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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information 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. You should review "Item 1A, Risk Factors" of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

We are a biotechnology company committed to delivering a new class of differentiated one-time curative genetic therapies to address the widest spectrum of diseases by deploying our Prime Editing technology, which we believe is a versatile, precise, efficient and broad gene editing technology.

Genetic mutations implicated in disease are diverse and can range from errors of a single base, known as point mutations, to errors that extend beyond a single base, such as insertions, deletions, duplications, or combinations thereof. Other mutations can affect regulatory sequences that control the function of genes and can affect the function of larger biochemical and genetic pathways. Furthermore, natural genetic variations, revealed by population-level genomic studies, are known to protect against or to increase risk of disease. To maximize the impact of these genetic insights, we believe the ability to alter the human genome at the foundational level may confer the greatest therapeutic impact on human disease.

Since our inception in September 2019, we have devoted substantially all of our efforts on organizing and staffing our company, business planning, raising capital, research and development activities, developing our Prime Editing platform, building our intellectual property portfolio and providing general and administrative support for these operations. From January 1, 2022 through the date of the IPO, we had received gross proceeds of $315.8 million from sales of preferred stock. In October 2022, we completed our IPO and as a result, we received $180.2 million in net proceeds. To date, we have financed our operations primarily with proceeds from sales of preferred stock and will finance continuing operations with proceeds from our IPO.

We have incurred significant operating losses since inception. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of any product candidates we may develop. We generated net losses of $121.8 million, $165.4 million, and $3.4 million for the years ended December 31, 2022, 2021, and 2020 respectively. As of December 31, 2022, we had an accumulated deficit of $293.2 million. We expect to continue to incur significant expenses for at least the next several years if and as we:

•continue our current research programs and preclinical development of any product candidates we identify;

•seek to identify additional research programs and product candidates;

•initiate preclinical studies and clinical trials for any product candidates we may identify;

•experience any delays or interruptions due to the ongoing COVID-19 pandemic, including delays in preclinical testing and clinical trials or interruptions in the supply chain for any future product candidates;

•further develop our in-licensed and company-owned gene editing platform, which we call our Prime Editing platform;

•maintain, expand, enforce, defend and protect our intellectual property portfolio and provide reimbursement of third-party expenses related to our patent portfolio;

•seek marketing approvals for any product candidates for which we successfully complete clinical trials;

•develop, maintain and enhance a sustainable, scalable, reproducible and transferable manufacturing process for the product candidates we may develop;

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•ultimately establish a sales, marketing and distribution infrastructure to commercialize any therapies for which we may obtain marketing approval;

•hire additional research and development personnel;

•hire clinical and commercial personnel;

•add operational, financial and management information systems and personnel, including personnel to support our product development;

•acquire or in-license product candidates, intellectual property and technologies;

•establish and maintain collaborations;

•should we decide to do so, build and maintain a commercial-scale current good manufacturing practices, or cGMP, manufacturing facility; and

•operate as a public company.

We will not generate revenue from product sales unless and until we successfully initiate and complete clinical development and obtain regulatory approval for any product candidates. If we obtain regulatory approval for any of our product candidates and do not enter into a commercialization partnership, we expect to incur significant expenses related to developing our commercialization capability to support product sales, manufacturing, marketing, and distribution. Further, we have incurred and expect to continue to incur costs associated with operating as a public company, including increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor and public relations expenses associated with being a public company.

As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of private and public equity offerings, debt financings, or other capital sources, which may include additional collaborations with other companies, marketing, distribution or licensing arrangements with third parties, or other strategic transactions. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, reduce or eliminate the development and commercialization of any product candidates that we may identify or delay our pursuit of potential in-licenses or acquisitions.

Because of the numerous risks and uncertainties associated with product development, we are unable to accurately 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 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 unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

As of December 31, 2022, we held cash and cash equivalents, short-term investments, and related party short-term investments of $293.9 million, excluding restricted cash, which consisted of cash, money market funds, equity securities and U.S. Treasuries, or $307.4 million, including restricted cash. Based on our current operating plan, we believe that our existing cash and cash equivalents and short-term investments will be sufficient to fund our operating expenses and capital expenditure requirements into 2025.

Impact of COVID-19 on Our Operations

We are subject to a number of risks associated with the COVID-19 global pandemic, including potential delays associated with our ongoing preclinical studies and anticipated clinical trials. COVID-19 may have an adverse impact on our operations, supply chains and distribution systems or those of our third-party vendors and collaborators, and increase expenses, including as a result of impacts associated with preventive and precautionary measures that are being taken, such as restrictions on travel and border crossings, quarantine policies and social distancing. We and our third-party vendors and collaborators may experience disruptions in supply of items that are essential for our research and development activities. We cannot predict the scope and severity of any economic recovery after the COVID-19 pandemic abates, including following any additional “waves” or other intensifying of the pandemic will have on our financial condition, operations and business plans.

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License and Collaboration Agreements

We have obligations under various license and collaboration agreements to make potentially significant milestone and success payments in the future and to pay royalties on sales of any product candidates covered by those agreements that eventually achieve regulatory approval and commercialization. For information regarding these agreements, see “Business—Our License and collaboration agreements” included in Part I, Item 1 of this Annual Report on Form 10-K.

Components of Our Results of Operations

Related Party Collaboration Revenue

We have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products for the foreseeable future. Our revenues to date have been generated through the Beam Collaboration Agreement, as set forth above. In the future, we may generate additional revenue from collaboration, grant or license agreements we have entered into, or may enter into, with respect to our product candidates, as well as product sales from any approved product. Our ability to generate product revenues will depend on the successful development and eventual commercialization of any product candidates that we identify. If we fail to complete the development of any future product candidates in a timely manner or to obtain regulatory approval for such product candidates, our ability to generate future revenue and our results of operations and financial position would be materially adversely affected.

We concluded that the Beam Collaboration Agreement and the Beam Mutual Subscription Agreement should be combined and treated as a single arrangement for accounting purposes as the agreements were entered into contemporaneously and in contemplation of one another. We determined that the combined agreements are accounted for under Topic 606, Revenue recognition, or ASC 606. We identified the following performance obligations: (i) exclusive, worldwide license to certain Prime patents (ii) non-exclusive, worldwide license to CRISPR technology and (iii) joint research committee participation.

We also evaluated whether the Beam Option and our right to elect collaboration products in the Beam Collaboration Agreement represented material rights that would give rise to a performance obligation and concluded that neither the Beam Option nor our right to elect collaboration products convey a material right to Beam and therefore are not considered separate performance obligations within the Beam Collaboration Agreement. There have been no protected products or collaborations products to date. Under the Beam Collaboration Agreement, we are eligible to receive certain milestones and royalties regardless of whether any options are exercised, which are considered variable consideration. At each reporting period, we evaluate whether milestones are considered probable of being reached and, to the extent that a significant reversal would not occur in future periods, estimate the amount to be included in the transaction price. During the years ended December 31, 2022, 2021, and 2020, we did not receive any milestone payments and all variable consideration related to the Beam Collaboration Agreement remained fully constrained.

We recognized revenue for the license performance obligations at a point in time, that is upon the first anniversary of the effective date when Beam elected to continue its collaboration with us. We determined that the joint research committee performance promise is immaterial in the context of the contract.

Operating Expenses

Research and Development Expenses

Research and development expenses consist primarily of costs incurred in connection with the development and research of our immediate target indications and our differentiation target indications. These expenses include:

•the cost allocated to acquire in-process research and development, or IPR&D, with no alternative future use associated with asset acquisitions or transactions to license intellectual property, such as our Myeloid Agreement and Broad License Agreement;

•expenses incurred in connection with our Pledge to Broad Institute;

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•personnel-related expenses, including salaries, bonuses, benefits and stock-based compensation for employees engaged in manufacturing, research and development functions;

•expenses incurred in connection with continuing our current research programs and preclinical development of any product candidates we may identify, including under agreements with third parties, such as consultants and contractors;

•the cost of developing and validating our manufacturing process for use in our preclinical studies and future clinical trials;

•laboratory supplies and research materials; and

•facilities, depreciation and other expenses related to research and development activities, which include direct or allocated expenses for rent and maintenance of facilities, and utilities.

We measure and recognize asset acquisitions or licenses to intellectual property that are not deemed to be business combinations based on the cost to acquire or license the asset or group of assets, which includes transaction costs. Goodwill is not recognized in asset acquisitions or transaction to license intellectual property. In an asset acquisition or license to intellectual property, the cost allocated to acquire in-process research and development, or IPR&D, with no alternative future use is recognized as research and development expense on the acquisition date. For the year ended December 31, 2021, we recorded $42.0 million of research and development expense related to the acquired IPR&D from Myeloid, which consisted of the accrued initial upfront payment of $30.0 million and the $12.0 million fair value of common stock to be issued to Myeloid. No amounts were recorded for the year ended December 31, 2022.

Upfront and milestone payments made are accrued for and expensed when the achievement of the milestone is probable up to the point of regulatory approval. Milestone payments made upon regulatory approval will be capitalized and amortized over the remaining useful life of the related product.

We expense all research and development costs in the periods in which they are incurred. Most of our research and development expenses have been related to early stage development activities. We have not reported program costs because we have not historically tracked or recorded our research and development expenses on a program-by-program basis, as we do not currently have any product candidates. In the future, external research and development costs for any individual product candidate will be tracked commencing upon product candidate nomination. We do not allocate employee costs, costs associated with our discovery efforts, laboratory supplies, and facilities expenses, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple programs and our platform and, as such, are not separately classified.

We expect our research and development expenses to increase substantially for the foreseeable future as we continue to invest in research and development activities related to developing any future product candidates, including investments in manufacturing, as we advance any product candidates we may identify and begin to conduct clinical trials. The success of product candidates we may identify and develop will depend on many factors, including the following:

•timely and successful completion of preclinical studies, including toxicology studies, biodistribution studies and minimally efficacious dose studies in animals, where applicable;

•effective INDs or comparable foreign applications that allow commencement of our planned clinical trials or future clinical trials for any product candidates we may develop;

•successful enrollment and completion of clinical trials, including under the FDA’s current good clinical practices, or GCPs, current good laboratory practices, or GLPs, and any additional regulatory requirements from foreign regulatory authorities;

•positive results from our future clinical trials that support a finding of safety and effectiveness and an acceptable risk-benefit profile in the intended populations;

•receipt of marketing approvals from applicable regulatory authorities;

•establishment of arrangements through our own facilities or with third-party manufacturers for clinical supply and, where applicable, commercial manufacturing capabilities;

•establishment, maintenance, defense and enforcement of patent, trademark, trade secret and other intellectual property protection or regulatory exclusivity for any product candidates we may develop; and

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•maintenance of a continued acceptable safety, tolerability and efficacy profile of any product candidates we may develop following approval.

Any changes in the outcome of any of these variables with respect to the development of product candidates that we may identify could mean a significant change in the costs and timing associated with the development of such candidates. For example, if the FDA or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect, or if we experience significant delays in enrollment in any of our planned clinical trials, we could be required to expend significant additional financial resources and time to complete clinical development of that therapeutic candidate. We may never obtain regulatory approval for any of our candidates, and, even if we do, drug commercialization takes several years and millions of dollars in development costs.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and personnel-related costs, including stock-based compensation, for our personnel in executive, legal, finance and accounting, human resources and other administrative functions. General and administrative expenses also include legal fees relating to patents and corporate matters; professional fees paid for accounting, auditing, consulting and tax service; insurance costs; office and information technology costs; and facilities, depreciation and other general and administrative expenses, which include direct or allocated expenses for rent and maintenance of facilities and utilities.

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support development of product candidates and our continued research activities. We also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor and public relations expenses associated with being a public company. We also expect to incur additional intellectual property-related expenses as we file patent applications to protect innovations arising from our research and development activities.

Other Income (Expense)

Change in Fair Value of Preferred Stock Tranche Liability

Our Series A preferred stock purchase agreement obligated the Series A investors to participate in subsequent offerings of Series A preferred stock upon satisfaction of certain conditions, or the preferred stock tranche right. The preferred stock tranche right was classified as a liability and initially recorded at fair value upon the issuance date of the right. The liability was subsequently remeasured to fair value at each reporting date and immediately prior to being settled, and changes in fair value of the preferred stock tranche right liability were recognized as a component of other income (expense), net in our consolidated statements of operations and comprehensive loss. In 2020, we closed the second tranche Series A preferred stock financing and in April 2021, we closed the third and fourth tranche Series A preferred stock financings, resulting in full settlement of the preferred stock tranche right, upon both of which we issued additional shares of Series A preferred stock. Immediately prior to the issuance of such shares, the preferred stock tranche right liability was remeasured to fair value with the change in fair value recognized as a component of other income (expense), net.

As a result of the preferred stock tranche right settlement in April 2021, we no longer recognize changes in the fair value of the preferred stock tranche liability in our consolidated statements of operations and comprehensive loss.

Change in Fair Value of Anti-Dilution Obligation

In connection with the Broad License Agreement, we entered into the Broad Subscription Agreement, in which we granted Broad Institute 623,529 shares of common stock, which represented a 5.0 percent of our then outstanding capital stock on a fully-diluted basis. The Broad Subscription Agreement obligated us to issue additional shares of common stock to Broad Institute without additional consideration to maintain Broad Institute’s ownership of us at 5.0 percent on a fully-diluted basis, if at any time prior to the achievement of an equity financing up to $100.0 million, we issue additional securities that would cause Broad Institute shares of common stock to be less than 5.0 percent of our outstanding capital stock on a fully-diluted basis, which we refer to collectively as the Anti-Dilution Obligation. We classified the Anti-Dilution Obligation as a liability on our consolidated balance sheet that we

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remeasured to fair value at each reporting date, and we recognized changes in the fair value of the liability associated with the Anti-Dilution Obligation as a component of other income (expense) in our consolidated statement of operations and comprehensive loss.

As a result of the achievement of $100.0 million in equity financing upon the fourth Series A preferred stock closing, we fully settled the Anti-Dilution Obligation and no longer recognize changes in the fair value of the Anti-Dilution Obligation in our consolidated statements of operations and comprehensive loss.

Change in Fair Value of Related Party Short-Term Investment

In connection with the Beam Collaboration Agreement, Beam issued 200,307 shares of Beam common stock to us on October 6, 2020. Our related party short-term investment is recorded at fair value based upon quoted market prices at each reporting date. Unrealized and realized gains and losses on this investment subsequent to its initial recognition are recognized as a component of other income (expense) in the consolidated statements of operations and comprehensive loss.

Other Income (Expense), Net

Other income (expense), net consists of the change in the fair value of the shares we were entitled to receive from our related party Beam from the first anniversary of the Beam Collaboration Agreement through the date we received the shares from Beam, October 6, 2020. In connection with the Beam Collaboration Agreement, Beam granted 200,307 shares of Beam common stock to us. We were entitled to receive the shares of Beam upon the first anniversary of the Beam Collaboration Agreement in September 2020. We received the shares of Beam on October 6, 2020. The change in the fair value of the shares from September through our receipt on October 6, 2020 is included as other income (expense), net in the consolidated statements of operations and comprehensive loss. As the shares were received on October 6, 2020, we no longer recognize changes in the fair value of the Beam shares we were entitled to receive.

Income Taxes

For the years ended December 31, 2022, 2021, and 2020, we recorded an income tax provision (benefit) of $(0.9) million, $(0.5) million, and $1.9 million respectively. The income tax benefits for the year ended December 31, 2022 are a result of changes associated with the unrealized gains on investments. We recorded a full valuation allowance of our net deferred tax assets as of December 31, 2022, respectively, as we believed it was more likely than not we would not be able to utilize our deferred tax assets prior to their expiration.

As of December 31, 2022, we had U.S. federal net operating loss, or NOL, carryforwards of $75.2 million, which may be available to reduce future taxable income which do not expire. In addition, as of December 31, 2022, we had state NOL carryforwards of $73.3 million, which may be available to reduce future taxable income, and expire at various times beginning in 2039. As of December 31, 2022, we also had U.S. federal and state research and development tax credit carryforwards of $4.9 million and $3.0 million, respectively, which may be available to reduce future tax liabilities and expire at various dates beginning in 2040 and 2036, respectively.

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Results of Operations

Comparison of the years ended December 31, 2022 and 2021

The following table summarizes our results of operations for the years ended December 31, 2022 and 2021:

Year Ended December 31,

Operating expenses:

Other income (expense):

Change in fair value of anti-dilution obligation — (6,681) 6,681

Operating Expenses

Research and Development Expenses

Year Ended December 31,

License, intellectual property fees and other $ 6,157 $ 47,346 $ (41,189)

Research and development expenses were $86.7 million for the year ended December 31, 2022, compared to $70.6 million for the year ended December 31, 2021. The increase of $16.2 million was primarily due to an increase of $24.5 million in lab supplies and services expense due to continued discovery efforts and expansion of our research and development activities, an increase of $20.9 million in personnel-related expense driven by new hires in research and development, an increase of $10.4 million facility related expense primarily due to the expansion of our office and laboratory space through new facilities being leased, and an increase of $1.5 million in professional and consultant fees as we prepared to become and operate as a public company, partially offset by a decrease in license, intellectual property fees and other due to the Myeloid collaboration entered into in December 2021, which includes the $12.0 million related party forward contract liability at December 31, 2021.

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General and Administrative Expenses

Year Ended December 31,

Personnel related (including stock-based compensation) $ 11,094 $ 3,622 $ 7,472

General and administrative expenses were $29.8 million for the year ended December 31, 2022, compared to $13.9 million for the year ended December 31, 2021. The increase of $15.9 million was primarily due to an increase of $7.5 million of personnel-related expense primarily due to compensation related costs related to new hires to support our expanding operations, $4.9 million in professional and consultant fees as we prepared to become and operate as a public company, and an increase of $3.5 million of facility and IT related expenses primarily due to newly signed office leases to support our expanded general and administrative staff.

Other Income (Expense)

Year Ended December 31,

Change in fair value of anti-dilution obligation — (6,681) 6,681

Change in Fair Value of Preferred Stock Tranche Right Liability

The change in fair value of the preferred stock tranche right liability decreased by $74.3 million from the year ended December 31, 2022 compared to the year ended December 31, 2021. The decrease was due to the preferred stock tranche right being settled in full upon the satisfaction of certain conditions in April 2021.

Change in Fair Value of Anti-Dilution Obligation

The change in fair value of the Anti-Dilution Obligation decreased by $6.7 million from the year ended December 31, 2022 compared to the year ended December 31, 2021. The decrease was primarily due to the settlement of the obligation in connection with the fourth Series A preferred stock closing in April 2021.

Change in Fair Value of Related Party Short-Term Investment

The change in fair value of related party short-term investment increased by $7.7 million from the year ended December 31, 2022 compared to the year ended December 31, 2021. The decrease was due to a $40.58 decrease in the stock price from December 31, 2021 to December 31, 2022, as compared to the $1.95 decrease in the stock price of the Beam stock from December 31, 2020 to December 31, 2021.

Other Income (Expense), Net

The amount of other income (expense), net for the year ended December 31, 2022 was due to increased interest rates on cash and short-term investments.

Income Taxes

We recorded an income tax benefit of $0.9 million and $0.5 million for the years ended December 31, 2022 and 2021, respectively.

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Comparison of Years Ended December 31, 2021 and 2020

The following table summarizes our results of operations for the years ended December 31, 2021 and 2020:

Years Ended December 31,

Related party collaboration revenue $ — $ 5,210 $ 5,210

Operating expenses:

Other income (expense):

Change in fair value of anti-dilution obligation (6,681) (700) 5,981

Change in fair value of related party short-term investment (391) 10,867 11,258

Provision for (benefit from) income taxes (486) 1,867 2,353

Related Party Collaboration Revenue

No collaboration revenue was recognized for the year ended December 31, 2021. Related party collaboration revenue was $5.2 million for the year ended December 31, 2020, consisting of $5.4 million of consideration received in the form of Beam shares in connection with the Beam Collaboration Agreement, offset by shares of our common stock that we issued to Beam with a then fair value of $0.2 million, and was recognized upon the first anniversary of the effective date of the agreement, when Beam elected to continue its collaboration with us.

Operating Expenses

Research and Development Expenses

Years Ended December 31,

License, intellectual property fees and other $ 47,346 $ 50 $ 47,296

Personnel related (including stock-based compensation) 10,683 1,124 9,559

Research and development expenses were $70.6 million for the year ended December 31, 2021, compared to $3.0 million for the year ended December 31, 2020. The increase of $67.6 million was primarily due to an increase of $47.3 million in license, intellectual property fees and other primarily due to $42.0 million of an upfront expense under the Myeloid Agreement and $5.3 million under the Broad License Agreement (including amounts associated with the Pledge, as described in “Business—Our License and Collaboration Agreements—Pledge to Broad Institute and Harvard”), an increase of $9.6 million in personnel-related expense driven by approximately 50 new hires in research and development, an increase of $5.6 million lab supplies expense due to continued discovery efforts and

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expansion of our research and development activities and an increase of $4.6 million facility related expense primarily due to the expansion of our office and laboratory space through new facilities being leased.

General and Administrative Expenses

Years Ended December 31,

Personnel related (including stock-based compensation) $ 3,622 $ 1,030 $ (2,592)

General and administrative expenses were $13.9 million for the year ended December 31, 2021, compared to $3.2 million for the year ended December 31, 2020. The increase of $10.8 million was primarily due to an increase of $6.1 million in professional and consultant fees as we prepared to become and operate as a public company, an increase of $2.6 million of personnel-related expense primarily due to compensation related costs related to eight new hires to expand upon our administrative staff functions and an increase of $2.0 million of facility related expenses primarily due to newly signed office leases to support our expanded general and administrative staff.

Other Income (Expense)

Years Ended December 31,

Change in fair value of anti-dilution obligation (6,681) (700) 5,981

Change in fair value of related party short-term investment (391) 10,867 11,258

Change in Fair Value of Preferred Stock Tranche Right Liability

The change in fair value of the preferred stock tranche right liability decreased by $63.4 million from the year ended December 31, 2021 compared to the year ended December 31, 2020. The decrease was primarily due to a $0.33 increase in per share fair value of the underlying preferred stock used to determine the fair value of the preferred stock tranche right from December 31, 2019 to December 31, 2020, as compared to the $1.55 increase in the per share fair value of the underlying preferred stock used to determine the fair value of the preferred stock tranche right from December 31, 2020 through the settlement date in April 2021.

Change in Fair Value of Anti-Dilution Obligation

The change in fair value of the Anti-Dilution Obligation decreased by $6.0 million from the year ended December 31, 2021 compared to the year ended December 31, 2020. The decrease was primarily due to the $0.28 increase in the per share fair value of our common stock used to determine the fair value of the Anti-Dilution Obligation from December 31, 2019 to December 31, 2020, as compared to a $2.68 increase in the per share fair value of our common stock used to determine the fair value of the Anti-Dilution Obligation from December 31, 2020 through the settlement date in connection with the fourth Series A preferred stock closing.

Change in Fair Value of Related Party Short-Term Investment

The change in fair value of related party short-term investment increased by $11.3 million from the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was primarily due to a $54.25 increase in the per share value of Beam common stock used to determine the fair value of related party short-term

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investments from October 6, 2020, the date on which we received the Beam shares, to December 31, 2020, as compared to a $1.95 decrease in the stock price of the Beam stock from December 31, 2020 to December 31, 2021.

Other Income (Expense), Net

The change in other income (expense), is due to the unrealized loss of $0.1 million recognized in the year ended December 31, 2020 related to the change in the fair value of the Beam shares we were entitled to receive for the period from the first anniversary date of the Beam Collaboration agreement, or September 26, 2020, through October 6, 2020, when we received the Beam shares due to a decrease in the stock price of the Beam stock. There is no similar unrealized loss in the year ended December 31, 2021 as any change in the fair value of the shares received subsequent to October 6, 2020 is included in the change in fair value of related party short-term investment.

Income Taxes

For the years ended December 31, 2021 and 2020, we recorded an income tax provision (benefit) of $(0.5) million and $1.9 million, respectively. The deferred income tax benefit for the year ended December 31, 2021 was attributable to recording a valuation allowance on our deferred tax assets and liabilities due to being in a net deferred tax asset position. The deferred income tax provision for the year ended December 31, 2020 was attributable to releasing our valuation allowance on our deferred tax assets as we were in a net deferred tax liability position, primarily due to our recognition of an unrealized gain on our related party short-term investment.

Liquidity and Capital Resources

Since our inception, we have incurred significant operating losses. We expect to incur significant expenses and operating losses for the foreseeable future as we commence the clinical development of our programs and continue our platform development and early-stage research activities. We have not yet commercialized any products and we do not expect to generate revenue from sales of products for several years, if at all. To date, we have funded our operations primarily with proceeds from our IPO and the sale of our convertible preferred stock. Through December 31, 2022, we had received gross proceeds of $315.8 million from sales of our preferred stock and $180.2 million in net proceeds from our IPO. As of December 31, 2022, we had cash and cash equivalents, short-term investments, and related party short-term investments of $293.9 million, excluding our restricted cash, or $307.4 million, including restricted cash.

Cash Flows

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

Year Ended December 31,

Operating Activities

During the year ended December 31, 2022, operating activities used $131.8 million of cash, resulting primarily from our net loss of $121.8 million, a change in deferred income taxes of $1.0 million and amortization of premiums and discount on short-term investments of $0.3 million, partially offset by non-cash rent expense of $9.8 million, a change in the fair value of related party short-term investment of $8.1 million, stock-based compensation expense of $6.5 million, and depreciation and amortization expense of $2.2 million. Net cash used in changes in our operating assets and liabilities for the twelve months ended December 31, 2022 was $35.4 million which primarily consisted of a decrease in accrued expenses and other current liabilities of $25.9 million, a decrease in lease liabilities of $10.2 million, and a decrease in prepaid expenses and other current assets of $1.7 million, partially offset by an increase in

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accounts payable of $2.5 million. The decrease in accrued expenses and other current liabilities was primarily due to a $30.0 million payment that we made to Myeloid in January 2022 in connection with the Myeloid Agreement.

During the year ended December 31, 2021, operating activities used $34.1 million of cash, resulting primarily from our net loss of $165.4 million and a change in our deferred income taxes of $0.6 million, partially offset by a change in fair value of preferred stock tranche right liability of $74.3 million, non-cash research and development expense of $12.0 million, a change in fair value of anti-dilution obligation of $6.7 million, non-cash rent expense of $4.3 million, stock-based compensation expense of $1.7 million, amortization of premium and discount on short-term investments of $0.7 million, depreciation and amortization expense of $0.6 million and a change in fair value of related party short-term investment of $0.4 million. Net cash provided by changes in our operating assets and liabilities for the year ended December 31, 2021 was $31.2 million which primarily consisted of an increase in accrued expenses and other current liabilities of $35.2 million related to Myeloid, and an increase in accounts payable of $1.2 million, partially offset by a decrease in lease liability of $4.3 million and an increase in prepaid expenses and other current assets of $0.9 million due to increased spending during the year.

During the year ended December 31, 2020, operating activities used $5.5 million of cash, resulting primarily from our net loss of $3.4 million, a change in fair value of related party short-term investment of $10.9 million and non-cash consideration received under related party collaboration arrangement of $5.4 million, partially offset by non-cash expenses related to a change in fair value of preferred stock tranche right liability of $10.9 million, deferred income taxes of $1.9 million, a change in fair value of anti-dilution obligation of $0.7 million, stock-based compensation of $0.4 million, non-cash other income (expense) of $0.1 million, and non-cash consideration paid to Beam of $0.2 million. Net cash provided by changes in our operating assets and liabilities for the year ended December 31, 2020 was $0.2 million which primarily consisted of a net increase in accounts payable of $0.3 million and accrued expenses of $0.3 million due to increased spending during the year partially offset by a $0.4 million increase in prepaid expenses and other current assets due to payment of deposits for new leases.

Investing Activities

During the year ended December 31, 2022, net cash used in investing activities was $47.1 million, primarily consisting of purchases of short-term investments of $123.3 million, purchases of property and equipment of $16.1 million, and payments of security deposits of $0.7 million, partially offset by maturities of short-term investments of $93.0 million. The purchases of equipment were primarily related to laboratory equipment purchases, which increased as we expanded our discovery and preclinical activities.

During the year ended December 31, 2021, net cash used in investing activities was $73.6 million, primarily consisting of purchases of short-term investments of $82.0 million, purchase of property and equipment of $4.2 million and payment of security deposits of $0.5 million all of which were offset by $13.0 million from the maturities of short-term investments. The purchase of short-term investments consisted of U.S. treasuries using the proceeds from issuance of convertible preferred stock. The purchases of equipment were primarily related to laboratory equipment purchases, which increased as we expanded our discovery and preclinical activities. The payment of security deposits was due to our new leases signed during the period.

During the year ended December 31, 2020, net cash used in investing activities was $1.1 million, primarily consisting of payments of security deposit of $0.4 million related to our lab space and purchases of property and equipment of $0.6 million. The purchases of equipment during the period were primarily related to laboratory equipment purchases, which increased as we expanded our discovery and preclinical activities. The payment of security deposits was due to our new leases signed during the period.

Financing Activities

During the year ended December 31, 2022, net cash provided by financing activities was $181.5 million, consisting of the net proceeds from the sale of our common stock in our IPO of $185.3 million, and proceeds from exercises of stock options of $0.2 million, partially offset by payment of deferred offering costs of $4.0 million.

During the year ended December 31, 2021, net cash provided by financing activities was $269.3 million, primarily consisting of net proceeds of $270.4 million from our additional issuances of Series A preferred stock and issuance

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of Series B preferred stock in April 2021, net of issuance costs, partially offset by $1.1 million of deferred offering costs.

During the year ended December 31, 2020, net cash provided by financing activities was $35.0 million, primarily consisting of net proceeds from our additional issuance of Series A preferred stock in November 2020.

Funding Requirements

To date, we have not generated any revenue from product sales. We do not expect to generate revenue from product sales unless and until we successfully complete preclinical and clinical development of, receive regulatory approval for, and commercialize a product candidate and we do not know when, or if at all, that will occur. We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and studies and initiate clinical trials. In addition, if we obtain regulatory approval for any product candidates, we expect to incur significant expenses related to product sales, marketing, and distribution to the extent that such sales, marketing and distribution are not the responsibility of potential collaborators. Further, we have incurred, and expect to continue to incur, costs associated with operating as a public company. The timing and amount of our operating expenditures will depend largely on the factors set out above. For more information, see “Risk Factors—Risks Related To Our Financial Position and Need for Additional Capital.”

We believe our existing cash and cash equivalents and short-term investments, including the net proceeds received in connection with our IPO, will be sufficient to fund our operating expenses and capital expenditure requirements into 2025. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. We expect that we will require additional funding to: continue our current research development activities; identify product candidates; initiate preclinical testing and clinical trials for our future product candidates we identify; develop, maintain, expand and protect our intellectual property portfolio; further develop our Prime Editing platform; and hire additional research, clinical and scientific personnel. If we receive regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, sales, marketing and distribution, depending on where we choose to commercialize ourselves.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of private and public equity offerings, debt financings, additional collaborations, strategic alliances, and marketing, distribution or licensing arrangements with third parties. To the extent that we raise additional capital through the sale of equity or convertible debt securities, ownership interest may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, strategic alliances or marketing, or distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, any future revenue streams, 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 or other arrangements when needed, we may be required to delay, reduce or eliminate our product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Contractual Obligations and Other Commitments

Leases

As of December 31, 2022, we have future remaining operating lease payments of $30.8 million relating to leases we have recognized on our consolidated balance sheet. In addition, we have one lease that has been entered into but has not yet commenced, as of December 31, 2022, for which we expect to pay approximately $208.7 million over the 10 year lease term. Refer to Note 10 – Leases to our consolidated financial statements appearing at the end of this Annual Report on Form 10-K for more information on our lease obligations.

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License and Collaboration Agreements

Under the Broad License Agreements, we are obligated to pay to Broad Institute annual license maintenance fees ranging from the low to mid-five figures to the low six-figures, depending on the particular calendar year for the term of the agreement. Broad Institute is also entitled to receive clinical and regulatory milestone payments up to a total of $20.0 million per licensed product in the case of the Broad License Agreement and $2.0 million per royalty-bearing product in the case of the 2022 Broad License Agreement, depending on the patient population to be treated by the licensed product achieving the applicable milestone. If we undergo a change of control at any time during the term of either of the Broad License Agreements, certain of the clinical and regulatory milestone payments will increase by a percentage specified in each respective Broad License Agreement. Broad Institute is also entitled to sales-based milestone payments up to a total of $54.0 million per licensed product in the case of the Broad License Agreement and $3.0 million per royalty-bearing product in the case of the 2022 Broad License Agreement, depending on the patient population to be treated by the licensed product achieving the applicable milestone. Broad Institute is entitled to lower payments to the extent the clinical and regulatory milestones or sales-based milestones are achieved by enabled products, rather than licensed products.

Under the Broad License Agreement, Broad Institute is entitled to receive low to mid-single digit percentage royalties on net sales of licensed products, and low single-digit percentage royalties of enabled products. Under the 2022 Broad License Agreement, Broad Institute is entitled to receive royalties of less than 0.2 percent on net sales of royalty-bearing products, and lower royalties on net sales of enabled royalty-bearing products. Royalties payable to Broad Institute are subject to customary offsets and reductions with respect to a product in a given country, to a floor.

Under the Beam Collaboration Agreement, Beam has the option to designate up to a mid-single digit number of licensed products for which we are not permitted to exercise our profit sharing right. If Beam exercises its option for a protected product, Beam will owe us a payment of $5.0 million if the product is developed for non-sickle cell disease or $10.0 million if the product is developed for sickle cell disease.

We are entitled to receive development milestone payments from Beam on Beam’s development of protected products (which, for clarity, includes any licensed product for which we have not exercised our profit share option) and collaboration products. For protected products, we are entitled to receive up to a total of $35.5 million on a protected product-by-protected product basis based on Beam’s development of such protected product and, for collaboration products, up to a total of $17.8 million on a collaboration product-by-collaboration product basis based on Beam’s development of such collaboration product outside of the United States, in each case, with such amounts lowered if such licensed product achieves a given milestone for use in treating an orphan disease. We are also entitled to receive sales-based milestone payments from Beam based on net sales of licensed products. For protected products, we are entitled to receive up to a total of $84.5 million on a protected product-by-protected product basis based on net sales of such protected product worldwide, and, for collaboration products, up to a total of $42.3 million on a collaboration product-by-collaboration product basis based on net sales of collaboration products outside of the United States.

Beam is obligated to pay to us tiered royalties ranging from a high-single digit percentage to a low double-digit percentage, but less than teens on net sales of protected products worldwide on a protected product-by-protected product basis and net sales of collaboration products outside of the United States on a collaboration product-by-collaboration product basis. Our royalties are subject to customary offsets and reductions, to a floor that takes into account any royalties we are obligated to pay to our third-party licensors, including Broad Institute. In addition, certain of the rights licensed under the Beam Collaboration Agreement are sublicensed from third parties, and Beam agrees to reimburse us for certain payments we are required to make to our third-party licensors attributable to Beam’s exercise of any sublicense we grant to Beam, including payments we make to Broad Institute under the Broad License Agreement.

If we develop a product that is covered by the technology, know-how or patent rights that Beam licenses to us under the Beam Collaboration Agreement, which we refer to as a Prime product, we are obligated to pay to Beam a low single digit percentage royalty on our worldwide net sales of such any product on a Prime product-by-Prime product and country-by-country basis, subject to certain customary reductions, to a floor.

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Under the Myeloid Agreement, Myeloid was entitled to receive an upfront payment of $30.0 million in cash and an aggregate of 1,101,525 shares of our common stock, with a then fair value of $12.0 million, both of which Myeloid received in January 2022. During the research term, Myeloid is also entitled to receive cash payments of up to $35.0 million in the aggregate upon the achievement of a research milestone and a patent prosecution milestone.

If we exercise our option, we agree to (i) pay Myeloid an option exercise fee consisting of $80.0 million in cash and (ii) issue Myeloid shares of our common stock, with a fair value of $30.0 million. Additionally, if the research collaboration meets its goals, we exercise our option and proceed with the development and commercialization of a product that is covered by (a) the patent rights or know-how subject to our option or (b) the patent rights or know-how developed by one or both of the parties during the research term related to LINE-1 retrotransposon technology, or, collectively, a Prime Product, Myeloid would be eligible to receive, for the first five Prime Products, development and regulatory milestone payments of up to $120.0 million on a Prime Product-by-Prime Product basis and sales-based milestone payments of up to $210.0 million on a Prime Product-by-Prime Product basis.

Myeloid is also eligible to receive tiered low to mid single-digit percentage royalties on our annual aggregate global net sales of Prime Products on a Prime Product-by-Prime Product and country-by-country basis, subject to customary offsets and reductions to a floor.

Following the exercise of our option and for a period of two years thereafter, Myeloid will have the right to select up to three targets, subject to certain exclusions, for the development and commercialization of products directed at such targets in all fields and we will be eligible to receive development, regulatory and sales-based milestone payments and royalty payments as set forth above from Myeloid with respect to such products.

To date, no milestone or royalty payments under these agreements have been paid or were due from us. For additional information, see “Business—Our License and Collaboration Agreements— Research Collaboration, Option and License Agreement with Myeloid Therapeutics, Inc” and “Certain Relationships and Related Party Transactions.”

In February 2021, we committed to donate $5.0 million to Broad Institute and Harvard annually for 14 years, commencing in 2021 pursuant to the Pledge. The Pledge is intended to be used for research and development related to new genome editing technologies, for example Prime Editing, improve on existing genome-editing technologies, identify delivery mechanisms for these technologies and apply these technologies to the understanding and treatment of rare genetic diseases. We can terminate the Pledge at our discretion, subject to providing one year of funding from the date of termination. In August 2022, we amended and restated the Pledge to clarify that the funds may be used by the laboratory of David Liu, who is a member of Broad Institute and a faculty member at Harvard. For additional information, see “Business—Our License and Collaboration Agreements—Pledge to Broad Institute and Harvard.”

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses incurred during the reporting periods. 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 recorded revenues and expenses that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates.

While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements appearing at the end of this Annual Report on Form 10-K, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

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Revenue Recognition

We recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services in accordance with ASC 606.

At contract inception, we assess the goods or services promised within each contract, whether each promised good or service is distinct, and determine those that are performance obligations. In assessing whether promised goods or services are distinct, we consider factors such as the stage of development of the underlying intellectual property, the capabilities of the customer to develop the intellectual property on their own and whether the required expertise is readily available. In addition, we consider whether the collaboration partner can benefit from a promise for its intended purpose without the receipt of the remaining promises, whether the value of the promise is dependent on the unsatisfied promises, whether there are other vendors that could provide the remaining promises, and whether it is separately identifiable from the remaining promises. 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.

In determining the appropriate amount of revenue to be recognized as we fulfill our obligations under our arrangements, we performs the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the assessment of the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations, and (v) recognition of revenue when, or as, we satisfy each performance obligation. As part of the accounting for arrangements under ASC 606, we must use significant judgment to determine: a) the performance obligations based on the determination under step (ii) above; b) the transaction price under step (iii) above; and c) the standalone selling price for each performance obligation identified in the contract for the allocation of transaction price in step (iv) above. We also use judgment to determine whether milestones or other variable consideration, except for royalties and sales-based milestones where such payments principally relate to a license of intellectual property, should be included in the transaction price as described below. At the end of each subsequent reporting period, we re-evaluate the estimated variable consideration included in the transaction price and any related constraint, and if necessary, adjust its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis in the period of adjustment. The transaction price is allocated to each performance obligation based on the relative standalone selling price of each performance obligation in the contract, and we recognize revenue based on those amounts when, or as, the performance obligations under the contract are satisfied. We utilize key assumptions to determine the standalone selling price, which may include other comparable transactions, pricing considered in negotiating the transaction, probabilities of technical and regulatory success and the estimated costs. Certain variable consideration is allocated specifically to one or more performance obligations in a contract when the terms of the variable consideration relate to the satisfaction of the performance obligation and the resulting amounts allocated to each performance obligation are consistent with the amount we would expect to receive for each performance obligation.

During the year ended December 31, 2020, we recognized revenue related to the Beam Collaboration Agreement. We concluded that the Beam Collaboration Agreement and the Beam Mutual Subscription Agreement should be combined and treated as a single arrangement for accounting purposes as the agreements were entered into contemporaneously and in contemplation of one another. We determined that the combined agreements are accounted for under ASC 606 and identified the following performance obligations: (i) exclusive, worldwide license to certain Prime patents, (ii) non-exclusive, worldwide license to CRISPR technology and (iii) joint research committee participation. We also evaluated whether the Beam Option and our right to elect collaboration products in the Beam Collaboration Agreement represented material rights that would give rise to a performance obligation and concluded that neither the Beam Option nor our right to elect collaboration products convey a material right to Beam and therefore are not considered separate performance obligations within the Beam Collaboration Agreement. There have been no protected products or collaborations products to date. Under the Beam Collaboration Agreement, we are eligible to receive certain milestones and royalties regardless of whether any options are exercised, which are considered variable consideration. At each reporting period, we evaluate whether milestones are considered probable of being reached and, to the extent that a significant reversal would not occur in future periods, estimate the amount to be included in the transaction price. During the years ended December 31, 2022, 2021, and 2020 we did not

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receive any milestone payments and all variable consideration related to the Beam Collaboration Agreement remained fully constrained.

We assessed the above promises and determined that the exclusive licenses for certain Prime products and non-exclusive license to CRISPR technology represent performance obligations within the scope of ASC 606. The exclusive licenses for certain Prime products and non-exclusive license to CRISPR technology are considered functional intellectual property and distinct from other promises under the contract. The exclusive licenses for certain Prime products and non-exclusive license to CRISPR technology are considered functional licenses that are distinct in the context of the Beam Collaboration Agreement as Beam can benefit from the licenses on its own or together with other readily available resources. As the exclusive licenses for certain Prime products and non-exclusive license to CRISPR technology are delivered at the same time, they are considered one performance obligation at contract inception. The joint research committee performance promise is immaterial in the context of the contract.

We determined the transaction price under ASC 606 at the inception of the Beam Collaboration Agreement to be $5.2 million, consisting of the value of the Beam equity investment under the Mutual Subscription Agreement, when measured at fair value, less the fair value of our shares issued to Beam of $0.2 million.An immediate 10 percent change in the Beam share price would have had a $0.5 million impact on the collaboration revenue from Beam. The shares we issued to Beam represents a payment to a customer and is therefore a reduction of the transaction price.

We recognized revenue for the license performance obligations at a point in time, that is upon the first anniversary of the effective date when Beam elected to continue its collaboration with us. As control of these licenses was transferred on this date, Beam could begin to use and benefit from the licenses, we recognized $5.2 million of license revenue during the year ended December 31, 2020 under the Beam Collaboration Agreement. We did not recognize any revenue under the Beam Collaboration Agreement during the years ended December 31, 2022 or 2021.

Stock-Based Compensation Expense

We measure stock-based awards granted to employees, directors, and non-employees based on their fair value on the date of the grant using the Black-Scholes option-pricing model for stock options or the difference, if any, between the purchase price per share of the award and the fair value of our common stock at the date of grant for restricted stock awards. Compensation expense for those awards is recognized over the requisite service period, which is generally the vesting period of the respective award. Compensation expense for awards to non-employees with service-based vesting conditions is recognized in the same manner as if we had paid cash in exchange for the goods or services, which is generally the over the vesting period of the award. We use the straight-line method to recognize the expense of awards with service-based vesting conditions. We account for forfeitures of stock-based awards as they occur. Compensation expense for awards to employees and non-employees with performance-based vesting conditions is recognized based on the grant-date fair value over the requisite service period using the accelerated attribution method to the extent achievement of the performance condition is probable. As of each reporting date, we estimate the probability that specified performance criteria will be met and does not recognize compensation expense until it is probable that the performance-based vesting condition will be achieved.

Prior to our IPO in October 2022, there was no public market for our common stock. As a result, prior to our IPO, the estimated fair value of our common stock was determined by our board of directors as of the date of each option grant, with input from management, considering our most recently available third-party valuations of common stock and our board of directors' assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of grant. Following our IPO, the fair value of our common stock is determined based on the quoted market price of our common stock.

Valuation of Preferred Stock Tranche Right Liability

We classify the preferred stock tranche right as a liability on our consolidated balance sheets as each preferred stock tranche right is a freestanding financial instrument that may require us to transfer assets upon the achievement of certain conditions. Each preferred stock tranche right liability was initially recorded at fair value upon the date of issuance of each preferred stock tranche right and is subsequently remeasured to fair value at each reporting date, and immediately prior to any subsequent Series A preferred stock financing. Changes in the fair value of the

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preferred stock tranche right liability are recognized as a component of other income (expense), net in the consolidated statement of operations and comprehensive loss. Changes in the fair value of the preferred stock tranche right liability were recognized until the preferred stock tranche right was settled in full upon the satisfaction of certain conditions in April 2021. During the year ended December 31, 2021, we recognized $74.3 million as a component of other income (expense), net related to the change in fair value of the preferred stock tranche right liability. During the year ended December 31, 2020, we recognized $10.9 million as a component of other income (expense), net related to the change in fair value of the preferred stock tranche right liability.

Valuation of Anti-Dilution Obligation

The fair value of the Anti-Dilution Obligation recognized in connection with the anti-dilution provisions set forth in our license agreement with Broad Institute was determined based on significant inputs not observable in the market, which represented a Level 3 measurement within the fair value hierarchy.

The Anti-Dilution Obligation was initially recorded at fair value upon entering into the license agreement with Broad Institute and was subsequently remeasured to fair value at each reporting date. Changes in fair value of the Anti-Dilution Obligation were recognized as a component of other income (expense), net in the consolidated statements of operations and comprehensive loss. Changes in the fair value of the Anti-Dilution Obligation were recognized until the achievement of $100.0 million in cumulative equity financing was raised by us in connection with the fourth Series A preferred stock closing. As a result, the Anti-Dilution Obligation was settled during the year ended December 31, 2021. During the year ended December 31, 2021, we recognized $6.7 million as a component of other income (expense), net related to the change in fair value of the Anti-Dilution Obligation.

Recently Issued and Adopted Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements appearing at the end of this Annual Report on Form 10-K.

Emerging Growth Company Status

The Jumpstart Our Business Startups Act of 2012, or JOBS Act, permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company. As a result of this election, our consolidated financial statements may not be comparable to other public companies that comply with new or revised accounting pronouncements as of public company effective dates. We may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for private companies.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We are exposed to market risk related to changes in interest rates of our investment portfolio of cash equivalents and short-term investments. As of December 31, 2022, we held cash and cash equivalents, short-term investments, and related party short-term investments of $293.9 million, excluding restricted cash, which consisted of cash, money market funds, equity securities and U.S. Treasuries, or $307.4 million, including restricted cash. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. The fair value of our cash equivalents, comprised of our money market funds, and U.S. Treasuries are subject to change as a result of potential changes in market interest rates, including changes resulting from the impact of the COVID-19 pandemic. Due to the short-term maturities of our cash equivalents and U.S. Treasuries and the low risk profile of our investments, an immediate 10 percent change in interest rates would not have a material effect on the fair market value of our cash equivalents or U.S. Treasuries.

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As of December 31, 2022, we had no debt outstanding and are therefore not exposed to interest rate risk with respect to debt.

Effects of Inflation

Inflation generally affects us by increasing our cost of labor and research and development costs. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we may experience some effect in the near future (especially if inflation rates continue to rise) due to an impact on the costs to conduct research and development, labor costs we incur to attract and retain qualified personnel, and other operational costs. Inflationary costs could adversely affect our business, financial condition and results of operations.

Item 8. Financial Statements and Supplementary Data

The financial statements required to be filed pursuant to this Item 8 are appended to this Annual Report on Form 10-K. An index of those financial statements is found in Item 15, Exhibits and Financial Statement Schedules, 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

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and our principal 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. Based on that evaluation of our disclosure controls and procedures as of December 31, 2022, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures as of such date are effective at the reasonable assurance level. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures have been designed to provide reasonable assurance of achieving their objectives.

Management’s Annual Report on Internal Controls Over Financial Reporting

This Annual Report on Form 10-K does not include a report of management’s assessment regarding our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) or an attestation report of our independent registered accounting firm due to a transition period established by rules of the SEC for newly public companies. Additionally, 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 until we are no longer an “emerging growth company” as defined in the JOBS Act, and our unaffiliated market capitalization exceeds $700 million.

Changes in Internal Control over Financial Reporting

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This annual report does not include a report of management's assessment regarding internal control over financial reporting or an attestation report of the company's registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.

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 fiscal quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

As of the date of this Annual Report on Form 10-K, we intend to hold our 2023 Annual meeting of Stockholders (the "2023 Annual Meeting") on or about June 14, 2023 at 11:30 a.m. local time virtually. We are providing the following disclosure in accordance with our Amended and Restated Bylaws (the "Bylaws") and Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the "Exchange Act").

Bylaws Advance Notice Deadline for Submission of Stockholder Proposals and Director Nominations

Pursuant to our Bylaws, since the 2023 Annual Meeting is the first Annual Meeting following our initial public offering, for notice of stockholder proposals submitted outside of Rule 14a-8 of the Exchange Act and director nominations to be timely, they must be so received not later than the later of (i) the close of business on the 90th day before the 2023 Annual Meeting; or (ii) the close of business on the 10th day following the day on which public announcement of the date of the 2023 Annual Meeting is first made by us. As this is our first public disclosure of the date of the 2023 Annual Meeting, to be considered timely, stockholder proposals submitted outside of Rule 14a-8 of the Exchange Act and director nominations, in each case intended to be brought before the 2023 Annual Meeting, must be received no later than the close of business on March 16, 2023. Any such stockholder proposals and director nominations must be directed to our Corporate Secretary at our corporate offices at Prime Medicine, Inc., 21 Erie Street, Cambridge, MA 02139. Such stockholder proposals and director nominations must also comply with the advance notice provisions contained in Section 2 of our Bylaws.

Rule 14a-8 Deadline for the Submission of Stockholder Proposals

As we did not hold an annual meeting in 2022, pursuant to Rule 14a-8(e)(2) under the Exchange Act, the deadline for the receipt of any stockholder proposals submitted pursuant to Rule 14a-8 of the Exchange Act for inclusion in the Company’s proxy materials for the 2023 Annual Meeting would be a reasonable time before the company begins to print and send its proxy materials. We have determined that March 16, 2023 is a reasonable time before we expect to begin to print and distribute its proxy materials for the 2023 Annual Meeting, and that any stockholder proposals must be received on or before the close of business on that day. Such proposals must be directed to our Corporate Secretary at our corporate offices at Prime Medicine, Inc., 21 Erie Street, Cambridge, MA 02139. Such proposals must also comply with Rule 14a-8 of the Exchange Act.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 31, 2022.

Item 11. Executive Compensation

The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 31, 2022.

184

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

The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 31, 2022.

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

The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 31, 2022.

Item 14. Principal Accountant Fees and Services

The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 31, 2022.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(1) Financial Statements

The following documents are included on pages F-1 through F-44 attached hereto and are filed as part of this Annual Report on Form 10-K.

Page

Report of Independent Registered Public Accounting Firm F-2

Consolidated Balance Sheets F-3

Consolidated Statements of Operations and Comprehensive Loss F-4

Consolidated Statements of Cash Flows F-6

Notes to Consolidated Financial Statements F-8

(2) Financial Statement Schedules

Schedules have been omitted since they are either not required or not applicable or the information is otherwise included herein.

The exhibits filed as part of this Annual Report on Form 10-K are set forth on the Exhibit Index immediately preceding the signature page of this Annual Report on Form 10-K. The Exhibit Index is incorporated herein by reference.

(3) Exhibits

Exhibit number Exhibit table

185

4.3* Description of Securities

186

101.INS* Inline XBRL Instance Document

101.SCH* Inline XBRL Taxonomy Extension Schema Document

101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document

104* Cover Page Interactive Data File (embedded within the Inline XBRL document)

__________________

* Filed herewith.

** The certifications furnished in Exhibit 32.1 and Exhibit 32.2 hereto are deemed to accompany this Annual Report on Form 10-K and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Registrant specifically incorporates it by reference.

# Indicates a management contract or any compensatory plan, contract or arrangement.

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

187

+ Certain exhibits and schedules to these agreements have been omitted pursuant to Item 601(a)(5) and (6) of Regulation S-K. The registrant will furnish copies of any of the exhibits and schedules to the Securities and Exchange Commission upon request.

Item 16. Form 10-K Summary

None.

188

SIGNATURES

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

Prime Medicine, Inc.

March 9, 2023 By: /s/ Keith Gottesdiener

Keith Gottesdiener

President and Chief Executive Officer

POWER OF ATTORNEY AND SIGNATURES

Each person whose individual signature appears below hereby authorizes and appoints Keith Gottesdiener and Carman Alenson, and each of them, with full power of substitution and resubstitution and full power to act without the other, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file any and all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his or her substitute or substitutes may lawfully do or cause to be done by virtue thereof.

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

Signature Title Date

Keith Gottesdiener

Carman Alenson

/s/ Robert Nelsen Director March 9, 2023

Robert Nelsen

/s/ David Schenkein Director March 9, 2023

David Schenkein

/s/ Thomas Cahill Director March 9, 2023

Thomas Cahill

/s/ Michael Kelly Director March 9, 2023

Michael Kelly

/s/ Wendy Chung Director March 9, 2023

Wendy Chung

/s/ Kaye Foster Director March 9, 2023

Kaye Foster

189

PRIME MEDICINE, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page

Report of Independent Registered Public Accounting Firm (PCAOB ID: 238) F-2

Consolidated Balance Sheets F-3

Consolidated Statements of Operations and Comprehensive Loss F-4

Consolidated Statements of Cash Flows F-6

Notes to Consolidated Financial Statements F-8

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Prime Medicine, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Prime Medicine, Inc. and its subsidiary (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations and comprehensive loss, of redeemable convertible and convertible preferred stock and stockholders' equity (deficit) and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2021.

Basis for Opinion

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

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated 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 consolidated 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 consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

March 9, 2023

We have served as the Company's auditor since 2021.

F-2

PRIME MEDICINE, INC.

CONSOLIDATED BALANCE SHEETS

Assets

Current assets:

Related party short-term investment 7,834 15,962

Prepaid expenses and other current assets 2,697 959

Operating lease right-of-use lease assets 29,545 10,746

Current liabilities:

Accrued expenses and other current liabilities(1) 10,688 37,192

Related party forward contract liability (2) — 12,020

Operating lease liability, net of current 17,051 3,070

Non current deferred tax liability 279 1,243

Commitments and contingencies (Note 12)

Stockholders’ equity (deficit):

Accumulated other comprehensive loss (384) (27)

_____________________

(1)Includes related party amount of $0.3 million as of December 31, 2022. Includes related party amount of $30.0 million as of December 31, 2021. (see Note 14).

(2)Includes related party amount of $12.0 million as of December 31, 2021 (see Note 14).

The accompanying notes are an integral part of these consolidated financial statements.

F-3

PRIME MEDICINE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

Related party collaboration revenue $ — $ — $ 5,210

Operating expenses:

Other income (expense):

Change in fair value of anti-dilution obligation — (6,681) (700)

Change in fair value of related party short-term investment (8,128) (391) 10,867

Provision for (benefit from) income taxes (948) (486) 1,867

Accretion of preferred stock to redemption value — (1,468) (1,645)

Cumulative dividend on preferred stock (20,193) (17,284) —

Comprehensive Loss:

Change in unrealized losses on investments, net of tax (357) (27) —

Total other comprehensive loss (357) (27) —

__________________

(1)Includes related party amounts of $150 and $42,170 for the years ended December 31, 2020 and 2021, respectively (see Note 14).

(2)Includes related party amount of $126 for the year ended December 31, 2020 (see Note 14).

The accompanying notes are an integral part of these consolidated financial statements.

F-4

PRIME MEDICINE, INC.

CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE AND CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands, except share amounts) Shares Amount Shares Amount Shares Amount

Issuance of restricted common stock — — — — 5,422,456 — — — — —

Stock-based compensation expense — — — — — — 391 — — 391

Issuance of restricted common stock — — — — 1,443,638 — — — — —

Repurchase of unvested restricted common stock — — — — (18,227) — — — — —

Stock-based compensation expense — — — — — — 1,746 — — 1,746

Change in unrealized loss on investments, net of tax — — — — — — — (27) — (27)

Repurchase of unvested restricted common stock — — — — (11,160) — — — — —

Stock-based compensation expense — — — — — — 6,459 — — 6,459

Change in unrealized loss on investments, net of tax — — — — — — — (357) — (357)

The accompanying notes are an integral part of these consolidated financial statements.

F-5

PRIME MEDICINE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Cash flows from operating activities:

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

Depreciation and amortization expense 2,224 568 43

Amortization of premiums and discount on short-term investments (250) 715 —

Non cash research and development expense for licenses — 12,020 —

Non cash payment to Beam — — 150

Loss on fixed asset disposal 8 — —

Change in fair value of preferred stock tranche right liability — 74,319 10,904

Change in fair value of anti-dilution obligation — 6,681 700

Change in fair value of related party short-term investment 8,128 391 (10,867)

Non cash other income (expense) — — (126)

Changes in operating assets and liabilities:

Prepaid expenses and other current assets (1,738) (885) (388)

Accrued expenses and other current liabilities (25,873) 35,206 302

Cash flows from investing activities:

Payments of security deposits (665) (496) (423)

Cash flows from financing activities:

Cash received in advance from issuance of convertible preferred stock series A —

Payments of deferred offering costs (4,042) (1,086) (20)

Net proceeds from stock option exercises 219 — —

Supplemental cash flow information:

Supplemental disclosure of non-cash investing and financing activities:

Settlement of Series A preferred stock tranche obligation $ — $ 91,834 $ —

Issuance of Series A preferred stock at a price below fair value $ — $ 998 $ —

F-6

PRIME MEDICINE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Settlement of anti-dilution obligation $ — $ 7,536 $ —

Settlement of related party forward contract $ 12,020 $ — $ —

Cash taxes paid $ 141 $ — $ —

Accretion of preferred stock to redemption value $ — $ 1,468 $ 1,645

Unrealized loss on short-term investments $ 357 $ 27 $ —

Reconciliation of cash, cash equivalents and restricted cash:

The accompanying notes are an integral part of these consolidated financial statements.

F-7

PRIME MEDICINE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.Nature of the Business and Basis of Presentation

Prime Medicine, Inc., together with its consolidated subsidiary (the “Company”) is a biotechnology company committed to deliver genetic therapies to address diseases by deploying gene editing technology, Prime Editing. The company is deploying Prime Editing technology, a versatile, precise, efficient and broad gene editing technology, which is designed to make only the right edit at the right position within a gene. With the theoretical potential to repair approximately 90 percent of known disease-causing genetic mutations across many organs and cell types, medicines based on Prime Editing, if approved, could offer a one-time curative genetic therapeutic option to a broad set of patients. The Company was incorporated in the State of Delaware in September 2019. Its principal offices are in Cambridge, Massachusetts.

Liquidity and capital resources

Since its inception, the Company has devoted substantially all of our resources to building our Prime Editing platform and advancing development of our portfolio of programs, establishing and protecting our intellectual property, conducting research and development activities, organizing and staffing our company, business planning, raising capital and providing general and administrative support for these operations. The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry including, but not limited to, technical risks associated with the successful research, development and manufacturing of product candidates, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations. Current and future programs will require significant research and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure. Even if the Company’s drug development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

In October 2022, the Company completed its IPO of its common stock. In connection with its IPO, the Company issued and sold 11,721,456 shares of its common stock, including 1,427,338 shares pursuant to the exercise of the underwriters’ option to purchase additional shares, at a price to the public of $17.00 per share. As a result of the IPO, the Company received $180.2 million in net proceeds, after deducting underwriting discounts, commissions and offering costs of $19.1 million. In connection with the IPO, all outstanding shares of redeemable convertible preferred stock converted into 51,923,758 shares of the Company’s common stock.

The Company is subject to risks and uncertainties common to early stage companies in the biotechnology industry, including, but not limited to, completing preclinical studies and clinical trials, obtaining regulatory approval for product candidates, market acceptance of products, development by competitors of new technological innovations, dependence on key personnel, the ability to attract and retain qualified employees, reliance on third-party organizations, protection of proprietary technology, compliance with government regulations, the impact of the COVID-19 pandemic, and the ability to raise additional capital to fund operations. The Company’s product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure, and extensive compliance-reporting capabilities. Even if the Company’s development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

Since its inception, the Company has incurred substantial losses and as of December 31, 2022, the Company had an accumulated deficit of $293.2 million. The Company expects to generate operating losses and negative operating cash flows for the foreseeable future. The Company expects that its cash, cash equivalents, short-term investments, and related party short-term investments as of December 31, 2022 of $293.9 million will be sufficient to fund its operations for at least the next twelve months from the date of issuance of these financial statements. The Company will need additional financing to support its continuing operations and pursue its growth strategy. Until such time as the Company can generate significant revenue from product sales, if ever, it expects to finance its operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. The Company may be unable to raise additional funds or enter into such other agreements when needed on favorable

F-8

PRIME MEDICINE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

terms or at all. The inability to raise capital as and when needed would have a negative impact on the Company’s financial condition and its ability to pursue its business strategy. The Company will need to generate significant revenue to achieve profitability, and it may never do so.

Reverse Stock Split

On October 12, 2022, in connection with the Company’s initial public offering (“IPO”), the Company effected a 1-3.10880 reverse stock split of its issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios of each series of the Company’s preferred stock (see Note 6). Accordingly, all share and per share amounts for all periods presented in the accompanying condensed consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this stock split and adjustment of the preferred stock conversion ratios.

Basis of Presentation

The accompanying consolidated financial statements reflect the operations of the Company and its wholly-owned subsidiary. Intercompany balances and transactions have been eliminated in consolidation. The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).

Impact of the COVID-19 Pandemic

The Company is subject to a number of risks associated with the COVID-19 global pandemic, including potential delays associated with the Company’s ongoing preclinical studies and anticipated clinical trials. COVID-19 may have an adverse impact on the Company’s operations, supply chains and distribution systems or those of its third-party vendors and collaborators, and increase expenses, including as a result of impacts associated with preventive and precautionary measures that are being taken, such as restrictions on travel and border crossings, quarantine policies and social distancing. The Company and its third-party vendors and collaborators may experience disruptions in supply of items that are essential for its research and development activities. The Company cannot predict the scope and severity of any economic recovery after the COVID-19 pandemic abates, including following any additional “waves” or other intensifying of the pandemic will have on its financial condition, operations, and business plans.

2.Summary of Significant Accounting Policies

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates and assumptions reflected within these consolidated financial statements include, but are not limited to, revenue recognition, the valuation of the Company’s common stock and stock-based awards, the valuation of preferred stock tranche right liability, the valuation of the anti-dilution obligation and the valuation of the related party forward contract liability. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates, as there are changes in circumstances, facts and experience. Actual results may differ materially from those estimates or assumptions.

Concentrations of Credit Risk

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents and short-term investments. The Company invests in U.S. Treasury securities and maintains its cash and cash equivalents at high-quality and accredited financial institutions in amounts that could exceed federally

F-9

PRIME MEDICINE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

insured limits. Cash equivalents are invested in money market funds. However, the Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less at the time of initial purchase to be cash equivalents. As of December 31, 2022 and 2021, the amount of cash equivalents included in cash and cash equivalents totaled $120.5 million and $49.5 million, respectively.

Restricted Cash

Restricted cash consisted of letters of credit totaling $13.5 million and $13.1 million as of December 31, 2022, and 2021, respectively, that are required to be maintained in connection with the Company’s lease arrangements. Both letters of credit are in the name of the Company’s landlords and are required to fulfill lease requirements in the event the Company should default on its lease obligations. As of both December 31, 2022 and 2021, the Company classified its restricted cash as non-current on the consolidated balance sheets based on the release dates of the restrictions.

Short-term Investments and Related Party Short-Term Investment

The Company’s short-term investments consist of investments in debt, including U.S. Treasury securities with remaining maturities beyond three months at the date of purchase and one year or less from the balance sheet date. As of both December 31, 2022 and 2021, all of the Company’s debt securities were classified as available-for-sale and were carried at fair market value (see Note 3). The unrealized losses on the Company’s available-for-sale debt securities are recorded in other comprehensive loss in the consolidated statements of operations and comprehensive loss.

Short-term debt securities are considered impaired when a decline in fair value is judged to be other-than-temporary. The Company consults with its investment managers and considers available quantitative and qualitative evidence in evaluating potential impairment of its short-term investments on a quarterly basis. If the cost of an individual investment exceeds its fair value, the Company evaluates, among other factors, general market conditions, the duration and extent to which the fair value is less than cost and its intent and ability to hold the investment. Once a decline in fair value is determined to be other-than-temporary, an impairment charge will be recorded to other income (expense), net, in the consolidated statements of operations and comprehensive loss.

The Company’s related party short-term equity investment was obtained from the collaboration agreement with Beam Therapeutics Inc. (“Beam”), which is a public company trading on the Nasdaq Exchange. At each reporting date, the Company will mark-to-market the Beam common stock to the fair value of the related party short-term investment.

The Company's equity securities with readily determinable fair values are recorded at fair value based upon the market prices of the securities at each reporting date. Unrealized and realized gains and losses on the Company’s equity investment is included as a component of other income (expense) in the consolidated statements of operations and comprehensive loss. The costs of debt and equity securities for purposes of computing realized and unrealized gains and losses is based on the specific identification method.

Deferred Offering Costs

The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated. After consummation of an equity financing, these costs are recorded as a reduction of the proceeds from the offering, either as a reduction of the carrying value of the preferred stock or in stockholders’ equity (deficit) as a reduction of additional paid-in capital generated as a result of the offering. Should the in-process equity financing be abandoned, the deferred offering costs would be expensed immediately as a charge to operating expenses in the statements of operations and comprehensive loss. As of December 31, 2022, there were no deferred offering costs capitalized. As of December 31, 2021, there were $1.5 million of deferred offering costs capitalized.

F-10

PRIME MEDICINE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements

Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The Company’s cash equivalents, short-term investments, preferred stock tranche right liability, anti-dilution obligation and related party forward contract liability are carried at fair value, determined according to the fair value hierarchy described above (see Note 3). The carrying values of the Company’s accounts payable and accrued expenses approximate their fair values due to the short-term nature of these liabilities.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization expense is recognized using the straight-line method over the estimated useful life of each asset as follows:

Estimated Useful Life

Laboratory equipment 5 years

Furniture and fixtures 5 years

Leasehold improvements Shorter of remaining lease term or useful life

Costs for capital assets not yet placed into service are capitalized and are depreciated once placed into service. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is included in loss from operations. Expenditures for repairs and maintenance that do not improve or extend the life of the respective assets are charged to expense as incurred.

Impairment of Long-Lived Assets

Long-lived assets consist primarily of property and equipment, and operating lease right-of-use assets. Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset group for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset group to its carrying value. An impairment loss would be recognized in loss from operations when estimated undiscounted future cash flows expected to result from the use of an asset group are less than its carrying amount. If such asset group is considered to be impaired, the impairment loss to be recognized is measured based on the excess of the carrying value of the impaired asset group over its fair value.

For both the years ended December 31, 2022 and 2021, the Company did not recognize any impairment losses on long-lived assets.

F-11

PRIME MEDICINE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Leases

Prior to January 1, 2021, the Company accounted for leases in accordance with Accounting Standards Codification (“ASC”) ASC 840, Leases. At lease inception, the Company determined if an arrangement was an operating or capital lease. For operating leases, the Company recognized rent expense, inclusive of rent escalation, on a straight-line basis over the lease term.

Effective on January 1, 2021, the Company accounts for leases in accordance with ASC 842, Leases. In accordance with ASC 842, Leases, the Company determines if an arrangement is or contains a lease at inception. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company classifies leases at the lease commencement date as operating or finance leases and records a right-of-use asset and a lease liability on the consolidated balance sheet for all leases with an initial lease term of greater than 12 months. Leases with an initial term of 12 months or less are not recorded in the balance sheet, but payments are recognized as expense on a straight-line basis over the lease term. The Company has elected not to recognize leases with terms of 12 months or less.

A lease qualifies as a finance lease if any of the following criteria are met at the inception of the lease: (i) there is a transfer of ownership of the leased asset to the Company by the end of the lease term, (ii) the Company holds an option to purchase the leased asset that it is reasonably certain to exercise, (iii) the lease term is for a major part of the remaining economic life of the leased asset, (iv) the present value of the sum of lease payments equals or exceeds substantially all of the fair value of the leased asset, or (v) the nature of the leased asset is specialized to the point that it is expected to provide the lessor no alternative use at the end of the lease term. All other leases are recorded as operating leases.

The Company enters into contracts that contain both lease and non-lease components. Non-lease components may include maintenance, utilities, and other operating costs. The Company combines the lease and non-lease components of fixed costs in its lease arrangements as a single lease component. Variable costs, such as utilities or maintenance costs, are not included in the measurement of right-of-use assets and lease liabilities, but rather are expensed when the event determining the amount of variable consideration to be paid occurs.

Finance and operating lease assets and liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term using the discount rate implicit in the lease. If the rate implicit is not readily determinable, the Company utilizes an estimate of its incremental borrowing rate based upon the available information at the lease commencement date. Operating lease assets are further adjusted for prepaid or accrued lease payments. Operating lease payments are expensed using the straight-line method as an operating expense over the lease term. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Finance lease assets are amortized to depreciation expense using the straight-line method over the shorter of the useful life of the related asset or the lease term. Finance lease payments are bifurcated into (i) a portion that is recorded as imputed interest expense and (ii) a portion that reduces the finance liability associated with the lease.

Certain of the Company’s leases include options to extend or terminate the lease. The amounts determined for the Company’s right-of-use assets and lease liabilities generally do not assume that renewal options or early-termination provisions, if any, are exercised, unless it is reasonably certain that the Company will exercise such options.

In addition, the Company examines other contracts with suppliers, vendors and outside parties to identify whether such contracts contain an embedded lease and, as applicable, records such embedded leases in accordance with ASC 842.

Segment Information

The Company operates and manages its business as a single segment for the purposes of assessing performance and making operating decisions. The Company’s chief executive officer, who is the chief operating decision maker, reviews the Company’s financial information on a consolidated basis for purposes of evaluating financial performance and allocating resources. All of the Company’s long-lived assets are located in the United States and all of the Company’s revenue was derived in the United States.

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PRIME MEDICINE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Classification and Accretion of Redeemable Convertible Preferred Stock

The Company has classified the convertible preferred stock outside of stockholders’ equity (deficit) on the Company’s consolidated balance sheets because the holders of such stock have redemption features and certain liquidation rights in the event of a deemed liquidation that, in certain situations, are not solely within the control of the Company and would require the redemption of the then-outstanding convertible preferred stock.

The Company's Series A redeemable convertible preferred stock (“Series A Preferred Stock”) was redeemable in an amount equal to the original issue price per share plus all declared but unpaid dividends thereon. The Company recorded periodic accretion to the values of its outstanding Series A Preferred Stock such that the carrying value of the Series A Preferred Stock would be equal to the redemption value at the earliest redemption date. Adjustments to the carrying value of the Series A Preferred Stock at each reporting date resulted in an increase to net loss attributable to common stockholders. In April 2021, the redemption rights for Series A Preferred Stock were removed and such shares of preferred stock were no longer redeemable. After the removal of the redemption rights, the Company did not record any further accretion to the carrying value of Series A Preferred Stock (see Note 6). In connection with the IPO, all outstanding shares of Series A convertible preferred stock converted into 37,236,772 shares of the Company’s common stock.

The Company’s Series B convertible preferred stock is not redeemable, except in the event of a deemed liquidation (see Note 6). Because the occurrence of a deemed liquidation event is not currently probable, the carrying values of the Series B convertible preferred stock are not being accreted to their redemption values. Subsequent adjustments to the carrying values of the convertible preferred stock would be made only when a deemed liquidation event becomes probable. In connection with the IPO, all outstanding shares of Series B redeemable convertible preferred stock converted into 14,686,986 shares of the Company’s common stock.

Revenue Recognition

The Company recognizes revenue in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606) and its related amendments, or, collectively, ASC 606.

Under ASC 606, revenue is recognized when a 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. In order to achieve this core principle, the Company applies the following five steps when recording revenue: (1) identify the contract, or contracts, with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when, or as, performance obligations are satisfied.

At contract inception, the Company assesses the goods or services promised within each contract, whether each promised good or service is distinct, and determines those that are performance obligations. In assessing whether promised goods or services are distinct, the Company considers factors such as the stage of development of the underlying intellectual property, the capabilities of the customer to develop the intellectual property on their own and whether the required expertise is readily available. In addition, the Company considers whether the collaboration partner can benefit from a promise for its intended purpose without the receipt of the remaining promises, whether the value of the promise is dependent on the unsatisfied promises, whether there are other vendors that could provide the remaining promises, and whether it is separately identifiable from the remaining promises. 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.

In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under its arrangements, the Company performs the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the assessment of the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations, and (v) recognition of revenue when, or as, the Company satisfies each performance obligation. As part of the accounting for arrangements under ASC 606, the Company must use significant judgment to determine: a) the performance obligations based on the determination under step (ii) above; b) the transaction price under step (iii) above; and c) the standalone selling price for each performance obligation identified in the contract for the allocation

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PRIME MEDICINE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

of transaction price in step (iv) above. The Company also uses judgment to determine whether milestones or other variable consideration, except for royalties and sales-based milestones where such payments principally relate to a license of intellectual property, should be included in the transaction price as described below. At the end of each subsequent reporting period, the Company re-evaluates the estimated variable consideration included in the transaction price 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 in the period of adjustment. The transaction price is allocated to each performance obligation based on the relative standalone selling price of each performance obligation in the contract, and the Company recognizes revenue based on those amounts when, or as, the performance obligations under the contract are satisfied. The Company utilizes key assumptions to determine the standalone selling price, which may include other comparable transactions, pricing considered in negotiating the transaction, probabilities of technical and regulatory success and the estimated costs. Certain variable consideration is allocated specifically to one or more performance obligations in a contract when the terms of the variable consideration relate to the satisfaction of the performance obligation and the resulting amounts allocated to each performance obligation are consistent with the amounts the Company would expect to receive for each performance obligation.

Research and Development Expenses

Research and development expenses are expensed as incurred. Research and development expenses may consist of costs incurred in connection with acquired in-process research and development and performing research and development activities, including amounts incurred under agreements with external vendors and consultants engaged to perform preclinical studies and to manufacture research and development materials for use in such studies, salaries and related personnel costs, stock-based compensation, consultant fees, and third-party license fees.

Upfront payments under license agreements are expensed upon receipt of the license, and annual maintenance fees under license agreements are expensed over the maintenance period. Milestone payments under license agreements are accrued, with a corresponding expense being recognized, in the period in which the milestone is determined to be probable of achievement and the related amount is reasonably estimable.

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.

Acquired In-Process Research and Development

The Company measures and recognizes asset acquisitions or licenses to intellectual property that are not deemed to be business combinations based on the cost to acquire or license the asset or group of assets, which includes transaction costs. Goodwill is not recognized in asset acquisitions or transaction to license intellectual property. In an asset acquisition or license to intellectual property, the cost allocated to acquire in-process research and development (“IPR&D”) with no alternative future use is recognized as research and development expense on the acquisition date.

Upfront and milestone payments made are accrued for and expensed when the achievement of the milestone is probable up to the point of regulatory approval. Milestone payments made upon regulatory approval are capitalized and amortized over the remaining useful life of the related product.

Acquired IPR&D for the year ended December 31, 2022 consisted of the upfront cash consideration for a license arrangement of $0.2 million for the 2022 Broad License Agreement (see Note 11). Acquired IPR&D for the year ended December 31, 2021, consisted of (i) the related party forward contract liability for the issuance of 1,101,525 shares of common stock initially valued at $12.0 million and (ii) upfront cash consideration for a license arrangement of $30.0 million (see Note 11). In January 2022, the Company made the upfront payment of $30.0 million and issued 1,101,525 shares of its common stock, with a fair value of $12.0 million, to Myeloid pursuant to the terms of the Myeloid Collaboration Agreement (see Note 11 and 14). There was no acquired IPR&D recognized for the year ended December 31, 2020.

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PRIME MEDICINE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Patent Costs

The Company expenses as incurred all patent-related costs incurred in connection with filing and prosecuting patent applications due to the uncertainty about the recovery of the expenditure. Amounts incurred are classified as general and administrative expenses in the statements of operations and comprehensive loss.

Contingencies

The Company is subject to contingent liabilities, such as legal proceedings and claims, that arise in the ordinary course of business activities. The Company accrues for loss contingencies when losses become probable and are reasonably estimable. If the reasonable estimate of the loss is a range and no amount within the range is a better estimate, the minimum amount of the range is recorded as a liability on the consolidated balance sheets. The Company does not accrue for contingent losses that, in its judgment, are considered to be reasonably possible, but not probable; however, it discloses the range of reasonably possible losses. As of December 31, 2022 and 2021, no liabilities were recorded for loss contingencies (see Note 12).

Stock-Based Compensation

The Company measures all stock-based awards granted to employees, directors and non-employees based on the fair value of the awards on the date of grant using the Black-Scholes option-pricing model. The Company measures restricted common stock awards using the difference, if any, between the purchase price per share of the award and the fair value of the Company’s common stock at the date of grant.

The Company grants stock options and restricted stock awards that are subject to either service or performance-based vesting conditions. Compensation expense for awards to employees and directors with service-based vesting conditions is recognized using the straight-line method over the requisite service period, which is generally the vesting period of the respective award. Compensation expense for awards to non-employees with service-based vesting conditions is recognized in the same manner as if the Company had paid cash in exchange for the goods or services, which is generally over the vesting period of the award. Forfeitures are accounted for as they occur. Compensation expense for awards to employees and non-employees with performance-based vesting conditions is recognized based on the grant-date fair value over the requisite service period using the accelerated attribution method to the extent achievement of the performance condition is probable. As of each reporting date, the Company estimates the probability that specified performance criteria will be met and does not recognize compensation expense until it is probable that the performance-based vesting condition will be achieved.

The Company classifies stock-based compensation expense in its consolidated statements of operations and comprehensive loss in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified.

Preferred Stock Tranche Right Liability

Each preferred stock tranche right liability was recorded at fair value upon the date of issuance of each preferred stock tranche right and was subsequently remeasured to fair value at each reporting date. Changes in the fair value of the preferred stock tranche right liability are recognized as a component of other income (expense), net in the consolidated statement of operations and comprehensive loss. Changes in the fair value of the preferred stock tranche right liability were recognized until the preferred stock tranche right was settled in full upon the satisfaction of certain conditions in April 2021.

Comprehensive Loss

Comprehensive loss includes net loss as well as other changes in stockholders’ equity (deficit) that result from transactions and economic events other than those with stockholders. For the year ended December 31, 2020 there was no difference between net loss and comprehensive loss. For the years ended December 31, 2022 and 2021, comprehensive loss includes net loss and unrealized gains (losses) on investments.

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PRIME MEDICINE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Net Loss per Share Attributable to Common Stockholders

The Company applies the two-class method when computing net income (loss) per share attributable to common stockholders as the Company has issued shares that meet the definition of participating securities. The two-class method determines net income (loss) per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income (loss) available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to share in the undistributed earnings as if all income (loss) for the period had been distributed. The Company considers its convertible preferred stock to be participating securities as, in the event a dividend is paid on common stock, the holders of convertible preferred stock would be entitled to receive dividends on a basis consistent with the common stockholders. There is no allocation required under the two-class method during periods of loss since the participating securities do not have a contractual obligation to share in the losses of the Company.

Basic net income (loss) per share attributable to common stockholders is computed by dividing the net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding for the period, excluding potentially dilutive common shares and of unvested restricted common stock. Diluted net income (loss) per share attributable to common stockholders is computed by adjusting net loss attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net income (loss) per share attributable to common stockholders is computed by dividing the diluted net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding for the period, including potential dilutive common shares. For purposes of this calculation, the Company’s outstanding stock options and convertible preferred stock are considered potential dilutive common shares.

The Company reported net loss and net loss attributable to common stockholders for the years ended December 31, 2022, 2021, and 2020.

Income Taxes

The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements or in the Company’s tax returns. Deferred tax assets and liabilities are determined based on the differences between the financial statement basis and tax basis of assets and liabilities using enacted tax rates in effect for the years in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.

The Company accounts for uncertainty in income taxes recognized in the consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more likely than not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the consolidated financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50 percent likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties. The Company had accrued no amounts for interest or penalties related to uncertain tax positions as of December 31, 2022, 2021, and 2020.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), as subsequently amended, which sets out the principles for the recognition, measurement, presentation, and disclosure of leases for both parties to a contract (i.e., lessees and lessors), and replaces the existing guidance in ASC 840, Leases.

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PRIME MEDICINE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine the recognition pattern of lease expense over the term of the lease. In addition, a lessee is required to record (i) a right-of-use asset and a lease liability on its balance sheet for all leases with accounting lease terms of more than 12 months regardless of whether it is an operating or financing lease and (ii) lease expense in its consolidated statement of operations and comprehensive loss for operating leases and amortization and interest expense in its consolidated statement of operations and comprehensive loss for financing leases. Leases with a term of 12 months or less may be accounted for similar to existing guidance for operating leases under ASC 840. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842), which added an optional transition method that allows companies to adopt the standard as of the beginning of the year of adoption as opposed to the earliest comparative period presented. This guidance is effective for the Company for annual periods beginning after December 15, 2021, including interim periods within that fiscal year. Early adoption is permitted.

The Company adopted the new leasing standard effective January 1, 2021, using the modified retrospective transition approach which uses the effective date, or January 1, 2021, as the date of initial application. As a result, prior periods are presented in accordance with the previous guidance in ASC 840. The Company has elected to apply the package of practical expedients requiring no reassessment of whether any expired or existing contracts are or contain leases, the lease classification of any expired or existing leases, or the capitalization of initial direct costs for any existing leases.

Upon its adoption of ASC 842, the Company recorded lease liabilities and their corresponding right-of-use assets based on the present value of lease payments over the remaining lease term. The adoption of ASC 842 resulted in the recognition of operating lease liabilities of $2.7 million and right-of-use assets of $2.8 million and the derecognition of prepaid rent balances recorded in other assets of $0.1 million on the Company’s balance sheet as of January 1, 2021. The adoption impact relates to the Company’s existing operating lease for office and laboratory space. The adoption of ASU 2016-02 did not have a material impact on the Company’s statements of operations and comprehensive loss or statements of cash flows.

In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). This standard eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted earnings per share (“EPS”) computation. Additionally, the amended guidance requires the application of the if-converted method for calculating diluted EPS and the treasury stock method will no longer be available. For public business entities, it is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years using the fully retrospective or modified retrospective method. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company adopted ASU 2020-06 on January 1, 2022. The adoption of ASU 2020-06 did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as of the specified effective date. The Company qualifies as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 and has elected not to “opt out” of the extended transition related to complying with new or revised accounting standards, which means that when a standard is issued or revised and it has different application dates for public and nonpublic companies, the Company will adopt the new or revised standard at the time nonpublic companies adopt the new or revised standard and will do so until such time that the Company either (i) irrevocably elects to “opt out” of such extended transition period or (ii) no longer qualifies as an emerging growth company. As a result of this election, the Company’s financial statements may not be comparable to those public companies that comply with new or revised accounting pronouncements as of public company effective dates. The Company may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for nonpublic companies.

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PRIME MEDICINE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.Fair Value Measurements

The following tables present the Company’s fair value hierarchy for its assets and liabilities that are measured at fair value on a recurring basis and indicate the level within the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value (in thousands):

Fair Value Measurements at December 31, 2022

Level 1 Level 2 Level 3 Total

Assets:

Cash equivalents:

Short-term investment:

Related party short-term investment:

Fair Value Measurements at December 31, 2021

Level 1 Level 2 Level 3 Total

Assets:

Cash equivalents:

Short-term investment:

U.S. Treasury bills and government securities — 68,238 — 68,238

Related party short-term investment:

Liabilities:

Related party forward contract liability — — 12,020 12,020

Money market funds were valued by the Company based on observable inputs, which represent a Level 2 measurement within the fair value hierarchy. For the years ended December 31, 2022 and 2021, there were no transfers between Level 1, Level 2 and Level 3.

The Company classifies its U.S. Treasury securities as short-term based on each instrument’s underlying contractual maturity date. The fair value of the Company’s U.S. Treasury securities and money market funds are classified as Level 2 because they are valued using observable inputs to quoted market prices, benchmark yields, reported trades, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency and U.S. Treasury securities.

The underlying securities held in the money market funds held by the Company are all government backed securities.

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PRIME MEDICINE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Short-term investments consisted of the following (in thousands):

Amortized Cost Unrealized Gains Unrealized Losses Fair Value

Short-term investments:

Related party short-term investment:

Amortized Cost Unrealized Gains Unrealized Losses Fair Value