increase of $17.3 million in net proceeds from debt borrowings. These increases were partially offset by a $10.0 million decrease in proceeds from the issuance of common stock to collaboration partners, and a $6.4 million decrease in proceeds from stock option exercises in the year ended December 31, 2022 as compared to the year ended December 31, 2021.

Debt Obligations

Revolving Line

We may request advances on our loan and security agreement (as amended from time to time, the “Revolving Line”) with Pacific Western Bank (“PWB”) up to an aggregate principal of $30.0 million. In July 2022, the Revolving Line maturity date was extended to June 23, 2024 upon receipt of $100.0 million in aggregate new gross proceeds (as defined in the Revolving Line). All outstanding principal amounts are due upon maturity. We must also maintain an aggregate balance of unrestricted cash at PWB (not including amounts in certain specified accounts) equal to or greater than $10.0 million. The interest rate on Revolving Line borrowings is a variable annual rate equal to the greater of (a) 0.75% above the Prime Rate (as defined in the Revolving Line), or (b) 4.25%. As of December 31, 2022, the outstanding principal balance on the Revolving Line was $22.5 million, the stated interest rate was 8.25% and the effective interest rate was 9.27%.

Funding Requirements

As a clinical stage company, we will continue to have funding requirements in connection with the continuation of our current clinical trials and planned initiation of additional clinical trials, potential IND, CTA and BLA filings, and expected growth in our ex vivo and in vivo portfolios.

We believe that, as of the date of this Annual Report on Form 10-K, existing cash and cash equivalents, continued operational discipline, and available credit will allow us to fund operating expense and capital expenditure requirements through the first quarter of 2025. We have based these estimates on assumptions that may prove to be imprecise, and we could utilize our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, it is difficult to estimate with certainty the amount of our working capital requirements. Our future funding requirements will depend on many factors, including:

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the progress, costs and results of our clinical development for our azer-cel and PBCAR19B programs as we progress clinical trials, including CRO costs;

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the progress, costs and results of our additional research and preclinical development programs including our in vivo and ex vivo pipeline and our planned IND or CTA submissions and potential BLA filings;

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the outcome, timing and cost of meeting regulatory requirements established by the FDA and other comparable foreign regulatory authorities;

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the costs and timing of internal process development and manufacturing scale-up activities and contract with CMOs associated with our azer-cel and PBCAR19B programs and other programs we advance through preclinical and clinical development;

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our ability to establish and maintain strategic collaborations, licensing or other agreements and the financial terms of such agreements;

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the scope, progress, results and costs of any product candidates that we may derive from ARCUS or any other product candidates we may develop alone or with collaborators;

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the extent to which we in-license or acquire rights to other products, product candidates or technologies;

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the costs and timing of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending against any intellectual property-related claims; and

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the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any product candidates for which we or our collaborators obtain marketing approval.

Until such time, if ever, that we can generate product revenue sufficient to achieve profitability, we expect to finance our cash needs through a combination of public or private equity or debt financings, collaboration agreements, other third‐party funding, strategic alliances, licensing arrangements and marketing and/or distribution arrangements. See “Risk Factors – 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.” in Part I, Item 1A. of this Annual Report on Form 10-K for a further discussion ofour ability to generate and obtain adequate amounts of funding in connection with our continuing operations.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, shareholders’ ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our shareholders. Debt financing and preferred equityfinancing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through other third-party funding, collaboration agreements, strategic alliances, licensing arrangements or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, product development and research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves.

Contractual Obligations and Commitments

The following is a summary of our contractual obligations and commitments as of December 31, 2022:

Payments Due by Period

(in thousands) Total Less Than 1 Year 1-3 Years 3-5 Years More than 5 Years

(1)

Represents future minimum lease payments under our leases for office and/or lab space at the following locations: 302 East Pettigrew Street, Durham, North Carolina expiring in July 2024, and 20 TW Alexander Drive, Research Triangle Park, North Carolina expiring in August 2027. The lease obligations amounts above also represent future minimum lease payments on the MCAT Expansion Space as we are contractually obligated to make such payments on the MCAT Expansion Space notwithstanding that the lease commencement date for accounting purposes was not reached as of December 31, 2022 (see Note 6, Commitments and Contingencies, to the Financial Statements.

(2)

Represents principal and estimated interest payments on our $22.5 million in outstanding Revolving Line borrowings as of December 31, 2022. Under the Revolving Line we may request advances on a revolving line of credit of up to an aggregate principal of $30.0 million. In May 2022, the Company and PWB executed the Seventh Amendment to the Revolving Line (the “Revolving Line Amendment”). Upon the execution of the Revolving Line Amendment, the interest rate on credit advances was

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modified to the greater of (a) 0.75% above the Prime rate (as defined in the Revolving Line) and (b) 4.25%. In July 2022, the maturity date of the Revolving Line was extended to June 23, 2024 upon the Company’s receipt of $100.0 million in aggregate new gross proceeds (as defined in the Revolving Line Amendment). All outstanding principal amounts under the Revolving Line are due on the maturity date. As of December 31, 2022, the stated interest rate on the Revolving Line was 8.25% and the effective interest rate was 9.27%.

We also enter into contracts in the normal course of business with CROs, CMOs, universities and other third parties for preclinical research studies, clinical trials and testing and manufacturing services. These contracts do not contain minimum purchase commitments and are cancelable by us upon prior written notice. Payments due upon cancellation consist only of payments for services provided or expenses incurred, including non-cancelable obligations of our service providers, up to the date of cancellation. These payments are not included in the table above as the amount and timing of such payments are not known.

Critical Accounting Policies and Use of Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of our Financial Statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, costs and expenses and the disclosure of contingent assets and liabilities in our Financial Statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in the notes to our Financial Statements, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our Financial Statements.

Revenue Recognition

Our revenues are generated primarily through collaborative research, license, development and commercialization agreements. The terms of these agreements generally contain multiple elements, or deliverables, which may include (1) licenses, or options to obtain licenses, to use our technology, (2) research and development activities to be performed on behalf of the collaborative partner, and (3) in certain cases, services in connection with the manufacturing of preclinical and clinical material. Payments we receive under these arrangements typically include one or more of the following: non-refundable, upfront license fees; option exercise fees; funding of research and/or development efforts; clinical and development, regulatory, and sales milestone payments; and royalties on future product sales. We classify payments received under these agreements as revenues within our consolidated statements of operations.

ASC 606, Revenue from Contracts with Customers, 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.

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At contract inception, once the contract is determined to be within the scope of ASC 606, we evaluate the performance obligations promised in the contract that are based on goods and services that will be transferred to the customer and determine whether those obligations are both (i) capable of being distinct and (ii) distinct in the context of the contract. 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. We then recognize 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. We assess 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.

We recognize 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.

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

Milestone Payments – If an arrangement includes development and regulatory milestone payments, we evaluate whether the milestones are considered probable of being reached and estimate 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 our control or the licensee’s control, such as regulatory approvals, are generally not considered probable of being achieved until those approvals are received.

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, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied or partially satisfied. To date, we have not recognized any royalty revenue resulting from any of our licensing arrangements.

Significant Financing Component – In determining the transaction price, we adjust consideration for the effects of the time value of money if the timing of payments provides us with a significant benefit of financing. We do 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. We assessed each of our 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 our arrangements.

Collaborative Arrangements – We have 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 our technology, (2) research and development activities to be performed on behalf of the collaboration partner, and (3) in certain cases, services in connection with the manufacturing of preclinical and clinical material. Payments we receive under these arrangements typically include one or more of the following: non-refundable, upfront license fees; option exercise fees; funding of research and/or development efforts; clinical and development, regulatory, and sales milestone payments; and royalties on future product sales.

The Company analyzes its collaboration arrangements to assess whether they are within the scope of ASC 808, Collaborative Arrangements, to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities. 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, we first determine 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, we apply the five-step model described above.

Revenue related to performance obligations satisfied over time could be materially impacted as a result of changes in the estimated research effort to satisfy performance obligations or changes in the transaction price related to variable consideration. For example, in in the year ended December 31, 2022, we recorded cumulative catch up adjustments that decreased revenue recognition by $5.9

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million as a result of changes in total estimated effort required to satisfy performance obligations. If we were to increase total estimated effort required to satisfy the performance obligations by 10%, it would result in cumulative catch up adjustments that decrease revenue recognition by $4.2 million in the current year and those amounts would be recognized in the future as the incremental effort is provided. Alternatively, if we were to decrease total estimated effort required to satisfy the performance obligations by 10%, it would result in cumulative catch up adjustments that increase revenue recognition by $5.1 million in the current year.

Accrued Research and Development Expenses

As part of the process of preparing our consolidated financial statements, we are required to make certain estimates and judgements in our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advance payments. We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. Actual costs incurred could differ materially from estimates. Examples of estimated accrued research and development expenses include fees paid to the following:

•

CROs and other third parties in connection with performing research and development activities, conducting preclinical studies and clinical trials on our behalf;

•

Vendors in connection with preclinical development activities; and

•

CMOs and other vendors in connection with product manufacturing and development and distribution of preclinical supplies.

We base our expenses related to preclinical studies on our estimates of the services received and efforts expended pursuant to quotes and contracts with CROs that conduct and manage preclinical studies and clinical trials and CMOs that manufacture product for our research and development activities on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. In accruing fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or amount of prepaid expense accordingly.

Share-Based Compensation

We measure stock options and other share-based awards granted to our employees, directors, consultants and advisors based on the fair value on the date of the grant and recognize compensation expense for those awards, net of actual forfeitures, over the requisite service period, which is generally the vesting period of the respective award.

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model, which uses as inputs the fair value of our common stock and assumptions we make for the expected volatility of our common stock, the expected term of the stock options, the risk-free interest rate for a period that approximates the expected term of the stock options and the our expected dividend yield. Expected volatility is estimated based on the historical volatility of our and other comparable publicly traded peer companies. The expected term of the options has been determined utilizing a weighted average value considering actual exercise history and estimated expected term based on the midpoint of final vest date and expiration date. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that we have never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

The fair value of each restricted stock unit is determined based on the closing market price of our common stock on the date of grant.

Recent Accounting Pronouncements

A description of recent accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 1, Description of Business and Summary of Significant Accounting Policies, to our Financial Statements.

Emerging Growth Company Status

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of reduced reporting requirements that are otherwise applicable to public companies. Section 107 of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with those

109

standards. We have elected to take advantage of the extended transition period for complying with new or revised accounting standards. As an “emerging growth company,” we are also exempted from having to provide an auditor attestation of internal control over financial reporting under Sarbanes-Oxley Act Section 404(b).

We will remain an “emerging growth company” until the earliest of (1) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more, (2) December 31, 2024, (3) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years or (4) the date on which we are deemed to be a large accelerated filer under the rules of the SEC, which means the market value of our common stock held by non-affiliates exceeds $700 million as of the prior June 30th, we have been a public company for at least 12 months and have filed one Annual Report on Form 10-K.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate sensitivities. Our interest-earning assets consist of cash and cash equivalents, which are denominated in U.S. dollars. We had cash and cash equivalents of $189.6 million, or 80% of our total assets, on December 31, 2022 and $143.7 million, or 68% of our total assets, on December 31, 2021. Interest income earned on these assets was $3.5 million and $0.2 million for the years ended December 31, 2022 and December 31, 2021, respectively. Our interest income is sensitive to changes in the general level of interest rates, primarily U.S. interest rates, however, we do not anticipate fluctuations in interest rates to have a material impact on our financial statements. A hypothetical 10% change in existing interest rates would not have had a material impact on the value of our cash and cash equivalents as of December 31, 2022.

We are also exposed to foreign exchange rate risk with respect to foreign currency transactions. We do not anticipate foreign exchange rate risk to have a material impact on our financial statements.

Item 8. Financial Statements and Supplementary Data.

The financial statements required to be filed pursuant to this Item 8 are appended to this report and are incorporated herein by reference. An index of those financial statements is found in Item 15 of Part IV of this Annual Report on Form 10-K.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of disclosure controls and procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this Annual Report on Form 10-K, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2022.

110

Management’s annual report on internal control over financial reporting

Our management, with the participation of our principal executive officer and our principal financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our management conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in “Internal Control–Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that, as of December 31, 2022, our internal control over financial reporting was effective.

Attestation Report of the Registered Public Accounting Firm

Our independent registered accounting firm will not be required to opine on the effectiveness of our internal control over financial reporting pursuant to Section 404 of Sarbanes-Oxley Act of 2002 until we are no longer an “emerging growth company” as defined in the JOBS Act.

Changes in internal control over financial reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

None.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

None.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance.

INFORMATION ABOUT OUR DIRECTORS & EXECUTIVE OFFICERS

The following information with respect to our board of directors and executive officers is presented as of March 9, 2023:

Name Age Position at Precision BioSciences, Inc. Principal Employment

Executive Officers

Michael Amoroso 45 President, Chief Executive Officer and Director Same

John Alexander Kelly 56 Chief Financial Officer Same

Alan List, M.D. 68 Chief Medical Officer Same

Dario Scimeca 48 General Counsel and Secretary Same

Jeff Smith, Ph.D. 50 Chief Research Officer Same

Non-Employee Directors

Melinda Brown 66 Director Chief Financial Officer of The Draft Network

The information required by this item will be included in our definitive proxy statement (“2023 Proxy Statement”) to be filed with the SEC within 120 days of the end of our fiscal year covered by this Annual Report on Form 10-K and is incorporated herein by reference.

Item 11. Executive Compensation.

The information required by this item will be included in our 2023 Proxy Statement to be filed with the SEC within 120 days of the end of our fiscal year covered by this Annual Report on Form 10-K and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this item will be included in our 2023 Proxy Statement to be filed with the SEC within 120 days of the end of our fiscal year covered by this Annual Report on Form 10-K and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information required by this item will be included in our 2023 Proxy Statement to be filed with the SEC within 120 days of the end of our fiscal year covered by this Annual Report on Form 10-K and is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services.

The information required by this item will be included in our 2023 Proxy Statement to be filed with the SEC within 120 days of the end of our fiscal year covered by this Annual Report on Form 10-K and is incorporated herein by reference.

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PART IV

Item 15. Exhibits and Financial Statement Schedules.

(a)(1) Financial Statements

The following documents are included on pages F-1 through F-27 attached hereto and are filed as part of this Annual Report on Form 10-K.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm (PCAOB ID: 34) F-1

Consolidated Balance Sheets as of December 31, 2022 and December 31, 2021 F-2

Notes to Consolidated Financial Statements F-6

(a)(2) Financial Statement Schedules

All financial statement schedules have been omitted because they are not applicable, not required or the information required is shown in the financial statements or the notes thereto.

(a)(3) Exhibits

The following is a list of exhibits filed, furnished or incorporated by reference as part of this Annual Report on Form 10-K.

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Exhibit Index

ExhibitNumber Description Form File No. Exhibit FilingDate FiledHerewith

114

ExhibitNumber Description Form File No. Exhibit FilingDate FiledHerewith

21.1 Subsidiaries of Precision BioSciences, Inc. *

23.1 Consent of Deloitte & Touche LLP. *

115

ExhibitNumber Description Form File No. Exhibit FilingDate FiledHerewith

101.INS XBRL Instance Document *

101.SCH XBRL Taxonomy Extension Schema Document *

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document *

101.DEF XBRL Taxonomy Extension Definition Linkbase Document *

101.LAB XBRL Taxonomy Extension Label Linkbase Document *

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document *

* Filed herewith

** Furnished herewith

† Confidential treatment of certain provisions has been granted by the SEC pursuant to Rule 406 under the Securities Act of 1933, as amended.

†† Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K.

# Denotes a management contract or compensatory plan or arrangement

Item 16. Form 10-K Summary.

None.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

Precision BioSciences, Inc.

Date: March 9, 2023 By: /s/ Michael Amoroso

Michael Amoroso

Date: March 9, 2023 By: /s/ John Alexander Kelly

John Alexander Kelly

Chief Financial Officer(principal financial officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

Name Title Date

Michael Amoroso

John Alexander Kelly

Shane Barton

/s/ Kevin Buehler Chair of the Board and Director March 9, 2023

Kevin Buehler

/s/ Melinda Brown Director March 9, 2023

Melinda Brown

/s/ Stanley Frankel, M.D. Director March 9, 2023

Stanley Frankel, M.D.

/s/ Geno Germano Director March 9, 2023

Geno Germano

/s/ Shari Lisa Piré, J.D. Director March 9, 2023

Shari Lisa Piré, J.D.

/s/ Sam Wadsworth, Ph.D. Director March 9, 2023

Sam Wadsworth, Ph.D.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of Precision BioSciences, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Precision BioSciences, Inc. and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations, changes in stockholders’ equity, and cash flows, for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Deloitte & Touche LLP

Raleigh, North Carolina

March 9, 2023

We have served as the Company's auditor since 2017.

F-1

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

PRECISION BIOSCIENCES, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

Assets

Current assets:

Property, equipment, and software—net 20,190 25,154

Investment in equity securities 2,576 3,091

Liabilities and Stockholders’ Equity

Current liabilities:

Accrued clinical research and development expenses 3,206 4,028

Other current liabilities 745 977

Other noncurrent liabilities 201 44

Commitments and contingencies (Note 6)

Stockholders’ equity:

Total liabilities and stockholders’ equity $ 238,169 $ 211,498

See notes to consolidated financial statements

F-2

PRECISION BIOSCIENCES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share amounts)

For the Years Ended December 31,

Operating expenses

Other (expense) income, net:

Impairment charges (11,438 ) —

Loss on disposal of assets (106 ) (26 )

(Loss) gain from changes in fair value (510 ) 2,555

Gain on deconsolidation of subsidiary — 5,985

(Loss) income from equity method investment (1,579 ) 184

Total other (expense) income, net (11,271 ) 8,774

Net loss per share - basic and diluted $ (1.27 ) $ (0.52 )

See notes to consolidated financial statements

F-3

PRECISION BIOSCIENCES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN

STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

Common Stock AdditionalPaid-In Accumulated Treasury TotalStockholder's

Shares Amount Capital Deficit Stock Equity

Share-based compensation expense — — 16,514 — — 16,514

Share-based compensation expense — — 19,197 — — 19,197

Restricted stock units vested 288,323 — — — — —

See notes to consolidated financial statements

F-4

PRECISION BIOSCIENCES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

For the Years Ended December 31,

Cash flows from operating activities:

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

Depreciation and amortization 7,798 8,981

Loss on disposal of assets 106 26

Non-cash interest expense 295 59

Amortization of right-of-use assets 1,206 1,216

Non-cash consideration received from collaboration partners — (17,894 )

Loss (Gain) on changes in fair value 510 (2,555 )

Gain on deconsolidation of subsidiary — (5,985 )

Loss (Income) from equity method investment 1,579 (184 )

Amortization of discount on note receivable (355 ) (13 )

Impairment charges 11,438 —

Changes in operating assets and liabilities:

Other assets and other current assets 1,431 (2,734 )

Other liabilities and other current liabilities (1,816 ) 1,423

Contract liabilities — 10,000

Net cash used in operating activities (45,753 ) (10,853 )

Cash flows from investing activities:

Property, equipment and software (3,319 ) (5,053 )

Intangibles assets — (750 )

Net cash used in investing activities (3,319 ) (5,803 )

Cash flows from financing activities:

Employee stock purchase plan 443 804

Issuance of common stock to collaboration partners 25,000 35,000

Offering of common stock, net of issuance costs 49,345 25,477

Issuance of term loan, net of issuance costs — 2,465

Payments of debt issuance costs — (13 )

Payment of term loan — (2,500 )

Borrowings from revolving credit facility, net of issuance costs 19,805 2,505

Net cash provided by financing activities 94,985 70,521

Net increase in cash and cash equivalents 45,913 53,865

Cash and cash equivalents—beginning of period 143,663 89,798

Supplemental disclosures of noncash financing and investing activities:

Cash paid for interest $ 824 $ 68

Non-cash consideration received from collaboration partners $ — $ 17,894

See notes to consolidated financial statements

F-5

Precision BioSciences, Inc.

Notes to Consolidated Financial Statements

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

Description of Business

Precision BioSciences, Inc. (the “Company”) was incorporated on January 26, 2006 under the laws of the State of Delaware and is based in Durham, North Carolina. 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 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.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and disclosures made in the accompanying notes to the consolidated financial statements. Actual results could differ from those estimates. Significant estimates include recording revenue for performance obligations recognized over time, determination of the fair value of share-based compensation grants, estimating services expended by third-party service providers used to recognize research and development expense and determination of the fair value of investments in equity securities.

Basis of Presentation

These financial statements have been prepared in accordance with GAAP. Additionally, the accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

Certain immaterial amounts from the prior year have been reclassified to conform to current year presentation.

Summary of Significant Accounting Policies

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. As of December 31, 2022 the Company held cash equivalents which are composed of money market funds and repurchase agreements that were purchased through repurchase intermediary banks and collateralized by deposits in the form of government securities and obligations. As of December 31, 2021, the Company held an insignificant amount of cash equivalents.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and notes receivable. All of the Company’s cash and cash equivalents are held at financial institutions that management believes to be of high credit quality. The Company may maintain cash deposits in financial institutions in excess of government insured limits. The Company regularly invests excess cash deposits in money market funds and repurchase agreements. The Company believes that the credit risk arising from the holdings of these financial instruments is mitigated by the fact that these securities are of short duration, government backed and of high credit rating. The Company has not experienced any losses on cash and cash equivalents to date.

Revenue from Lilly and Novartis accounted for 62% and 38% of revenue during the year ended December 31, 2022, respectively. Revenue from Lilly and Servier accounted for 18% and 63% of revenue during the year ended December 31, 2021, respectively. Lilly and Novartis accounted for 58% and 42% of deferred revenue as of December 31, 2022, respectively.

F-6

In addition, the Company currently holds a $10.0 million promissory note payable from New Elo (defined below), as described further in Note 12, Elo Transaction, which exposes the Company to potential losses in the event of default by New Elo. Counterparty credit risk will be monitored through periodic review of New Elo’s financial records. As of December 31, 2022, the Company considers the risk of counterparty default to be minimal.

Property, Equipment and Software

Property, equipment and software ("PP&E") are stated at cost, net of depreciation and amortization. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets ranging from three to seven years. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or estimated useful life of the asset.

The depreciation and amortization periods for the Company’s significant PP&E categories are as follows:

Laboratory equipment 5 to 7 years

Furniture and fixtures and office equipment 3 to 5 years

Leasehold improvements Lesser of remaining lease term or useful life

Repairs and maintenance are charged to operations as incurred, and expenditures for additions and improvements that extend the useful life of the asset are capitalized.

Intangible Assets

Intangible assets primarily include licenses and patents. The Company capitalizes license fees paid to acquire access to proprietary technology if the technology is expected to have alternative future use in multiple research and development projects. The cost of licensed technology rights is amortized using the straight-line method over the estimated useful life of the technology. If the access to use the technology rights is one year or less, the cost is recorded as a prepaid expense and amortized over the period identified in the agreement. Amortization expense for licensed technology and capitalized patent costs is included in research and development expenses within the accompanying consolidated statement of operations.

Impairment Charges

Long-lived assets, such as PP&E, intangible assets, and long-term prepaid assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is assessed when future undiscounted cash flows are less than the assets’ carrying value and recognized when the carrying value of the asset exceeds fair value. Fair value is calculated by estimating the discounted future cash flows expected to be generated by the asset as well as other valuation techniques. An impairment charge is recognized for the amount by which the carrying amount exceeds the fair value of the asset.

Fair Value Measurements

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. ASC 820, Fair Value Measurement, establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from our independent sources. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances. The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used to value the assets and liabilities:

•

Level 1 - Observable inputs based on unadjusted quoted prices in active markets for identical assets or liabilities

•

Level 2 - Inputs, other than quoted prices in active markets, that are observable either directly or indirectly

F-7

•

Level 3 - Unobservable inputs for which there is little or no market date, which require the Company to develop its own assumptions

To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Investments in Equity Securities

The Company carries investments in equity securities for which it does not possess the ability to exercise significant influence or control at fair value in the consolidated balance sheets and records changes in fair value in the consolidated statements of operations as a component of other income or expense.

As of December 31, 2022 and December 31, 2021 the Company held common stock in iECURE with a fair value of $2.6 million and $3.1 million, respectively.

Investments under the Equity Method

The Company utilizes the equity method to account for investments when it is determined that the Company possess the ability to exercise significant influence, but not control, over the operating and financial policies of the investee. The ability to exercise significant influence is presumed when the investor possesses more than 20% of the voting interests of the investee. This presumption may be overcome based on specific facts and circumstances that demonstrate that the ability to exercise significant influence is restricted.

In applying the equity method, the Company subsequently increases or decreases the carrying amount of the investment by the Company’s proportionate share of the net earnings or losses and other comprehensive income of the investee. In the event that net losses of the investee reduce the carrying amount to zero, additional net losses are recorded if other investments in the investee are at-risk, even if the Company has not committed to provide financial support to the investee.

Leases

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and lease liabilities. The Company has elected not to recognize on the balance sheet leases with terms of one year or less. Lease liabilities and corresponding right-of-use assets are recorded based on the present value of lease payments over the expected remaining lease term. As the rate implicit in the Company's leases are not readily determinable, the Company utilizes its incremental borrowing rates, which are the rates incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

The Company has elected to account for the lease and non-lease components of each of its operating leases as a single lease component. In addition, the Company elected the package of practical expedients permitted under the transition guidance within accounting standards codification (“ASC”) 842, in which the Company need not reassess (i) the historical lease classification, (ii) whether any expired or existing contract is or contains a lease, or (iii) the initial direct costs for any existing leases. The operating right-of-use asset recorded on the balance sheet is amortized on a straight-line basis as lease expense.

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.

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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 year ended December 31, 2022, the Company recorded cumulative catch up adjustments on its contracts with customers that decreased revenue recognition by $5.9 million; the cumulative catch-up adjustments resulted from a change in total estimated effort required to satisfy performance obligations. During the year ended December 31, 2022, the Company recorded $15.4 million in revenue that was included in deferred revenue as of December 31, 2021.

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

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

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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 10, Collaboration and License Agreements.

Research and Development

Research and development costs are expensed as incurred. Research and development expenses are comprised of costs incurred in performing research and development activities including salaries, benefits, share-based compensation, allocations for rent and facility costs, depreciation, preclinical manufacturing expenses, costs of services provided by contract research organizations ("CROs") in connection with clinical trials and contract manufacturing organizations ("CMOs") engaged to manufacture clinical trial material, costs of licensing technology, and costs of services provided by research and development service providers. Upfront payments and milestone payments made for the licensing of technology are expensed as research and development in the period in which they are incurred if the technology is not expected to have any alternative future uses other than the specific research and development project for which it was intended. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed rather than when the payment is made.

The Company is required to estimate accrued research and development expenses resulting from its obligations under contracts with CROs, CMOs, research organizations, service providers, vendors and consultants in connection with research and development activities. The financial terms of these contracts are subject to negotiations and vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to the Company under such contracts. The Company’s objective is to reflect the appropriate research and development expenses in its consolidated statements of operations by matching those expenses with the period in which the services and efforts are expended. There may be instances in which payments made to the Company’s vendors will exceed the level of services provided and result in a prepayment of the expense. In accruing fees, the Company estimates the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the Company’s estimate, the Company adjusts the accrual or amount of prepaid expense accordingly.

Comprehensive Loss

Comprehensive loss includes net loss as well as other changes in stockholders’ equity that result from transactions and economic events other than those with stockholders. For the years ended December 31, 2022 and December 31, 2021, there was no difference between net loss and comprehensive loss in the accompanying consolidated statement of operations.

Net Loss Per Share

Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed using the weighted-average number of shares of common stock outstanding during the period and, if dilutive, the weighted-average number of potential shares of common stock.

The Company’s diluted net loss per share is the same as basic net loss per share for the years ended December 31, 2022 and December 31, 2021, given all potential shares of common stock are anti-dilutive as a result of the net loss.

Share-Based Compensation

The Company accounts for all share-based compensation awards, including stock options, restricted stock units and its employee stock purchase plan, at fair value. Compensation expense is recognized for the Company's share-based compensation awards, net of actual forfeitures, over the requisite service period, which is the vesting period of the respective award.

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model, which uses as inputs the fair value of the Company’s common stock and assumptions the Company makes for the expected volatility of its common stock, the expected term of the stock options, the risk-free interest rate for a period that approximates the expected term of the stock options and the Company’s expected dividend yield. Expected volatility is estimated based on the historical volatility of the Company

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and other comparable publicly traded peer companies. The expected term of the options has been determined utilizing a weighted average value considering actual exercise history and estimated expected term based on the midpoint of final vest date and expiration date. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

The fair value of each restricted stock unit is determined based on the closing market price of the Company’s common stock on the date of grant.

Income Taxes

Deferred tax assets and liabilities are determined based on the temporary differences between the consolidated financial statement carrying amounts and the tax basis of assets and liabilities using the enacted tax rates in effect in the years in which the differences are expected to reverse. In estimating future tax consequences, all expected future events are considered other than the enactment of changes in the tax law or rates. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes.

The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.

Accounting Standards Updates

The Company is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may take advantage of reduced reporting requirements that are otherwise applicable to public companies. Section 107 of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with those standards. The Company has elected to use the extended transition period for complying with new or revised accounting standards. The Company does not expect the adoption of recent accounting pronouncements not yet adopted will have a material impact on its consolidated financial statements. The JOBS Act also exempts the Company from having to provide an auditor attestation of internal controls over financial reporting under Sarbanes-Oxley Act Section 404(b).

The Company will remain an “emerging growth company” until the earliest of (i) December 31, 2024, (ii) the last day of the fiscal year in which it has total annual gross revenues of $1.235 billion or more, (iii) the date on which it has issued more than $1.0 billion in nonconvertible debt during the previous three years or (iv) the date on which it is deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission (“SEC”), which generally is when it has more than $700 million in market value of its stock held by non-affiliates as of the prior June 30th.

Accounting standards updates issued, but not effective until after December 31, 2022, are not expected to have a material effect on the Company’s consolidated financial position, statements of operations or cash flows.

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NOTE 2:PROPERTY, EQUIPMENT AND SOFTWARE

PP&E consisted of the following as of December 31 (in thousands):

Construction in progress $ 533 $ 3,042

Total property, equipment and software 51,278 49,068

Less accumulated depreciation and amortization 31,088 23,914

Property, equipment and software - net $ 20,190 $ 25,154

Depreciation expense, including amortization of leasehold improvements and software, was $7.7 million and $8.9 million for the years ended December 31, 2022 and December 31, 2021, respectively.

NOTE 3:INTANGIBLE ASSETS

Intangible assets, net, consisted of the following as of December 31 (in thousands):

Less: accumulated amortization (521 ) (415 )

Less: impairments (712 ) (118 )

Amortization expense of intangible assets was $0.1 million and less than $0.1 million for the years ended December 31, 2022 and December 31, 2021, respectively. Amortization expense for intangible assets with definite lives will be less than $0.1 million for each of the next five years with the remaining $0.9 million amortized to expense in 2027 and beyond.

NOTE 4:FAIR VALUE MEASUREMENTS

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

December 31, 2022 Fair Value Level 1 Level 2 Level 3

Assets:

Money market funds $ 868 $ 868 $ — $ —

Liabilities:

Final payment fee $ 199 $ — $ 199 $ —

December 31, 2021 Fair Value Level 1 Level 2 Level 3

Money market funds $ 12 $ 12 $ — $ —

The carrying amounts of the Company’s financial instruments, including accounts receivable, accounts payable, and accrued expenses and other current liabilities, approximate their respective fair values due to their short-term nature.

Cash Equivalents

As of December 31, 2022, the Company held cash equivalents which are composed of money market funds and repurchase agreements that were purchased through repurchase intermediary banks and collateralized by deposits in the form of government

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securities and obligations. As of 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. Investments in repurchase agreements are classified within Level 2 of the fair value hierarchy as these instruments are valued using observable market inputs including reported trades, broker/dealer quotes, bids and/or offers.

Investment in iECURE

In August 2021, the Company entered into an Equity Issuance Agreement with iECURE, Inc. (“iECURE”), pursuant to which iECURE issued the Company common stock in iECURE (the “iECURE equity”) as additional consideration for a license to use the Company’s PCSK9-directed ARCUS nuclease to insert genes into the PCSK9 locus to develop treatments for four pre-specified rare genetic diseases (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). During the year ended December 31, 2022, the Company recorded a $0.5 million decrease in the carrying value of its iECURE equity to adjust to fair value as a result of dilution from iECURE's Series A-1 equity raise in such period.

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 10, “Collaboration and License Agreements.”

Final Payment Fee

The Company is required to pay a final payment fee upon maturity of the Revolving Line. The final payment fee was determined to be a derivative under ASC 815, therefore these fees were initially measured at fair value and recorded as debt discount to be amortized to interest expense over the term of the Revolving Line. Accordingly, the Company will adjust the carrying value of the final payment fee to fair value each reporting period with any changes in fair value recorded to other income (expense). During the year ended December 31, 2022 adjustments to the carrying value of the final payment fee resulted in less than $0.1 million of income recorded to change in fair value in the consolidated statement of operations.

The Company classifies the final payment fee within Level 2 of the fair value hierarchy as the assessed fair value was based on observable market inputs including the Company’s current borrowing rate on the Revolving Line. The final payment fee is included in the other noncurrent liabilities within the consolidated balance sheet as of December 31, 2022.

The following represents a reconciliation of assets measured and carried at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) for the year ended December 31, 2022 (in thousands):

Investment in iECURE

Acquisitions —

Losses included in earnings (515 )

Dispositions —

NOTE 5: DEBT

Elo Loan

In May 2021, the Company's then wholly owned subsidiary, Elo Life Systems, Inc., entered into a loan and security agreement with Pacific Western Bank (“PWB”) for a term loan (the “Elo Loan”) in the amount of $2.5 million. On December 14, 2021, the Company repaid all outstanding principal and interest on the Elo Loan with proceeds from the Revolving Line (defined below).

Revolving Line

Pursuant to the terms of the loan and security agreement with PWB (as amended from time to time, the “Revolving Line”) the Company may request advances on a revolving line of credit of up to an aggregate principal of $30.0 million.

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