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 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.
A discussion regarding our financial condition and results of operations, including liquidity and capital resources, for the year ended December 31, 2024 compared to the year ended December 31, 2023 is presented below.
Overview
We are a clinical stage gene editing company dedicated to improving life by developing 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 for sophisticated gene edits, including gene insertion, excision, and elimination. 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.
Business Updates
Since mid-2023, we have solely focused on leveraging our proprietary ARCUS genome editing platform to advance in vivo gene editing programs that go beyond gene knockouts in the liver and carry out more sophisticated edits such as gene insertions, gene excision, and gene elimination, unlocking a broader potential for ARCUS in vivo gene editing in human therapeutics.
In January 2024 we entered into a license agreement with TG Cell Therapy, Inc. (“TG Subsidiary”) and its parent company TG Therapeutics, Inc. (“TG Parent” and, together with TG Subsidiary, “TG Therapeutics”) for non-oncological applications of azercabtagene zapreleucel (“azer-cel”) (the “TG License Agreement”). In connection with the TG License Agreement, we received upfront, and are also entitled to receive potential near-term, economics valued in the aggregate at $17.5 million. We are also entitled to receive additional payments upon the achievement of additional specified milestones of up to $288.6 million. If a licensed product under the TG License Agreement is approved and sold, TG Therapeutics is also required to pay us tiered royalties ranging from high-single-digit to low-double-digit percentages on net sales of the licensed product. In August 2024, we announced TG Therapeutics received U.S. Food and Drug Administration (“FDA”) clearance for its investigational new drug (“IND”) application to investigate azer-cel in human clinical trials for the treatment of progressive forms of multiple sclerosis. TG Therapeutics initiated its Phase 1 clinical trial in 2024 and is actively enrolling patients to continue advancing the program through 2025.
In February 2024, we announced that we had granted Caribou Biosciences, Inc. (“Caribou”), a leading CRISPR genome-editing cell therapy company, a non-exclusive, worldwide license, with the right to sublicense, to one of our foundational cell therapy patent families for use with CRISPR-based therapies in the field of human therapeutics. Under the terms of the agreement, we received an upfront payment and, upon commercialization by Caribou, will receive royalties on net sales of licensed products. In addition, for each occurrence of certain strategic transactions involving Caribou, we are entitled to receive a specific tiered milestone payment.
In April 2024, we received written notice from Prevail Therapeutics, Inc. (“Prevail”), a wholly-owned subsidiary of Eli Lilly and Company, of its termination of the amended and restated development and license agreement between the Company and Prevail (the “Prevail Agreement”). Prevail’s notice informed us that Prevail was exercising its right pursuant to Section 15.3.2 of the Prevail Agreement to terminate the Prevail Agreement in its entirety without cause upon 90 days’ prior written notice to us. We subsequently exercised our rights to the return of the three programs. We are continuing to evaluate these returned programs to determine the appropriate next steps with each of them, including a novel gene excision approach for treatment of Duchenne Muscular Dystrophy (“DMD”), a liver target for gene insertion, and a gene editing program targeting neurons to address a disease of the central nervous system.
In July 2024, we entered into an amended and restated loan and security agreement (the “2024 Loan and Security Agreement”) with Banc of California (formerly known as Pacific Western Bank) pursuant to which Banc of California provided us with a term loan with a principal amount of $22.5 million (the “2024 Term Loan”). The proceeds from the 2024 Term Loan were used to repay the $22.5 million outstanding principal balance under our revolving line of credit with Banc of California (the “Revolving Line”), and pursuant to the terms of the 2024 Loan and Security Agreement, the Revolving Line was terminated.
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Corporate Updates
The ELIMINATE-B trial is actively enrolling patients in Moldova, Hong Kong, and New Zealand and we expect to initiate Phase 1 clinical activities in the U.S. following Investigational New Drug (“IND”) approval in March 2025. We also anticipate receiving approval to dose patients in the U.K. as part of the Phase 1 study. The ELIMINATE-B trial is designed to investigate PBGENE-HBV at multiple ascending dose levels with three dose administrations per dose level in patients with chronic hepatitis B who are HBeAg-negative. PBGENE-HBV is our lead wholly owned in vivo gene editing program designed eliminate cccDNA, the key source of replicating hepatitis B virus (“HBV”), and inactivating integrated HBV DNA in hepatocytes. We dosed the first patient in December 2024 and have completed dosing the low-dose cohort (N= 3 patients) with the first dose administration of PBGENE-HBV. In the first cohort, all three patients dosed with the first dose administration of PBGENE-HBV have completed the initial safety evaluation period. PBGENE-HBV was well tolerated and none of the patients experienced a Grade ≥2 treatment-related adverse event or serious adverse event. In addition to safety, the ELIMINATE-B protocol is designed to assess the efficacy for three dose administrations at each dose level, with the goal to maximize cumulative viral editing to achieve undetectable levels of hepatitis B surface antigen (“HBsAg”). PBGENE-HBV demonstrated a substantial reduction in HBsAg in two of the three participants following the first administration at the lowest dose.
HBV causes inflammation and damage to the liver, leading to chronic infection and increased risk of death from liver cancer or cirrhosis. There is no cure for chronic hepatitis B and current treatments rarely result in functional cure, primarily due to persistence of viral DNA in the liver. In patients with chronic HBV, genetic material of the virus is converted within infected liver cells into cccDNA that acts as a template to make HBV copies. HBV also inserts its DNA into the human genome of infected liver cells. Both cccDNA and integrated HBV DNA produce the viral protein, HBsAg, which is secreted in the blood. Presence of HBsAg is associated with poorer outcomes and suppression of HBsAg is necessary for functional cure of chronic hepatitis B.
We believe specificity is of particular importance for developing a safe gene editing approach to eliminating HBV, as a lack of nuclease specificity can lead to unfavorable off-target results including increased integrations of HBV genomes into the human genome, as well as translocations between integrations. Preclinical data from the PBGENE-HBV program was presented in March 2025 at the Global Hepatitis Summit, in November 2024 at the American Association for the Study of Liver Diseases, and in June 2024 at a poster presentation and panel discussion at the European Association for the Study of the Liver Congress. The data presented supported the advancement of PBGENE-HBV into clinical development and highlighted the ability of ARCUS to make efficient, durable, and targeted edits to potentially eliminate cccDNA and inactivate integrated HBV DNA. The data also demonstrated a lack of detectable off-target editing for PBGENE-HBV at therapeutically relevant doses, including no editing-associated translocations in HBV infected primary human hepatocytes. PBGENE-HBV was well tolerated in non-human primates (“NHP”) across multiple dose administrations.
The PBGENE-3243 program, previously known as PBGENE-PMM, is our wholly-owned, first of its kind potential treatment for m.3243 associated mitochondrial disease. The program’s updated nomenclature more accurately describes its intended target patient population – those who have the m.3243 mutation and muscle-related symptoms. Mitochondrial diseases are the most common hereditary metabolic disorder, affecting 1 in 4,300 people. In particular, the m.3243 associated mitochondrial disease that our program intends to address affects about 20,000 people in the United States alone. The highly specific mitochondria-targeted ARCUS nucleases are designed to shift heteroplasmy by editing and eliminating mutant mitochondrial DNA while allowing normal (wild-type) mitochondrial DNA to repopulate in the mitochondria, thus improving cellular function. Preclinical data from the PBGENE-3243 program presented in June 2024 at the United Mitochondrial Disease Foundation’s Mitochondrial Medicine 2024 Conference and in March 2024 at a poster presentation at the Mitochondrial Medicine – Therapeutic Development Annual Conference demonstrated ARCUS’ ability to efficiently eliminate mutant mitochondrial DNA without nuclear off-target editing. We anticipate submitting an IND and/or CTA application in 2025 with respect to PBGENE-3243.
In October 2024, we presented a poster at the European Society of Gene & Cell Therapy 31st Annual Congress. The poster highlighted preclinical data demonstrating the ability of ARCUS to achieve high-efficiency gene insertion, gene replacement, and base correction via homology-directed repair (“HDR”). In the preclinical work presented, we showed that targeted gene insertion can be achieved using ARCUS in greater than 85% of T-cells and 39% of non-dividing primary human hepatocytes. These high rates of gene insertion were accomplished primarily through HDR, which the research demonstrated was dependent on homology arms in the repair template and on the characteristic ARCUS 3’ overhang cut in the direction of DNA replication.
We, along with our collaboration 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.
In partnership with iECURE, Inc. (“iECURE”), an ARCUS-mediated gene insertion approach is being pursued as a potential treatment option for neonatal onset ornithine transcarbamylase (“OTC”) deficiency. iECURE has received regulatory approvals in the United States, the United Kingdom, Spain, and Australia for initiation of the OTC-HOPE study, a first-in-human Phase 1/2 trial evaluating
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ECUR-506 as a potential treatment for OTC deficiency, and has begun recruiting patients. In May 2024, iECURE announced that it had received Fast Track designation from the Food and Drug Administration (“FDA”) for ECUR-506. In January 2025, IECURE reported clinical efficacy and safety data in the first patient dosed with ECUR-506 in the Phase 1/2 OTC-HOPE study. iECURE expects to finish enrollment in 2025 and provide complete data for the program in the first half of 2026.
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.
Reverse Stock Split
On January 18, 2024, our stockholders approved a proposal to amend our amended and restated certificate of incorporation to effect a reverse stock split of our common stock at a ratio of not less than 1-for-10 and not more than 1-for-30, with such ratio and the implementation and timing of such reverse stock split to be determined by our board of directors in its sole discretion. On February 6, 2024, our board of directors approved a 1-for-30 reverse stock split of our issued and outstanding common stock, and on February 13, 2024, we filed with the Secretary of State of the State of Delaware a certificate of amendment to our amended and restated certificate of incorporation in order to effect the reverse stock split. Trading of our common stock on The Nasdaq Capital Market commenced on a split-adjusted basis on February 14, 2024. As a result of the reverse stock split, every 30 shares of our common stock issued or outstanding were automatically reclassified into and became one new share of common stock, and the number of our issued and outstanding shares of common stock was reduced to 4,191,053 and 4,164,038, respectively. All references to numbers of shares of common stock and per-share information in this Annual Report on Form 10-K have been adjusted retroactively, as appropriate, to reflect the reverse stock split.
Common Stock Offering
In March 2024, we entered into an underwriting agreement relating to the issuance and sale of an aggregate of 2,500,000 shares of our common stock and warrants to purchase 2,500,000 shares of our common stock at a combined offering price of $16.00 per share. Each warrant has an exercise price per share of $20.00, is immediately exercisable and will expire on March 5, 2029. The offering was made pursuant to a registration statement on Form S-3.
License and Collaboration Transactions
TG Therapeutics
On January 7, 2024, we entered into a license agreement (the “TG License Agreement”) with TG Cell Therapy, Inc. (“TG Subsidiary”) and its parent company TG Therapeutics, Inc. (“TG Parent” and, together with TG Subsidiary, “TG Therapeutics”), pursuant to which we granted TG Subsidiary certain exclusive and non-exclusive license rights to develop, manufacture, and commercialize azer-cel for autoimmune diseases and other indications outside of cancer pursuant to the terms of the TG License Agreement.
Under the TG License Agreement, we are entitled to receive an upfront cash payment of $10.0 million (the “Upfront Payment”), an additional cash payment of $7.5 million in the event that TG Therapeutics achieves a certain clinical milestone that is expected to be achieved in the near-term (the “Initial Milestone Payment”), and additional payments upon the achievement of additional specified milestones of up to $288.6 million (the “Additional Milestone Payments”). As described below, up to $10.0 million of the cash payments potentially payable us are payable in exchange for the issuance (the “Company Stock Issuances”) to TG Subsidiary of shares of our common stock.
The Upfront Payment of $10.0 million is comprised of (i) a $5.25 million cash payment that was paid to us on February 5, 2024, (ii) a $2.25 million cash payment that was paid to us on February 5, 2024 in exchange for 97,360 shares of our common stock, based on a price per share equal to a 100% premium to the VWAP of our common stock for the 30 trading days prior to the date of the TG License Agreement, and (iii) a deferred cash payment of $2.5 million that was paid to us on January 6, 2025 in exchange for 220,712 shares of our common stock, based on a price per share equal to the greater of (A) 100% premium to the VWAP of our common stock for the 30 trading days prior to the date of payment or (B) a minimum price of $11.1660 determined in accordance with Nasdaq Listing Rule 5635(d) (the “Minimum Price”).
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The Initial Milestone Payment of $7.5 million, if payable, will consist of (i) a $5.25 million cash milestone payment and (ii) a $2.25 million cash payment payable in exchange for such number of shares of our common stock determined based on a price per share equal to the greater of (A) 100% premium to the VWAP of our common stock for the 30 trading days prior to the achievement of such milestone or (B) the Minimum Price.
The Additional Milestone Payments become due upon the achievement of certain milestones as specified in the TG License Agreement. Included within the Additional Milestone Payments is a potential payment of $3.0 million in connection with achievement of a milestone specified in the TG License Agreement, payable in exchange for such number of shares of our common stock determined based on a price per share equal to the greater of (A) 100% premium to the VWAP of our common stock for the 30 trading days prior to the achievement of such milestone or (B) the Minimum Price.
Subject to the terms and conditions of the TG License Agreement, TG Therapeutics is permitted to pay up to 50% of the value of each Additional Milestone Payment (other than the Additional Milestone Payment described above that would, upon achievement, involve the issuance of $3.0 million of Shares by Precision) in freely tradable shares of common stock of TG Parent, valued based on the VWAP of the TG Parent shares of common stock on Nasdaq for the 30 trading days prior to the achievement of the applicable milestone.
If a licensed product under the TG License Agreement is approved and sold, TG Therapeutics is also required to pay us tiered royalties ranging from high-single-digit to low-double-digit percentages on net sales of the licensed product. TG Therapeutics’ obligation to pay royalties to us expires on a country-by-country and licensed product-by-licensed product basis, upon the latest to occur of (i) the expiration of the last-to-expire valid claim in such country covering such licensed product; (ii) the expiration of any period of data, regulatory, or market exclusivity, or supplemental protection certificates (other than patents) covering the licensed product in such country; and (iii) a period of 10 years following the first commercial sale of the respective licensed product in such country.
Unless earlier terminated, the TG License Agreement will remain in effect on a licensed product-by-licensed product and country-by-country basis until the expiration of a defined royalty term for each licensed product and country. We may terminate the TG License Agreement if TG Therapeutics fails to initiate certain development activities with respect to the licensed product by a specified date or ceases active development of the licensed product for a specified period of time. In addition, we may terminate the TG License Agreement if TG Therapeutics or any of its affiliates or sublicensees challenges the validity of any patents controlled by us. We or TG Therapeutics may terminate the TG License Agreement (i) for material breach by the other party and a failure to cure such breach within the time period specified in the TG License Agreement or (ii) the other party’s insolvency.
Sale of CAR T Platform to Imugene
On August 15, 2023 we entered into an asset purchase agreement (the “Imugene Purchase Agreement”) with Imugene Limited (“Imugene Limited”), and its wholly owned subsidiary Imugene (USA) Inc. (“Imugene US” and together with Imugene Limited, “Imugene”). Pursuant to and simultaneously with the execution of the Imugene Purchase Agreement, Imugene US acquired our manufacturing infrastructure used in the development and manufacture of azer-cel, including assuming the lease to our manufacturing facility and certain contracts with respect to our manufacturing facility, and related equipment, supplies, azer-cel clinical trial inventory and other assets related to our CAR T cell therapy platform (the “Acquired Assets”). As part of the Imugene Purchase Agreement, Imugene US hired a number of the Company’s employees who were associated with our historical CAR T cell therapy operations.
In consideration for the Acquired Assets, Imugene US assumed certain liabilities, paid us $8 million in cash, and issued us convertible notes pursuant to the terms and conditions set forth in a convertible note subscription deed (collectively, the “Imugene Convertible Note”) in an aggregate principal amount of $13 million. The Imugene Convertible Note was a non-interest bearing and had a maturity date of the first anniversary of the Closing Date (the “Maturity Date”). On the Maturity Date, the Imugene Convertible Note was redeemed through the payment of $9.75 million in cash, and the remaining amount of the note was converted into ordinary shares of Imugene Limited. The ordinary shares of Imugene Limited were determined using a conversion price based on the 10-day volume weighted average price of Imugene Limited’s ordinary shares prior to the date of conversion.
Additionally, we entered into a license agreement with Imugene (the “Imugene License Agreement”) on the Closing Date, pursuant to which we granted Imugene US certain exclusive and non-exclusive license rights to develop, manufacture, and commercialize oncological applications of our allogeneic CAR T therapy, azer-cel, and up to three additional research product candidates directed to targets that Imugene US may nominate prior to the fifth anniversary of the effective date of the Imugene License Agreement, pursuant to the terms of the Imugene License Agreement.
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In addition, under the License Agreement, we are eligible to receive milestone payments of up to an aggregate of $206 million for azer-cel, inclusive of a payment of $8 million in cash and equity upon successful completion of the Phase 1b dosing in the CAR T relapsed LBCL patient population. For azer-cel, we are eligible to receive double-digit royalties on net sales. For up to three additional research programs to be developed by Imugene, we are eligible for up to $145 million in milestone payments and, if licensed products are approved and sold, tiered royalties ranging from the mid-single digit to low-double digit percentages on net sales of such licensed products. In addition, we are eligible to receive mid-single digit percentage-based fees for certain change of control transactions involving Imugene and for partnering transactions involving a licensed product. Imugene’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 10 years following the first commercial sale of the respective licensed product.
Unless earlier terminated, the Imugene License Agreement will remain in effect on a licensed product-by-licensed product and country-by-country basis until the expiration of a defined royalty term for each licensed product and country. We may terminate the entire Imugene License Agreement due to a challenge to our patents brought by Imugene and a breach by Imugene in any material respect of the Imugene License Agreement, the Imugene Purchase Agreement or any related transaction documents. We may also terminate the Imugene License Agreement with respect to azer-cel if Imugene fails to initiate certain development activities with respect to azer-cel by a specified date, if Imugene fails to expend certain amounts on the development of azer-cel or if Imugene ceases active development of azer-cel for a specified period of time. Either party may terminate the Imugene License Agreement (i) for material breach by the other party and a failure to cure such breach within the time period specified in the agreement or (ii) the other party’s insolvency.
We concluded the Imugene License Agreement represents functional intellectual property in accordance with ASC 606 given we do not expect to provide any additional services to Imugene outside of the right to use the licensed intellectual property. As of December 31, 2024 management has constrained all variable consideration related to milestone payments in the Imugene License Agreement given the level of uncertainty associated with achievement of the milestone payments. Accordingly, no revenue was recognized under the Imugene License Agreement during the year ended December 31, 2024.
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 (collectively referred to as licensed products). Any initial licensed products under the Novartis Agreement will be developed for the potential treatment of certain hemoglobinopathies, including sickle cell disease and beta thalassemia.
Pursuant to the terms of the Novartis Agreement, 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 413,581 shares of our common stock (the “Novartis Shares”) in a private placement transaction for an aggregate purchase price of $25.0 million, or approximately $60.30 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.
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
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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 10 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.
During the years ended December 31, 2024 and 2023 we recognized revenue under the Novartis Agreement of $6.4 million and $22.7 million, respectively. Deferred revenue related to the Novartis Agreement amounted to $26.3 million and $32.4 million as of December 31, 2024 and December 31, 2023, respectively, of which $3.0 million and $7.4 million, respectively, was included in current liabilities within the balance sheets.
Prevail Therapeutics, Inc.
On November 19, 2020, we entered into a development and license agreement with Eli Lilly and Company (“Lilly”) to collaborate to discover and develop in vivo gene editing products incorporating ARCUS nucleases to utilize ARCUS for the research and development of potential in vivo therapies for genetic disorders, which was subsequently assigned to Prevail Therapeutics Inc., a wholly-owned subsidiary of Lilly (“Prevail”), effective November 1, 2022 (the “Original Prevail Agreement”).
On June 30, 2023, we entered into an amended and restated development and license agreement (the “Prevail Agreement”) with Prevail. The Prevail Agreement amended and restated the Original Prevail Agreement. Pursuant to the terms of the Prevail Agreement, we and Prevail continued to collaborate on developing our ARCUS nucleases for the research and development of potential in vivo therapies for genetic disorders, including Duchenne muscular dystrophy, a liver-directed target, and a central nervous system directed target. Pursuant to the Prevail Agreement, manufacturing initial clinical trial material for the first licensed product, which was previously our responsibility to conduct at Prevail’s expense, instead became Prevail’s responsibility at Prevail’s expense.
On April 11, 2024, we received written notice from Prevail of its termination of the Prevail Agreement. Prevail’s notice informed us that Prevail was exercising its right pursuant to Section 15.3.2 of the Prevail Agreement to terminate the Prevail Agreement in its entirety without cause upon 90 days’ prior written notice to us. We subsequently exercised our rights to the return of the three programs. The termination was effective on July 10, 2024.
During the years ended December 31, 2024 and 2023, we recognized revenue under the Prevail Agreement of $52.7 million and $26.0 million, respectively. The Company has no deferred revenue under the Prevail Agreement as of December 31, 2024, due to the termination. Deferred revenue related to the Prevail Agreement was $52.7 million as of December 31, 2023, of which $4.7 million was included in current liabilities within the balance sheet.
iECURE
In August 2021, we entered into a development and license agreement with iECURE (the “iECURE DLA”) under which iECURE was to advance our PBGENE-PCSK9 candidate through preclinical activities as well as a Phase 1 clinical trial in order to gain access to a license to use our PCSK9-directed ARCUS nuclease to insert genes into the PCSK9 locus to develop treatments for four pre-specified rare genetic diseases, including OTC deficiency (the “PCSK9 License”). Simultaneously with the entry into the iECURE DLA, we and iECURE entered into an equity issuance agreement (the “iECURE Equity Agreement”), pursuant to which iECURE issued us common stock in iECURE as additional consideration for the PCSK9 license. Additionally, we are eligible to receive milestone and mid-single digit to low double digit royalty payments on sales of iECURE products developed with ARCUS.
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). There was no change in the fair value of the IECURE equity during the year ended December 31, 2024. During the year ended December 31, 2023, we recorded a $0.6 million increase in the carrying value of our iECURE equity to adjust to fair value.
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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, 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 third parties that conduct preclinical research and development activities on our behalf;
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costs of manufacturing drug products for use in our preclinical studies, including the costs of contract manufacturing organizations (“CMOs”);
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costs of outside consultants;
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costs of laboratory supplies and acquiring, developing and manufacturing preclinical study 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 direct depreciation costs and 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 by product candidate beginning when it is publicly named as a development program. Internal and external costs that are not identifiable to specific development candidates are included in the platform development expenses category.
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 progress development of our product candidates.
We cannot determine with certainty the duration and costs of future clinical trials for our product candidates 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 product candidates will depend on a variety of factors, including:
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the scope, rate of progress, expense and results of future clinical trials of our product candidates and other research and development activities that we may conduct;
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the ability to collaborate and partner with third parties to fund any or all of our programs;
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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
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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, consulting fees, recruitment-related costs and other employee-related costs, including share-based compensation, for personnel in our executive, finance, business development, operations and administrative functions. General and administrative expenses also include legal fees relating to intellectual property and corporate matters; information technology costs; insurance costs; travel expenses; and facility-related expenses, which include direct depreciation costs and expenses for rent and maintenance of facilities and other operating costs that are not specifically attributable to research activities.
Loss from Equity Method Investment
Loss from equity method investment represents our proportionate share of the net loss of our equity method investee, Elo Life Systems, Inc. (“Elo”).
Gain on Changes in Fair Value
The change in fair value represents the assessed changes in assets and liabilities carried at fair value.
As partial consideration for the assets acquired by Imugene in connection with the asset purchase agreement (the “Imugene Purchase Agreement”), Imugene issued convertible notes to us pursuant to the terms and conditions set forth in a convertible note subscription deed (collectively, the “Imugene Convertible Note”) in an aggregate principal amount of $13 million. The Imugene Convertible Note matured on August 30, 2024 and resulted in payment to us in cash and ordinary shares of Imugene Limited.
We adjust the carrying value of the ordinary shares issued under the Imugene Convertible Note to its fair value each reporting period with any changes in fair value recorded to other income (expense).
Gain on Change in Fair Value of Warrant Liability
The change in fair value of warrant liability represents the mark-to-market fair value adjustments to the outstanding warrants issued in connection with the March 2024 Public Offering.
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 from Elo.
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 and impairment recognized on assets held for sale.
Loss from Discontinued Operations
Loss from discontinued operations represents the gain on the sale of our CAR T infrastructure to Imugene and the results of operations of our historical cell therapy operations.
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Results of Operations
Comparison of the Years Ended December 31, 2024 and December 31, 2023
The following table summarizes our results of operations for the years ended December 31, 2024 and December 31, 2023, together with the changes in those items in dollars:
Years ended December 31,
Operating expenses:
Other income (expense), net:
Gain on change in fair value of warrant liability 29,610 — 29,610
Loss on disposal of assets (436 ) (461 ) 25
Revenue
Revenue for the year ended December 31, 2024 was $68.7 million, compared to $48.7 million for the year ended December 31, 2023. The increase of $20.0 million in revenue during the year ended December 31, 2024 was primarily the result of a $26.7 million increase in revenue related to the Prevail Agreement as the remaining deferred revenue under the agreement was recognized during the year ended December 31, 2024 following conclusion of the collaboration in April 2024. Additionally, there was a $9.5 million increase in revenue in the year ended December 31, 2024 as a result of the TG License Agreement and the license agreement with Caribou. Partially offsetting the increase was a $16.3 million decrease in revenue recognized under the Novartis Agreement during the year ended December 31, 2024 compared to year ended December 31, 2023 as we near the completion of our pre-clinical work plan.
Research and Development Expenses
Years ended December 31,
Direct research and development expenses by product candidate:
Platform development and early-stage research expenses:
CMOs and outsourced research and development 1,083 4,753 (3,670 )
Facility-related costs, laboratory equipment, and maintenance 3,082 3,308 (226 )
Licensing fees and other research and development costs 2,428 2,508 (80 )
Research and development expenses for the year ended December 31, 2024 were $59.6 million, compared to $53.4 million for the year ended December 31, 2023. The increase of $6.2 million was primarily due to direct spending increases of $16.2 million due to
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PBGENE-HBV and PBGENE-3243 advancing towards the clinic. These higher costs were partially offset by platform development and early stage research expenses decreasing by $10.1 million, including a $3.7 million decrease in CMOs and outsourced research and development costs, a $2.7 million decrease in laboratory supplies and services expenses, a $2.1 million decrease in employee-related costs and share-based compensation expense, and a $1.3 million decrease in depreciation and amortization expense.
General and Administrative Expenses
General and administrative expenses were $35.3 million for the year ended December 31, 2024 compared to $39.1 million for the year ended December 31, 2023. The decrease of $3.8 million was primarily due to a $1.0 million decrease in employee-related expenses, a $0.7 million decrease in consulting fees, and $0.5 million decreases each in information technology expenses and depreciation and amortization expense.
Loss from Equity Method Investment
Loss from equity method investment was $1.1 million during the year ended December 31, 2024. Loss from equity method investment was $4.9 million during the year ended December 31, 2023, which represented our proportionate share of Elo’s net loss for such periods.
Gain on Changes in Fair Value
Gain on changes in fair value was $0.3 million for the year ended December 31, 2024, which was primarily attributed to an increase during such period in the fair value of the Imugene Convertible Note and the ordinary shares issued thereunder and still held by us at the end of the period. Gain on changes in fair value was $1.1 million for the year ended December 31, 2023, which was attributed to an increase in the fair value of the Imugene Convertible Note.
Gain on Change in Fair Value of Warrant Liability
Gain from change in fair value of the warrant liability of $29.6 million for the year ended December 31, 2024 represents the mark-to-market fair value adjustment to the outstanding warrants issued in connection with the March 2024 Public Offering. There was no warrant liability in the year ended December 31, 2023.
Interest Expense
Interest expense was $1.8 million and $2.2 million for the years ended December 31, 2024 and 2023, respectively. The $0.4 million decrease in interest expense was the result of lower interest rates during the year ended December 31, 2024 as compared to the year ended December 31, 2023.
Interest Income
Interest income was $6.8 million during the year ended December 31, 2024 compared to $7.7 million during the year ended December 31, 2023. The $0.9 million decrease in interest income was the result of lower interest rates during the year ended December 31, 2024 as compared to the year ended December 31, 2023
Loss on Disposal of Assets
Loss on disposal of assets was $0.4 million and $0.5 million during the years ended December 31, 2024 and 2023, respectively.
Loss from Discontinued Operations
There was no loss from discontinued operations during the year ended December 31, 2024 compared to a loss of $18.8 million during the year ended December 31, 2023. The $18.8 million loss during the year ended December 31, 2023 consisted of research and development expenses for our historical cell therapy operations, partially offset by an $8.4 million gain on disposal of our CAR T infrastructure.
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
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periods. As of December 31, 2024, we had federal and state NOL carryforwards of $235.5 million and $212.0 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, 2024, we also had federal and state R&D tax credits of $20.2 million and an amount less than $0.1 million, which begin to expire in 2029 and 2030, respectively. As of December 31, 2024 we had federal Orphan Drug credits of $13.5 million which begin to expire in 2038. As of December 31, 2024, we also have federal contribution carryforwards of $0.1 million, which begin to expire in 2026. We have recorded a full valuation allowance against our net deferred tax assets at each balance sheet date.
Liquidity and Capital Resources
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 incurred significant operating losses since our inception 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 or other licensees for which we may receive milestone payments or royalties. As of December 31, 2024, we had an accumulated deficit of $482.5 million.
We expect to incur significant expenses and operating losses for the foreseeable future as we advance the development of our product candidates. We expect that our research and development and general and administrative costs will increase over the long term, including in connection with conducting preclinical studies and potential clinical trials for our product candidates, contracting with CROs and CMOs, expanding our intellectual property portfolio and providing general and administrative support for our operations. 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. 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, 2024, we had cash and cash equivalents of $85.9 million and $22.6 million in restricted cash under the 2024 Term Loan, which replaced our Revolving Line on July 31, 2024. Pursuant to our July 31, 2024 amended and restated loan and security agreement with Banc of California (the “2024 Loan and Security Agreement”), we are not entitled to borrow any additional amounts under the 2024 Term Loan and are required to maintain an aggregate balance in a cash security account with Banc of California (the “Cash Security Account”) at least equal to the outstanding principal amount of the 2024 Term Loan then outstanding.
As described in Part I. Item 1A. “Risk Factors,” we believe that, as of the date of this Annual Report on Form 10-K, existing cash and cash equivalents, expected operational receipts, including upfront and potential near-term consideration to be received from our licensees, operational efficiencies gained from divestment of our historical CAR T operations, and availability of our ATM facility will be sufficient to fund our operating expenses and capital expenditure requirements into the second half of 2026. 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 current global macroeconomic conditions. If we are unable to obtain sufficient financing on a timely basis or on favorable terms, we may be required to significantly delay, alter reduce or eliminate one or more of our research or product development programs and/or commercialization efforts, or to grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves. We may also be otherwise unable to execute our business plan or growth strategy, or capitalize on business opportunities as desired. Any of these events could materially adversely affect our financial condition and business prospects.
As of the filing of this Annual Report on Form 10-K, we will be subject to the Baby Shelf Rule, as defined and described in “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. As a result of the Baby Shelf Rule, we will be limited in the amount of proceeds we are able to raise by selling shares of our common stock using our Form S-3, including under our ATM facility, until such time as our public float exceeds $75 million.
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, potentially 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 operations.
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Cash Flows
Our cash, cash equivalents, and restricted cash totaled $108.5 million and $116.7 million as of December 31, 2024, and 2023, respectively.
The following table summarizes our sources and uses of cash for the periods presented:
For the Years Ended December 31,
Components of cash used in operating activities:
Changes in operating assets and liabilities (53,999 ) (41,487 )
Net cash used in operating activities $ (58,445 ) $ (84,114 )
Net cash (used in) provided by investing activities (215 ) 5,829
Net cash provided by financing activities 50,450 5,387
Decrease in cash, cash equivalents and restricted cash $ (8,210 ) $ (72,898 )
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 costs.
Cash used in operating activities during the year ended December 31, 2024 was $58.4 million, compared to $84.1 million during the year ended December 31, 2023. The $25.7 million decrease in cash used in operating activities was primarily driven by a $68.5 million increase in net income, partially offset by decreases of $30.3 million in non-cash adjustments and $12.5 million in changes in operating assets and liabilities.
The $30.3 million year over year decrease in non-cash adjustments was primarily driven by a $29.6 million decrease in the change in fair value of warrants which we did not have in the year ended December 31, 2023. The decreases in equity method investment and depreciation and amortization were substantially offset by the gain on changes in fair value and the gain on disposal of the cell therapy business which occurred in the year ended December 31, 2023.
The $12.5 million year over year decline in cash used in operating assets and liabilities is primarily driven by a decrease in net changes of deferred revenue as a result of the conclusion of the Prevail collaboration. Increase from the maturity of the Imugene Convertible Note in the year ended December 31, 2024 and net changes of accounts receivable were offset by changes in accounts payable, other assets and current assets, other liabilities and current liabilities, and contract asset.
Cash (Used in) Provided by 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, 2024 was $0.2 million, compared to $5.8 million provided by investing activities in the year ended December 31, 2023. The $6.0 million decrease in cash provided by investing activities was primarily the result of the $8.0 million proceeds from the disposal of CAR T infrastructure in 2023, partially offset by $2.0 million of property, equipment, and software purchases during the year ended December 31, 2023.
Cash Provided by Financing Activities
Net cash provided by financing activities during the year ended December 31, 2024 was $50.5 million, compared to $5.4 million during the year ended December 31, 2023. The $45.1 million increase in cash provided by financing activities during the year ended December 31, 2024 was primarily due to a $44.4 million increase in net proceeds from offerings of common stock in the year ended December 31, 2024 as compared to the year ended December 31, 2023 and $0.9 million in net proceeds from the issuance of common stock to TG Therapeutics in the year ended December 31, 2024.
Debt Obligations
On July 31, 2024, we replaced the Revolving Line with the 2024 Term Loan with an aggregate principal amount of $22.5 million. The stated interest rate under the 2024 Term Loan is equal to the greater of 1.50% below the Prime Rate or 4.5%. As of July 31, 2024, the
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stated interest rate was 7.00%. As of December 31, 2024, the outstanding principal balance on the 2024 Term Loan was $22.5 million, the stated interest rate was 6.0% and the effective interest rate was 6.43%.
Under the terms of the 2024 Loan and Security Agreement, we granted Banc of California a security interest in a cash security account at Banc of California (the “Cash Security Account”), and Banc of California agreed to terminate all other security interests it had in our assets. We are required to maintain an aggregate unencumbered balance in the Cash Security Account at least equal to the outstanding principal amount of the 2024 Term Loan then outstanding.
Funding Requirements
We will continue to have funding requirements in connection with the continuation of our research and development efforts, potential IND and CTA submissions, potential clinical trials, and expected growth in our in vivo portfolios.
We believe that, as of the date of this Annual Report on Form 10-K, existing cash and cash equivalents, expected operational receipts, including upfront and potential near-term consideration to be received from licensees, operational efficiencies gained from divestment of our historical CAR T operations, and availability of our ATM facility will be sufficient to fund our operating expenses and capital expenditure requirements into the second half of 2026. We expect our cash runway to be sufficient to achieve first-in-human Phase 1 clinical data for two of our wholly-owned in vivo gene editing programs. 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 ability to collaborate and partner with third parties to fund any or all of our programs;
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the progress, costs and results of our additional research and preclinical development programs including our in vivo pipeline and our planned IND or CTA submissions and potential biologics license application (“BLA”) submissions;
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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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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 of our 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, our stockholders’ 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 equity financing, 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 significantly delay, alter reduce or eliminate one or more of our research or product development programs and/or commercialization efforts, or to grant rights to
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develop and market products or product candidates that we would otherwise prefer to develop and market ourselves. We may also be otherwise unable to execute our business plan, growth strategy, or capitalize on business opportunities as desired.
Common Stock Offering
In March 2024, we entered into an underwriting agreement relating to the offering, issuance and sale of an aggregate of 2,500,000 shares of our common stock and warrants to purchase up to an aggregate of 2,500,000 shares of our common stock at a combined offering price of $16.00 per share. Each warrant has an exercise price per share of $20.00, is immediately exercisable and will expire on March 5, 2029. The offering was made pursuant to a registration statement on Form S-3. Gross proceeds from the transaction were $40.0 million before deducting underwriting discounts and commissions and offering expenses of approximately $3.0 million. We intend to use the net proceeds of the offering to fund ongoing and planned research and development, and for working capital and other general corporate purposes.
Contractual Obligations and Commitments
In addition to the contractual obligations and commitments as described elsewhere in this Annual Report on Form 10-K with respect to leases, the Term Loan, and intellectual property licenses, we also enter into contracts in the normal course of business with CMOs, universities, and other third parties for preclinical research studies, testing, manufacturing services, and other services and products for operating purposes. These contracts are generally cancelable upon written notice.
The Company does not have any material capital expenditure commitments at December 31, 2024.
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 (i) licenses, or options to obtain licenses, to use our technology, (ii) research and development activities to be performed on behalf of the collaborative partner, and (iii) 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 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 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 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.
We analyze our 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.
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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, 2024, we did not record any cumulative catch-up adjustments on contracts.
Warrant Liability
The warrants issued in the March 2024 Public Offering were recognized as derivative warrant liabilities in accordance with ASC 815. Accordingly, we recognized the warrant instruments as liabilities at fair value and will remeasure the instruments to fair value at each balance sheet date, with changes in fair value recognized in our statements of operations, until exercised or expiration. The fair value of the warrants were initially estimated using a Black-Scholes option pricing model. Derivative warrant liabilities are classified as non-current liabilities as their liquidation is not reasonably expected to require the use of current assets or require the creation of current liabilities.
Accrued Research and Development Expenses
As part of the process of preparing our financial statements, we are required to make certain estimates and judgments 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 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:
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third parties in connection with performing research and development activities, conducting preclinical studies and clinical trials on our behalf;
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Vendors in connection with preclinical development activities; and
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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 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.
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Recent Accounting Pronouncements
Refer to Note 1, “Description of Business and Summary of Significant Accounting Policies,” in the accompanying notes to the financial statements for a discussion of recent accounting pronouncements and new accounting pronouncements adopted during 2024.
Smaller Reporting Company Status
We are a “smaller reporting company” as defined under applicable regulations promulgated by the SEC. We will continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue is less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million. As a smaller reporting company, we are able to take advantage of certain exemptions from disclosure requirements, including presenting only the two most recent fiscal years of audited financial statements and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.
We cannot predict whether investors will find our common stock less attractive if we rely on the exemptions available to smaller reporting companies. If investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be reduced or more volatile. To the extent we take advantage of such reduced disclosure obligations, it may also make comparison of our financial statements with other public companies difficult or impossible.
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, cash equivalents, and restricted cash which are denominated in U.S. dollars. We had cash, cash equivalents, and restricted cash of $108.5 million, or 80% of our total assets, on December 31, 2024 and $116.7 million, or 73% of our total assets, on December 31, 2023. Interest income earned on our assets was $6.8 million and $7.7 million for the years ended December 31, 2024 and December 31, 2023, 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, 2024.
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 Part IV. Item 15. 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, 2024.
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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, 2024, 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 a non-accelerated filer within the meaning of the Exchange 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, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
Rule 10b5-1 Trading Plans
On August 2, 2024, Michael Amoroso, our President and Chief Executive Officer, entered into a sell-to-cover instruction letter intended to satisfy the affirmative defense conditions under Rule 10b5-1(c). Mr. Amoroso’s instruction letter provides for sales of such number of shares of our common stock as are necessary to satisfy the applicable tax withholding obligations arising from the vesting of Restricted Stock Units (“RSUs”) granted to him. The total number of shares that may be sold pursuant to the sell-to-cover instruction letter is not determinable. Mr. Amoroso’s instruction letter may only be modified, terminated or amended by a signed writing provided by Mr. Amoroso during an open trading window under the Company’s insider trading policies.
On October 1, 2024, Alex Kelly, our Chief Financial Officer, entered into a sell-to-cover instruction letter intended to satisfy the affirmative defense conditions under Rule 10b5-1(c). Mr. Kelly’s instruction letter provided for sales of such number of shares of our common stock as were necessary to satisfy the applicable tax withholding obligations arising from the vesting of RSUs granted to him. The total number of shares that may have been sold pursuant to the sell-to-cover instruction letter was not determinable. Mr. Kelly’s instruction letter was terminated on December 27, 2024, by a signed writing provided by Mr. Kelly during an open trading window under the Company’s insider trading policies.
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 26, 2025:
Name Age Position at Precision BioSciences, Inc. Principal Employment
Executive Officers
Michael Amoroso 47 President, Chief Executive Officer and Director Same
John Alexander Kelly 58 Chief Financial Officer Same
Dario Scimeca 50 General Counsel and Secretary Same
Jeff Smith, Ph.D. 51 Chief Research Officer Same
Non-Employee Directors
Insider Trading Arrangements and Policies
We are committed to promoting high standards of ethical business conduct and compliance with applicable laws, rules and regulations. As part of this commitment, we have adopted our Insider Trading Policy governing the purchase, sale, and/or other dispositions of our securities by our directors, officers, and other employees, as well as by the Company itself, that we believe is reasonably designed to promote compliance with insider trading laws, rules and regulations, and the exchange listing standards applicable to us. A copy of our Insider Trading Policy is filed as Exhibit 19.1 to this Annual Report on Form 10-K.
The remaining information required by this item will be included in our definitive proxy statement (“2025 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 2025 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 2025 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 2025 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 2025 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-32 attached hereto and are filed as part of this Annual Report on Form 10-K.
(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.
111
Exhibit Index
ExhibitNumber Description Form File No. Exhibit FilingDate FiledHerewith
4.4 Description of Registrant’s Securities. *
112
ExhibitNumber Description Form File No. Exhibit FilingDate FiledHerewith
19.1 Precision BioSciences, Inc. Insider Trading Compliance Policy *
21.1 Subsidiaries of Precision BioSciences, Inc. *
23.1 Consent of Deloitte & Touche LLP. *
101.INS XBRL Instance Document *
101.SCH XBRL Taxonomy Extension Schema 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)(2)(ii) of Regulation S-K.
††† 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
113
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 26, 2025 By: /s/ Michael Amoroso
Michael Amoroso
Date: March 26, 2025 By: /s/ John Alexander Kelly
John Alexander Kelly
Chief Financial Officer(principal financial and accounting 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
/s/ Kevin Buehler Chair of the Board and Director March 26, 2025
Kevin Buehler
/s/ Melinda Brown Director March 26, 2025
Melinda Brown
/s/ Stanley Frankel, M.D. Director March 26, 2025
Stanley Frankel, M.D.
/s/ Geno Germano Director March 26, 2025
Geno Germano
/s/ Shari Lisa Piré Director March 26, 2025
Shari Lisa Piré
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INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID: 34) F-1
Notes to Financial Statements F-7
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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 balance sheets of Precision BioSciences, Inc. (the “Company”) as of December 31, 2024 and 2023, the related statements of operations, changes in stockholders’ equity, and cash flows, for each of the two years in the period ended December 31, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, 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 US 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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Warrant Liability — Refer to Notes 1, 10, and 13 to the financial statements
Critical Audit Matter Description
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms. Liability-classified warrants are recorded at their fair value and are subject to subsequent remeasurement at each balance sheet date until the warrants are exercised or expire, and any change in fair value is recognized in the Company’s statement of operations. The Company entered into an underwriting agreement relating to the issuance and sale of an aggregate of 2,500,000 shares of its common stock and warrants to purchase an additional 2,500,000 shares of its common stock (the “warrants”) at a combined price of $16.00 per share on March 1, 2024. The warrants do not meet all the requirements for equity classification under ASC 815, Derivatives and Hedging, and therefore they are accounted for as a warrant liability at fair value on the Company’s balance sheet.
The Company uses the Black-Scholes option-pricing model (“Black-Scholes model”) to determine the fair value of the warrants. Estimates and assumptions affecting the fair value measurement as of December 31, 2024, include the risk-free interest rate, the expected volatility of common stock, the fair value per share of the underlying shares of common stock, the expected term of the warrants, and a zero-dividend yield. The most significant assumption impacting the fair value of the warrants is the expected volatility of common stock, which the Company based primarily on the blended equity volatilities of the Company and comparable public
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companies, which were selected based on the similarity of their operations to those of the Company as well as their tenure as a public company. As of December 31, 2024, the warrant liability was $2.8 million, and the change in fair value recognized in the statement of operations for the year ended December 31, 2024, was a gain of $29.6 million included in other income.
We identified warrants as a critical audit matter because of the significant judgments necessary in determining the balance sheet classification and the fair value of the warrant liability. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s expected volatility of common stock, including selection of the comparable public companies.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to determining the balance sheet classification and the fair value of the warrant liability included the following, among others:
•
We evaluated the adequacy of management’s accounting assessment and their conclusion to classify warrants as a liability considering ASC 815 and ASC 480, Distinguishing Liabilities from Equity.
•
With the assistance of our fair value specialists, we evaluated the reasonableness of the fair value measurement of the warrant liability, as follows:
o
Evaluated management’s selection of the Black-Scholes model to determine the fair value measurements of the warrant liability.
o
Evaluated the incorporation of the applicable estimates and assumptions into the Black-Scholes model and risk-free interest rate as well as testing the model’s mathematical accuracy.
o
Tested the underlying source information used by management in making the estimates and assumptions, including the selection of the comparable public companies used in the expected volatility of the common stock.
o
Developed an independent estimate and compared our estimate to that used by management.
•
We evaluated the presentation of the warrants in the financial statements and the related fair value measurement footnote disclosure.
/s/ Deloitte & Touche LLP
Raleigh, North Carolina
March 26, 2025
We have served as the Company’s auditor since 2017.
F-2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
PRECISION BIOSCIENCES, INC.
BALANCE SHEETS
(In thousands, except share and per share amounts)
Assets
Current assets:
Marketable securities 413 —
Convertible note receivable — 11,897
Contract asset 1,469 —
Property, equipment, and software—net 3,089 6,338
Investment in equity securities 3,206 3,206
Liabilities and Stockholders’ Equity
Current liabilities:
Accrued research and development expenses 2,016 1,557
Loan payable—current portion — 22,412
Current liabilities of discontinued operations 1,204 2,513
Warrant liability 2,796 —
Other noncurrent liabilities 194 128
Commitments and contingencies (Note 14)
Stockholders’ equity:
Total liabilities and stockholders’ equity $ 136,388 $ 159,781
See notes to financial statements
F-3
PRECISION BIOSCIENCES, INC.
STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
For the Years Ended December 31,
Operating expenses
Other income (expense):
Loss from equity method investment (1,084 ) (4,931 )
Gain on changes in fair value 258 1,145
Gain on change in fair value of warrant liability 29,610 —
Loss on disposal of assets (436 ) (461 )
Income (loss) from continuing operations $ 7,167 $ (42,527 )
Net income (loss) per share
Weighted-average shares of common stock outstanding
See notes to financial statements
F-4
PRECISION BIOSCIENCES, INC.
STATEMENTS OF CHANGES IN
STOCKHOLDERS’ EQUITY
(In thousands, except share amounts)
Common Stock AdditionalPaid-In Accumulated Treasury TotalStockholders’
Shares Amount Capital Deficit Stock Equity
Issuance of common stock under employee stock purchase plan 18,101 — 370 — — 370
Share-based compensation expense — — 14,040 — — 14,040
Restricted stock units vested 46,893 — — — — —
Issuance of common stock under employee stock purchase plan 23,831 — 249 — — 249
Share-based compensation expense — — 12,604 — — 12,604
Restricted stock units vested 102,132 — — — — —
See notes to financial statements
F-5
PRECISION BIOSCIENCES, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
For the Years Ended December 31,
Cash flows from operating activities:
Depreciation and amortization 3,404 6,817
Loss on disposal of assets 436 563
Gain on disposal of business — (8,446 )
Non-cash interest expense 249 368
Amortization of right-of-use assets 1,173 1,438
Gain on changes in fair value (258 ) (1,145 )
Loss from equity method investment 1,084 4,931
Amortization of discount on note receivable (695 ) (515 )
Gain on change in fair value of warrant liability (29,610 ) —
Impairment charges — 641
Changes in operating assets and liabilities:
Marketable securities 1,990 —
Convertible note receivable 9,750 —
Contract asset (1,469 ) —
Other assets and other current assets (262 ) 1,752
Other liabilities and other current liabilities (2,128 ) (724 )
Net cash used in operating activities (58,445 ) (84,114 )
Cash flows from investing activities:
Proceeds from disposal of business — 8,000
Purchases of property, equipment and software (250 ) (1,957 )
Purchases of intangibles assets (25 ) (321 )
Proceeds from sale of equipment 60 107
Net cash (used in) provided by investing activities (215 ) 5,829
Cash flows from financing activities:
Proceeds from stock option exercises — 31
Proceeds from employee stock purchase plan 249 370
Repayment of revolving credit facility (22,505 ) —
Net cash provided by financing activities 50,450 5,387
Net decrease in cash, cash equivalents and restricted cash (8,210 ) (72,898 )
Cash, cash equivalents, and restricted cash—beginning of period 116,678 189,576
Cash, cash equivalents, and restricted cash —end of period $ 108,468 $ 116,678
Reconciliation of cash, cash equivalents and restricted cash:
Restricted cash $ 22,569 $ —
Total of cash, cash equivalents and restricted cash $ 108,468 $ 116,678
Supplemental disclosures of noncash financing and investing activities:
See notes to financial statements
F-6
Precision BioSciences, Inc.
Notes to 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 gene editing company dedicated to improving life by developing 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, establishing its intellectual property portfolio and providing general and administrative support for these operations. The Company is subject to a number of risks similar to those of other companies conducting early-stage research and development of product candidates. Principal among these risks are the Company’s 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 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 financial statements and disclosures made in the accompanying notes to the 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.
Basis of Presentation
These financial statements have been prepared in accordance with GAAP. Additionally, the accompanying 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.
The accompanying financial statements have been recast for all periods presented to reflect the assets, liabilities and expenses related to discontinued operations (discussed below). The accompanying financial statements are generally presented in conformity with the Company’s historical format.
Reverse Stock Split
On February 13, 2024, the Company amended its amended and restated certificate of incorporation in order to effect a 1-for-30 reverse stock split of its outstanding shares of capital stock (the “Reverse Stock Split”). As a result of the Reverse Stock Split, every 30 shares of the Company’s common stock issued or outstanding were automatically reclassified into one new share of common stock, subject to the treatment of fractional shares as described below, without any action on the part of the holders. All historical share and per-share amounts reflected throughout the accompanying financial statements and other financial information in this Annual Report on Form 10-K have been retroactively adjusted to reflect the 2024 Reverse Stock Split as if the split occurred as of the earliest period presented. The Reverse Stock Split did not affect the number of authorized shares of common stock or the par value of the common stock. No fractional shares were issued in connection with the Reverse Stock Split. Stockholders who would otherwise have been entitled to receive fractional shares as a result of the Reverse Stock Split were entitled to a cash payment in lieu thereof at a price equal to the fraction to which the stockholder would otherwise be entitled multiplied by the closing sales price per share of the common stock (as adjusted to give effect to the Reverse Stock Split) on The Nasdaq Capital Market on February 13, 2024, the last trading day immediately preceding the effective time of the Reverse Stock Split.
F-7
Summary of Significant Accounting Policies
Cash and Cash Equivalents
As of December 31, 2024 and December 31, 2023, the Company held cash equivalents which are composed of money market funds.
Restricted Cash
Restricted cash includes a cash security account with Banc of California pursuant to the 2024 Loan and Security Agreement (as defined in Note 12, Debt, below). The balance is classified as long-term on the Company’s balance sheets as the maturity date under the 2024 Loan and Security Agreement is June 30, 2027. As of December 31, 2024, the Company had a restricted cash balance of $22.6 million. There was no restricted cash as of December 31, 2023.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, 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 Prevail and TG Therapeutics accounted for 77% and 12% of revenue during the year ended December 31, 2024, respectively. Revenue from Prevail and Novartis accounted for 62% and 38% of revenue during the year ended December 31, 2023, respectively. Novartis accounted for all of the Company’s deferred revenue as of December 31, 2024.
In addition, the Company currently holds a $10.0 million promissory note payable from Elo (defined below), which exposes the Company to potential losses in the event of default. Counterparty credit risk is monitored through periodic reviews of financial records. As of December 31, 2024, 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 in-licenses and capitalized patent costs. 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 statement of operations.
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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
•
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 balance sheets and records changes in fair value in the statements of operations as a component of other income or expense.
As of both December 31, 2024 and December 31, 2023, the Company held common stock in iECURE (defined below) with a fair value of $3.2 million.
Investments under the Equity Method
The Company utilizes the equity method to account for investments when it is determined that the Company possesses 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
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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.
Revenue Recognition for Contracts with Customers
The Company’s revenues are generated primarily through collaborative research, license, development and commercialization agreements.
ASC 606 applies to all contracts with customers, except for contracts that are within the scope of other standards. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation.
At contract inception, once the contract is determined to be within the scope of ASC 606, the Company evaluates the performance obligations promised in the contract that are based on goods and services that will be transferred to the customer and determines whether those obligations are both (i) capable of being distinct and (ii) distinct in the context of the contract. Goods or services that meet these criteria are considered distinct performance obligations. If both these criteria are not met, the goods and services are combined into a single performance obligation. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options. The Company assesses if these options provide a material right to the customer and if so, these options are considered performance obligations. The exercise of a material right is accounted for as a contract modification for accounting purposes.
The Company recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) each performance obligation is satisfied at a point in time or over time, and if over time this is based on the use of an output or input method. For the year ended December 31, 2024, the Company did not record a cumulative catch up adjustment on its contracts with partners. During the year ended December 31, 2024, the Company recorded $59.1 million in revenue that was included in deferred revenue as of December 31, 2023.
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 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 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.
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Significant Financing Component – In determining the transaction price, the Company adjusts consideration for the effects of the time value of money if the timing of payments provides the Company with a significant benefit of financing. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the licensees and the transfer of the promised goods or services to the licensees will be one year or less. The Company assessed each of its revenue arrangements in order to determine whether a significant financing component exists and concluded that a significant financing component does not exist in any of its arrangements.
Collaborative Arrangements – The Company has entered into collaboration agreements, which are within the scope of ASC 606, to discover, develop, manufacture and commercialize product candidates. The terms of these agreements typically contain multiple promises or obligations, which may include: (1) licenses, or options to obtain licenses, to use the Company’s technology, (2) research and development activities to be performed on behalf of the collaboration partner, and (3) in certain cases, services in connection with the manufacturing of preclinical and clinical material. Payments the Company receives under these arrangements typically include one or more of the following: non-refundable, upfront license fees; option exercise fees; funding of research and/or development efforts; clinical and development, regulatory, and sales milestone payments; and royalties on future product sales.
The Company analyzes its collaboration arrangements to assess whether the collaboration agreements are within the scope of ASC 808, Collaborative Arrangements (“ASC 808”) to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities. This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For collaboration arrangements within the scope of ASC 808 that contain multiple elements, the Company first determines which elements of the collaboration are deemed to be within the scope of ASC 808 and those that are more reflective of a vendor-customer relationship and, therefore, are within the scope of ASC 606. For elements of collaboration arrangements that are accounted for pursuant to ASC 808, an appropriate recognition method is determined and applied consistently, generally by analogy to ASC 606. For those elements of the arrangement that are accounted for pursuant to ASC 606, the Company applies the five-step model described above.
For additional discussion of accounting for collaboration revenues, see Note 2, 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 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.
Discontinued Operations
The Company determined that its decision to no longer internally develop ex vivo allogeneic chimeric antigen receptor (“CAR T”) immunotherapies and related sale of our CAR T infrastructure to Imugene (defined below) met the criteria for classification as a discontinued operation in accordance with ASC Subtopic 205-20, Discontinued Operations. Accordingly, the accompanying financial statements for all periods have been updated to present the assets and liabilities associated with the development of ex vivo allogeneic CAR T immunotherapies separately as discontinued operations on the balance sheets and the results of all discontinued operations are reported as a separate component in the statements of operations.
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For additional information related to discontinued operations, refer to Note 6, Discontinued Operations.
Comprehensive Income (Loss)
Comprehensive income (loss) includes net income (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, 2024 and December 31, 2023, there were no differences between net income (loss) and comprehensive income (loss) in the accompanying statements of operations.
Net Income (Loss) per Share
Basic net income (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net income (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.
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 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.
Warrant Liability
As of December 31, 2024, warrants representing 2,500,000 shares of common stock issued in the March 2024 Public Offering were outstanding. These warrants are classified as a liability since the warrants meet the classification requirements for liability accounting pursuant to ASC 815. This liability is subject to remeasurement at each balance sheet date until the warrants are exercised or expire, and any change in fair value is recognized in the Company’s statements of operations. The Company classifies the warrant liability within Level 3 of the fair value hierarchy as the assessed fair value is based on both observable and unobservable market inputs including the Company’s stock price, risk-free rate, and volatility. See Note 13, Warrants for more information.
Income Taxes
Deferred tax assets and liabilities are determined based on the temporary differences between the 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 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
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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
Recently Adopted Accounting Standards
In 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires public entities to disclose significant segment expenses and other segment items. ASU 2023-07 also requires public entities to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. ASU 2023-07 became effective for the annual period starting on January 1, 2024, and for the interim periods starting on January 1, 2025. The Company adopted ASU 2023-07 as of the required effective date and applied the guidance retrospectively to all periods presented. The adoption did not have a material impact on the financial statements. Refer to our segments disclosure in Note 16, Segment Reporting for more information.
Recently Issued Accounting Standards
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, to expand the disclosure requirements for income taxes. Upon adoption, companies will be required to disclose additional specified categories in the rate reconciliation. Companies will also be required to disclose the amount of income taxes paid disaggregated by jurisdiction, among other disclosure requirements. The standard is effective for annual periods beginning after December 15, 2024, and can be applied either prospectively or retrospectively. We plan to adopt the standard in our 2025 annual period and are currently assessing its effect on our financial statement disclosures.
In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, to improve disclosures around an entity’s expenses. Upon adoption, companies will be required to disclose in the notes to the financial statements a disaggregation of certain expense categories included within the expense captions on the face of the income statement. The standard is effective for annual periods beginning after December 15, 2026 and interim periods beginning after December 15, 2027, with early adoption permitted, and can be applied either prospectively or retrospectively. We plan to adopt the standard in our 2027 annual period and are currently assessing its effect on our financial statement disclosures.
NOTE 2: COLLABORATION AND LICENSE AGREEMENTS
TG Therapeutics
On January 7, 2024, the Company entered into a license agreement (the “TG License Agreement”) with TG Cell Therapy, Inc. (“TG Subsidiary”) and its parent company TG Therapeutics, Inc. (“TG Parent” and, together with TG Subsidiary, “TG Therapeutics”), pursuant to which the Company granted TG Subsidiary certain exclusive and non-exclusive license rights to develop, manufacture, and commercialize azer-cel for autoimmune diseases and other indications outside of cancer pursuant to the terms of the TG License Agreement.
Under the TG License Agreement, the Company is entitled to receive an upfront cash payment of $10.0 million (the “Upfront Payment”), an additional cash payment of $7.5 million in the event that TG Therapeutics achieves a certain clinical milestone that is expected to be achieved in the near-term (the “Initial Milestone Payment”), and additional payments upon the achievement of additional specified milestones of up to $288.6 million (the “Additional Milestone Payments”). As described below, up to $10.0 million of the cash payments potentially payable to the Company are payable in exchange for the issuance (the “Company Stock Issuances”) to TG Subsidiary of shares of the Company’s common stock.
The Upfront Payment of $10.0 million is comprised of (i) a $5.25 million cash payment that was paid to the Company on February 5, 2024, (ii) a $2.25 million cash payment that was paid to the Company on February 5, 2024 in exchange for 97,360 shares of the Company’s common stock, based on a price per share equal to a 100% premium to the VWAP of the Company’s common stock for the 30 trading days prior to the date of the TG License Agreement, and (iii) a deferred cash payment of $2.5 million that was paid to the Company on January 6, 2025 in exchange for 220,712 shares of the Company’s common stock, based on a price per share equal to the greater of (A) 100% premium to the VWAP of the Company’s common stock for the 30 trading days prior to the date of payment or (B) a minimum price of $11.1660 determined in accordance with Nasdaq Listing Rule 5635(d) (the “Minimum Price”).
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