UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-38841
Precision BioSciences, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
302 East Pettigrew St., Suite A-100
Durham, North Carolina
(Address of principal executive offices)
20-4206017
(I.R.S. Employer
Identification No.)
27701
(Zip Code)
Registrant’s telephone number, including area code: (919) 314-5512
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.000005 per share
Trading Symbol(s)
DTIL
Name of each exchange on which registered
The Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES ☐ NO ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). YES ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
☐
☒
Non-accelerated filer
☐
Smaller reporting company
☒
Emerging growth company
☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section
404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. YES ☐ NO ☒
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ☐ NO ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price of the shares of common stock on The Nasdaq Global
Select Market on June 30, 2022, was $170.3 million.
The number of shares of Registrant’s common stock outstanding as of March 1, 2023 was 111,295,723.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement for its 2023 annual stockholders’ meeting, which is to be filed within 120 days of the registrant’s fiscal year ended December 31, 2022, are
incorporated by reference into Part III of this Annual Report on Form 10-K.
Auditor Firm Id:
34
Auditor Name:
Deloitte & Touche LLP
Auditor Location:
Raleigh, North Carolina
Table of Contents
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PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
Forward-Looking Statements
Risk Factor Summary
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
Signatures
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We
intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the
Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All
statements other than statements of present and historical facts contained in this Annual Report on Form 10-K, including, without limitation, statements
regarding our future results of operations and financial position, business strategy and approach, including related results, prospective products, use and
development of Licensed Products (as defined herein), planned preclinical studies and clinical trials, or discontinuance thereof, the status and results of our
preclinical and clinical studies, including, the potential of our product candidates, if approved, to become best-in-class or first-in-class, expected release of
interim data, expectations regarding our allogeneic chimeric antigen receptor T cell immunotherapy product candidates, expectations regarding the use and
effects of ARCUS, including in connection with in vivo genome editing, collaborations and potential new partnerships or alternative opportunities for our
product candidates, capabilities of our manufacturing facility, potential new application filings and regulatory approvals, research and development costs,
timing, expected results and likelihood of success, plans and objectives of management for future operations, as well as the impact of the COVID-19
pandemic and variants thereof may be forward-looking statements. Without limiting the foregoing, in some cases, you can identify forward-looking
statements by terms such as “aim,” “may,” “will,” “should,” “expect,” “exploring,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,”
“contemplate,” “believe,” “estimate,” “predict,” “potential,” “seeks,” or “continue” or the negative of these terms or other similar expressions, although not
all forward-looking statements contain these words. No forward-looking statement is a guarantee of future results, performance, or achievements, and one
should avoid placing undue reliance on such statements.
Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to us. Such beliefs and
assumptions may or may not prove to be correct. Additionally, such forward-looking statements are subject to a number of known and unknown risks,
uncertainties and assumptions, and actual results may differ materially from those expressed or implied in the forward-looking statements due to various
factors, including, but not limited to, those identified in Part I. Item 1A. “Risk Factors” and Part II. Item 7. “Management’s Discussion and Analysis of
Financial Condition and Results of Operations.” These risks and uncertainties include, but are not limited to:
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our ability to become profitable;
our ability to procure sufficient funding and requirements under our current debt instruments and effects of restrictions thereunder;
risks associated with raising additional capital;
our operating expenses and our ability to predict what those expenses will be;
our limited operating history;
the success of our programs and product candidates in which we expend our resources;
our limited ability or inability to assess the safety and efficacy of our product candidates;
the risk that other genome-editing technologies may provide significant advantages over our ARCUS technology;
our dependence on our ARCUS technology;
the initiation, cost, timing, progress, achievement of milestones and results of research and development activities and preclinical and clinical
studies;
public perception about genome editing technology and its applications;
competition in the genome editing, biopharmaceutical, and biotechnology fields;
our or our collaborators’ ability to identify, develop and commercialize product candidates;
pending and potential product liability lawsuits and penalties against us or our collaborators related to our technology and our product candidates;
the U.S. and foreign regulatory landscape applicable to our and our collaborators’ development of product candidates;
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our or our collaborators’ ability to advance product candidates into, and successfully design, implement and complete, clinical or field trials;
potential manufacturing problems associated with the development or commercialization of any of our product candidates;
our ability to obtain an adequate supply of T cells from qualified donors;
our ability to achieve our anticipated operating efficiencies at our manufacturing facility;
delays or difficulties in our and our collaborators’ ability to enroll patients;
changes in interim “top-line” and initial data that we announce or publish;
if our product candidates do not work as intended or cause undesirable side effects;
risks associated with applicable healthcare, data protection, privacy and security regulations and our compliance therewith;
our ability to obtain orphan drug designation or fast track designation for our product candidates or to realize the expected benefits of these
designations;
our or our collaborators’ ability to obtain and maintain regulatory approval of our product candidates, and any related restrictions, limitations
and/or warnings in the label of an approved product candidate;
the rate and degree of market acceptance of any of our product candidates;
our ability to effectively manage the growth of our operations;
our ability to attract, retain, and motivate executives and personnel;
effects of system failures and security breaches;
insurance expenses and exposure to uninsured liabilities;
effects of tax rules;
effects of the COVID-19 pandemic and variants thereof, or any pandemic, epidemic, or outbreak of an infectious disease;
the success of our existing collaboration agreements and our ability to enter into new collaboration arrangements;
our current and future relationships with and reliance on third parties including suppliers and manufacturers;
our ability to obtain and maintain intellectual property protection for our technology and any of our product candidates;
potential litigation relating to infringement or misappropriation of intellectual property rights;
effects of natural and manmade disasters, public health emergencies and other natural catastrophic events;
effects of sustained inflation, supply chain disruptions and major central bank policy actions;
market and economic conditions; and
risks related to ownership of our common stock, including fluctuations in our stock price.
Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management
to predict all risk factors and uncertainties.
You should read this Annual Report on Form 10-K and the documents that we reference herein completely and with the understanding that our actual future
results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. All forward-
looking statements contained herein speak only as of the date of this Annual Report on Form 10-K. Except as required by applicable law, we do not plan to
publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed
circumstances or otherwise.
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As used in this Annual Report on Form 10-K, unless otherwise stated or the context requires otherwise, references to “Precision,” the “Company,” “we,”
“us,” and “our,” refer to Precision BioSciences, Inc. and its former subsidiaries on a consolidated basis.
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Our business is subject to numerous risks and uncertainties, including those described in Part I. Item 1A. “Risk Factors” in this Annual Report on Form 10-
K. You should carefully consider these risks and uncertainties when investing in our common stock. Some of the principal risks and uncertainties include
the following.
RISK FACTOR SUMMARY
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We have incurred significant operating losses since our inception and expect to continue to incur losses for the foreseeable future. We have not
been profitable and may not achieve or maintain profitability.
We will need substantial additional funding, and if we are unable to raise a sufficient amount of capital when needed on acceptable terms, or at
all, we may be forced to delay, reduce or eliminate some or all of our research programs, product development activities and commercialization
efforts.
We have a limited operating history, which makes it difficult to evaluate our current business and future prospects and may increase the risk of
your investment.
ARCUS is a novel technology, making it difficult to predict the time, cost and potential success of product candidate development. We have not
yet been able to assess the safety and efficacy of most of our product candidates in humans and have only limited safety and efficacy information
in humans to date regarding three of our product candidates.
We are heavily dependent on the successful development and translation of ARCUS, and due to the early stages of our product development
operations, we cannot give any assurance that any product candidates will be successfully developed and commercialized.
Adverse public perception of genome editing may negatively impact the developmental progress or commercial success of products that we
develop alone or with collaborators.
We face significant competition in industries experiencing rapid technological change, and there is a possibility that our competitors may
achieve regulatory approval before us or develop product candidates or treatments that are safer or more effective than ours, which may harm
our financial condition and our ability to successfully market or commercialize any of our product candidates.
Our future profitability, if any, will depend in part on our ability and the ability of our collaborators to commercialize any products that we or
our collaborators may develop in markets throughout the world. Commercialization of products in various markets could subject us to risks and
uncertainties.
Product liability lawsuits against us could cause us to incur substantial liabilities and could limit commercialization of any products that we
develop alone or with collaborators.
The regulatory landscape that will apply to development of therapeutic product candidates by us or our collaborators is rigorous, complex,
uncertain and subject to change, which could result in delays or termination of development of such product candidates or unexpected costs in
obtaining regulatory approvals.
Clinical trials are difficult to design and implement, expensive, time-consuming and involve an uncertain outcome, and the inability to
successfully and timely conduct clinical trials and obtain regulatory approval for our product candidates would substantially harm our business.
Any product candidates that we or our collaborators may develop will be novel and may be complex and difficult to manufacture, and if we
experience manufacturing problems, it could result in delays in development and commercialization of such product candidates or otherwise
harm our business.
Even if we obtain regulatory approval for any products that we develop alone or with collaborators, such products will remain subject to ongoing
regulatory requirements, which may result in significant additional expense.
Even if any product we develop alone or with collaborators receives marketing approval, such product may fail to achieve the degree of market
acceptance by physicians, patients, healthcare payors and others in the medical community necessary for commercial success.
Our future success depends on our key executives, as well as attracting, retaining and motivating qualified personnel.
COVID-19 has impacted, and may continue to impact, our business, and any other pandemic, epidemic or outbreak of an infectious disease may
materially and adversely impact our business, including our preclinical studies and clinical trials.
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Item 1. Business.
PART I
We are a clinical stage gene editing company dedicated to improving life by developing ex vivo allogeneic chimeric antigen receptor ("CAR") T
immunotherapies and in vivo therapies for genetic and infectious diseases with the application of our wholly owned proprietary ARCUS genome editing
platform. The foundation of ARCUS is a natural homing endonuclease which allows us to replicate precise gene editing as it evolved in nature. ARCUS is
designed to be precise in its specificity and versatile in its design for gene knock out as well as complex edits with gene insertion and gene repair. ARCUS
is also unique in its relatively small size which potentially allows delivery to a wider range of cells and tissues using viral and non-viral gene delivery
methods.
Overview of Genome Editing
DNA carries the genetic instructions for all basic functions of a living cell. These instructions are encoded in four different molecules, called bases, which
are strung together in specific sequences to form genes. Each gene is responsible for a specific function in a cell, and the complete set of genes in a cell,
which can consist of tens of thousands of genes and billions of individual bases, is known as a genome. The complete genome sequence has been
determined for many organisms, including humans. This allows scientists to identify specific genes and determine how their unique sequences contribute to
a particular cellular function. Studying variations in gene sequences further informs an understanding of why a cell behaves a certain way, which can
greatly enhance understanding of what causes and how to treat aberrations that leads to disease.
Genome editing is a biotechnology process that removes, inserts or repairs a portion of DNA at a specific location in a cell’s genome. Early applications of
genome editing focused on advancing genetic research. As genome editing technologies have advanced, their application is moving beyond understanding
disease to treating or preventing disease by editing DNA. Genome editing is accomplished by delivering a DNA cutting enzyme, called an endonuclease, to
a targeted segment of genetic code. Once the endonuclease cuts the DNA, the cell has to repair the break to survive and will generally do so in one of two
ways, as shown below.
There are two primary mechanisms of DNA repair, non-homologous end joining (“NHEJ”), and homology directed repair (“HDR”). As shown in the figure
above, NHEJ is a pathway that repairs breaks in DNA without a template. NHEJ is the less precise method of repair that prioritizes speed over accuracy,
making it prone to leaving insertions and/or deletions of DNA bases at the cut site. These insertions or deletions can disrupt the gene sequence and can be
used to inactivate, “knock out”, or alter the function of the gene. Accordingly, genome editing technologies can be used to permanently knock out a gene in
a cell or organism by creating a break in the DNA sequence of that gene.
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As shown in the figure above, HDR is a mechanism of DNA repair whereby the cell uses a second DNA molecule with a sequence similar to that of the cut
DNA molecule to guide the repair process. Since HDR uses a “template” of similar genetic information to guide the repair process, it is the more precise
mechanism of cellular repair. HDR results in the sequence of the template being copied permanently into the genome at the site of the DNA cut. If we
provide a template DNA molecule directly to the edited cell and the cell repairs itself using HDR, a new gene can be inserted or “knocked in” at a precise
location in the genome. Alternatively, the use of HDR can “repair” a DNA mutation by correcting it to the proper functioning sequence when repairing the
break. Thus, genome editing endonucleases can be used to introduce a variety of different changes to the genetic code of a cell or organism including gene
knockout, gene insertion and gene repair. ARCUS cuts with a three prime, or 3', overhang which are unique and designed to enable gene insertion and
complex edits, and provide an identifiable signature for on-target editing.
There are several genome editing technologies, including ARCUS, zinc-finger nucleases (“ZFNs”), TAL-effector nucleases (“TALENs”), CRISPR/Cas9,
and base editors. These technologies differ from one another principally in the properties of the endonuclease that they each employ. The different
endonucleases have fundamentally different mechanisms of recognizing and cutting their DNA targets, which gives each technology advantages and
disadvantages depending on how each is used.
Our ARCUS Genome Editing Platform
We are pioneers in the field of genome editing and have extensive experience with a breadth of genome editing technologies. Our ARCUS platform was
developed to address limitations of other editing technologies that could impair their deployment for therapeutic applications. We looked to nature for
examples of genome editing and found the I-CreI endonuclease from the algae Chlamydomonas reinhardtii. Unlike ZFN, TALEN or CRISPR/Cas9, I-CreI
is a natural enzyme that evolved to edit a large, complex genome. In nature, it is responsible for modifying a specific location in the algae genome by
inserting a gene using the HDR process, according to scientific literature.
We believe that I-CreI has a number of attributes that make it attractive for the development of novel genome editing endonucleases, such as:
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Specificity and efficiency. Complex genome editing applications, especially those involving the human body, require a high level of
endonuclease specificity and precision to limit the likelihood that the endonuclease will recognize and edit any genetic sequence other than its
intended target. Most applications of genome editing technology require that a sufficient portion of the targeted cells are edited to achieve the
desired result. The activity level of the endonuclease is one factor that can affect how many cells are edited. The slow catalytic mechanism of I-
CreI imparts specificity but does not impact its on-target efficiency for genome editing purposes because genome editing involves cutting only a
single site in a cell. As such, I-CreI is able to achieve a high level of precise on-target editing while rarely cutting off-target, as supported by
scientific literature.
Delivery. Size and structural simplicity affect the ease and versatility with which endonucleases can be delivered to cells for editing. I-CreI is
very small relative to other genome editing endonucleases. It is approximately one quarter to one sixth of the size of the ZFN, TALEN and
CRISPR/Cas9 endonucleases. Unlike those endonucleases, I-CreI can be delivered as a single gene. As such, we believe it is compatible with
many different delivery mechanisms. Additionally, I-CreI’s size and structure facilitate the simultaneous delivery of multiple engineered
endonucleases to introduce more than one edit to a cell. Both of these properties significantly broaden the spectrum of potential applications for
I-CreI-based genome editing endonucleases.
Type of Cut. The 3’ overhangs created when I-CreI cuts DNA have been shown to promote DNA repair through HDR. 3’ overhangs are
stretches of unpaired nucleotides in the end of a DNA molecule. A genome editing technology that facilitates cellular repair through HDR
enables versatile applications that require a gene insertion or gene repair. Unlike other editing endonucleases, I-CreI creates four base 3’
overhangs when it cuts its DNA site, which increases the likelihood that the cell will repair the DNA cut through HDR. As such, the DNA cuts
created by I-CreI can be exploited to efficiently insert or repair DNA, consistent with the natural role of I-CreI in catalyzing the targeted insertion
of a gene in algae.
Intellectual Property. I-CreI recognizes its DNA target site through a complex network of interactions that is challenging to re-program for new
editing applications involving different DNA sequences. The challenges associated with re-programming I-CreI have, historically, hampered its
adoption by the genome editing community in favor of more easily engineered endonucleases. This engineering challenge represents a high
barrier to entry and has enabled us to secure a strong intellectual property position and control over what we believe to be a superior genome
editing technology.
Other than the key programming challenge, we believed that the differentiated properties of I-CreI cited above make it an ideal “scaffold” for the
development of novel genome editing tools. Moreover, we believed those properties were differentiated enough from other editing technologies to merit
substantial investment in overcoming the key challenge of programmability. To that end, we invested 17 years of research effort to develop ARCUS, a
robust, proprietary protein engineering method that now enables us to consistently re-program I-CreI to direct it to targeted sites in a genome.
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ARCUS is a collection of protein engineering methods that we developed specifically to re-program the DNA recognition properties of I-CreI, a homing
endonuclease from Chlamydomonas reinhardtii algae evolved for precision genome editing in nature. To apply I-CreI to genome editing in other cells or
organisms, we must modify it to recognize and cut a different DNA sequence for each new application we pursue. Since the I-CreI endonuclease evolved to
recognize its target sequence in the algae genome with a high degree of selectivity, as supported by scientific literature, it was necessary for us to develop
sophisticated protein engineering methods to re-engineer I-CreI endonucleases to bind and cut a different DNA sequence. Using the ARCUS process, we
create customized endonucleases for particular applications. We call these custom endonucleases “ARCUS nucleases.” Our process is proprietary and core
components are claimed in an extensive international patent portfolio. Moreover, since the ARCUS process involves a sophisticated blend of protein
engineering art and science, each ARCUS nuclease we create is novel and, we believe, patentable. As of December 31, 2022, we have obtained U.S. patents
with claims directed to eight ARCUS nucleases as compositions of matter, and currently claim over 350 ARCUS nucleases as compositions of matter in
pending U.S. and foreign patent applications.
Our objective with ARCUS is to redirect I-CreI to a new location in a genome without compromising its editing abilities. To accomplish this, we modify
the parts of the enzyme that, as reported by scientific literature, are involved in recognizing the specific DNA target site. These enzyme parts are also
reported to comprise the I-CreI active site and to be involved in anchoring the enzyme to its DNA site in the algae genome. In our preclinical studies, we
have observed that these modifications allowed us to control how tightly an engineered variant of I-CreI binds to its intended DNA site, as well as how
quickly it cuts, in an animal cell. By adjusting these two parameters, we observed that we can generally control the efficiency with which the engineered
endonuclease cuts its intended target site or any potential off-target sites.
The natural I-CreI target site is pseudo-palindromic, meaning the first half of the sequence is approximately a mirror image of the second half of the
sequence. Palindromic DNA sites are rare in most genomes so it was necessary for us to develop additional technology that would overcome this limitation
on the diversity of DNA sites that we can target. To this end, the ARCUS process involves the production of two re-programmed I-CreI proteins for each
target site. These two different proteins are then linked together into a single protein that can be expressed from a single gene. This approach, called a
“single-chain endonuclease,” represents a major advancement in I-CreI engineering because it enables our ARCUS nucleases to recognize and cut non-
palindromic target sites using an endonuclease that, like natural I-CreI, is very small and easy to deliver to cells.
Since creating an ARCUS nuclease requires such extensive reengineering of I-CreI, it is, generally, an iterative process that involves multiple cycles of
design and testing. We can typically produce a first-generation ARCUS nuclease in seven weeks. First-generation nucleases are suitable for research and
development, proof-of-concept studies or other non-therapeutic applications. For therapeutic applications requiring the lowest possible off-targeting,
however, we are rarely satisfied with generation one and each endonuclease undergoes extensive optimization. To this end, we thoroughly interrogate the
nuclease with respect to its on- and off-target cutting properties using ultra-sensitive tests that we developed specifically for use with ARCUS. These results
then inform our design of a second-generation nuclease with the goal of optimizing on-target efficiency while minimizing off-target cutting. Therapeutic
ARCUS nucleases typically require several cycles of design and testing, often resulting in off-target cutting frequencies that are below the limit of detection
with our most sensitive assays. This process can take six months to one year and results in development of our clinical candidate nuclease.
The ARCUS process is robust and reproducible. It enables us to create engineered variants of the I-CreI endonuclease that recognize and cut DNA sites that
bear little resemblance to I-CreI’s natural target site. Importantly, however, ARCUS retains the attributes of I-CreI that we believe make it highly suitable as
a genome editing endonuclease for complex commercial applications. We expect ARCUS nucleases to be exquisitely specific as a result of the natural
structure of I-CreI and the intricate design process we employ to
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create them. We believe ARCUS nucleases are the smallest and easiest to deliver genome editing endonucleases. Like I-CreI, in our preclinical studies,
ARCUS nucleases have been observed to produce DNA cuts with 3’ overhangs that promote HDR, facilitating gene insertions and gene repairs in addition
to gene knockouts. We believe that these attributes will enable us to translate ARCUS into patient-based clinical trials and a wide array of product
candidates that have the potential to address the limitations of other genome editing technologies and improve life.
Our Strategy
We are dedicated to improving life. Our goal is to broadly translate the potential of genome editing into permanent genetic solutions for significant unmet
medical needs by leveraging the ARCUS gene editing platform in oncology and genetic diseases. Our strategy to achieve this goal includes the following
key elements:
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Create a fully integrated genome editing company capable of delivering solutions that address unmet needs impacting human health. We
believe that to be a leader in the field of genome editing and maximize the impact of our ARCUS genome editing platform, we must be able to
control those elements of our business that may provide us with certain strategic advantages or operational efficiencies. We intend to continue to
invest in comprehensive research, development, manufacturing and commercial capabilities that provide control and oversight of our product
candidates from discovery through commercialization.
Advance a potential first-in-class and a best-in-class, if approved, allogeneic CAR T treatment for hematologic cancer. Currently, there
are no therapeutics approved by the U.S. Food and Drug Administration ("FDA") for lymphoma patients who have relapsed following
autologous CAR T therapy. We believe our lead anti-CD19 allogeneic candidate, azercabtagene zapreleucel ("azer-cel"), has the potential to be a
first-in-class treatment for relapsed or refractory ("R/R") non-Hodgkin lymphoma ("NHL") patients who have relapsed post autologous CAR T
therapy and are actively enrolling additional NHL patients in this relapsed setting for further evaluation. We expect the CAR T relapsed market
for diffuse large B-cell lymphoma ("DLBCL") to grow considerably by 2025, driven by autologous CAR T therapy becoming the second line
standard-of-care. In the auto CAR T relapsed patient population, azer-cel has shown high response rates in our mid-2022 clinical results, with
evidence of durability extending greater than 18 months and high levels of peak CAR T levels. Manufacturing optimization resulted in improved
product attributes supporting the opportunity to reduce lymphodepletion dose in combination with azer-cel, and we received Type C feedback
from the FDA on our chemistry, manufacturing and controls ("CMC") strategies supporting ongoing late-stage development for azer-cel. In
addition, we are continuing to recruit additional patients for PBCAR19B, our CD19-targeting CAR T cell therapy, in the earlier line R/R DLBCL
patients to complete Phase 1.
Unlock the full potential of ARCUS in vivo gene editing platform. We aim to differentiate ARCUS on safety, gene insertion, and complex
edits and are working toward advancing the first ARCUS-based in vivo gene editing programs to the clinic to address serious genetic diseases
and chronic hepatitis B. In our preclinical studies, we observed the high-efficiency and tolerability of in vivo genome editing using ARCUS in a
non-human primate ("NHP") model, as published in Nature Biotechnology in July 2018 and Molecular Therapy in June 2021 by Wang et al.
Over five years later, NHPs in this 2017 study continue to be monitored for ongoing, sustained reduction in LDL cholesterol levels while
maintaining stable gene editing and data from these trials has not shown any obvious adverse effects to date. To our knowledge, we were the first
company to complete this milestone, which we believe to be critical to successful in vivo genome editing therapeutic development.
Continue investing in the optimization of ARCUS and enabling technologies. We believe that a key to our future success is the quality of the
genome editing tools that we produce. Since our founding, we have devoted ourselves to continuously refining the precision and efficiency of our
core genome editing platform. We intend to continue this investment in ARCUS while surrounding it with enabling technologies and expertise to
retain what we believe is a leadership position in the field.
Create an environment that is a destination of choice for premier talent within the life sciences industry. We believe that we currently have
among the strongest skill set within the genome editing industry and credit much of our past success to our commitment to our team and culture.
Our future success will depend on our ability to continue to attract and retain world-class talent within our markets of interest. We intend to
consciously invest in fostering an environment within our company that is both challenging and supportive and inspires our team to broadly
translate genome editing into permanent genetic solutions.
Expand the breadth of our operations through selective premium in vivo gene editing collaborations. We believe that the ARCUS genome
editing platform has broad utility beyond our current areas of focus. We intend unlock additional development opportunities with companies with
additive expertise in areas within and outside of our current target markets to reach more patients and provide capital for advancing our wholly
owned programs.
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In December 2021, we announced our entry into an agreement with a syndicate of investors led by ACCELR8 to separate our then wholly owned
subsidiary, Elo Life Systems, Inc. (“Elo”), to create an independent food and agriculture business (“New Elo”).
Ex vivo Allogeneic CAR T Immunotherapy Platform
Cancer immunotherapy is a type of cancer treatment that uses the body’s immune system to fight the disease. CAR T is a form of immunotherapy in which
a specific type of immune cell, called a “T cell”, is genetically engineered to recognize and kill cancer cells. T cells are a component of the immune system
that can distinguish pathogen-infected or tumor cells from healthy cells and kill them. Recognition of pathogen-infected cells or tumor cells occurs through
a protein called a TCR, that is expressed on the surface of T cells. Tumor cells, however, have evolved numerous ways to evade TCR-mediated killing by T
cells. In CAR T cell therapy, T cells are engineered ex vivo to express a protein called a CAR that recognizes specific tumor cell surface targets and allows
the T cells to function independently of the TCR, thus circumventing tumor cells’ evasion of the TCR.
The only commercial form of CAR T cell therapy is referred to as “autologous” CAR T cell therapy because the CAR T cells are generated using T cells
taken directly from the cancer patient. T cells are harvested from the patient, genetically engineered ex vivo to express a CAR, and then injected back into
the patient. While autologous CAR T cell therapy has been shown to be effective for treating certain tumor types, it has several significant drawbacks. The
therapy is highly personalized, difficult to scale, has an associated high rate of relapse and is expensive. Because of the patient’s illness, their cells may also
not be suitable starting material for manufacturing. Our allogeneic approach uses donor‑derived T cells with a single gene edit using ARCUS that are
designed for safe delivery to patients with certain cancers. We believe that this donor-derived approach will allow us to consistently produce a potent
product by selecting donors with high quality T cells and will lessen the product-to-product variability seen in autologous therapies. We are able to produce
allogeneic CAR T cells at a larger scale in a cost-effective manner and have the potential to overcome the “one patient: one product” burden of autologous
CAR T cell therapies.
Leveraging the unique gene editing capabilities of ARCUS, we have developed a one-step cell engineering process for allogeneic CAR T cells that is
designed to maintain naïve and central memory T cell phenotypes throughout the CAR T manufacturing process, which we believe to be important for an
optimized CAR T therapy. We believe our CAR T cells are the only allogeneic CAR T cells in human clinical trials made with a single gene editing step to
specifically avoid the potentially deleterious effects of making multiple edits to T cells. We are simultaneously conducting a Phase 1b/2a clinical trial
evaluating azer-cel, as a potential first-in-class, if approved, and a Phase 1 clinical trial evaluating PBCAR19B as a potential best-in-class, if approved,
CD19-targeting CAR T cell therapy in adult patients with R/R B-cell malignancies.
In parallel to our development of azer-cel, we are also working towards developing a candidate with an allogeneic CAR T profile that has the potential to
displace CD19 directed autologous CAR T for earlier line NHL patients with unique attributes of ARCUS, which is designed to make complex gene edits
in a single step with a single dose, potentially reducing translocation safety concerns. We have developed a second-generation “stealth cell” CAR T
construct, which we believe has the potential to overcome certain limitations of rejection of allogeneic CAR T cells by the patient’s immune system.
Rejection of allogeneic CAR T cells could limit the efficacy of a CAR T therapy if the cells do not persist long enough in the patient to eradicate the tumor.
PBCAR19B is an anti-CD19 CAR T candidate built on the stealth cell platform utilizing a single-step gene edit in an effort to minimize the risk of
chromosome abnormalities. The stealth cell differs from azer-cel in that it has two additional modifications aimed at avoiding rejection. The stealth cell
technology is a modified CAR T vector that is designed to suppress expression of a gene called β2m, in CAR T cells using a short-hairpin RNA, or shRNA,
and enable expression of a transgenic HLA-E molecule on the cell surface. β2m is a component of the major histocompatibility complex type 1 (“MHC-I”),
a cell surface receptor which enables alloreactive T cell recognition and activation. Suppression of β2m expression leads to reduced cell-surface expression
of major histocompatibility complex components HLA-A, HLA-B, and HLA-C. In preclinical studies, we and others have observed that suppression or
elimination of β2m reduces the rejection of CAR T cells by alloreactive T cells from an unrelated individual. However, we have found that reduction of
cell-surface HLA-A, HLA-B, and HLA-C expression provokes rejection of the CAR T cells by NK cells. Decreased expression of HLA-A, HLA-B, and
HLA-C therefore necessitates an additional modification to enable overexpression of HLA-E, a non-classical MHC-I that inhibits cytotoxic killing by NK
cells by interacting with inhibitory receptors on the NK cell surface (Gornalusse et al, 2017; Lanza et al, 2019). Thus, the “stealth cell” is designed to avoid
rejection by both alloreactive cytotoxic T cells and NK cells, which we believe has the potential to increase the ability of these cells to expand, persist, and
mediate anti-tumor activity in unrelated recipients.
With our decision early in the development of our ex vivo platform to invest in process development, we continue to scale and improve our manufacturing
process and are currently producing allogeneic CAR T cells at scale for clinical trials in accordance with current good manufacturing practice (“cGMP”).
Ex vivo Allogeneic CAR T Immunotherapy Pipeline
Azer-cel. We are conducting our Phase 1b/2a clinical trial of azer-cel in adult patients with R/R NHL. Made from donor-derived T cells modified using our
ARCUS genome editing technology, azer-cel recognizes the well characterized tumor cell surface protein
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CD19, an important and validated target in several B-cell cancers. Azer-cel is designed to avoid graft-versus-host disease, a significant complication
associated with donor-derived, cell-based therapies. In June 2022, we provided an interim clinical update and outlined the opportunity for azer-cel for the
growing CAR T relapsed patient population with aggressive lymphomas. As of the May 31, 2022 data cutoff, positive efficacy results, including high
overall response rate ("ORR") and complete response (“CR”) rates and duration of response, and an improved adverse event profile have been observed
among evaluable CAR T relapsed subjects. This included six subjects who received azer-cel Dose Level (“DL”) 3 of 3 × 106 cells/kg with enhanced
lymphodepletion of fludarabine 30 mg/m2/day × 4 days + cyclophosphamide 1000 mg/m2/day × 3 days (the “ASH Cohort”) and six subjects who received
azer-cel DL4b, a flat dose of 500 × 106 cells, with reduced dose lymphodepletion of fludarabine 30 mg/m2/day × 4 days + cyclophosphamide 750
mg/m2/day × 3 days since January 2022 (the “New Cohort”). Among 11 subjects evaluable for response, the program update reported efficacy results across
both the ASH Cohort and New Cohort, including a 100% (11/11) ORR and 73% (8/11) CR rate. Six subjects were in ongoing response (up to 18+ months).
In the ASH Cohort, 50% (3/6) of evaluable subjects had a response duration greater than six months. Among subjects treated with DL4b and reduced
intensity lymphodepletion in the New Cohort, a 100% CR rate was achieved among evaluable subjects (5/5). One subject was non-evaluable at the Day 28
assessment due to death from suspected fludarabine-associated neurotoxicity on Day 23. The subject had complete resolution of disease according to a CT
scan on Day 21.
No Grade 3 or greater cytokine release syndrome was observed in either dosing cohort. One Grade 3 immune effector cell-associated neurotoxicity
syndrome was recorded in each cohort that rapidly resolved to Grade 1 within 24 to 48 hours. Two Grade 5 events associated with late occurring
encephalopathy suspected to be related to fludarabine-associated neurotoxicity occurred in the New Cohort. There was no evidence of graft versus host
disease in either cohort. Grade 3 or greater infections occurred less frequently in the New Cohort with one out of six (17%) subjects compared to four out of
six (67%) subjects in the ASH Cohort.
A poster presented at the 64th ASH Annual Meeting in December 2022 evaluated the relationship between healthy cell dose and functional attributes of
azer-cel to the efficacy and safety of the product in patients with R/R B-cell lymphoma. This poster showed that post-thaw product composition and healthy
CAR T cell dose were predictive for response to treatment with azer-cel. Based on these findings, we have applied manufacturing optimizations across all
allogeneic CAR T platforms with the goal of improving those product attributes and characteristics that were shown to be able to drive predictability,
reliability, and performance.
In January 2023, we announced we received FDA feedback that we believe signaled alignment with our proposed CMC plan for azer-cel. In 2023, we
intend to progress azer-cel to a decision point for a Phase 2 trial in NHL subjects who have relapsed following autologous CAR T treatment by completing
the Phase 1b cohort to identify a dosing schedule for further study and we plan to seek feedback from the FDA on the azer-cel clinical program once more
data become available.
The FDA has granted azer-cel orphan drug designation for the treatment of acute lymphoblastic leukemia (“ALL”) and Fast Track Designation for
treatment of B-cell precursor acute lymphoblastic leukemia ("B-ALL").
PBCAR19B. As of the June 2022 program update, a flat dose of 270 million cells (DL1) following standard lymphodepletion of fludarabine 30 mg/m2/day
× 3 days + cyclophosphamide 500 mg/m2/day × 3 days has been administered to three subjects with R/R diffuse large B-cell lymphoma. We are continuing
to recruit patients in the PBCAR19B clinical program at DL2 (flat dose of 540 million cells) with the intent to complete the Phase 1 dose escalation in the
earlier line NHL setting in 2023.
We plan to provide a CAR T program update once investigators complete enrollment of the current azer-cel cohort of six CAR T relapsed subjects with
sufficient follow-up to support a meeting with the FDA to discuss clinical plans. Subjects are being treated with optimized azer-cel product at the planned
final dose level (500 million CAR T cells following a lymphodepletion regimen consisting of 3 days of fludarabine and cyclophosphamide). Based on
current enrollment, the update is expected to occur in the April/May 2023 time frame, once appropriate follow-up from the current cohort is available. We
plan to provide additional long term follow up from the azer-cel cohorts presented at ASH 2021 and ASCO 2022, as well as data from subjects in the
current cohort. The CAR T update is also expected to include interim efficacy and safety data from the PBCAR19B Phase 1 trial at Dose Level 2 (540
million CAR T cells following 3 days of fludarabine and cyclophosphamide) with an expectation of durability data to follow this year.
PBCAR269A. PBCAR269A is an investigational allogeneic CAR T cell candidate targeting B-cell maturation antigen (“BCMA”) for R/R multiple
myeloma in combination with nirogacestat, a gamma secretase inhibitor (“GSI”) developed by SpringWorks Therapeutics, Inc. The combination therapy
and increased dose of PBCAR269A resulted in improved cell expansion, which correlated with increased clinical activity when compared to dose-matched
PBCAR269A monotherapy treatment. However, in light of the competitive landscape of BCMA targeted therapies in multiple myeloma, we have made the
strategic decision not to continue the PBCAR269A clinical program. All subjects enrolled in the study and evaluated for treatment with PBCAR269A and
nirogacestat had acceptable tolerability results.
In vivo Gene Editing Platform
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Our goal with our in vivo gene editing programs is to cure genetic diseases by correcting the DNA errors responsible for causing them. Genetic diseases
are caused by errors in the DNA that lead to dysfunction of a cell or tissue. While the underlying cause of a particular genetic disease can often be complex
and variable, DNA errors generally fall into two categories: loss-of-function or gain-of-function. Genetic diseases are most frequently caused by loss-of-
function errors in which a particular gene is mutated at the DNA level in such a way that it is either non-functional or less functional than it should be. In
these cases, treating the disease requires adding the function that the cell or tissue is otherwise lacking. Gain of function genetic disorders are the result of
DNA errors that cause a gene to acquire a new, harmful function that leads to disease. In these cases, it is necessary to remove the unwanted function to
treat the disorder.
In vivo gene editing is complex and involves the delivery of ARCUS nucleases directly into a patient’s cells to treat disease at the level of the underlying
DNA. We expect the development of in vivo therapies for genetic and infectious diseases to be a significant focus of our operations long-term. We believe
these applications are particularly well suited to ARCUS because they require extremely low levels of off-target editing and efficient delivery.
Our ARCUS platform is designed to enable safe, specific and efficient gene editing. Since ARCUS can be delivered via adeno-associated virus (“AAV”) or
lipid nanoparticle ("LNP"), it has potential utility in treating diseases in the liver as well as many genetic diseases that affect tissues beyond the liver. We
believe these unique attributes of ARCUS support its potential differentiation for in vivo use and its potential to treat a broader range of genetic diseases
than other editing technologies.
We have advanced a deep portfolio of diverse programs toward preclinical efficacy and toxicity studies. We have generated a significant large animal
dataset and have observed high-efficiency in vivo genome editing in NHPs in our preclinical studies, as highlighted in our July 2018 publication in Nature
Biotechnology. We believe this is the first peer-reviewed publication of in vivo genome editing data in NHPs. We, along with partners, continue to validate
unique features of the ARCUS platform with regards to safety, on-target editing, gene insertion, complex gene edits, and compatibility with viral and non-
viral delivery.
The strategic prioritization exercise for our in vivo research pipeline, announced in November 2022, is ongoing to assess diseases with highest unmet need
in an increasingly dynamic regulatory and competitive gene editing landscape. We are making trade-offs and further honing our focus on disease areas
where we believe ARCUS, more than any other technology, can have the greatest and most profound impact. The proof-of-concept preclinical data
continues to highlight the unique features of the ARCUS platform supporting prioritization of programs involving complex edits and gene insertion (adding
a functional copy of a gene) as exemplified by our partnered neonatal onset ornithine transcarbamylase ("OTC") deficiency program. While we remain
committed to patients with cardiovascular diseases, we have made the decision to cease pursuit of PBGENE-PCSK9 for familial hypercholesterolemia
("FH") with iECURE as our partner. PBGENE-PCSK9 for FH remains a wholly-owned program, and we are monitoring the regulatory landscape as we
consider FH as well as several potential cardiovascular disease indications in our pipeline prioritization exercise.
In vivo Gene Editing Pipeline
PBGENE-HBV. Our wholly-owned gene editing program for chronic hepatitis B virus ("HBV") applies ARCUS to knock out persistent covalently closed
circular DNA (“cccDNA”) and potentially reduce viral persistence. In October 2022, we reported preclinical data during an oral presentation at the
European Society of Gene & Cell Therapy 29th Congress. This data showed that ARCUS efficiently targeted and degraded HBV cccDNA in HBV-infected
primary human hepatocytes and reduced expression of HBV S-antigen (“HBsAg”) by as much as 95%. Similar levels of HBsAg reduction were observed
in a newly developed mouse model of HBV infection following administration of ARCUS mRNA using LNP delivery. We plan to present additional data at
a scientific conference in 2023 and expect to submit a Clinical Trial Application ("CTA") or Investigational New Drug ("IND") application in 2024 for our
HBV program.
PBGENE-HbE. In June 2022, we announced we entered into an exclusive in vivo gene editing research and development collaboration and license
agreement (the “Novartis Agreement”) with Novartis Pharma AG (“Novartis”). In connection with this partnership we are developing a custom ARCUS
nuclease that will be designed to insert, in vivo, a therapeutic transgene at a “safe harbor” location in the genome as a potential one-time transformative
treatment option for diseases including certain hemoglobinopathies such as sickle cell disease and beta thalassemia. ARCUS will be used to add an
antisickling gene to hematopoietic stem cells ("HSCs"). We believe permanent integration of an antisickling gene into a “safe harbor” locus in HSCs could
prevent the sickle cell phenotype in mature erythrocytes. Under the terms of the Novartis Agreement, we will develop an ARCUS nuclease and conduct in
vitro characterization, with Novartis then assuming responsibility for all subsequent research, development, manufacturing and commercialization
activities.
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PBGENE-DMD, PBGENE-LL2 and PBGENE-LL3. We continue our in vivo gene editing collaboration with Eli Lilly and Company (“Lilly”) in
applying ARCUS nucleases to three initial targets, including Duchenne muscular dystrophy ("DMD") in muscle, a liver directed target and a central
nervous system directed target. ARCUS genome editing has previously been shown to increase expression of a shortened version of dystrophin in cultured
myoblasts from a DMD patient. The approach uses two ARCUS nucleases delivered by a single AAV to simultaneously cut and delete a large segment of
the dystrophin gene that encodes exons 45 through 55 of dystrophin – a region of the gene that accounts for more than 50% of DMD-causing mutations.
iECURE-OTC. In partnership with iECURE, Inc. (“iECURE”), an ARCUS-mediated gene insertion approach is being pursued as a potential treatment for
OTC deficiency by delivery of dual AAV-based vectors carrying an ARCUS nuclease vector (GTP-506A) and therapeutic donor vector (GTP-506D) via a
PCSK9 “safe harbor” site. In October 2022, preclinical data were presented by researchers from the University of Pennsylvania’s Gene Therapy Program in
collaboration with iECURE at the International Conference on Ureagenesis Defects and Allied Conditions 2022 highlighting an ARCUS-based gene
insertion approach for the treatment of OTC deficiency. NHP data demonstrated stable insertion of the therapeutic gene one year post-dosing in newborn
and infant NHPs. In the follow up data, 12-month biopsies continued to demonstrate construct stability, with transduction efficiency up to 28.2% as
measured by in-situ hybridization. These data further demonstrate the preclinical feasibility of using an ARCUS-mediated gene insertion approach. A CTA
and/or IND filing for neonatal onset OTC deficiency is planned for submission in the second half of 2023.
iECURE-OTHER. iECURE uses our PCSK9-directed ARCUS nuclease to develop gene-insertion therapies for other pre-specified rare genetic diseases,
including Phenylketonuria and Citrullinemia Type 1.
PBGENE-PH1. Work on the PBGENE-PH1 program progressed as planned in 2022. We have clinical candidates ready to proceed to the next stage of IND
enabling studies. Based on our new prioritized focus as well as the evolving treatment paradigm for PH1, we have made the choice to look for a partner in
the kidney disease arena for further development of PBGENE-PH1 and will no longer develop the program on our own.
Manufacturing
We believe that we have strong internal scientific process development and manufacturing capabilities, including our MCAT, an in-house cGMP compliant
manufacturing facility supporting our therapeutic product development platforms which we opened in 2019. We believe that having internal manufacturing
capacity and expertise is a competitive advantage that enables enhanced control over process development timelines, costs and intellectual property.
We have leased over 33,800 square feet of space for our MCAT facility at a location approximately seven miles from our headquarters in Durham, North
Carolina. We have four cleanroom production suites for CAR T cell, mRNA and AAV production for process development for our allogeneic CAR T
immunotherapy platform. Our manufacturing facility leverages single-use, disposable, closed-system operations aligned to our technology platforms to
ensure both flexibility and cost effectiveness. The initial scope is creating clinical trial material for certain of our planned clinical trials.
We currently contract with third parties for the manufacturing and testing of materials used in the production of our product candidates. To date, our third-
party manufacturers have met our manufacturing requirements. Supply chain constraints affecting the industry have also impacted MCAT. Lead times for
certain single-use components have been extended but have not materially constrained our ability to produce clinical trial materials to date. In addition to
existing supply agreements for our most critical reagents and supplies, we believe that there are alternate sources of supply that can satisfy our requirements
and dual sourcing strategies are being employed in select instances to mitigate risk. However, continued global impacts from the COVID-19 pandemic, and
other global macroeconomic conditions such as the current inflationary environment, have led to longer timelines and greater costs.
The manufacturing process for our allogeneic CAR T immunotherapy platform utilizes a one-step cell engineering method in which a CAR gene is targeted
directly into the TRAC locus. We believe this single step approach not only minimizes translocation safety concerns, but also greatly streamlines the
manufacturing process and have entered into a license agreement with a principal supplier for research and clinical licensed technology used in such
process. Commercial raw materials and reagents for this production are readily available. Our manufacturing strategy for our in vivo gene editing platform
is to internally control process development and manufacturing to safeguard the proprietary nature of our technology and facilitate our ability to function as
an integrated life sciences company.
Our Team
We believe that our team, whom we call Precisioneers, has among the strongest scientific experience and capabilities of all genome editing companies. Our
senior leaders bring extensive experience leading organizations focused on cell and gene therapies with a particular focus on oncology drugs, including
CAR T cell therapies for hematologic malignancies, with several who have been working with genome editing technology for approximately 20 years.
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We have recruited our team of Precisioneers to include individuals with extensive industry experience and expertise in the discovery, development and
manufacture of cell and gene therapies. As of December 31, 2022, our team of Precisioneers included 40 full-time employees with Ph.D. or M.D. degrees.
License and Collaboration Agreements
Novartis Pharma AG
On June 14, 2022, we entered into the Novartis Agreement, which became effective on June 15, 2022 (the “Novartis Effective Date”), to collaborate to
discover and develop in vivo gene editing products incorporating our custom ARCUS nucleases for the purpose of seeking to research and develop potential
treatments for certain diseases (as defined in the Novartis Agreement, the “Licensed Products”). Any initial Licensed Products will be developed for the
potential treatment of certain hemoglobinopathies, including sickle cell disease and beta thalassemia.
Pursuant to the terms of the Novartis Agreement, we will develop an ARCUS nuclease and conduct in vitro characterization for the Licensed Products, with
Novartis then assuming responsibility for all subsequent development, manufacturing and commercialization activities. Novartis will receive an exclusive
license for, and be required to use commercially reasonable efforts to conduct all subsequent research, development, manufacture and commercialization
activities with respect to the Licensed Products. We will initially develop a single, custom ARCUS nuclease for a defined “safe harbor” target site for
insertion of specified therapeutic payloads in the patient’s genome (the “Initial Nuclease”) for Novartis to further develop as a potential in vivo treatment
option for certain hemoglobinopathies, including sickle cell disease and beta thalassemia. Pursuant to the terms of the Novartis Agreement, Novartis may
elect, subject to payment of a fee to us, to replace Licensed Products based on the Initial Nuclease with Licensed Products based on a second custom
ARCUS nuclease we design for gene editing of a specified human gene target associated with hemoglobinopathies (the “Replacement Nuclease”).
Additionally, Novartis has the option, upon payment of a fee to us for each exercise of the option, to include Licensed Products utilizing the Initial Nuclease
for insertion of up to three additional specified therapeutic payloads at the “safe harbor” target site, each intended to treat a particular genetic disease. The
exercise period for such option ends on the earlier of (a) the fourth anniversary of the Novartis Effective Date and (b) the replacement of the Initial
Nuclease with the Replacement Nuclease as described above.
In July 2022, we received a $50.0 million upfront cash payment under the Novartis Agreement. Additionally, on the Novartis Effective Date, Novartis made
an equity investment in our common stock pursuant to a stock purchase agreement (the “Novartis Stock Purchase Agreement”) pursuant to which, on the
Novartis Effective Date, we issued and sold to Novartis 12,407,440 shares of our common stock (the “Novartis Shares”) in a private placement transaction
for an aggregate purchase price of $25.0 million, or approximately $2.01 per share. The price per share of our common stock under the Novartis Stock
Purchase Agreement represented a 20% premium over the volume-weighted-average-price of our common stock over the 10 trading days preceding the
execution date of the Novartis Stock Purchase Agreement.
We will also be eligible to receive milestone payments of up to an aggregate of approximately $1.4 billion as well as certain research funding. If Licensed
Products resulting from the collaboration are approved and sold, we will also be entitled to receive tiered royalties ranging from the mid-single digit to low-
double digit percentages on net sales of Licensed Products, subject to customary potential reductions.
Eli Lilly and Company
In January 2021, we closed a development and license agreement, subsequently amended by the First Amendment to the Development and License
Agreement dated August 9, 2021 (as amended, the “Lilly Agreement”) with Lilly to utilize ARCUS for the research and development of potential in vivo
therapies for genetic disorders. Lilly has initially nominated DMD, a liver-directed target and a central nervous system directed target, and has the right to
nominate up to three additional gene targets for genetic disorders over the initial nomination period of four years (the "Nomination Period"). Lilly may
extend the Nomination Period for an additional two years from the date on which the Nomination Period ends, upon Lilly’s election and payment of an
extension fee. Under the terms of the Lilly Agreement, Lilly received an exclusive license to research, develop, manufacture and commercialize the
resulting licensed products to diagnose, prevent and treat any and all diseases by in vivo gene editing directed against the applicable gene target. The
Development and License Agreement provides that we will be responsible for conducting certain pre-clinical research and IND-enabling activities with
respect to the gene targets nominated by Lilly to be subject to the collaboration, including manufacture of initial clinical trial material for the first licensed
product. Lilly will be responsible for, and must use commercially reasonable efforts with respect to, conducting clinical development and
commercialization activities for licensed products resulting from the collaboration, and may engage us for additional clinical and/or initial commercial
manufacture of licensed products.
In connection with the closing, we received an upfront cash payment of $100.0 million as well as $35.0 million from Lilly’s purchase of 3,762,190 newly
issued shares of our common stock pursuant to a stock purchase agreement (the “Lilly Share Purchase
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Agreement”). We will also be eligible to receive milestone payments of up to an aggregate of $420.0 million per licensed product as well as nomination
fees for additional targets and certain research funding. If licensed products resulting from the collaboration are approved and sold, we will also be entitled
to receive tiered royalties ranging from the mid-single digit percentages to the low-teens percentages on world-wide net sales of the licensed products,
subject to customary potential reductions.
iECURE
In August 2021, we entered into a development and license agreement with iECURE under which iECURE was to advance our PBGENE-PCSK9 candidate
through preclinical activities as well as a Phase 1 clinical trial as partial consideration for a license to our PCSK9-directed ARCUS nuclease to develop
gene-insertion therapies for four other rare genetic diseases, including OTC deficiency, Citrullinemia Type 1, PKU, and another program focused on liver
disease (the “iECURE Agreement”). We have made the decision to cease pursuit of PBGENE-PCSK9 for FH with iECURE as our partner. PGENE-PCSK9
for FH remains wholly-owned by us.
Simultaneously with the entry into the iECURE Agreement, we entered into an Equity Issuance Agreement with iECURE, pursuant to which iECURE
issued us common stock in iECURE as additional consideration for the license to use our PCSK9-directed ARCUS nuclease.
Servier
In February 2016, we entered into the Servier Agreement with Servier, pursuant to which we agreed to develop allogeneic CAR T cell therapies for five
unique antigen targets. One target was selected at the Servier Agreement’s inception. Two additional hematological cancer targets beyond CD19 and two
new solid tumor targets were selected in 2020. With the addition of these new targets, we received development milestone payments in 2020. Upon
selection of an antigen target under the Servier Agreement, we agreed to perform early-stage research and development on individual T cell modifications
for the selected target, develop the resulting therapeutic product candidates through Phase 1 clinical trials and prepare initial clinical trial material of such
product candidates for use in Phase 2 clinical trials.
On April 9, 2021, we entered into the Program Purchase Agreement with Servier, pursuant to which we reacquired all of our global development and
commercialization rights previously granted to Servier pursuant to the Servier Agreement, and mutually terminated the Servier Agreement.
Pursuant to the Servier Agreement, we had developed certain allogeneic CAR T candidates, including azer-cel and the stealth cell PBCAR19B, each
targeting CD19, as well as four additional product targets (“Servier Targets”). Pursuant to the Program Purchase Agreement, we regained full global rights
to research, develop, manufacture and commercialize products resulting from such programs, with sole control over all activities. Additionally, per the
terms of the Program Purchase Agreement we do not have an obligation to continue development of the Servier Targets. With respect to products directed
to CD19, Servier has certain rights of negotiation, which may be exercised during a specified time period if we elect to initiate a process or entertain third
party offers for partnering such products.
Pursuant to the terms of the Program Purchase Agreement, we made a payment of $1.25 million in cash to Servier and agreed to waive earned milestones
totaling $18.75 million that would have been otherwise payable to us.
The Program Purchase Agreement also requires us to make certain payments to Servier based on the achievement of regulatory and commercial milestones
for each product, and a low- to mid-single-digit percentage royalty (subject to certain reductions) based on net sales of approved products, if any, resulting
from any continued development and commercialization of the programs by us, for a period not to exceed ten years after first commercial sale of the
applicable product in the United States or certain countries in Europe. If we enter into specified product partnering transactions, the Program Purchase
Agreement requires us to pay to Servier a portion of certain consideration received pursuant to such product partnering transactions in lieu of the foregoing
milestones (with the exception of a one-time clinical phase development milestone) and royalties. For additional discussion of accounting for payment
obligations arising from the Program Purchase Agreement, refer to Note 6, Commitments and Contingencies to our consolidated financial statements
included elsewhere in this Annual Report on Form 10-K (the "Financial Statements")
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Duke University
In April 2006, we entered into the Duke License, pursuant to which Duke University (“Duke”) granted us an exclusive (subject to certain non-commercial
rights reserved by Duke), sublicensable, worldwide license under certain patents related to certain meganucleases and methods of making such
meganucleases owned by Duke to develop, manufacture, use and commercialize products and processes that are covered by such patents, in all fields and in
all applications. The patents that we license pursuant to the Duke License have been generated through the use of U.S. government funding and are
therefore subject to certain federal regulations. See Part I. Item 1A. “Risk Factors— Risks Related to Intellectual Property— Some of our in-licensed
intellectual property has been discovered through government funded research and thus may be subject to federal regulations such as “march-in” rights,
certain reporting requirements and a preference for U.S.-based companies, and compliance with such regulations may limit our exclusive rights and our
ability to contract with foreign manufacturers.”
Under the Duke License, in addition to upfront licensing fees, we are also required to pay Duke (1) a total of $0.3 million in milestone payments, a portion
of which we paid upon the completion of our Series A financing, a further portion of which we paid upon our first signed partnership in excess of $1
million, and the remainder of which we will be required to pay upon successful commercialization of human therapeutics, (2) royalties in the low single
digit percentages on net sales of licensed products and licensed processes sold by us and our affiliates, subject to certain reductions in certain
circumstances, with certain annual minimum royalties, and (3) certain percentages of sublicensing revenue received under sublicenses granted to third
parties, which are creditable against annual minimum royalties and are subject to certain reductions in certain circumstances. For sublicenses of non-
commercial products, the percentage of sublicensing revenue payable to Duke is in the mid-teen percentages for sublicense revenues owed from royalties
received and low double-digits for sublicense revenues owed from non-royalty payments. For sublicenses of commercial products created by us and
derivatives thereof, the percentage is determined by the highest negotiated royalty rate in such sublicense. If the highest negotiated royalty rate between us
and our sublicensee exceeds a mid-single digit percentage, the percentage of sublicensing revenue payable to Duke will be high single digit, decreasing to
low single digit as the highest negotiated royalty rate in such sublicense increases.
The Duke License will expire upon the expiration of the last-to-expire patent that is licensed to us. We may terminate the Duke License by providing
advance written notice as specified in the Duke License. Either party may terminate the Duke License in the event of the other party’s uncured material
breach or for the other party’s fraud, willful misconduct or illegal conduct with respect to the subject matter of the Duke License.
Tiziana
In September 2021, we entered into an exclusive license agreement to evaluate Tiziana’s foralumab, a fully human anti-CD3 monoclonal antibody, as a
lymphodepleting agent in conjunction with our allogeneic CAR T cells for the potential treatment of cancers. We plan to assess foralumab use in
combination with an allogeneic CAR T.
SpringWorks Therapeutics
In September 2020, we entered into a Clinical Trial Collaboration Agreement with SpringWorks Therapeutics, Inc. Pursuant to such agreement,
PBCAR269A was evaluated in combination with nirogacestat, SpringWorks’ investigational GSI, in patients with R/R multiple myeloma. Under the terms
of the agreement, we were responsible for all costs associated with the conduct of the clinical trial including providing PBCAR269A for use in the trial, and
SpringWorks was responsible for providing nirogacestat at its sole cost and expense. The combination therapy and increased dose of PBCAR269A resulted
in improved cell expansion, which correlated with increased clinical activity when compared to dose-matched PBCAR269A monotherapy treatment.
However, in light of the competitive landscape of BCMA targeted therapies in multiple myeloma, we have made the strategic decision not to continue the
PBCAR269A clinical program.
Trustees of the University of Pennsylvania
In January 2018, we entered into a research, collaboration and license agreement with the Trustees of the University of Pennsylvania (“Penn”) to
collaborate on the preclinical development for gene editing products involving the delivery of an ARCUS nuclease. In April 2020, both parties agreed to
coordinate a wind-down of all activities in their entirety under the agreement, effective as of June 2020, however, in August 2020 and subsequently in
January 2021, both parties agreed to extend certain portions of the agreement through 2024. We will not be required to make termination payments to Penn.
Cellectis S.A.
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In January 2014, we entered into a cross-license agreement with Cellectis S.A., which we refer to as the Cellectis License, in connection with a settlement
of litigation matters (1) between Cellectis and us and (2) among Cellectis, Duke and us. Cellectis granted us a non-exclusive, sublicensable, worldwide,
fully paid, royalty-free license to certain modified I‑CreI homing endonuclease patents and Cellectis patents asserted in the litigation, to make, use and
commercialize modified I-CreI homing nucleases and products developed using such nucleases, in all fields. The license we received from Cellectis is
subject to the rights of a preexisting license agreement that Cellectis entered into with a third party, and the license granted to us excludes any rights
exclusively granted by Cellectis under such preexisting license, which preexisting license is limited to certain specific applications unrelated to the fields of
human therapeutics, for so long as the rights under the preexisting license remain exclusive.
We granted Cellectis a non-exclusive, sublicensable, worldwide, fully paid-up, royalty-free license to certain modified I CreI homing endonuclease patents
and our patents asserted in the litigation matters (1) between Cellectis and us and (2) among Cellectis, Duke and us to make, use and commercialize
modified I-CreI homing nucleases and products developing using such nucleases, in all fields except those for which we did not receive rights from
Cellectis due to the preexisting license.
The Cellectis License will expire upon the expiration of the last-to-expire valid claim of all of the patents licensed to or from each of the parties to the
agreement. Either party may terminate any of the licenses granted under the agreement (1) in the event of the other party’s material breach, subject to an
opportunity to cure within the time period specified in the Cellectis License, or (2) if the other party directly or indirectly challenges a patent licensed to it
by the other party.
Competition
As a diversified life sciences company, we compete in multiple different fields. The biotechnology and pharmaceutical industries are characterized by
rapidly advancing technologies, intense competition and a strong emphasis on intellectual property and proprietary products. We principally compete with
others developing and utilizing genome editing technology in the human health sector, including companies such as Allogene Therapeutics, Inc., Alnylam
Pharmaceuticals, Inc., Beam Therapeutics, Inc., Bristol-Myers Squibb Company, Caribou Biosciences, Inc., Cellectis S.A., CRISPR Therapeutics, AG,
Editas Medicine, Inc., Intellia Therapeutics, Inc., Moderna, Inc., Prime Medicine, Inc., and Verve Therapeutics, Inc.
We compete with many biotechnology and pharmaceutical companies, academic research institutions, governmental agencies and public and private
research institutions. We expect that our operations focused on CAR T cell product candidate development and commercialization will face substantial
competition from those focusing on immunotherapy solutions. Several companies, including Novartis Pharmaceuticals Corp. Gilead Sciences, Inc., and
Bristol-Myers Squibb Company have obtained FDA approval for autologous immunotherapies, and a number of companies, including Cellectis S.A.,
Allogene Therapeutics, Poseida Therapeutics and CRISPR Therapeutics AG, are pursuing allogeneic immunotherapies. We expect that our operations
focused on developing products for in vivo treatment of genetic disease will face substantial competition from others focusing on gene therapy treatments,
especially those that may focus on conditions that our product candidates target. Moreover, any human therapeutics products that we may develop will
compete with existing standards of care for the diseases and conditions that our product candidates target and other types of treatments, such as small
molecule, antibody or protein therapies.
Many of our current or potential competitors in the therapeutics space, either alone or with their collaboration partners, have significantly greater financial
resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials and marketing approved products than we
do. In addition to competing on the bases of safety, efficacy, timing of development and commercialization, convenience, cost, availability of
reimbursement and rate of adoption of potential product candidates, we may also compete with these competitors in recruiting and retaining qualified
personnel, establishing clinical sites, establishing relationships with collaborators or other third parties, registering patients for clinical trials and acquiring
technologies complementary to, or necessary for, our product development platforms. Our commercial opportunity could be reduced or eliminated if our
competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less
expensive than any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than
we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market.
Furthermore, we rely upon a combination of patents and trade secret protection, as well as license and confidentiality agreements to protect the intellectual
property related to our proprietary technologies, product candidate development programs and product candidates. Our success depends in large part on our
ability to secure and maintain patent protection in the United States and other countries with respect to the ARCUS nucleases used in our existing
allogeneic CAR T immunotherapy and in vivo gene editing programs, as well as any future product candidates. Moreover, the industries in which we
operate are characterized by the existence of large numbers of patents and frequent allegations of patent infringement. If, therefore, we are unable to obtain
and maintain patent protection for our technology and product candidates, or if the scope of the patent protection obtained or in-licensed is not sufficiently
broad or if the validity of such patent protection is threatened, we may not be able to compete effectively, as it could create opportunities for competitors to
enter the market or dissuade other companies from collaborating with us to develop products and
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technology, any of which would hurt our competitive position and could impair our ability to successfully commercialize our product candidates in any
indication for which they are approved.
Intellectual property
Our success depends in part on our abilities to (1) obtain and maintain proprietary protection for ARCUS, (2) defend and enforce our intellectual property
rights, in particular, our patent rights, (3) preserve the confidentiality of our know-how and trade secrets, and (4) operate without infringing valid and
enforceable intellectual property rights of others. We seek to protect our proprietary position by, among other things, exclusively licensing U.S. and certain
foreign patent applications, and filing U.S. and certain foreign patent applications related to ARCUS, existing and planned programs, and improvements
that are important to the development of our business. We also rely on trademarks, trade secrets, know-how, continuing technological innovation and
confidential information, and the pursuit of licensing opportunities, to develop and maintain our proprietary position and protect aspects of our business that
are not amenable to, or that we do not consider appropriate for, patent protection. We seek to protect our proprietary technology and processes, in part, by
confidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors, contractors and others who may have
access to proprietary information, under which they are bound to assign to us inventions made during the term of their employment or term of service. We
also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and
electronic security of our information technology systems.
We cannot be sure that patents will be granted with respect to any patent applications we have licensed or filed or may license or file in the future, and we
cannot be sure that any patents we have licensed or which have been granted to us, or patents that may be licensed or granted to us in the future, will not be
challenged, invalidated or circumvented or that such patents will be commercially useful in protecting our technology. Moreover, trade secrets can be
difficult to protect. While we have confidence in the measures we take to protect and preserve our trade secrets, such measures can be breached, and we
may not have adequate remedies for any such breach. In addition, our trade secrets may otherwise become known or be independently discovered by
competitors. For more information regarding the risks related to our intellectual property, see Part I. Item 1A. “Risk Factors—Risks Related to Intellectual
Property.”
Our patent portfolio consists of a combination of issued patents and pending patent applications that are owned by us or licensed by us from third parties.
As of December 31, 2022, we have an exclusive license from Duke under 12 issued U.S. patents and two pending U.S. patent applications. In addition, as
of December 31, 2022, we own 37 issued U.S. patents, 38 pending non-provisional U.S. patent applications, and 19 pending Patent Cooperation Treaty
(“PCT”) international patent applications. We also exclusively license from Duke or own many corresponding patents and patent applications outside the
United States, as described below. We intend to pursue, when possible, additional patent protection, including composition of matter, method of use and
process claims, related to ARCUS. We also intend to obtain rights to existing delivery technologies through one or more licenses from third parties.
ARCUS Platform Patent Families
We license one patent family from Duke and own three patent families that are directed to the core technologies employed in our ARCUS platform for
nuclease design. Thus, each of our product candidates is protected by one or more patents in these families.
The first family, licensed from Duke, includes 12 issued U.S. patents, nine issued European patents, three issued Japanese patents, and one issued patent in
each of Australia and Canada. This family also includes pending patent applications in each of the United States, Europe, Canada, and two pending patent
applications in Japan. Patents in this family include claims directed to (1) recombinant meganucleases having altered cleavage specificity, altered
heterodimer formation, and/or altered DNA binding affinity, (2) methods for cleaving target recognition sites in DNA using such meganucleases, and (3)
methods for producing genetically modified eukaryotic cells using such meganucleases. Patents in this family will have a standard expiration date of
October 18, 2026, subject to potential extensions.
The second family, which we own, includes four issued U.S. patents, three issued patents in Europe, two issued patents in Japan, and one issued patent in
Australia. This family also includes pending patent applications in each of the United States, Europe, Australia, and two pending applications in Japan.
Patents in this family include claims directed to (1) recombinant single-chain meganucleases, and (2) methods for producing isolated genetically modified
eukaryotic cells using such meganucleases. Patents in this family will have a standard expiration date of October 31, 2028, subject to potential extensions.
The third family, which we own, includes three issued patents in the United States, and two issued patents in each of Europe and Australia. This family also
includes pending patent applications in each of the United States and Europe. Patents in this family include claims directed to methods of cleaving DNA at
specific four base pair sites using a recombinant meganuclease. Patents in this family will have a standard expiration date of July 14, 2029, subject to
potential extensions.
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The fourth family, which we own, includes pending patent applications in each of the United States, Europe, Hong Kong, Australia, Canada, China, Israel,
Japan, South Korea, and Mexico. Patent applications in this family include claims directed to recombinant meganucleases engineered to cleave recognition
sequences having specific four base pair sites. Patents in this family, if issued, will have a standard expiration date of May 7, 2040, subject to potential
extensions.
Immunotherapy Patent Families
We own 22 patent families that are directed to immunotherapy, including CAR T cell therapies. Some of these are applicable to immunotherapies and/or
CAR T cells directed to killing a variety of different types of infected or cancerous cells. Others are directed to specific indications in which cells
expressing particular antigens are targeted, or methods of manufacturing immunotherapies. Each of our immunotherapy product candidates is protected by
one or more patents in these families.
The first family includes ten issued U.S. patents, two issued patents in each of Europe and Israel, one issued patent in each of Australia, Hong Kong, and
Japan, pending patent applications in each of Europe, Australia, Canada, China, Hong Kong, Mexico, and South Korea, and two pending patent
applications in each of the United States, Japan, and Israel. Patents in this family include claims directed to (1) populations of genetically modified human
T cells in which 20%-65% of the cells have reduced expression of an endogenous TCR and express an anti-cancer antigen CAR from DNA inserted into
the cells’ TCR alpha constant region (TRAC) gene, (2) methods for using such populations of genetically modified human T cells for cancer
immunotherapy, (3) pharmaceutical compositions comprising such populations of genetically modified human T cells, (4) genetically modified human T
cells which have reduced expression of an endogenous TCR and express an anti-cancer antigen CAR from DNA inserted into the cells’ TRAC gene, (5)
methods for using such genetically modified human T cells for cancer immunotherapy, and (6) pharmaceutical compositions comprising such genetically
modified human T cells. Patents in this family will have a standard expiration date of October 5, 2036, subject to potential extensions.
The second family includes two issued patents in each of the United States and Europe, one issued patent in Australia, Hong Kong, and Japan, and pending
patent applications in each of the United States, Europe, Australia, Canada, and Japan. Patent applications in this family include claims directed to (1) first-
generation recombinant meganucleases that cleave a target in the TRAC gene, (2) nucleic acids and vectors encoding such recombinant meganucleases, (3)
methods for producing genetically modified eukaryotic cells, including CAR T cells, using such meganucleases, and (4) methods of using such genetically
modified eukaryotic cells for cancer immunotherapy. Patents in this family will have a standard expiration date of October 5, 2036, subject to potential
extensions.
The third family includes pending patent applications in each of the United States, Europe, Australia, Canada, China, Hong Kong, Israel, Japan, Mexico,
and South Korea. Patent applications in this family include claims directed to (1) second-generation engineered meganucleases that cleave a specific target
in the TRAC gene, (2) nucleic acids and vectors encoding such recombinant meganucleases, (3) methods for producing genetically modified eukaryotic
cells, including CAR T cells, using such meganucleases, (4) genetically modified eukaryotic cells or populations of cells prepared by such methods, (5)
pharmaceutical compositions comprising such cells or populations of cells, and (6) methods of treating diseases using such cells, populations of cells or
pharmaceutical compositions to treat diseases, including cancer immunotherapy. Patents in this family, if issued, will have a standard expiration date of
April 11, 2039, subject to potential extensions.
The fourth family includes two issued patents in each of the United States and Europe, one issued patent in each of Australia, Hong Kong, and Japan,
pending patent applications in each of the United States, Europe, Australia, Canada, and Hong Kong, and two pending patent applications in Japan. Patent
applications in this family include claims directed to (1) nucleic acids encoding co-stimulatory domains having certain amino acid sequences, (2)
recombinant DNA constructs and vectors comprising such nucleic acids, (3) nucleic acids and vectors encoding such recombinant meganucleases, (4)
genetically modified cells comprising such nucleic acids, (5) methods for producing such genetically modified cells, (6) pharmaceutical compositions
comprising such cells, and (7) methods of immunotherapy using such cells. Patents in this family will have a standard expiration date of October 4, 2037,
subject to potential extensions.
The fifth family includes one pending patent application in the United States. The patent application in this family includes claims directed to (1) methods
of reducing cytotoxicity associated with DNA transfection in primary eukaryotic cells, (2) methods for increasing the number of gene-edited primary
eukaryotic cells following DNA transfection, (3) methods for increasing gene editing frequency in primary eukaryotic cells following DNA transfection,
(4) methods for increasing the number of primary eukaryotic cells comprising targeted insertion of an exogenous sequence of interest into the genome
following DNA transfection, (5) methods for increasing insertion frequency of an exogenous sequence of interest into the genome in primary eukaryotic
cells following DNA transfection, (6) methods for high throughput screening of primary human T cells expressing a CAR or exogenous TCR, (7) methods
for high throughput screening of primary human T cells expressing a CAR or exogenous TCR, and (8) genetically modified primary eukaryotic cells
produced by such methods. Patents in this family, if issued, will have a standard expiration date of April 30, 2038, subject to potential extensions.
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The sixth family includes one issued patent in each of Europe and Japan, pending patent applications in each of the United States, Europe, Australia, and
Canada, and two pending patent applications in Japan. Patent applications in this family include claims directed to (1) recombinant meganucleases that
recognize and cleave a recognition sequence within the human β2m gene, (2) nucleic acids and vectors encoding such recombinant meganucleases, (3)
methods for producing genetically modified eukaryotic cells, including CAR T cells, using such meganucleases, (4) populations of genetically modified
eukaryotic cells in which 80% of the cells have reduced expression of an endogenous TCR and 80% of the cells have reduced expression of β2m, (5)
pharmaceutical compositions comprising such populations of genetically modified eukaryotic cells, and (6) methods for using such genetically modified
eukaryotic cells for cancer immunotherapy. Patents in this family will have a standard expiration date of December 22, 2036, subject to potential
extensions.
The seventh family includes one issued patent in each of the United States and Japan, and pending patent applications in each of the United States, Europe,
Australia, Canada, Hong Kong, and Japan. Patent applications in this family include claims directed to (1) nucleic acids encoding an engineered antigen
receptor (e.g., a CAR) and an inhibitory molecule (e.g., an RNA interfering with β2m expression), (2) genetically modified eukaryotic cells comprising
such nucleic acids, (3) methods for producing such genetically modified eukaryotic cells using such nucleic acids and an engineered nuclease that promotes
insertion of such nucleic acids, (4) genetically modified eukaryotic cells expressing an engineered antigen receptor and having expression of β2m or MHC
Class I molecules reduced by 10%-95%, (5) pharmaceutical compositions comprising such genetically modified eukaryotic cells, and (6) methods for using
such genetically modified eukaryotic cells for immunotherapy. Patents in this family will have a standard expiration date of May 8, 2038, subject to
potential extensions.
The eighth family includes one issued patent in the United States, pending patent applications in each of the United States, Europe, Australia, Canada, and
Hong Kong, and two pending patent applications in Japan. Patent applications in this family include claims directed to (1) engineered meganucleases that
recognize and cleave a recognition sequence in an upstream intron of the human TRAC gene, (2) nucleic acids and vectors encoding such engineered
meganucleases, (3) methods for producing genetically modified T cells using such nucleic acids or vectors, (4) genetically modified T cells in which an
exogenous sequence is inserted into an upstream intron of the human TRAC gene and endogenous TCR expression is reduced, (5) populations of such
genetically modified T cells, (6) pharmaceutical compositions comprising such genetically modified T cells, and (7) methods of treating disease using such
genetically modified T cells and pharmaceutical compositions, including cancer immunotherapy. Patents in this family will have a standard expiration date
of June 27, 2038, subject to potential extensions.
The ninth family includes pending patent applications in the United States and Europe. Patent applications in this family include claims directed to (1)
nucleic acids and vectors encoding certain modified human epidermal growth factor receptor, or EGFRs, (2) genetically modified cells and populations of
cells, including T cells and CAR T cells, expressing such modified EGFRs, (3) methods for producing such genetically modified cells using such nucleic
acids or vectors encoding such modified EGFRs, (4) pharmaceutical compositions comprising such genetically modified cells, (5) methods for isolating
such genetically modified cells, (6) methods of treating disease using such genetically modified cells and pharmaceutical compositions, including cancer
immunotherapy, and (7) methods of depleting such genetically modified cells in a subject using anti-modified EGFR antibodies. Patents in this family, if
issued, will have a standard expiration date of October 3, 2038, subject to potential extensions.
The tenth family includes pending patent applications in each of the United States, Europe, and Canada. Patent applications in this family include claims
directed to (1) methods for preparing genetically-modified immune cells, (2) populations of genetically-modified immune cells, (3) pharmaceutical
compositions comprising such populations of genetically-modified immune cells, (4) methods of treating a disease using such populations of genetically-
modified immune cells, (5) lipid nanoparticle compositions, and (6) kits for transfecting a eukaryotic cell with mRNA. Patents in this family, if issued, will
have a standard expiration date of April 3, 2040, subject to potential extensions.
The eleventh family includes four issued patents in the United States, one issued patent in China, pending patent applications in each of the United States,
Europe, Australia, Canada, China, Hong Kong, Japan, Mexico, and South Korea, and two pending patent applications in Israel. Patent applications in this
family include claims directed to (1) a genetically-modified immune cell comprising in its genome a nucleic acid sequence encoding a microRNA-adapted
shRNA, (2) a method for reducing the expression of an endogenous protein in an immune cell, (3) immune cells made by such methods, (4) populations of
such immune cells, (5) pharmaceutical compositions comprising such populations of immune cells, and (6) methods of immunotherapy for treating a
disease in a subject. Patents in this family will have a standard expiration date of April 3, 2040, subject to potential extensions.
The twelfth family includes pending patent applications in each of the United States, Europe, Australia, Canada, Japan, and Hong Kong. Patent
applications in this family include claims directed to methods of immunotherapy comprising administering to a subject a CD3 antibody, or antigen binding
fragment thereof, that binds CD3 for the purpose of lymphodepletion, in combination with the administration of genetically-modified T cells that do not
have detectable CD3 expression on the cell surface. Patents in this family, if issued, will have a standard expiration date of August 20, 2040, subject to
potential extensions.
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The thirteenth family includes a pending patent application in the United States. Patent applications in this family include claims directed to (1)
polynucleotides encoding a CD20-specific chimeric antigen receptor, (2) methods of producing a genetically-modified T cell comprising such
polynucleotides, (3) a genetically-modified T cell comprising such polynucleotides, (4) populations of such genetically-modified T cells, (5)
pharmaceutical compositions comprising such genetically-modified T cells or populations, and (6) methods of immunotherapy for treating cancer in a
subject. Patents in this family, if issued, will have a standard expiration date of October 30, 2040, subject to potential extensions.
The fourteenth family includes a pending patent applications in each of the United States, Europe, and Canada. Patent applications in this family include
claims directed to a method of immunotherapy for treating cancer in a subject. Patents in this family, if issued, will have a standard expiration date of
December 3, 2040, subject to potential extensions.
The fifteenth family includes a pending PCT international patent application and a pending patent application in the United States. Patent applications in
this family include claims directed to methods for reducing the number of target cells, such as cancer cells, in a subject. Patents in this family, if issued,
will have a standard expiration date of May 14, 2041, subject to potential extensions.
The sixteenth family includes a pending PCT international patent application and a pending patent application in the United States. Patent applications in
this family include claims directed to a method for reducing the number of target cells, such as cancer cells, in a subject. Patents in this family, if issued,
will have a standard expiration date of May 14, 2041, subject to potential extensions.
The seventeenth family includes a pending PCT international patent application. Patent applications in this family include claims directed to (1) an isolated
antibody, or antigen-binding fragment thereof, that specifically binds to BCMA, (2) a pharmaceutical composition comprising such an antibody, (3) a
polynucleotide encoding such an antibody, and an expression vector comprising the same, (5) a method of treating cancer in a subject, (6) a polynucleotide
comprising a nucleic acid sequence encoding a chimeric antigen receptor having an anti-BCMA binding domain, (7) a genetically-modified eukaryotic cell
comprising such a polynucleotide, (8) a method for producing such a genetically-modified eukaryotic cell, (9) a population of such genetically-modified
eukaryotic cells, (10) a pharmaceutical composition comprising such a population, and (11) a method for treating cancer in a subject. Patents in this family,
if issued, will have a standard expiration date of August 10, 2041, subject to potential extensions.
The eighteenth family includes a pending PCT international patent application. Patent applications in this family include claims directed to (1) a lipid
nanoparticle composition, (2) a method for transfecting a population of eukaryotic cells, (3) a method for introducing a nucleic acid into a population of
eukaryotic cells, (4) a population of such eukaryotic cells, (5) a pharmaceutical composition comprising such a population, and (6) a method for reducing
the number of target cells in a subject. Patents in this family, if issued, will have a standard expiration date of October 6, 2041, subject to potential
extensions.
The nineteenth family includes a pending PCT international patent application. Patent applications in this family include claims directed to (1) a
genetically-modified eukaryotic cell comprising a nucleic acid sequence encoding a TGFB-1 inhibitory agent and a nucleic acid sequence encoding an
engineered antigen receptor, (2) a genetically-modified eukaryotic cell comprising an inactivated TGFB-1 gene and a nucleic acid sequence encoding an
engineered antigen receptor, (3) methods of producing such genetically-modified eukaryotic cells, (4) populations of such genetically-modified eukaryotic
cells, (5) pharmaceutical compositions comprising such genetically-modified eukaryotic cells, and (6) methods for reducing the number of target cells in a
subject comprising administering such populations of genetically-modified eukaryotic cells. Patents in this family, if issued, will have a standard expiration
date of January 28, 2042, subject to potential extensions.
We own three additional patent families that include pending provisional applications in the United States and/or PCT international patent applications that
are directed to immunotherapies, including CAR T cell therapies. We jointly own one patent family that includes a pending PCT international patent
application directed to CAR T cell therapies. We will determine in the future whether to pursue each of these applications.
Other Patent Families
We own three patent families directed to gene therapy for HBV. The first family includes three issued patents in the United States, two issued patents in
Japan, one issued patent in South Korea, pending patent applications in the United States, Europe, Australia, Canada, China, Guatemala, Israel, Japan,
South Korea, Mexico, Morocco, the Philippines, Saudi Arabia, and Thailand, and two pending patent applications in each of Eurasia and Hong Kong.
Patents in this family have a standard expiration date of October 13, 2037, subject to potential extensions. The second family includes one issued patent in
the United States, and pending patent applications in the United States, Europe, and the Gulf Cooperation Council. Patents in this family will have a
standard expiration date of April 11, 2039, or April 12, 2039, subject to potential extensions. The third family includes pending patent applications in each
of the United States, Europe, China, and New Zealand. Patents in this family, if issued, will have a standard expiration date of December 4, 2040, subject to
potential extensions.
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We own one patent family directed to engineered meganucleases and methods of treatment targeting the PCSK9 gene, which is associated with familial
hypercholesterolemia. This family includes pending patent applications in each of the United States, Europe, Australia, Canada, China, Hong Kong, Israel,
Mexico, and South Korea, and two pending patent applications in Japan. Patents in this family, if issued, will have a standard expiration date of April 20,
2038, subject to potential extensions.
We own two patent families directed to engineered meganucleases and methods of treatment targeting the rhodopsin gene, which is associated with retinitis
pigmentosa. The first family includes two issued patents in each of the United States and Japan, one issued patent in Australia, and pending patent
applications in each of the United States, Europe, Australia, Canada, and Japan. Patents in this family will have a standard expiration date of September 8,
2036, subject to potential extensions. The second family includes a pending PCT international patent application and pending patent applications in each of
the United States, Europe, and Canada. Patents in this family, if issued, will have a standard expiration date of May 11, 2041, subject to potential
extensions.
We own two patent families that are directed to engineered meganucleases and methods of treatment targeting the hydroxyacid oxidase 1 gene, which is
associated with primary hyperoxaluria 1. The first family includes pending patent applications in the United States and Europe. Patents in this family, if
issued, will have a standard expiration date of December 20, 2039, subject to potential extensions. The second family includes a pending PCT international
patent application and a pending patent application in Canada. Patents in this family, if issued, will have a standard expiration date of January 7, 2042,
subject to potential extensions.
We own two patent families that are directed to engineered meganucleases and methods of treatment targeting the Factor VIII gene, which is associated
with Hemophilia A. The first family includes one issued patent in each of the United States and Europe, and pending patent applications in the United
States, Europe, Australia, Canada, and Japan. Patents in this family will have a standard expiration date of May 3, 2037, subject to potential extensions. The
second family includes pending patent applications in the United States and Europe. Patents in this family, if issued, will have a standard expiration date of
November 1, 2038, subject to potential extensions.
We own one patent family directed to engineered meganucleases and methods of treatment targeting the ApoC3 gene, which is associated with diseases
resulting from abnormal triglyceride synthesis. This family includes a pending provisional patent application in the United States. Patents in this family, if
issued, will likely have a standard expiration date of September 27, 2043, subject to potential extensions.
We own one patent family directed to engineered meganucleases and methods of treatment targeting the transthyretin (“TTR”) gene, which is associated
with TTR amyloidosis. This family includes a pending PCT international patent application and a pending patent application in Canada. Patents in this
family, if issued, will have a standard expiration date of August 20, 2041, subject to potential extensions.
We own two patent families directed to engineered meganucleases and methods of treatment targeting the dystrophin gene, which is associated with
Duchenne Muscular Dystrophy. The first family includes one issued patent in each of Europe and Japan, pending patent applications in each of the United
States, Europe, Australia, Hong Kong, and Canada, and two pending patent applications in Japan. Patents in this family will have a standard expiration date
of March 12, 2035, subject to potential extensions. The second family includes a pending PCT international patent application and pending patent
applications in each of the United States and Canada. Patent applications in this family, if issued, will have a standard expiration date of November 12,
2041.
We own one patent family directed to engineered meganucleases and methods of treatment targeting genomic nucleotide repeats, which are associated with
several nucleotide repeat disorders. This family includes one issued patent in Europe, and pending patent applications in each of the United States and
Europe. Patents in this family will have a standard expiration date of May 2, 2036, subject to potential extensions.
We own one patent family directed to engineered meganucleases and methods of treating alpha-1 antitrypsin deficiency. This family includes two pending
PCT international patent applications. Patents in this family, if issued, will have a standard expiration date of October 19, 2042.
We own one patent family directed to optimized polynucleotides for protein expression. This family includes one pending provisional patent application in
the United States. Patents in this family, if issued, will likely have a standard expiration date of January 7, 2043.
We own one patent family directed to engineered meganucleases that target mitochondrial genomes and methods of treating mitochondrial disorders. This
family includes two pending provisional patent applications in the United States. Patents in this family, if issued, will likely have a standard expiration date
of March 9, 2043, or August 23, 2043.
We jointly own one patent family directed to engineered meganucleases that target mitochondrial genomes and methods of treating mitochondrial disorders.
This family includes two pending provisional patent applications in the United States, two pending PCT
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international patent applications, and two pending applications in Canada. Patents in this family, if issued, will have a standard expiration date of April 22,
2042, or August 23, 2043.
We jointly own one patent family directed to methods for generating male sterile plants. This family includes one pending PCT international patent
application. Patents in this family, if issued, will have a standard expiration date of April 22, 2042.
We license from Duke one patent family directed to engineered fusion proteins comprising engineered meganuclease domains and effector domains which
may be useful in controlling gene expression. This patent family includes one pending patent application in the United States. Patents in this family, if
issued, will have a standard expiration date of October 18, 2026, subject to potential extensions.
We own one patent family directed to engineered meganucleases that target amplifiable genetic loci and may be useful in producing cells with amplified
transgenes. This family includes two issued patents in Europe, one issued patent in the United States, and pending patent applications in each of the United
States and Europe. Patents in this family will have a standard expiration date of June 1, 2032, subject to potential extensions.
We own two patent families directed to self-limiting viral vectors (e.g., AAV vectors) that encode engineered meganucleases which eliminate the vector
after gene delivery. The first family includes one issued patent in each of the United States and Europe, a pending patent application in Europe, and two
pending patent applications in the United States. Patents in this family will have a standard expiration date of June 20, 2036, subject to potential extensions.
The second family includes one pending PCT international patent application and one pending patent application in the United States. Patents in this family,
if issued, will have a standard expiration date of May 10, 2041, subject to potential extensions.
We own one patent family directed to compositions and methods for sequential stacking of nucleic acid sequences into a genomic locus. This family
includes pending patent applications in each of the United States and Europe. Patents in this family, if issued, will have a standard expiration date of July
24, 2040, subject to potential extensions.
We own one patent family directed to eukaryotic cells comprising a modified transferrin gene that includes an exogenous nucleic acid sequence encoding a
polypeptide of interest. This family includes pending patent applications in each of the United States and Europe. Patents in this family, if issued, will have
a standard expiration date of January 10, 2040, subject to potential extensions.
We own an issued patent in the United States directed to engineered meganucleases which target a genetic locus in maize and methods for genetically
modifying that locus in maize. That patent has a standard expiration date of March 2, 2029, subject to potential extensions.
For any individual patent, the term depends on the applicable law in the country in which the patent is granted. In most countries where we have filed
patent applications or in-licensed patents and patent applications, patents have a term of 20 years from the application filing date or earliest claimed non-
provisional priority date. In the United States, the patent term is 20 years but may be shortened if a patent is terminally disclaimed over another patent that
expires earlier. The term of a U.S. patent may also be lengthened by a patent term adjustment to address administrative delays by the United States Patent
and Trademark Office (the “USPTO”) in granting a patent.
In the United States, the term of a patent that covers an FDA-approved drug or biologic may be eligible for patent term extension in order to restore the
period of a patent term lost during the premarket FDA regulatory review process. The Hatch-Waxman Act permits a patent term extension of up to five
years beyond the natural expiration of the patent. The patent term restoration period is generally equal to the portion of the FDA regulatory review period
for the approved product that occurs after the date the patent issued, subject to certain exceptions. Only one patent may be extended for a regulatory review
period for any product, and the application for the extension must be submitted prior to the expiration of the patent. In the future, we may decide to apply
for restoration of patent term for one of our currently owned or licensed patents to extend its current expiration date, depending on the expected length of
the clinical studies and other factors involved in the filing of the relevant Biologics License Application (“BLA”).
We or our licensors may be subject to claims that former employees, collaborators or other third parties have an interest in our owned or in-licensed patents
or other intellectual property as an inventor or co-inventor. If we are required to and unable to obtain an exclusive license to any such third-party co-
owners’ interest in such patent applications, such co-owners may be able to license their rights to other third parties, including our competitors. In addition,
we may need the cooperation of any such co-owners to enforce any patents that issue from such patent applications against third parties, and such
cooperation may not be provided to us. We or our licensors are subject to and may also become a party to similar proceedings or priority disputes in Europe
or other foreign jurisdictions.
Our trademark portfolio currently contains two registered trademarks in the United States, including ARCUS and ARC NUCLEASE. We also own
registered trademarks for both ARCUS and ARC NUCLEASE in Europe, China, and Australia, and a registered
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trademark for ARCUS in Canada. Additionally, we own pending trademark applications for Precision BioSciences and the Precision BioSciences logo in
the United States, Europe, Australia, Canada, China, Japan, and the United Kingdom (“UK”), and pending trademark applications for Evade, PBStealth,
StealthCAR, and StealthCAR T in the United States.
Licensed Intellectual Property
Duke University
In April 2006, we exclusively licensed from Duke families of patents and patent applications related to certain meganucleases and methods of making such
nucleases owned by Duke. The patent family covered by the Duke License comprises the core patents covering ARCUS described above. See “—License
and Collaboration Agreements—Duke University” above for additional information regarding the Duke License.
Cellectis S.A.
In January 2014, we entered into the Cellectis License, which relates to certain modified I-CreI homing endonuclease patents and patents that had been
subject to litigation between us and Cellectis. The patents to which we have rights under the cross-license include at least seven issued patents in each of
the United States, Europe, and Australia, and one issued patent in each of Canada and Japan. These patents have standard expiration dates prior to January
29, 2034, subject to potential extensions. See “—License and Collaboration Agreements—Cellectis S.A.” above for additional information regarding the
Cellectis License.
Government Regulation
The FDA and other regulatory authorities at federal, state, and local levels, as well as in foreign countries, extensively regulate, among other things, the
research, development, testing, manufacture, quality control, import, export, safety, effectiveness, labeling, packaging, storage, distribution, record keeping,
approval, advertising, promotion, marketing, post-approval monitoring, and post-approval reporting of biological product candidates such as those we are
developing. We, along with third-party contractors, will be required to navigate the various preclinical, clinical and commercial approval requirements of
the governing regulatory agencies of the countries in which we wish to conduct studies or seek approval or licensure of our product candidates. The process
of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the
expenditure of substantial time and financial resources.
U.S. Biologics Regulation
The process required by the FDA before biologic product candidates may be marketed in the United States generally involves the following:
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completion of preclinical laboratory tests and animal studies performed in accordance with the FDA’s Good Laboratory Practice requirements
and other applicable regulations;
demonstration of successful, reproducible manufacture of clinical trial material produced in compliance with cGMPs and consistent with all
release specifications for the product at initial manufacture and over time when stored under defined conditions;
submission to the FDA of an IND, which must become effective before clinical trials may begin, and which must be properly maintained
throughout the course of clinical development;
approval by an Investigational Review Board (“IRB”) or ethics committee, and potential additional scientific and biosafety review committees at
each clinical site before the trial is commenced;
performance of adequate and well-controlled human clinical trials following protocols to establish the safety, purity, potency, or effectiveness of
the proposed biologic product candidate for its intended purpose;
preparation of and submission to the FDA of a BLA after completion of all pivotal clinical trials;
a determination by the FDA within 60 days of its receipt of a BLA to file the application for review;
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satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities at which the proposed commercial product
is produced to assess compliance with cGMP and to assure that the facilities, methods and controls are adequate to preserve the biological
product’s continued safety, purity and potency, and potential FDA inspection of selected clinical investigation sites to assess compliance with
Good Clinical Practices (“GCPs”); and
satisfactory completion of an FDA Advisory Committee review, if applicable;
FDA review and approval of the BLA to permit commercial marketing of the product for particular indications for use in the United States.
Prior to beginning the first clinical trial with a product candidate in the United States, we must submit an IND to the FDA. An IND is a request for
authorization from the FDA to administer an investigational new drug product to humans. A central focus of an IND submission is on the general
investigational plan and the protocol(s) for clinical studies. The IND also includes results of animal and in vitro studies assessing the toxicology,
pharmacokinetics, pharmacology, and pharmacodynamic characteristics of the product; chemistry, manufacturing, and controls information; and any
available human data or literature to support the use of the investigational product according to the proposed clinical protocol including the proposed dose
level(s). An IND must become effective before human clinical trials may begin. The IND automatically becomes effective 30 days after receipt by the
FDA, unless the FDA, within the 30-day time period, raises safety concerns or questions about the proposed clinical trial. In such a case, the IND may be
placed on clinical hold and the IND sponsor and the FDA must resolve any outstanding concerns or questions before the clinical trial can begin.
Submission of an IND therefore may or may not result in FDA authorization to begin a clinical trial.
In addition to the submission of an IND to the FDA before initiation of a clinical trial in the United States, certain human clinical trials involving
recombinant or synthetic nucleic acid molecules are subject to oversight of institutional biosafety committees, or IBCs, as set forth in the NIH Guidelines
for Research Involving Recombinant or Synthetic Nucleic Acid Molecules, or NIH Guidelines. Specifically, under the NIH Guidelines, supervision of
human gene transfer trials includes evaluation and assessment by an IBC, a local institutional committee that reviews and oversees research utilizing
recombinant or synthetic nucleic acid molecules at that institution. The IBC assesses the safety of the research and identifies any potential risk to public
health or the environment, and such review may result in some delay before initiation of a clinical trial. While the NIH Guidelines are not mandatory unless
the research in question is being conducted at or sponsored by institutions receiving NIH funding of recombinant or synthetic nucleic acid molecule
research, many companies and other institutions not otherwise subject to the NIH Guidelines voluntarily follow them.
Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance
with GCPs, which include the requirement that all research subjects provide their informed consent for their participation in any clinical study. Clinical
trials are conducted under protocols detailing, among other things, the objectives of the study, the parameters to be used in monitoring safety and the
effectiveness criteria to be evaluated. A separate submission to the existing IND must be made for each successive clinical trial conducted during product
development and for any subsequent protocol amendments. While the IND is active, progress reports summarizing the results of the clinical trials and
nonclinical studies performed since the last progress report, among other information, must be submitted at least annually to the FDA, and written IND
safety reports must be submitted to the FDA and investigators for serious and unexpected suspected adverse events, findings from other studies suggesting
a significant risk to humans exposed to the drug, findings from animal or in vitro testing suggesting a significant risk to humans exposed to the drug, and
any clinically important increased rate of a serious suspected adverse reaction compared to that listed in the protocol or investigator brochure.
Furthermore, for each site proposing to conduct the clinical trial an independent IRB must review and approve the plan for any clinical trial and the
informed consent form before the clinical trial begins at that site, and must monitor the study until completed. Regulatory authorities, the IRB, or the
sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk or
that the trial is unlikely to meet its stated objectives. Some studies also include oversight by an independent group of qualified experts organized by the
clinical study sponsor, known as a data safety monitoring board, which provides authorization for whether or not a study may move forward at designated
check points based on review of certain data from the study and may halt the clinical trial if it determines that there is an unacceptable safety risk for
subjects or other grounds, such as no demonstration of efficacy. There are also requirements governing the reporting of ongoing clinical studies and clinical
study results to public registries.
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For purposes of BLA approval, human clinical trials are typically conducted in three sequential phases that may overlap or be combined:
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Phase 1—The investigational product is initially introduced into healthy human subjects or patients with the target disease or condition. These
studies are designed to test the safety, dosage tolerance, absorption, metabolism and distribution of the investigational product in humans, the
side effects associated with increasing doses, and, if possible, to gain early evidence on effectiveness.
Phase 2—The investigational product is administered to a limited patient population with a specified disease or condition to evaluate the
preliminary efficacy, optimal dosages and dosing schedule and to identify possible adverse side effects and safety risks. Multiple Phase 2 clinical
trials may be conducted to obtain information prior to beginning larger and more expensive Phase 3 clinical trials.
Phase 3—The investigational product is administered to an expanded patient population to further evaluate dosage, to provide statistically
significant evidence of clinical efficacy and to further test for safety, generally at multiple geographically dispersed clinical trial sites. These
clinical trials are intended to establish the overall risk/benefit ratio of the investigational product and to provide an adequate basis for product
approval.
Phase 4—In some cases, the FDA may require, or companies may voluntarily pursue, additional clinical trials after a product is approved to gain
more information about the product. These so-called Phase 4 studies may be made a condition to approval of the BLA.
Development of new treatments for cancer and genetic diseases often combine phase 1 and phase 2 trials as the treatment is studied in limited patient
population with the specified disease. Concurrent with clinical trials, companies may complete additional animal studies and develop additional information
about the biological characteristics of the product candidate, and must finalize a process for manufacturing the product in commercial quantities in
accordance with cGMP. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other
things, must develop methods for testing the identity, strength, potency, quality and purity of the final product, or for biologics, the safety, purity and
potency. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the product candidate
does not undergo unacceptable deterioration over its shelf life.
BLA Submission and Review by the FDA
Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, the results of product development,
nonclinical studies and clinical trials are submitted to the FDA as part of a BLA requesting approval to market the product for one or more indications. The
BLA must include all relevant data available from pertinent preclinical and clinical studies, including negative or ambiguous results as well as positive
findings, together with detailed information relating to the product’s chemistry, manufacturing, controls, and proposed labeling, among other things. Data
can come from company-sponsored clinical studies intended to test the safety and effectiveness of a use of the product, or from a number of alternative
sources, including studies initiated by investigators. The submission of a BLA requires payment of a substantial user fee to FDA, and the sponsor of an
approved BLA is also subject to an annual program fee. These fees are typically increased annually. A waiver of user fees may be obtained under certain
limited circumstances. Additionally, no user fees are assessed on BLAs for products designated as orphan drugs, unless the application also includes a non-
orphan indication.
Within 60 days following submission of the application, the FDA reviews all NDAs and BLAs submitted to ensure that they are sufficiently complete for
substantive review before it accepts them for filing. The FDA may request additional information rather than accept an NDA or BLA for filing. In this
event, the NDA or BLA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA accepts
it for filing. Once a BLA has been accepted for filing, the FDA begins an in-depth substantive review. The FDA reviews a BLA to determine, among other
things, whether a product is safe, pure and potent and the facility in which it is manufactured, processed, packed, or held meets standards designed to assure
the product’s continued safety, purity, and potency. The FDA’s goal is to review standard applications within ten months after it accepts the application for
filing, or, if the application qualifies for priority review, six months after the FDA accepts the application for filing. Priority review designation will direct
overall attention and resources to the evaluation of applications for product candidates that, if approved, would represent significant improvements in the
safety or effectiveness of the treatment, diagnosis, or prevention of serious conditions. In both standard and priority reviews, the review process is often
significantly extended by FDA requests for additional information or clarification. The FDA may convene an advisory committee to provide clinical insight
on application review questions. Before approving a BLA, the FDA will typically inspect the facility or facilities where the product is manufactured.
Additionally, before approving a BLA, the FDA will typically inspect one or more clinical sites involved in the pivotal studies submitted in the BLA to
assure compliance with GCP.
After the FDA evaluates a BLA and conducts inspections of manufacturing facilities where the investigational product and/or its drug substance will be
produced, the FDA may issue an approval letter or a Complete Response Letter (“CRL”) if the FDA determines that
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the application, manufacturing process or manufacturing facilities are not acceptable. In the CRL, the FDA will outline the deficiencies in the BLA
submission and often will request additional information or testing that the applicant might perform to place the BLA in condition for approval, including
requests for additional information or clarification. Notwithstanding the submission of any requested additional information, the FDA ultimately may
decide that the application does not satisfy the regulatory criteria for approval. Note that where the FDA determines that the data supporting the application
are inadequate to support approval, the FDA may issue the CRL without first conducting required inspections, testing submitted product lots, and/or
reviewing proposed labeling. The FDA may delay or refuse approval of a BLA if applicable regulatory criteria are not satisfied, require additional testing or
information and/or require post-marketing testing and surveillance to monitor safety or efficacy of a product.
If regulatory approval of a product is granted, such approval will be granted for particular indications and may entail limitations on the indicated uses for
which such product may be marketed. For example, the FDA may approve the BLA with the requirement that a Risk Evaluation and Mitigation Strategy
(“REMS”) be established to ensure the benefits of the product outweigh its risks when used according to the approved label. A REMS is a safety strategy to
manage a known or potential serious risk associated with a medicine and to enable patients to have continued access to such medicines by managing their
safe use, and could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods,
patient registries, required prescriber training, and other risk minimization tools. The FDA also may condition approval on, among other things, changes to
proposed labeling or the development of adequate controls and specifications. Once approved, the FDA may withdraw the product approval if compliance
with pre- and post-marketing requirements is not maintained or if problems occur after the product reaches the marketplace. The FDA may require one or
more Phase IV post-market studies and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization, and may
limit further marketing of the product based on the results of these post-marketing studies. In addition, new government requirements, including those
resulting from new legislation, may be established, or the FDA’s policies may change, which could impact the timeline for regulatory approval or otherwise
impact ongoing development programs.
In addition, the Pediatric Research Equity Act (“PREA”) requires a sponsor to conduct pediatric clinical trials for most biologics, for a new active
ingredient, new indication, new dosage form, new dosing regimen or new route of administration. Under PREA, BLAs and supplements thereto must
contain a pediatric assessment unless the sponsor has received a deferral or waiver. The required assessment must evaluate the safety and effectiveness of
the product for the claimed indications in all relevant pediatric subpopulations and support dosing and administration for each pediatric subpopulation for
which the product has been determined safe and effective. The sponsor or FDA may request a deferral of pediatric clinical trials for some or all of the
pediatric subpopulations. A deferral may be granted for several reasons, including a finding that the biologic is ready for approval for use in adults before
pediatric clinical trials are complete or that additional safety or effectiveness data needs to be collected before the pediatric clinical trials begin. The FDA
must send a noncompliance letter to any sponsor that fails to submit the required assessment, keep a deferral current or fails to submit a request for
approval of a pediatric formulation.
Expedited Development and Review Programs
A sponsor may seek approval of its product candidate under programs designed to expedite FDA’s review and approval of biological products that meet
certain criteria. Specifically, biological products are eligible for fast track designation if they are intended to treat a serious or life-threatening disease or
condition and demonstrate the potential to address unmet medical needs for the disease or condition. For a fast track product candidate, the FDA may
consider sections of the BLA for review on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the
submission of the sections of the application, the FDA agrees to accept sections of the application and determines that the schedule is acceptable and the
sponsor pays any required user fees upon submission of the first section of the application. A fast track designated product candidate may also qualify for
priority review, under which the FDA sets the target date for FDA action on the BLA at six months after the FDA accepts the application for filing. Priority
review is granted pending availability of FDA review resources for the expedited review and when there is evidence that the proposed product would be a
significant improvement in the safety or effectiveness of the treatment, diagnosis, or prevention of a serious disease or condition.
A product candidate intended to treat a serious or life-threatening disease or condition may also be eligible for breakthrough therapy designation to expedite
its development and review. A product candidate can receive breakthrough therapy designation if preliminary clinical evidence indicates that the product
candidate, alone or in combination with one or more other drugs or biologics, may demonstrate substantial improvement over existing therapies on one or
more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The designation includes all of the fast
track program features, as well as more intensive FDA interaction and guidance beginning as early as Phase 1 and an organizational commitment to
expedite the development and review of the product candidate, including involvement of senior managers.
Any product candidate submitted to the FDA for approval, including a product candidate with a fast track designation or breakthrough therapy designation,
may also be eligible for other types of FDA programs intended to expedite development and review, such as accelerated approval. Under the accelerated
approval program, the FDA may approve a BLA on a determination that the biologic has
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an effect on either a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than
irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into
account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. As a condition of accelerated approval, the
FDA generally requires that the sponsor approve, perform or complete confirmatory clinical trials to verify the biologic’s clinical benefit in relationship to
the surrogate endpoint or ultimate outcome in relationship to the predicted clinical benefit. In addition, the FDA currently requires as a condition for
accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial launch of the product. FDA may
withdraw approval of a drug or indication approved under accelerated approval on an expedited basis if, for example, the confirmatory trial fails to verify
the predicted clinical benefit of the product or the sponsor fails to conduct such confirmatory trials in a timely manner.
The Regenerative Medicine Advanced Therapy (“RMAT”), designation facilitates an efficient development program for, and expedites review of, any drug
that meets the following criteria: (1) it qualifies as a RMAT, which is defined as a cell therapy, therapeutic tissue engineering product, human cell and
tissue product, or any combination product using such therapies or products, with limited exceptions; (2) it is intended to treat, modify, reverse, or cure a
serious or life-threatening disease or condition; and (3) preliminary clinical evidence indicates that the drug has the potential to address unmet medical
needs for such a disease or condition. Like breakthrough therapy designation, RMAT designation provides potential benefits that include more frequent
meetings with FDA to discuss the development plan for the product candidate, and eligibility for rolling review and priority review. Product candidates
granted RMAT designation may also be eligible for accelerated approval on the basis of a surrogate or intermediate endpoint reasonably likely to predict
long-term clinical benefit, or reliance upon data obtained from a meaningful number of sites, including through expansion to additional sites. RMAT-
designated products that receive accelerated approval may, as appropriate, fulfill their post-approval requirements through the submission of clinical
evidence, clinical studies, patient registries, or other sources of real world evidence (such as electronic health records); through the collection of larger
confirmatory data sets; or via post-approval monitoring of all patients treated with such therapy prior to approval of the therapy.
Fast track designation, priority review, breakthrough therapy designation and RMAT designation do not change the standards for approval but may expedite
the development or approval process. Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer
meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened.
Orphan Drug Designation and Exclusivity
Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic intended to treat a rare disease or condition, defined as a disease
or condition with a patient population of fewer than 200,000 individuals in the United States, or a patient population greater than 200,000 individuals in the
United States and when there is no reasonable expectation that the cost of developing and making available the drug or biologic in the United States will be
recovered from sales in the United States for that drug or biologic. Orphan drug designation must be requested before submitting a BLA. After the FDA
grants orphan drug designation, the generic identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA.
If a product that has orphan drug designation subsequently receives the first FDA approval for a particular active ingredient within the product for the
disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other
applications, including a full BLA, to market the same active ingredient for the same disease or condition for seven years, except in limited circumstances,
such as a showing of clinical superiority to the product with orphan drug exclusivity or if the FDA finds that the holder of the orphan drug exclusivity has
not shown that it can assure the availability of sufficient quantities of the orphan drug to meet the needs of patients with the disease or condition for which
the drug was designated. Orphan drug exclusivity does not prevent the FDA from approving a different drug or biologic for the same disease or condition,
or the same drug or biologic for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for certain research
and a waiver of the BLA application user fee.
A designated orphan drug many not receive orphan drug exclusivity if it is approved for a use that is broader than the disease or condition for which it
received orphan designation. In addition, orphan drug exclusive marketing rights in the United States may be lost if the FDA later determines that the
request for designation was materially defective or, as noted above, if the second applicant demonstrates that its product is clinically superior to the
approved product with orphan exclusivity or the manufacturer of the approved product is unable to assure sufficient quantities of the product to meet the
needs of patients with the rare disease or condition.
Post-Approval Requirements
Any products manufactured or distributed by us pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including,
among other things, requirements relating to record-keeping, reporting of adverse experiences, periodic reporting,
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product sampling and distribution, and advertising and promotion of the product. After approval, most changes to the approved product, such as adding new
indications or other labeling claims, are subject to prior FDA review and approval. There also are continuing, annual program fees for any marketed
products. Biologic manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies and are
subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP, which impose certain procedural and
documentation requirements upon us and our third-party manufacturers. Changes to the manufacturing process are strictly regulated, and, depending on the
significance of the change, may require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any
deviations from cGMP and impose reporting requirements upon us and any third-party manufacturers that we may decide to use. Accordingly,
manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMP and other
aspects of regulatory compliance.
The FDA may withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches
the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with
manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information;
imposition of post-market studies or clinical studies to assess new safety risks; or imposition of distribution restrictions or other restrictions under a REMS
program. Other potential consequences include, among other things:
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restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;
fines, warning letters or holds on post-approval clinical studies;
refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of approvals;
product seizure or detention, or refusal to permit the import or export of products;
consent decrees, corporate integrity agreements, debarment or exclusion from federal healthcare programs;
mandated modification of promotional materials and labeling and the issuance of corrective information;
the issuance of safety alerts, Dear Healthcare Provider letters, press releases and other communications containing warnings or other safety
information about the product; or
injunctions or the imposition of civil or criminal penalties.
The FDA closely regulates the marketing, labeling, advertising and promotion of biologics. A company can make only those claims relating to safety and
efficacy, purity and potency that are approved by the FDA and in accordance with the provisions of the approved label. The FDA and other agencies
actively enforce the laws and regulations prohibiting the promotion of off-label uses. Failure to comply with these requirements can result in, among other
things, adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties. Physicians may prescribe legally available
products for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are
common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The
FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturer’s communications on the
subject of off-label use of their products.
Biosimilars and Exclusivity
The Affordable Care Act, signed into law in 2010, includes a subtitle called the Biologics Price Competition and Innovation Act of 2009 (the “BPCIA”),
which created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-licensed reference biological
product.
Biosimilarity, which requires that there be no clinically meaningful differences between the biological product and the reference product in terms of safety,
purity, and potency, can be shown through analytical studies, animal studies, and a clinical study or studies. Interchangeability requires that a product is
biosimilar to the reference product and the product must demonstrate that it can be expected to produce the same clinical results as the reference product in
any given patient and, for products that are administered multiple times to an individual, the biologic and the reference biologic may be alternated or
switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference
biologic.
Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the reference product
was first licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on
which the reference product was first licensed. During this 12-year period of exclusivity, another
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company may still market a competing version of the reference product if the FDA approves a full BLA for the competing product containing that
applicant’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of its product. The
BPCIA also created certain exclusivity periods for biosimilars approved as interchangeable products. At this juncture, it is unclear whether products
deemed “interchangeable” by the FDA will, in fact, be readily substituted by pharmacies, which are governed by state pharmacy law.
A biological product can also obtain pediatric market exclusivity in the United States. Pediatric exclusivity, if granted, adds six months to existing
exclusivity periods and patent terms. This six-month exclusivity, which runs from the end of other exclusivity protection or patent term, may be granted
based on the voluntary completion of a pediatric study in accordance with an FDA-issued “Written Request” for such a study.
Foreign Regulation
To market any product outside of the United States, we would need to comply with numerous and varying regulatory requirements of other countries
regarding safety and efficacy and governing, among other things, clinical trials, marketing authorization, manufacturing, commercial sales and distribution
of our products. Because biologically sourced raw materials are subject to unique contamination risks, their use may be restricted in some countries.
Whether or not we obtain FDA approval of a product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior to the
commencement of clinical trials or marketing of the product in those countries. The requirements and process governing the conduct of clinical trials,
product licensing, pricing and reimbursement vary from country to country. Failure to comply with applicable foreign regulatory requirements, may be
subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and
criminal prosecution.
Non-clinical studies and clinical trials
Similarly to the United States, the various phases of non-clinical and clinical research in the European Union, (“EU”), are subject to significant regulatory
controls.
Non-clinical studies are performed to demonstrate the health or environmental safety of new biological substances. Non-clinical (pharmaco-toxicological)
studies must be conducted in compliance with the principles of good laboratory practice (“GLP”), as set forth in EU Directive 2004/10/EC (unless
otherwise justified for certain particular medicinal products – e.g., radio-pharmaceutical precursors for radio-labelling purposes). In particular, non-clinical
studies, both in vitro and in vivo, must be planned, performed, monitored, recorded, reported and archived in accordance with the GLP principles, which
define a set of rules and criteria for a quality system for the organizational process and the conditions for non-clinical studies. These GLP standards reflect
the Organization for Economic Co-operation and Development requirements.
Clinical trials of medicinal products in the EU must be conducted in accordance with EU and national regulations and the International Conference on
Harmonization (“ICH”) guidelines on GCPs. Additional GCP guidelines from the European Commission, focusing in particular on traceability, apply to
clinical trials of advanced therapy medicinal products (“ATMPs”). If the sponsor of the clinical trial is not established within the EU, it must appoint an
entity within the EU to act as its legal representative. The sponsor must take out a clinical trial insurance policy, and in most countries, the sponsor is liable
to provide ‘no fault’ compensation to any study subject injured in the clinical trial.
The regulatory landscape related to clinical trials in the EU has been subject to recent changes. The EU Clinical Trials Regulation (“CTR”), which was
adopted in April 2014 and repeals the EU Clinical Trials Directive, became applicable on January 31, 2022. Unlike directives, the CTR is directly
applicable in all EU member states without the need for member states to further implement it into national law. The CTR notably harmonizes the
assessment and supervision processes for clinical trials throughout the EU via a Clinical Trials Information System, which contains a centralized EU portal
and database.
While the Clinical Trials Directive required a separate CTA to be submitted in each member state in which the clinical trial takes place, to both the
competent national health authority and an independent ethics committee, much like the FDA and IRB respectively, the CTR introduces a centralized
process and only requires the submission of a single application for multi-center trials. The CTR allows sponsors to make a single submission to both the
competent authority and an ethics committee in each member state, leading to a single decision per member state. The CTA must include, among other
things, a copy of the trial protocol and an investigational medicinal product dossier containing information about the manufacture and quality of the
medicinal product under investigation. The assessment procedure of the CTA has been harmonized as well, including a joint assessment by all member
states concerned, and a separate assessment by each member state with respect to specific requirements related to its own territory, including ethics rules.
Each member state’s decision is communicated to the sponsor via the centralized EU portal. Once the CTA is approved, clinical study development may
proceed.
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The CTR foresees a three-year transition period. The extent to which ongoing and new clinical trials will be governed by the CTR varies. Clinical trials for
which an application was submitted (i) prior to January 31, 2022 under the Clinical Trials Directive, or (ii) between January 31, 2022 and January 31, 2023
and for which the sponsor has opted for the application of the EU Clinical Trials Directive remain governed by said Directive until January 31, 2025. After
this date, all clinical trials (including those which are ongoing) will become subject to the provisions of the CTR. Compliance with the CTR requirements
by us and our third-party service providers, such as CROs, may impact our developments plans.
Medicines used in clinical trials must be manufactured in accordance with Good Manufacturing Practice (“GMP”). Other national and EU-wide regulatory
requirements may also apply.
Marketing authorization
To market a medicinal product in the EU, we must obtain a marketing authorization (“MA”). To obtain regulatory approval of a product candidate under
EU regulatory systems, we must submit a MA application (“MAA”). The process for doing this depends, among other things, on the nature of the medicinal
product. There are two types of MAs:
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“Centralized MAs” are issued by the European Commission through the centralized procedure, based on the opinion of the Committee for
Medicinal Products for Human Use (“CHMP”) of the European Medicines Agency (“EMA”) and are valid throughout the EU. The centralized
procedure is mandatory for certain types of products, such as (i) medicinal products derived from biotechnology processes, (ii) designated orphan
medicinal products, (iii) ATMPs (such as gene therapy, somatic cell therapy and tissue engineered products), and (iv) medicinal products
containing a new active substance indicated for the treatment certain diseases, such as HIV/AIDS, cancer, neurodegenerative disorders, diabetes,
auto immune and other immune dysfunctions and viral diseases. The centralized procedure is optional for products containing a new active
substance not yet authorized in the EU, or for products that constitute a significant therapeutic, scientific or technical innovation or which are in
the interest of public health in the EU. Under the centralized procedure, the maximum timeframe for the evaluation of an MAA is 210 days,
excluding clock stops. Accelerated evaluation might be granted by the CHMP in exceptional cases when a medicinal product is of major interest
from the point of view of public health and in particular from the viewpoint of therapeutic innovation. If the CHMP accepts such request, the
time limit of 210 days will be reduced to 150 days but it is possible that the CHMP can revert to the standard time limit for the centralized
procedure if it considers that it is no longer appropriate to conduct an accelerated assessment.
“Conditional MAs” may be granted in cases where all the required safety and efficacy data are not yet available. The conditional MA is subject
to conditions to be fulfilled for generating the missing data or ensuring increased safety measures. It is valid for one year and has to be renewed
annually until fulfillment of all the conditions. Once the pending studies are provided, it can become a “standard” MA. However, if the
conditions are not fulfilled within the timeframe set by the EMA, the MA ceases to be renewed. Furthermore, MAs may also be granted “under
exceptional circumstances” when the applicant can show that it is unable to provide comprehensive data on the efficacy and safety under normal
conditions of use even after the product has been authorized and subject to specific procedures being introduced. This may arise in particular
when the intended indications are very rare and, in the present state of scientific knowledge, it is not possible to provide comprehensive
information, or when generating data may be contrary to generally accepted ethical principles. This MA is close to the conditional MA as it is
reserved to medicinal products to be approved for severe diseases or unmet medical needs and the applicant does not hold the complete data set
legally required for the grant of a MA. However, unlike the conditional MA, the applicant does not have to provide the missing data and will
never have to. Although the MA “under exceptional circumstances” is granted definitively, the risk-benefit balance of the medicinal product is
reviewed annually and the MA is withdrawn in case the risk-benefit ratio is no longer favorable.
“National MAs”, are issued by the competent authorities of EU member states and only cover their respective territory, and are available for
products not falling within the mandatory scope of the centralized procedure. Where a product has already been authorized for marketing in an
EU member state, this national MA can be recognized in another member state through the mutual recognition procedure. If the product has not
received a national MA in any member state at the time of application, it can be approved simultaneously in various member states through the
decentralized procedure. Under the decentralized procedure an identical dossier is submitted to the competent authority of each of the member
states in which the MA is sought, one of which is selected by the applicant as the reference member state.
Under the above described procedures, in order to grant the MA, the EMA or the competent authorities of the EU member states make an assessment of the
risk benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy. MAs have an initial duration of five years.
After these five years, the authorization may be renewed on the basis of a reevaluation of the risk-benefit balance.
Priority medicines scheme
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Innovative products that target an unmet medical need and are expected to be of major public health interest may be eligible for a number of expedited
development and review programs, such as the so-called Priority Medicines (“PRIME”) scheme, which provides incentives similar to the breakthrough
therapy designation in the U.S. PRIME was launched in 2016 by the EMA to support the development and accelerate the review of new therapies to treat
patients with unmet medical need. This voluntary scheme is based on enhanced interaction and early dialogue with developers of promising medicines, to
optimize development plans and speed up evaluation so these medicines can reach patients earlier. To qualify for PRIME, product candidates require early
clinical evidence that the therapy has the potential to offer a therapeutic advantage over existing treatments or benefits patients without treatment options.
Product developers that benefit from PRIME designation can expect to be eligible for accelerated assessment but this is not guaranteed. Many benefits
accrue to sponsors of product candidates with PRIME designation, including but not limited to, early and proactive regulatory dialogue with the EMA,
frequent discussions on clinical trial designs and other development program elements, and accelerated MAA assessment once a dossier has been
submitted. Importantly, a dedicated contact and rapporteur from the CHMP is appointed early in the PRIME scheme facilitating increased understanding of
the product at EMA’s committee level. An initial meeting initiates these relationships and includes a team of multidisciplinary experts at the EMA to
provide guidance on the overall development and regulatory strategies. Innovative medicines fulfilling a medical need may also benefit from different types
of fast track approvals, such as a conditional marketing authorization or a marketing authorization under exceptional circumstances granted on the basis of
less comprehensive clinical data than normally required (respectively in the likelihood that the sponsor will provide such data within an agreed timeframe
or when comprehensive data cannot be obtained even after authorization).
Advanced therapy classification
Based on legislation adopted in 2007, the EMA established an additional regulatory designation for products classified as an ATMP. The ATMP designation
offers sponsors a variety of benefits similar to those associated with the PRIME scheme, including scientific and regulatory guidance, additional
opportunities for dialogue with regulators, and presubmission review and certification of the CMC and nonclinical data proposed for submission in a
forthcoming MA applications for micro-, small-, or medium-sized enterprises. To qualify for this designation, product candidates intended for human use
must be based on gene therapy, somatic cell therapy, or tissue engineered therapy.
Data and marketing exclusivity
In the EU, new products authorized for marketing, or reference products, generally receive eight years of data exclusivity and an additional two years of
market exclusivity upon MA. The data exclusivity period prevents generic or biosimilar applicants from relying on the pre-clinical and clinical trial data
contained in the dossier of the reference product when applying for a generic or biosimilar MA in the EU during a period of eight years from the date on
which the reference product was first authorized in the EU. The market exclusivity period prevents a successful generic or biosimilar applicant from
commercializing its product in the EU until 10 years have elapsed from the initial authorization of the reference product in the EU. The 10-year market
exclusivity period can be extended to a maximum of eleven years if, during the first eight years of those 10 years, the MA holder obtains an authorization
for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit
in comparison with existing therapies.
There is a special regime for biosimilars, or biological medicinal products that are similar to a reference medicinal product but that do not meet the
definition of a generic medicinal product, for example, because of differences in raw materials or manufacturing processes. For such products, the results
of appropriate preclinical or clinical trials must be provided, and guidelines from the EMA detail the type of quantity of supplementary data to be provided
for different types of biological product. There are no such guidelines for complex biological products, such as gene or cell therapy medicinal products, and
so it is unlikely that biosimilars of those products will currently be approved in the EU. However, guidance from the EMA states that they will be
considered in the future in light of the scientific knowledge and regulatory experience gained at the time.
Pediatric development
In the EU, MAAs for new medicinal products have to include the results of studies conducted in the pediatric population, in compliance with a pediatric
investigation plan (“PIP”), agreed with the EMA’s Pediatric Committee (“PDCO”). The PIP sets out the timing and measures proposed to generate data to
support a pediatric indication of the drug for which marketing authorization is being sought. The PDCO can grant a deferral of the obligation to implement
some or all of the measures of the PIP until there are sufficient data to demonstrate the efficacy and safety of the product in adults. Further, the obligation to
provide pediatric clinical trial data can be waived by the PDCO when these data are not needed or appropriate because the product is likely to be ineffective
or unsafe in children, the disease or condition for which the product is intended occurs only in adult populations, or when the product does not represent a
significant therapeutic benefit over existing treatments for pediatric patients. Once the MA is obtained in all EU member states and study results are
included in the product information, even when negative, the product is eligible for six months’ supplementary protection certificate extension (if any is in
effect at the time of authorization) or, in the case of orphan products, a two year extension of the orphan market exclusivity.
Orphan Medicinal Products
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In the EU, a medicinal product can be designated as an orphan if its sponsor can establish that (1) the product is intended for the diagnosis, prevention or
treatment of a life-threatening or chronically debilitating condition; and (2) either (a) such condition affects not more than five in ten thousand persons in
the EU when the application is made, or (b) without incentives, it is unlikely that the marketing of the product in the EU would generate sufficient return to
justify the necessary investment; and (3) there exists no satisfactory method of diagnosis, prevention or treatment of the condition in question that has been
authorized in the EU or, if such method exists, the product will be of significant benefit to those affected by that condition.
In the EU, an application for designation as an orphan product can be made any time prior to the filing of a MAA. Orphan designation entitles a party to
incentives such fee reductions or fee waivers, protocol assistance, and access to the centralized procedure.
Upon grant of a MA, orphan medicinal products are entitled to a ten-year period of market exclusivity for the approved therapeutic indications, which
means the competent authorities, cannot accept another application for a MA, or grant a MA, or accept an application to extend a MA for a similar
medicinal product for the same indication for a period of ten years. The period of market exclusivity is extended by two years for orphan medicinal
products that have also complied with an agreed PIP. No extension to any supplementary protection certificate can be granted on the basis of pediatric
studies for orphan indications.
The orphan exclusivity period may, however, be reduced to six years if, at the end of the fifth year, it is established that the product no longer meets the
criteria for orphan designation, for example because the product is sufficiently profitable not to justify market exclusivity, or where the prevalence of the
condition has increased above the threshold. Granting of an authorization for another similar orphan medicinal product where another product has market
exclusivity can happen at any time if: (i) the second applicant can establish that its product, although similar to the authorized product, is safer, more
effective or otherwise clinically superior, (ii) inability of the applicant to supply sufficient quantities of the orphan medicinal product or (iii) where the
applicant consents to a second orphan medicinal product application. A company may voluntarily remove a product from the orphan register.
Orphan designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.
Post-Approval Requirements
Similar to the United States, both MA holders and manufacturers of medicinal products are subject to comprehensive regulatory oversight by the EMA, the
European Commission and/or the competent regulatory authorities of the member states. The holder of a MA must establish and maintain a
pharmacovigilance system and appoint an individual qualified person for pharmacovigilance (“QPPV”) who is responsible for the establishment and
maintenance of that system, and oversees the safety profiles of medicinal products and any emerging safety concerns. Key obligations include expedited
reporting of suspected serious adverse reactions and submission of periodic safety update reports (“PSURs”).
All new MAAs must include a risk management plan (“RMP”) describing the risk management system that the company will put in place and documenting
measures to prevent or minimize the risks associated with the product. The regulatory authorities may also impose specific obligations as a condition of the
MA. Such risk-minimization measures or post-authorization obligations may include additional safety monitoring, more frequent submission of PSURs, or
the conduct of additional clinical trials or post-authorization safety studies.
The advertising and promotion of medicinal products is also subject to laws concerning promotion of medicinal products, interactions with physicians,
misleading and comparative advertising and unfair commercial practices. All advertising and promotional activities for the product must be consistent with
the approved summary of product characteristics, and therefore all off-label promotion is prohibited. Direct-to-consumer advertising of prescription
medicines is also prohibited in the EU. Although general requirements for advertising and promotion of medicinal products are established under EU
directives, the details are governed by regulations in each member state and can differ from one country to another.
The aforementioned EU rules are generally applicable in the European Economic Area, or EEA, which consists of the 27 EU member states plus Norway,
Liechtenstein and Iceland.
Failure to comply with EU and member state laws that apply to the conduct of clinical trials, manufacturing approval, MA of medicinal products and
marketing of such products, both before and after grant of the MA, manufacturing of pharmaceutical products, statutory health insurance, bribery and anti-
corruption or with other applicable regulatory requirements may result in administrative, civil or criminal penalties. These penalties could include delays or
refusal to authorize the conduct of clinical trials, or to grant MA, product withdrawals and recalls, product seizures, suspension, withdrawal or variation of
the MA, total or partial suspension of production, distribution, manufacturing or clinical trials, operating restrictions, injunctions, suspension of licenses,
fines and criminal penalties.
Brexit and the Regulatory Framework in the United Kingdom
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Since the end of the Brexit transition period on January 1, 2021, Great Britain (“GB”) (England, Scotland and Wales) has not been directly subject to EU
laws, however under the terms of the Ireland/Northern Ireland Protocol, EU laws generally apply to Northern Ireland. The EU laws that have been
transposed into United Kingdom (“UK”) law through secondary legislation remain applicable in GB. However, under the Retained EU Law (Revocation
and Reform) Bill 2022, which is currently before the UK parliament, any retained EU law not expressly preserved and “assimilated” into domestic law or
extended by ministerial regulations (to no later than June 23, 2026) will automatically expire and be revoked by December 31, 2023. However, new
legislation such as the (EU) CTR is not applicable in GB.
The UK Medicines and Medical Devices Act 2021, has introduced delegated powers in favor of the Secretary of State or an ‘appropriate authority’ to
amend or supplement existing regulations in the area of medicinal products and medical devices. This allows new rules to be introduced in the future by
way of secondary legislation, which aims to allow flexibility in addressing regulatory gaps and future changes in the fields of human medicines, clinical
trials and medical devices.
Since January 1, 2021, the Medicines and Healthcare products Regulatory Agency (“MHRA”), has been the UK’s standalone medicines and medical
devices regulator. As a result of the Northern Ireland protocol, different rules will apply in Northern Ireland than in GB; broadly, Northern Ireland will
continue to follow the EU regulatory regime, but its national competent authority will remain the MHRA.
The MHRA has introduced changes to national licensing procedures, including procedures to prioritize access to new medicines that will benefit patients,
including a 150-day assessment and a rolling review procedure. All existing EU MAs for centrally authorized products were automatically converted or
grandfathered into UK MAs, effective in GB (only), free of charge on January 1, 2021, unless the MA holder chooses to opt-out. In order to use the
centralized procedure to obtain a MA that will be valid throughout the EEA, companies must be established in the EEA. Therefore after Brexit, companies
established in the UK can no longer use the EU centralized procedure and instead an EEA entity must hold any centralized MAs. In order to obtain a UK
MA to commercialize products in the UK, an applicant must be established in the UK and must follow one of the UK national authorization procedures or
one of the remaining post-Brexit international cooperation procedures to obtain an MA to commercialize products in the UK. The MHRA may rely on a
decision taken by the European Commission on the approval of a new (centralized procedure) MA when determining an application for a GB authorization;
or use the MHRA’s decentralized or mutual recognition procedures which enable MAs approved in EU member states (or Iceland, Liechtenstein, Norway)
to be granted in GB.
There will be no pre-MA orphan designation. Instead, the MHRA will review applications for orphan designation in parallel to the corresponding MA
application. The criteria are essentially the same, but have been tailored for the market, i.e., the prevalence of the condition in GB, rather than the EU, must
not be more than five in 10,000. Should an orphan designation be granted, the period or market exclusivity will be set from the date of first approval of the
product in GB.
The UK regulatory framework in relation to clinical trials is derived from existing EU legislation (as implemented into UK law, through secondary
legislation). On January 17, 2022, the MHRA launched an eight-week consultation on reframing the UK legislation for clinical trials. The consultation
closed on March 14, 2022 and aims to streamline clinical trials approvals, enable innovation, enhance clinical trials transparency, enable greater risk
proportionality, and promote patient and public involvement in clinical trials. The outcome of the consultation is being closely watched and will determine
whether the UK chooses to align with the (EU) CTR or diverge from it to maintain regulatory flexibility.
Other Healthcare Laws and Compliance Requirements
In the United States, our activities are potentially subject to regulation under various federal and state healthcare laws including, among others, the federal
Anti-Kickback Statute, the federal False Claims Act and HIPAA. Similar laws exist in foreign jurisdictions including the EU, as well.
The U.S. federal Anti-Kickback Statute prohibits, among other things, any person or entity, from knowingly and willfully offering, paying, soliciting or
receiving any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or in return for purchasing, leasing, ordering or arranging
for the purchase, lease or order of any item or service reimbursable under Medicare, Medicaid or other federal healthcare programs. The term remuneration
has been interpreted broadly to include anything of value. A person does not need to have knowledge of the statute or specific intent to violate it to have
committed a violation.
The U.S. federal civil and criminal false claims laws, including the civil False Claims Act, which can be enforced through civil whistleblower or qui tam
actions, and civil monetary penalties laws, prohibit, among other things, any person or entity from knowingly presenting, or causing to be presented, a false
claim for payment to, or approval by, the federal government or knowingly making, using, or causing to be made or used a false record or statement
material to a false or fraudulent claim to the federal government, or from knowingly making a false statement to avoid, decrease or conceal an obligation to
pay money to the U.S.
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government. In addition, the government may assert that a claim including items or services resulting from a violation of the U.S. federal Anti-Kickback
Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act.
The U.S. Health Insurance Portability and Accountability Act of 1996, or HIPAA, created additional federal criminal statutes that prohibit knowingly and
willfully executing, or attempting to execute, a scheme to defraud or to obtain, by means of false or fraudulent pretenses, representations or promises, any
money or property owned by, or under the control or custody of, any healthcare benefit program, including private third-party payors and knowingly and
willfully falsifying, concealing or covering up by trick, scheme or device, a material fact or making any materially false, fictitious or fraudulent statement
in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the U.S. federal Anti-Kickback Statute, a person or entity
does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.
Additionally, the federal Physician Payments Sunshine Act, and its implementing regulations, require that certain manufacturers of drugs, devices,
biological and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain
exceptions) to report annually to CMS information related to certain payments or other transfers of value made or distributed to physicians (defined to
include doctors, dentists, optometrists, podiatrists and chiropractors), certain non-physician practitioners including physician assistants and nurse
practitioners, and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of, the physicians and teaching hospitals and to
report annually to CMS certain ownership and investment interests held by physicians and their immediate family members.
Moreover, analogous state and foreign laws and regulations may apply to our activities, such as state anti-kickback and false claims laws, which may apply
to our business practices, including, but not limited to, research, distribution, sales and marketing arrangements and claims involving healthcare items or
services reimbursed by non-governmental third-party payors, including private insurers, or by the patients themselves, state laws that require
pharmaceutical and device companies to comply with the industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by
the U.S. government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources, state and local laws and
regulations that require manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or
marketing expenditures and pricing information, and state and local laws which require the registration of pharmaceutical sales representatives.
Efforts to ensure that current and future business arrangements with third parties comply with applicable healthcare laws and regulations involves
substantial costs. If a business is found to be in violation of any of these or any other health regulatory laws that may apply to it, it may be subject to
significant penalties, including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgement, individual
imprisonment, possible exclusion from participation in Medicare, Medicaid and other U.S. healthcare programs, additional reporting requirements and
oversight if subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, contractual damages,
reputational harm, diminished profits and future earnings, and curtailment or restructuring of operations.
Coverage, Pricing and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status for newly approved therapeutics. In the United States and markets in other
countries, sales of any products for which we receive regulatory approval for commercial sale will depend, in part, on the extent to which third-party payors
provide coverage, and establish adequate reimbursement levels for such products. In the United States, third-party payors include federal and state
healthcare programs, private managed care providers, health insurers and other organizations. For products administered under the supervision of a
physician, obtaining coverage and adequate reimbursement may be particularly difficult because of the higher prices often associated with such drugs. A
payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. Further, one payor’s determination
to provide coverage for a product does not assure that other payors will also provide coverage for the product. Moreover, the coverage provided may be
more limited than the purposes for which the product is approved by the FDA. It is also possible that a third-party payor may consider a product as
substitutable and only offer to reimburse patients for the less expensive product. Adequate third-party payor reimbursement may not be available to enable
us to maintain price levels sufficient to realize an appropriate return on our investment in product development. Coverage policies and third-party payor
reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we
receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.
In the EU, governments influence the price of products through their pricing and reimbursement rules and control of national health care systems that fund
a large part of the cost of those products to consumers. Member states are free to restrict the range of pharmaceutical products for which their national
health insurance systems provide reimbursement, and to control the prices and reimbursement levels of pharmaceutical products for human use. Some
jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price has been agreed to by the
government. Member states may approve a specific price or level of reimbursement for the pharmaceutical product, or alternatively adopt a system of direct
or indirect controls
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on the profitability of the company responsible for placing the pharmaceutical product on the market, including volume-based arrangements, caps and
reference pricing mechanisms. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that
compare the cost effectiveness of a particular product candidate to currently available therapies. Other member states allow companies to fix their own
prices for medicines, but monitor and control company profits. The downward pressure on health care costs in general, particularly prescription products,
has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross border
imports from low-priced markets exert a commercial pressure on pricing within a country.
Healthcare Reform
In the United States and some foreign jurisdictions, there have been, and continue to be, several legislative and regulatory changes and proposed changes
regarding the healthcare system that could prevent or delay marketing approval of product candidates, restrict or regulate post-approval activities, and affect
the ability to profitably sell product candidates for which marketing approval is obtained. Among policy makers and payors in the United States and
elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality
and/or expanding access. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, collectively
the ACA, enacted in March 2010, has substantially changed healthcare financing and delivery by both governmental and private insurers. Among other
things the ACA included the following provisions:
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an annual, nondeductible fee on any entity that manufactures or imports certain specified branded prescription drugs and biologic agents
apportioned among these entities according to their market share in some government healthcare programs;
an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program;
a new Medicare Part D coverage gap discount program, in which manufacturers must now agree to point-of-sale discounts of 70% off negotiated
prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturers’ outpatient drugs
to be covered under Medicare Part D;
extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care
organizations;
expansion of eligibility criteria for Medicaid programs;
expansion of the entities eligible for discounts under the 340B Drug Discount Program;
a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research,
along with funding for such research;
a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled,
infused, instilled, implanted, or injected; and
a licensure framework for follow on biologic products.
Since its enactment, there have been judicial, administrative, executive, and legislative challenges to certain aspects of the ACA. On June 17, 2021, the U.S.
Supreme Court (the “Supreme Court”) dismissed the most recent judicial challenge to the ACA brought by several states on procedural grounds without
specifically ruling on the constitutionality of the ACA. Thus, the ACA will remain in effect in its current form. Prior to the Supreme Court's decision,
President Biden issued an executive order that initiated a special enrollment period from February 15, 2021 through August 15, 2021 for purposes of
obtaining health insurance coverage through the ACA marketplace. The executive order also instructed certain governmental agencies to review and
reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and
waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through
Medicaid or the ACA. It is unclear how other health reform measures of the Biden administration will impact our business.
In addition, other legislative changes have been proposed and adopted since the ACA was enacted. On August 2, 2011, the Budget Control Act of 2011 was
signed into law, which, among other things, included reductions to Medicare payments to providers of 2% per fiscal year, which went into effect on April 1,
2013 and, due to subsequent legislative amendments to the statute will remain in effect through 2030, with the exception of a temporary suspension from
May 1, 2020 through March 31, 2022, unless additional Congressional action is taken. On August 16, 2022, President Biden signed the Inflation Reduction
Act of 2022, or IRA, into law, which among other things, extends enhanced subsidies for individuals purchasing health insurance coverage in ACA
marketplaces through plan year 2025. The IRA also eliminates the “donut hole” under the Medicare Part D program beginning in 2025 by significantly
lowering the beneficiary maximum out-of-pocket cost and creating a new manufacturer discount program. It is possible that the ACA will be subject to
judicial or Congressional challenges in the future. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other
things, reduced Medicare payments to several providers, including hospitals, and increased the statute of limitations period for the government to recover
overpayments to providers from three to five years.
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Finally, there has been heightened governmental scrutiny recently over pharmaceutical pricing practices in light of the rising cost of prescription drugs and
biologics. Such scrutiny has resulted in several recent Congressional inquiries and proposed and enacted federal and state legislation designed to, among
other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform
government program reimbursement methodologies, rebates and price negotiation for pharmaceutical products. At the state level, legislatures have
increasingly passed legislation and implemented regulations designed to control pharmaceutical product and medical device pricing, including price or
patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some
cases, designed to encourage importation from other countries and bulk purchasing. In addition, regional healthcare authorities and individual hospitals are
increasingly using bidding procedures to determine what pharmaceutical products and medical devices to purchase and which suppliers will be included in
their prescription drug and other healthcare programs.
On December 13, 2021, Regulation No. 2021/2282 on Health Technology Assessment (“HTA”) was adopted. While the Regulation entered into force in
January 2022, it will only begin to apply from January 2025 onwards, with preparatory and implementation-related steps to take place in the interim. Once
the Regulation becomes applicable, it will have a phased implementation depending on the concerned products. This regulation intends to boost
cooperation among EU member states in assessing health technologies, including new medicinal products, and providing the basis for cooperation at the
EU level for joint clinical assessments in these areas. The regulation will permit EU member states to use common HTA tools, methodologies, and
procedures across the EU, working together in four main areas, including joint clinical assessment of the innovative health technologies with the most
potential impact for patients, joint scientific consultations whereby developers can seek advice from HTA authorities, identification of emerging health
technologies to identify promising technologies early, and continuing voluntary cooperation in other areas. Individual EU member states will continue to be
responsible for assessing non-clinical (e.g., economic, social, ethical) aspects of health technology, and making decisions on pricing and reimbursement.
Data Privacy and Security
Numerous state, federal and foreign laws, including consumer protection laws and regulations, govern the collection, dissemination, use, access to,
confidentiality and security of personal information, including health-related information. In the United States, numerous federal and state laws and
regulations, including data breach notification laws, health information privacy and security laws, and consumer protection laws and regulations, that
govern the collection, use, disclosure, and protection of health-related and other personal information could apply to our operations or the operations of our
partners. In addition, certain foreign laws, govern the privacy and security of personal information, including health-related information in certain
circumstances, and many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
Failure to comply with these laws, where applicable, can result in the imposition of significant civil and/or criminal penalties and private litigation. Privacy
and security laws, regulations, and other obligations are constantly evolving, may conflict with each other to complicate compliance efforts, and can result
in investigations, proceedings, or actions that lead to significant civil and/or criminal penalties and restrictions on data processing.
Human Capital
We are a purpose driven organization, and we have carefully cultivated a culture that values innovation, accountability, respect, adaptability and
perseverance. We strive to create an open, collaborative workplace that empowers Precisioneers to be their authentic selves and deliver meaningful and
inspiring work. We strongly believe that our shared values will empower our team to better navigate and overcome challenges we may experience as we
pursue our mission of improving life through genome editing. Through our diverse hiring and talent development practices with a focus on inclusion, we
have recruited and successfully retained world class talent with industry leading experience in genome editing. We will continue to build on these critical
capabilities to successfully impact the patients we ultimately wish to serve. We believe that all Precisioneers are inspired by developing high quality
research and have a passion to translate their work into therapies dedicated to improving life.
We are a company and a community dedicated to improving life. This isn’t just a statement supporting the products that we are developing – it is a
statement that speaks to our collective desire to do our part in improving the lives of those around us. Through our Diversity and Inclusion initiative, we are
actively fostering an environment that attracts the best talent, values diversity of life experiences and perspectives, and encourages innovation in pursuit of
our mission. With guest lectures, new trainings, development of employee resource groups, and other activities, we are supporting a workplace that reflects
and embraces the gender, race, ethnicity, sexual orientation, age, physical ability, as well as all cultural backgrounds in our community. As of February 21,
2023, our workforce was self-reportedly approximately 49% women and approximately 27% Asian, Black, Latinx, two or more races, or not defined. Our
senior leadership team and department heads were self-reportedly approximately 31% women and 8% Asian or Black as of February 21, 2023.
Notable benefits we offer to our full-time Precisioneers include:
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employer sponsored health insurance;
employer 401(k) matching contributions;
generous paid time off policies;
wellness programs including employee assistance programs, wellness reimbursement, and an on-site gym; and
professional development programs including a tuition reimbursement program.
As of December 31, 2022, we had 198 full-time Precisioneers. Of these full-time employees, 156 are engaged in research and development activities and 40
have Ph.D. or M.D. degrees. None of our employees are represented by a labor union or covered by a collective bargaining agreement.
Corporate Information
We were incorporated in Delaware in January 2006. Our principal executive offices are located at 302 East Pettigrew St., Suite A-100, Durham, North
Carolina 27701, and our telephone number is (919) 314-5512. Our website address is www.precisionbiosciences.com. The information contained in, or
accessible through, our website does not constitute a part of this Annual Report on Form 10-K.
Available Information
We file annual, quarterly and current reports, proxy statements and other information with the U.S. Securities and Exchange Commission (“SEC”). Our
SEC filings are available to the public over the Internet at the SEC’s website at www.sec.gov. Our SEC filings are also available free of charge under the
Investors and Media section of our website at www.precisionbiosciences.com as soon as reasonably practicable after they are filed with or furnished to the
SEC. Our website and the information contained on or connected to that site are not incorporated into this Annual Report on Form 10-K.
We may use our website as a distribution channel of material information about the Company. Financial and other important information regarding the
Company is routinely posted on and accessible through the Investors and Media section of our website at www.precisionbiosciences.com. In addition, you
may automatically receive email alerts and other information about the Company when you enroll your email address by visiting the “Email Alerts” option
under Investor Tools of the Investors and Media section of our website at www.precisionbiosciences.com.
Item 1A. Risk Factors.
Investing in our common stock involves a high degree of risk. Before investing in our common stock, you should consider carefully the risks described
below, together with the other information included or incorporated by reference in this Annual Report on Form 10-K. The occurrence of any of the
following risks could materially adversely affect our business, financial condition, results of operations and future growth prospects. In these
circumstances, the market price of our common stock could decline, and you may lose all or part of your investment.
Risks Related to Our Financial Condition, Limited Operating History and Need for Additional Capital
We have incurred significant operating losses since our inception and expect to continue to incur losses for the foreseeable future. We have not been
profitable and may not achieve or maintain profitability.
We do not expect to be profitable in the foreseeable future. Since inception, we have incurred significant operating losses. If our product candidates are not
successfully developed and approved, we may never generate any revenue from product sales. Our net loss was $111.6 million for the December 31, 2022.
As of December 31, 2022, we had an accumulated deficit of $428.3 million. In addition, we have not commercialized any products and have never
generated any revenue from product sales. Substantially all of our losses have resulted from expenses incurred in connection with our research and
development activities, including our preclinical development activities, and from general and administrative costs associated with our operations. We have
financed our operations primarily through proceeds from upfront and milestone payments from collaboration and licensing agreements, our IPO, private
placements of our common stock, convertible preferred stock and convertible debt financings, underwritten and at-the-market offerings of common stock,
and borrowings on credit facilities. The amount of our future net losses will depend, in part, on the amount and growth rate of our expenses and our ability
to generate revenues.
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All of our current or future product candidates will require substantial additional development time and resources before we may realize revenue from
product sales, if at all. We expect to continue to incur significant expenses and operating losses for the foreseeable future. We anticipate our expenses will
increase if and as we:
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continue our current research and development programs, including conducting laboratory and preclinical studies for product candidates;
continue to conduct or initiate clinical trials for product candidates;
seek to identify, assess, acquire or develop additional research programs or product candidates;
maintain, expand and protect our intellectual property portfolio;
seek marketing approvals for any product candidates that may successfully complete development;
establish a sales, marketing and distribution infrastructure to commercialize any products that may obtain marketing approval;
further develop and refine the manufacturing process for our product candidates;
change or add additional manufacturers or suppliers of biological materials or product candidates;
further develop our genome editing technology;
acquire or in-license other technologies;
seek to attract new and retain existing personnel;
expand our facilities; and
incur increased costs as a result of operating as a public company.
It will be several years, if ever, before we obtain regulatory approval for, and are ready for commercialization of, a therapeutic product candidate. Even if a
therapeutic product candidate receives regulatory approval, future revenues for such product candidate will depend upon many factors, such as, as
applicable, the size of any markets in which such product candidate is approved for sale, the market share captured by such product candidate, including as
a result of the market acceptance of such product candidate and the effectiveness of manufacturing, sales, marketing and distribution operations related to
such product candidate, the terms of any collaboration or other strategic arrangement we may have with respect to such product candidate and levels of
reimbursement from third-party payors. If we are unable to develop and commercialize one or more product candidates either alone or with collaborators,
or if revenues from any product candidate that receives marketing approval or is commercialized are insufficient, we may not achieve profitability. Even if
we do achieve profitability, we may not be able to sustain or increase profitability. If we are unable to achieve and maintain profitability, the value of our
common stock will be materially adversely affected.
We will need substantial additional funding, and if we are unable to raise a sufficient amount of capital when needed on acceptable terms, or at all, we
may be forced to delay, reduce or eliminate some or all of our research programs, product development activities and commercialization efforts.
The process of identifying product candidates and conducting preclinical studies and clinical trials is time-consuming, expensive, uncertain and takes years
to complete. We expect our expenses to increase in connection with our ongoing activities, particularly as we identify, continue the research and
development of, initiate and continue clinical trials of, and seek marketing approval for, product candidates. In addition, if any therapeutic product
candidate that we develop alone or with collaborators obtains marketing approval, we may incur significant commercialization expenses related to product
manufacturing, sales, marketing and distribution efforts. Furthermore, we have incurred, and expect to continue to incur, additional costs associated with
operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are
unable to raise sufficient capital when needed, we may be forced to delay, reduce or eliminate current or future research programs, product development
activities and/or commercialization efforts.
We believe that, as of the date of this Annual Report on Form 10-K, existing cash and cash equivalents, continued operational discipline, and available
credit will allow us to fund operating expense and capital expenditure requirements through the first quarter of 2025. We have based this estimate on
assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. Our operating plans and other demands
on our cash resources may change as a result of many factors, including factors unknown to us, and we may need to seek additional funds sooner than
planned, through public or private equity or debt financings or other sources, such as strategic collaborations. We do not currently expect future grant
revenues to be a material source of revenue.
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Attempting to secure additional financing may divert our management from our day-to-day activities, which may adversely affect our ability to develop
product candidates. Our future capital requirements will depend on many factors, including:
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the timing, scope, progress, costs, results and analysis of results of research activities, preclinical studies and clinical trials for any of our product
candidates;
the costs of future activities, including product manufacturing, sales, marketing and distribution activities for any product candidates that receive
regulatory approval;
the success of our existing collaborative relationships;
the extent to which we exercise any development or commercialization rights under collaborative relationships;
our ability to establish and maintain additional collaborative relationships on favorable terms, or at all;
the extent to which we expand our operations and the timing of such expansion, including with respect to facilities, employees and product
development platforms;
the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property and proprietary rights and
defending intellectual property-related claims;
the extent to which we acquire or in-license other technologies or product candidates;
the extent to which we acquire or invest in other businesses;
the costs of continuing to operate as a public company; and
the amount of revenues, if any, received from commercial sales of any products that we develop alone or with collaborators that receive
regulatory approval.
Even if we believe we have sufficient funds for our current or future operating plans, we may continue to seek additional capital if market conditions are
favorable or in light of specific strategic considerations. Adequate additional financing may not be available to us on acceptable terms, or at all. If we are
unable to obtain sufficient funding on a timely basis or on favorable terms, we may be required to significantly delay, reduce or eliminate one or more of
our research or product development programs and/or commercialization efforts. We may also be unable to expand our operations or otherwise capitalize
on business opportunities as desired. Any of these events could materially adversely affect our financial condition and business prospects.
Provisions of our debt instruments may restrict our ability to pursue our business strategies.
In May 2019, the Company entered into a loan and security agreement with Pacific Western Bank (“PWB”) (as subsequently amended, the “Revolving
Line”). Pursuant to the terms of the Revolving Line, we may request advances on a revolving line of credit of up to an aggregate principal of $30.0 million
and the maturity date of the Revolving Line is June 23, 2024. As of December 31, 2022, we had $22.5 million in borrowings under our Revolving Line.
Pursuant to the terms of the Revolving Line, we granted PWB a security interest in substantially all of our assets, excluding any of the intellectual property
now or hereafter owned, acquired or received by us (but including any rights to payment from the sale or licensing of any such intellectual property).
The Revolving Line requires us, and any debt instruments we may enter into in the future may require us, to comply with various covenants that limit our
ability to, among other things:
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dispose of assets;
change our name, location, executive office or executive management, business, fiscal year, or control;
complete mergers or acquisitions;
incur indebtedness;
encumber assets;
pay dividends or make other distributions to holders of our capital stock;
make specified investments;
make capitalized expenditures in excess of $40 million in the aggregate during each fiscal year;
maintain less than $10.0 million of unrestricted cash at PWB; and
engage in certain transactions with our affiliates.
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These restrictions could inhibit our ability to pursue our business strategies. In addition, we are subject to financial covenants based on minimum cash
balances.
Raising additional capital may cause dilution to our stockholders restrict our operations or require us to relinquish rights to our technologies or
product candidates.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity and/or debt
financings and collaborations, licensing agreements or other strategic arrangements. To the extent that we raise additional capital through the sale of equity
or convertible debt securities, including in underwritten and at-the-market offerings, stockholders' ownership interest will be diluted, and the terms of such
securities may include liquidation or other preferences that adversely affect common stockholders' rights. To the extent that we raise additional capital
through debt financing, it would result in increased fixed payment obligations and a portion of our operating cash flows, if any, being dedicated to the
payment of principal and interest on such indebtedness. In addition, debt financing may involve agreements that include restrictive covenants that impose
operating restrictions, such as restrictions on the incurrence of additional debt, the making of certain capital expenditures or the declaration of dividends. To
the extent we raise additional capital through arrangements with collaborators or otherwise, we may be required to relinquish some of our technologies,
research programs, product development activities, product candidates and/or future revenue streams, license our technologies and/or product candidates on
unfavorable terms or otherwise agree to terms unfavorable to us. Furthermore, any capital raising efforts may divert our management from their day-to-day
activities, which may adversely affect our ability to advance research programs, product development activities or product candidates.
We have a limited operating history, which makes it difficult to evaluate our current business and future prospects and may increase the risk of your
investment.
We are a genome editing company with a limited operating history. We formed our company in 2006 and spent the first nine years of our company’s history
developing and refining our core technology, and only during the past several years have we focused our efforts on advancing the development of product
candidates.
Investment in biopharmaceutical product development is a highly speculative endeavor. It entails substantial upfront capital expenditures, and there is
significant risk that any product candidate will fail to demonstrate adequate efficacy or an acceptable safety profile, obtain any required regulatory
approvals or become commercially viable. Our genome editing platform and the technologies we are using are new and unproven. We have initiated a
Phase 1b/2a clinical trial in patients with R/R NHL and R/R B-ALL and a Phase 1 clinical trial in patients with NHL. In addition, we will not be continuing
a previously initiated Phase 1/2a clinical trial in patients with R/R multiple myeloma, in light of the competitive landscape of BCMA targeted therapies in
multiple myeloma. We have not yet demonstrated an ability to successfully complete any clinical trials, obtain any required marketing approvals,
manufacture products, conduct sales, marketing and distribution activities, or arrange for a third party to do any of the foregoing on our behalf.
Consequently, any predictions made about our future success or viability may not be as accurate as they could be if we had a history of successfully
developing and commercializing products.
Additionally, we encounter risks and difficulties frequently experienced by new and growing companies in rapidly developing and changing industries,
particularly the nascent and swiftly evolving gene editing field, including challenges in forecasting accuracy, determining appropriate investments of our
limited resources, gaining market acceptance of our technology, managing a complex regulatory landscape and developing new product candidates, which
may make it more difficult to evaluate our likelihood of success. Our current operating model may require changes in order for us to adjust to these
challenges or scale our operations efficiently. Our limited operating history, particularly in light of the rapidly evolving nature of the biopharmaceutical
industry and the genome editing field, may make it difficult to evaluate our technology and business prospects or to predict our future performance.
Additionally, due to the stage of our operations, we expect that our financial condition and operating results may fluctuate significantly from quarter to
quarter as a result of many factors as we build our business, and you should not rely upon the results of any particular quarterly or annual period as
indications of future operating performance.
We may expend our limited resources on pursuing particular research programs or product candidates that may be less successful or profitable than
other programs or product candidates.
Research programs to identify new product candidates and product development platforms require substantial technical, financial and human resources. We
are continually evaluating our business strategy and may modify this strategy in light of developments in our business and other factors. We may focus our
efforts and resources on potential programs, product candidates or product development platforms that ultimately prove to be unsuccessful. Any time, effort
and financial resources we expend on identifying and researching new product candidates and product development platforms may divert our attention
from, and adversely affect our ability to continue, development and commercialization of existing research programs, product candidates and product
development platforms. Clinical trials of any of our product candidates may never commence despite the expenditure of significant resources in pursuit of
their development, and our spending on current and future research and development programs, product candidates and product
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development platforms may not yield any commercially viable products. As a result of having limited financial and managerial resources, we may forego or
delay pursuit of opportunities that later prove to have greater commercial potential. For example, as part of the ongoing strategic prioritization exercise, in
2023 we announced that while we will continue to pursue gene knock-out opportunistically, the proof-of-concept data continues to lead toward prioritizing
programs involving complex edits and gene insertion. As such, we made the decision to cease pursuit of PBGENE-PCSK9 for FH with iECURE as our
partner. We also made the choice to look for a partner in the kidney disease arena for further development of PBGENE-PH1 and will no longer develop the
program on our own. There is no guarantee that this ongoing prioritization review will ultimately lead to any viable commercial products, profitable market
opportunities or other value-enhancing activities. Our resource allocation decisions may cause us to fail to timely capitalize on viable commercial products
or profitable market opportunities. Additionally, if we do not accurately evaluate the commercial potential or target market for a particular product
candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other strategic arrangements in cases in which it
would have been more advantageous for us to retain sole development and commercialization rights to such product candidate.
Risks Related to the Identification, Development and Commercialization of Our Product Candidates
ARCUS is a novel technology, making it difficult to predict the time, cost and potential success of product candidate development. We have not yet been
able to assess the safety and efficacy of most of our product candidates in humans and have only limited safety and efficacy information in humans to
date regarding three of our product candidates.
Our success depends on our ability to develop and commercialize product candidates using our novel genome editing technology. The novel nature of our
technology makes it difficult to accurately predict the developmental challenges we may face for product candidates as they proceed through research,
preclinical studies and clinical trials. There have been a limited number of clinical trials of products created with genome editing technologies, four of
which have utilized our technology. Because our therapeutic research programs are all in preclinical or early clinical stages, we have only been able to
assess limited safety and efficacy data of our product candidates in human trials. Current or future product candidates may not meet safety and efficacy
requirements for continued development or ultimate approval in humans and may cause significant adverse events or toxicities. All of our product
candidates are designed to act at the level of DNA, and because animal DNA differs from human DNA, it will be difficult for us to test our therapeutic
product candidates in animal models for either safety or efficacy, and any testing that we conduct may not translate to their effects in humans. Moreover,
animal models may not exist for some of the targets, diseases or indications that we intend to pursue. Our product candidates may not be able to properly
implement desired genetic edits with sufficient accuracy to be viable therapeutic products, and there may be long-term effects associated with them that we
cannot predict at this time. Any problems we experience related to the development of our genome editing technology or any of our or our collaborators’
research programs or product candidates may cause significant delays or unanticipated costs, and we may not be able to satisfactorily solve such problems.
These factors may prevent us or our collaborators from completing our preclinical studies or any clinical trials that we or our collaborators have ongoing or
may initiate, or profitably commercializing any product candidates on a timely basis, or at all. We may also experience delays in developing a sustainable,
reproducible and scalable manufacturing process as we develop and prepare to commercialize product candidates. These factors make it more difficult for
us to predict the time, cost and potential success of product candidate development. If our product development activities take longer or cost more than
anticipated, or if they ultimately are not successful, it would materially adversely affect our business and results of operations.
The genome editing field is relatively new and evolving rapidly, and other existing or future technologies may provide significant advantages over our
ARCUS platform, which could materially harm our business.
To date, we have focused our efforts on optimizing our proprietary genome editing technology and exploring its potential applications. ARCUS is a novel
genome editing technology using sequence-specific DNA-cutting enzymes, or nucleases, that is designed to perform modifications in the DNA of living
cells and organisms. Other companies have previously undertaken research and development of genome editing technologies using zinc finger nucleases,
transcription activator-like effector nucleases (“TALENs”) and clustered regularly interspaced short palindromic repeats associated protein-9 nuclease
(“CRISPR/Cas9”), although none has obtained marketing approval for a product candidate developed using such technologies. Other genome editing
technologies in development or commercially available, or other existing or future technologies, may lead to treatments or products that may be considered
better suited for use in human therapeutics, which could reduce or eliminate our commercial opportunity.
We are heavily dependent on the successful development and translation of ARCUS, and due to the early stages of our product development operations,
we cannot give any assurance that any product candidates will be successfully developed and commercialized.
We are at an early stage of development of the product candidates currently in our programs and are continuing to develop our ARCUS technology. To date,
we have invested substantially all of our efforts and financial resources to develop ARCUS and advance our current product development programs,
including conducting preclinical studies, early stage clinical trials and other early research and development activities, and providing general and
administrative support for these operations. We are also currently using our
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ARCUS technology to develop our lead in vivo gene editing programs targeting HBV, DMD, and certain hemoglobinopathies, among other indications. Our
future success is dependent on our ability to successfully develop and, where applicable, obtain regulatory approval for, including marketing approval for,
and then successfully commercialize, product candidates, either alone or with collaborators. We have not yet developed and commercialized any product
candidates, and we may not be able to do so, alone or with collaborators.
Our research and development programs may not lead to the successful identification, development or commercialization of any products.
The success of our business depends primarily upon our ability to identify, develop and commercialize products using our genome editing technology. With
the exception of our CD19 and CD19B product candidates, all of our product candidates and product development programs we are currently pursuing are
still in the discovery or preclinical stages. We may be unsuccessful in advancing those product candidates into clinical development or in identifying any
developing additional product candidates. Our ability to identify and develop product candidates is subject to the numerous risks associated with preclinical
and early stage biotechnology development activities, including that:
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the use of ARCUS may be ineffective in identifying additional product candidates;
we may not be able to assemble sufficient resources to acquire or discover additional product candidates;
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we may not be able to enter into collaborative arrangements to facilitate development of product candidates, the terms of our collaborative
arrangements may change, or our collaborative arrangements may be terminated;
competitors may develop alternatives that render our product candidates obsolete or less attractive;
our product candidates may be covered by third parties’ patents or other exclusive rights;
the regulatory pathway for a product candidate may be too complex, expensive or otherwise difficult to navigate successfully; or
our product candidates may be shown to not be effective, have harmful side effects or otherwise pose risks not outweighed by such product
candidate’s benefits or have other characteristics that may make the products impractical to manufacture, unlikely to receive any required
marketing approval, unlikely to generate sufficient market demand or otherwise not achieve profitable commercialization.
Our product candidates currently being investigated in clinical trials, or that are expected to be investigated in clinical trials, and other product candidates
we may identify may never be approved. Failure to successfully identify and develop new product candidates and obtain regulatory approvals for our
products would have a material adverse effect on our business and financial condition and could cause us to cease operations.
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If our product candidates do not achieve projected development milestones or commercialization in the announced or expected timeframes, the further
development or commercialization of such product candidates may be delayed, and our business will be harmed.
We sometimes estimate, or may in the future estimate, the timing of the accomplishment of various scientific, clinical, manufacturing, regulatory and other
product development objectives. These milestones may include our expectations regarding the commencement or completion of scientific studies or clinical
trials, the submission of regulatory filings, the receipt of marketing approval or the realization of other commercialization objectives. The achievement of
many of these milestones may be outside of our control. All of these milestones are based on a variety of assumptions, including assumptions regarding
capital resources, constraints and priorities, progress of and results from development activities, participation of third parties including outside collaborators
or vendors, the receipt of key regulatory approvals or actions, and other factors, including without limitation, impacts resulting from the COVID-19
pandemic and its variants, any of which may cause the timing of achievement of the milestones to vary considerably from our estimates. If we or our
collaborators fail to achieve announced milestones in the expected timeframes, the commercialization of the product candidates may be delayed, our
credibility may be undermined, our business and results of operations may be harmed, and the trading price of our common stock may decline.
Adverse public perception of genome editing may negatively impact the developmental progress or commercial success of products that we develop
alone or with collaborators.
The developmental and commercial success of our current product candidates, or any that we develop alone or with collaborators in the future, will depend
in part on public acceptance of the use of genome editing technology for the prevention or treatment of human diseases. Adverse public perception of
applying genome editing technology for these purposes may negatively impact our ability to raise capital or enter into strategic agreements for the
development of product candidates.
Any therapeutic product candidates may involve editing the human genome. The commercial success of any such potential therapeutic products, if
successfully developed and approved, may be adversely affected by claims that genome editing is unsafe, unethical or immoral. This may lead to
unfavorable public perception and the inability of any therapeutic product candidates to gain the acceptance of the public or the medical community.
Unfavorable public perceptions may also adversely impact our or our collaborators’ ability to enroll clinical trials for therapeutic product candidates.
Moreover, success in commercializing any therapeutic product candidates that receive regulatory approval will depend upon physicians prescribing, and
their patients being willing to receive, treatments that involve the use of such product candidates in lieu of, or in addition to, existing treatments with which
they are already familiar and for which greater clinical data may be available. Publicity of any adverse events in, or unfavorable results of, preclinical
studies or clinical trials for any current or future product candidates, including, without limitation, patient deaths, or with respect to the studies or trials of
our competitors or of academic researchers utilizing genome editing technologies, even if not ultimately attributable to our technology or product
candidates, could negatively influence public opinion. Negative public perception about the use of genome editing technology in human therapeutics,
whether related to our technology or a competitor’s technology, could result in increased governmental regulation, delays in the development and
commercialization of product candidates or decreased demand for the resulting products, any of which may have a negative impact on our business and
financial condition.
We face significant competition in industries experiencing rapid technological change, and there is a possibility that our competitors may achieve
regulatory approval before us or develop product candidates or treatments that are safer or more effective than ours, which may harm our financial
condition and our ability to successfully market or commercialize any of our product candidates.
The development and commercialization of new drug products is highly competitive, and the genome editing field is characterized by rapidly changing
technologies, significant competition and a strong emphasis on intellectual property. We will face competition with respect to our current and future
therapeutic product candidates from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide.
Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research,
seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization of products.
There are a number of large pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of
products for the treatment of the disease indications for which we have research programs. Some of these competitive products and therapies are based on
scientific approaches that are similar to our approach, and others are based on entirely different approaches. We principally compete with others developing
and utilizing genome editing technology in the human health sector, including companies such as Allogene Therapeutics, Inc., Alnylam Pharmaceuticals,
Inc., Beam Therapeutics Inc., Caribou Biosciences, Inc., Cellectis S.A., CRISPR Therapeutics AG, Editas Medicine, Inc., Intellia Therapeutics, Inc., and
Verve Therapeutics, Inc. Several companies, including Novartis Pharmaceuticals Corp., Celgene Corp., and Gilead Sciences, Inc. have obtained FDA
approval for autologous immunotherapies, and a number of companies, including Cellectis S.A., Allogene Therapeutics and CRISPR Therapeutics AG, are
pursuing allogeneic immunotherapies. We expect that our operations focused on developing
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products for in vivo gene editing will face substantial competition from others focusing on gene therapy treatments, especially those that may focus on
conditions that our product candidates target. Moreover, any human therapeutics products that we develop alone or with collaborators will compete with
existing standards of care for the diseases and conditions that our product candidates target and other types of treatments, such as small molecule, antibody
or protein therapies.
Many of our current or potential competitors, either alone or with their collaborators, have significantly greater financial resources and expertise in research
and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we
do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller
number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements
with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel
and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our
programs. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more
effective, have fewer or less severe side effects, are more convenient or are less expensive than any products we develop alone or with collaborators or that
would render any such products obsolete or non-competitive. Our competitors also may obtain FDA or other regulatory approval for their products more
rapidly than we or our collaborators may obtain approval for any that we develop, which could result in our competitors establishing a strong market
position before we are able to enter the market. Additionally, technologies developed by our competitors may render our product candidates uneconomical
or obsolete, and we or our collaborators may not be successful in marketing any product candidates we may develop against competitors. The availability
of our competitors’ products could limit the demand, and the price we are able to charge, for any products that we develop alone or with collaborators.
Our future profitability, if any, will depend in part on our ability and the ability of our collaborators to commercialize any products that we or our
collaborators may develop in markets throughout the world. Commercialization of products in various markets could subject us to risks and
uncertainties, including:
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obtaining, on a country-by-country basis, the applicable marketing authorization from the competent regulatory authority;
the burden of complying with complex and changing regulatory, tax, accounting, labor and other legal requirements in each jurisdiction that we
or our collaborators pursue;
reduced protection for intellectual property rights;
differing medical practices and customs affecting acceptance in the marketplace;
import or export licensing requirements;
governmental controls, trade restrictions or changes in tariffs;
economic weakness, including inflation, political instability in particular foreign economies and markets, or civil unrest or war, such as the
current conflict between Russia and Ukraine;
production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad;
longer accounts receivable collection times;
longer lead times for shipping;
language barriers;
foreign currency exchange rate fluctuations;
foreign reimbursement, pricing and insurance regimes; and
the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute.
We have limited or no prior experience in these areas, and our collaborators may have limited experience in these areas. Failure to successfully navigate
these risks and uncertainties may limit or prevent market penetration for any products that we or our collaborators may develop, which would limit their
commercial potential and our revenues.
Product liability lawsuits against us could cause us to incur substantial liabilities and could limit commercialization of any products that we develop
alone or with collaborators.
We face an inherent risk of product liability and professional indemnity exposure related to the testing in clinical trials of our product candidates. We will
face an even greater liability risk if we commercially sell any products that we or our collaborators may develop for human use. Manufacturing defects,
errors in product distribution or storage processes, improper administration or application and known or unknown side effects of product usage may result
in liability claims against us or third parties with which we have
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relationships. These actions could include claims resulting from acts by our collaborators, licensees and subcontractors over which we have little or no
control.
For example, our liability could be sought by patients participating in clinical trials for potential therapeutic product candidates as a result of unexpected
side effects, improper product administration or the deterioration of a patient’s condition, patient injury or even death. Criminal or civil proceedings might
be filed against us by patients, regulatory authorities, biopharmaceutical companies and any other third party using or marketing any product candidates or
products that we develop alone or with collaborators. On occasion, large judgments have been awarded in class action lawsuits based on products that had
unanticipated adverse effects. If we cannot successfully defend ourselves against claims that product candidates or products we develop alone or with
collaborators caused harm, we could incur substantial liabilities.
Regardless of merit or eventual outcome, liability claims may result in:
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significant time and costs to defend the related litigation;
injury to our reputation and significant negative media attention;
diversion of management’s attention from pursuing our strategy;
withdrawal of clinical trial participants;
delay or termination of clinical trials;
decreased demand for any products that we develop alone or with collaborators;
substantial monetary awards to trial participants or patients;
product recalls, withdrawals or labeling, marketing or promotional restrictions;
loss of revenue; and
the inability to further develop or commercialize any products.
Although the clinical trial process is designed to identify and assess potential side effects, clinical development does not always fully characterize the safety
and efficacy profile of a new medicine, and it is always possible that a drug or biologic, even after regulatory approval, may exhibit unforeseen side effects.
If our product candidates were to cause adverse side effects during clinical trials or after approval, we may be exposed to substantial liabilities. Physicians
and patients may not comply with any warnings that identify known potential adverse effects and patients who should not use our product candidates. If any
of our product candidates are approved for commercial sale, we will be highly dependent upon consumer perceptions of us and the safety and quality of
such products. We could be adversely affected if we are subject to negative publicity associated with illness or other adverse effects resulting from patients’
use or misuse of such products or any similar products distributed by other companies.
Although we maintain product liability insurance coverage, it may not be adequate to cover all liabilities that we may incur. We anticipate that we will need
to increase our insurance coverage if we or our collaborators successfully commercialize any products. Insurance coverage is increasingly expensive. We
may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liabilities to which we may become subject.
Additional Risks Related to the Identification, Development and Commercialization of Our Therapeutic Product Candidates
The regulatory landscape that will apply to development of therapeutic product candidates by us or our collaborators is rigorous, complex, uncertain
and subject to change, which could result in delays or termination of development of such product candidates or unexpected costs in obtaining
regulatory approvals.
Regulatory requirements governing products created with genome editing technology or involving gene therapy treatment have changed frequently and will
likely continue to change in the future. Approvals by one regulatory agency may not be indicative of what any other regulatory agency may require for
approval, and there has historically been substantial, and sometimes uncoordinated, overlap in those responsible for regulation of gene therapy products,
cell therapy products and other products created with genome editing technology. For example, in the United States, the FDA has established the Office of
Therapeutic Products within its Center for Biologics Evaluation and Research (“CBER”) to consolidate the review of gene therapy and related products,
and the Cellular, Tissues, and Gene Therapies Advisory Committee to advise CBER on its review. Our product candidates will need to meet safety and
efficacy standards applicable to any new biologic under the regulatory framework administered by the FDA.
In addition to the submission of an IND to the FDA, before initiation of a clinical trial in the United States, certain human clinical trials subject to the NIH
Guidelines are subject to review and oversight by an institutional biosafety committee (“IBC”), a local
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institutional committee that reviews and oversees research utilizing recombinant or synthetic nucleic acid molecules at that institution. The IBC assesses the
safety of the research and identifies any potential risk to public health or the environment, and such review may result in some delay before initiation of a
clinical trial. While the NIH Guidelines are not mandatory unless the research in question is being conducted at or sponsored by institutions receiving NIH
funding of recombinant or synthetic nucleic acid molecule research, many companies and other institutions not otherwise subject to the NIH Guidelines
voluntarily follow them. We are subject to significant regulatory oversight by the FDA, and in addition to the government regulators, the applicable IBC
and IRB of each institution at which we or our collaborators conduct clinical trials of our product candidates, or a central IRB if appropriate, would need to
review and approve the proposed clinical trial.
The same applies in the EU. The EMA has a Committee for Advanced Therapies (“CAT”) that is responsible for assessing the quality, safety and efficacy
of ATMPs. ATMPs include gene therapy medicine, somatic-cell therapy medicines and tissue-engineered medicines. The role of the CAT is to prepare a
draft opinion on an application for marketing authorization for a gene therapy medicinal product candidate that is submitted to the EMA. In the EU, the
development and evaluation of a gene therapy medicinal product must be considered in the context of the relevant EU guidelines. The EMA may issue new
guidelines concerning the development and marketing authorization for gene therapy medicinal products and require that we comply with these new
guidelines. Similarly complex regulatory environments exist in other jurisdictions in which we might consider seeking regulatory approvals for our product
candidates, further complicating the regulatory landscape. As a result, the procedures and standards applied to gene therapy products and cell therapy
products may be applied to any of our gene therapy or genome editing product candidates, but that remains uncertain at this point.
The clinical trial requirements of the FDA, the EMA and other foreign regulatory authorities and the criteria these regulators use to evaluate the safety and
efficacy of a product candidate vary substantially according to the type, complexity, novelty and intended use and market of the potential products. The
regulatory approval process for product candidates created with novel genome editing technology such as ours can be more lengthy, rigorous and expensive
than the process for other better known or more extensively studied product candidates and technologies. Since we are developing novel treatments for
diseases in which there is little clinical experience with new endpoints and methodologies, there is heightened risk that the FDA, the EMA or comparable
regulatory bodies may not consider the clinical trial endpoints to provide clinically meaningful results, and the resulting clinical data and results may be
more difficult to analyze. This may be a particularly significant risk for many of the genetically defined diseases for which we may develop product
candidates alone or with collaborators due to small patient populations for those diseases, and designing and executing a rigorous clinical trial with
appropriate statistical power is more difficult than with diseases that have larger patient populations. Regulatory agencies administering existing or future
regulations or legislation may not allow production and marketing of products utilizing genome editing technology in a timely manner or under technically
or commercially feasible conditions. Even if our product candidates obtain required regulatory approvals, such approvals may later be withdrawn as a result
of changes in regulations or the interpretation of regulations by applicable regulatory agencies.
Changes in applicable regulatory guidelines may lengthen the regulatory review process for our product candidates, require additional studies or trials,
increase development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of such product
candidates, or lead to significant post-approval limitations or restrictions. Additionally, adverse developments in clinical trials conducted by others of gene
therapy products or products created using genome editing technology, such as products developed through the application of a CRISPR/Cas9 technology,
or adverse public perception of the field of genome editing, may cause the FDA, the EMA and other regulatory bodies to revise the requirements for
approval of any product candidates we may develop or limit the use of products utilizing genome editing technologies, either of which could materially
harm our business. Furthermore, regulatory action or private litigation could result in expenses, delays or other impediments to our research programs or
the development or commercialization of current or future product candidates.
As we advance product candidates alone or with collaborators, we will be required to consult with these regulatory and advisory groups and comply with
all applicable guidelines, rules and regulations. If we fail to do so, we or our collaborators may be required to delay or terminate development of such
product candidates. Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary to bring a product candidate to market
could decrease our ability to generate sufficient product revenue to maintain our business.
We may not be able to submit INDs to the FDA or CTAs to comparable foreign authorities to commence additional clinical trials on the timelines we
expect, and even if we are able to, the FDA or comparable foreign authorities may not permit us to proceed.
We plan to submit INDs and CTAs to enable us to conduct clinical trials for additional product candidates in the future, and we expect to file IND
amendments to enable us to conduct additional clinical trials under existing INDs. We cannot be sure that submission of an IND, CTA, or IND amendment
will result in us being allowed to proceed with clinical trials, or that, once begun, issues will not arise that could result in the suspension or termination such
clinical trials. The manufacturing of allogeneic CAR T cell therapy and in vivo therapies for genetic and infectious diseases remains an emerging and
evolving field. Accordingly, we expect CMC related topics, including product specifications, will be a focus of IND and CTA reviews, which may delay
receipt of authorization to proceed under
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INDs and CTAs. Additionally, even if such regulatory authorities agree with the design and implementation of the clinical trials set forth in an IND or CTA,
we cannot guarantee that such regulatory authorities will not change their requirements in the future. Similar risks may exist in foreign jurisdictions where
we intend to conduct clinical trials.
The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable, and if we
are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.
We and any collaborators are not permitted to commercialize, market, promote or sell any product candidate in the United States without obtaining
marketing approval from the FDA. Foreign regulatory authorities impose similar requirements. The time required to obtain approval by the FDA and
comparable foreign authorities is unpredictable, but typically takes many years following the commencement of clinical trials and depends upon numerous
factors, including substantial discretion of the regulatory authorities and sufficient resources at the FDA or foreign regulatory authorities. In addition,
approval policies, regulations or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s
clinical development and may vary among jurisdictions. To date, we have not submitted a BLA or other marketing authorization application to the FDA or
similar drug approval submissions to comparable foreign regulatory authorities for any product candidate. We and any collaborators must complete
additional preclinical or nonclinical studies and clinical trials to demonstrate the safety and efficacy of our product candidates in humans to the satisfaction
of the regulatory authorities before we will be able to obtain these approvals.
Our product candidates could fail to receive regulatory approval for many reasons, including the following:
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the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our or our collaborators’ clinical trials;
we or our collaborators may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product
candidate is safe and effective for its proposed indication;
the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for
approval;
we or our collaborators may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;
the FDA or comparable foreign regulatory authorities may disagree with our or our collaborators’ interpretation of data from preclinical studies
or clinical trials;
the data collected from clinical trials of product candidates may not be sufficient to support the submission of a BLA or other submission or to
obtain regulatory approval in the United States or elsewhere;
the FDA or comparable foreign regulatory authorities may fail to approve our manufacturing processes or facilities or those of third-party
manufacturers with which we or our collaborators contract for clinical and commercial supplies;
the FDA, comparable foreign regulatory authorities or notified bodies may fail to approve or certify the companion diagnostics we may
contemplate developing with collaborators; and
the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our
or our collaborators’ clinical data insufficient for approval.
This lengthy approval process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval to market
our product candidates, which would significantly harm our business, results of operations and prospects.
In addition, even if we were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited indications than
we request, may impose significant limitations in the form of narrow indications, warnings, or a REMS or similar risk management measures. Regulatory
authorities may not approve the price we or our collaborators intend to charge for products we may develop, may grant approval contingent on the
performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims necessary or
desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios could materially harm the commercial prospects
for our product candidates.
In addition, FDA and foreign regulatory authorities may change their approval policies and new regulations may be enacted. For instance, the EU
pharmaceutical legislation is currently undergoing a complete review process, in the context of the Pharmaceutical Strategy for Europe initiative, launched
by the European Commission in November 2020. The European Commission’s proposal for revision of several legislative instruments related to medicinal
products (potentially revising the duration of regulatory exclusivity, eligibility for expedited pathways, etc.) is currently expected during the first quarter of
2023. The proposed revisions, once they are
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agreed and adopted by the European Parliament and European Council (not expected before the end of 2024 or early 2025) may have a significant impact
on the biopharmaceutical industry in the long term.
Clinical trials are difficult to design and implement, expensive, time-consuming and involve an uncertain outcome, and the inability to successfully and
timely conduct clinical trials and obtain regulatory approval for our product candidates would substantially harm our business.
Clinical testing is expensive and usually takes many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the
clinical trial process, and product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed
through preclinical studies and initial clinical trials. We have initiated a Phase 1b/2a clinical trial in patients with R/R NHL or R/R B-ALL, and a Phase 1
clinical trial in patients with NHL. In addition, we will not be continuing a previously initiated Phase 1/2a clinical trial in subjects with R/R multiple
myeloma, in light of the competitive landscape of BCMA targeted therapies in multiple myeloma. We do not know whether any current or planned clinical
trials will need to be redesigned, recruit and enroll patients on time or be completed on schedule, or at all. Clinical trials have been and may in the future be
delayed, suspended or terminated for a variety of reasons, including in connection with:
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the inability to generate sufficient preclinical, toxicology or other in vivo or in vitro data to support the initiation of clinical trials;
applicable regulatory authorities disagreeing as to the design or implementation of the clinical trials;
obtaining regulatory authorization to commence a trial;
reaching an agreement on acceptable terms with prospective contract research organizations (“CROs”) and clinical trial sites, the terms of which
can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
obtaining IRB or ethics committee approval or positive opinion at each site;
developing and validating the companion diagnostic to be used in a clinical trial, if applicable;
insufficient or inadequate supply or quality of product candidates or other materials, including identification of lymphocyte donors meeting
regulatory standards necessary for use in clinical trials, or delays in sufficiently developing, characterizing or controlling a manufacturing process
suitable for clinical trials;
recruiting and retaining enough suitable patients to participate in a trial;
having enough patients complete a trial or return for post-treatment follow-up;
adding a sufficient number of clinical trial sites;
inspections of clinical trial sites or operations by applicable regulatory authorities, or the imposition of a clinical hold;
clinical sites deviating from trial protocol or dropping out of a trial;
the inability to demonstrate the efficacy and benefits of a product candidate;
discovering that product candidates have unforeseen safety issues, undesirable side effects or other unexpected characteristics;
addressing patient safety concerns that arise during the course of a trial;
receiving untimely or unfavorable feedback from applicable regulatory authorities regarding the trial or requests from regulatory authorities to
modify the design of a trial;
non-compliance with applicable regulatory requirements by us or third parties or changes in such regulations or administrative actions;
suspensions or terminations by IRBs of the institutions at which such trials are being conducted, by the Data Safety Monitoring Board (“DSMB”)
for such trial or by the FDA or other foreign regulatory authorities due to a number of factors, including those described above;
third parties being unable or unwilling to satisfy their contractual obligations to us;
competitive pressures and other market conditions;
changes in our financial priorities, greater than anticipated costs of completing a trial or our inability to continue funding the trial; or
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unforeseen events, such as natural or manmade disasters, public health emergencies, such as the COVID-19 pandemic and its variants, which has
and may continue to impact our operations, or other natural catastrophic events.
Many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory
approval of our product candidates. Additionally, we or our collaborators may experience unforeseen events during or resulting from clinical trials that
could delay or prevent receipt of marketing approval for or commercialization of product candidates. For example, clinical trials of product candidates may
produce negative, inconsistent or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon
development programs. Regulators may also revise the requirements for approving the product candidates, or such requirements may not be as we
anticipate. If we or our collaborators are required to conduct additional clinical trials or other testing of product candidates beyond those that we or our
collaborators currently contemplate, if we or our collaborators are unable to successfully complete clinical trials or other testing of such product candidates,
if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:
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incur unplanned costs;
be delayed in obtaining or fail to obtain marketing approval for product candidates;
obtain marketing approval in some countries and not in others;
obtain marketing approval for indications or patient populations that are not as broad as intended or desired;
obtain marketing approval with labeling that includes significant use or distribution restrictions or safety warnings, including boxed warnings;
be subject to additional post-marketing testing requirements;
be subject to changes in the way the product is administered;
have regulatory authorities withdraw or suspend their approval of the product or impose restrictions on its distribution;
be sued; or
experience damage to our reputation.
If we or our collaborators experience delays in the commencement or completion of our clinical trials, or if we or our collaborators terminate a clinical trial
prior to completion, we may experience increased costs, have difficulty raising capital and/or be required to slow down the development and approval
process timelines. Furthermore, the product candidates that are the subject of such trials may never receive regulatory approval, and their commercial
prospects and our ability to generate product revenues from them could be impaired or not realized at all.
Moreover, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive compensation in
connection with such services. Under certain circumstances, we may be required to report some of these relationships to the FDA or comparable foreign
regulatory authorities. The FDA or comparable foreign regulatory authorities may conclude that a financial relationship between us and a principal
investigator has created a conflict of interest or otherwise affected interpretation of the study. The FDA or comparable foreign regulatory authorities may
therefore question the integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized. This
could result in a delay in approval, or rejection, of our marketing applications by the FDA or comparable foreign regulatory authorities, as the case may be,
and may ultimately lead to the denial of marketing approval of one or more of our product candidates.
If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies governing clinical trials, our
development plans may also be impacted.
Any product candidates that we or our collaborators may develop will be novel and may be complex and difficult to manufacture, and if we experience
manufacturing problems, it could result in delays in development and commercialization of such product candidates or otherwise harm our business.
Our product candidates involve or will involve novel genome editing technology and will require processing steps that are more complex than those
required for most small molecule drugs, resulting in a relatively higher manufacturing cost. Moreover, unlike small molecules, the physical and chemical
properties of biologics generally cannot be fully characterized. As a result, assays of the finished product may not be sufficient to ensure that such product
will perform in the intended manner. Although we intend to employ multiple steps to control the manufacturing process, we may experience manufacturing
issues with any of our product candidates that could cause production interruptions, including contamination, equipment or reagent failure, improper
installation or operation of equipment, facility contamination, raw material shortages or contamination, natural disasters, disruption in utility services,
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error, disruptions in the operations of our suppliers, inconsistency in cell growth and variability in product characteristics. We may encounter problems
achieving adequate quantities and quality of clinical-grade materials that meet FDA, EMA or other comparable applicable standards or specifications with
consistent and acceptable production yields and costs. For example, the FDA has required us to conduct testing of our allogeneic CAR T cell product
candidates for the presence of certain human viruses prior to release of such products for clinical use. If the FDA concludes that further such viral testing of
our product candidates is required and that any lots testing positive may not be used in clinical trials, we may need to produce new clinical trial materials,
which could delay our clinical trials and result in higher manufacturing costs. Even minor deviations from normal manufacturing processes could result in
reduced production yields, product defects and other supply disruptions. If microbial, viral or other contaminations are discovered in our product candidates
or in the manufacturing facilities in which such product candidates are made, such manufacturing facilities may need to be closed for an extended period of
time to investigate and remedy the contamination. Our manufacturing process for any allogeneic CAR T cell product candidate that we develop alone or
with collaborators will be susceptible to product loss or failure due to the quality of the raw materials, failure of the products to meet specifications,
logistical issues associated with the collection of white blood cells, or starting material, from healthy third-party donors, shipping such material to the
manufacturing site, ensuring standardized production batch-to-batch in the context of mass production, freezing the manufactured product, shipping the
final product globally, thawing and infusing patients with such product. Problems with the manufacturing process, even minor deviations from the normal
process, could result in product defects or manufacturing failures that result in lot failures, delays in initiating or completing clinical trials, product recalls,
product liability claims or insufficient inventory.
As product candidates are developed through preclinical to late-stage clinical trials towards approval and commercialization, we expect that various aspects
of the development program, such as manufacturing methods, may be altered along the way in an effort to help optimize processes and results. Such
changes carry the risk that they will not achieve the intended objectives, and any of these changes could cause our product candidates to perform differently
and affect the results of future clinical trials or our reliance on results of trials that have previously been conducted using the product candidate in its
previous form. If the manufacturing process is changed during the course of product development, we or our collaborators may be required to repeat some
or all of the previously conducted trials or conduct additional bridging trials, which could increase our costs and delay or impede our ability to obtain
marketing approval.
We expect our manufacturing strategy for one or more of our product candidates may involve the use of contract manufacturing organizations (“CMOs”) as
well as our dedicated manufacturing facility, MCAT. The facilities used by us and our contract manufacturers to manufacture therapeutic product candidates
must be evaluated for the manufacture of our product candidates by the FDA or foreign regulatory authorities pursuant to inspections that will be conducted
after we submit a BLA to the FDA, or similar foreign applications to foreign regulatory authorities. We do not control the manufacturing process of our
contract manufacturers and are dependent on their compliance with cGMP or similar foreign requirements for their manufacture of our product candidates.
We may establish multiple manufacturing facilities as we expand our commercial footprint to multiple geographies, which will be costly and time
consuming and may lead to regulatory delays. Even if we are successful, our manufacturing capabilities could be affected by cost-overruns, potential
problems with scale-out, process reproducibility, stability issues, lot inconsistency, timely availability of reagents or raw materials, unexpected delays,
equipment failures, labor shortages, natural disasters, utility failures, regulatory issues and other factors that could prevent us from realizing the intended
benefits of our manufacturing strategy and have a material adverse effect on our business.
The FDA, the EMA and other foreign regulatory authorities may require us to submit samples of any lot of any product that may receive approval together
with the protocols showing the results of applicable tests at any time. Under some circumstances, the FDA, the EMA or other foreign regulatory authorities
may require that we not distribute a lot until the relevant agency authorizes its release. Slight deviations in the manufacturing process, including those
affecting quality attributes and stability, may result in unacceptable changes in the product that could result in lot failures or product recalls. Lot failures or
product recalls could cause us or our collaborators to delay product launches or clinical trials, which could be costly to us and otherwise harm our business.
Problems in our manufacturing process also could restrict our or our collaborators’ ability to meet market demand for products.
Any problems in our manufacturing process or facilities could make us a less attractive collaborator for potential partners, including larger pharmaceutical
companies and academic research institutions, which could limit our access to additional attractive development opportunities.
We will rely on donors of T cells to manufacture product candidates from our allogeneic CAR T immunotherapy platform, and if we do not obtain an
adequate supply of T cells from qualified donors, development of those product candidates may be adversely impacted.
We are developing a pipeline of allogeneic T cell product candidates that are engineered from healthy donor T cells, which vary in type and quality. This
variability in type and quality of a donor’s T cells makes producing standardized product candidates more difficult and makes the development and
commercialization pathway of those product candidates more uncertain. We have developed a screening process designed to enhance the quality and
consistency of T cells used in the manufacture of our CAR T cell product candidates. If we are unable to identify and obtain T cells from donors that satisfy
our criteria in sufficient quantity, to obtain such
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cells in a timely manner or to address variability in donor T cells, development of our CAR T cell product candidates may be delayed or there may be
inconsistencies in the product candidates we produce, which could negatively impact development of such product candidates, harm our reputation and
adversely impact our business and prospects.
Failure to achieve operating efficiencies from MCAT may require us to devote additional resources and management time to manufacturing operations
and may delay our product development timelines.
We have leased approximately 33,800 square feet of space for MCAT at a location approximately seven miles from our headquarters in Durham, North
Carolina. We use this manufacturing center to create clinical trial material for certain of our current and planned clinical trials. We may not experience the
anticipated operating efficiencies in our own manufacturing. Any delays in manufacturing may disrupt or delay the supply of our product candidates if we
have not maintained a sufficient back-up supply of such product candidates through third-party manufacturers. Moreover, changing manufacturing facilities
may also require that we or our collaborators conduct additional studies, make notifications to regulatory authorities, make additional filings to regulatory
authorities, and obtain regulatory authority approval for the new facilities, which may be delayed or which we may never receive. We are also required to
comply with the FDA’s and applicable foreign regulatory authorities’ GMP requirements for the production of product candidates for clinical trials and, if
approved, commercial supply, and will be subject to FDA and comparable foreign regulatory authority inspection. These requirements include the
qualification and validation of our manufacturing equipment and processes. We may not be able to develop, acquire or maintain the internal expertise and
resources necessary for compliance with these requirements. If we fail to achieve the operating efficiencies that we anticipate, our manufacturing and
operating costs may be greater than expected, which could have a material adverse impact on our operating results.
We also may encounter problems hiring and retaining the experienced scientific, quality-control and manufacturing personnel needed to operate our
manufacturing processes. If we experience unanticipated employee shortage or turnover in any of these areas, we may not be able to effectively manage our
ongoing manufacturing operations and we may not achieve the operating efficiencies that we anticipate from MCAT, which may negatively affect our
product development timeline or result in difficulties in maintaining compliance with applicable regulatory requirements.
Any such problems could result in the delay, prevention or impairment of clinical development and commercialization of our product candidates.
Any delays or difficulties in our or our collaborators' ability to enroll patients in clinical trials, could delay or prevent receipt of regulatory approvals.
We or our collaborators may not be able to initiate or continue clinical trials on a timely basis or at all for any product candidates we or our collaborators
identify or develop if we or our collaborators are unable to locate and enroll a sufficient number of eligible patients to participate in the trials as required by
applicable regulations or as needed to provide appropriate statistical power for a given trial. Additionally, some of our competitors may have ongoing
clinical trials for product candidates that would treat the same indications as one or more of our product candidates, and patients who would otherwise be
eligible for our clinical trials may instead enroll in our competitors’ clinical trials.
Patient enrollment may also be affected by many factors, including:
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severity and difficulty of diagnosing of the disease under investigation;
the difficulty in recruiting and/or identifying eligible patients suffering from rare diseases being evaluated under our trials;
size of the patient population and process for identifying subjects;
eligibility and exclusion criteria for the trial in question, including unforeseen requirements by the FDA or other regulatory authorities that we
restrict one or more entry criteria for the study for safety reasons;
our or our collaborators’ ability to recruit clinical trial investigators with the appropriate competencies and experience;
design of the trial protocol;
availability and efficacy of approved medications or therapies, or other clinical trials, for the disease or condition under investigation;
perceived risks and benefits of the product candidate under trial or testing, or of the application of genome editing to human indications;
availability of genetic testing for potential patients;
efforts to facilitate timely enrollment in clinical trials;
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patient referral practices of physicians;
ability to obtain and maintain subject consent;
risk that enrolled subjects will drop out before completion of the trial;
ability to monitor patients adequately during and after treatment;
proximity and availability of clinical trial sites for prospective patients; and
unforeseen events, such as natural or manmade disasters, public health emergencies, such as the COVID-19 pandemic and its variants which has
and may continue to impact our operations, or other natural catastrophic events.
We expect that some of our product candidates will focus on rare genetically defined diseases with limited patient pools from which to draw for enrollment
in clinical trials. The eligibility criteria of our clinical trials will further limit the pool of available trial participants. In addition to the factors identified
above, patient enrollment in any clinical trials we or our collaborators may conduct may be adversely impacted by any negative outcomes our competitors
may experience, including adverse side effects, clinical data showing inadequate efficacy or failures to obtain regulatory approval.
Furthermore, our or our collaborators’ ability to successfully initiate, enroll and conduct a clinical trial outside the United States is subject to numerous
additional risks, including:
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difficulty in establishing or managing relationships with CROs and physicians;
differing standards for the conduct of clinical trials;
differing standards of care for patients with a particular disease;
an inability to locate qualified local consultants, physicians and partners; and
the potential burden of complying with a variety of foreign laws, medical standards and regulatory requirements, including the regulation of
pharmaceutical and biotechnology products and treatments.
Enrollment delays in clinical trials may result in increased development costs for any of our product candidates, which may cause the value of our company
to decline and limit our ability to obtain additional financing. If we or our collaborators have difficulty enrolling a sufficient number of patients to conduct
clinical trials as planned, we may need to delay, limit or terminate ongoing or planned clinical trials, any of which may have an adverse effect on our results
of operations and prospects.
Results of preclinical studies and early clinical trials of product candidates may not be predictive of results of later studies or trials. Our product
candidates may not have favorable results in later clinical trials, if any, or receive regulatory approval.
Preclinical and clinical drug development is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at
any time during the preclinical study or clinical trial process. Despite promising preclinical or clinical results, any product candidate can unexpectedly fail
at any stage of preclinical or clinical development. The historical failure rate for product candidates in our industry is high.
The results from preclinical studies or early clinical trials of a product candidate may not be predictive of the results from later preclinical studies or clinical
trials, and interim results of a clinical trial are not necessarily indicative of final results. Product candidates in later stages of clinical trials may fail to show
the desired safety and efficacy characteristics despite having progressed through preclinical studies and initial clinical trials. Many companies in the
biopharmaceutical and biotechnology industries have suffered significant setbacks at later stages of development after achieving positive results in early
stages of development, and we may face similar setbacks. These setbacks have been caused by, among other things, preclinical findings made while clinical
trials were underway or safety or efficacy observations made in clinical trials, including previously unreported adverse events. Moreover, non-clinical and
clinical data are often susceptible to varying interpretations and analyses, and many companies that believed their product candidates performed
satisfactorily in preclinical studies and clinical trials nonetheless failed to obtain regulatory approval. With the exception of our allogeneic anti-CD19, anti-
CD20 and anti-BCMA CAR T product candidates, which have undergone limited testing in humans to date, our gene editing technology and our product
candidates have never undergone testing in humans and have only been tested in a limited manner in animals, and results from animal studies may not be
predictive of clinical trial results. Even if product candidates progress to clinical trials, these product candidates may fail to show the safety and efficacy in
clinical development required to obtain regulatory approval, despite the observation of positive results in animal studies. Our or our collaborators’ failure to
replicate positive results from early research programs and preclinical studies may prevent us from further developing and commercializing those or other
product candidates, which would limit our potential to generate revenues from them and harm our business and prospects.
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For the foregoing reasons, we cannot be certain that any ongoing or future preclinical studies or clinical trials will be successful. Any safety or efficacy
concerns observed in any one of our preclinical studies or clinical trials in a targeted area could limit the prospects for regulatory approval of product
candidates in that and other areas, which could have a material adverse effect on our business and prospects.
Interim, “top-line” and initial data from studies or trials that we announce or publish from time to time may change as more data become available and
are subject to audit and verification procedures that could result in material changes in the final data.
From time to time, we may publish interim, initial or “top-line” data from preclinical studies or clinical trials, which is based on a preliminary analysis of
then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to
the particular trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or
had the opportunity to fully and carefully evaluate all data. As a result, the top-line results that we report may differ from future results of the same studies,
or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Initial or “top-line” data
also remain subject to audit and verification procedures that may result in the final data being materially different from these initial data we previously
published. As a result, interim, initial and “top-line” data should be viewed with caution until the final data are available.
Additionally, interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change
as patient enrollment continues and more patient data become available. Adverse differences between initial or interim data and final data could
significantly harm our business prospects.
Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may
interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the
particular product candidate or product and our company in general. In addition, the information we choose to publicly disclose regarding a particular study
or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is the material or otherwise
appropriate information to include in our disclosure. Any information we determine not to disclose may ultimately be deemed significant by you or others
with respect to future decisions, conclusions, views, activities or otherwise regarding a particular product candidate or our business. If the top-line data that
we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for,
and commercialize, product candidates may be harmed, which could significantly harm our business prospects.
Our product candidates may not work as intended or cause undesirable side effects that could hinder or prevent receipt of regulatory approval or
realization of commercial potential for them or our other product candidates and substantially harm our business.
Our product candidates may be associated with off-target editing or other serious adverse events, undesirable side effects or unexpected characteristics,
including large deletions and translocations or chromosomal abnormalities. Results of clinical trials could reveal severe or recurring side effects, toxicities
or unexpected events, including death. Off-target cuts could lead to disruption of a gene or a genetic regulatory sequence at an unintended site in the DNA.
In those instances where we also provide a segment of DNA, it is possible that following off-target cut events, such DNA could be integrated into the
genome at an unintended site, potentially disrupting another important gene or genomic element. There may also be delayed adverse events following
exposure to therapeutics made with genome editing technologies due to persistent biologic activity of the genetic material or other components of products
used to carry the genetic material. Such unintended and undesirable side effects were exhibited in one of our competitors’ clinical trials for which a clinical
hold was placed by the FDA in October 2021 following a report of a chromosomal abnormality. In addition to serious adverse events or side effects caused
by product candidates we develop alone or with collaborators, the administration process or related procedures may also cause undesirable side effects. For
example, in our Phase 1b/2a clinical trial of azer-cel, there have been patient deaths which have been assessed as possibly related to study treatment, as well
as patient deaths without disease progression that, while deemed unrelated to study treatment, may lead to adverse public perception of CAR T cell therapy.
Further, any side effects may not be appropriately recognized or managed by the treating medical staff. We or our collaborators expect to have to educate
medical personnel using any product candidates we may develop to understand the side effect profiles for our clinical trials and upon any
commercialization of such product candidates. Inadequate recognition or management of the potential side effects of such product candidates could result in
patient injury or death.
If any such events occur, clinical trials or commercial distribution of any product candidates or products we develop alone or with collaborators could be
suspended or terminated, and our business and reputation could suffer substantial harm. Treatment-related side effects could affect patient recruitment and
the ability of enrolled patients to complete the trial or result in potential liability claims. Regulatory authorities could order us or our collaborators to cease
further development of, deny approval of or require us to cease selling any product candidates or products for any or all targeted indications. If we or our
collaborators elect, or are required, to delay,
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suspend or terminate any clinical trial or commercialization efforts, the commercial prospects of such product candidates or products may be harmed, and
our ability to generate product revenues from them or other product candidates that we develop may be delayed or eliminated.
Additionally, if we successfully develop a product candidate alone or with collaborators and it receives marketing approval, the FDA or foreign regulatory
authorities could require us to adopt a REMS or similar risk management measures to ensure that the benefits of treatment with such product candidate
outweigh the risks for each potential patient, which may include, among other things, a communication plan to health care practitioners, patient education,
extensive patient monitoring or distribution systems and processes that are highly controlled, restrictive and more costly than what is typical for the
industry. We or our collaborators may also be required to adopt a REMS or similar risk management measures or engage in similar actions, such as patient
education, certification of health care professionals or specific monitoring, if we or others later identify undesirable side effects caused by any product that
we develop alone or with collaborators. Such identification could also have several additional significant negative consequences, such as:
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regulatory authorities may suspend, withdraw or limit approvals of such product, or seek an injunction against its manufacture or distribution;
regulatory authorities may require additional warnings on the label, including “boxed” warnings, or issue safety alerts, Dear Healthcare Provider
letters, press releases or other communications containing warnings or other safety information about the product;
we may be required to create a medication guide outlining the risks of such side effects for distribution to patients;
we may be required to change the way a product is administered or conduct additional trials;
the product may become less competitive;
we or our collaborators may decide to remove the product from the marketplace;
we may be subject to fines, injunctions or the imposition of civil or criminal penalties;
we could be sued and be held liable for harm caused to patients; and
our reputation may suffer.
Any of these events could prevent us or our collaborators from achieving or maintaining market acceptance of any potential product, or otherwise have a
negative impact on our business.
We are subject to federal, state and foreign healthcare laws and regulations relating to our business, and could face substantial penalties if we are
determined not to have fully complied with such laws, which would have an adverse impact on our business.
Our business operations, as well as our current and anticipated future arrangements with investigators, healthcare professionals, consultants, third-party
payors, customers and patients, expose or will expose us to broadly applicable foreign, federal, and state fraud and abuse and other healthcare laws and
regulations. These laws constrain the business or financial arrangements and relationships through which we conduct our operations, including how we
research, market, sell and distribute any potential products for which we may obtain marketing approval. Such laws include:
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the U.S. federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting,
offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of
an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under a U.S. healthcare
program such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the U.S. federal Anti-Kickback Statute or
specific intent to violate it in order to have committed a violation;
U.S. federal civil and criminal false claims laws, including the civil False Claims Act, which can be enforced through civil whistleblower or qui
tam actions, and civil monetary penalties laws, prohibits, among other things, individuals and entities from knowingly presenting, or causing to
be presented, to the U.S. government, claims for payment or approval that are false or fraudulent, knowingly making, using or causing to be
made or used, a false record or statement material to a false or fraudulent claim, or from knowingly making a false statement to avoid, decrease
or conceal an obligation to pay money to the U.S. government. In addition, the government may assert that a claim including items or services
resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims
Act;
the U.S. Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which imposes criminal and civil liability for, among other
things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-
party payors, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement, in
connection with the delivery of, or payment for, healthcare benefits,
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items or services. Similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or
specific intent to violate it in order to have committed a violation;
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the U.S. Physician Payments Sunshine Act, which requires certain manufacturers of drugs, devices, biologics and medical supplies for which
payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to CMS
information related to payments or other “transfers of value” made to physicians (defined to include doctors, dentists, optometrists, podiatrists
and chiropractors), certain non-physician practitioners such as physician assistants and nurse practitioners, and teaching hospitals, and requires
applicable manufacturers and group purchasing organizations to report annually to the Centers for Medicare and Medicaid Services (“CMS”),
ownership and investment interests held by the physicians described above and their immediate family members; and
analogous state and foreign laws and regulations, such as state anti-kickback and anti-corruption and false claims laws, which may apply to our
business practices, including, but not limited to, research, distribution, sales and marketing arrangements and claims involving healthcare items
or services reimbursed by non-governmental third-party payors, including private insurers, or by the patients themselves; state laws and foreign
laws and regulations that require pharmaceutical and device companies to comply with the industry’s voluntary compliance guidelines and the
relevant compliance guidance promulgated by the U.S. government or foreign governmental authorities, or otherwise restrict payments that may
be made to healthcare providers and other potential referral sources; state and local laws and regulations and foreign. laws and regulations that
require manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or
marketing expenditures and pricing information; state and local laws and foreign laws and regulations which require the registration of
pharmaceutical sales representatives.
Efforts to ensure that our current and future business arrangements with third parties will comply with applicable healthcare laws and regulations will
involve substantial costs. It is possible that governmental authorities may conclude that our business practices, including our relationships with certain
physicians, some of whom are compensated in the form of stock options for consulting services provided, do not comply with current or future statutes,
regulations, agency guidance or case law involving applicable healthcare laws. If our operations are found to be in violation of any of these or any other
health regulatory laws that may apply to us, we may be subject to significant penalties, including the imposition of significant civil, criminal and
administrative penalties, damages, monetary fines, disgorgement, individual imprisonment, possible exclusion from participation in Medicare, Medicaid
and other U.S. or foreign healthcare programs, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or
similar agreement to resolve allegations of non-compliance with these laws, contractual damages, reputational harm, diminished profits and future earnings,
and curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
Defending against any such actions can be costly, time-consuming and may require significant financial and personnel resources. Therefore, even if we are
successful in defending against any such actions that may be brought against us, our business may be impaired. If any of the above occur, it could adversely
affect our ability to operate our business and our results of operations.
Actual or perceived failures to comply with applicable data protection, privacy and security laws, regulations, standards and other requirements, and
the increasing use of social media, could adversely affect our business, results of operations, and financial condition.
The global data protection landscape is rapidly evolving, and we are or may become subject to numerous state, federal and foreign laws, requirements and
regulations governing the collection, use, disclosure, retention, and security of personal data, such as information that we may collect in connection with
clinical trials in the U.S. and abroad. Implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future, and we
cannot yet determine the impact future laws, regulations, standards, or perception of their requirements may have on our business. This evolution may
create uncertainty in our business, affect our ability to operate in certain jurisdictions or to collect, store, transfer use and share personal information,
necessitate the acceptance of more onerous obligations in our contracts, result in liability or impose additional costs on us. The cost of compliance with
these laws, regulations and standards can be high and is likely to increase in the future. Any failure or perceived failure by us to comply with federal, state
or foreign laws or regulation, our internal policies and procedures or our contracts governing our processing of personal information could result in
negative publicity, government investigations and enforcement actions, claims by third parties and damage to our reputation, any of which could have a
material adverse effect on our operations, financial performance and business.
As our operations and business grow, we may become subject to or affected by new or additional data protection laws and regulations and face increased
scrutiny or attention from regulatory authorities. In the U.S., HIPAA, as amended by the Health Information Technology for Economic and Clinical Health
Act of 2009 and their implementing regulations, imposes, among other things, certain standards relating to the privacy, security, transmission and breach
reporting of individually identifiable health information on covered entities (defined as health plans, health care clearinghouses and certain health care
providers) and their respective business associates, individuals or entities that create, receive, maintain or transmit protected health information in
connection with providing a service for or on behalf of a covered entity. HIPAA mandates the reporting of certain breaches of health information to the
Department of Health and Human Services ("HHS"), affected individuals and if the breach is large enough, the media. Most healthcare providers, including
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research institutions from which we obtain patient health information, are subject to privacy and security regulations promulgated under HIPAA. While we
do not believe that we are currently acting as a covered entity or business associate under HIPAA and thus are not directly regulated under HIPAA, any
person may be prosecuted under HIPAA’s criminal provisions either directly or under aiding-and-abetting or conspiracy principles. Consequently,
depending on the facts and circumstances, we could face substantial criminal penalties if we knowingly receive individually identifiable health information
from a HIPAA-covered healthcare provider or research institution that has not satisfied HIPAA’s requirements for disclosure of individually identifiable
health information
Certain states have also adopted comparable privacy and security laws and regulations, some of which may be more stringent than HIPAA. Such laws and
regulations will be subject to interpretation by various courts and other governmental authorities, thus creating potentially complex compliance issues for us
and our future customers and strategic partners. For example, California enacted the California Consumer Privacy Act of 2018 ("CCPA"), which went into
effect on January 1, 2020. The CCPA creates individual privacy rights for California consumers and increases the privacy and security obligations of
entities handling certain personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that
has increased the likelihood of and risks associated with data breach litigation. Further, the California Privacy Rights Act ("CPRA") generally went into
effect on January 1, 2023, and significantly amends the CCPA. The CPRA imposes additional data protection obligations on covered businesses, including
additional consumer rights processes, limitations on data uses, new audit requirements for higher risk data, and opt outs for certain uses of sensitive data. It
also creates a new California data protection agency authorized to issue substantive regulations and could result in increased privacy and information
security enforcement. Similar laws have passed in Virginia, Colorado, Connecticut and Utah, and have been proposed in other states and at the federal
level, reflecting a trend toward more stringent privacy legislation in the United States. The enactment of such laws could have potentially conflicting
requirements that would make compliance challenging. In the event that we are subject to or affected by HIPAA, the CCPA, the CPRA or other domestic
privacy and data protection laws, any liability from failure to comply with the requirements of these laws could adversely affect our financial condition.
In Europe, the European Union General Data Protection Regulation ("GDPR") went into effect in May 2018 and imposes strict requirements for processing
the personal data of individuals within the European Economic Area ("EEA"). Companies that must comply with the GDPR face increased compliance
obligations and risk, including more robust regulatory enforcement of data protection requirements, and potential fines for noncompliance of up to €20
million or 4% of the annual global revenues of the noncompliant company, whichever is greater. Since January 1, 2021 we have also been subject to
compliance with the GDPR and the UK GDPR, which, together with the amended UK Data Protection Act 2018, retains the GDPR in UK national law. The
UK GDPR mirrors the fines under the GDPR, i.e., fines up to the greater of €20 million/ £17 million or 4% of global turnover.
Recent legal developments in Europe have created complexity and uncertainty regarding transfers of personal data from the EEA and the UK to the U.S.
Most recently, on July 16, 2020, the Court of Justice of the European Union (“CJEU”) invalidated the EU-US Privacy Shield Framework, also known as the
Privacy Shield, under which personal data could be transferred from the EEA to US entities who had self-certified under the Privacy Shield scheme. In
March 2022, the U.S. and EU announced a new regulatory regime intended to replace the invalidated regulations; however, this new EU-US Data Privacy
Framework has not been implemented beyond an executive order signed by President Biden on October 7, 2022 on Enhancing Safeguards for Untied States
Signals Intelligence Activities. European court and regulatory decisions subsequent to the CJEU decision of July 16, 2020 have taken a restrictive approach
to international data transfers. Additionally, the EU adopted the EU Clinical Trials Regulation, which came into effect on January 31, 2022. This regulation
imposes obligations on the use of data generated from clinical trials and enables European patients to have the opportunity to access information about
clinical trials.
These recent developments may require us to review and amend the legal mechanisms by which we make and/or receive personal data transfers to/ in the
U.S. As supervisory authorities issue further guidance on personal data export mechanisms, including circumstances where the standard contractual clauses
cannot be used, and/or start taking enforcement action, we could suffer additional costs, complaints and/or regulatory investigations or fines, and/or if we
are otherwise unable to transfer personal data between and among countries and regions in which we operate, it could affect the manner in which we
provide our services, the geographical location or segregation of our relevant systems and operations, and could adversely affect our financial results.
Despite our efforts to monitor evolving social media communication guidelines and comply with applicable rules, there is risk that the use of social media
by us or our employees to communicate about our product candidates or business may cause us to be found in violation of applicable requirements. In
addition, our employees may knowingly or inadvertently make use of social media in ways that may not comply with our internal policies or other legal or
contractual requirements, which may give rise to liability, lead to the loss of trade secrets or other intellectual property, or result in public exposure of
personal information of our employees, clinical trial patients, customers and others. Our potential patient population may also be active on social media and
use these platforms to comment on the effectiveness of, or adverse experiences with, our product candidates. Negative posts or comments about us or our
product candidates on social media could seriously damage our reputation, brand image and goodwill.
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Although we work to comply with applicable laws, regulations and standards, our contractual obligations and other legal obligations, these requirements
are evolving and may be modified, interpreted and applied in an inconsistent manner from one jurisdiction to another, and may conflict with one another or
other legal obligations with which we must comply. Any failure or perceived failure by us or our employees, representatives, contractors, consultants,
CROs, collaborators, or other third parties to comply with such requirements or adequately address privacy and security concerns, even if unfounded, could
result in additional cost and liability to us, damage our reputation, and adversely affect our business and results of operations.
We have received orphan drug designation for azer-cel for the treatment of ALL and MCL, and we may seek orphan drug designation for some or all of
our other product candidates, but we may be unable to obtain such designations or to maintain the benefits associated with orphan drug designation,
which may negatively impact our ability to develop or obtain regulatory approval for such product candidates and may reduce our revenue if we obtain
such approval.
We may seek orphan drug designation for some or all of our product candidates in specific orphan indications in which there is a medically plausible basis
for the use of these products. Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic intended to treat a rare disease or
condition, defined as a disease or condition with a patient population of fewer than 200,000 in the United States, or a patient population greater than
200,000 in the United States when there is no reasonable expectation that the cost of developing and making available the drug or biologic in the United
States will be recovered from sales in the United States for that drug or biologic. Orphan drug designation must be requested before submitting a BLA. In
the United States, orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax
advantages and user-fee waivers. After the FDA grants orphan drug designation, the generic identity of the drug and its potential orphan use are disclosed
publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.
Although we may seek orphan product designation for some or all of our other product candidates, we may never receive such designations.
If a product that has orphan drug designation subsequently receives the first FDA approval for the disease or condition for which it has such designation,
the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications, including a BLA, to market the
same biologic for the same disease or condition for seven years, except in limited circumstances such as a showing of clinical superiority to the product
with orphan product exclusivity or if FDA finds that the holder of the orphan drug exclusivity has not shown that it can ensure the availability of sufficient
quantities of the orphan drug to meet the needs of patients with the disease or condition for which the drug was designated. Even if we or our collaborators
obtain orphan drug designation for a product candidate, we may not be the first to obtain marketing approval for any particular orphan indication due to the
uncertainties associated with developing pharmaceutical products. Exclusive marketing rights in the United States may be limited if we or our collaborators
seek approval for a disease or condition broader than the orphan designated disease or condition and may be lost if the FDA later determines that the
request for designation was materially defective or if the manufacturer is unable to assure sufficient quantities of the product to meet the needs of patients
with the rare disease or condition. Further, even if a product obtains orphan drug exclusivity, that exclusivity may not effectively protect the product from
competition because different drugs can be approved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve the
same drug for the same condition if the FDA concludes that the later drug is safer, more effective, or makes a major contribution to patient care.
Furthermore, the FDA can waive orphan exclusivity if we or our collaborators are unable to manufacture sufficient supply of the product.
Similarly, in the EU, a medicinal product may receive orphan designation from the European Commission after receiving the opinion of the EMA’s
Committee for Orphan Medicinal Products, under Article 3 of Regulation (EC) 141/2000. This applies to products (1) that are intended for a life-
threatening or chronically debilitating condition; and (2) either (a) such condition affects not more than five in 10,000 persons in the EU when the
application is made, or (b) the product, without the benefits derived from orphan status, would be unlikely to generate sufficient returns in the EU to justify
the necessary investment, and (3) there exists no satisfactory method of diagnosis, prevention or treatment of such condition authorized for marketing in the
EU or, if such a method exists, the product will be of significant benefit to those affected by the condition. In the EU, orphan designation entitles a party to
financial incentives such as reduction of fees, fee waivers, specific regulatory assistance and scientific advice, and access to the centralized marketing
authorization procedure. Upon grant of a MA and assuming the requirements for orphan designation are also met at the time the marketing authorization is
granted, orphan medicinal products are entitled to 10 years of market exclusivity for the approved therapeutic indication, during which time no similar
medicinal product for the same indication may be placed on the market. An orphan product can also obtain an additional two years of market exclusivity in
the EU for complying with an agreed Pediatric Investigation Plan. However, the 10-year market exclusivity may be reduced to six years if, at the end of the
fifth year, it is established that the product no longer meets the criteria for orphan designation, for example, if the product is judged as sufficiently profitable
not to justify maintenance of market exclusivity, or when the prevalence of the condition has increased above the orphan designation threshold.
Additionally, marketing authorization may be granted to a similar product for the same indication at any time if:
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the second applicant can establish that its product, although similar, is safer, more effective or otherwise clinically superior;
the first applicant consents to a second orphan medicinal product application; or
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the first applicant cannot supply enough orphan medicinal product.
Post-Brexit, the United Kingdom has retained the EU Regulation which governs the designation of medicinal products as orphan drugs and which
establishes incentives thereto (Regulation (EC) No. 141/2000) as part of UK law by virtue of the European Union (Withdrawal) Act 2018. However under
the Retained EU Law (Revocation and Reform) Bill, which is currently before the UK Parliament, unless this legislation is expressly preserved and
“assimilated” into domestic law or extended by ministerial regulations (to no later than June 23, 2026) it will automatically expire and be revoked by
December 31, 2023. There is therefore uncertainty about the future regulations relating to orphan designation in Great Britain, and any future changes to the
legal requirements could lead to greater regulatory complexity and increased costs to our business.
The MHRA is responsible for reviewing applications from companies for orphan designation at the time of a marketing authorization application. If a
medicinal product has been designated orphan in the EU under Regulation (EC) 141/2000, a Great Britain orphan MAA can be made under regulation 50G
of the Human Medicines Regulation 2012 (as amended). A UK-wide orphan MAA can only be considered in the absence of an active EU orphan
designation.
If a UK-wide orphan marketing authorization is granted and the medicinal product subsequently receives EU orphan designation, the market authorization
holder would need to submit a variation to change this to a Great Britain orphan MA
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If we or our collaborators do not receive or maintain orphan drug designation for product candidates for which we seek such designation, it could limit our
ability to realize revenues from such product candidates.
We have received and may continue to seek fast track designation, and may seek breakthrough therapy designation, or Regenerative Medicine
Advanced Therapy (“RMAT”) designation, from the FDA or access to the PRIME scheme from the EMA for some or all of our product candidates, but
we may not receive such designations, and even if we do, it may not lead to a faster development or regulatory review or approval process, and will not
increase the likelihood that such product candidates will receive marketing approval.
We have received fast track designation for azer-cel for the treatment of B-ALL. We may continue to seek fast track designation and may also seek
breakthrough therapy designation, RMAT designation or priority review from the FDA, or access to the PRIME scheme from the EMA for some or all of
our product candidates. If a drug, or biologic, in our case, is intended for the treatment of a serious or life-threatening condition or disease, and nonclinical
or clinical data demonstrate the potential to address an unmet medical need, the product may qualify for FDA fast track designation, for which sponsors
must apply. The FDA has broad discretion whether or not to grant this designation. If granted, fast track designation makes a biologic eligible for more
frequent interactions with FDA to discuss the development plan and clinical trial design. A BLA for a fast track product candidate may also be eligible for
rolling review, where the FDA may consider for review sections of the BLA on a rolling basis before the complete application is submitted, if the sponsor
provides a schedule for the submission of the sections of the BLA, the FDA agrees to accept sections of the BLA and determines that the schedule is
acceptable, and the sponsor pays any required user fees upon submission of the first section of the BLA. A BLA for a product candidate with fast track
designation may also be eligible for priority review, if the relevant criteria are met.
Breakthrough therapy designation is intended to expedite the development and review of product candidates that treat serious or life-threatening diseases
when “preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically
significant endpoints, such as substantial treatment effects observed early in clinical development.” The designation of a product candidate as a
breakthrough therapy provides the same potential benefits as a fast track designation, with more intensive FDA guidance on an efficient development
program and an organizational commitment at FDA involving senior managers.
A company may also request RMAT designation of its product candidate, which designation may be granted if the drug meets the following criteria: (1) it
qualifies as a RMAT, which is defined as a cell therapy, therapeutic tissue engineering product, human cell and tissue product, or any combination product
using such therapies or products, with limited exceptions; (2) it is intended to treat, modify, reverse, or cure a serious or life-threatening disease or
condition; and (3) preliminary clinical evidence indicates that the drug has the potential to address unmet medical needs for such a disease or condition.
Like breakthrough therapy designation, RMAT designation provides potential benefits that include more frequent meetings with FDA to discuss the
development plan for the product candidate, and potential eligibility for rolling review and priority review. Products granted RMAT designation may also
be eligible for accelerated approval on the basis of a surrogate or intermediate endpoint reasonably likely to predict long-term clinical benefit, or reliance
upon data obtained from a meaningful number of sites, including through expansion to additional sites. RMAT- designated
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products that receive accelerated approval may, as appropriate, fulfill their post-approval requirements through the submission of clinical evidence, clinical
studies, patient registries, or other sources of real world evidence (such as electronic health records); through the collection of larger confirmatory data sets;
or via post-approval monitoring of all patients treated with such therapy prior to approval of the therapy.
PRIME is a voluntary scheme provided by the EMA to enhance support for the development of medicines that target an unmet medical need and are
expected to be of major public health interest, which provides incentives similar to the Breakthrough therapy designation in the United States. It is based on
increased interaction and early dialogue with companies developing promising medicines, to optimize their product development plans and speed up their
evaluation to help them reach patients earlier. To qualify for PRIME, product candidates require early clinical evidence that the therapy has the potential to
offer a therapeutic advantage over existing treatments or benefits patients without treatment options. Among the benefits of PRIME are the appointment of
a rapporteur to provide continuous support and help build knowledge ahead of a marketing authorization application, early dialogue and scientific advice at
key development milestones, and the potential to qualify products for accelerated review earlier in the application process.
Based on legislation adopted late in 2007, the EMA established an additional regulatory designation for products classified as an ATMP. The ATMP
classification offers sponsors a variety of benefits similar to those associated with the PRIME scheme, including scientific and regulatory guidance,
additional opportunities for dialogue with regulators, and presubmission review and certification of the CMC and nonclinical data proposed for submission
in a forthcoming MA applications for micro-, small-, or medium-sized enterprises. To qualify for this designation, product candidates intended for human
use must be based on gene therapy, somatic cell therapy, or tissue engineered therapy (i.e., engineered cells or tissues intended to regenerate, replace or
repair human tissue).
There is no assurance that we will obtain additional fast track designations for our product candidates, or that we will obtain breakthrough therapy
designation, RMAT designation or access to PRIME or ATMP classification for any of our product candidates. Fast track designation, breakthrough therapy
designation, RMAT designation, and PRIME and ATMP classification eligibility do not change the standards for product approval, and there is no
assurance that any such designation or eligibility will result in expedited review or approval or that the approved indication will not be narrower than the
indication covered by the fast track designation, breakthrough therapy designation, RMAT designation or PRIME or ATMP classification eligibility.
Additionally, fast track designation, breakthrough therapy designation, RMAT designation and access to PRIME or ATMP classification can each be
revoked if applicable regulatory authorities decide that the criteria for eligibility cease to be met as clinical data emerges.
Further, product developers that benefit from PRIME designation may be eligible for accelerated assessment (in 150 days instead of 210 days), which may
be granted for medicinal products of major interest from a public health perspective or that target an unmet medical need, but this is not guaranteed. The
competent regulatory authorities in the EU have broad discretion whether to grant such an accelerated assessment, and, even if such assessment is granted,
we may not experience a faster development process, review or authorization compared to conventional procedures.
We have obtained a rare pediatric disease designation for azer-cel for the treatment of B-ALL, however, there is no guarantee that FDA approval of will
result in issuance of a priority review voucher.
In 2012, Congress authorized the FDA to award priority review vouchers to sponsors of certain rare pediatric disease product applications. This program is
designed to encourage development of new drug and biological products for prevention and treatment of certain rare pediatric diseases. Specifically, under
this program, a sponsor who receives an approval for a drug or biologic for a “rare pediatric disease” that meets certain criteria may qualify for a voucher
that can be redeemed to receive a priority review of a subsequent marketing application for a different product. The sponsor of a rare pediatric disease drug
product receiving a priority review voucher may transfer (including by sale) the voucher to another sponsor. The voucher may be further transferred any
number of times before the voucher is used, as long as the sponsor making the transfer has not yet submitted the application. The FDA may also revoke any
priority review voucher if the rare pediatric disease drug for which the voucher was awarded is not marketed in the U.S. within one year following the date
of approval.
We have obtained seek a rare pediatric disease designation for azer-cel for the treatment of B-ALL, however, there is no guarantee that we will be able to
obtain a priority review voucher, even if azer-cel is approved by the FDA. For example, the FDA may determine that a BLA, even if ultimately approved,
does not meet the eligibility criteria for a priority review voucher, including for the following reasons:
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the product no longer meets the definition of a rare pediatric disease;
the product contains an active ingredient that has been previously approved in another marketing application;
the application does not rely on clinical data derived from studies examining a pediatric population and dosages of the drug intended for that
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the application is approved for a different adult indication than the rare pediatric disease for which the product is designated.
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Moreover, Congress included a sunset provision in the statute authorizing the rare pediatric disease priority review voucher program. Under the current
statutory sunset provisions, after September 30, 2024, FDA may only award a voucher for an approved rare pediatric disease product application if the
sponsor has rare pediatric disease designation for the product candidate, and that designation was granted by September 30, 2024. After September 30,
2026, FDA may not award any rare pediatric disease priority review vouchers.
If the product candidates that we or our collaborators may develop receive regulatory approval in the United States or another jurisdiction, they may
never receive approval in other jurisdictions, which would limit market opportunities for such product candidate and adversely affect our business.
Approval of a product candidate in the United States by the FDA or by the requisite regulatory agencies in any other jurisdiction does not ensure approval
of such product candidate by regulatory authorities in other countries or jurisdictions. The approval process varies among countries and may limit our or
our collaborators’ ability to develop, manufacture, promote and sell product candidates internationally. Failure to obtain marketing approval in international
jurisdictions would prevent the product candidates from being marketed outside of the jurisdictions in which regulatory approvals have been received. In
order to market and sell product candidates in the EU and many other jurisdictions, we and our collaborators must obtain separate marketing approvals and
comply with numerous and varying regulatory requirements. The approval procedure varies among countries and may involve additional preclinical studies
or clinical trials both before and after approval. In many countries, any product candidate for human use must be approved for reimbursement before it can
be approved for sale in that country. In some cases, the intended price for such product is also subject to approval. Further, while regulatory approval of a
product candidate in one country does not ensure approval in any other country, a failure or delay in obtaining regulatory approval in one country may have
a negative effect on the regulatory approval process in others. If we or our collaborators fail to comply with the regulatory requirements in international
markets or to obtain all required marketing approvals, the target market for a particular potential product will be reduced, which would limit our ability to
realize the full market potential for the product and adversely affect our business.
Current and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize any product candidates we
or our collaborators develop and may adversely affect the prices for such product candidates.
In the United States and certain foreign jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory
changes and proposed changes regarding the healthcare system that could, among other things, prevent or delay marketing approval of our product
candidates, restrict or regulate post-approval activities and affect our or our collaborators’ ability to profitably sell any product candidates that obtain
marketing approval.
For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act,
collectively the ACA, was enacted in the United States. Among the provisions of the Affordable Care Act of importance to our product candidates, the
ACA established an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic agents;
increased the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program, extended manufacturers’ Medicaid rebate
liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations, expanded eligibility criteria for Medicaid
programs, expanded the entities eligible for discounts under the Public Health program, addressed a new methodology by which rebates owed by
manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, created a new
Medicare Part D coverage gap discount program, in which manufacturers must now agree to offer 70% point-of-sale discounts off negotiated prices of
applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under
Medicare Part D, and created a licensure framework for follow-on biologic products.
Since its enactment, there have been judicial, administrative, executive, and legislative challenges to certain aspects of the ACA, and the most recent
judicial challenge to the ACA brought before the Supreme Court was dismissed in June 2021 resulting in the ACA remaining in effect in its current form.
Prior to the Supreme Court’s decision. President Biden issued an executive order instructing certain governmental agencies to review and reconsider their
existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that
include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. It
is unclear how other health reform measures will impact our business.
In addition, other legislative changes have been proposed and adopted since the ACA was enacted. These changes include the American Rescue Plan Act of
2021, which eliminates the statutory Medicaid drug rebate cap, currently set at 100% of a drug’s average manufacturer price, beginning January 1, 2024.
Further, there has been heightened governmental scrutiny recently over pharmaceutical pricing practices in light of the rising cost of prescription drugs and
biologics. Such scrutiny has resulted in several Congressional inquiries and proposed and enacted federal and
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state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer
patient programs, and reform government program reimbursement methodologies, rebates and price negotiation for pharmaceutical products. Most recently,
on August 16, 2022, the Inflation Reduction Act of 2022 (the "IRA"), was signed into law. Among other things, the IRA requires manufacturers of certain
drugs to engage in price negotiations with Medicare (beginning in 2026), with prices that can be negotiated subject to a cap; imposes rebates under
Medicare Part B and Medicare Part D to penalize price increases that outpace inflation (first due in 2023); and replaces the Part D coverage gap discount
program with a new discounting program (beginning in 2025). The IRA permits the Secretary of the HHS to implement many of these provisions through
guidance, as opposed to regulation, for the initial years. For that and other reasons, it is currently unclear how the IRA will be effectuated. At the state
level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical product and medical device pricing,
including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency
measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. In addition, regional healthcare authorities and
individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and medical devices to purchase and which
suppliers will be included in their prescription drug and other healthcare programs.
We expect that other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria, new payment
methodologies and in additional downward pressure on the price that we or our collaborators may receive for any approved or cleared product. Any
reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. We cannot
predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States
or abroad. If we or our collaborators are slow or unable to adapt to new requirements or policies, or if we or our collaborators are not able to maintain
regulatory compliance, any of our product candidates may lose any regulatory approval that may have been obtained and we may not achieve or sustain
profitability, which would adversely affect our business.
In the EU, similar developments may affect our ability to profitably commercialize our product candidates, if approved. In addition to continuing pressure
on prices and cost containment measures, legislative developments at the EU or member state level may result in significant additional requirements or
obstacles that may increase our operating costs. The delivery of healthcare in the EU, including the establishment and operation of health services and the
pricing and reimbursement of medicines, is almost exclusively a matter for national, rather than EU, law and policy. National governments and health
service providers have different priorities and approaches to the delivery of health care and the pricing and reimbursement of products in that context. In
general, however, the healthcare budgetary constraints in most EU member states have resulted in restrictions on the pricing and reimbursement of
medicines by relevant health service providers. Coupled with ever-increasing EU and national regulatory burdens on those wishing to develop and market
products, this could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to
commercialize our product candidates, if approved. In markets outside of the United States and EU, reimbursement and healthcare payment systems vary
significantly by country, and many countries have instituted price ceilings on specific products and therapies.
On December 13, 2021, Regulation No 2021/2282 on Health Technology Assessment (“HTA”) amending Directive 2011/24/EU, was adopted. While the
Regulation entered into force in January 2022, it will only begin to apply from January 2025 onwards, with preparatory and implementation-related steps to
take place in the interim. Once the Regulation becomes applicable, it will have a phased implementation depending on the concerned products. This
regulation intends to boost cooperation among EU member states in assessing health technologies, including new medicinal products, and providing the
basis for cooperation at the EU level for joint clinical assessments in these areas. The regulation will permit EU member states to use common HTA tools,
methodologies, and procedures across the EU, working together in four main areas, including joint clinical assessment of the innovative health technologies
with the most potential impact for patients, joint scientific consultations whereby developers can seek advice from HTA authorities, identification of
emerging health technologies to identify promising technologies early, and continuing voluntary cooperation in other areas. Individual EU member states
will continue to be responsible for assessing non-clinical (e.g., economic, social, ethical) aspects of health technology, and making decisions on pricing and
reimbursement.
Even if we obtain regulatory approval for any products that we develop alone or with collaborators, such products will remain subject to ongoing
regulatory requirements, which may result in significant additional expense.
Even if products we develop alone or with collaborators receive regulatory approval, they will be subject to ongoing regulatory requirements for
manufacturing, labeling, packaging, distribution, storage, advertising, promotion, sampling, record-keeping and submission of safety and other post-market
information, among other things. Any regulatory approvals received for such products may also be subject to limitations on the approved indicated uses for
which they may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing and surveillance studies.
For example, the holder of an approved
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BLA in the United States is obligated to monitor and report adverse events and any failure of a product to meet the specifications in the BLA. FDA
guidance advises that patients treated with some types of gene therapy undergo follow-up observations for potential adverse events for as long as 15 years.
Similarly, in the EU, pharmacovigilance obligations are applicable to all medicinal products. In addition to those, holders of a marketing authorization for
gene or cell therapy products must detail, in their application, the measures they envisage to ensure follow-up of the efficacy and safety of these products.
In cases of particular concern, marketing authorization holders for gene or cell therapy products in the EU may be required to design a risk management
system with a view to identifying, preventing or minimizing risks and may be obliged to carry out post-marketing studies. In the United States, the holder
of an approved BLA must also submit new or supplemental applications and obtain FDA approval for certain changes to the approved product, product
labeling or manufacturing process. Similar provisions apply in the EU. Advertising and promotional materials must comply with FDA rules and are subject
to FDA review, in addition to other potentially applicable federal and state laws. Similarly, in the EU any promotion of medicinal products is highly
regulated and, depending on the specific jurisdiction involved, may require prior vetting by the competent national regulatory authority.
In addition, product manufacturers and their facilities are subject to payment of user fees and continual review and periodic inspections by the FDA and
other regulatory authorities for compliance with GMP requirements and adherence to commitments made in the BLA or foreign marketing application. If
we, our collaborators or a regulatory agency discovers previously unknown problems with a product such as adverse events of unanticipated severity or
frequency or problems with the facility where the product is manufactured or disagrees with the promotion, marketing or labeling of that product, a
regulatory agency may impose restrictions relative to that product, the manufacturing facility or us or our collaborators, including requiring recall or
withdrawal of the product from the market or suspension of manufacturing.
Moreover, if any of our product candidates are approved, our product labeling, advertising, promotion and distribution will be subject to regulatory
requirements and continuing regulatory review. The FDA and foreign regulatory authorities strictly regulate the promotional claims that may be made about
drug products. In particular, a product may not be promoted for uses that are not approved by the FDA and foreign regulatory authorities as reflected in the
product’s approved labeling.
If we or our collaborators fail to comply with applicable regulatory requirements following approval of any potential products we may develop, authorities
may:
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issue an untitled enforcement letter or a warning letter asserting a violation of the law;
seek an injunction, impose civil and criminal penalties, and impose monetary fines, restitution or disgorgement of profits or revenues;
suspend or withdraw regulatory approval;
suspend or terminate any ongoing clinical trials or implement requirements to conduct post-marketing studies or clinical trials;
refuse to approve a pending BLA or comparable foreign marketing application (or any supplements thereto) submitted by us or our collaborators;
restrict the labeling, marketing, distribution, use or manufacturing of products;
seize or detain products or otherwise require the withdrawal or recall of products from the market;
refuse to approve pending applications or supplements to approved applications that we or our collaborators submit;
refuse to permit the import or export of products; or
refuse to allow us or our collaborators to enter into government contracts.
Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate
negative publicity. The occurrence of any event or penalty described above may inhibit our or our collaborators’ ability to commercialize products and our
ability to generate revenues.
In addition, the FDA’s policies, and policies of foreign regulatory agencies, may change, and additional regulations may be enacted that could prevent, limit
or delay regulatory approval of product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future
legislation or administrative or executive action, either in the United States or abroad. If we or our collaborators are slow or unable to adapt to changes in
existing requirements or the adoption of new requirements,
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or if we or our collaborators are unable to maintain regulatory compliance, we or they may be subject to enforcement action and we may not achieve or
sustain profitability.
The FDA’s and other regulatory authorities’ policies with respect to clinical trials may change and additional government regulations may be enacted. For
example, the FDA’s Oncology Center of Excellence launched Project Optimus, an initiative to reform dose selection in oncology drug development, in
2021 and is still being implemented. If the FDA believes we have not sufficiently established that the selected dose or doses for our product candidates
maximize efficacy as well as safety and tolerability, the FDA may require us to conduct additional clinical trials or generate additional dosing-related
information, which could significantly delay and/or increase the expense of our clinical development programs.
It is currently unclear to what extent the United Kingdom ("UK") will seek to align its regulations with the EU. The UK regulatory framework in relation to
clinical trials is derived from existing EU legislation (as implemented into UK law, through secondary legislation).
On January 17, 2022, the UK MHRA launched an eight-week consultation on reframing the UK legislation for clinical trials. The consultation closed on
March 14, 2022 and aims to streamline clinical trials approvals, enable innovation, enhance clinical trials transparency, enable greater risk proportionality,
and promote patient and public involvement in clinical trials. The outcome of the consultation is closely watched and will determine whether the UK
chooses to align with the CTR or diverge from it to maintain regulatory flexibility. Under the terms of the Protocol on Ireland/Northern Ireland, provisions
of the CTR which relate to the manufacture and import of investigational medicinal produces and auxiliary medicinal products apply in Northern Ireland. A
decision by the UK Government not to closely align its regulations with the new approach that has been adopted in the EU may have an effect on the cost
of conducting clinical trials in the UK as opposed to other countries.
The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. If we are found or alleged
to have improperly promoted off-label uses, we may become subject to significant liability.
The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products, as our product candidates
would be, if approved. In particular, a product may not be promoted for uses that are not approved by the FDA or such other regulatory agencies as
reflected in the product’s approved labeling. If we are found to have promoted such off-label uses, we may become subject to significant liability. The
federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from
engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified
promotional conduct is changed or curtailed. If we cannot successfully manage the promotion and avoid off-label promotion of our product candidates, if
approved, we could become subject to significant liability, which would materially adversely affect our business and financial condition.
Disruptions at the FDA and other government agencies caused by funding shortages or global health concerns could hinder their ability to hire, retain
or deploy key leadership and other personnel, or otherwise prevent new or modified products from being developed, approved or commercialized in a
timely manner or at all, which could negatively impact our business.
The ability of the FDA and foreign regulatory authorities to review and approve new products can be affected by a variety of factors, including government
budget and funding levels, statutory, regulatory and policy changes, the FDA’s or foreign regulatory authorities’ ability to hire and retain key personnel and
accept the payment of user fees, and other events that may otherwise affect the FDA’s or foreign regulatory authorities’ ability to perform routine functions.
Average review times at the FDA and foreign regulatory authorities have fluctuated in recent years as a result. In addition, government funding of other
government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.
Disruptions at the FDA and other agencies, such as the EMA following its relocation to Amsterdam and resulting staff changes, may also slow the time
necessary for new biologics or modifications to approved biologics to be reviewed and/or approved by necessary government agencies, which would
adversely affect our business. For example, over the last several years, the U.S. government has shut down several times and certain regulatory agencies,
such as the FDA, have had to furlough critical FDA employees and stop critical activities.
Separately, in response to the COVID-19 pandemic, the FDA postponed most inspections of domestic and foreign manufacturing facilities at various
points. Even though the FDA has since resumed standard inspection operations of domestic facilities where feasible, the FDA has continued to monitor and
implement changes to its inspectional activities to ensure the safety of its employees and those of the firms it regulates as it adapts to the evolving COVID-
19 pandemic, and any resurgence of the virus or emergence of new variants may lead to further inspectional delays Regulatory authorities outside the
United States have adopted similar restrictions or other policy measures in response to the COVID-19 pandemic and its variants. If a prolonged government
shutdown occurs, or if global health concerns continue to prevent the FDA or other regulatory authorities from conducting their regular inspections,
reviews or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our
regulatory submissions, which could have a material adverse effect on our business.
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Even if any product we develop alone or with collaborators receives marketing approval, such product may fail to achieve the degree of market
acceptance by physicians, patients, healthcare payors and others in the medical community necessary for commercial success.
The commercial success of any potential therapeutic products we develop alone or with collaborators will depend upon their degree of market acceptance
by physicians, patients, third-party payors and others in the medical community. Even if any potential therapeutic products we develop alone or with
collaborators receive marketing approval, they may nonetheless fail to gain sufficient market acceptance by physicians, patients, healthcare payors and
others in the medical community. The degree of market acceptance of any product we develop alone or with collaborators, if approved for commercial sale,
will depend on a number of factors, including:
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the efficacy and safety of such product as demonstrated in clinical trials;
the prevalence and severity of any side effects;
the clinical indications for which the product is approved by FDA or other regulatory authorities;
product labeling or product insert requirements of the FDA or other regulatory authorities, including any limitations or warnings contained in a
product’s approved labeling;
public attitudes regarding genome editing technologies;
our and any collaborators’ ability to educate the medical community about the safety and effectiveness of the product;
the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies, as well as their willingness to
accept a therapeutic intervention that involves the editing of the patient’s genome;
the potential and perceived advantages compared to alternative treatments;
convenience and ease of administration compared to alternative treatments;
any restrictions on the use of such product together with other treatments or products;
market introduction of competitive products;
publicity concerning such product or competing products and treatments;
the ability to offer such product for sale at a competitive price;
the strength of marketing and distribution support; and
sufficient third-party coverage and adequate reimbursement.
If any products we develop alone or with collaborators do not achieve an adequate level of acceptance, we may not generate significant product revenues,
and we may not become profitable.
If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to sell and market any products we develop
alone or with collaborators, the commercialization of such products may not be successful if and when they are approved.
We do not have a sales or marketing infrastructure and, as a company, have no experience in the sale, marketing or distribution of biopharmaceutical or
other commercial products. To achieve commercial success for any approved products for which we retain sales and marketing responsibilities, we must
either develop a sales and marketing organization or outsource these functions to third parties. In the future, we may choose to build a focused sales,
marketing and commercial support infrastructure to sell, or participate in sales activities with our collaborators for, certain product candidates if and when
they are approved.
There are risks involved with both establishing our own commercial capabilities and entering into arrangements with third parties to perform these services.
For example, restricted or closed distribution channels may make it difficult to distribute products to segments of the patient population, and the lack of
complementary medicines to be offered by sales personnel may put us at a competitive disadvantage relative to companies with more extensive product
lines.
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Recruiting and training a sales force or reimbursement specialists are expensive and time consuming and could delay any product launch. If the commercial
launch of a product for which we recruit a sales force and establish marketing and other commercialization capabilities is delayed or does not occur for any
reason, we would have prematurely or unnecessarily incurred these commercialization expenses, and our investment would be lost if we cannot retain or
reposition our commercialization personnel. Factors that may inhibit our efforts to commercialize products on our own include:
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unforeseen costs and expenses associated with creating an independent commercialization organization;
our inability to recruit, train, retain and effectively manage adequate numbers of effective sales, marketing, customer service and other support
personnel, including for reimbursement or medical affairs;
the inability of sales personnel to educate adequate numbers of physicians on the benefits of our future medicines; and
the inability of reimbursement professionals to negotiate arrangements for formulary access, reimbursement and other acceptance by payors.
If we choose to enter into arrangements with third parties to perform sales, marketing, commercial support or distribution services, we may not be
successful in entering into such arrangements or may be unable to do so on terms that are favorable to us. Entering into such third-party arrangements may
subject us to a variety of risks, including:
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product revenues or profitability to us being lower than if we were to market and sell any products we or our collaborators may develop
ourselves;
our inability to exercise direct control over sales and marketing activities and personnel;
failure of the third parties to devote necessary resources and attention to, or other inability to, sell and market any products we or our
collaborators may develop;
potential disputes with third parties concerning sales and marketing expenses, calculation of royalties and sales and marketing strategies; and
unforeseen costs and expenses associated with sales and marketing.
If we do not establish effective commercialization capabilities, either on our own or in collaboration with third parties, we will not be successful in
commercializing any of our product candidates that may receive approval.
If the market opportunities for any products we develop alone or with collaborators are smaller than our estimates, or if we are unable to successfully
identify enough patients, our revenues may be adversely affected.
We focus some of our research and product development on treatments for rare genetic diseases. Our and our collaborators’ projections of both the number
of people who have these diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with product
candidates we may develop, are based on estimates. These estimates may prove to be incorrect, and new studies may change the estimated incidence or
prevalence of these diseases. The number of patients in the United States, Europe and elsewhere may turn out to be lower than expected, and patients may
not be amenable to treatment with products that we may develop alone or with collaborators, or may become increasingly difficult to identify or gain access
to, any of which would decrease our ability to realize revenue from any such products for such diseases.
The successful commercialization of potential products will depend in part on the extent to which governmental authorities and health insurers
establish coverage, and the adequacy of reimbursement levels and pricing policies, and failure to obtain or maintain coverage and adequate
reimbursement for any potential products that may receive approval, could limit marketability of those products and decrease our ability to generate
revenue.
The availability of coverage and adequacy of reimbursement by government healthcare programs such as Medicare and Medicaid, private health insurers
and other third-party payors is essential for most patients to be able to afford prescription medications such as the potential therapeutic products we develop
alone or with collaborators. The ability to achieve acceptable levels of coverage and reimbursement for any potential products that may be approved by
governmental authorities will have an effect on our and our collaborators’ ability to successfully commercialize such products. Even if products we develop
alone or with collaborators obtain coverage by a third-party payor, the resulting reimbursement payment rates may not be adequate or may require co-
payments that patients find unacceptably high. If coverage and reimbursement in the United States, the EU or elsewhere is not available for any products
we develop alone or with collaborators that may be approved, or any reimbursement that may become available is decreased or eliminated in the future, we
and our collaborators may be unable to commercialize such products.
There is significant uncertainty related to the insurance coverage and reimbursement of newly approved drugs and biologics. In the United States, third-
party payors, including private and governmental payors, such as the Medicare and Medicaid programs, play an
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important role in determining the extent to which new drugs and biologics will be covered. In August 2019, the CMS published its decision to cover
autologous treatment for cancer with T-cells expressing at least one CAR when administered at healthcare facilities enrolled in the FDA risk evaluation and
mitigation strategies and used for an FDA-approved indication or for other uses when the product has been FDA-approved and the use is supported in one
or more CMS-approved compendia. The Medicare and Medicaid programs increasingly are used as models in the United States for how private payors and
other governmental payors develop their coverage and reimbursement policies for drugs and biologics. Some third-party payors may require pre-approval
of coverage for new or innovative devices or drug therapies before they will reimburse healthcare providers who use such therapies. We cannot predict at
this time what third-party payors will decide with respect to the coverage and reimbursement for any product that we develop alone or with collaborators.
No uniform policy for coverage and reimbursement for products exists among third-party payors in the United States. Therefore, coverage and
reimbursement for products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and
costly process that will require us or our collaborators to provide scientific and clinical support for the use of any potential products that may be approved
to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance.
Furthermore, rules and regulations regarding reimbursement change frequently, in some cases on short notice. Obtaining coverage and adequate
reimbursement for products we develop alone or with collaborators may be particularly difficult because of the higher prices often associated with drugs
administered under the supervision of a physician. In certain instances, payors may not separately reimburse for the product itself, but only for the
treatments or procedures in which such product is used. A decision by a third-party payor not to cover or separately reimburse for products that we develop
alone or with collaborators or procedures using such products, could reduce physician utilization of any such products that may receive approval.
Third-party payors are increasingly challenging prices charged for pharmaceutical products and services, and many third-party payors may refuse to
provide coverage and reimbursement for particular drugs or biologics when an equivalent generic drug, biosimilar or a less expensive therapy is available.
If approved, it is possible that a third-party payor may consider any products that we develop alone or with collaborators as substitutable and only offer to
reimburse patients for the less expensive product. Pricing of existing third-party therapeutics may limit the amount we will be able to charge for any
products that may receive approval even if we or our collaborators show improved efficacy or improved convenience of administration such products.
These payors may deny or revoke the reimbursement status of a given product or establish prices for new or existing marketed products at levels that are
too low to enable us to realize an appropriate return on our investment in the product. If reimbursement is not available or is available only at limited levels,
we or our collaborators may not be able to successfully commercialize any of the products that we develop, even if approved, and we may not be able to
obtain a satisfactory financial return on them. Moreover, increasing efforts by governmental and third-party payors in the United States and abroad to cap or
reduce healthcare costs may cause such organizations to limit both coverage and the level of reimbursement for newly approved products and, as a result,
they may not cover or provide adequate payment for any products we develop alone or with collaborators that may receive approval. We expect to
experience pricing pressures in connection with the sale of any products that may receive approval due to the trend toward managed health care, the
increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general,
particularly prescription drugs and biologics and surgical procedures and other treatments, has become intense. As a result, increasingly high barriers are
being erected to the entry of new products.
Outside the United States, international operations are generally subject to extensive governmental price controls and other market regulations, and we
believe the increasing emphasis on cost-containment initiatives in Europe and elsewhere have and will continue to put pressure on the pricing and usage of
any products we develop alone or with collaborators that may receive approval. In many countries, the prices of medical products are subject to varying
price control mechanisms as part of national health systems. Other countries allow companies to fix their own prices for medical products, but monitor and
control company profits. Additional international price controls or other changes in pricing regulation could restrict the amount that we or our collaborators
are able to charge for products that we develop that may receive approval. Accordingly, in markets outside the United States, the reimbursement for such
products may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenue and profits.
Our product candidates for which we intend to seek approval as biologic products may face competition sooner than anticipated.
If we are successful in achieving regulatory approval to commercialize any biologic product candidate we develop alone or with collaborators, it may face
competition from biosimilar products. In the United States, our product candidates are regulated by the FDA as biologic products subject to approval under
the BLA pathway. The BPCIA created an abbreviated pathway for the approval of biosimilar and interchangeable biologic products following the approval
of an original BLA. The abbreviated regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics, including the
possible designation of a biosimilar as “interchangeable” based on its similarity to an existing brand product. Under the BPCIA, an application for a
biosimilar product may not be submitted until four years following the date that the reference product was first licensed by the FDA. In addition, the
approval of a biosimilar product may not be made effective by the FDA until 12 years after the reference product was first licensed by
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the FDA. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a
full BLA for the competing product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate
the safety, purity and potency of their product.
We believe that any of our product candidates that are approved as biological products under a BLA should qualify for the 12-year period of exclusivity.
However, there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider such product
candidates to be reference products for competing products, potentially creating the opportunity for generic competition sooner than anticipated. If
competitors are able to obtain marketing approval for biosimilars referencing any products that we develop alone or with collaborators that may be
approved, such products may become subject to competition from such biosimilars, with the attendant competitive pressure and potential adverse
consequences.
Jurisdictions in addition to the U.S. have established abbreviated pathways for regulatory approval of biological products that are biosimilar to earlier
approved reference products. For example, the EU has had an established regulatory pathway for biosimilars since 2006.
Risks Related to Our Organization, Structure and Operations
We may experience difficulties in managing our growth, which could disrupt our operations.
As of December 31, 2022, we had 198 full-time employees. Our future financial performance, ability to develop and commercialize product candidates
alone or with collaborators and ability to compete effectively will depend in part on our ability to effectively manage any future growth. We may have
difficulty identifying, hiring and integrating new personnel. Many of the biotechnology companies that we compete against for qualified personnel and
consultants have greater financial and other resources, different risk profiles and a longer history than we do. If we are unable to continue to attract and
retain high-quality personnel and consultants, the rate and success at which we can identify and develop product candidates, enter into collaborative
arrangements and otherwise operate our business will be limited.
Future growth would impose significant additional responsibilities on our management, including the need to identify, recruit, maintain, motivate and
integrate additional employees, consultants and contractors.
Management may need to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to
managing these growth activities. Due to our limited financial resources and the limited experience of our management team in managing a company with
such anticipated growth, we may not be able to effectively manage the expected expansion of our operations or recruit and train additional qualified
personnel. Moreover, the expected physical expansion of our operations may lead to significant costs and may divert our management and business
development resources from other projects, such as the development of product candidates. If we are not able to effectively manage the expansion of our
operations, it may result in weaknesses in our infrastructure, increase our expenses more than expected, or give rise to operational mistakes, loss of business
opportunities, loss of employees and reduced productivity. Our future financial performance, ability to successfully commercialize any of our product
candidates and our ability to compete effectively will depend, in part, on our ability to effectively manage any future growth.
We may engage in transactions that could disrupt our business, cause dilution to our stockholders or reduce our financial resources.
In the future, we may enter into transactions to acquire or in-license rights to product candidates, products or technologies or to acquire other businesses. If
we do identify suitable candidates, we may not be able to enter into such transactions on favorable terms, or at all. Any such acquisitions or in-licenses may
not strengthen our competitive position, and these transactions may be viewed negatively by customers or investors. We may decide to incur debt in
connection with an acquisition or in-license, which may negatively impact our financial condition and restrict our operations, or issue our common stock or
other equity securities to the stockholders of the acquired company, which would reduce the percentage ownership of our existing stockholders. We could
incur losses resulting from undiscovered liabilities of the acquired business that are not covered by the indemnification we may obtain from the sellers of
the acquired business. In addition, we may not be able to successfully integrate the acquired personnel, technologies and operations into our existing
business in an effective, timely and non-disruptive manner. Such transactions may also divert management attention from day-to-day responsibilities,
increase our expenses and reduce our cash available for operations and other uses. We cannot predict the number, timing or size of future acquisitions or in-
licenses or the effect that they might have on our operating results.
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Our future success depends on our key executives, as well as attracting, retaining and motivating qualified personnel.
We are highly dependent on the research and development experience, technical skills, leadership and continued service of certain members of our
management and scientific teams. Although we have formal employment agreements with our executive officers, these agreements do not prevent them
from terminating their employment with us at any time. The loss of the services of any of these persons could impede the achievement of our research,
development and commercialization objectives.
Recruiting and retaining qualified scientific, clinical, manufacturing and, if we retain commercialization responsibility for any product candidate we
develop alone or with collaborators, sales and marketing personnel will also be critical to our success. We may not be able to attract new or successor
personnel on acceptable terms or at all given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also
experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and
advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategies. Our
consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other
entities that may limit their availability to us. The inability to recruit, integrate, motivate and retain additional skilled and qualified personnel, or the loss of
services of certain executives, key employees, consultants or advisors, may impede the progress of our research, development and commercialization
objectives and have a material adverse effect on our business.
We are subject to increased costs as a result of operating as a public company, and our management will be required to devote substantial time to
maintaining compliance initiatives and corporate governance practices, including establishing and maintaining proper and effective internal control
over financial reporting.
As a public company, we have incurred and will continue to incur significant legal, accounting and other expenses that we did not incur as a private
company. We are subject to the Securities Exchange Act of 1934, as amended, (the "Exchange Act"), including the reporting requirements thereunder, the
Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of The Nasdaq Stock Market LLC
(“Nasdaq”) and other applicable securities rules and regulations, including requirements related to the establishment and maintenance of effective
disclosure and financial controls and corporate governance practices. Our management and other personnel will need to continue to devote a substantial
amount of time to these compliance initiatives. Moreover, these rules and regulations have increased our legal and financial compliance costs, making some
activities more difficult, time consuming or costly, and increasing demand on our systems and resources.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”) we are required to furnish a report by our management on our internal control
over financial reporting. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal
control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 of the Sarbanes-
Oxley Act within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is
both costly and challenging. We may need to hire more employees in the future or engage outside consultants to comply with these requirements, which
will further increase our costs and expenses. If we fail to implement the requirements of Section 404 of the Sarbanes-Oxley Act in the required timeframe,
we may be subject to sanctions or investigations by regulatory authorities, including the SEC and Nasdaq. Furthermore, if we are unable to conclude that
our internal control over financial reporting is effective, our investors may lose confidence in the accuracy and completeness of our financial reports, the
market price of our common stock could decline, and we could be subject to sanctions or investigations by regulatory authorities. Failure to implement or
maintain an effective internal control system could also restrict our future access to the capital markets.
Our business and operations may suffer in the event of information technology system failures, cyber-attacks or deficiencies in our security, which
could materially affect our results.
Despite the implementation of security measures, our information technology systems, as well as those of third parties with which we have relationships,
are vulnerable to attack, interruption, and damage from computer viruses and malware (e.g., ransomware), malicious code, cyberattacks, hacking, phishing
attacks and other social engineering schemes, denial or degradation of service attacks, natural and manmade disasters, terrorism, war and
telecommunication and electrical failures, malfeasance by external or internal parties (e.g., employee theft or misuse, attacks by sophisticated nation-state
and nation-state-supported actors), and human error. The aforementioned third parties with which we have relationships include service providers and
vendors who provide to us a broad array of software and other technologies as well as products, services and functions (e.g., human resources, finance,
communications, data transmission, risk, compliance) that enable us to conduct, monitor and/or protect our business, operations, systems and data assets.
Attacks upon information technology systems are increasing in their frequency, levels of persistence, sophistication and intensity, and are being conducted
by sophisticated and organized groups and individuals with a wide range of motives and expertise. Furthermore, because the technologies used to obtain
unauthorized access to, or to sabotage or disrupt, systems change frequently and often are not recognized until launched against a target, we may be unable
to anticipate these techniques or implement adequate preventative
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measures. We may also experience security breaches that may remain undetected for an extended period. Even if identified, we may be unable to
adequately investigate or remediate incidents or breaches due to attackers increasingly using tools and techniques that are designed to circumvent controls,
to avoid detection, and to remove or obfuscate forensic evidence. As a result of the COVID-19 pandemic and the continued hybrid work environment, we
may also face increased cybersecurity risks due to our reliance on internet technology and the number of our and our service providers’ employees who are
(and may continue to be) working remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities. The White House, SEC
and other regulators have also increased their focus on companies’ cybersecurity vulnerabilities and risks.
We and certain of our service providers are from time to time, subject to cyberattacks and security incidents. While we do not believe that we have
experienced any significant system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our or our critical
third parties’ operations, it could result in delays and/or material disruptions of our research and development programs, our operations and ultimately, our
financial results. For example, the loss of trial data from completed, ongoing or planned trials could result in delays in our regulatory approval efforts and
significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of or damage to
data or applications, or inappropriate disclosure of personal, confidential or proprietary information, we could incur liability due to delays in the
development of our product candidates and/or due to reputational harm, litigation, regulatory investigations and enforcement, fines and penalties, or
increased costs of compliance and system remediation. Any losses, costs or liabilities may not be covered by, or may exceed the coverage limits of, any or
all applicable insurance policies.
Federal, state and foreign legislators and regulators globally have enacted or proposed legal requirements regarding the collection, distribution, disclosure,
use, processing, security and storage of personally identifiable information and other types of regulated data, including online information and data online.
In the ordinary course of our business, we and third parties with which we have relationships will continue to collect and store sensitive data, including
intellectual property, clinical trial data, proprietary business information, personal data and personally identifiable information of our clinical trial subjects
and employees, in data centers and on networks. The secure processing, maintenance and transmission of this information is critical to our operations.
Despite security measures that we and our critical third parties (e.g., collaborators) implement, our information technology systems, infrastructure and data
may be vulnerable to attacks by hackers or internal bad actors, breaches due to human error, technical vulnerabilities, malfeasance or other disruptions. A
number of proposed and enacted federal, state and international laws and regulations obligate companies to notify individuals and other parties of security
breaches involving particular types of information, which could result from breaches experienced by us or by third parties, including collaborators, vendors,
contractors or other organizations with which we have formed relationships that involve the handling or processing of such information.
Even though we may have contractual protections with third parties who process or handle sensitive information, any breach could compromise our or their
networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure, notifications, follow-up actions
related to such a security breach or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of
personal information and significant costs, including regulatory penalties, fines and legal expenses, and such an event could disrupt our operations, cause us
to incur remediation costs, damage our reputation and cause a loss of confidence in us and our or such third parties’ ability to conduct clinical trials, which
could adversely affect our reputation and delay our research and development programs.
Our insurance policies are expensive and protect us only from some business risks, which leaves us exposed to significant uninsured liabilities.
We do not carry insurance for all categories of risk that our business may encounter. If we obtain marketing approval for any product candidates that we or
our collaborators may develop, we intend to acquire insurance coverage to include the sale of commercial products, but we may be unable to obtain such
insurance on commercially reasonable terms or in adequate amounts. We do not carry specific biological or hazardous waste insurance coverage, and our
property, casualty and general liability insurance policies specifically exclude coverage for damages and fines arising from biological or hazardous waste
exposure or contamination.
Accordingly, in the event of contamination or injury, we could be held liable for damages or be penalized with fines in an amount exceeding our resources,
and clinical trials or regulatory approvals for any of our product candidates could be suspended. We also expect that operating as a public company will
make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or
incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals
to serve on our board of directors, our board committees or as our executive officers.
Insurance coverage is becoming increasingly expensive, and in the future we may not be able to maintain insurance coverage at a reasonable cost or in
sufficient amounts to protect us against losses. We do not know if we will be able to maintain existing insurance with adequate levels of coverage, and any
liability insurance coverage we acquire in the future may not be sufficient to reimburse us for any expenses or losses we may suffer. A successful liability
claim or series of claims brought against us could require us to pay substantial amounts and cause our share price to decline and, if judgments exceed our
insurance coverage, could adversely affect our
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results of operations and business, including preventing or limiting the development and commercialization of any product candidates that we or our
collaborators may develop.
If we or any of our contract manufacturers or other suppliers fail to comply with environmental, health and safety laws and regulations, we could
become subject to fines or penalties or incur significant costs.
We and any of our contract manufacturers and suppliers are subject to numerous federal, state and local environmental, health and safety laws, regulations
and permitting requirements, including those governing laboratory procedures; the generation, handling, use, storage, treatment and disposal of hazardous
and regulated materials and wastes; the emission and discharge of hazardous materials into the ground, air and water; and employee health and safety. Our
operations involve the use of hazardous and flammable materials, including chemicals and biological and radioactive materials. Our operations also
produce hazardous waste. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of
contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable
for any resulting damages, and any liability could exceed our resources. Under certain environmental laws, we could be held responsible for costs relating
to any contamination at our current or past facilities and at third-party facilities. We also could incur significant costs associated with civil or criminal fines
and penalties.
Compliance with applicable environmental laws and regulations may be expensive, and current or future environmental laws and regulations may impair
our research and product development efforts. In addition, we cannot entirely eliminate the risk of accidental injury or contamination from these materials
or wastes.
Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from
the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not carry specific biological or
hazardous waste insurance coverage, and our property, casualty and general liability insurance policies (under which we currently have an aggregate of
approximately $10 million in coverage) specifically exclude coverage for damages and fines arising from biological or hazardous waste exposure or
contamination. Accordingly, in the event of contamination or injury, we could be held liable for damages or be penalized with fines in an amount exceeding
our resources, and our clinical trials or regulatory approvals for any product candidate we develop alone or with collaborators could be suspended, which
could have a material adverse effect on our business and financial condition.
In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws, regulations and permitting
requirements, and any third-party contract manufacturers and suppliers we engage will also be subject to such current and future regulations and
requirements. These current or future laws, regulations and permitting requirements may impair our research, development or production efforts. Failure to
comply with these laws, regulations and permitting requirements, either by us or by any third-party contract manufacturers and suppliers we engage, also
may result in substantial fines, penalties or other sanctions or business disruption.
Our business operations, including our current and future relationships with third parties, may expose us to penalties for potential misconduct or
improper activity, including non-compliance with regulatory standards and requirements.
Complex laws constrain our business and the financial arrangements and relationships through which we conduct our operations, including how we may
research, market, sell and distribute product candidates alone or with collaborators. We are exposed to the risk of fraud or other misconduct by our
employees, consultants and collaborators and, if we or our collaborators commence clinical trials and proceed to commercialization, our principal
investigators and commercial partners, as well as healthcare professionals, third-party payors, patient organizations and customers. For example,
misconduct by these parties could include intentional failures to comply with FDA regulations or the regulations applicable in the EU and other
jurisdictions, provide accurate information to the FDA and other regulatory authorities, comply with healthcare fraud and abuse laws and regulations in the
United States and abroad, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and
business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, false
and/or misleading statements, corruption of government officials, self-dealing and other abusive practices. These laws and regulations restrict or prohibit a
wide range of pricing, discounting, marketing, promotion, sales commission and customer incentive programs and other business arrangements. Such
misconduct also could involve the improper use or misrepresentation of information obtained in the course of clinical trials, creating fraudulent data in
preclinical studies or clinical trials, illegal misappropriation of study materials or other property, or improper interactions with the FDA or other regulatory
authorities, which could result in regulatory sanctions and cause serious harm to our or our collaborators’ reputations.
Ensuring that our internal operations and current and future business arrangements with third parties comply with applicable healthcare laws and
regulations will involve substantial costs. Additionally, we are subject to the risk that a person or government could allege such fraud or other misconduct,
even if none occurred. It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes,
regulations, agency guidance or case law involving applicable fraud
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and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of the laws described above or any other
governmental laws and regulations that may apply to us, we may be subject to significant penalties, including civil, criminal and administrative penalties,
damages, fines, exclusion from government-funded healthcare programs, such as Medicare and Medicaid or similar programs in other countries or
jurisdictions, additional reporting requirements and oversight if subject to a corporate integrity agreement or similar agreement to resolve allegations of
non-compliance with these laws, disgorgement, individual imprisonment, contractual damages, reputational harm, diminished profits and the curtailment or
restructuring of our operations. If any of the physicians or other providers or entities with whom we expect to do business are found to not be in compliance
with applicable laws, they may be subject to similar penalties, such as criminal, civil or administrative sanctions, including exclusions from government-
funded healthcare programs and imprisonment, which could affect our ability to operate our business. Further, defending against any such actions can be
costly and time-consuming and may require significant personnel resources. Therefore, even if we are successful in defending against any such actions that
may be brought against us, our business may be impaired.
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We have adopted policies applicable to all of our employees, but it is not always possible to identify and deter employee misconduct, and the precautions
we take to detect and prevent such activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from government
investigations or other actions or lawsuits stemming from a failure to comply with applicable laws or regulations. Additionally, we are subject to the risk
that a person could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in
defending ourselves or asserting our rights, those actions could result in the imposition of any of the penalties discussed above and have a significant
impact on our business and financial condition.
We are subject to complex tax rules relating to our business, and any audits, investigations or tax proceedings could have a material adverse effect on
our business, results of operations and financial condition.
We are subject to income and non-income taxes in the United States. Income tax accounting often involves complex issues, and judgment is required in
determining our provision for income taxes and other tax liabilities. We may operate in foreign jurisdictions in the future. We could become subject to
income and non-income taxes in foreign jurisdictions as well. In addition, many jurisdictions have detailed transfer pricing rules, which require that all
transactions with non-resident related parties be priced using arm’s length pricing principles within the meaning of such rules. The application of
withholding tax, goods and services tax, sales taxes and other non-income taxes is not always clear and we may be subject to tax audits relating to such
withholding or non-income taxes. We believe that our tax positions are reasonable and our tax reserves are adequate to cover any potential liability. We are
currently not subject to any tax audits. However, the Internal Revenue Service (“IRS”) or other taxing authorities may disagree with our positions. If the
IRS or any other tax authorities were successful in challenging our positions, we may be liable for additional tax and penalties and interest related thereto or
other taxes, as applicable, in excess of any reserves established therefor, which may have a significant impact on our results and operations and future cash
flow.
We may not be able to utilize all, or any, of our net operating loss carryforwards.
We have incurred substantial losses during our history, do not expect to become profitable in the near future, and we may not achieve profitability. As of
December 31, 2022, we had U.S. federal and state net operating loss (“NOL”) carryforwards of $159.5 million and $119.1 million, respectively. Our federal
NOL carryforwards carry forward indefinitely. The state NOL carryforwards begin to expire in 2027. In addition, as of December 31, 2022, we have U.S.
federal and state research and development (“R&D”) tax credits of $13.2 million and an amount less than $0.1 million available to offset future U.S. federal
and state income taxes, which begin to expire in 2027 and 2030, respectively. At December 31, 2022 and December 31, 2021, we had federal Orphan Drug
credits of $11.6 million and $9.5 million, respectively, which begin to expire in 2038.
Changes in tax laws or regulations may adversely impact our ability to utilize all, or any, of our NOL carryforwards. For example, legislation enacted in
2017, informally titled the Tax Cuts and Jobs Act (the “TCJA”), significantly revised the Internal Revenue Code of 1986, as amended. Future guidance
from the IRS and other tax authorities with respect to the TCJA may affect us, and certain aspects of the TCJA could be repealed or modified in future
legislation. For example, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) modified certain provisions of the TCJA. Under the
CARES Act, NOLs arising in a tax year beginning after December 31, 2017, and before January 1, 2021, generally may now be carried back five years.
Under the TCJA, as modified by the CARES Act, unused losses generated in taxable years ending after December 31, 2017 will not expire and may be
carried forward indefinitely, but the deductibility of such NOLs in tax years beginning after December 31, 2020, is limited to 80% of taxable income. It is
uncertain if and to what extent various states will conform to the to the TCJA or the CARES Act.
As of December 31, 2022, we have a valuation allowance for the full amount of our net deferred tax assets as the realization of the net deferred tax assets is
not determined to be more likely than not. In addition, Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, limit a corporation’s ability
to utilize its NOL carryforwards and certain other tax attributes (including research credits) to offset any future taxable income or tax if the corporation
experiences a cumulative ownership change of more than 50% over any rolling three-year period. State NOL carryforwards (and certain other tax
attributes) may be similarly limited. A Section 382 ownership change can therefore result in significantly greater tax liabilities than a corporation would
incur in the absence of such a change, and any increased liabilities could adversely affect the corporation’s business, results of operations, financial
condition and cash flow. We have not yet determined if any prior change in the ownership of our equity or any change in such ownership in connection with
our IPO, would trigger a Section 382 ownership change. It is possible that such a Section 382 ownership change has already occurred in prior periods.
Furthermore, additional ownership changes may occur in the future as a result of events over which we will have little or no control, including purchases
and sales of our equity by our 5% stockholders, the emergence of new 5% stockholders, additional equity offerings or redemptions of our stock or certain
changes in the ownership of any of our 5% stockholders. As a result, our pre-2018 NOL carryforwards (and research tax credits) may expire prior to being
used, and our NOL carryforwards and tax credits generated in 2018 and thereafter will be subject to a percentage limitation, upon an ownership change.
Similar provisions of state tax law may also apply to limit our use of accumulated state tax attributes. As a result, even if we attain profitability, we may be
unable to use all or a material portion of our NOLs and other tax attributes, which could adversely affect our future cash flows.
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COVID-19 has impacted, and may continue to impact, our business, and any other pandemic, epidemic or outbreak of an infectious disease may
materially and adversely impact our business, including our preclinical studies and clinical trials.
The COVID-19 pandemic and government measures taken in response have had a significant impact, both direct and indirect, on businesses and commerce,
as at various points during the pandemic, worker shortages have occurred; supply chains and manufacturing, including our own, have been disrupted;
facilities and production have been suspended; and demand for certain goods and services, such as medical services and supplies, has spiked, while demand
for other goods and services has fallen. Any additional resurgence of COVID-19, or any other pandemic, epidemic or outbreak of an infectious disease,
along with any new regulatory orders or guidance or any self-imposed protective measures that we or our partners impose in response, could adversely
impact our business, including our preclinical studies and clinical trials.
The COVID-19 pandemic and its variants continue to evolve. Disruptions, supply chain constraints and timeline impacts, staffing shortages, competing
resource demands and safety concerns caused by the COVID-19 pandemic and its variants have caused, and may continue to cause, difficulties, disruptions
or delays in conducting preclinical studies or initiating, enrolling, conducting or completing our planned and ongoing clinical trials and impact our ability to
enroll patients, and we may incur other unforeseen costs as a result. Lead times for certain of our single-use components have been extended as a result of
supply chain constraints affecting the industry, and global economic conditions could lead to even longer timelines or greater costs in the future. The extent
to which the COVID-19 pandemic impacts our business, preclinical studies and clinical trials will depend on future developments, which are highly
uncertain and cannot be predicted with confidence, such as the emergence of additional new variants, business closures or business disruptions and the
effectiveness of actions taken in the United States and other countries to contain and treat the disease. Additionally, the magnitude of the economic impact
of COVID-19 pandemic and its variants including sustained inflation, supply chain disruptions, and major central bank policy actions continues to be
difficult to assess or predict and may continue to result in significant disruption of global financial markets, which may have a negative impact on our
preclinical studies and clinical trials or reduce our ability to access capital, negatively affecting our liquidity.
Risks Related to Our Reliance on Third Parties
We have entered into significant arrangements with collaborators and expect to depend on collaborations with third parties for certain research,
development and commercialization activities, and if any such collaborations are not successful, it may harm our business and prospects.
We have sought in the past, and anticipate that we will continue to seek in the future, third-party collaborators for the research, development and
commercialization of certain product candidates and the research and development of certain technologies. For example, we are party to the Lilly
Agreement and Novartis Agreement. Under these agreements, we are focused on research and development of in vivo gene editing products that utilize or
incorporate our ARCUS nucleases. Our likely collaborators for other product research and development arrangements include large and mid-size
pharmaceutical and biotechnology companies, and our likely collaborators for other technology research and development arrangements include
universities and other research institutions.
Working with collaborators poses several significant risks. We have limited control over the amount and timing of resources that our collaborators dedicate
to the product candidates or technologies we may seek to develop with them. A variety of factors may impact resource allocation decisions of collaborators,
such as study or trial results, changes in the collaborator’s strategic focus, turnover in personnel responsible for the development activities, financial
capacity or external factors such as a business combination or change in control that diverts resources or creates competing priorities. Collaboration
agreements may not lead to development or commercialization of product candidates or the development of technologies in the most efficient manner or at
all. Resource allocation and other developmental decisions made by our collaborators may result in the delay or termination of research programs, studies
or trials, repetition of or initiation of new studies or trials or provision of insufficient funding or resources for the completion of studies or trials or the
successful marketing and distribution of any product candidates that may receive approval. Collaborators could independently develop, or develop with
third parties, product candidates or technologies that compete directly or indirectly with our product candidates or technologies if the collaborators believe
that competitive products or technologies are more likely to be successfully developed or can be commercialized under terms that are more economically
attractive than ours. Collaborators may not properly obtain, maintain, enforce or defend our intellectual property or proprietary rights or may use our
proprietary information in such a way that could jeopardize or invalidate our proprietary information or expose us to potential litigation. Disputes may arise
between us and our collaborators that result in the delay or termination of the research, development or commercialization activities or that result in costly
litigation or arbitration that diverts management attention and resources.
Our ability to generate revenues from these arrangements will depend on our collaborators’ abilities to successfully perform the functions assigned to them
in these arrangements. If our collaborations do not result in the successful development and commercialization of product candidates or technologies, or if
one of our collaborators terminates its agreement with us, we may not receive any future funding or milestone or royalty payments under the collaboration.
If we do not receive the funding we expect under these agreements, our development of product candidates or technologies could be delayed, and we may
need additional resources to
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develop such product candidates or technologies. For example, we waived earned, but unpaid milestone payments in connection with the termination of the
Servier Agreement. If any of our collaborators terminates its agreement with us, we may be unable to find a suitable replacement collaborator or attract new
collaborators and may need to raise additional capital to pursue further development or commercialization of the applicable product candidates or
technologies. These events could delay development programs, negatively impact the perception of our company in business and financial communities or
cause us to have to cease development of the product candidate covered by the collaboration arrangement. Failure to develop or maintain relationships with
any current collaborators could result in the loss of opportunity to work with that collaborator or reputational damage that could impact our relationships
with other collaborators in the relatively small industry communities in which we operate. Moreover, all of the risks relating to product development,
regulatory approval and commercialization described in this Annual Report on Form 10-K apply to the activities of our collaborators. If our existing
collaboration agreements or any collaborative or strategic relationships we may establish in the future are not effective and successful, it may damage our
reputation and business prospects, delay or prevent the development and commercialization of product candidates and inhibit or preclude our ability to
realize any revenues.
If we are not able to establish collaborations on commercially reasonable terms, we may have to alter our research, development and commercialization
plans.
Our research and product development programs and the potential commercialization of any product candidates we develop alone or with collaborators will
require substantial additional cash to fund expenses, and we expect that we will continue to seek collaborative arrangements with others in connection with
the development and potential commercialization of current and future product candidates or the development of ancillary technologies. We face significant
competition in establishing relationships with appropriate collaborators. In addition, there have been a significant number of recent business combinations
among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators. Whether we reach a definitive agreement
for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the
proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include, among other things and as applicable
for the type of potential product or technology, an assessment of the opportunities and risks of our technology, the design or results of studies or trials, the
likelihood of approval, if necessary, by the FDA or similar regulatory authorities outside the United States, the potential market for the subject product
candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products and
technologies and industry and market conditions generally.
Current or future collaborators may also consider alternative product candidates or technologies for similar indications that may be available to collaborate
on and whether such a collaboration could be more attractive than the one with us. Additionally, we may be restricted under existing collaboration
agreements from entering into future agreements on certain terms or for certain development activities with potential collaborators. For example, we have
granted exclusive rights or options to Lilly and Novartis for certain targets, and during the term of our collaboration agreements we will be restricted from
granting rights to other parties to use our ARCUS technology to pursue potential products that address those targets. Similarly, our collaboration
agreements have in the past and may in the future contain non-competition provisions that could limit our ability to enter into strategic collaborations with
future collaborators.
Collaborations are complex and time-consuming to negotiate and document. We may not be able to negotiate collaborations on a timely basis, on
acceptable terms, or at all. If we do enter into additional collaboration agreements, the negotiated terms may force us to relinquish rights that diminish our
potential profitability from development and commercialization of the subject product candidates or others. If we are unable to enter into additional
collaboration agreements, or to maintain existing collaborations, we may have to curtail the research and development of the product candidate or
technology for which we are seeking to collaborate, reduce or delay research and development programs, delay potential commercialization timelines,
reduce the scope of any sales or marketing activities or undertake research, development or commercialization activities at our own expense. For example,
in January 2023, we announced that, based on our new prioritized focus, as well as the evolving treatment paradigm for PH1, we have decided to look for a
partner in the kidney disease arena for further potential development of PBGENE-PH1 and will no longer develop the program on its own. If we are unable
to enter into an appropriate collaboration with respect to PH1 on a timely basis, on acceptable terms, or at all, we may choose to cease related research and
development activities. If we elect to increase our expenditures to fund research, development or commercialization activities on our own, we may need to
obtain additional capital, which may not be available to us on acceptable terms or at all.
We rely on third parties to conduct, supervise and monitor our clinical trials and some aspects of our research and preclinical testing, and if those third
parties do not successfully carry out their contractual duties, comply with regulatory requirements, or otherwise perform in a satisfactory manner, we
may not be able to obtain regulatory approval or commercialize product candidates, or such approval or commercialization may be delayed, and our
business may be substantially harmed.
We rely on medical institutions, universities, clinical investigators, contract laboratories and other third parties, such as CROs, to conduct preclinical studies
and future clinical trials for our product candidates. Nevertheless, we will be responsible for ensuring that
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each of our studies and trials is conducted in accordance with the applicable protocol, legal and regulatory requirements and scientific standards, and our
reliance on such third parties will not relieve us of our regulatory responsibilities.
Although we intend to design the trials for our product candidates either alone or with collaborators, third parties may conduct all of the trials. As a result,
many important aspects of our research and development programs, including their conduct and timing, will be outside of our direct control. Our reliance
on third parties to conduct future studies and trials will also result in less direct control over the management of data developed through studies and trials
than would be the case if we were relying entirely upon our own staff. Communicating with outside parties can also be challenging, potentially leading to
mistakes and difficulties in coordinating activities. Outside parties may have staffing difficulties, fail to comply with contractual obligations, experience
regulatory compliance issues, undergo changes in priorities, become financially distressed or form relationships with other entities, some of which may be
our competitors. We also face the risk of potential unauthorized disclosure or misappropriation of our intellectual property by CROs or other third parties,
which may reduce our trade secret protection and allow our potential competitors to access and exploit our proprietary technology. For any violations of
laws and regulations during the conduct of our preclinical studies and future clinical trials, we could be subject to warning letters or enforcement action that
may include civil penalties up to and including criminal prosecution.
For example, we will remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and
protocols for the trial. Moreover, the FDA requires us to comply with regulations, commonly referred to as GCPs for conducting, monitoring, recording and
reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial
participants are protected. If we, our collaborators, our CROs or other third parties fail to comply with applicable GCPs, the clinical data generated in our
clinical trials may be deemed unreliable and FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before
approving our marketing applications. We also are required to register certain ongoing clinical trials and post the results of such completed clinical trials on
a government-sponsored database, ClinicalTrials.gov, within certain timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal
sanctions.
If our CROs or other third parties do not successfully carry out their contractual duties or obligations, fail to meet expected deadlines, or if the quality or
accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for any other
reasons, trials for product candidates may be extended, delayed or terminated, and we or our collaborators may not be able to obtain regulatory approval
for, or successfully commercialize, any product candidate that we develop. If we are required to repeat, extend the duration of or increase the size of any
trials we conduct, it could significantly delay commercialization and require significantly greater expenditures. As a result of any of these factors, our
financial results and the commercial prospects for any product candidate that we or our collaborators may develop would be harmed, our costs could
increase and our ability to generate revenues could be delayed.
We rely on third parties to supply raw materials or manufacture product supplies that are necessary for the conduct of preclinical studies, clinical trials
and manufacturing of our product candidates, and failure by third parties to provide us with sufficient quantities of products, or to do so at acceptable
quality levels or prices and on a timely basis, could harm our business.
We are dependent on third parties for the supply of various biological materials, such as cells, cytokines and antibodies, and the manufacture of product
supplies, such as media, plasmids, mRNA and AAV viral vectors, that are necessary to produce our product candidates. The supply of these materials could
be reduced or interrupted at any time. In such case, identifying and engaging an alternative supplier or manufacturer could result in delay, and we may not
be able to find other acceptable suppliers or manufacturers on acceptable terms, or at all. Switching suppliers or manufacturers may involve substantial
costs and is likely to result in a delay in our desired clinical and commercial timelines. If we change suppliers or manufacturers for commercial production,
applicable regulatory agencies may require us to conduct additional studies or trials. If key suppliers or manufacturers are lost, or if the supply of the
materials is diminished or discontinued, we or our collaborators may not be able to develop, manufacture and market product candidates in a timely and
competitive manner, or at all. If any of our product candidates receives approval, we will likely need to seek alternative sources of supply of raw materials
or manufactured product supplies and there can be no assurance that we will be able to establish such relationships to provide such supplies on
commercially reasonable terms or at acceptable quality levels, if at all. If we are unable to identify and procure additional sources of supply that fit our
required needs, we could face substantial delays or incur additional costs in procuring such materials. In addition, manufactured product supplies are
subject to stringent manufacturing processes and rigorous testing. Delays in the completion and validation of facilities and manufacturing processes of these
materials could adversely affect the ability to complete studies or trials and commercialize any product candidates that may receive approval. Furthermore,
if our suppliers or manufacturers encounter challenges relating to employee turnover, the supply and manufacturing of our materials could be delayed or
adversely affected as such parties seek to hire and train new employees. These factors could cause the delay of studies or trials, regulatory submissions,
required approvals or commercialization of product candidates that we or our collaborators may develop, cause us to incur higher costs and prevent us from
commercializing products successfully. Furthermore, if our suppliers or manufacturers fail to meet contractual requirements, and we are unable to secure
one or more replacements capable of
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production at a substantially equivalent cost, our or our collaborators’ studies or trials may be delayed and we could lose potential revenue.
We may continue to rely on third parties for at least a portion of the manufacturing process of product candidates, and failure by those parties to
adequately perform their obligations could harm our business.
While we use our MCAT facility for certain of our clinical-scale manufacturing and processing needs, we may continue to rely on outside vendors for at
least a portion of the manufacturing process of product candidates that we or our collaborators may develop. The facilities used by our contract
manufacturers to manufacture product candidates must be approved by the FDA or other foreign regulatory agencies pursuant to inspections that will be
conducted after we submit an application to the FDA or other foreign regulatory agencies. To the extent that we or our collaborators engage third parties for
manufacturing services, we will not control the manufacturing process of, and will be completely dependent on, our contract manufacturing providers for
compliance with cGMP requirements for manufacture of the product candidates. We have not yet caused any product candidates to be manufactured or
processed on a commercial scale and may not be able to do so. We will make changes as we work to optimize the manufacturing process, and we cannot be
sure that even minor changes in the process will result in products that are safe and effective. If our contract manufacturers cannot successfully manufacture
material that conforms to our specifications and the strict regulatory requirements of the FDA or other regulatory authorities, they will not be able to secure
and/or maintain regulatory approval for their manufacturing facilities. In addition, we have no control over the ability of our contract manufacturers to
maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority does not approve
these facilities for the manufacture of product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing
facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market any of our or our collaborators’ potential
products.
Risks Related to Intellectual Property
Our ability to compete may decline if we do not adequately protect our proprietary rights, and if our proprietary rights do not provide a competitive
advantage.
Our commercial success depends upon obtaining and maintaining proprietary rights to our intellectual property estate, including rights relating to ARCUS
and to our product candidates, as well as successfully defending these rights against third-party challenges and successfully enforcing these rights to
prevent third-party infringement. We will only be able to protect ARCUS and product candidates from unauthorized use by third parties to the extent that
valid and enforceable patents cover them. Our ability to obtain and maintain patent protection for ARCUS and our product candidates is uncertain due to a
number of factors, including that:
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we may not have been the first to invent the technology covered by our pending patent applications or issued patents;
we may not be the first to file patent applications covering product candidates, including their compositions or methods of use, as patent
applications in the United States and most other countries are confidential for a period of time after filing;
our compositions and methods may not be patentable;
our disclosures in patent applications may not be sufficient to meet the statutory requirements for patentability;
any or all of our pending patent applications may not result in issued patents;
others may independently develop identical, similar or alternative technologies, products or compositions or methods of use thereof;
others may design around our patent claims to produce competitive technologies or products that fall outside of the scope of our patents;
we may fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection;
we may not seek or obtain patent protection in countries that may eventually provide us a significant business opportunity;
any patents issued to us may not provide a basis for commercially viable products, may not provide any competitive advantages or may be
successfully challenged by third parties;
others may identify prior art or other bases upon which to challenge and ultimately invalidate our patents or otherwise render them
unenforceable; and
the growing scientific and patent literature relating to engineered endonucleases, including our own patents and publications, may make it
increasingly difficult or impossible to patent new engineered nucleases in the future.
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Even if we have or obtain patents covering ARCUS or any product candidates or compositions, we and our collaborators may still be barred from making,
using and selling such product candidates or technologies because of the patent rights of others. Others may have filed, and in the future may file, patent
applications covering compositions, products or methods that are similar or identical to ours, which could materially affect our ability to successfully
develop any product candidates or to successfully commercialize any approved products alone or with collaborators. In addition, because patent
applications can take many years to issue, there may be currently pending applications unknown to us that may later result in issued patents that we or our
collaborators may infringe. These patent applications may have priority over patent applications filed by us.
The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our owned and licensed patents have been, and may in
the future be, challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or freedom to
operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or
commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products. For example, in
2019, the Patent Trial and Appeal Board (the “PTAB”), of the USPTO initiated two patent interferences involving a family of patents that have been issued
to us and a pending patent application filed by a third party. Though the PTAB ultimately found that the third-party patent application did not satisfy written
description requirements and rejected the related claims, maintaining the claims in all nine of our patents, any future interference proceedings could result
in an adverse outcome, affecting our competitive position, including, without limitation, loss of some or all of our involved patent claims, limiting our
ability to stop others from using or commercializing similar or identical technology and products, which could harm our business, financial condition and
results of operations. Protecting our patent rights in connection with such proceeding may also be expensive and may involve the diversion of significant
management time.
Furthermore, we cannot guarantee that any patents will be issued from any pending or future owned or licensed patent applications. Thus, even if our patent
applications issue as patents, they may not issue in a form that will provide us with meaningful protection, prevent competitors from competing with us or
otherwise provide us with any competitive advantage. In addition, third parties may be able to develop products that are similar to, or better than, ours in a
way that is not covered by the claims of our patents, or may have blocking patents that could prevent us from marketing our products or practicing our own
patented technology. Moreover, patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after it is filed.
Various extensions may be available; however the life of a patent, and the protection it affords, is limited. Without patent protection for current or future
product candidates, we may be open to competition from generic versions of such potential products. Given the amount of time required for the
development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such
candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from
commercializing products similar or identical to those we or our collaborators may develop.
Obtaining and maintaining a patent portfolio entails significant expense, including periodic maintenance fees, renewal fees, annuity fees and various other
governmental fees on patents and patent applications. These expenditures can be at numerous stages of prosecuting patent applications and over the lifetime
of maintaining and enforcing issued patents. We may or may not choose to pursue or maintain protection for particular intellectual property in our portfolio.
If we choose to forgo patent protection or to allow a patent application or patent to lapse purposefully or inadvertently, our competitive position could
suffer. There are situations, however, in which failure to make certain payments or noncompliance with certain requirements in the patent process can result
in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event,
our competitors might be able to enter the market, which would have a material adverse effect on our business.
Legal action that may be required to enforce our patent rights can be expensive and may involve the diversion of significant management time. There can
be no assurance that we will have sufficient financial or other resources to file and pursue infringement claims, which typically last for years before they are
concluded. In addition, these legal actions could be unsuccessful and result in the invalidation of our patents, a finding that they are unenforceable or a
requirement that we enter into a licensing agreement with or pay monies to a third party for use of technology covered by our patents. We may or may not
choose to pursue litigation or other actions against those that have infringed on our patents, or have used them without authorization, due to the associated
expense and time commitment of monitoring these activities. If we fail to successfully protect or enforce our intellectual property rights, our competitive
position could suffer, which could harm our results of operations.
Many biotechnology companies and academic institutions are currently pursuing a variety of different nuclease systems for genome editing technologies
using zinc finger nucleases, TALENs, and CRISPR/Cas9 and the use of those nucleases in cancer immunotherapy, gene therapy and genome editing.
Although those nucleases are physically and chemically different from our ARCUS nucleases, those companies and institutions may seek patents that
broadly cover aspects of cancer immunotherapy, gene therapy and genome editing using nucleases generally. Such patents, if issued, valid and enforceable,
could prevent us from marketing our product candidates, if approved, practicing our own patented technology, or might require us to take a license which
might not be available on commercially reasonable terms or at all. While we expect that we will continue to be able to patent our ARCUS nucleases
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for the foreseeable future, as the scientific and patent literature relating to engineered endonucleases increases, including our own patents and publications,
it may become more difficult or impossible to patent new engineered endonucleases in the future.
If we fail to comply with our obligations in the agreements under which we license intellectual property rights from third parties or otherwise
experience disruptions to our business relationships with our licensors, we could lose license rights that are important to our business.
We are a party to a number of intellectual property license agreements that are important to our business and expect to enter into additional license
agreements in the future. Our existing license agreements impose, and we expect that future license agreements will impose, various diligence, milestone
payment, royalty and other obligations on us. We may need to outsource and rely on third parties for many aspects of the development, sales and marketing
of any products covered under our current and future license agreements. Delay or failure by these third parties could adversely affect the continuation of
our license agreements with our licensors. If we fail to comply with any of our obligations under these agreements, or we are subject to a bankruptcy, our
licensors may have the right to terminate the license, in which event we would not be able to market any products covered by the license.
In addition, disputes may arise regarding the payment of the royalties due to licensors in connection with our exploitation of the rights we license from
them. Licensors may contest the basis of royalties we retained and claim that we are obligated to make payments under a broader basis. In addition to the
costs of any litigation we may face as a result, any legal action against us could increase our payment obligations under the respective agreement and
require us to pay interest and potentially damages to such licensors.
In some cases, patent prosecution of our licensed technology is controlled solely by the licensor. If such licensor fails to obtain and maintain patent or other
protection for the proprietary intellectual property we license from such licensor, we could lose our rights to such intellectual property or the exclusivity of
such rights, and our competitors could market competing products using such intellectual property. In that event, we may be required to expend significant
time and resources to develop or license replacement technology. If we are unable to do so, we or our collaborators may be unable to develop or
commercialize the affected product candidates, which could harm our business significantly. In other cases, we control the prosecution of patents resulting
from licensed technology. In the event we breach any of our obligations related to such prosecution, we may incur significant liability to our licensing
partners.
For example, our license agreement with Duke, which we refer to as the Duke License, imposes various payment, royalty and other obligations on us in
order to maintain the license. If we fail to make royalty payments or milestone payments required under the Duke License, Duke may terminate the
agreement. If we or our affiliates obtain a license from a third party to practice the Duke technology, we must use commercially reasonable efforts to secure
a covenant not to sue Duke, or any of its faculty, students, employees or agents, for any research and development efforts conducted at Duke that resulted in
the creation of any of its inventions or intellectual property rights arising therefrom. Additionally, because development of the Duke technology was funded
in part by the U.S. government, it is subject to certain government rights and obligations, including the requirement that any products sold in the United
States based upon such technology be substantially manufactured in the United States.
In addition, our cross-license agreement with Cellectis, or the Cellectis License, imposes various obligations on us in order to maintain the license. In
particular, if we participate in or provide assistance to a third party challenging the validity, enforceability and/or patentability of any claim of any patent
licensed to us by Cellectis under this agreement, Cellectis may terminate the agreement. The Cellectis License does not provide exclusive rights to use the
licensed intellectual property and technology or rights in all relevant fields in which we may wish to develop or commercialize our technology and products
in the future. As a result, we are not able to prevent competitors from developing and commercializing competitive products and technology that may use
this technology. Additionally, we do not have the right to control the preparation, filing, prosecution, maintenance, enforcement and defense of patents and
patent applications covering the technology that we license from Cellectis. Therefore, we cannot be certain that these patents and patent applications will be
prepared, filed, prosecuted, maintained and defended in a manner consistent with the best interests of our business. If Cellectis or other licensors fail to
prosecute, maintain, enforce and defend the patents subject to such licenses, or lose rights to those patents or patent applications, the rights we have
licensed may be reduced or eliminated, and our right to develop and commercialize any of our products that are the subject of such licensed rights could be
adversely affected.
If we fail to comply with our obligations under the Duke License or the Cellectis License, or arrangements with any other licensors, our counterparties may
have the right to terminate these agreements, in which event we might not be able to develop, manufacture or market any product candidate that is covered
by these agreements, which could materially adversely affect the value of any such product candidate. Termination of these agreements or reduction or
elimination of our rights under these agreements may result in our having to negotiate new or reinstated agreements with less favorable terms, or cause us
to lose our rights under these agreements, including our rights to important intellectual property or technology.
Disputes may arise regarding intellectual property subject to a license agreement, including:
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the scope of rights granted under the license agreement and other interpretation-related issues;
the amounts of royalties, milestones or other payments due to our licensors;
the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the license agreement;
the sublicensing of patent and other rights under our collaborative development relationships;
our diligence obligations under the license agreement and what activities satisfy those diligence obligations;
the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our
collaborators; and
the priority of invention of patented technology.
Such disputes may be costly to resolve and may divert management’s attention away from day-to-day activities. If disputes over intellectual property that
we have licensed from third parties prevent or impair our ability to maintain our licensing arrangements on acceptable terms, we or our collaborators may
be unable to successfully develop and commercialize the affected product candidates.
Some of our in-licensed intellectual property has been discovered through government funded research and thus may be subject to federal regulations
such as “march-in” rights, certain reporting requirements and a preference for U.S.-based companies, and compliance with such regulations may limit
our exclusive rights and our ability to contract with foreign manufacturers.
Certain intellectual property rights that have been in-licensed pursuant to the Duke License have been generated through the use of U.S. government
funding and are therefore subject to certain federal regulations. As a result, the U.S. government may have certain rights to intellectual property embodied
in our current or future product candidates pursuant to the Bayh-Dole Act of 1980, or the Patent and Trademark Law Amendment. These U.S. government
rights include a non-exclusive, non-transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the U.S.
government has the right, under certain limited circumstances, to require the licensor to grant exclusive, partially exclusive or non-exclusive licenses to any
of these inventions to a third party if it determines that (1) adequate steps have not been taken to commercialize the invention, (2) government action is
necessary to meet public health or safety needs or (3) government action is necessary to meet requirements for public use under federal regulations (also
referred to as “march-in rights”). The U.S. government also has the right to take title to these inventions if the licensor fails to disclose the invention to the
government or fails to file an application to register the intellectual property within specified time limits. Intellectual property generated under a
government funded program is also subject to certain reporting requirements, compliance with which may require us to expend substantial resources. In
addition, the U.S. government requires that any products embodying any of these inventions or produced through the use of any of these inventions be
manufactured substantially in the United States, and the Duke License requires that we comply with this requirement. This preference for U.S. industry may
be waived by the federal agency that provided the funding if the owner or assignee of the intellectual property can show that reasonable but unsuccessful
efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture the products substantially in the United
States or that under the circumstances domestic manufacture is not commercially feasible. This preference for U.S. industry may limit our ability to
contract with foreign product manufacturers for products covered by such intellectual property. To the extent any of our owned or licensed future
intellectual property is also generated through the use of U.S. government funding, the provisions of the Bayh-Dole Act may similarly apply.
If we do not obtain patent term extension in the United States under the Hatch-Waxman Act and in foreign countries under similar legislation with
respect to our product candidates, thereby potentially extending the term of marketing exclusivity for such product candidates, our business may be
harmed.
In the United States, a patent that covers an FDA-approved drug or biologic may be eligible for a term extension designed to restore the period of the patent
term that is lost during the premarket regulatory review process conducted by the FDA. Depending upon the timing, duration and conditions of FDA
marketing approval of our product candidates, one or more of our U.S. patents may be eligible for limited patent term extension under the Drug Price
Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, which permits a patent term extension of up to five years for a patent
covering an approved product as compensation for effective patent term lost during product development and the FDA regulatory review process. In the
EU, our product candidates may be eligible for term extensions based on similar legislation. In either jurisdiction, however, we may not receive an
extension if we fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable
requirements. Even if we are granted such extension, the duration of such extension may be less than our request. If we are unable to obtain a patent term
extension, or if the term of any such extension is less than our request, the period during which we can enforce our patent rights for that product will be in
effect shortened and our competitors may obtain approval to market competing products sooner. The resulting reduction of years of revenue from
applicable products could be substantial.
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Patents and patent applications involve highly complex legal and factual questions, which, if determined adversely to us, could negatively impact our
patent position.
The patent positions of biopharmaceutical and biotechnology companies and other actors in our fields of business can be highly uncertain and typically
involve complex scientific, legal and factual analyses. In particular, the interpretation and breadth of claims allowed in some patents covering
biopharmaceutical compositions may be uncertain and difficult to determine, and are often affected materially by the facts and circumstances that pertain to
the patented compositions and the related patent claims. The standards of the USPTO and its foreign counterparts are sometimes uncertain and could
change in the future. Consequently, the issuance and scope of patents cannot be predicted with certainty. Patents, if issued, may be challenged, invalidated
or circumvented. U.S. patents and patent applications may also be subject to interference or derivation proceedings, and U.S. patents may be subject to
reexamination proceedings, post-grant review and/or inter partes review in the USPTO. International patents may also be subject to opposition or
comparable proceedings in the corresponding international patent office, which could result in either loss of the patent or denial of the patent application or
loss or reduction in the scope of one or more of the claims of the patent or patent application. In addition, such interference, derivation, reexamination, post-
grant review, inter partes review and opposition proceedings may be costly. Accordingly, rights under any issued patents may not provide us with sufficient
protection against competitive products or processes.
Furthermore, even if not challenged, our patents and patent applications may not adequately protect our technology and any product candidates or products
that we develop alone or with collaborators or prevent others from designing their products to avoid being covered by our claims. If the breadth or strength
of protection provided by the patent applications we hold with respect to product candidates or potential products is threatened, it could dissuade companies
from collaborating with us to develop, and could threaten our or their ability to successfully commercialize, such product candidates. Furthermore, for U.S.
applications in which any claim is entitled to a priority date before March 16, 2013, an interference proceeding can be provoked by a third party or
instituted by the USPTO in order to determine who was the first to invent any of the subject matter covered by such patent claims.
In addition, changes in, or different interpretations of, patent laws in the United States and other countries may permit others to use our discoveries or to
develop and commercialize our technology and product candidates or products without providing any compensation to us, or may limit the scope of patent
protection that we are able to obtain. The laws of some countries do not protect intellectual property rights to the same extent as U.S. laws, and those
countries may lack adequate rules and procedures for defending our intellectual property rights.
If the patent applications we hold or have in-licensed with respect to our current and future research and development programs and product candidates fail
to issue, if their validity, breadth or strength of protection is threatened, or if they fail to provide meaningful exclusivity for our technology or any products
and product candidates that we or our collaborators may develop, it could dissuade companies from collaborating with us to develop product candidates,
encourage competitors to develop competing products or technologies and threaten our or our collaborators’ ability to commercialize future product
candidates. Any such outcome could have a material adverse effect on our business.
Third parties may assert claims against us alleging infringement of their patents and proprietary rights, or we may need to become involved in lawsuits
to defend or enforce our patents, either of which could result in substantial costs or loss of productivity, delay or prevent the development and
commercialization of product candidates, prohibit our use of proprietary technology or sale of potential products or put our patents and other
proprietary rights at risk.
Our commercial success depends in part upon our ability to develop, manufacture, market and sell product candidates without alleged or actual
infringement, misappropriation or other violation of the patents and proprietary rights of third parties. Litigation relating to infringement or
misappropriation of patent and other intellectual property rights in the pharmaceutical and biotechnology industries is common, including patent
infringement lawsuits, interferences, oppositions and reexamination proceedings before the USPTO and corresponding international patent offices. The
various markets in which we plan to operate are subject to frequent and extensive litigation regarding patents and other intellectual property rights. In
addition, many companies in intellectual property-dependent industries, including the biotechnology and pharmaceutical industries, have employed
intellectual property litigation as a means to gain an advantage over their competitors. Numerous United States, EU and other internationally issued patents
and pending patent applications, which are owned by third parties, exist in the fields in which we and our collaborators are developing product candidates,
and as the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates may be subject to
claims of infringement of the intellectual property rights of third parties. For example, we are aware of certain patents held by third parties relating to the
modification of T cells, including the production of CAR T cells. Although conducting clinical trials and other development activities with respect to our
CAR T product candidates is not considered an act of infringement in the United States, if and when any of our CAR T product candidates may be
approved by the FDA, those third parties may seek to enforce their patents by filing a patent infringement lawsuit against us. As a result of any patent
infringement claims, or in order to avoid any potential infringement claims, we may choose to seek, or be required to seek, a license from the third party,
which may require payment of substantial royalties or fees, or require us to grant a cross-license under our intellectual property rights, similar to the cross
license we granted Cellectis as part of our patent litigation settlement. These licenses may not be available on reasonable
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terms or at all. Even if a license can be obtained on reasonable terms, the rights may be nonexclusive, which would give our competitors access to the same
intellectual property rights. If we are unable to enter into a license on acceptable terms, we or our collaborators could be prevented from commercializing
one or more product candidates, or forced to modify such product candidates, or to cease some aspect of our business operations, which could harm our
business significantly. We or our collaborators might also be forced to redesign or modify our technology or product candidates so that we no longer
infringe the third-party intellectual property rights, which may result in significant cost or delay to us, or which redesign or modification could be
impossible or technically infeasible. Even if we were ultimately to prevail, any of these events could require us to divert substantial financial and
management resources that we would otherwise be able to devote to our business.
Further, if a patent infringement suit is brought against us, our collaborators or our third-party service providers, our development, manufacturing or sales
activities relating to the product or product candidate that is the subject of the suit may be delayed or terminated. In addition, defending such claims has in
the past and may in the future cause us to incur substantial expenses and, if successful, could cause us to pay substantial damages if we are found to be
infringing a third party’s patent rights. These damages potentially include increased damages and attorneys’ fees if we are found to have infringed such
rights willfully. Some claimants may have substantially greater resources than we do and may be able to sustain the costs of complex intellectual property
litigation to a greater degree and for longer periods of time than we could. In addition, patent holding companies that focus solely on extracting royalties
and settlements by enforcing patent rights may target us. In addition, if the breadth or strength of protection provided by the patents and patent applications
we own or in-license is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product
candidates.
We have been and may in the future be subject to third-party claims and similar adversarial proceedings or litigation in other jurisdictions regarding our
infringement of the patent rights of third parties. Even if such claims are without merit, a court of competent jurisdiction could hold that these third-party
patents are valid, enforceable and infringed, and the holders of any such patents may be able to block or our collaborators’ ability to further develop or
commercialize the applicable product candidate unless we obtain a license under the applicable patents, or until such patents expire or are finally
determined to be invalid or unenforceable. Similarly, if any third-party patents were held by a court of competent jurisdiction to cover aspects of our
technologies, compositions, formulations, or methods of treatment, prevention or use, the holders of any such patents may be able to prohibit our use of
those technologies, compositions, formulations, methods of treatment, prevention or use or other technologies, effectively blocking our or our
collaborators’ ability to develop and commercialize the applicable product candidate until such patent expires or is finally determined to be invalid or
unenforceable or unless we or our collaborators obtain a license.
Some of our competitors may be able to sustain the costs of complex intellectual property litigation more effectively than we can because they have
substantially greater resources. In addition, intellectual property litigation, regardless of its outcome, may cause negative publicity, adversely impact
prospective customers, cause product shipment delays or prohibit us from manufacturing, marketing or otherwise commercializing our products, services
and technology. Any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise
additional funds or otherwise have a material adverse effect on our business, results of operation, financial condition or cash flows.
If we or one of our licensors were to initiate legal proceedings against a third party to enforce a patent covering our technology or a product candidate, the
defendant could counterclaim that our patent is invalid or unenforceable. In patent litigation in the United States and Europe, defendant counterclaims
alleging invalidity or unenforceability are common. Grounds for a validity challenge could be an alleged failure to meet any of several statutory
requirements, for example, lack of novelty, obviousness or non-enablement. Third parties might allege unenforceability of our patents because during
prosecution of the patent an individual connected with such prosecution withheld relevant information, or made a misleading statement. The outcome of
proceedings involving assertions of invalidity and unenforceability during patent litigation is unpredictable. With respect to the validity of patents, for
example, we cannot be certain that there is no invalidating prior art of which we and the patent examiner were unaware during prosecution, but that an
adverse third party may identify and submit in support of such assertions of invalidity. If a defendant were to prevail on a legal assertion of invalidity or
unenforceability, we would lose at least part, and perhaps all, of the patent protection on our technology or product candidates. Our patents and other
intellectual property rights also will not protect our technology if competitors design around our protected technology without infringing our patents or
other intellectual property rights. Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to
incur significant expenses and could distract our technical and management personnel from their normal responsibilities. In addition, because of the
substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could
be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim
proceedings or developments, and if securities analysts or investors view these announcements in a negative light, the price of our common stock could be
adversely affected. Such litigation or proceedings could substantially increase our operating losses and reduce our resources available for development
activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings.
Developments in patent law could have a negative impact on our business.
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From time to time, the Supreme Court, other federal courts, the United States Congress, or Congress, the USPTO and similar international authorities may
change the standards of patentability, and any such changes could have a negative impact on our business. For example, the America Invents Act (the
“AIA”), which was passed in September 2011, resulted in significant changes to the U.S. patent system. An important change introduced by the AIA is that,
as of March 16, 2013, the United States transitioned from a “first-to-invent” to a “first-to-file” system for deciding which party should be granted a patent
when two or more patent applications are filed by different parties claiming the same invention. Under a “first-to-file” system, assuming the other
requirements for patentability are met, the first inventor to file a patent application generally will be entitled to a patent on the invention regardless of
whether another inventor had made the invention earlier. A third party that files a patent application in the USPTO after that date but before us could
therefore be awarded a patent covering an invention of ours even if we made the invention before it was made by the third party. Circumstances could
prevent us from promptly filing patent applications on our inventions.
The AIA limited where a patentee may file a patent infringement suit and provided opportunities for third parties to challenge any issued patent in the
USPTO. Those provisions apply to all of our U.S. patents, regardless of when issued. Because of a lower evidentiary standard in USPTO proceedings
compared to the evidentiary standard in U.S. federal courts necessary to invalidate a patent claim, a third party could potentially provide evidence in a
USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first
presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have
been invalidated if first challenged by the third party as a defendant in a district court action. These provisions could increase the uncertainties and costs
surrounding the prosecution of our or our licensors’ patent applications and the enforcement or defense of our or our licensors’ issued patents.
Additionally, the Supreme Court has ruled on several patent cases in recent years either narrowing the scope of patent protection available in certain
circumstances or weakening the rights of patent owners in certain situations, and there are other open questions under patent law that courts have yet to
decisively address. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created
uncertainty with respect to the value of our patents and patent applications. Depending on decisions by Congress, the federal courts and the USPTO, the
laws and regulations governing patents could change in unpredictable ways and could weaken our ability to obtain new patents or to enforce our existing
patents and patents that we might obtain in the future. In addition, the European patent system is relatively stringent in the type of amendments that are
allowed during prosecution, but the complexity and uncertainty of European patent laws has also increased in recent years. Complying with these laws and
regulations could limit our ability to obtain new patents in the future that may be important for our business.
If we were unable to protect the confidentiality of our trade secrets and enforce our intellectual property assignment agreements, our business and
competitive position would be harmed.
In addition to patent protection, because we operate in the highly technical field of development of product candidates and products using genome editing,
we rely significantly on trade secret protection in order to protect our proprietary technology and processes. Trade secrets are difficult to protect. Our policy
is to enter into confidentiality and intellectual property assignment agreements with our employees, consultants, outside scientific collaborators, sponsored
researchers and other advisors. These agreements generally require that the other party keep confidential and not disclose to third parties all confidential
information developed by the party or made known to the party by us during the course of the party’s relationship with us. These agreements also generally
provide that inventions conceived by the party in the course of rendering services to us will be our exclusive property. However, we may be unsuccessful in
executing such an agreement with each party who in fact conceives or develops intellectual property that we regard as our own. Our assignment agreements
may not be self-executing or may be breached, and we may be forced to bring claims against third parties, or defend claims they may bring against us, to
determine the ownership of what we regard as our intellectual property. In addition, these agreements may be held unenforceable and may not effectively
assign intellectual property rights to us. If our trade secrets and other unpatented or unregistered proprietary information are disclosed, we are likely to lose
such trade secret protection.
In addition, certain provisions in our intellectual property agreements may be susceptible to multiple interpretations. The resolution of any contract
interpretation disagreement that may arise could affect the scope of our rights to the relevant intellectual property or technology, or affect financial or other
obligations under the relevant agreement, either of which could have a material adverse effect on our business, financial condition, results of operations and
prospects.
In addition, agreements with third parties typically restrict the ability of such third parties to publish data potentially relating to our trade secrets. Our
academic collaborators typically have rights to publish data, provided that we are notified in advance and may delay publication for a specified period of
time in order to secure our intellectual property rights arising from the arrangement. In other cases, publication rights are controlled exclusively by us,
although in some cases we may share these rights with other parties. We also conduct joint research and product development activities that may require us
to share trade secrets under the terms of our research and development collaborations or similar agreements. In addition to contractual measures, we try to
protect the confidential nature of our proprietary information using physical and technological security measures. Such measures may not provide adequate
protection for our proprietary information. For example, our security measures may not prevent an employee or consultant with authorized access
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from misappropriating our trade secrets and providing them to a competitor, and the recourse we have available against such misconduct may not provide
an adequate remedy to protect our interests fully. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret can be difficult,
expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States may be less willing to protect trade secrets.
Furthermore, our proprietary information may be independently developed by others in a manner that could prevent legal recourse by us. Competitors could
purchase any products we may develop and commercialize and attempt to reverse engineer and replicate some or all of the competitive advantages we
derive from our development efforts, willfully infringe our intellectual property rights or design around our protected technology. In addition, our key
employees, consultants, suppliers or other individuals with access to our proprietary technology and know-how may incorporate that technology and know-
how into projects and inventions developed independently or with third parties. As a result, disputes may arise regarding the ownership of the proprietary
rights to such technology or know-how, and any such dispute may not be resolved in our favor. If any of our confidential or proprietary information,
including our trade secrets, were to be disclosed or misappropriated, or if any such information was independently developed by a competitor, our
competitive position could be harmed and such disclosure or misappropriation could have a material adverse effect on our business.
We will not seek to protect our intellectual property rights in all jurisdictions throughout the world, and we may not be able to adequately enforce our
intellectual property rights even in the jurisdictions where we seek protection.
Filing, prosecuting and defending patents on product candidates in all countries and jurisdictions throughout the world would be prohibitively expensive,
and our intellectual property rights in some countries outside the United States could be less extensive than those in the United States, assuming that rights
are obtained in the United States. In-licensing patents covering product candidates in all countries throughout the world may similarly be prohibitively
expensive, if such opportunities are available at all. In addition, the laws of some foreign countries do not protect intellectual property rights to the same
extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all
countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions.
We generally apply for patents in those countries where we intend to make, have made, use, offer for sale or sell products and where we assess the risk of
infringement to justify the cost of seeking patent protection. However, we do not seek protection in all countries where we sell products and we may not
accurately predict all the countries where patent protection would ultimately be desirable. If we fail to timely file a patent application in any such country or
major market, we may be precluded from doing so at a later date. Competitors may use our technologies in jurisdictions where we do not pursue and obtain
patent protection to develop their own products and may export otherwise infringing products to territories where we have patent protection, but where our
ability to enforce our patent rights is not as strong as in the United States. These products may compete with any products that we or our collaborators may
develop, and our patents or other intellectual property rights may not be effective or sufficient to prevent such competition.
The laws of some other countries do not protect intellectual property rights to the same extent as the laws of the United States. For example, European
patent law restricts the patentability of methods of treatment of the human body more than U.S. law does. Patent protection must ultimately be sought on a
country-by-country basis, which is an expensive and time-consuming process with uncertain outcomes. Accordingly, we may choose not to seek patent
protection in certain countries, and we will not have the benefit of patent protection in such countries. In addition, the legal systems of some countries,
particularly developing countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating to
biopharmaceuticals or biotechnologies. As a result, many companies have encountered significant difficulties in protecting and defending intellectual
property rights in certain jurisdictions outside the United States. Such issues may make it difficult for us to stop the infringement of our patents, if obtained,
or the misappropriation of our other intellectual property rights. For example, many other countries, including countries in the EU, have compulsory
licensing laws under which a patent owner must grant licenses to third parties. In addition, many countries limit the enforceability of patents against third
parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit. In those countries, we and
our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party, which could
materially diminish the value of those patents and could limit our potential revenue opportunities. Accordingly, our and our licensors’ efforts to enforce
intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we own or
license.
Europe’s planned Unified Patent Court may in particular present uncertainties for our ability to protect and enforce our patent rights against competitors in
Europe. In 2012, the European Patent Package, or EU Patent Package, regulations were passed with the goal of providing a single pan-European Unitary
Patent and a new European Unified Patent Court, or UPC, for litigation involving European patents. Implementation of the EU Patent Package will likely
occur in the first half of 2023. Under the UPC, all European patents, including those issued prior to ratification of the European Patent Package, will by
default automatically fall under the jurisdiction of the UPC. The UPC will provide our competitors with a new forum to centrally revoke our European
patents, and allow for the possibility of a competitor to obtain pan-European injunctions. It will be several years before we will understand the scope of
patent rights that will be recognized and the strength of patent remedies that will be provided by the UPC. Under the EU Patent Package as currently
proposed, we will have the right to opt our patents out of the UPC over the first seven years of the court’s existence, but doing so may preclude us from
realizing the benefits of the new unified court.
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Furthermore, proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other
aspects of our business, subject our patents to the risk of being invalidated or interpreted narrowly, subject our patent applications to the risk of not issuing
or provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded to us, if
any, may not be commercially meaningful, while the damages and other remedies we may be ordered to pay such third parties may be significant.
Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from
the intellectual property that we develop or license.
We may not be successful in obtaining or maintaining necessary rights to product components and processes for our development pipeline through
acquisitions and in-licenses.
We have rights, through licenses from third parties and under patents that we own, to the intellectual property to develop the product candidates we are
currently developing alone or with collaborators. Because our programs may involve additional product candidates that may require the use of proprietary
rights held by third parties, the growth of our business may depend in part on our ability to acquire, in-license or use these proprietary rights. In addition,
product candidates may require specific formulations to work effectively and efficiently, and these rights may be held by others. We may be unable to
acquire or in-license any compositions, methods of use, processes or other third-party intellectual property rights from third parties that we identify. The
licensing and acquisition of third-party intellectual property rights is a competitive area, and a number of more established companies, or companies that
have greater resources than we do, may also be pursuing strategies to license or acquire third-party intellectual property rights that we may consider
necessary or attractive to develop or commercialize product candidates. These established companies may have a competitive advantage over us due to
their size and greater cash resources and clinical development and commercialization capabilities. We may not be able to successfully complete such
negotiations and ultimately acquire the rights to the intellectual property surrounding product candidates that we may seek to acquire.
For example, we sometimes collaborate with academic institutions to accelerate our preclinical research or development under written agreements with
these institutions. Typically, these institutions provide us with an option to negotiate a license to any of the institution’s rights in technology resulting from
the strategic alliance. Regardless of such right of first negotiation, we may be unable to negotiate a license within the specified time frame or under terms
that are acceptable to us, and the institution may license such intellectual property rights to third parties, potentially blocking our ability to pursue our
development and commercialization plans.
In addition, companies that perceive us to be a competitor may be unwilling to assign or license to us intellectual property rights that we require in order to
successfully develop and commercialize potential products. We also may be unable to obtain such a license or assignment on terms that would allow us to
make an appropriate return on our investment. In either event, our business and prospects for growth could suffer.
If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our
business may be adversely affected.
If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our
business may be adversely affected. We may not be able to protect our rights to our trademarks and trade names, which we need to build name recognition
among potential collaborators or customers in our markets of interest. At times, competitors may adopt trade names or trademarks similar to ours, thereby
impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark
infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our unregistered trademarks or trade
names. Over the long term, if we are unable to successfully register our trademarks and trade names and establish name recognition based on our
trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. Our efforts to enforce or protect
our proprietary rights related to trademarks, trade secrets, domain names, copyrights and other intellectual property may be ineffective and could result in
substantial costs and diversion of resources and could adversely impact our financial condition or results of operations.
Risks Related to Owning Our Common Stock
We could be subject to securities class action litigation.
In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is
especially relevant to us as a clinical-stage biopharmaceutical company, as our stock price can significantly fluctuate as a result of public announcements
regarding the progress of our development efforts for our discovery platform and our product candidates. If we face such litigation, it could result in
substantial costs and a diversion of management’s attention and resources, which could harm our business.
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We do not currently intend to pay dividends on our common stock.
We do not intend to pay any dividends to holders of our common stock for the foreseeable future. We currently intend to invest our future earnings, if any,
to fund our growth. In addition, pursuant to the terms of our Revolving Line we are prohibited from paying cash dividends without the prior written consent
of PWB and future debt instruments may materially restrict our ability to pay dividends on our common stock. Therefore, you are not likely to receive any
dividends on your common stock for the foreseeable future, and the success of an investment in our common stock will depend upon any future
appreciation in its value. Consequently, you may need to sell all or part of your common stock after price appreciation, which may never occur, as the only
way to realize any future gains on your investment.
Provisions in our amended and restated certificate of incorporation and restated bylaws or Delaware law might discourage, delay or prevent a change
in control of our company or changes in our management and therefore depress the trading price of our common stock.
Provisions in our amended and restated certificate of incorporation and our restated bylaws may discourage, delay or prevent a merger, acquisition or other
change in control of our company that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for
your shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby
depressing the market price of our common stock. In addition, because our board of directors is responsible for appointing the members of our management
team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult
for stockholders to replace members of our board of directors. Among other things, these provisions include those establishing:
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a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a
majority of our board of directors;
no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;
the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the
resignation, death or removal of a director, which prevents stockholders from filling vacancies on our board of directors;
the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the terms of those shares, including
preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;
the ability of our board of directors to alter our bylaws without obtaining stockholder approval;
the required approval of the holders of at least two-thirds of the shares entitled to vote at an election of directors to adopt, amend or repeal our
bylaws or repeal the provisions of our amended and restated certificate of incorporation regarding the election and removal of directors;
a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our
stockholders;
the requirement that a special meeting of stockholders may be called only by the chairman of the board of directors, our chief executive officer
(or our president, in the absence of a chief executive officer) or a majority of our board of directors, which may delay the ability of our
stockholders to force consideration of a proposal or to take action, including the removal of directors; and
advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to
be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the
acquirer’s own slate of directors or otherwise attempting to obtain control of us.
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the General Corporation Law of the State of
Delaware, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three
years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is
approved in a prescribed manner.
Our amended and restated certificate of incorporation and our amended and restated bylaws include exclusive forum provisions for substantially all
disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our
directors, officers or employees.
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Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum to the fullest extent
permitted by law, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (1) any derivative action or proceeding brought
on our behalf, (2) any action asserting a claim for breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our
stockholders, (3) any action asserting a claim arising pursuant to any provision of the General Corporation Law of the State of Delaware, our amended and
restated certificate of incorporation or our amended and restated bylaws, or (4) any action asserting a claim governed by the internal affairs doctrine. Under
our amended and restated certificate of incorporation, this exclusive forum provision will not apply to claims which are vested in the exclusive jurisdiction
of a court or forum other than the Court of Chancery of the State of Delaware, or for which the Court of Chancery of the State of Delaware does not have
subject matter jurisdiction. For instance, the provision would not apply to actions arising under federal securities laws, including suits brought to enforce
any liability or duty created by the Exchange Act or the rules and regulations thereunder. Further, our amended and restated bylaws provide that, unless we
consent in writing to the selection of an alternative forum, to the fullest extent permitted by law, the federal district courts of the United States will be the
exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act and that any person or entity purchasing or
otherwise acquiring or holding any interest in shares of our capital stock are deemed to have notice of and consented to this provision. These exclusive
forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or
other employees, which may discourage such lawsuits against us and our directors, officers and other employees. For example, stockholders who do bring a
claim in the Court of Chancery could face additional litigation costs in pursuing any such claim, particularly if they do not reside in or near the State of
Delaware. The Court of Chancery may also reach different judgments or results than would other courts, including courts where a stockholder considering
an action may be located or would otherwise choose to bring the action, and such judgments or results may be more favorable to us than to our
stockholders.
We are an “emerging growth company” and the reduced disclosure requirements applicable to emerging growth companies may make our common
stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act. We will remain an emerging growth company until the earlier of (1) December 31,
2024, (2) the last day of the fiscal year in which we have total annual gross revenue of $1.235 billion or more, (3) the date on which we have issued more
than $1.0 billion in nonconvertible debt during the previous three years, or (4) the date on which we are deemed to be a large accelerated filer under the
rules of the SEC which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th. For so
long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are
applicable to other public companies that are not emerging growth companies. These exemptions include:
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being permitted to present only two years of “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
disclosure in this Annual Report on Form 10-K;
not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended;
not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding
mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial
statements;
reduced disclosure obligations in our SEC filings regarding executive compensation; and
exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden
parachute payments not previously approved.
In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or
revised accounting standards. This allows an emerging growth company to delay the adoption of these accounting standards until they would otherwise
apply to private companies. We have elected to take advantage of this extended transition period.
We may choose to take advantage of some, but not all, of the available exemptions for emerging growth companies. We cannot predict whether investors
will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be
a less active trading market for our common stock and our stock price may be reduced or more volatile.
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General Risk Factors
We or third parties with whom we have relationships may be adversely affected by natural or manmade disasters, public health emergencies and other
natural catastrophic events, and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.
Natural or manmade disasters could severely disrupt our operations and have a material adverse effect on our business, results of operations, financial
condition and prospects. If a natural disaster, public health emergency, power outage or other event occurred that prevented us from using all or a
significant portion of our facilities, that damaged our infrastructure or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible
for us to continue our business for a substantial period of time, and our research and development activities could be setback or delayed. The disaster
recovery and business continuity plans we have in place may prove inadequate in the event of a serious disaster or similar event. We may incur substantial
expenses as a result of the limited nature of our disaster recovery and business continuity plans, which could have a material adverse effect on our business,
and such an event could disrupt our operations, cause us to incur remediation costs, damage our reputation and cause a loss of confidence in us and our or
third parties’ ability to conduct clinical trials, which could adversely affect our reputation and delay our research and development programs.
Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and stock price.
Global credit and financial markets have experienced extreme volatility and disruptions in the recent past, including severely diminished liquidity and
credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, exchange rate impacts and uncertainty
about economic stability, and similar deterioration in the credit and financial markets and confidence in economic conditions may occur in the future. Our
general business strategy may be adversely affected by any such economic downturn, volatile business environment or unpredictable and unstable market
conditions. If the current equity and credit markets deteriorate, or do not improve, it may make any necessary debt or equity financing more difficult, more
costly and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our
growth strategy, financial performance and stock price and could require us to delay or abandon clinical development plans. In addition, there is a risk that
one or more of our current service providers, manufacturers or others with whom we have strategic relationships may not survive any difficult economic
times, which could directly affect our ability to attain our operating goals.
As of December 31, 2022, we had cash and cash equivalents of $189.6 million. While we are not aware of any downgrades, material losses or other
significant deterioration in the fair value of our cash equivalents since December 31, 2022, deterioration of the global credit and financial markets could
negatively impact our current portfolio of cash equivalents or our ability to meet our financing objectives. Furthermore, our stock price may decline due in
part to the volatility of the stock market and any general economic downturn.
The market price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for purchasers of our
common stock.
The market price of our common stock is likely to be highly volatile and may fluctuate substantially due to many factors, including:
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inconsistent trading volume levels of our common stock;
announcements or expectations regarding debt or equity financing efforts;
sales of common stock by us, our insiders or our other stockholders;
actual or anticipated fluctuations in our financial condition and operating results;
failure to meet or exceed financial estimates and projections of the investment community or that we provide to the public;
results from or delays in our studies or trials, or those of our collaborators, competitors or companies perceived to be similar to us;
delay, failure or discontinuation of any of our product development and research programs, or those of our collaborators, competitors or
companies perceived to be similar to us;
announcements about new research programs or product candidates from us or our collaborators, our competitors or companies perceived to be
similar to us;
announcements by us, our collaborators, our competitors or companies perceived to be similar to us relating to significant acquisitions, strategic
partnerships or alliances, joint ventures, collaborations or capital commitments;
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actual or anticipated changes in our growth rate relative to our competitors or companies perceived to be similar to us;
fluctuations in the valuation of our collaborators, our competitors or companies perceived to be comparable to us;
a lack of, limited or withdrawal of coverage by security analysts, or positive or negative recommendations by them;
actual or expected changes in estimates as to financial results, development timelines or recommendations by securities analysts;
publication of research reports about us, genome editing or the biopharmaceutical industries;
developments or changing views regarding the use of genomic products, including those that involve genome editing;
our ability to effectively manage our growth;
the recruitment or departure of key personnel;
the results of any efforts by us to identify, develop, acquire or in-license additional product candidates, products or technologies;
unanticipated serious safety concerns related to the use of any of our product candidates, or those of our competitors or companies perceived to
be similar to us;
the termination of a collaboration agreement, licensing agreement or other strategic arrangement or the inability to establish additional strategic
arrangements on favorable terms, or at all;
regulatory actions with respect to any of our product candidates, or those of our competitors or companies perceived to be similar to us;
developments or disputes concerning patent applications, issued patents or other proprietary rights;
regulatory or legal developments in the United States and other countries;
changes in physician, hospital, or healthcare provider practices that may make our or our collaborators’ products less useful;
changes in the structure of healthcare payment systems;
significant lawsuits, such as products liability, patent or stockholder litigation;
short sales of our common stock; and
general economic, industry and market conditions.
These and other market and industry factors may cause the market price and demand for our common stock to fluctuate substantially, regardless of our
actual operating performance. These factors may have a material adverse effect on the market price and liquidity of our common stock, which may limit or
prevent you from readily selling your shares of common stock and may affect our ability to obtain financing or enter into desired strategic relationships.
If securities or industry analysts issue an adverse or misleading opinion regarding our common stock, our stock price and trading volume could
decline.
The trading market for our common stock relies in part on the research and reports that industry or securities analysts publish about us or our business. We
do not control these analysts. If any of the analysts who cover us issue an adverse or misleading opinion regarding us, our business model, our intellectual
property or our stock performance, or if our preclinical studies and clinical trials and operating results fail to meet the expectations of analysts, our stock
price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, we could lose visibility in the
financial markets, which in turn could cause our stock price or trading volume to decline.
Item 1B. Unresolved Staff Comments
None.
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Item 2. Properties.
We currently occupy approximately 69,500 square feet of office and laboratory space at our corporate headquarters in Durham, North Carolina under a
lease that expires in 2024. We also occupy approximately 33,800 square feet of manufacturing, laboratory and office space used for our MCAT facility in
Research Triangle Park, North Carolina under a lease that expires in 2027.
Item 3. Legal Proceedings.
From time to time we may be involved in claims and proceedings arising in the course of our business. The outcome of any such claims or proceedings,
regardless of the merits, is inherently uncertain. We are not currently party to any material legal proceedings.
Item 4. Mine Safety Disclosures.
Not applicable.
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Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
PART II
Our common stock trades on The Nasdaq Global Select Market under the symbol “DTIL.”
Holders of Common Stock
As of March 1, 2023, there were approximately 26 holders of record of our common stock. This number does not include “street name” or beneficial
holders, whose shares are held of record by banks, brokers, financial institutions and other nominees.
Dividend Policy
We intend to retain future earnings, if any, to finance the operation and expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future. In addition, pursuant to the terms of our Revolving Line, we are prohibited from paying cash dividends without the prior written consent
of PWB and future debt instruments may materially restrict our ability to pay dividends on our common stock. Any future determination related to our
dividend policy will be made at the discretion of our board of directors after considering our financial condition, results of operations, capital requirements,
business prospects and other factors our board of directors deems relevant, and subject to any restrictions applicable to us contained in any future financing
instruments.
Item 6. [Reserved].
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial
Statements and the related notes to those statements included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this
discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our
business, includes forward-looking statements that involve risks and uncertainties. As a result of many important factors, including those set forth in Part I.
Item 1A. “Risk Factors” of this Annual Report on Form 10-K, our actual results could differ materially from the results described in, or implied by, these
forward-looking statements. As used in this Annual Report on Form 10-K, unless the context otherwise requires, references to “we,” “us,” “our,” the
“Company” and “Precision” refer to Precision BioSciences, Inc. and its subsidiaries, as applicable, on a consolidated basis.
A discussion regarding our financial condition and results of operation, including liquidity and capital resources, for the year ended December 31, 2022
compared to the year ended December 31, 2021 is presented below. A discussion regarding our financial condition and results of operations for the year
ended December 31, 2021 compared to the year ended December 31, 2020 is included under “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” in our Annual Report on 10-K for the year ended December 31, 2021 filed on March 15, 2022.
Overview
We are a clinical stage gene editing company dedicated to improving life by developing ex vivo allogeneic chimeric antigen receptor ("CAR") T
immunotherapies and in vivo therapies for genetic and infectious diseases with the application of our wholly owned proprietary ARCUS genome editing
platform. The foundation of ARCUS is a natural homing endonuclease which allows us to replicate precise gene editing as it evolved in nature. ARCUS is
designed to be precise in its specificity and versatile in its design for gene knock out as well as complex edits with gene insertion and gene repair. ARCUS
is also unique in its relatively small size which potentially allows delivery to a wider range of cells and tissues using viral and non-viral gene delivery
methods.
We believe our CAR T cells are the only allogeneic CAR T cells in human clinical trials made with a single gene editing step designed to specifically avoid
the potentially deleterious effects of making multiple edits to T cells. We are simultaneously conducting a Phase 1b/2a clinical trial evaluating
PBCAR0191, azercabtagene zapreleucel ("azer-cel"), as a potential first-in-class, if approved, and a Phase 1 clinical trial evaluating PBCAR19B as a
potential best-in-class, if approved, CD19-targeting CAR T cell therapy in adult patients with relapsed or refractory (“R/R”), B-cell malignancies.
Made from donor-derived T cells modified using our ARCUS genome editing technology, azer-cel recognizes the well characterized tumor cell surface
protein CD19, an important and validated target in several B-cell cancers. Azer-cel is designed to avoid graft-versus-host disease, a significant complication
associated with donor-derived, cell-based therapies. In June 2022, we provided an interim clinical update and outlined the opportunity for azer-cel for the
growing CAR T relapsed patient population with aggressive lymphomas. As of the May 31, 2022 data cutoff, positive efficacy results, including high
overall and complete response (“CR”) rates and duration of response, and an improved adverse event profile have been observed among evaluable CAR T
relapsed subjects. This included six subjects who received azer-cel Dose Level (“DL”) 3 of 3 × 106 cells/kg with enhanced lymphodepletion of fludarabine
30 mg/m2/day × 4 days + cyclophosphamide 1000 mg/m2/day × 3 days (the “ASH Cohort”) and six subjects who received azer-cel DL4b, a flat dose of 500
× 106 cells, with reduced dose lymphodepletion of fludarabine 30 mg/m2/day × 4 days + cyclophosphamide 750 mg/m2/day × 3 days since January 2022
(the “New Cohort”). Among 11 subjects evaluable for response, the program update reported efficacy results across both the ASH Cohort and New Cohort,
including a 100% (11/11) overall response rate (“ORR”) and 73% (8/11) CR rate. Six subjects were in ongoing response (up to 18+ months). In the ASH
Cohort, 50% (3/6) of evaluable subjects had a response duration greater than six months. Among subjects treated with DL4b and reduced intensity
lymphodepletion in the New Cohort, a 100% CR rate was achieved among evaluable subjects (5/5). One subject was non-evaluable at the Day 28
assessment due to death from suspected fludarabine-associated neurotoxicity on Day 23. The subject had complete resolution of disease according to a CT
scan on Day 21.
No Grade 3 or greater cytokine release syndrome was observed in either dosing cohort. One Grade 3 immune effector cell-associated neurotoxicity
syndrome was recorded in each cohort that rapidly resolved to Grade 1 within 24 to 48 hours. Two Grade 5 events associated with late occurring
encephalopathy suspected to be related to fludarabine-associated neurotoxicity occurred in the New Cohort. There was no evidence of graft versus host
disease in either cohort. Grade 3 or greater infections occurred less frequently in the New Cohort with one out of six (17%) subjects compared to four out of
six (67%) subjects in the ASH Cohort.
A poster presented at the 64th ASH Annual Meeting in December 2022 evaluated the relationship between healthy cell dose and functional attributes of
azer-cel to the efficacy and safety of the product in patients with R/R B-cell lymphoma. This poster showed that post-thaw product composition and healthy
CAR T cell dose are predictive for response to treatment with azer-cel. Based on these findings, we have applied optimizations across all allogeneic CAR T
platforms with the goal of improving those product attributes and characteristics that drive predictability, reliability, and performance.
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In January 2023, we announced we received FDA feedback that we believe signaled alignment with our proposed chemistry, manufacturing and controls
("CMC") plan for azer-cel. In 2023, we intend to progress azer-cel to a decision point for a Phase 2 trial in non-Hodgkin lymphoma ("NHL") subjects who
have relapsed following autologous CAR T treatment by completing the Phase 1b cohort to identify a dosing schedule for further study and we plan to seek
feedback from the FDA on the azer-cel clinical program once more data become available.
PBCAR19B is a novel immune-evading stealth cell candidate employing a single-gene edit designed to knock-down beta-2 microglobulin in an effort to
evade T cell rejection, while also inserting a human leukocyte antigen E transgene to further evade rejection from natural killer cells. As of the June 2022
program update, a flat dose of 270 million cells (DL1) following standard lymphodepletion of fludarabine 30 mg/m2/day × 3 days + cyclophosphamide 500
mg/m2/day × 3 days has been administered to three subjects with R/R diffuse large B-cell lymphoma. We are continuing to recruit patients in the
PBCAR19B clinical program at DL2 (flat dose of 540 million cells) with the intent to complete the Phase 1 dose escalation in the earlier line NHL setting
in 2023.
We plan to provide a CAR T program update once investigators complete enrollment of the current azer-cel cohort of six CAR T relapsed subjects with
sufficient follow-up to support a meeting with the FDA to discuss clinical plans. Subjects are being treated with optimized azer-cel product at the planned
final dose level (500 million CAR T cells following a lymphodepletion regimen consisting of 3 days of fludarabine and cyclophosphamide). Based on
current enrollment, the update is expected to occur in the April/May 2023 time frame, once appropriate follow-up from the current cohort is available. We
plan to provide additional long term follow up from the azer-cel cohorts presented at ASH 2021 and ASCO 2022, as well as data from subjects in the
current cohort. The CAR T update is also expected to include interim efficacy and safety data from the PBCAR19B Phase 1 trial at Dose Level 2 (540
million CAR T cells following 3 days of fludarabine and cyclophosphamide) with an expectation of durability data to follow this year.
PBCAR269A, an investigational allogeneic CAR T cell candidate targeting B-cell maturation antigen (“BCMA”) for R/R multiple myeloma, when used in
combination with nirogacestat, a gamma secretase inhibitor (“GSI”) developed by SpringWorks Therapeutics, Inc., resulted in improved cell expansion,
which correlated with increased clinical activity when compared to dose-matched PBCAR269A monotherapy treatment. However, in light of the
competitive landscape of BCMA targeted therapies in multiple myeloma, we have made the strategic decision not to continue the PBCAR269A clinical
program. All subjects enrolled in the study and evaluated for treatment with PBCAR269A and nirogacestat had acceptable tolerability results.
In vivo gene editing is complex and involves the delivery of ARCUS nucleases directly into a patient’s cells to treat disease at the level of the underlying
DNA. We expect the development of in vivo therapies for genetic and infectious diseases to be a significant focus of our operations long-term. We believe
these applications are particularly well suited to ARCUS because they require extremely low levels of off-target editing and efficient delivery. As a gene
editing tool, we believe ARCUS can be differentiated by unique attributes which are designed for precise, specific and versatile gene editing. By nature of
its origin from a homing endonuclease, we believe ARCUS has the potential to be particularly applicable to gene insertion and complex edits designed for
gene repair aimed at restoring function, as well as more simple gene knock outs. ARCUS is also unique in its relatively small size which potentially allows
delivery to a wider range of cells and tissues using viral and non-viral gene delivery methods.
We, along with partners, intend to continue to evaluate the ARCUS platform with regards to safety, on-target editing, gene insertion, complex gene edits,
and compatibility with viral and non-viral delivery. Our PBGENE-HBV for the potential treatment of chronic hepatitis B virus (“HBV”) program remains a
top priority, and we intend to submit a Clinical Trial Application ("CTA") or Investigational New Drug application ("IND") in 2024. Our gene editing
program for chronic HBV applies ARCUS to knock out persistent covalently closed circular DNA and inactivate integrated HBV genomes, potentially
achieving durable HBV S-antigen (“HBsAg”) loss and reducing viral persistence. Preclinical data from this program were presented at an oral presentation
at the European Society of Gene & Cell Therapy 29th Congress in October 2022 and showed that ARCUS efficiently targeted and degraded HBV cccDNA
in HBV-infected primary human hepatocytes and reduced expression of HBV S-antigen (“HBsAg”) by as much as 95%. Similar levels of HBsAg reduction
were observed in a newly developed mouse model of HBV infection following administration of ARCUS mRNA using LNP delivery. We plan to present
additional data at a scientific conference in 2023.
In June 2022, we announced we entered into an exclusive in vivo gene editing research and development collaboration and license agreement (the “Novartis
Agreement”) with Novartis Pharma AG (“Novartis”). In connection with this partnership, we are developing a custom ARCUS nuclease that will be
designed to insert, in vivo, a therapeutic transgene at a “safe harbor” location in the genome as a potential one-time transformative treatment option for
diseases including certain hemoglobinopathies such as sickle cell disease and beta thalassemia. Under the terms of the Novartis Agreement, we will
develop an ARCUS nuclease and conduct in vitro characterization, with Novartis then assuming responsibility for all subsequent research, development,
manufacturing and commercialization activities.
We continue our in vivo gene editing collaboration with Eli Lilly and Company (“Lilly”) in applying ARCUS nucleases to three initial targets, including
Duchenne muscular dystrophy in muscle, a central nervous system directed target and a liver directed target.
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In partnership with iECURE, Inc. (“iECURE”), an ARCUS-mediated gene insertion approach is being pursued as a potential treatment for neonatal onset
ornithine transcarbamylase ("OTC") deficiency. Non-human primate data presented by researchers from the University of Pennsylvania’s Gene Therapy
Program demonstrated sustained gene insertion of a therapeutic OTC transgene one-year post-dosing in newborn and infant non-human primates with high
efficiency. A CTA and/or IND filing by iECURE for neonatal onset OTC deficiency is planned for submission in the second half of 2023.
The strategic prioritization exercise for our in vivo research pipeline, announced in November 2022, is ongoing to assess diseases with highest unmet need
in an increasingly dynamic regulatory and competitive gene editing landscape. We are making trade-offs and further honing our focus on disease areas
where we believe ARCUS, more than any other technology, can have the greatest and most profound impact. While we intend to continue to pursue gene
knock-out programs opportunistically, the proof of concept data continues to lead toward prioritizing programs involving complex edits and gene insertion
(adding a functional copy of a gene) as exemplified by our partnered OTC program. While we remain committed to patients with cardiovascular diseases,
we have made the decision to cease pursuit of PBGENE-PCSK9 for familial hypercholesterolemia ("FH") with iECURE as our partner. PCSK9 for FH
remains a wholly-owned program, and we are monitoring the regulatory landscape as we consider FH as well as several potential cardiovascular disease
indications in our pipeline prioritization exercise.
Work on the PBGENE-PH1 program progressed as planned in 2022. We have clinical candidates ready to proceed to the next stage of IND enabling
studies. Based on our new prioritized focus as well as the evolving treatment paradigm for PH1, we have made the choice to look for a partner in the kidney
disease arena for further development of PBGENE-PH1 and will no longer develop the program on our own.
In December 2021, we announced our entry into an agreement with a syndicate of investors led by ACCELR8 to separate our then wholly owned
subsidiary, Elo Life Systems, Inc. (“Elo”), and create an independent food and agriculture business (“New Elo”). As of December 31, 2022, we held 37%
of New Elo's voting shares.
Since our formation in 2006, we have devoted substantially all of our resources to developing ARCUS, conducting research and development activities,
recruiting skilled personnel, developing manufacturing processes, establishing our intellectual property portfolio and providing general and administrative
support for these operations. We have financed our operations primarily through proceeds from upfront and milestone payments from collaboration and
licensing agreements, our IPO, private placements of our common stock, convertible preferred stock and convertible debt financings, underwritten and at-
the-market offerings of common stock, and borrowings on credit facilities.
Since our inception, we have incurred significant operating losses and have not generated any revenue from the sale of products. Our ability to generate any
product revenue or product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or
more of our product candidates or the product candidates of our collaborators for which we may receive milestone payments or royalties. As of December
31, 2022, we had an accumulated deficit of $428.3 million.
We expect our operating expenses to increase in connection with our ongoing CAR T clinical trials and the expansion of our in vivo product development
programs and capabilities. We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain
regulatory approval for one of our product candidates or the product candidates of our collaborators for which we may receive milestone payments or
royalties. If we obtain regulatory approval for any of our product candidates, we expect to incur significant expenses related to developing our
commercialization capability to support product sales, marketing and distribution. In addition, we expect to continue to incur additional costs associated
with operating as a public company.
As a result of these anticipated expenditures, we will need additional financing to support our continuing operations. Until such time as we can generate
significant revenue from product sales, if ever, we expect to finance our cash needs through a combination of public equity, debt financings or other
sources, which may include current and new collaborations with third parties. Adequate additional financing may not be available to us on acceptable
terms, or at all. Our inability to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our
business strategy. We cannot assure you that we will ever generate significant revenue to achieve profitability.
Because of the numerous risks and uncertainties associated with the development of therapeutic products, we are unable to predict the timing or amount of
increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate revenue from product sales, we may
not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be required to raise
additional capital on terms that are unfavorable to us or we may be unable to continue our operations at planned levels and be forced to reduce or terminate
our operations.
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Collaborations
Novartis Pharma AG
On June 14, 2022, we entered into the Novartis Agreement, which became effective on June 15, 2022 (the “Novartis Effective Date”), to collaborate to
discover and develop in vivo gene editing products incorporating our custom ARCUS nucleases for the purpose of seeking to research and develop potential
treatments for certain diseases (as defined in the Novartis Agreement, the “Licensed Products”). Any initial Licensed Products will be developed for the
potential treatment of certain hemoglobinopathies, including sickle cell disease and beta thalassemia.
Pursuant to the terms of the Novartis Agreement, we will develop an ARCUS nuclease and conduct in vitro characterization for the Licensed Products, with
Novartis then assuming responsibility for all subsequent development, manufacturing and commercialization activities. Novartis will receive an exclusive
license for, and be required to use commercially reasonable efforts to conduct all subsequent research, development, manufacture and commercialization
activities with respect to the Licensed Products. We will initially develop a single, custom ARCUS nuclease for a defined “safe harbor” target site for
insertion of specified therapeutic payloads in the patient’s genome (the “Initial Nuclease”) for Novartis to further develop as a potential in vivo treatment
option for certain hemoglobinopathies, including sickle cell disease and beta thalassemia. Pursuant to the terms of the Novartis Agreement, Novartis may
elect, subject to payment of a fee to us, to replace Licensed Products based on the Initial Nuclease with Licensed Products based on a second custom
ARCUS nuclease we design for gene editing of a specified human gene target associated with hemoglobinopathies (the “Replacement Nuclease”).
Additionally, Novartis has the option, upon payment of a fee to us for each exercise of the option, to include Licensed Products utilizing the Initial Nuclease
for insertion of up to three additional specified therapeutic payloads at the “safe harbor” target site, each intended to treat a particular genetic disease. The
exercise period for such option ends on the earlier of (a) the fourth anniversary of the Novartis Effective Date and (b) the replacement of the Initial
Nuclease with the Replacement Nuclease as described above.
In July 2022, we received a $50.0 million upfront cash payment under the Novartis Agreement. Additionally, on the Novartis Effective Date, Novartis made
an equity investment in our common stock pursuant to a stock purchase agreement (the “Novartis Stock Purchase Agreement”) pursuant to which, on the
Novartis Effective Date, we issued and sold to Novartis 12,407,440 shares of our common stock (the “Novartis Shares”) in a private placement transaction
for an aggregate purchase price of $25.0 million, or approximately $2.01 per share. The price per share of our common stock under the Novartis Stock
Purchase Agreement represented a 20% premium over the volume-weighted-average-price of our common stock over the 10 trading days preceding the
execution date of the Novartis Stock Purchase Agreement.
Pursuant to the Novartis Stock Purchase Agreement, subject to certain exceptions, Novartis may not sell the Novartis Shares without our approval for a
period of two years following the Novartis Effective Date. In addition, for a period of two years following the Novartis Effective Date, Novartis and its
affiliates may not (a) effect or otherwise participate in, directly or indirectly, any acquisition of any of our securities or material assets, any tender offer or
exchange offer, merger or other business combination or change of control involving us, any recapitalization, restructuring, liquidation, dissolution or other
extraordinary transaction with respect to us, or any solicitation of proxies or consents to vote any of our securities or (b) act with any other person, or
publicly disclose any intention, to do any of the foregoing. The Novartis Stock Purchase Agreement also contains customary representations, warranties,
and covenants of both parties.
On the Novartis Effective Date, we and Novartis also entered into a registration rights agreement (the “Registration Rights Agreement”) pursuant to which
we have agreed, within the time periods specified in the Registration Rights Agreement, to register the resale of the Novartis Shares on a registration
statement to be filed with the SEC. The Registration Rights Agreement contains customary indemnification provisions, and all registration rights terminate
in their entirety effective on the first date on which there cease to be any Registrable Securities (as defined in the Registration Rights Agreement)
outstanding.
We will also be eligible to receive milestone payments of up to an aggregate of approximately $1.4 billion as well as certain research funding. If Licensed
Products resulting from the collaboration are approved and sold, we will also be entitled to receive tiered royalties ranging from the mid-single digit to low-
double digit percentages on net sales of Licensed Products, subject to customary potential reductions. Novartis’s obligation to pay royalties to us expires on
a country-by-country and Licensed Product-by-Licensed Product basis, upon the latest to occur of certain events related to expiration of patents, regulatory
exclusivity or a period of ten years following the first commercial sale of the Licensed Product.
Unless earlier terminated, the Novartis Agreement will remain in effect on a Licensed Product-by-Licensed Product and country-by-country basis until the
expiration of a defined royalty term for each Licensed Product and country. Novartis has the right to terminate the Novartis Agreement without cause by
providing advance notice to us. Either party may terminate the Novartis Agreement for material breach by the other party and a failure to cure such breach
within the time period specified in the Novartis Agreement. We may also terminate the Novartis Agreement in the event that Novartis brings a challenge to
our patents.
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During the year ended December 31, 2022 we recognized revenue under the Novartis Agreement of $9.5 million. Deferred revenue related to the Novartis
Agreement amounted to $54.2 million as of December 31, 2022, of which $27.9 million was included in current liabilities within the consolidated balance
sheets.
Eli Lilly and Company
In January 2021, we closed a development and license agreement, subsequently amended by the First Amendment to the Development and License
Agreement dated August 9, 2021 (as amended, the “Lilly Agreement”) with Lilly to utilize ARCUS for the research and development of potential in vivo
therapies for genetic disorders. Lilly has initially nominated Duchenne muscular dystrophy (“DMD”), a liver-directed target and a central nervous system
directed target, and has the right to nominate up to three additional gene targets for genetic disorders over the initial nomination period of four years (the
"Nomination Period"). Lilly may extend the Nomination Period for an additional two years from the date on which the Nomination Period ends, upon
Lilly’s election and payment of an extension fee. Under the terms of the Lilly Agreement, Lilly received an exclusive license to research, develop,
manufacture and commercialize the resulting licensed products to diagnose, prevent and treat any and all diseases by in vivo gene editing directed against
the applicable gene target. The Development and License Agreement provides that we will be responsible for conducting certain pre-clinical research and
IND-enabling activities with respect to the gene targets nominated by Lilly to be subject to the collaboration, including manufacture of initial clinical trial
material for the first licensed product. Lilly will be responsible for, and must use commercially reasonable efforts with respect to, conducting clinical
development and commercialization activities for licensed products resulting from the collaboration, and may engage us for additional clinical and/or initial
commercial manufacture of licensed products.
In connection with the closing, we received an upfront cash payment of $100.0 million as well as $35.0 million from Lilly’s purchase of 3,762,190 newly
issued shares of our common stock pursuant to a stock purchase agreement (the “Lilly Share Purchase Agreement”). We will also be eligible to receive
milestone payments of up to an aggregate of $420.0 million per licensed product as well as nomination fees for additional targets and certain research
funding. If licensed products resulting from the collaboration are approved and sold, we will also be entitled to receive tiered royalties ranging from the
mid-single digit percentages to the low-teens percentages on world-wide net sales of the licensed products, subject to customary potential reductions.
Lilly’s obligation to pay royalties to us expires on a country-by-country and licensed product-by-licensed product basis, upon the latest to occur of certain
events related to expiration of patents, regulatory exclusivity or a period of ten years following first commercial sale of the licensed product.
We have the right to elect to co-fund the clinical development of one licensed product, which may be selected from among the third or any subsequent
licensed products to reach IND or CTA filing. If we elect to co-fund such licensed product, we would reimburse Lilly for a portion of the clinical
development expenses for such product and, in exchange, each royalty tier with respect to net sales of such licensed product would be increased by a low
single digit percentage. During the term of the Lilly Agreement, we may not (and may not license or collaborate with any third party to) research, develop,
or commercialize any in vivo gene editing product directed against any gene targets that have been nominated and are subject to the Lilly Agreement.
Unless earlier terminated, the Lilly Agreement will remain in effect on a licensed product-by-licensed product and country-by-country basis until the
expiration of a defined royalty term for each licensed product and country. Lilly has the right to terminate the Lilly Agreement for convenience by
providing advance notice to us. Either party may terminate the Lilly Agreement (i) for material breach by the other party and a failure to cure such breach
within the time period specified in the agreement or (ii) due to a challenge to its patents brought by the other party.
During the years ended December 31, 2022 and 2021, we recognized revenue under the Lilly Agreement of approximately $15.6 million and $21.0 million,
respectively. Deferred revenue related to the Lilly Agreement amounted to $74.8 million and $88.3 million as of December 31, 2022 and 2021, of which
$18.3 million and $21.2 million, respectively, was included in current liabilities within the consolidated balance sheets.
iECURE
In August 2021, we entered into the iECURE Agreement. We have made the decision to cease pursuit of PBGENE-PCSK9 for FH with iECURE as our
partner. Pursuant to the iECURE Agreement, we retain the rights to PBGENE-PCSK9, including all products developed for genetic indications with
increased risk of severe cardiovascular events such as FH. In conjunction with the iECURE Agreement, we also granted iECURE a license to use our
PCSK9-directed ARCUS nuclease to insert genes into the PCSK9 locus to develop treatments for four other pre-specified rare genetic diseases, including
OTC deficiency, Citrullinemia Type 1 (“CTLN1”), Phenylketonuria (“PKU”), and another program focused on liver disease. Simultaneously with the entry
into the iECURE Agreement, we and iECURE entered into an Equity Issuance Agreement (the “iECURE Equity Issuance Agreement”), pursuant to which
iECURE issued us common stock in iECURE as additional consideration for the PCSK9 license. Additionally, the Company is eligible to receive milestone
and mid-single digit to low double digit royalty payments on sales of iECURE products developed with ARCUS.
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The fair value of the iECURE equity at inception of the iECURE agreements was assessed to be $0.5 million and was initially recorded to the investment in
equity securities line item of the consolidated balance sheets. As further discussed in Note 4, Fair Value Measurements, to our Financial Statements, on
issuance, Management elected to account for the iECURE equity at fair value under accounting standards codification ("ASC") 825. Accordingly, we adjust
the carrying value of the iECURE equity to fair value each reporting period with any changes in fair value recorded to other income (expense). In the year
ended December 31, 2022 we recorded a $0.5 million decrease in the carrying value of our iECURE equity to adjust to fair value as a result of dilution
from iECURE's Series A-1 equity raise in such period. The fair value of the costs to be incurred by iECURE to progress our PBGENE-PCSK9 candidate
through Phase 1 clinical trial (the “PCSK9 Prepaid”) was assessed to be $17.4 million and was recorded to the prepaid expenses and other assets line items
of the consolidated balance sheets. The PCSK9 Prepaid was amortized to research and development expense on a pro-rata basis as iECURE incurred costs
to progress the PBGENE-PCSK9 candidate through the Phase 1 clinical trial.
As further discussed in Note 11, Impairment Charges, to our Financial Statements, the remaining unamortized PCSK9 Prepaid was fully impaired during
the year ended December 31, 2022, as we have made the decision to cease pursuit of PBGENE-PCSK9 for FH with iECURE as our partner. Accordingly,
there was no PCSK9 Prepaid balance as of December 31, 2022. As of December 31, 2021 the remaining balance of the PCSK9 Prepaid was $13.0 million,
which was included in the prepaid expenses and other assets line items of the consolidated balance sheets in the amounts of $10.4 million and $2.6 million,
respectively.
During the year ended December 31, 2022, we recognized no revenue under the iECURE agreements. During the year ended December 31, 2021, we
recognized $17.9 million of revenue under the iECURE agreements. During the years ended December 31, 2022 and 2021, we recognized $2.1 million and
$4.4 million of research and development expense related to amortization of the PCSK9 Prepaid.
Servier
In February 2016, we entered into the Servier Agreement with Servier, pursuant to which we agreed to develop allogeneic CAR T cell therapies for five
unique antigen targets. One target was selected at the Servier Agreement’s inception. Two additional hematological cancer targets beyond CD19 and two
new solid tumor targets were selected in 2020. With the addition of these new targets, we received development milestone payments in 2020. Upon
selection of an antigen target under the Servier Agreement, we agreed to perform early-stage research and development on individual T cell modifications
for the selected target, develop the resulting therapeutic product candidates through Phase 1 clinical trials and prepare initial clinical trial material of such
product candidates for use in Phase 2 clinical trials.
On April 9, 2021, we entered into the Program Purchase Agreement with Servier, pursuant to which we reacquired all of our global development and
commercialization rights previously granted to Servier pursuant to the Servier Agreement, and mutually terminated the Servier Agreement.
Pursuant to the Servier Agreement, we had developed certain allogeneic CAR T candidates, including azer-cel and the stealth cell PBCAR19B, each
targeting CD19, as well as four additional product targets under the Servier Agreement. Pursuant to the terms of the Program Purchase Agreement, we
regained full global rights to research, develop, manufacture and commercialize products resulting from such programs, with sole control over all activities.
Additionally, per the terms of the Program Purchase Agreement we do not have an obligation to continue development of the Servier Targets. With respect
to products directed to CD19, Servier has certain rights of negotiation, which may be exercised during a specified time period if we elect to initiate a
process or entertain third party offers for partnering such products.
Pursuant to the terms of the Program Purchase Agreement, we made a payment of $1.25 million in cash to Servier and agreed to waive earned milestones
totaling $18.75 million that would have been otherwise payable to us.
The Program Purchase Agreement also requires us to make certain payments to Servier based on the achievement of regulatory and commercial milestones
for each product, and a low- to mid-single-digit percentage royalty (subject to certain reductions) based on net sales of approved products, if any, resulting
from our continued development and commercialization of the programs, for a period not to exceed ten years after first commercial sale of the applicable
product in the United States or certain countries in Europe. If we enter into specified product partnering transactions, the Program Purchase Agreement
requires us to pay to Servier a portion of certain consideration received pursuant to such product partnering transactions in lieu of the foregoing milestones
(with the exception of a one-time clinical phase development milestone) and royalties. For additional discussion of accounting for payment obligations
arising from the Program Purchase Agreement, refer to Note 6, Commitments and Contingencies, to our Financial Statements.
We recognized no revenue under the agreement with Servier during the year ended December 31, 2022. During the year ended December 31, 2021, we
recognized revenue under the agreement with Servier of approximately $72.9 million. We did not have deferred revenue related to the agreement with
Servier as of December 31, 2022 or December 31, 2021.
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Tiziana
In September 2021, we entered into an exclusive license agreement to evaluate Tiziana’s foralumab, a fully human anti-CD3 monoclonal antibody, as a
lymphodepleting agent in conjunction with our allogeneic CAR T cells for the potential treatment of cancers. We plan to assess foralumab use in
combination with an allogeneic CAR T.
SpringWorks Therapeutics
In September 2020, we entered into a Clinical Trial Collaboration Agreement with SpringWorks Therapeutics, Inc. Pursuant to such agreement,
PBCAR269A was evaluated in combination with nirogacestat, SpringWorks’ investigational gamma secretase inhibitor, in patients with R/R multiple
myeloma. Under the terms of the agreement, we were responsible for all costs associated with the conduct of the clinical trial including providing
PBCAR269A for use in the trial, and SpringWorks was responsible for providing nirogacestat at its sole cost and expense. The combination therapy and
increased dose of PBCAR269A resulted in improved cell expansion, which correlated with increased clinical activity when compared to dose-matched
PBCAR269A monotherapy treatment. However, in light of the competitive landscape of BCMA targeted therapies in multiple myeloma, we have made the
strategic decision not to continue the PBCAR269A clinical program.
Trustees of the University of Pennsylvania
In January 2018, we entered into a research, collaboration and license agreement with the Trustees of the University of Pennsylvania (“Penn”) to
collaborate on the preclinical development for gene editing products involving the delivery of an ARCUS nuclease. In April 2020, both parties agreed to
coordinate a wind-down of all activities in their entirety under the agreement, effective as of June 2020, however, in August 2020 and subsequently in
January 2021, both parties agreed to extend certain portions of the agreement through 2022. We will not be required to make termination payments to Penn.
Components of Our Results of Operations
Revenue
To date, we have not generated any revenue from product sales and do not expect to generate any revenue from product sales in the foreseeable future. We
record revenue from collaboration agreements, including amounts related to upfront payments, milestone payments, annual fees for licenses of our
intellectual property and research and development funding.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts and the development of
our product candidates. These include the following:
•
•
•
•
•
•
•
salaries, benefits and other related costs, including share-based compensation expense, for personnel engaged in research and development
functions;
expenses incurred under agreements with third parties, including CROs and other third parties that conduct preclinical research and development
activities and clinical trials on our behalf;
costs of developing and scaling our manufacturing process and manufacturing drug products for use in our preclinical studies and ongoing and
future clinical trials, including the costs of CMOs, and our MCAT facility that will manufacture our clinical trial material for use in our
preclinical studies and ongoing and potential future clinical trials;
costs of outside consultants, including their fees and related travel expenses;
costs of laboratory supplies and acquiring, developing and manufacturing preclinical study and clinical trial materials;
license payments made for intellectual property used in research and development activities; and
facility-related expenses, which include expenses for rent and maintenance of facilities and other operating costs if specifically identifiable to
research activities.
We expense research and development costs as incurred. We track external research and development costs, including the costs of laboratory supplies and
services, outsourced research and development, clinical trials, contract manufacturing, laboratory equipment and maintenance and certain other
development costs, by product candidate when the program IND application is accepted by the FDA. Internal and external costs associated with
infrastructure resources, other research and development costs, facility related costs and depreciation and amortization that are not identifiable to a specific
product candidate are included in the platform development and early-stage research expenses category.
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Research and development activities are central to our business model. We expect that our research and development expenses will increase over the long
term and will comprise a larger percentage of our total expenses as we continue our clinical trials for our ex vivo allogeneic CAR T immunotherapies and
development of our in vivo therapies for genetic and infectious diseases.
We cannot determine with certainty the duration and costs of ongoing and future clinical trials of our azer-cel and PBCAR19B product candidates, or any
other product candidate we may develop or if, when or to what extent we will generate revenue from the commercialization and sale of any product
candidate for which we obtain marketing approval. We may never succeed in obtaining marketing approval for any product candidate. The duration, costs
and timing of clinical trials and development of our azer-cel and PBCAR19B product candidates, and any other our product candidate we may develop will
depend on a variety of factors, including:
•
•
•
•
•
•
•
the scope, rate of progress, expense and results of clinical trials of our product candidates, as well as of any future clinical trials of other product
candidates and other research and development activities that we may conduct;
increased costs of additional clinical sites to address slowed enrollment due to the impact of the COVID-19 pandemic and variants thereof or any
similar pandemic;
uncertainties in clinical trial design and patient enrollment rates;
the actual probability of success for our product candidates, including their safety and efficacy, early clinical data, competition, manufacturing
capability and commercial viability;
significant and changing government regulation and regulatory guidance;
the timing and receipt of any marketing approvals; and
the expense of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights.
A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and
timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct
clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate, or if we experience
significant delays in our clinical trials due to slower than expected patient enrollment or other reasons, we would be required to expend significant
additional financial resources and time on the completion of clinical development.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other related costs, including share-based compensation, for personnel in our
executive, finance, business development, legal and administrative functions. General and administrative expenses also include legal fees relating to
intellectual property and corporate matters; professional fees for accounting, auditing, tax and consulting services; insurance costs; travel expenses; and
facility-related expenses, which include expenses for rent and maintenance of facilities and other operating costs that are not specifically attributable to
research activities.
We expect that our general and administrative expenses will increase in the future to meet our growing infrastructure needs as we progress our clinical trials
and move toward commercialization.
Impairment Charges
Impairment charges represents our impairment of intangible assets and long-term prepaid assets. An impairment loss is assessed when future undiscounted
cash flows are less than the assets’ carrying value and recognized when the carrying value of the asset exceeds fair value. An impairment charge is
recognized for the amount by which the carrying amount exceeds the fair value of the asset.
Loss on Disposal of Assets
Loss on disposal of assets represents the remaining net book value of disposed assets at the time of their disposal.
(Loss) Gain from Changes in Fair Value
(Loss) gain from changes in fair value represents the assessed change in fair value of assets and liabilities carried at fair value between reporting periods.
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Gain on Deconsolidation of Subsidiary
The gain on deconsolidation of subsidiary was determined based on the difference between the book value of the net assets that we contributed to New Elo
as part of the Elo Transaction as well as the fair value of the promissory note we received from New Elo ("Note Receivable") and the fair value of our
ownership in New Elo as of December 17, 2021.
(Loss) Income from Equity Method Investments
(Loss) income from equity method investments represents changes in the carrying value of our investment in New Elo.
Interest Expense
Interest expense consists of interest payments incurred and discount amortization on debt outstanding.
Interest Income
Interest income consists of interest income earned on our cash and cash equivalents and Note Receivable.
Income Taxes
Since our inception in 2006, we have generated cumulative federal and state NOL and R&D credit carryforwards for which we have not recorded any net
tax benefit due to the uncertainty around utilizing these tax attributes within their respective carryforward periods. As of December 31, 2022, we had
federal and state NOL carryforwards of $159.5 million and $119.1 million, respectively, which may be available to offset future taxable income. The U.S.
federal NOLs carryforward indefinitely. The state NOL carryforwards begin to expire in 2027. As of December 31, 2022, we also had federal and state
R&D tax credit carryforwards of $13.2 million and an amount less than $0.1 million, which begin to expire in 2027 and 2030, respectively. As of December
31, 2022 and December 31, 2021, we had federal Orphan Drug credits of $11.6 million and $9.5 million, respectively, which begin to expire in 2038. As of
December 31, 2022, we also have federal contribution carryforwards of $0.2 million, which began to expire in 2022. We have recorded a full valuation
allowance against our net deferred tax assets at each balance sheet date.
Results of Operations
Comparison of the Years Ended December 31, 2022 and December 31, 2021
The following table summarizes our results of operations for the years ended December 31, 2022 and December 31, 2021, together with the changes in
those items in dollars:
(in thousands)
Revenue
Operating expenses:
Research and development
General and administrative
Total operating expenses
Loss from operations
Other (expense) income, net:
Impairment charges
Loss on disposal of assets
(Loss) gain from changes in fair value
Gain on deconsolidation of subsidiary
(Loss) income from equity method investment
Interest expense
Interest income
Total other (expense) income, net
Net loss
Years ended December 31,
2022
2021
Change
$
25,098 $
115,529 $
(90,431 )
83,939
41,525
125,464
(100,366 )
(11,438 )
(106 )
(510 )
—
(1,579 )
(1,111 )
3,473
(11,271 )
(111,637 ) $
115,238
39,667
154,905
(39,376 )
—
(26 )
2,555
5,985
184
(132 )
208
8,774
(30,602 ) $
(31,299 )
1,858
(29,441 )
(60,990 )
(11,438 )
(80 )
(3,065 )
(5,985 )
(1,763 )
(979 )
3,265
(20,045 )
(81,035 )
$
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Revenue
Revenue for the year ended December 31, 2022 was $25.1 million, compared to $115.5 million for the year ended December 31, 2021. The decrease of
$90.4 million in revenue during the year ended December 31, 2022 was primarily the result of $72.9 million in revenue recognized under the Servier
Agreement in 2021 that did not occur in 2022, following satisfaction of the performance obligation upon the execution of the Program Purchase Agreement
in April 2021, a $17.9 million decrease in revenue recognized under the iECURE Agreement as the performance obligation was deemed fully satisfied in
August 2021 upon the grant of the PCSK9 license to iECURE, a $5.4 million decrease in revenue recognized under the Lilly Agreement as a result of an
increase in total estimated effort required to satisfy the performance obligation, and a $3.7 million decrease in revenue recognized from agriculture
partnering collaborations given the collaboration transferred to New Elo upon separation in December 2021. These decreases in revenue were partially
offset by a $9.5 million increase in revenue recognized under the Novartis Agreement, as work thereunder began during 2022.
Research and Development Expenses
(in thousands)
Direct research and development expenses by product candidate:
Azer-cel external development costs
PBCAR19B external development costs
BCMA external development costs
CD20 external development costs
Platform development and early-stage research expenses:
Employee-related costs (other than share based compensation)
Share based compensation
Program Purchase Agreement costs and contract liability
Amortization of PCSK9 Prepaid
Laboratory supplies and services
Sublicensing royalty payable to Duke
Outsourced research and development
CMOs and research organizations
Laboratory equipment and maintenance
Facility-related costs
Depreciation and amortization
Licensing fees
Other research and development costs
Total research and development expenses
Years ended December 31,
2022
2021
Change
5,502 $
2,111
1,600
372
29,889
7,973
—
2,091
13,156
1,500
5,272
864
1,320
2,881
6,594
2,729
85
83,939 $
8,486 $
2,948
3,337
3,666
32,519
9,101
11,250
4,421
14,529
1,111
2,336
5,347
2,065
3,562
7,574
2,585
401
115,238 $
(2,984 )
(837 )
(1,737 )
(3,294 )
(2,630 )
(1,128 )
(11,250 )
(2,330 )
(1,373 )
389
2,936
(4,483 )
(745 )
(681 )
(980 )
144
(316 )
(31,299 )
$
$
Research and development expenses for the year ended December 31, 2022 were $83.9 million, compared to $115.2 million for the year ended December
31, 2021. The decrease of $31.3 million was primarily due to a decrease of $11.3 million in expense related to the Program Purchase Agreement, which was
comprised of a $10.0 million financial contract liability that was accrued as it was deemed probable to occur and a $1.3 million cash payment to Servier
that was recorded to expense in the year ended December 31, 2021.
Additionally, there was a decrease of $8.9 million in direct research and development expenses related to our allogeneic CAR T product candidates,
including $1.7 million and $3.3 million decreases in BCMA and CD20 external development costs, respectively, as the result of our decision not to
continue clinical development of PBCAR269A and PBCAR20A, a $3.0 million decrease in azer-cel external development expense driven by lower CRO
expense as a result of lower patient activity as IRBs reviewed our updated lymphodepletion regimen and operational efficiencies, and a $0.8 million
decrease in PBCAR19B external development costs driven by a milestone fee paid in the year ended December 31, 2021 related to patient dosing.
Further contributing to the decrease in research and development expenses during the year ended December 31, 2022 were decreases of $2.6 million, $1.1
million, $1.4 million, $1.0 million, and $0.6 million in employee-related costs, share based compensation, laboratory supplies and services, depreciation
and amortization expense, and facility-related costs, respectively, driven by the separation of Elo in 2021. Additionally, unallocated CMO and research
organization expense related to our preclinical studies decreased $4.5 million which was primarily driven by the completion of CMO manufacturing
programs, and expense related to the amortization of the iECURE PCSK9 Prepaid decreased by $2.3 million as a result of the decision to cease pursuit of
PBGENE-PCSK9 for FH with iECURE as our partner. These decreases were partially offset by a $2.9 million increase in outsourced research and
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development costs in the year ended December 31, 2022 as compared to the year ended December 31, 2021, which were primarily related to preclinical
studies for our in vivo gene editing programs and consulting fees.
General and Administrative Expenses
General and administrative expenses were $41.5 million for the year ended December 31, 2022 compared to $39.7 million for the year ended December 31,
2021. The increase of $1.8 million was primarily due to an increase of $3.8 million in share-based compensation expense. This increase was partially offset
by a $0.7 million decrease in insurance expense primarily driven by a reduction in director and officer insurance premiums, a $0.8 million decrease in legal
expense, and a $0.5 million decrease in information technology expense related to software subscriptions.
Impairment Charges
Impairment charges were $11.4 million during the year ended December 31, 2022 which includes the $10.8 million impairment of the iECURE PCSK9
Prepaid as we have made the decision to cease pursuit of PBGENE-PCSK9 for FH with iECURE as our partner. The impairment charge represented the
remaining unamortized balance of the PCSK9 Prepaid. Additionally included in impairments of long lived assets during the year ended December 31, 2022
were intangible asset impairment charges of $0.6 million related to licensed technology rights that are no longer in use. There were no impairment charges
in the year ended December 31, 2021.
Loss on Disposal of Assets
Loss on disposal of assets was $0.1 million during the year ended December 31, 2022 compared to less than $0.1 for the year ended December 31, 2021
which represented the remaining net book value of property, equipment and software at the time of their disposal.
(Loss) Gain from Changes in Fair Value
The loss from changes in fair value was $0.5 million for the year ended December 31, 2022 which primarily represents the change in fair value of the
iECURE equity investment as a result of dilution from iECURE's Series A-1 equity raise during the year ended December 31, 2022. The change in fair
value of investment was $2.6 million for the year ended December 31, 2021 which was attributed to an increase in the assessed fair value of our equity
investment in iECURE from issuance in August 2021 to December 31, 2021.
Gain on Deconsolidation of Subsidiary
There was no gain on deconsolidation of subsidiary in the year ended December 31, 2022. The gain on deconsolidation of subsidiary was $6.0 million for
the year ended December 31, 2021 and represents the difference between the book value of the net assets that we contributed to New Elo as part of the Elo
Transaction and the sum of the fair value of the Note Receivable and the fair value of our Ownership in New Elo as of December 17, 2021.
(Loss) Income from Equity Method Investments
Loss from equity method investments was $1.6 million during the year ended December 31, 2022 and represented our proportionate share of New Elo’s net
loss for such period, partially offset by a gain recorded from an increase in our proportionate share of New Elo's net assets resulting from an equity issuance
by New Elo. For the year ended December 31, 2021, we had income from equity method investments of $0.2 million which represented our proportionate
share of New Elo’s net income from December 18, 2021 through December 31, 2021.
Interest Expense
Interest expense was $1.1 million for the year ended December 31, 2022 compared to $0.1 million during the year ended December 31, 2021. The $1.0
million increase in interest expense was the result of an increase in debt outstanding coupled with higher stated and effective interest rates on our debt.
Interest Income
Interest income was $3.5 million during the year ended December 31, 2022 compared to $0.2 million during the year ended December 31, 2021. The $3.3
million increase in interest income during the year ended December 31, 2022 was driven by a larger cash balance and higher interest rates as compared to
the year ended December 31, 2021 coupled with interest income on the $10.0 million Note Receivable due from New Elo that was issued in December
2021.
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Liquidity and Capital Resources
Since our inception, we have incurred significant operating losses. We expect to incur significant expenses and operating losses for the foreseeable future as
we advance the preclinical and clinical development of our product candidates. We expect that our research and development and general and
administrative costs will continue to increase over the long term, including in connection with conducting preclinical studies and clinical trials for our
product candidates, contracting with CROs and CMOs, the addition of laboratory equipment to MCAT in support of preclinical studies and clinical trials,
expanding our intellectual property portfolio and providing general and administrative support for our operations. As a result, we will need additional
capital to fund our operations, which we may obtain from additional equity or debt financings, collaborations, licensing arrangements or other sources.
As of December 31, 2022, we had cash and cash equivalents of $189.6 million and available borrowings of $7.5 million. Our sources of funding have
historically included proceeds from third parties through a combination of financings including our IPO, preferred stock and convertible note financings,
underwritten offerings of our common stock, at-the-market offerings of our common stock as part of our shelf registration statement, upfront and milestone
payments from customers, borrowings under bank facilities and funding from other strategic alliances and grants. We also currently have an effective shelf
registration statement on Form S-3 (No. 333-238857) filed with the SEC on June 1, 2020 (the “Form S-3”) under which we may offer from time to time in
one or more offerings any combination of common and preferred stock, debt securities, warrants and units of up to $200.0 million in the aggregate. As of
December 31, 2022, we had sold 3,187,508 shares of our common stock in at-the-market offerings as part of our shelf registration statement, resulting in
net proceeds of $28.1 million, after deducting agent commissions and issuance costs. Additionally, in June 2022, pursuant to our Form S-3, we issued and
sold 35,971,224 shares of our common stock at an offering price of $1.39 per share, less underwriting discounts and commissions, and received
approximately $46.7 million in net proceeds.
There are no assurances that we will be successful in obtaining an adequate level of financing as and when needed to finance our operations on terms
acceptable to us or at all, particularly in light of the global macroeconomic conditions and ongoing uncertainty related to the COVID-19 pandemic and
variants thereof. If we are unable to secure adequate additional funding as and when needed, we may have to significantly delay, scale back or discontinue
the development and commercialization of one or more product candidates. In addition, the magnitude and duration of the COVID-19 pandemic and
variants thereof and its impact on our liquidity and future funding requirements remains uncertain as of the filing date of this Annual Report on Form 10-K,
as the pandemic continues to evolve globally. See “Impact of the COVID-19 Pandemic” above and “Risk Factors— COVID-19 has impacted, and may
continue to impact, our business, and any other pandemic, epidemic or outbreak of an infectious disease may materially and adversely impact our business,
including our preclinical studies and clinical trials” in Part I. Item 1A. of this Annual Report on Form 10-K for a further discussion of the potential impact
of the COVID-19 pandemic and its variants on our business.
We do not currently have any approved products and have never generated any revenue from product sales. Through the date of filing this Annual Report
on Form 10-K, we have financed our operations primarily through proceeds from upfront and milestone payments from collaboration and licensing
agreements, our IPO, private placements of our common stock, convertible preferred stock and convertible debt financings, underwritten and at-the-market
offerings of common stock, and borrowings on credit facilities.
Cash Flows
Our cash and cash equivalents totaled $189.6 million as of December 31, 2022, compared to $143.7 million as of December 31, 2021.
The following table summarizes our sources and uses of cash for the periods presented:
(in thousands)
Net cash used in operating activities
Net cash used in investing activities
Net cash provided by financing activities
Increase in cash and cash equivalents
Cash Used in Operating Activities
For the Years Ended December 31,
2021
2022
$
$
(45,753 ) $
(3,319 )
94,985
45,913 $
(10,853 )
(5,803 )
70,521
53,865
Our primary use of cash is to fund operating expenses, which consist primarily of research and development and general and administrative expenses. Our
losses have resulted from expenses incurred in connection with our research and development activities, including our clinical programs, preclinical
development activities, and general and administrative costs associated with our operations. The use of cash in operating activities during the years ended
December 31, 2022 and December 31, 2021 resulted from our net loss adjusted for non-cash items and changes in working capital.
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Cash used in operating activities during the year ended December 31, 2022 was $45.8 million, compared to $10.9 million during the year ended December
31, 2021. The increase in cash used in operating activities in the year ended December 31, 2022 was primarily driven by the $100.0 million upfront
payment received from Lilly in January 2021, partially offset by the $50.0 million upfront payment received from Novartis in July 2022.
Cash Used in Investing Activities
Cash used in investing activities primarily relates to cash expenditures to acquire leasehold additions, equipment, software, and intangible assets. Net cash
used in investing activities during the year ended December 31, 2022 was $3.3 million, compared to $5.8 million in the year ended December 31, 2021.
The $2.5 million decrease in cash used in investing activities during the year ended December 31, 2022 was driven by a decrease in cash expenditures for
purchases of laboratory equipment for our MCAT facility as well as a $0.8 million cash expenditure for the license to evaluate Tiziana’s foralumab as a
lymphodepletion agent in conjunction with our allogeneic CAR T therapeutics, which was capitalized as an intangible asset during the year ended
December 31, 2021.
Cash Provided by Financing Activities
Net cash provided by financing activities during the year ended December 31, 2022 was $95.0 million, compared to $70.5 million during the year ended
December 31, 2021. The increase in cash provided by financing activities during the year ended December 31, 2022 was primarily due to a $23.9 million
increase in net proceeds from offerings of common stock in the year ended December 31, 2022 as compared to the year ended December 31, 2021.
Additionally contributing to the increase in cash provided by financing activities in the year ended December 31, 2022 was an increase of $17.3 million in
net proceeds from debt borrowings. These increases were partially offset by a $10.0 million decrease in proceeds from the issuance of common stock to
collaboration partners, and a $6.4 million decrease in proceeds from stock option exercises in the year ended December 31, 2022 as compared to the year
ended December 31, 2021.
Debt Obligations
Revolving Line
We may request advances on our loan and security agreement (as amended from time to time, the “Revolving Line”) with Pacific Western Bank (“PWB”)
up to an aggregate principal of $30.0 million. In July 2022, the Revolving Line maturity date was extended to June 23, 2024 upon receipt of $100.0 million
in aggregate new gross proceeds (as defined in the Revolving Line). All outstanding principal amounts are due upon maturity. We must also maintain an
aggregate balance of unrestricted cash at PWB (not including amounts in certain specified accounts) equal to or greater than $10.0 million. The interest rate
on Revolving Line borrowings is a variable annual rate equal to the greater of (a) 0.75% above the Prime Rate (as defined in the Revolving Line), or (b)
4.25%. As of December 31, 2022, the outstanding principal balance on the Revolving Line was $22.5 million, the stated interest rate was 8.25% and the
effective interest rate was 9.27%.
Funding Requirements
As a clinical stage company, we will continue to have funding requirements in connection with the continuation of our current clinical trials and planned
initiation of additional clinical trials, potential IND, CTA and BLA filings, and expected growth in our ex vivo and in vivo portfolios.
We believe that, as of the date of this Annual Report on Form 10-K, existing cash and cash equivalents, continued operational discipline, and available
credit will allow us to fund operating expense and capital expenditure requirements through the first quarter of 2025. We have based these estimates on
assumptions that may prove to be imprecise, and we could utilize our available capital resources sooner than we expect. Because of the numerous risks and
uncertainties associated with research, development and commercialization of pharmaceutical products, it is difficult to estimate with certainty the amount
of our working capital requirements. Our future funding requirements will depend on many factors, including:
•
•
the progress, costs and results of our clinical development for our azer-cel and PBCAR19B programs as we progress clinical trials, including
CRO costs;
the progress, costs and results of our additional research and preclinical development programs including our in vivo and ex vivo pipeline and our
planned IND or CTA submissions and potential BLA filings;
105
•
•
•
•
•
•
•
the outcome, timing and cost of meeting regulatory requirements established by the FDA and other comparable foreign regulatory authorities;
the costs and timing of internal process development and manufacturing scale-up activities and contract with CMOs associated with our azer-cel
and PBCAR19B programs and other programs we advance through preclinical and clinical development;
our ability to establish and maintain strategic collaborations, licensing or other agreements and the financial terms of such agreements;
the scope, progress, results and costs of any product candidates that we may derive from ARCUS or any other product candidates we may
develop alone or with collaborators;
the extent to which we in-license or acquire rights to other products, product candidates or technologies;
the costs and timing of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and
defending against any intellectual property-related claims; and
the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any product
candidates for which we or our collaborators obtain marketing approval.
Until such time, if ever, that we can generate product revenue sufficient to achieve profitability, we expect to finance our cash needs through a combination
of public or private equity or debt financings, collaboration agreements, other third‑party funding, strategic alliances, licensing arrangements and marketing
and/or distribution arrangements. See “Risk Factors – We will need substantial additional funding, and if we are unable to raise a sufficient amount of
capital when needed on acceptable terms, or at all, we may be forced to delay, reduce or eliminate some or all of our research programs, product
development activities and commercialization efforts.” in Part I, Item 1A. of this Annual Report on Form 10-K for a further discussion of our ability to
generate and obtain adequate amounts of funding in connection with our continuing operations.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, shareholders’ ownership interest will be diluted, and
the terms of these securities may include liquidation or other preferences that adversely affect the rights of our shareholders. Debt financing and preferred
equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring
additional debt, making capital expenditures or declaring dividends. If we raise additional funds through other third-party funding, collaboration
agreements, strategic alliances, licensing arrangements or marketing and distribution arrangements, we may have to relinquish valuable rights to our
technologies, future revenue streams, product development and research programs or product candidates or grant licenses on terms that may not be
favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or
terminate our product development or future commercialization efforts or grant rights to develop and market products or product candidates that we would
otherwise prefer to develop and market ourselves.
Contractual Obligations and Commitments
The following is a summary of our contractual obligations and commitments as of December 31, 2022:
(in thousands)
(1)
Lease Obligations
Revolving Line of Credit
Total
(2)
Payments Due by Period
Total
Less Than
1 Year
1-3 Years
3-5 Years
More than
5 Years
$
$
7,820 $
25,290
33,110 $
2,822 $
1,882
4,704 $
3,165 $
23,408
26,573 $
1,833 $
—
1,833 $
—
—
—
(1) Represents future minimum lease payments under our leases for office and/or lab space at the following locations: 302 East Pettigrew Street, Durham,
North Carolina expiring in July 2024, and 20 TW Alexander Drive, Research Triangle Park, North Carolina expiring in August 2027. The lease
obligations amounts above also represent future minimum lease payments on the MCAT Expansion Space as we are contractually obligated to make
such payments on the MCAT Expansion Space notwithstanding that the lease commencement date for accounting purposes was not reached as of
December 31, 2022 (see Note 6, Commitments and Contingencies, to the Financial Statements.
(2) Represents principal and estimated interest payments on our $22.5 million in outstanding Revolving Line borrowings as of December 31, 2022. Under
the Revolving Line we may request advances on a revolving line of credit of up to an aggregate principal of $30.0 million. In May 2022, the Company
and PWB executed the Seventh Amendment to the Revolving Line (the “Revolving Line Amendment”). Upon the execution of the Revolving Line
Amendment, the interest rate on credit advances was
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modified to the greater of (a) 0.75% above the Prime rate (as defined in the Revolving Line) and (b) 4.25%. In July 2022, the maturity date of the
Revolving Line was extended to June 23, 2024 upon the Company’s receipt of $100.0 million in aggregate new gross proceeds (as defined in the
Revolving Line Amendment). All outstanding principal amounts under the Revolving Line are due on the maturity date. As of December 31, 2022, the
stated interest rate on the Revolving Line was 8.25% and the effective interest rate was 9.27%.
We also enter into contracts in the normal course of business with CROs, CMOs, universities and other third parties for preclinical research studies, clinical
trials and testing and manufacturing services. These contracts do not contain minimum purchase commitments and are cancelable by us upon prior written
notice. Payments due upon cancellation consist only of payments for services provided or expenses incurred, including non-cancelable obligations of our
service providers, up to the date of cancellation. These payments are not included in the table above as the amount and timing of such payments are not
known.
Critical Accounting Policies and Use of Estimates
Our management’s discussion and analysis of financial condition and results of operations is based on our Financial Statements, which have been prepared
in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of our Financial Statements and related
disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, costs and expenses and the disclosure of
contingent assets and liabilities in our Financial Statements. We base our estimates on historical experience, known trends and events and various other
factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may
differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described in more detail in the notes to our Financial Statements, we believe that the following accounting
policies are those most critical to the judgments and estimates used in the preparation of our Financial Statements.
Revenue Recognition
Our revenues are generated primarily through collaborative research, license, development and commercialization agreements. The terms of these
agreements generally contain multiple elements, or deliverables, which may include (1) licenses, or options to obtain licenses, to use our technology, (2)
research and development activities to be performed on behalf of the collaborative partner, and (3) in certain cases, services in connection with the
manufacturing of preclinical and clinical material. Payments we receive under these arrangements typically include one or more of the following: non-
refundable, upfront license fees; option exercise fees; funding of research and/or development efforts; clinical and development, regulatory, and sales
milestone payments; and royalties on future product sales. We classify payments received under these agreements as revenues within our consolidated
statements of operations.
ASC 606, Revenue from Contracts with Customers, applies to all contracts with customers, except for contracts that are within the scope of other standards.
Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration
which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines
are within the scope of ASC 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance
obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v)
recognize revenue when (or as) the entity satisfies a performance obligation.
107
At contract inception, once the contract is determined to be within the scope of ASC 606, we evaluate the performance obligations promised in the contract
that are based on goods and services that will be transferred to the customer and determine whether those obligations are both (i) capable of being distinct
and (ii) distinct in the context of the contract. Goods or services that meet these criteria are considered distinct performance obligations. If both these
criteria are not met, the goods and services are combined into a single performance obligation. We then recognize as revenue the amount of the transaction
price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Arrangements that include rights to
additional goods or services that are exercisable at a customer’s discretion are generally considered options. We assess if these options provide a material
right to the customer and, if so, these options are considered performance obligations. The exercise of a material right is accounted for as a contract
modification for accounting purposes.
We recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) each performance
obligation is satisfied at a point in time or over time, and if over time this is based on the use of an output or input method.
Invoices issued as stipulated in contracts prior to revenue recognition are recorded as deferred revenue. Amounts expected to be recognized as revenue
within the 12 months following the balance sheet date are classified as deferred revenue within current liabilities in our consolidated balance sheets.
Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as noncurrent deferred revenue.
Amounts recognized as revenue, but not yet invoiced are generally recognized as contract assets in the other current assets line item in our consolidated
balance sheets.
Milestone Payments – If an arrangement includes development and regulatory milestone payments, we evaluate whether the milestones are considered
probable of being reached and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a
significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within our
control or the licensee’s control, such as regulatory approvals, are generally not considered probable of being achieved until those approvals are received.
Royalties – For arrangements that include sales-based royalties, including milestone payments based on a level of sales, which are the result of a customer-
vendor relationship and for which the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i)
when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied or partially
satisfied. To date, we have not recognized any royalty revenue resulting from any of our licensing arrangements.
Significant Financing Component – In determining the transaction price, we adjust consideration for the effects of the time value of money if the timing of
payments provides us with a significant benefit of financing. We do not assess whether a contract has a significant financing component if the expectation
at contract inception is such that the period between payment by the licensees and the transfer of the promised goods or services to the licensees will be one
year or less. We assessed each of our revenue arrangements in order to determine whether a significant financing component exists and concluded that a
significant financing component does not exist in any of our arrangements.
Collaborative Arrangements – We have entered into collaboration agreements, which are within the scope of ASC 606, to discover, develop, manufacture
and commercialize product candidates. The terms of these agreements typically contain multiple promises or obligations, which may include: (1) licenses,
or options to obtain licenses, to use our technology, (2) research and development activities to be performed on behalf of the collaboration partner, and (3)
in certain cases, services in connection with the manufacturing of preclinical and clinical material. Payments we receive under these arrangements typically
include one or more of the following: non-refundable, upfront license fees; option exercise fees; funding of research and/or development efforts; clinical
and development, regulatory, and sales milestone payments; and royalties on future product sales.
The Company analyzes its collaboration arrangements to assess whether they are within the scope of ASC 808, Collaborative Arrangements, to determine
whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to
significant risks and rewards dependent on the commercial success of such activities. This assessment is performed throughout the life of the arrangement
based on changes in the responsibilities of all parties in the arrangement. For collaboration arrangements within the scope of ASC 808 that contain multiple
elements, we first determine which elements of the collaboration are deemed to be within the scope of ASC 808 and those that are more reflective of a
vendor-customer relationship and, therefore, are within the scope of ASC 606. For elements of collaboration arrangements that are accounted for pursuant
to ASC 808, an appropriate recognition method is determined and applied consistently, generally by analogy to ASC 606. For those elements of the
arrangement that are accounted for pursuant to ASC 606, we apply the five-step model described above.
Revenue related to performance obligations satisfied over time could be materially impacted as a result of changes in the estimated research effort to satisfy
performance obligations or changes in the transaction price related to variable consideration. For example, in in the year ended December 31, 2022, we
recorded cumulative catch up adjustments that decreased revenue recognition by $5.9
108
million as a result of changes in total estimated effort required to satisfy performance obligations. If we were to increase total estimated effort required to
satisfy the performance obligations by 10%, it would result in cumulative catch up adjustments that decrease revenue recognition by $4.2 million in the
current year and those amounts would be recognized in the future as the incremental effort is provided. Alternatively, if we were to decrease total estimated
effort required to satisfy the performance obligations by 10%, it would result in cumulative catch up adjustments that increase revenue recognition by $5.1
million in the current year.
Accrued Research and Development Expenses
As part of the process of preparing our consolidated financial statements, we are required to make certain estimates and judgements in our accrued research
and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services
that have been performed on our behalf and estimating the level of service performed and the associated costs incurred for the services when we have not
yet been invoiced or otherwise notified of the actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-
determined schedule or when contractual milestones are met; however, some require advance payments. We make estimates of our accrued expenses as of
each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. Actual costs incurred could
differ materially from estimates. Examples of estimated accrued research and development expenses include fees paid to the following:
•
•
•
CROs and other third parties in connection with performing research and development activities, conducting preclinical studies and clinical trials
on our behalf;
Vendors in connection with preclinical development activities; and
CMOs and other vendors in connection with product manufacturing and development and distribution of preclinical supplies.
We base our expenses related to preclinical studies on our estimates of the services received and efforts expended pursuant to quotes and contracts with
CROs that conduct and manage preclinical studies and clinical trials and CMOs that manufacture product for our research and development activities on
our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows.
There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. In
accruing fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing
of the performance of services or the level of effort varies from our estimate, we adjust the accrual or amount of prepaid expense accordingly.
Share-Based Compensation
We measure stock options and other share-based awards granted to our employees, directors, consultants and advisors based on the fair value on the date of
the grant and recognize compensation expense for those awards, net of actual forfeitures, over the requisite service period, which is generally the vesting
period of the respective award.
The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model, which uses as inputs the fair value
of our common stock and assumptions we make for the expected volatility of our common stock, the expected term of the stock options, the risk-free
interest rate for a period that approximates the expected term of the stock options and the our expected dividend yield. Expected volatility is estimated
based on the historical volatility of our and other comparable publicly traded peer companies. The expected term of the options has been determined
utilizing a weighted average value considering actual exercise history and estimated expected term based on the midpoint of final vest date and expiration
date. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods
approximately equal to the expected term of the award. Expected dividend yield is based on the fact that we have never paid cash dividends and does not
expect to pay any cash dividends in the foreseeable future.
The fair value of each restricted stock unit is determined based on the closing market price of our common stock on the date of grant.
Recent Accounting Pronouncements
A description of recent accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in
Note 1, Description of Business and Summary of Significant Accounting Policies, to our Financial Statements.
Emerging Growth Company Status
We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of reduced reporting requirements that are otherwise
applicable to public companies. Section 107 of the JOBS Act exempts emerging growth companies from being required to comply with new or revised
financial accounting standards until private companies are required to comply with those
109
standards. We have elected to take advantage of the extended transition period for complying with new or revised accounting standards. As an “emerging
growth company,” we are also exempted from having to provide an auditor attestation of internal control over financial reporting under Sarbanes-Oxley Act
Section 404(b).
We will remain an “emerging growth company” until the earliest of (1) the last day of the fiscal year in which we have total annual gross revenues of
$1.235 billion or more, (2) December 31, 2024, (3) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous
three years or (4) the date on which we are deemed to be a large accelerated filer under the rules of the SEC, which means the market value of our common
stock held by non-affiliates exceeds $700 million as of the prior June 30th, we have been a public company for at least 12 months and have filed one
Annual Report on Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate sensitivities. Our interest-earning assets
consist of cash and cash equivalents, which are denominated in U.S. dollars. We had cash and cash equivalents of $189.6 million, or 80% of our total assets,
on December 31, 2022 and $143.7 million, or 68% of our total assets, on December 31, 2021. Interest income earned on these assets was $3.5 million and
$0.2 million for the years ended December 31, 2022 and December 31, 2021, respectively. Our interest income is sensitive to changes in the general level
of interest rates, primarily U.S. interest rates, however, we do not anticipate fluctuations in interest rates to have a material impact on our financial
statements. A hypothetical 10% change in existing interest rates would not have had a material impact on the value of our cash and cash equivalents as of
December 31, 2022.
We are also exposed to foreign exchange rate risk with respect to foreign currency transactions. We do not anticipate foreign exchange rate risk to have a
material impact on our financial statements.
Item 8. Financial Statements and Supplementary Data.
The financial statements required to be filed pursuant to this Item 8 are appended to this report and are incorporated herein by reference. An index of those
financial statements is found in Item 15 of Part IV of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and
procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible
controls and procedures relative to their costs.
Evaluation of disclosure controls and procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this
Annual Report on Form 10-K, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were
effective at the reasonable assurance level as of December 31, 2022.
110
Management’s annual report on internal control over financial reporting
Our management, with the participation of our principal executive officer and our principal financial officer, is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our management conducted an
assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in “Internal Control–Integrated Framework
(2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that, as of
December 31, 2022, our internal control over financial reporting was effective.
Attestation Report of the Registered Public Accounting Firm
Our independent registered accounting firm will not be required to opine on the effectiveness of our internal control over financial reporting pursuant to
Section 404 of Sarbanes-Oxley Act of 2002 until we are no longer an “emerging growth company” as defined in the JOBS Act.
Changes in internal control over financial reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the
quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
None.
111
Item 10. Directors, Executive Officers and Corporate Governance.
INFORMATION ABOUT OUR DIRECTORS & EXECUTIVE OFFICERS
PART III
The following information with respect to our board of directors and executive officers is presented as of March 9, 2023:
Name
Executive Officers
Michael Amoroso
John Alexander Kelly
Alan List, M.D.
Dario Scimeca
Jeff Smith, Ph.D.
Non-Employee Directors
Age
Position at Precision BioSciences, Inc.
Principal Employment
45
56
68
48
50
President, Chief Executive Officer and Director
Chief Financial Officer
Chief Medical Officer
General Counsel and Secretary
Chief Research Officer
Same
Same
Same
Same
Same
Kevin Buehler
65 Chair of the Board and Director
Melinda Brown
Stanley Frankel, M.D.
66 Director
64 Director
Geno Germano
62 Director
Shari Lisa Piré, J.D.
58 Director
Sam Wadsworth, Ph.D.
74 Director
Former Division Head of Alcon Laboratories, Inc. a
division of Novartis AG
Chief Financial Officer of The Draft Network
Former Chief Medical Officer of Cytovia
Therapeutics, Inc.
President, Chief Executive Officer and Director of
Elucida Oncology, Inc.
Chief Legal & Sustainability Officer at Plume Design,
Inc.
Senior Scientific Advisor of Ultragenyx
Pharmaceuticals, Inc.
The information required by this item will be included in our definitive proxy statement (“2023 Proxy Statement”) to be filed with the SEC within 120 days
of the end of our fiscal year covered by this Annual Report on Form 10-K and is incorporated herein by reference.
Item 11. Executive Compensation.
The information required by this item will be included in our 2023 Proxy Statement to be filed with the SEC within 120 days of the end of our fiscal year
covered by this Annual Report on Form 10-K and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this item will be included in our 2023 Proxy Statement to be filed with the SEC within 120 days of the end of our fiscal year
covered by this Annual Report on Form 10-K and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this item will be included in our 2023 Proxy Statement to be filed with the SEC within 120 days of the end of our fiscal year
covered by this Annual Report on Form 10-K and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services.
The information required by this item will be included in our 2023 Proxy Statement to be filed with the SEC within 120 days of the end of our fiscal year
covered by this Annual Report on Form 10-K and is incorporated herein by reference.
112
Item 15. Exhibits and Financial Statement Schedules.
(a)(1) Financial Statements
PART IV
The following documents are included on pages F-1 through F-27 attached hereto and are filed as part of this Annual Report on Form 10-K.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID: 34)
Consolidated Balance Sheets as of December 31, 2022 and December 31, 2021
Consolidated Statements of Operations for the Years Ended December 31, 2022 and December 31, 2021
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2022 and December 31, 2021
Consolidated Statements of Cash Flows for the Years Ended December 31, 2022 and December 31, 2021
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules
F-1
F-2
F-3
F-4
F-5
F-6
All financial statement schedules have been omitted because they are not applicable, not required or the information required is shown in the financial
statements or the notes thereto.
(a)(3) Exhibits
The following is a list of exhibits filed, furnished or incorporated by reference as part of this Annual Report on Form 10-K.
113
Exhibit
Number
Description
Form
File No.
Exhibit
Filing
Date
Filed
Herewith
Exhibit Index
3.1
3.2
4.1
4.2
Amended and Restated Certificate of Incorporation of Precision
8‑K
001‑38841
3.1
4/1/2019
BioSciences, Inc.
Amended and Restated Bylaws of Precision BioSciences, Inc.
10-Q
001‑38841
3.2
11/10/2020
Specimen Common Stock Certificate.
S‑1/A
333‑230034
4.1
3/18/2019
Amended and Restated Investors’ Rights Agreement among Precision
BioSciences, Inc. and certain of its stockholders and the holders of the
2019 Notes, dated May 25, 2018, as amended.
S‑1/A
333‑230034
4.2
3/18/2019
4.3
Amendment No. 2, dated February 3, 2020, to the Amended and Restated
8‑K
001-38841
10.1
2/6/2020
Investors’ Rights Agreement among Precision BioSciences, Inc. and
certain of its stockholders and the holders of the 2019 Notes, dated May
25, 2018, as amended.
4.4
4.5
††
10.1
†
10.2
††
10.3
††
10.4
††
10.5
††
10.6
††
10.7
Form of Indenture.
S-3
333-238857
4.3
6/1/2020
Description of the Registrant's Securities.
10-K
00138841
4.5
3/15/2022
Loan and Security Agreement, dated May 15, 2019, among Precision
BioSciences, Inc., Elo Life Systems, Inc. and Pacific Western Bank, as
amended.
*
Development and Commercial License Agreement by and between Les
S‑1
333‑230034
10.1
3/1/2019
Laboratoires Servier and Precision BioSciences, Inc., dated February 24,
2016, as amended.
Amendment No. 5, dated September 18, 2019, to Development and
10‑Q
001‑38841
10.2
11/12/2019
Commercial License Agreement by and between Les Laboratoires Servier
and Precision BioSciences, Inc., dated February 24, 2016, as amended.
Amendment No. 6, dated October 16, 2020, to Development and
10-Q
001-38841
10.2
11/10/2020
Commercial License Agreement by and between Les Laboratoires Servier,
Institut de Recherches Internationales Servier and Precision BioSciences,
Inc., dated February 24, 2016, as amended.
Program Purchase Agreement by and among Les Laboratoires Servier,
10-Q
001-38841
10.1
5/13/2021
Institut de Recherches Internationales Servier, and Precision BioSciences,
Inc., dated April 9, 2021.
Development and License Agreement between Eli Lilly and Company and
10-K
001-38841
10.5
3/18/2021
Precision BioSciences, Inc., dated November 19, 2020.
First Amendment to Development and License Agreement between
10-Q
001-38841
10.2
11/10/2021
Precision BioSciences, Inc. and Eli Lilly and Company, dated August 9,
2021.
10.8
Stock Purchase Agreement between Eli Lilly and Company and Precision
10-K
001-38841
10.6
3/18/2021
BioSciences, Inc., dated November 19, 2020.
††
10.9
10.10
††
Collaboration and License Agreement, dated June 14, 2022, by and
8-K
001-38841
10.1
6/21/2022
between Precision BioSciences, Inc. and Novartis Pharma AG.
Stock Purchase Agreement, dated June 14, 2022, by and between
8-K
001-38841
10.2
6/21/2022
Precision BioSciences, Inc. and Novartis Pharma AG.
10.11
Registration Rights Agreement, dated June 15, 2022, by and between
8-K
001-38841
10.3
6/21/2022
Precision BioSciences, Inc. and Novartis Pharma AG.
114
Exhibit
Number
Description
Form
File No.
Exhibit
Filing
Date
Filed
Herewith
†
10.12
†
10.13
License Agreement by and between Duke University and Precision
S‑1
333‑230034
10.2
3/1/2019
BioSciences, Inc., dated April 17, 2006, as amended.
Patent Cross‑License Agreement by and between Cellectis SA and
S‑1
333‑230034
10.3
3/1/2019
Precision BioSciences, Inc., dated January 23, 2014.
10.14
Lease Agreement between Precision BioSciences, Inc. and Venable
10-K
001-38841
10.9
3/18/2021
Tenant, LLC, dated April 5, 2010, as amended.
10.15
Lease Agreement between Precision BioSciences, Inc. and Durham TW
10-K
Alexander, LLC, dated October 2, 2018, as amended.
001-38841
10.12 3/15/2022
*
#
10.16
#
10.17
#
10.18
#
10.19
#
10.20
#
10.21
#
10.22
#
10.23
#
10.24
#
10.25
#
10.26
#
10.27
#
10.28
#
10.29
21.1
23.1
31.1
2006 Stock Incentive Plan, as amended, and form of award agreements
S‑1
333‑230034
10.8
3/1/2019
thereunder.
2015 Stock Incentive Plan, as amended, and form of award agreements
S‑1
333‑230034
10.9
3/1/2019
thereunder.
2019 Incentive Award Plan, and forms of award agreements thereunder.
10-K
001-38841
10.14 3/18/2021
2019 Employee Stock Purchase Plan.
S‑1/A
333‑230034
10.11 3/18/2019
2021 Employment Inducement Incentive Award Plan and form of award
S-8
333-259369
99.3
9/7/2021
agreements thereunder.
Amendment to the Precision BioSciences, Inc. 2021 Employment
S-8
333-267079
99.4
8/26/2022
Inducement Incentive Award Plan.
Amended and Restated Executive Employment Agreement between
Precision BioSciences, Inc. and Alex Kelly, dated November 7,2022.
Amended and Restated Executive Employment Agreement between
Precision BioSciences, Inc. and Dr. Alan List, dated November 7,2022.
Amended and Restated Executive Employment Agreement between
Precision BioSciences, Inc. and Dario Scimeca, dated November 7,2022.
Amendment to Executive Employment Agreement between Precision
10-Q
001-38841
10.5
11/8/2022
BioSciences, Inc. and Dr. Derek Jantz, dated November 7,2022.
Employment Agreement between Precision BioSciences, Inc. and Dr. J.
10-Q
001-38841
10.6
11/8/2022
Jefferson Smith, dated November 7, 2022.
Form of Indemnification Agreement between Precision BioSciences, Inc.
S‑1A
333‑230034
10.17 3/18/2019
and its directors and officers.
Non‑Employee Director Compensation Plan (as amended).
10-Q
001-38841
10.4
8/8/2022
Executive Employment Agreement, dated September 18, 2021, by and
8-K
001-38841
10.1
9/27/2021
between Michael Amoroso and Precision Biosciences, Inc.
Subsidiaries of Precision BioSciences, Inc.
Consent of Deloitte & Touche LLP.
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a)
and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
115
*
*
*
*
*
*
Exhibit
Number
Description
Form
File No.
Exhibit
Filing
Date
Filed
Herewith
31.2
32.1
32.2
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a)
and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
101.INS
XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File (as formatted as Inline XBRL and
contained in Exhibit 101)
*
**
**
*
*
*
*
*
*
*
* Filed herewith
** Furnished herewith
† Confidential treatment of certain provisions has been granted by the SEC pursuant to Rule 406 under the Securities Act of 1933, as amended.
†† Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K.
# Denotes a management contract or compensatory plan or arrangement
Item 16. Form 10-K Summary.
None.
116
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 9, 2023
Date: March 9, 2023
Precision BioSciences, Inc.
By:
By:
/s/ Michael Amoroso
Michael Amoroso
President, Chief Executive Officer and Director
(principal executive office and authorized signatory)
/s/ John Alexander Kelly
John Alexander Kelly
Chief Financial Officer
(principal financial officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of
the Registrant in the capacities and on the dates indicated.
Name
Title
Date
/s/ Michael Amoroso
Michael Amoroso
/s/ John Alexander Kelly
John Alexander Kelly
/s/ Shane Barton
Shane Barton
/s/ Kevin Buehler
Kevin Buehler
/s/ Melinda Brown
Melinda Brown
/s/ Stanley Frankel, M.D.
Stanley Frankel, M.D.
/s/ Geno Germano
Geno Germano
/s/ Shari Lisa Piré, J.D.
Shari Lisa Piré, J.D.
/s/ Sam Wadsworth, Ph.D.
Sam Wadsworth, Ph.D.
President, Chief Executive Officer and Director
(principal executive officer)
Chief Financial Officer
(principal financial officer)
Vice President and Corporate Controller
(principal accounting officer)
March 9, 2023
March 9, 2023
March 9, 2023
Chair of the Board and Director
March 9, 2023
Director
Director
Director
Director
Director
117
March 9, 2023
March 9, 2023
March 9, 2023
March 9, 2023
March 9, 2023
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Precision BioSciences, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Precision BioSciences, Inc. and subsidiaries (the "Company") as of December 31, 2022
and 2021, the related consolidated statements of operations, changes in stockholders’ equity, and cash flows, for each of the two years in the period ended
December 31, 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of
the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Raleigh, North Carolina
March 9, 2023
We have served as the Company's auditor since 2017.
F-1
PART I. FINANCIAL INFORMATION
PRECISION BIOSCIENCES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
December 31, 2022
December 31, 2021
Item 1. Financial Statements.
Assets
Current assets:
Cash and cash equivalents
Accounts receivable
Prepaid expenses
Other current assets
Total current assets
Property, equipment, and software—net
Intangible assets—net
Right-of-use assets—net
Investment in equity securities
Equity method investment
Note receivable—net
Other assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Accrued compensation
Accrued clinical research and development expenses
Deferred revenue
Lease liabilities
Other current liabilities
Total current liabilities
Deferred revenue
Lease liabilities
Long term debt—net
Contract liabilities
Other noncurrent liabilities
Total liabilities
Commitments and contingencies (Note 6)
Stockholders’ equity:
Preferred stock, $0.0001 par value— 10,000,000 shares authorized as of December 31, 2022 and
December 31, 2021; no shares issued and outstanding as of December 31, 2022 and December 31,
2021
Common stock; $0.000005 par value— 200,000,000 shares authorized, 111,774,507 shares issued and
110,964,035 shares outstanding as of December 31, 2022; 61,712,577 shares issued and
60,902,105 shares outstanding as of December 31, 2021
Additional paid-in capital
Accumulated deficit
Treasury stock
Total stockholders’ equity
Total liabilities and stockholders’ equity
See notes to consolidated financial statements
F-2
$
$
$
$
189,576 $
720
7,552
1,257
199,105
20,190
1,348
2,974
2,576
2,172
7,234
2,570
238,169 $
1,225 $
6,259
3,206
46,192
2,037
745
59,664
82,872
2,776
22,223
10,000
201
177,736
143,663
488
17,434
169
161,754
25,154
2,048
4,180
3,091
3,751
6,879
4,641
211,498
1,144
6,765
4,028
21,244
1,822
977
35,980
67,015
4,813
2,478
10,000
44
120,330
—
—
1
489,696
(428,312 )
(952 )
60,433
238,169 $
—
408,795
(316,675 )
(952 )
91,168
211,498
PRECISION BIOSCIENCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
Revenue
Operating expenses
Research and development
General and administrative
Total operating expenses
Loss from operations
Other (expense) income, net:
Impairment charges
Loss on disposal of assets
(Loss) gain from changes in fair value
Gain on deconsolidation of subsidiary
(Loss) income from equity method investment
Interest expense
Interest income
Total other (expense) income, net
Net loss
Net loss per share -
basic and diluted
Weighted average shares of common stock outstanding-
basic and diluted
For the Years Ended December 31,
2021
2022
$
25,098 $
115,529
83,939
41,525
125,464
(100,366 )
(11,438 )
(106 )
(510 )
—
(1,579 )
(1,111 )
3,473
(11,271 )
(111,637 ) $
(1.27 ) $
115,238
39,667
154,905
(39,376 )
—
(26 )
2,555
5,985
184
(132 )
208
8,774
(30,602 )
(0.52 )
87,898,498
58,688,102
$
$
See notes to consolidated financial statements
F-3
PRECISION BIOSCIENCES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS’ EQUITY
(In thousands, except share amounts)
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Accumulated
Deficit
Treasury
Stock
Total
Stockholder's
Equity
Balance- December 31, 2020
Stock option exercises
Issuance of common stock under employee
stock purchase plan
Share-based compensation expense
Issuance of common stock to collaboration
partners
Net proceeds from issuance of common
stock
Net loss
Balance- December 31, 2021
Stock option exercises
Issuance of common stock under employee
stock purchase plan
Share-based compensation expense
Restricted stock units vested
Issuance of common stock to collaboration
partners
Net proceeds from issuance of common
stock
Net loss
Balance- December 31, 2022
53,503,124
1,997,700
126,887
—
3,762,190
2,322,676
—
61,712,577
335,439
194,672
—
288,323
12,407,440
$
36,836,056
—
111,774,507
$
—
—
—
—
—
—
—
—
—
1
—
—
—
—
—
1
$
$
331,450
6,783
804
16,514
27,739
25,505
—
408,795
392
442
19,197
—
11,553
49,317
—
489,696
(286,073 )
—
—
—
—
—
$
(30,602 )
(316,675 ) $
—
—
—
—
—
—
(111,637 ) $
(428,312 )
(952 )
—
—
—
—
—
—
(952 ) $
—
—
—
—
—
—
—
(952 )
44,425
6,783
804
16,514
27,739
25,505
(30,602 )
91,168
392
443
19,197
—
11,553
49,317
(111,637 )
60,433
See notes to consolidated financial statements
F-4
PRECISION BIOSCIENCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Share-based compensation
Loss on disposal of assets
Non-cash interest expense
Amortization of right-of-use assets
Non-cash consideration received from collaboration partners
Loss (Gain) on changes in fair value
Gain on deconsolidation of subsidiary
Loss (Income) from equity method investment
Amortization of discount on note receivable
Impairment charges
Changes in operating assets and liabilities:
Prepaid expenses
Accounts receivable
Other assets and other current assets
Accounts payable
Other liabilities and other current liabilities
Deferred revenue
Lease liabilities
Contract liabilities
Net cash used in operating activities
Cash flows from investing activities:
Property, equipment and software
Intangibles assets
Net cash used in investing activities
Cash flows from financing activities:
Stock option exercises
Employee stock purchase plan
Issuance of common stock to collaboration partners
Offering of common stock, net of issuance costs
Issuance of term loan, net of issuance costs
Payments of debt issuance costs
Payment of term loan
Borrowings from revolving credit facility, net of issuance costs
Net cash provided by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents—beginning of period
Cash and cash equivalents —end of period
Supplemental disclosures of noncash financing and investing activities:
Property, equipment and software additions included in accounts payable,
accrued expenses and other current liabilities
Cash paid for interest
Unsettled at-the-market issuances of common stock included in other current assets
Contract liability accrual related to Servier Program Purchase Agreement milestones
Non-cash consideration received from collaboration partners
See notes to consolidated financial statements
F-5
For the Years Ended December 31,
2021
2022
$
(111,637 ) $
(30,602 )
7,798
19,197
106
295
1,206
—
510
—
1,579
(355 )
11,438
(962 )
(232 )
1,431
153
(1,816 )
27,358
(1,822 )
—
(45,753 )
(3,319 )
—
(3,319 )
392
443
25,000
49,345
—
—
—
19,805
94,985
45,913
143,663
189,576 $
103 $
824 $
— $
— $
— $
8,981
16,514
26
59
1,216
(17,894 )
(2,555 )
(5,985 )
(184 )
(13 )
—
5,616
9,512
(2,734 )
867
1,423
(3,164 )
(1,936 )
10,000
(10,853 )
(5,053 )
(750 )
(5,803 )
6,783
804
35,000
25,477
2,465
(13 )
(2,500 )
2,505
70,521
53,865
89,798
143,663
103
68
37
10,000
17,894
$
$
$
$
$
$
Precision BioSciences, Inc.
Notes to Consolidated Financial Statements
NOTE 1: DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Precision BioSciences, Inc. (the “Company”) was incorporated on January 26, 2006 under the laws of the State of Delaware and is based in Durham, North
Carolina. The Company is a clinical stage gene editing company dedicated to improving life by developing ex vivo allogeneic CAR T immunotherapies and
in vivo therapies for genetic and infectious diseases with the application of the Company’s wholly owned proprietary ARCUS genome editing platform.
Since its inception, the Company has devoted substantially all of its efforts to research and development activities, recruiting skilled personnel, developing
manufacturing processes, establishing its intellectual property portfolio and providing general and administrative support for these operations. The
Company is subject to a number of risks similar to those of other companies conducting high-risk, early-stage research and development of product
candidates. Principal among these risks are dependence on key individuals and intellectual property, competition from other products and companies, and
the technical risks associated with the successful research, development and clinical manufacturing of its product candidates. The Company’s success is
dependent upon its ability to continue to raise additional capital in order to fund ongoing research and development, obtain regulatory approval of its
products, successfully commercialize its products, generate revenue, meet its obligations, and, ultimately, attain profitable operations.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America
(“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and
disclosures made in the accompanying notes to the consolidated financial statements. Actual results could differ from those estimates. Significant estimates
include recording revenue for performance obligations recognized over time, determination of the fair value of share-based compensation grants, estimating
services expended by third-party service providers used to recognize research and development expense and determination of the fair value of investments
in equity securities.
Basis of Presentation
These financial statements have been prepared in accordance with GAAP. Additionally, the accompanying consolidated financial statements have been
prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
Certain immaterial amounts from the prior year have been reclassified to conform to current year presentation.
Summary of Significant Accounting Policies
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. As of
December 31, 2022 the Company held cash equivalents which are composed of money market funds and repurchase agreements that were purchased
through repurchase intermediary banks and collateralized by deposits in the form of government securities and obligations. As of December 31, 2021, the
Company held an insignificant amount of cash equivalents.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and notes receivable. All of the
Company’s cash and cash equivalents are held at financial institutions that management believes to be of high credit quality. The Company may maintain
cash deposits in financial institutions in excess of government insured limits. The Company regularly invests excess cash deposits in money market funds
and repurchase agreements. The Company believes that the credit risk arising from the holdings of these financial instruments is mitigated by the fact that
these securities are of short duration, government backed and of high credit rating. The Company has not experienced any losses on cash and cash
equivalents to date.
Revenue from Lilly and Novartis accounted for 62% and 38% of revenue during the year ended December 31, 2022, respectively. Revenue from Lilly and
Servier accounted for 18% and 63% of revenue during the year ended December 31, 2021, respectively. Lilly and Novartis accounted for 58% and 42% of
deferred revenue as of December 31, 2022, respectively.
F-6
In addition, the Company currently holds a $10.0 million promissory note payable from New Elo (defined below), as described further in Note 12, Elo
Transaction, which exposes the Company to potential losses in the event of default by New Elo. Counterparty credit risk will be monitored through
periodic review of New Elo’s financial records. As of December 31, 2022, the Company considers the risk of counterparty default to be minimal.
Property, Equipment and Software
Property, equipment and software ("PP&E") are stated at cost, net of depreciation and amortization. Depreciation and amortization are calculated using the
straight-line method over the estimated useful lives of the assets ranging from three to seven years. Leasehold improvements are amortized on a straight-
line basis over the shorter of the lease term or estimated useful life of the asset.
The depreciation and amortization periods for the Company’s significant PP&E categories are as follows:
Laboratory equipment
Furniture and fixtures and office equipment
Leasehold improvements
5 to 7 years
3 to 5 years
Lesser of remaining lease term or useful life
Repairs and maintenance are charged to operations as incurred, and expenditures for additions and improvements that extend the useful life of the asset are
capitalized.
Intangible Assets
Intangible assets primarily include licenses and patents. The Company capitalizes license fees paid to acquire access to proprietary technology if the
technology is expected to have alternative future use in multiple research and development projects. The cost of licensed technology rights is amortized
using the straight-line method over the estimated useful life of the technology. If the access to use the technology rights is one year or less, the cost is
recorded as a prepaid expense and amortized over the period identified in the agreement. Amortization expense for licensed technology and capitalized
patent costs is included in research and development expenses within the accompanying consolidated statement of operations.
Impairment Charges
Long-lived assets, such as PP&E, intangible assets, and long-term prepaid assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. An impairment loss is assessed when future undiscounted cash flows are less than the
assets’ carrying value and recognized when the carrying value of the asset exceeds fair value. Fair value is calculated by estimating the discounted future
cash flows expected to be generated by the asset as well as other valuation techniques. An impairment charge is recognized for the amount by which the
carrying amount exceeds the fair value of the asset.
Fair Value Measurements
Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair
value, we consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that
market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. ASC 820,
Fair Value Measurement, establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market
data (observable inputs) and the Company’s assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing
the asset or liability based on market data obtained from our independent sources. Unobservable inputs are inputs that reflect the Company’s assumptions
about the inputs that market participants would use in pricing the asset or liability, and are developed based on the best information available in the
circumstances. The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used to
value the assets and liabilities:
•
•
Level 1 - Observable inputs based on unadjusted quoted prices in active markets for identical assets or liabilities
Level 2 - Inputs, other than quoted prices in active markets, that are observable either directly or indirectly
F-7
•
Level 3 - Unobservable inputs for which there is little or no market date, which require the Company to develop its own assumptions
To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires
more judgment. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value
measurement.
Investments in Equity Securities
The Company carries investments in equity securities for which it does not possess the ability to exercise significant influence or control at fair value in the
consolidated balance sheets and records changes in fair value in the consolidated statements of operations as a component of other income or expense.
As of December 31, 2022 and December 31, 2021 the Company held common stock in iECURE with a fair value of $2.6 million and $3.1 million,
respectively.
Investments under the Equity Method
The Company utilizes the equity method to account for investments when it is determined that the Company possess the ability to exercise significant
influence, but not control, over the operating and financial policies of the investee. The ability to exercise significant influence is presumed when the
investor possesses more than 20% of the voting interests of the investee. This presumption may be overcome based on specific facts and circumstances that
demonstrate that the ability to exercise significant influence is restricted.
In applying the equity method, the Company subsequently increases or decreases the carrying amount of the investment by the Company’s proportionate
share of the net earnings or losses and other comprehensive income of the investee. In the event that net losses of the investee reduce the carrying amount to
zero, additional net losses are recorded if other investments in the investee are at-risk, even if the Company has not committed to provide financial support
to the investee.
Leases
At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances
present. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and lease liabilities. The Company has elected
not to recognize on the balance sheet leases with terms of one year or less. Lease liabilities and corresponding right-of-use assets are recorded based on the
present value of lease payments over the expected remaining lease term. As the rate implicit in the Company's leases are not readily determinable, the
Company utilizes its incremental borrowing rates, which are the rates incurred to borrow on a collateralized basis over a similar term an amount equal to
the lease payments in a similar economic environment.
The Company has elected to account for the lease and non-lease components of each of its operating leases as a single lease component. In addition, the
Company elected the package of practical expedients permitted under the transition guidance within accounting standards codification (“ASC”) 842, in
which the Company need not reassess (i) the historical lease classification, (ii) whether any expired or existing contract is or contains a lease, or (iii) the
initial direct costs for any existing leases. The operating right-of-use asset recorded on the balance sheet is amortized on a straight-line basis as lease
expense.
Revenue Recognition for Contracts with Customers
The Company’s revenues are generated primarily through collaborative research, license, development and commercialization agreements.
ASC 606 applies to all contracts with customers, except for contracts that are within the scope of other standards. Under ASC 606, an entity recognizes
revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in
exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the
entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine
the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity
satisfies a performance obligation.
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At contract inception, once the contract is determined to be within the scope of ASC 606, the Company evaluates the performance obligations promised in
the contract that are based on goods and services that will be transferred to the customer and determines whether those obligations are both (i) capable of
being distinct and (ii) distinct in the context of the contract. Goods or services that meet these criteria are considered distinct performance obligations. If
both these criteria are not met, the goods and services are combined into a single performance obligation. The Company then recognizes as revenue the
amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Arrangements
that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options. The Company assesses if
these options provide a material right to the customer and if so, these options are considered performance obligations. The exercise of a material right is
accounted for as a contract modification for accounting purposes.
The Company recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) each
performance obligation is satisfied at a point in time or over time, and if over time this is based on the use of an output or input method. For the year ended
December 31, 2022, the Company recorded cumulative catch up adjustments on its contracts with customers that decreased revenue recognition by $5.9
million; the cumulative catch-up adjustments resulted from a change in total estimated effort required to satisfy performance obligations. During the year
ended December 31, 2022, the Company recorded $15.4 million in revenue that was included in deferred revenue as of December 31, 2021.
Invoices issued as stipulated in contracts prior to revenue recognition are recorded as deferred revenue. Amounts expected to be recognized as revenue
within the 12 months following the balance sheet date are classified as deferred revenue within current liabilities in the accompanying consolidated balance
sheets. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as noncurrent deferred
revenue. Amounts recognized as revenue, but not yet invoiced are generally recognized as contract assets in the other current assets line item in the
accompanying consolidated balance sheets.
Milestone Payments – If an arrangement includes development and regulatory milestone payments, the Company evaluates whether the milestones are
considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable
that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not
within the Company’s or the licensee’s control, such as regulatory approvals, are not considered probable of being achieved until those approvals are
received and therefore revenue recognized is constrained as management is unable to assert that a reversal of revenue would not be probable. The
transaction price is then allocated to each performance obligation on a relative standalone selling price basis, for which the Company recognizes revenue as
or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the
probability of achievement of such development milestones and any related constraint, and, if necessary, adjusts its estimate of the overall transaction price.
Any such adjustments are recorded on a cumulative catch-up basis, which would affect collaboration revenues and earnings in the period of adjustment.
Royalties – For arrangements that include sales-based royalties, including milestone payments based on a level of sales, which are the result of a customer-
vendor relationship and for which the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the
later of (i) when the related sales occur, or (ii) when the performance obligation linked to some or all of the royalty has been satisfied or partially satisfied.
To date, the Company has not recognized any royalty revenue resulting from any of its licensing arrangements.
Significant Financing Component – In determining the transaction price, the Company adjusts consideration for the effects of the time value of money if
the timing of payments provides the Company with a significant benefit of financing. The Company does not assess whether a contract has a significant
financing component if the expectation at contract inception is such that the period between payment by the licensees and the transfer of the promised
goods or services to the licensees will be one year or less. The Company assessed each of its revenue arrangements in order to determine whether a
significant financing component exists and concluded that a significant financing component does not exist in any of its arrangements.
Collaborative Arrangements – The Company has entered into collaboration agreements, which are within the scope of ASC 606, to discover, develop,
manufacture and commercialize product candidates. The terms of these agreements typically contain multiple promises or obligations, which may include:
(1) licenses, or options to obtain licenses, to use the Company’s technology, (2) research and development activities to be performed on behalf of the
collaboration partner, and (3) in certain cases, services in connection with the manufacturing of preclinical and clinical material. Payments the Company
receives under these arrangements typically include one or more of the following: non-refundable, upfront license fees; option exercise fees; funding of
research and/or development efforts; clinical and development, regulatory, and sales milestone payments; and royalties on future product sales.
The Company analyzes its collaboration arrangements to assess whether the collaboration agreements are within the scope of ASC 808, Collaborative
Arrangements (“ASC 808”) to determine whether such arrangements involve joint operating activities performed by parties that are both active participants
in the activities and exposed to significant risks and rewards dependent on the commercial
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success of such activities. This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the
arrangement. For collaboration arrangements within the scope of ASC 808 that contain multiple elements, the Company first determines which elements of
the collaboration are deemed to be within the scope of ASC 808 and those that are more reflective of a vendor-customer relationship and, therefore, are
within the scope of ASC 606. For elements of collaboration arrangements that are accounted for pursuant to ASC 808, an appropriate recognition method is
determined and applied consistently, generally by analogy to ASC 606. For those elements of the arrangement that are accounted for pursuant to ASC 606,
the Company applies the five-step model described above.
For additional discussion of accounting for collaboration revenues, see Note 10, Collaboration and License Agreements.
Research and Development
Research and development costs are expensed as incurred. Research and development expenses are comprised of costs incurred in performing research and
development activities including salaries, benefits, share-based compensation, allocations for rent and facility costs, depreciation, preclinical manufacturing
expenses, costs of services provided by contract research organizations ("CROs") in connection with clinical trials and contract manufacturing
organizations ("CMOs") engaged to manufacture clinical trial material, costs of licensing technology, and costs of services provided by research and
development service providers. Upfront payments and milestone payments made for the licensing of technology are expensed as research and development
in the period in which they are incurred if the technology is not expected to have any alternative future uses other than the specific research and
development project for which it was intended. Nonrefundable advance payments for goods or services to be received in the future for use in research and
development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed
rather than when the payment is made.
The Company is required to estimate accrued research and development expenses resulting from its obligations under contracts with CROs, CMOs,
research organizations, service providers, vendors and consultants in connection with research and development activities. The financial terms of these
contracts are subject to negotiations and vary from contract to contract and may result in payment flows that do not match the periods over which materials
or services are provided to the Company under such contracts. The Company’s objective is to reflect the appropriate research and development expenses in
its consolidated statements of operations by matching those expenses with the period in which the services and efforts are expended. There may be
instances in which payments made to the Company’s vendors will exceed the level of services provided and result in a prepayment of the expense. In
accruing fees, the Company estimates the time period over which services will be performed and the level of effort to be expended in each period. If the
actual timing of the performance of services or the level of effort varies from the Company’s estimate, the Company adjusts the accrual or amount of
prepaid expense accordingly.
Comprehensive Loss
Comprehensive loss includes net loss as well as other changes in stockholders’ equity that result from transactions and economic events other than those
with stockholders. For the years ended December 31, 2022 and December 31, 2021, there was no difference between net loss and comprehensive loss in the
accompanying consolidated statement of operations.
Net Loss Per Share
Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock
outstanding during the period. Diluted net loss per share is computed using the weighted-average number of shares of common stock outstanding during the
period and, if dilutive, the weighted-average number of potential shares of common stock.
The Company’s diluted net loss per share is the same as basic net loss per share for the years ended December 31, 2022 and December 31, 2021, given all
potential shares of common stock are anti-dilutive as a result of the net loss.
Share-Based Compensation
The Company accounts for all share-based compensation awards, including stock options, restricted stock units and its employee stock purchase plan, at
fair value. Compensation expense is recognized for the Company's share-based compensation awards, net of actual forfeitures, over the requisite service
period, which is the vesting period of the respective award.
The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model, which uses as inputs the fair value
of the Company’s common stock and assumptions the Company makes for the expected volatility of its common stock, the expected term of the stock
options, the risk-free interest rate for a period that approximates the expected term of the stock options and the Company’s expected dividend yield.
Expected volatility is estimated based on the historical volatility of the Company
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and other comparable publicly traded peer companies. The expected term of the options has been determined utilizing a weighted average value considering
actual exercise history and estimated expected term based on the midpoint of final vest date and expiration date. The risk-free interest rate is determined by
reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award.
Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the
foreseeable future.
The fair value of each restricted stock unit is determined based on the closing market price of the Company’s common stock on the date of grant.
Income Taxes
Deferred tax assets and liabilities are determined based on the temporary differences between the consolidated financial statement carrying amounts and the
tax basis of assets and liabilities using the enacted tax rates in effect in the years in which the differences are expected to reverse. In estimating future tax
consequences, all expected future events are considered other than the enactment of changes in the tax law or rates. Changes in deferred tax assets and
liabilities are recorded in the provision for income taxes.
The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on
examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements
from such a position is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.
The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the
weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is
established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits
expected and considering prudent and feasible tax planning strategies.
Accounting Standards Updates
The Company is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may take advantage
of reduced reporting requirements that are otherwise applicable to public companies. Section 107 of the JOBS Act exempts emerging growth companies
from being required to comply with new or revised financial accounting standards until private companies are required to comply with those standards. The
Company has elected to use the extended transition period for complying with new or revised accounting standards. The Company does not expect the
adoption of recent accounting pronouncements not yet adopted will have a material impact on its consolidated financial statements. The JOBS Act also
exempts the Company from having to provide an auditor attestation of internal controls over financial reporting under Sarbanes-Oxley Act Section 404(b).
The Company will remain an “emerging growth company” until the earliest of (i) December 31, 2024, (ii) the last day of the fiscal year in which it has total
annual gross revenues of $1.235 billion or more, (iii) the date on which it has issued more than $1.0 billion in nonconvertible debt during the previous three
years or (iv) the date on which it is deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission (“SEC”), which
generally is when it has more than $700 million in market value of its stock held by non-affiliates as of the prior June 30th.
Accounting standards updates issued, but not effective until after December 31, 2022, are not expected to have a material effect on the Company’s
consolidated financial position, statements of operations or cash flows.
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NOTE 2: PROPERTY, EQUIPMENT AND SOFTWARE
PP&E consisted of the following as of December 31 (in thousands):
Construction in progress
Leasehold improvements
Software
Laboratory equipment
Office equipment
Furniture and fixtures
Total property, equipment and software
Less accumulated depreciation and amortization
Property, equipment and software - net
$
$
2022
2021
533 $
22,955
442
23,459
1,594
2,295
51,278
31,088
20,190 $
3,042
22,784
312
19,291
1,371
2,268
49,068
23,914
25,154
Depreciation expense, including amortization of leasehold improvements and software, was $7.7 million and $8.9 million for the years ended December 31,
2022 and December 31, 2021, respectively.
NOTE 3: INTANGIBLE ASSETS
Intangible assets, net, consisted of the following as of December 31 (in thousands):
License cost
Less: accumulated amortization
Less: impairments
Intangible assets, net
$
2022
2021
2,581 $
(521 )
(712 )
1,348
2,581
(415 )
(118 )
2,048
Amortization expense of intangible assets was $0.1 million and less than $0.1 million for the years ended December 31, 2022 and December 31, 2021,
respectively. Amortization expense for intangible assets with definite lives will be less than $0.1 million for each of the next five years with the remaining
$0.9 million amortized to expense in 2027 and beyond.
NOTE 4: FAIR VALUE MEASUREMENTS
The following represents assets measured at fair value on a recurring basis by the Company (in thousands):
December 31, 2022
Assets:
Fair Value
Level 1
Level 2
Level 3
Money market funds
Repurchase agreements
Investment in iECURE
Liabilities:
Final payment fee
December 31, 2021
Money market funds
Investment in iECURE
$
$
$
$
$
$
868 $
40,000
2,576
43,444
$
868 $
—
—
868
$
— $
40,000
—
40,000
$
199 $
$
199
— $
$
—
199 $
$
199
—
—
2,576
2,576
—
—
Fair Value
Level 1
Level 2
Level 3
12 $
3,091
3,103
$
12 $
—
12
$
— $
—
—
$
—
3,091
3,091
The carrying amounts of the Company’s financial instruments, including accounts receivable, accounts payable, and accrued expenses and other current
liabilities, approximate their respective fair values due to their short-term nature.
Cash Equivalents
As of December 31, 2022, the Company held cash equivalents which are composed of money market funds and repurchase agreements that were purchased
through repurchase intermediary banks and collateralized by deposits in the form of government
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securities and obligations. As of December 31, 2021, the Company held an insignificant amount of cash equivalents which were composed of investments
in money market funds. The Company classifies investments in money market funds within Level 1 of the fair value hierarchy as the prices are available
from quoted prices in active markets. Investments in repurchase agreements are classified within Level 2 of the fair value hierarchy as these instruments are
valued using observable market inputs including reported trades, broker/dealer quotes, bids and/or offers.
Investment in iECURE
In August 2021, the Company entered into an Equity Issuance Agreement with iECURE, Inc. (“iECURE”), pursuant to which iECURE issued the
Company common stock in iECURE (the “iECURE equity”) as additional consideration for a license to use the Company’s PCSK9-directed ARCUS
nuclease to insert genes into the PCSK9 locus to develop treatments for four pre-specified rare genetic diseases (the “PCSK9 license”). On issuance, the
Company accounted for the iECURE equity at fair value under ASC 825, Financial Instruments (“ASC 825”). Accordingly, the Company adjusts the
carrying value of the iECURE equity to fair value each reporting period with any changes in fair value recorded to other income (expense). During the year
ended December 31, 2022, the Company recorded a $0.5 million decrease in the carrying value of its iECURE equity to adjust to fair value as a result of
dilution from iECURE's Series A-1 equity raise in such period.
The Company classifies the iECURE equity within Level 3 of the fair value hierarchy as the assessed fair value was based on significant unobservable
inputs given iECURE equity is not traded on a public exchange. For additional discussion of accounting for the iECURE Development and License
agreement (as defined below) and the iECURE Equity Issuance Agreement (as defined below), refer to Note 10, “Collaboration and License Agreements.”
Final Payment Fee
The Company is required to pay a final payment fee upon maturity of the Revolving Line. The final payment fee was determined to be a derivative under
ASC 815, therefore these fees were initially measured at fair value and recorded as debt discount to be amortized to interest expense over the term of the
Revolving Line. Accordingly, the Company will adjust the carrying value of the final payment fee to fair value each reporting period with any changes in
fair value recorded to other income (expense). During the year ended December 31, 2022 adjustments to the carrying value of the final payment fee
resulted in less than $0.1 million of income recorded to change in fair value in the consolidated statement of operations.
The Company classifies the final payment fee within Level 2 of the fair value hierarchy as the assessed fair value was based on observable market inputs
including the Company’s current borrowing rate on the Revolving Line. The final payment fee is included in the other noncurrent liabilities within the
consolidated balance sheet as of December 31, 2022.
The following represents a reconciliation of assets measured and carried at fair value on a recurring basis with the use of significant unobservable inputs
(Level 3) for the year ended December 31, 2022 (in thousands):
Balance December 31, 2021
Acquisitions
Losses included in earnings
Dispositions
Balance December 31, 2022
NOTE 5:
DEBT
Elo Loan
Investment in iECURE
$
$
3,091
—
(515 )
—
2,576
In May 2021, the Company's then wholly owned subsidiary, Elo Life Systems, Inc., entered into a loan and security agreement with Pacific Western Bank
(“PWB”) for a term loan (the “Elo Loan”) in the amount of $2.5 million. On December 14, 2021, the Company repaid all outstanding principal and interest
on the Elo Loan with proceeds from the Revolving Line (defined below).
Revolving Line
Pursuant to the terms of the loan and security agreement with PWB (as amended from time to time, the “Revolving Line”) the Company may request
advances on a revolving line of credit of up to an aggregate principal of $30.0 million.
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In May 2022, the Company and PWB executed the Seventh Amendment to the Revolving Line (the “Revolving Line Amendment”). Upon the execution of
the Revolving Line Amendment, the interest rate on credit advances was modified to the greater of (a) 0.75% above the Prime rate (as defined in the
Revolving Line) and (b) 4.25%.
In July 2022, the maturity date of the Revolving Line was extended to June 23, 2024 upon the Company’s receipt of $100.0 million in aggregate new gross
proceeds (as defined in the Revolving Line Amendment). All outstanding principal amounts under the Revolving Line are due on the maturity date. The
Company must also maintain an aggregate balance of unrestricted cash at PWB (not including amounts in certain specified accounts) equal to or greater
than $10.0 million.
In December 2021, the Company borrowed $2.5 million under the Revolving Line to pay all outstanding principal on the Elo Loan. In May 2022, the
Company borrowed an additional $20.0 million under the Revolving Line. As of December 31, 2022, $22.5 million was outstanding under the Revolving
Line and the unamortized Revolving Line debt discount balance was $0.3 million. As of December 31, 2022, the stated interest rate on the Revolving Line
was 8.25% and the effective interest rate was 9.27%.
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NOTE 6: COMMITMENTS AND CONTINGENCIES
Litigation
The Company is subject to various legal matters and claims in the ordinary course of business. Although the results of legal proceedings and claims cannot
be predicted with certainty, in the opinion of management, there are currently no such known matters that will have a material effect on the consolidated
financial condition, results of operations or cash flows of the Company.
Servier Program Purchase Agreement
On April 9, 2021, the Company entered into a program purchase agreement with Les Laboratoires Servier and Institut de Recherches Internationales
Servier (collectively, “Servier”), pursuant to which the Company reacquired all of its global development and commercialization rights previously granted
to Servier pursuant to the Development and Commercial License Agreement by and between Servier and the Company, dated February 24, 2016, as
amended (the “Servier Agreement”), and mutually terminated the Servier Agreement (the “Program Purchase Agreement”).
The Program Purchase Agreement requires the Company to make certain payments to Servier based on the achievement of regulatory and commercial
milestones for each product, and a low- to mid-single-digit percentage royalty (subject to certain reductions) based on net sales of approved products, if
any, resulting from any continued development and commercialization of the programs by the Company, for a period not to exceed ten years after first
commercial sale of the applicable product in the United States or certain countries in Europe. If the Company enters into specified product partnering
transactions, the Program Purchase Agreement requires the Company to pay to Servier a portion of certain consideration received pursuant to such product
partnering transactions in lieu of the foregoing milestones (with the exception of a one-time clinical phase development milestone) and royalties.
Regulatory and Commercial Milestones
Management assessed the likelihood of each of the regulatory and commercial milestones included in the Program Purchase Agreement in accordance with
ASC 450, Contingencies (“ASC 450”). If the assessment of a contingency indicates that it is probable that the milestone will be achieved and the amount of
the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated balance sheets. Accordingly, a $10.0 million
financial contract liability was accrued in the year ended December 31, 2021 and is included in the consolidated balance sheets as of December 31, 2022
and December 31, 2021.
Product Partnering Transaction Consideration Due to Servier
Per the terms of the Program Purchase Agreement, should the Company enter into a product partnering transaction with respect to any of the targets
previously nominated by Servier, the Company will pay Servier a percentage of the proceeds received. In accordance with ASC 450, management
concluded that the amount of proceeds due to Servier as a result of a future product partnering transaction, if any, cannot be reasonably estimated as of the
date of this Annual Report on Form 10-K. As such, no contingency for this provision was included in the consolidated financial statements as of December
31, 2022 or December 31, 2021.
Leases
The Company has operating leases for real estate in North Carolina and does not have any finance leases.
Many of the Company’s leases contain options to renew and extend lease terms and options to terminate leases early. The Company has existing leases that
include variable lease payments that are not included in the right-of-use assets and lease liabilities and are
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reflected as an expense in the period incurred. Such payments primarily include common area maintenance charges and fluctuations in rent payments that
are driven by factors such as future changes in an index (e.g. the Consumer Price Index).
The Company has existing leases in which the non-lease components (e.g., common area maintenance, consumables, etc.) are paid separately from rent
based on actual costs incurred and therefore are not included in the right-of-use assets and lease liabilities but rather reflected as an expense in the period
incurred.
The elements of lease expense were as follows:
(in thousands)
Lease Cost
Operating lease cost
Short-term lease cost
Variable lease cost
Total Lease Cost
Other Information
Operating cash flows used for operating leases
Operating lease liabilities arising from obtaining right-of-use assets
Operating Leases
Weighted average remaining lease term (in years)
Operating Leases
Weighted average discount rate
$
$
For the Years Ended December 31,
2022
2021
1,644 $
563
746
2,953
$
2,264
—
1,951
342
1,131
3,424
2,649
—
2.9
3.7
7.7 %
7.8 %
Future lease payments under non-cancelable operating leases with terms of greater than one year as of December 31, 2022, were as follows:
(in thousands)
2023
2024
2025
2026
2027
Total lease payments
Less: imputed interest
Total operating lease liabilities
Supply Agreements
December 31, 2022
2,323
1,594
529
545
372
5,363
550
4,813
$
$
The Company enters into contracts in the normal course of business with CMOs for the manufacture of clinical trial materials and CROs for clinical trial
services. These agreements provide for termination at the request of either party with less than one-year notice and are, therefore, cancelable contracts and,
if canceled, are not anticipated to have a material effect on the consolidated financial condition, results of operations, or cash flows of the Company.
NOTE 7:
STOCKHOLDERS’ EQUITY
Capital Structure
On April 1, 2019, the Company filed an amendment to its amended and restated certificate of incorporation pursuant to which, among other things, the
Company increased its authorized shares to 210,000,000 shares of capital stock, of which 200,000,000 shares were designated as $0.000005 par value
common stock and 10,000,000 shares were designated as $0.0001 par value preferred stock.
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NOTE 8: SHARE-BASED COMPENSATION
The Company previously granted stock options under its 2006 Stock Incentive Plan (the “2006 Plan”) and its 2015 Stock Incentive Plan (the “2015 Plan”).
As of December 31, 2022 there were 1,932,584 stock options outstanding under the 2006 Plan and 2015 Plan and no remaining stock options available to
be granted under such plans.
On March 12, 2019, the Company’s board of directors adopted, and, on March 14, 2019 the Company’s stockholders approved, the Precision BioSciences,
Inc. 2019 Incentive Award Plan (“2019 Plan”) and the 2019 Employee Stock Purchase Plan (“2019 ESPP”), both of which became effective on March 27,
2019.
The 2019 Plan provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units
and other share-based awards. The 2019 Plan had 8,841,134 stock options and 3,419,830 restricted stock units ("RSUs") outstanding as of December 31,
2022.
The number of shares available for issuance under the 2019 Plan initially equaled 4,750,000 shares of common stock. The 2019 Plan provides for an annual
increase to the number of shares of common stock available for issuance on the first day of each calendar year beginning January 1, 2020 and ending on
and including January 1, 2029 by an amount equal to the lesser of (i) 4% of the aggregate number of shares of common stock outstanding on the final day
of the immediately preceding calendar year and (ii) such smaller number of shares of common stock as determined by the board of directors. As of
December 31, 2022, the aggregate number of shares available for issuance under the 2019 Plan has been increased by 6,589,999 pursuant to this provision.
Any shares that are subject to awards outstanding under the Company’s 2006 Plan and 2015 Plan as of the effective date of the 2019 Plan that expire, lapse,
or are terminated, exchanged for cash, surrendered, repurchased, or canceled without having been fully exercised or forfeited, to the extent so unused, will
become available for award grants under the 2019 Plan. As of December 31, 2022, 231,039 shares were available to be issued under the 2019 Plan.
Up to 525,000 shares of the Company’s common stock were initially reserved for issuance under the 2019 ESPP. The 2019 ESPP provides for an annual
increase to the number of shares available for issuance on the first day of each calendar year beginning January 1, 2020 and ending on and including
January 1, 2029 by an amount equal to the lesser of (i) 1% of the shares outstanding on the final day of the immediately preceding calendar year and (ii)
such smaller number of shares as is determined by our board of directors. As of December 31, 2022, the aggregate number of shares available for issuance
under the 2019 ESPP has been increased by 1,647,499 shares pursuant to this provision. The purchase price of the shares under the 2019 ESPP, in the
absence of a contrary designation, will be 85% of the lower of the fair market value of our common stock on the first trading day of the offering period or
on the purchase date. As of December 31, 2022, we had issued 447,787 shares under the 2019 ESPP. As of December 31, 2022, 1,724,712 shares were
available to be issued under the 2019 ESPP. The Company recognized share-based compensation expense related to the ESPP of $0.2 million and $0.3
million during the years ended December 31, 2022 and December 31, 2021, respectively.
On August 9, 2021, the Company’s board of directors approved the adoption of the Precision BioSciences, Inc. 2021 Employment Inducement Incentive
Award Plan (as amended, the “Inducement Award Plan”).
The Inducement Award Plan provides for the grant of non-qualified stock options, stock appreciation rights, restricted stock, RSUs and other share-based
awards to newly hired employees who have not previously been an employee or member of the board, or an employee who is being rehired following a
bona fide period of non-employment by the Company. No more than 9,000,000 shares of the Company’s common stock may be issued under the
Inducement Award Plan. As of December 31, 2022, 5,827,204 shares were available to be issued under the Inducement Award Plan. The Inducement Award
Plan had 2,949,134 stock options and 199,454 RSUs outstanding as of December 31, 2022.
The Company recorded employee and nonemployee share-based compensation expense as follows (in thousands):
Employee
Nonemployee
Years Ended December 31,
2022
2021
$
$
15,921 $
3,276
19,197 $
14,963
1,551
16,514
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Share-based compensation expense is included in the following line items in the consolidated statements of operations (in thousands):
Research and development
General and administrative
Years Ended December 31,
2022
2021
$
$
7,973 $
11,224
19,197 $
9,101
7,413
16,514
Determining the appropriate fair value model to measure the fair value of the stock option grants on the date of grant and the related assumptions requires
judgment. The fair value of each stock option grant is estimated using a Black-Scholes option-pricing model on the date of grant as follows:
Estimated dividend yield
Weighted-average expected stock price volatility
Weighted-average risk-free interest rate
Expected term of options (in years)
Weighted-average fair value per option
Years Ended December 31,
2022
2021
0.00 %
79.66 %
2.57 %
6.07
1.86 $
0.00 %
73.02 %
1.07 %
6.25
6.91
$
The expected volatility rates are estimated based on the actual volatility of a peer group comprising the Company and other comparable public companies
over the expected term. The expected term represents the average time that stock options are expected to be outstanding. The Company does not have
sufficient history of exercising stock options to estimate the expected term of employee stock options and thus utilizes a weighted value considering actual
history and estimated expected term based on the midpoint of final vest date and expiration date. The risk-free rate is based on the United States Treasury
yield curve at the time of grant for the expected term of the option.
The following table summarizes activity in the Company’s stock option plans for the years ended December 31, 2021 and December 31, 2022 :
Balance as of December 31, 2020
Granted
Exercised
Forfeited/canceled
Balance as of December 31, 2021
Granted
Exercised
Forfeited/canceled
Balance as of December 31, 2022
Outstanding
Option
Shares
Weighted-
Average
Exercise Price
10,544,270
2,831,025
(1,997,700 )
(1,457,281 )
9,920,314
6,713,764
(335,439 )
(2,575,787 )
13,722,852
7.88
10.62
3.40
9.84
9.28
2.69
1.17
8.66
6.37
The intrinsic value of stock options exercised was $0.7 million and $15.5 million during the years ended December 31, 2022 and December 31, 2021,
respectively.
During the year ended December 31, 2022, the Company granted 3,327,107 RSUs with a grant date fair value of $8.7 million. The fair value of the RSUs
will be recognized as expense over the requisite vesting period.
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The following table summarizes the Company’s RSU activity for the years ended December 31, 2021 and December 31, 2022:
RSU Awards
Weighted-Average Grant Date Fair
Value
Unvested RSUs as of December 31, 2020
Granted
Forfeited
Vested
Unvested RSUs as of December 31, 2021
Granted
Forfeited
Vested
Unvested RSUs As of December 31, 2022
—
849,780
(76,277 )
—
773,503
3,327,107
(193,003 )
(288,323 )
3,619,284
—
11.30
11.34
—
11.29
2.62
7.14
11.21
3.55
There was approximately $31.5 million of total unrecognized compensation cost related to unvested stock options and RSUs as of December 31, 2022,
which is expected to be recognized over a weighted-average period of 2.4 years.
The following table summarizes certain information about stock options granted under the stock option plans which are vested or expected to vest as of
December 31, 2022 and December 31, 2021.
Years Ended December 31,
2022
2022
2021
2021
Expected to be exercisable
Currently exercisable
Expected to be exercisable
Currently exercisable
Number of Options
13,722,852
5,289,519
9,920,314
4,840,006
Weighted-
Average
Remaining
Contractual
Life (in years)
Weighted-
Average
Exercise
Price
7.77 $
5.84 $
7.47 $
6.09 $
6.37
9.19
9.28
8.83
The following table summarizes certain information about stock options outstanding under the stock option plans for the years ended December 31, 2022
and December 31, 2021, respectively:
Exercise price
Number of Options Outstanding
Weighted- Average
Remaining Life
Number of Options Exercisable
Year Ended December 31, 2022
$0.02 - $1.55
$1.68 - $3.34
$4.08 - $4.56
$5.67 - $9.69
$10.17 - $16.00
$0.02 - $1.20
$5.67-$6.31
$6.45 - $9.79
$10.17-$12.52
$12.60-$16.00
2,027,527
2,441,283
2,219,603
3,529,976
3,504,463
13,722,852
7.82
9.35
9.07
6.98
6.61
616,558
5,842
1,424
2,095,318
2,570,377
5,289,519
Exercise price
Number of Options Outstanding
Weighted- Average
Remaining Life
Number of Options Exercisable
Year Ended December 31, 2021
878,460
1,330,901
3,025,794
2,828,331
1,856,828
9,920,314
4.28
8.18
8.56
7.36
6.88
878,460
477,574
1,010,298
1,237,568
1,236,106
4,840,006
NOTE 9: RETIREMENT PLAN
In January 2011, the Company established a defined contribution 401(k) retirement savings plan (the “Retirement Plan”) to all full-time employees.
Employee contributions to the Retirement Plan can be 100% of annual compensation up to the prescribed annual maximum under the Internal Revenue
Code. Administrative fees of less than $0.1 million were paid by the Company for the years ended December 31, 2022 and December 31, 2021.
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The Retirement Plan includes a safe-harbor matching employer contribution equal to 100% of participants’ deferral contributions up to 4%. The Company
made contributions of $0.9 million and $1.0 million to the Retirement Plan during the years ended December 31, 2022 and December 31, 2021,
respectively. Retirement plan contributions made by the Company are recorded to research and development expense and general and administrative
expense as incurred and are included in the consolidated statement of operations.
NOTE 10: COLLABORATION AND LICENSE AGREEMENTS
Collaboration and License Agreement with Novartis
On June 14, 2022, the Company entered into a collaboration and license agreement (the “Novartis Agreement”) with Novartis Pharma AG (“Novartis”),
which became effective on June 15, 2022 (the “Novartis Effective Date”), to collaborate to discover and develop in vivo gene editing products incorporating
our custom ARCUS nucleases for the purpose of seeking to research and develop potential treatments for certain diseases (as defined in the Novartis
Agreement, the “Licensed Products”). Any initial Licensed Products will be developed for the potential treatment of certain hemoglobinopathies, including
sickle cell disease and beta thalassemia.
Pursuant to the terms of the Novartis Agreement, the Company will develop an ARCUS nuclease and conduct in vitro characterization for the Licensed
Products, with Novartis then assuming responsibility for all subsequent development, manufacturing and commercialization activities. Novartis will receive
an exclusive license for, and be required to use commercially reasonable efforts to conduct all subsequent research, development, manufacture and
commercialization activities with respect to the Licensed Products. The Company will initially develop a single, custom ARCUS nuclease for a defined
“safe harbor” target site for insertion of specified therapeutic payloads in the patient’s genome (the “Initial Nuclease”) for Novartis to further develop as a
potential in vivo treatment option for certain hemoglobinopathies, including sickle cell disease and beta thalassemia. Pursuant to the terms of the Novartis
Agreement, Novartis may elect, subject to payment of a fee to the Company, to replace Licensed Products based on the Initial Nuclease with Licensed
Products based on a second custom ARCUS nuclease the Company designs for gene editing of a specified human gene target associated with
hemoglobinopathies (the “Replacement Nuclease”). Additionally, Novartis has the option, upon payment of a fee to the Company for each exercise of the
option, to include Licensed Products utilizing the Initial Nuclease for insertion of up to three additional specified therapeutic payloads at the “safe harbor”
target site, each intended to treat a particular genetic disease. The exercise period for such option ends on the earlier of (a) the fourth anniversary of the
Novartis Effective Date and (b) the replacement of the Initial Nuclease with the Replacement Nuclease as described above.
In July 2022, the Company received a $50.0 million upfront cash payment under the Novartis Agreement. Additionally, on the Novartis Effective Date,
Novartis made an equity investment in the Company’s common stock pursuant to a stock purchase agreement (the “Novartis Stock Purchase Agreement”)
pursuant to which, on the Novartis Effective Date, the Company issued and sold to Novartis 12,407,440 shares of the Company’s common stock (the
“Novartis Shares”) in a private placement transaction for an aggregate purchase price of $25.0 million, or approximately $2.01 per share. The price per
share of the Company’s common stock under the Novartis Stock Purchase Agreement represented a 20% premium over the volume-weighted-average-price
of the Company’s common stock over the 10 trading days preceding the execution date of the Novartis Stock Purchase Agreement. Management concluded
that the Novartis Stock Purchase Agreement was to be combined with the Novartis Agreement for accounting purposes. Of the total $75.0 million upfront
compensation, the Company applied equity accounting guidance to measure the $11.6 million recorded in equity upon the issuance of the shares, and $63.4
million was identified as transaction price allocated to the revenue arrangement.
Pursuant to the Novartis Stock Purchase Agreement, subject to certain exceptions, Novartis may not sell the Novartis Shares without the Company’s
approval for a period of two years following the Novartis Effective Date. In addition, for a period of two years following the Novartis Effective Date,
Novartis and its affiliates may not (a) effect or otherwise participate in, directly or indirectly, any acquisition of any of our securities or material assets, any
tender offer or exchange offer, merger or other business combination or change of control involving the Company, any recapitalization, restructuring,
liquidation, dissolution or other extraordinary transaction with respect to the Company, or any solicitation of proxies or consents to vote any of the
Company’s securities or (b) act with any other person, or publicly disclose any intention, to do any of the foregoing. The Novartis Stock Purchase
Agreement also contains customary representations, warranties, and covenants of both parties.
On the Novartis Effective Date, the Company and Novartis also entered into a registration rights agreement (the “Registration Rights Agreement”) pursuant
to which the Company has agreed, within the time periods specified in the Registration Rights Agreement, to register the resale of the Novartis Shares on a
registration statement to be filed with the SEC. The Registration Rights Agreement contains customary indemnification provisions, and all registration
rights terminate in their entirety effective on the first date on which there cease to be any Registrable Securities (as defined in the Registration Rights
Agreement) outstanding.
The Company will also be eligible to receive milestone payments of up to an aggregate of approximately $1.4 billion as well as certain research funding. If
Licensed Products resulting from the collaboration are approved and sold, the Company will also be entitled to
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receive tiered royalties ranging from the mid-single digit to low-double digit percentages on net sales of Licensed Products, subject to customary potential
reductions. Novartis’s obligation to pay royalties to us expires on a country-by-country and Licensed Product-by-Licensed Product basis, upon the latest to
occur of certain events related to expiration of patents, regulatory exclusivity or a period of ten years following the first commercial sale of the Licensed
Product.
Unless earlier terminated, the Novartis Agreement will remain in effect on a Licensed Product-by-Licensed Product and country-by-country basis until the
expiration of a defined royalty term for each Licensed Product and country. Novartis has the right to terminate the Novartis Agreement without cause by
providing advance notice to the Company. Either party may terminate the Novartis Agreement for material breach by the other party and a failure to cure
such breach within the time period specified in the Novartis Agreement. The Company may also terminate the Novartis Agreement in the event that
Novartis brings a challenge to our patents.
The Company assessed the Novartis Agreement in accordance with ASC 606 and concluded that the promises in the agreement represent transactions with
a customer. The Company has determined that the promises associated with the research and development activities for each of the targets are not distinct
because they are all based on the ARCUS proprietary genome editing platform. The Company has concluded that the agreement with Novartis contains the
following promises: (i) license of intellectual property; (ii) performance of research and development (“R&D”) services, and (iii) Joint Steering Committee
(“JSC”) participation. The Company determined that the license of intellectual property and R&D services were not distinct from each other, as the license
and R&D services are highly interdependent upon one another. The JSC participation was determined to be an immaterial promise as the time commitment
and related cost associated with performance of JSC participation is expected to be inconsequential to the total consideration in the contract. As such, the
Company determined that these promises should be combined into a single performance obligation.
The Company recognizes revenue from the $50.0 million upfront cash payment, $13.4 million allocated to the transaction price from the Novartis Stock
Purchase Agreement, and variable consideration on an input method in the form of research effort relative to expected research effort at the completion of
the performance obligation, which is based on the actual hours of research work performed relative to expected hours of research work to be incurred in the
future to satisfy the performance obligation. Management will evaluate and adjust the total expected research effort for the performance obligation on a
quarterly basis based upon actual research hours incurred to date relative to research hour forecasts. The transfer of control occurs over this time period and,
in management’s judgment, is the best measure of progress towards satisfying the performance obligation.
During the year ended December 31, 2022, the Company recognized revenue under the Novartis Agreement of $9.5 million. Deferred revenue related to the
Novartis Agreement amounted to $54.2 million as of December 31, 2022, of which $27.9 million, was included in current liabilities within the consolidated
balance sheets.
Development and License Agreement with Eli Lilly
On November 19, 2020, the Company entered into a development and license agreement, subsequently amended by the First Amendment to the
Development and License Agreement dated August 9, 2021 (as amended, the “Lilly Agreement”) with Eli Lilly and Company (“Lilly”) to collaborate to
discover and develop in vivo gene editing products incorporating the Company’s ARCUS nucleases to utilize ARCUS for the research and development of
potential in vivo therapies for genetic disorders. Lilly has initially nominated Duchenne muscular dystrophy, a liver-directed target and a central nervous
system directed target. Under the terms of the Development and License Agreement, Lilly has the right to nominate up to three additional gene targets for
genetic disorders over the initial nomination period of four years. Lilly may extend the nomination period for an additional two years from the date on
which such initial Nomination Period ends, upon Lilly’s election and payment of an extension fee. Additionally, under the terms of the Lilly Agreement,
Lilly has the option to replace up to two gene targets upon Lilly’s election and payment of a replacement target fee. Under the terms of the Lilly Agreement,
Lilly received an exclusive license to research, develop, manufacture and commercialize the resulting licensed products to diagnose, prevent and treat any
and all diseases by in vivo gene editing directed against the applicable gene target. The Lilly Agreement provides that the Company will be responsible for
conducting certain pre-clinical research and investigational new drug application (“IND”) enabling activities with respect to the gene targets nominated by
Lilly to be subject to the collaboration, including manufacture of initial clinical trial material for the first licensed product. Lilly will be responsible for, and
must use commercially reasonable efforts with respect to, conducting clinical development and commercialization activities for licensed products resulting
from the collaboration, and may engage the Company for additional clinical and/or initial commercial manufacture of licensed products.
In connection with the closing of the Lilly Agreement on January 6, 2021, the Company received an upfront cash payment of $100.0 million. The Company
will also be eligible to receive milestone payments of up to an aggregate of $420.0 million per licensed product as well as nomination fees for additional
targets and certain research funding. If licensed products resulting from the collaboration are approved and sold, the Company will also be entitled to
receive tiered royalties ranging from the mid-single digit percentages to the low-teens percentages on world-wide net sales of the licensed products, subject
to customary potential reductions. Lilly’s obligation to
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pay royalties to the Company expires on a country-by-country and licensed product-by-licensed product basis, upon the latest to occur of certain events
related to expiration of patents, regulatory exclusivity or a period of ten years following first commercial sale of the licensed product. Simultaneously with
the entry into the Lilly Agreement, the Company and Lilly entered into a Share Purchase Agreement (the “Lilly Share Purchase Agreement”), pursuant to
which Lilly purchased 3,762,190 shares of the Company’s common stock for a purchase price of $35.0 million. Management concluded that the Lilly Share
Purchase Agreement was to be combined with the Lilly Agreement for accounting purposes. Of the total $135.0 million upfront compensation, the
Company applied equity accounting guidance to measure the $27.7 million recorded in equity upon the issuance of the shares, and $107.3 million was
identified as the transaction price allocated to the revenue arrangement.
The Company assessed this arrangement in accordance with ASC 606 and concluded that the promises in the agreement represent transactions with a
customer. The Company has determined that the promises associated with the research and development activities for each of the targets are not distinct
because they are all based on the ARCUS proprietary genome editing platform. The Company has concluded that the agreement with Lilly contains the
following promises: (i) license of intellectual property; (ii) performance of R&D services, (iii) the manufacture of pre-clinical supply, (iv) JSC
Participation, and (v) regulatory responsibilities. The Company determined that the license of intellectual property, R&D services, manufacture of pre-
clinical development material, and regulatory responsibilities were not distinct from each other, as the license, R&D services, pre-clinical supply, and
regulatory responsibilities are highly interdependent upon one another. The JSC participation was determined to be an immaterial promise as the time
commitment and related cost associated with performance of JSC participation is expected to be inconsequential to the total consideration in the contract.
As such, the Company determined that these promises should be combined into a single performance obligation.
The Company recognizes revenue from the $100.0 million upfront cash payment, $7.3 million allocated to the transaction price from the Lilly Share
Purchase Agreement, and variable consideration on an input method in the form of research effort relative to expected research effort at the completion of
the performance obligation, which is based on the actual time of R&D activities performed relative to expected time to be incurred in the future to satisfy
the performance obligation. Management evaluates and adjusts the total expected research effort for the performance obligation on a quarterly basis based
upon actual research progress to date relative to research progress forecasts. The transfer of control occurs over this time period and, in management’s
judgment, is the best measure of progress towards satisfying the performance obligation.
During the years ended December 31, 2022 and 2021, the Company recognized revenue under the Lilly Agreement of $15.6 million and $21.0 million,
respectively. Deferred revenue related to the Lilly Agreement amounted to $74.8 million and $88.3 million as of December 31, 2022 and December 31,
2021, respectively, of which $18.3 million and $21.2 million, respectively, was included in current liabilities within the consolidated balance sheets.
Development and License Agreement with iECURE
In August 2021, the Company entered into a development and license agreement with iECURE (the “iECURE Development and License Agreement”)
under which iECURE was to advance the Company’s PBGENE-PCSK9 candidate through the Phase 1 clinical trial in order to gain access to Precision’s
PCSK9-directed ARCUS nuclease to develop four other pre-specified gene editing therapies for rare genetic diseases (the “iECURE Agreement”). In
conjunction with the iECURE Agreement, the Company also granted iECURE a license to use its PCSK9-directed ARCUS nuclease to insert genes into the
PCSK9 locus to develop treatments for four other pre-specified rare genetic diseases, including ornithine transcarbamylase (“OTC”) deficiency,
Citrullinemia Type 1 (“CTLN1”), Phenylketonuria (“PKU”), and another program focused on liver disease. Simultaneously with the entry into the iECURE
Agreement, the Company and iECURE entered into an Equity Issuance Agreement (the “iECURE Equity Issuance Agreement”), pursuant to which
iECURE issued the Company common stock in iECURE as additional consideration for the PCSK9 license. Management concluded that the iECURE
Equity Issuance Agreement was to be combined with the iECURE Development and License Agreement (together, the “iECURE Agreements”) for
accounting purposes. Additionally, the Company is eligible to receive milestone and mid-single digit to low double digit royalty payments on sales of
iECURE products developed with ARCUS.
The fair value of the iECURE equity at inception of the iECURE agreements was assessed to be $0.5 million and was initially recorded to the investment in
equity securities line item of the consolidated balance sheets. As further discussed in Note 4, Fair Value Measurements, on issuance, Management elected
to account for the iECURE equity at fair value under ASC 825. Accordingly, the Company adjusts the carrying value of the iECURE equity to fair value
each reporting period with any changes in fair value recorded to other income (expense). During the year ended December 31, 2022, the Company recorded
a $0.5 million decrease in the carrying value of its iECURE equity to adjust to fair value as a result of dilution from iECURE's Series A-1 equity raise in
such period. The fair value of the costs to be incurred by iECURE to progress the Company’s PBGENE-PCSK9 candidate through the Phase 1 clinical trial
(the “PCSK9 Prepaid”) was assessed to be $17.4 million and was recorded to the prepaid expenses and other assets line items of the consolidated balance
sheets. The PCSK9 Prepaid was amortized to research and development expense on a pro-rata basis as iECURE incurred costs to progress the PBGENE-
PCSK9 candidate through the Phase 1 clinical trial.
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As further discussed in Note 11, Impairment Charges, the remaining unamortized PCSK9 Prepaid was fully impaired during the year ended December 31,
2022 as the Company made the decision to cease pursuit of PBGENE-PCSK9 for FH with iECURE as its partner. Accordingly, there was no PCSK9
Prepaid balance as of December 31, 2022. As of December 31, 2021, the remaining balance of the PCSK9 Prepaid was $13.0 million, which was included
in the prepaid expenses and other assets line items of the consolidated balance sheets in the amounts of $10.4 million and $2.6 million, respectively.
During the year ended December 31, 2022, the Company recognized no revenue under the iECURE agreements. During the year ended December 31,
2021, the Company recognized $17.9 million of revenue under the iECURE agreements. During the years ended December 31, 2022 and 2021, the
Company recognized $2.1 million and $4.4 million of research and development expense related to amortization of the PCSK9 Prepaid.
Development and Commercial License Agreement with Servier
The Company has developed certain allogeneic CAR T candidates, including PBCAR0191 and the stealth cell PBCAR19B, each targeting CD19, as well as
four additional product targets under the Servier Agreement. Pursuant to the terms of the Program Purchase Agreement, the Company regained full global
rights to research, develop, manufacture and commercialize products resulting from such programs, with sole control over all activities. Additionally, per
the terms of the Program Purchase Agreement the Company does not have an obligation to continue development of the four additional product targets
under the Servier Agreement. With respect to products directed to CD19, Servier has certain rights of negotiation, which may be exercised during a
specified time period if the Company elects to initiate a process or entertain third party offers for partnering such products.
Pursuant to the terms of the Program Purchase Agreement, the Company made a payment of $1.25 million in cash to Servier and agreed to waive earned
milestones totaling $18.75 million that would have been otherwise payable to the Company. The Program Purchase Agreement also requires the Company
to make certain payments to Servier based on the achievement of regulatory and commercial milestones for each product, and a low- to mid-single-digit
percentage royalty (subject to certain reductions) based on net sales of approved products, if any, resulting from any continued development and
commercialization of the programs by the Company, for a period not to exceed ten years after first commercial sale of the applicable product in the United
States or certain countries in Europe. If the Company enters into specified product partnering transactions, the Program Purchase Agreement requires the
Company to pay to Servier a portion of certain consideration received pursuant to such product partnering transactions in lieu of the foregoing milestones
(with the exception of a one-time clinical phase development milestone) and royalties. For additional discussion of accounting for payment obligations
arising from the Program Purchase Agreement, refer to Note 6, Commitments and Contingencies.
The Company did not recognize any revenue under the Servier Agreement during the year ended December 31, 2022. During the year ended December 31,
2021, the Company recognized revenue under the Servier Agreement of approximately $72.9 million. The Company did not have deferred revenue related
to the Servier Agreement as of December 31, 2022 or December 31, 2021.
NOTE 11:
IMPAIRMENT CHARGES
During the twelve months ended December 31, 2022, the Company recorded impairment charges of $10.8 million related to the PCSK9 Prepaid as the
Company made the decision to cease pursuit of PBGENE-PCSK9 for FH with iECURE as its partner. The impairment charge represents the remaining
unamortized balance of the PCSK9 Prepaid.
During the twelve months ended December 31, 2022, the Company recorded intangible asset impairment charges of $0.6 million related to licensed
technology rights that are no longer in use. As these licensed technology rights are no longer in use by the Company, the impairment charge represents the
remaining unamortized balance of the intangibles.
NOTE 12: ELO TRANSACTION
In December 2021, the Company and its then wholly owned subsidiary, Elo Life Systems, Inc., entered into an agreement with a syndicate of investors,
pursuant to which the Company contributed substantially all of the assets of Elo Life Systems, Inc. to a newly formed entity (the “Elo Transaction”). In
connection with the Elo Transaction, the Company granted the newly formed entity ("New Elo") an exclusive license to certain of the Company’s
intellectual property for use in non-medical applications with respect to plants, farm animals and certain other organisms. In addition, all of the Company’s
employees in its former food segment, including its management, became employees of New Elo.
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Investment in New Elo
As partial consideration for the assets contributed and license granted by the Company to New Elo, the Company received Common Stock in New Elo.
Upon the closing of the Elo Transaction, the Company owned approximately 55% of New Elo's voting shares. It was determined that the noncontrolling
shareholders of New Elo have substantive rights to participate in the financial and operating decisions of New Elo. As such, it was determined that the
Company does not possess control over New Elo or have significant decision-making authority. Accordingly, New Elo was not consolidated in the
Company’s financial statements. However, it was determined that the Company possesses the ability to exercise significant influence over the operating and
financial policies of New Elo. As such, the Company accounts for its investment in New Elo under the equity method.
In the year ended December 31, 2022, New Elo issued additional shares to a syndicate of investors (the "New Elo Issuance") that diluted the Company's
ownership to 37% of New Elo's voting shares. Prior to the New Elo Issuance, the Company's Investment in New Elo had no carrying value as the
cumulative proportionate share of New Elo's net loss exceeded the initial carrying value of the Investment in New Elo. Accordingly, the Company recorded
a gain of $4.7 million in the year ended December 31, 2022 as a result of the increase in the Company's proportionate share of New Elo's net assets.
The Company’s proportionate share of New Elo’s net loss for the year ended December 31, 2022 was $6.3 million. The Company’s proportionate share of
New Elo’s net income for the year ended December 31, 2021 was $0.2 million.
The following represents a reconciliation of the Company's Investment in New Elo for the year ended December 31, 2022:
(in thousands)
Balance as of December 31, 2021
Gain from New Elo Issuance
Proportionate share of New Elo losses
Balance as of December 31, 2022
Note Receivable
Investment in New Elo
3,751
4,743
(6,322 )
2,172
$
$
As partial consideration for the assets contributed and license granted by the Company to New Elo, the Company received a $10.0 million promissory note
payable from New Elo (the “Note Receivable”). The Note Receivable matures on the earlier of (i) December 1, 2028 or (ii) a Deemed Liquidation Event
(as defined in the New Elo’s Amended and Restated Certificate of Incorporation). The Note accrues interest at 2.00% per annum and is payable annually in
December.
As of December 31, 2022, the carrying value of the Note Receivable was $7.2 million. The $2.8 million discount on the Note Receivable will be amortized
to interest income over the life of the Note.
Gain on Deconsolidation of Subsidiary
The $6.0 million gain on deconsolidation of subsidiary recorded in the year ended December 31, 2021 was determined based on the difference between the
$4.4 million book value of the net assets that the Company contributed to New Elo and the $10.4 million combined fair value of the Note and the
Company’s ownership in New Elo as of December 17, 2021.
F-24
NOTE 13:
INCOME TAXES
The Company recorded no federal or state income tax expense and due to the operating losses incurred for the years ended December 31, 2022 and
December 31, 2021.
Significant components of the Company’s deferred tax assets and deferred tax liabilities are as follows (in thousands):
Noncurrent deferred tax assets:
Net operating loss carryforwards
Contribution carryforwards
Lease liability
Deferred revenue
Capitalized R&D costs
Other assets
Tax credits
Less: valuation allowance
Total deferred tax assets, noncurrent
Noncurrent deferred tax liability:
Investments and other
Right of use asset
Total deferred tax liabilities, noncurrent
Net deferred tax assets
Years Ended December 31,
2022
2021
$
36,457 $
48
1,120
30,022
15,893
14,279
24,721
(121,372 )
1,168
476
692
1,168
$
— $
41,162
48
1,526
20,294
—
11,647
20,942
(94,071 )
1,548
587
961
1,548
—
As of December 31, 2022 and December 31, 2021, the Company has provided a valuation allowance for the full amount of the net deferred tax assets as the
realization of the net deferred tax assets is not determined to be more likely than not. The net increase in the valuation allowance for the year ended
December 31, 2022 of $27.3 million is comprised of an increase in the valuation allowance recorded against the deferred tax assets, primarily related to tax
credits and net operating loss ("NOL") carryforwards for the year.
The reasons for the difference between actual income tax benefit for the years ended December 31, 2022 and December 31, 2021 and the amount computed
by applying the statutory federal income tax rate to losses before income tax benefit are as follows (in thousands):
Income tax expense at statutory rate
State income taxes, net of federal tax benefit
Non-deductible expenses
Stock compensation - nondeductible
Stock compensation - forfeitures
R&D and orphan drug credits
Other
Change in state tax rate
Change in valuation allowance
Income tax (benefit) expense
Year Ended December 31, 2022
Year Ended December 31, 2021
Amount
% of Pre-Tax
Loss
Amount
% of Pre-Tax
Loss
$
$
(23,444 )
(250 )
33
599
2,233
(3,790 )
314
(3,004 )
27,309
—
21.0 % $
0.2 %
0.0 %
(0.5 %)
(2.0 %)
3.4 %
(0.3 %)
2.7 %
(24.5 %)
0.0 % $
(6,677 )
(634 )
121
(2,094 )
—
(5,239 )
567
(843 )
14,799
—
21.8 %
2.1 %
(0.4 %)
6.8 %
0.0 %
17.1 %
(1.9 %)
2.8 %
(48.3 %)
0.0 %
As of December 31, 2022, the Company had federal and state NOL carryforwards of approximately $159.5 million and $119.1 million respectively. As of
December 31, 2021, the Company had federal, state, and foreign NOL carryforwards of approximately $181.0 million, $122.2 million, and $0.4 million,
respectively. The tax benefit recognized in 2022 related to NOL carryforwards was approximately $4.4 million.
The federal NOL carryforward million carries forward indefinitely. The state NOL carryforwards begin to expire in 2027. As of December 31, 2022, the
Company had federal and state R&D tax credits of $13.2 million and an amount less than $0.1 million, which begin to expire in 2027 and 2030,
respectively. As of December 31, 2021, the Company had federal and state tax R&D credits of $11.4 million and an amount less than $0.1 million. As of
December 31, 2022 and December 31, 2021, the Company had federal
F-25
Orphan Drug credits of $11.6 million and $9.5 million, respectively, which begin to expire in 2038. As of December 31, 2022 and December 31, 2021, the
Company had federal contribution carryforwards of $0.2 million which began to expire in 2022.
The Company’s ability to utilize its NOL and R&D credit carryforwards may be substantially limited due to ownership changes that may have occurred or
that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the Code), as well as similar state provisions.
These ownership changes may limit the amount of NOL and R&D credit carryforwards that can be utilized annually to offset future taxable income and tax,
respectively. In general, an “ownership change,” as defined by Section 382 of the Code, results from a transaction or series of transactions over a three-year
period resulting in an ownership change of more than 50 percent of the outstanding stock of a company by certain stockholders or public groups. The
Company has not completed a study to assess whether one or more ownership changes have occurred since the Company became a loss corporation under
the definition of Section 382. If the Company has experienced an ownership change, utilization of the NOL or R&D credit carryforwards would be subject
to an annual limitation, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable
long-term, tax-exempt rate, and then could be subject to additional adjustments, as required. Any such limitation may result in the expiration of a portion of
the NOL or R&D credit carryforwards before utilization. Until a study is completed and any limitation known, no amounts are being considered as an
uncertain tax position or disclosed as an unrecognized tax benefit. Any carryforwards that expire prior to utilization as a result of such limitations will be
removed from deferred tax assets with a corresponding reduction of the valuation allowance. Due to the existence of the valuation allowance, it is not
expected that any possible limitation will have an impact on the results of operations of the Company.
The Company reflects in the accompanying consolidated financial statements the benefit of positions taken in a previously filed tax return or expected to be
taken in a future tax return only if it is considered ‘more-likely-than-not’ that the position taken will be sustained by the appropriate taxing authority. As of
December 31, 2022 and December 31, 2021, the Company had no unrecognized income tax benefits. The Company’s policy for recording interest and
penalties relating to uncertain income tax positions is to record them as a component of income tax expense in the accompanying consolidated statements
of operations. As of December 31, 2022 and December 31, 2021, the Company had no such accruals.
In November 2021, North Carolina enacted the 2021 Appropriations Act, which included a gradual corporate income tax rate decrease from the current
2.5% to 0% by 2030. Due to the uncertainty of projecting income through 2030, the Company calculated, before consideration of the valuation allowance,
its North Carolina net operating losses using the current 2.5% rate which is in effect through 2024. The Company will continue to monitor its future North
Carolina taxable income and its ability to utilize its deferred tax asset for its net operating loss carryover. If the Company does not become profitable in
North Carolina prior to 2025, or it becomes more certain that the Company will not be able to utilize its North Carolina net operating losses before the tax
rate drops to 0%, the Company will then remeasure its deferred tax asset at that time.
The TCJA of 2017 subjects a U.S. shareholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The FASB
Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either
recognized deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in
the year the tax is incurred as a period expense only. The Company has elected to account for GILTI in the year the tax is incurred. The Company does not
have a GILTI inclusion in years ends December 31, 2021 or December 31, 2021 and therefore, no GILTI tax has been recorded for the years then ended.
NOTE 14: NET LOSS PER SHARE
The Company’s potential dilutive securities have been excluded from the computation of diluted net loss per share as the effect of inclusion would be to
reduce the net loss per share. Therefore, the weighted-average number of shares of common stock outstanding used to calculate both basic and diluted net
loss per share attributable to common stockholders is the same.
Net loss (in thousands)
Weighted average shares outstanding - basic and diluted
Net loss per share - basic and diluted
Years Ended December 31,
2022
2021
$
(111,637 ) $
87,898,498
(1.27 )
(30,602 )
58,688,102
(0.52 )
The following weighted-average common stock equivalents were excluded from the calculation of diluted loss per share because their inclusion would have
been anti-dilutive:
F-26
Unvested Restricted Stock Units
Stock Options
Unsettled ESPP Contributions
Total common stock equivalents excluded from diluted net loss per share
NOTE 15:
SEGMENT REPORTING
Years Ended December 31,
2022
2021
2,199,013
2,376,666
61,337
4,637,016
430,026
4,626,930
12,550
5,069,506
The Company has determined that the Chief Executive Officer (“CEO”) is the Company’s chief operating decision maker (“CODM”) as the CEO makes
decisions as it relates to allocation of resources and key market strategies. The CODM reviews financial information presented on a consolidated basis.
Additionally, resource allocation and key market strategy decisions are made by the CODM based on consolidated results. As such, it was concluded that
the Company operates as one segment.
F-27
Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if
publicly disclosed.
Exhibit 10.1
PRECISION BIOSCIENCES, INC.
ELO LIFE SYSTEMS, INC.
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT (the “Agreement”) is entered into as of May 15, 2019, by and between PACIFIC
WESTERN BANK, a California state chartered bank (“Bank”) and PRECISION BIOSCIENCES, INC., a Delaware corporation
(“Parent”), and ELO LIFE SYSTEMS, INC., a Delaware corporation (“ELO” and together with Parent, individually and
collectively, jointly and severally, “Borrower”).
Borrower wishes to obtain credit from time to time from Bank, and Bank desires to extend credit to Borrower. This Agreement
sets forth the terms on which Bank will advance credit to Borrower, and Borrower will repay the amounts owing to Bank.
RECITALS
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
AGREEMENT
A. Any term used in the Code and not defined herein shall have the meaning given to the term in the Code.
1.1 Definitions. As used in this Agreement, all capitalized terms shall have the definitions set forth on Exhibit
1.2 Accounting Terms . Any accounting term not specifically defined on Exhibit A shall be construed in
accordance with GAAP and all calculations shall be made in accordance with GAAP (except for non-compliance with FAS 123R
in monthly reporting). The term “financial statements” shall include the accompanying notes and schedules.
2. LOAN AND TERMS OF PAYMENT.
2.1 Credit Extensions.
(a) Promise to Pay . Borrower promises to pay to Bank, in lawful money of the United States of
America, the aggregate unpaid principal amount of all Credit Extensions made by Bank to Borrower, together with interest on the
unpaid principal amount of such Credit Extensions at rates in accordance with the terms hereof.
(b) Advances Under Revolving Line.
(i) Amount. Subject to and upon the terms and conditions of this Agreement, Borrower may
request Advances in an aggregate outstanding principal amount not to exceed the Revolving Line. Amounts borrowed pursuant to
this Section 2.1(b) may be repaid and reborrowed at any time prior to the Revolving Maturity Date, at which time all Advances
under this Section 2.1(b) shall be immediately due and payable. Borrower may prepay any Advances without penalty or premium
at any time.
(ii) Form of Request. Whenever Borrower desires an Advance, Borrower will notify Bank
(which notice shall be irrevocable) by facsimile transmission or email no later than 3:30 p.m. Eastern time (2:30 p.m. Eastern
time for wire transfers), on the Business
1.
Day that the Advance is to be made. Each such notification shall be given by a Loan Advance/Paydown Request Form in
substantially the form of Exhibit C. Bank is authorized to make Advances under this Agreement, based upon instructions
received from an Authorized Officer, or without instructions if in Bank’s discretion such Advances are necessary to meet
Obligations which have become due and remain unpaid. Bank shall be entitled to rely on any notice given by a person whom
Bank reasonably believes to be an Authorized Officer, and Borrower shall indemnify and hold Bank harmless for any damages,
loss, costs and expenses suffered by Bank as a result of such reliance. Bank will credit the amount of Advances made under this
Section 2.1(b) to Borrower’s deposit account.
(c) Usage of Credit Card Services Under the Credit Card Line.
(i) Usage Period. Subject to and upon the terms and conditions of this Agreement, at any
time from the Closing Date through the Credit Card Maturity Date, Borrower may use the Credit Card Services (as defined
below) in amounts and upon terms as provided in Section 2.1(c)(ii) below.
(ii) Credit Card Services. Subject to and upon the terms and conditions of this Agreement,
Borrower may request corporate credit cards and standard and e-commerce merchant account services from Bank (collectively,
the “Credit Card Services”). The aggregate limit of the corporate credit cards and merchant credit card processing reserves shall
not exceed the Credit Card Line. The terms and conditions (including repayment and fees) of such Credit Card Services shall be
subject to the terms and conditions of Bank’s standard forms of application and agreement for the Credit Card Services, which
Borrower hereby agrees to execute.
(iii) Collateralization of Obligations Extending Beyond Maturity . If Borrower has not
cash secured its obligations with respect to any Credit Card Services by the Credit Card Maturity Date, then, effective as of such
date, the balance in any deposit accounts held by Bank and the certificates of deposit or time deposit accounts issued by Bank in
Borrower’s name (and any interest paid thereon or proceeds thereof, including any amounts payable upon the maturity or
liquidation of such certificates or accounts), shall automatically secure such obligations to the extent of the then continuing or
outstanding Credit Card Services. Borrower authorizes Bank to hold such balances in pledge and to decline to honor any drafts
thereon or any requests by Borrower or any other Person to pay or otherwise transfer any part of such balances for so long as the
applicable Credit Card Services are outstanding or continue.
time, Borrower shall immediately pay to Bank, in cash, the amount of such excess.
2.2 Overadvances. If the aggregate amount of the outstanding Advances exceeds the Revolving Line at any
2.3 Interest Rates, Payments, and Calculations.
(a) Interest Rates.
(i) Advances. Except as set forth in Section 2.3(b), the Advances shall bear interest, on the
outstanding daily balance thereof, at a variable annual rate equal to (1) at all times when Borrower maintains a daily balance of
Cash in its demand deposit accounts at
2.
Bank of at least $25,000,000, the greater of (A) 1.25% below the Prime Rate then in effect, or (B) 4.25%; and (2) at all times
when Borrower does not maintain a daily balance of Cash in demand deposit accounts at Bank of at least $25,000,000, the greater
of: (A) 0.25% above the Prime Rate then in effect; or (B) 5.75%.
(b) Late Fee; Default Rate. If any payment is not made within 15 days after the date such payment
is due, Borrower shall pay Bank a late fee equal to the lesser of (i) 5% of the amount of such unpaid amount or (ii) the maximum
amount permitted to be charged under applicable law. All Obligations shall bear interest, from and after the occurrence and
during the continuance of an Event of Default, at a rate equal to 3 percentage points above the interest rate applicable
immediately prior to the occurrence of the Event of Default.
(c) Payments. Interest under the Revolving Line shall be due and payable on the first calendar day of
each month during the term hereof. Borrower authorizes Bank to, at its option, charge such interest, all Bank Expenses, all
Periodic Payments, and any other amounts due and owing in accordance with the terms of this Agreement against any of
Borrower’s deposit accounts or against the Revolving Line, in which case those amounts shall thereafter accrue interest at the rate
then applicable hereunder. Any interest not paid when due shall be compounded by becoming a part of the Obligations, and such
interest shall thereafter accrue interest at the rate then applicable hereunder.
(d) Computation. In the event the Prime Rate is changed from time to time hereafter, the applicable
rate of interest hereunder shall be increased or decreased, effective as of the day the Prime Rate is changed, by an amount equal to
such change in the Prime Rate. All interest chargeable under the Loan Documents shall be computed on the basis of a 360-day
year for the actual number of days elapsed.
2.4 Crediting Payments. Prior to the occurrence of an Event of Default, Bank shall credit a wire transfer of
funds, check or other item of payment to such deposit account or Obligation as Borrower specifies. After the occurrence and
during the continuance of an Event of Default, Bank shall have the right, in its sole discretion, to immediately apply any wire
transfer of funds, check, or other item of payment Bank may receive to conditionally reduce Obligations, but such applications of
funds shall not be considered a payment on account unless such payment is of immediately available federal funds or unless and
until such check or other item of payment is honored when presented for payment. Notwithstanding anything to the contrary
contained herein, any wire transfer or payment received by Bank after 5:30 p.m. Eastern time shall be deemed to have been
received by Bank as of the opening of business on the immediately following Business Day. Whenever any payment to Bank
under the Loan Documents would otherwise be due (except by reason of acceleration) on a date that is not a Business Day, such
payment shall instead be due on the next Business Day, and additional fees or interest, as the case may be, shall accrue and be
payable for the period of such extension.
2.5 Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. On or before the Closing Date, a fee equal to $25,000, which shall be nonrefundable;
3.
after the Closing Date, all Bank Expenses, as and when they become due.
(b) Bank Expenses. On the Closing Date, all Bank Expenses incurred through the Closing Date, and,
fee (the “Early Termination Fee”) in an amount equal to one percent (1.00%) of the Revolving Line.
(c) Early Termination Fee. If this Agreement is terminated prior to the Revolving Maturity Date, a
(d) Unused Fee. A fee, payable quarterly in arrears one Business Day after each quarter and on the
Revolving Maturity Date, in an amount equal to 0.50% per annum of the unused portion of the Revolving Line during such
quarter, measured daily and averaged over such quarter, as determined by Bank. Notwithstanding the foregoing, the unused fee
shall be waived for any quarter in which Borrower maintains a daily balance of Cash in its demand deposit accounts at Bank of at
least $25,000,000 at all times during such quarter.
2.6 Term . This Agreement shall become effective on the Closing Date and, subject to Section 12.7, shall
continue in full force and effect for so long as any Obligations remain outstanding or Bank has any obligation to make Credit
Extensions under this Agreement. Notwithstanding the foregoing, Bank shall have the right to terminate its obligation to make
Credit Extensions under this Agreement immediately and without notice upon the occurrence and during the continuance of an
Event of Default.
3. CONDITIONS OF LOANS.
3.1 Conditions Precedent to Closing. The agreement of Bank to enter into this Agreement on the Closing
Date is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, each of the
following items and completed each of the following requirements:
(a)
this Agreement;
(b) an officer’s certificate of Borrower with respect to incumbency and resolutions authorizing the
execution and delivery of this Agreement;
(c) a financing statement (Form UCC-1);
by the pledgor in blank;
(d) the certificates for the Shares, together with Assignments separate from Certificates, duly executed
from any of Borrower’s accounts with Bank;
(e) payment of the fees and Bank Expenses then due specified in Section 2.5, which may be debited
interests or Liens of record in the Collateral;
(f)
current SOS Reports indicating that except for Permitted Liens, there are no other security
(g) current financial statements, including audited statements for Borrower’s most recently ended
fiscal year, together with an unqualified opinion (or an opinion qualified only for going concern so long as Borrower’s investors
provide additional equity as needed), company
4.
prepared consolidated and consolidating balance sheets, income statements, and statements of cash flows for the most recently
ended month in accordance with Section 6.2, and such other updated financial information as Bank may reasonably request;
(h) a current Compliance Certificate in accordance with Section 6.2;
(i) evidence satisfactory to Bank that the insurance policies required by Section 6.5 hereof are in full
force and effect, together with appropriate evidence showing loss payable and additional insured clauses or endorsements in favor
of Bank,
(j) a Borrower Information Certificate for each Borrower;
(k) a Securities Account Control Agreement, duly executed by Bank, Borrower, and the applicable
custodian;
reasonably request.
(l) a legal opinion of Borrower’s counsel, together with the duly executed signature thereto; and
(m) such other documents or certificates, and completion of such other matters, as Bank may
3.2 Conditions Precedent to all Credit Extensions. The obligation of Bank to make each Credit Extension,
including the initial Credit Extension, is contingent upon Borrower’s compliance with Section 3.1 above, and is further subject to
the following conditions:
(a)
timely receipt by Bank of the Loan Advance/Paydown Request Form as provided in Section 2.1;
(b) Borrower shall be in compliance with Section 6.6 hereof;
(c)
in Bank’s good faith sole discretion, there has not been a Material Adverse Effect; and
(d)
the representations and warranties contained in Section 5 shall be true and correct in all material
respects on and as of the date of such Loan Advance/Paydown Request Form and on the effective date of each Credit Extension
as though made at and as of each such date, and no Event of Default shall have occurred and be continuing, or would exist after
giving effect to such Credit Extension (provided, however, that those representations and warranties expressly referring to another
date shall be true and correct in all material respects as of such date, and provided further that any representation or warranty that
contains a materiality qualification therein shall be true and correct in all respects). The making of each Credit Extension shall be
deemed to be a representation and warranty by Borrower on the date of such Credit Extension as to the accuracy of the facts
referred to in this Section 3.2.
3.3 Covenant to Deliver.
required to be delivered to Bank under this Agreement as a condition
(a) Except as otherwise provided in Section 3.3(b), Borrower agrees to deliver to Bank each item
5.
precedent to any Credit Extension. Borrower expressly agrees that a Credit Extension made prior to the receipt by Bank of any
such item shall not constitute a waiver by Bank of Borrower’s obligation to deliver such item, and the making of any Credit
Extension in the absence of a required item shall be in Bank’s sole discretion.
have received, in form and substance satisfactory to Bank:
(b) Unless otherwise provided in writing, within thirty (30) days after the Closing Date, Bank shall
a landlord waiver with respect to Borrower’s leased location at 302 East Pettigrew
Street, Dibrell Building, Suite A-100, Durham, NC 27701, and a landlord or bailee waiver for each other location where
Borrower maintains Collateral with an aggregate book value in excess of $250,000.
(i)
4. CREATION OF SECURITY INTEREST.
4.1 Grant of Security Interest . Borrower grants and pledges to Bank a continuing security interest in the
Collateral to secure prompt repayment of any and all Obligations and to secure prompt performance by Borrower of each of its
covenants and duties under the Loan Documents. Except for Permitted Liens or as disclosed in the Schedule, such security
interest constitutes a valid, first-priority security interest in the presently existing Collateral, and will constitute a valid, first-
priority security interest in later-acquired Collateral. Borrower also hereby agrees not to sell, transfer, assign, mortgage, pledge,
lease, grant a security interest in, or encumber any of its Intellectual Property (other than through the licensing thereof to third
parties pursuant to clause (b) of the definition of “Permitted Transfer”). Notwithstanding any termination of this Agreement or of
any filings undertaken related to Bank’s rights under the Code, Bank’s Lien on the Collateral shall remain in effect for so long as
any Obligations are outstanding.
4.2 Perfection of Security Interest . Borrower authorizes Bank to file at any time financing statements,
continuation statements, and amendments thereto that (i) either specifically describe the Collateral or describe the Collateral as all
assets of Borrower of the kind pledged hereunder, and (ii) contain any other information required by the Code for the sufficiency
of filing office acceptance of any financing statement, continuation statement, or amendment, including whether Borrower is an
organization, the type of organization and any organizational identification number issued to Borrower, if applicable. Borrower
shall have possession of the Collateral, except where expressly otherwise provided in this Agreement or where Bank chooses to
perfect its security interest by possession in addition to the filing of a financing statement. Where Collateral is in possession of a
third party bailee, Borrower shall take such steps as Bank reasonably requests for Bank to (i) subject to Section 7.11 below, obtain
an acknowledgment, in form and substance satisfactory to Bank, of the bailee that the bailee holds such Collateral for the benefit
of Bank, and (ii) obtain “control” of any Collateral consisting of investment property, deposit accounts, letter-of-credit rights or
electronic chattel paper (as such items and the term “control” are defined in Revised Article 9 of the Code) by causing the
securities intermediary or depositary institution or issuing bank to execute a control agreement in form and substance satisfactory
to Bank. Borrower will not create any chattel paper without placing a legend on the chattel paper acceptable to Bank indicating
that Bank has a security interest in the chattel paper. Borrower from time to time may deposit with Bank specific cash collateral
to secure specific Obligations; Borrower authorizes Bank to hold such specific balances in pledge and to decline to honor any
drafts thereon or any
6.
request by Borrower or any other Person to pay or otherwise transfer any part of such balances for so long as the specific
Obligations are outstanding. If Borrower shall acquire a commercial tort claim in excess of $250,000 (for any single claim or
related claims), Borrower shall promptly notify Bank in a writing signed by Borrower of the general details thereof and grant to
Bank in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such
writing to be in form and substance reasonably satisfactory to Bank. Borrower shall take such other actions as Bank reasonably
requests to perfect its security interests granted under this Agreement.
4.3 Pledge of Collateral. Borrower hereby pledges, assigns and grants to Bank a security interest in all the
Shares, together with all proceeds and substitutions thereof, all cash, stock and other moneys and property paid thereon, all rights
to subscribe for securities declared or granted in connection therewith, and all other cash and noncash proceeds of the foregoing,
as security for the performance of the Obligations. On the Closing Date, the certificate or certificates for the Shares will be
delivered to Bank, accompanied by an instrument of assignment duly governing the Shares. Borrower shall cause the books of
each entity whose Shares are part of the Collateral and any transfer agent to reflect the pledge of the Shares. Upon the occurrence
of an Event of Default hereunder, Bank may effect the transfer of any securities included in the Collateral (including but not
limited to the Shares) into the name of Bank and cause new certificates representing such securities to be issued in the name of
Bank or its transferee. Unless an Event of Default shall have occurred and be continuing, Borrower shall be entitled to exercise
any voting rights with respect to the Shares and to give consents, waivers and ratifications in respect thereof, provided that no
vote shall be cast or consent, waiver or ratification given or action taken which would be inconsistent with any of the terms of this
Agreement or which would constitute or create any violation of any of such terms. All such rights to vote and give consents,
waivers and ratifications shall terminate upon notice from Bank to Borrower following the occurrence and during the continuance
of an Event of Default.
5. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each Subsidiary is duly existing under the laws of
the state in which it is organized and qualified and licensed to do business in any state in which the conduct of its business or its
ownership of property requires that it be so qualified, except where the failure to do so would not reasonably be expected to cause
a Material Adverse Effect.
5.2 Due Authorization; No Conflict. The execution, delivery, and performance of the Loan Documents are
within Borrower’s powers, have been duly authorized, and are not in conflict with nor constitute a breach of any provision
contained in Borrower’s Certificate of Incorporation or Bylaws, nor will they constitute an event of default under any material
agreement by which Borrower is bound. Borrower is not in default under any agreement by which it is bound, except to the
extent such default would not reasonably be expected to cause a Material Adverse Effect.
7.
5.3 Collateral. Borrower has rights in or the power to transfer the Collateral, and its title to the Collateral is
free and clear of Liens, adverse claims, and restrictions on transfer or pledge except for Permitted Liens. Other than movable
items of personal property such as laptop computers, all Collateral having an aggregate book value in excess of $100,000, is
located solely in the Collateral States. All Inventory is in all material respects of good and merchantable quality, free from all
material defects, except for Inventory for which adequate reserves have been made. Except as set forth in the Schedule, none of
Borrower’s Cash is maintained or invested with a Person other than Bank or Bank’s affiliates.
5.4 Intellectual Property. Borrower is the sole owner of the Intellectual Property created or purchased by
Borrower, except for licenses granted by Borrower to its customers in the ordinary course of business. To the best of Borrower’s
knowledge, each of the copyrights, trademarks and patents created or purchased by Borrower is valid and enforceable, and no
part of the Intellectual Property created or purchased by Borrower has been judged invalid or unenforceable, in whole or in part,
and no claim has been made to Borrower that any part of the Intellectual Property created or purchased by Borrower violates the
rights of any third party except to the extent such claim would not reasonably be expected to cause a Material Adverse Effect.
5.5 Name; Location of Chief Executive Office. Except as disclosed in the Schedule, Borrower has not done
business under any name other than that specified on the signature page hereof, and its exact legal name is as set forth in the first
paragraph of this Agreement. The chief executive office of Borrower is located at the address indicated in Section 10 hereof.
5.6 Litigation. Except as set forth in the Schedule, there are no actions or proceedings pending by or against
Borrower or any Subsidiary before any court or administrative agency in which a likely adverse decision would reasonably be
expected to have a Material Adverse Effect.
5.7 No Material Adverse Change in Financial Statements . All consolidated and consolidating financial
statements related to Borrower and any Subsidiary that are delivered by Borrower to Bank fairly present in all material respects
Borrower’s consolidated and consolidating financial condition as of the date thereof and Borrower’s consolidated and
consolidating results of operations for the period then ended. There has not been a material adverse change in the consolidated or
in the consolidating financial condition of Borrower since the date of the most recent of such financial statements submitted to
Bank.
5.8 Solvency, Payment of Debts. Borrower is able to pay its debts (including trade debts) as they mature; the
fair saleable value of Borrower’s assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities; and
Borrower is not left with unreasonably small capital after the transactions contemplated by this Agreement.
5.9 Compliance with Laws and Regulations. Borrower and each Subsidiary have met the minimum funding
requirements of ERISA with respect to any employee benefit plans subject to ERISA. No event has occurred resulting from
Borrower’s failure to comply with ERISA that is reasonably likely to result in Borrower’s incurring any liability that could have a
Material Adverse Effect. Borrower is not an “investment company” or a company “controlled” by an
8.
“investment company” within the meaning of the Investment Company Act of 1940. Borrower is not engaged principally, or as
one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulations T and U of the Board of Governors of the Federal Reserve System). Borrower has not violated any
statutes, laws, ordinances or rules applicable to it, the violation of which would reasonably be expected to have a Material
Adverse Effect. Borrower and each Subsidiary have filed or caused to be filed all tax returns required to be filed, and have paid,
or have made adequate provision for the payment of, all taxes reflected therein except those being contested in good faith with
adequate reserves under GAAP or where the failure to file such returns or pay such taxes would not reasonably be expected to
have a Material Adverse Effect.
Person, except for Permitted Investments.
5.10 Subsidiaries . Borrower does not own any stock, partnership interest or other equity securities of any
5.11 Government Consents . Borrower and each Subsidiary have obtained all consents, approvals and
authorizations of, made all declarations or filings with, and given all notices to, all governmental authorities that are necessary for
the continued operation of Borrower’s business as currently conducted, except where the failure to do so would not reasonably be
expected to cause a Material Adverse Effect.
5.12 Inbound Licenses. Except as disclosed on the Schedule, and except for non-customized, “off-the-shelf”
licenses, Borrower is not a party to, nor is bound by, any material license or other agreement important for the conduct of
Borrower’s business that prohibits or otherwise restricts Borrower from granting a security interest in Borrower’s interest in such
license or agreement or any other property important for the conduct of Borrower’s business, other than this Agreement or the
other Loan Documents.
5.13 Shares. Borrower has full power and authority to create a first lien on the Shares, and no disability or
contractual obligations exists that would prohibit Borrower from pledging the Shares pursuant to this Agreement. To Borrower’s
knowledge, there are no subscriptions, warrants, rights of first refusal or other restrictions on transfer relative to, or options
exercisable with respect to the Shares. The Shares have been and will remain duly authorized and validly issued, and are fully
paid and non-assessable. To Borrower’s knowledge, the Shares are not the subject of any present or threatened suit, action,
arbitration, administrative or other proceeding, and Borrower knows of no reasonable grounds for the institution of any such
proceedings.
5.14 Full Disclosure. No representation, warranty or other statement made by Borrower in any certificate or
written statement furnished to Bank taken together with all such certificates and written statements furnished to Bank contains
any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained in
such certificates or statements not misleading in light of the circumstances in which they were made, it being recognized by Bank
that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions are not to be
viewed as facts and that actual results during the period or periods covered by any such projections and forecasts may differ from
the projected or forecasted results.
9.
6. AFFIRMATIVE COVENANTS.
Borrower covenants that, until payment in full of all outstanding Obligations, and for so long as Bank may have any
commitment to make a Credit Extension hereunder, Borrower shall do all of the following:
6.1 Good Standing and Government Compliance. Borrower shall maintain its and each of its Subsidiaries’
corporate existence and good standing in the respective states of formation, shall maintain qualification and good standing in each
other jurisdiction in which the failure to so qualify would reasonably be expected to have a Material Adverse Effect, and shall
furnish to Bank the organizational identification number issued to Borrower by the authorities of the state in which Borrower is
organized, if applicable. Borrower shall meet, and shall cause each Subsidiary to meet, the minimum funding requirements of
ERISA with respect to any employee benefit plans subject to ERISA. Borrower shall comply, and shall cause each Subsidiary to
comply, with all statutes, laws, ordinances and government rules and regulations to which it is subject, and shall maintain, and
shall cause each of its Subsidiaries to maintain, in force all licenses, approvals and agreements, the loss of which or failure to
comply with which would reasonably be expected to have a Material Adverse Effect.
6.2 Financial Statements, Reports, Certificates, Collateral Audits.
(a) Borrower shall deliver to Bank: (i) as soon as available, but in any event within 30 days after the
end of each calendar month, a company prepared consolidated and consolidating balance sheet, income statement, and statement
of cash flows covering Borrower’s operations during such period, in a form reasonably acceptable to Bank and certified by a
Responsible Officer; (ii) as soon as available, but in any event within 180 days after the end of Borrower’s fiscal year, audited
consolidated and consolidating financial statements of Borrower prepared in accordance with GAAP, consistently applied,
together with an opinion which is either unqualified, qualified only for going concern so long as Borrower’s investors provide
additional equity as needed (or qualified for going concern as a result of the scheduled occurrence of the Maturity Date), or
otherwise consented to in writing by Bank on such financial statements of an independent certified public accounting firm
reasonably acceptable to Bank; (iii) annual budget approved by Borrower’s Board of Directors as soon as available but not later
than 15 days after the end of each fiscal year during the term hereof; (iv) if applicable, copies of all statements, reports and
notices sent or made available generally by Borrower to its security holders or to any holders of Subordinated Debt and all reports
on Forms 10-K and 10-Q filed with the Securities and Exchange Commission; (v) promptly upon receipt of notice thereof, a
report of any legal actions pending or threatened against Borrower or any Subsidiary that could reasonably be expected to result
in damages or costs to Borrower or any Subsidiary of $500,000 or more; (vi) promptly upon receipt, each management letter
prepared by Borrower’s independent certified public accounting firm regarding Borrower’s management control systems; and
(vii) such budgets, sales projections, operating plans or other financial information as Bank may reasonably request from time to
time.
listings by invoice date of accounts receivable and accounts payable.
(b) Within 30 days after the last day of each month, Borrower shall deliver to Bank detailed aged
10.
(c) Within 30 days after the last day of each month, Borrower shall deliver to Bank with the monthly
financial statements a Compliance Certificate certified as of the last day of the applicable month and signed by a Responsible
Officer in substantially the form of Exhibit D hereto.
(d) As soon as possible and in any event within 3 Business Days after becoming aware of the
occurrence or existence of an Event of Default hereunder, a written statement of a Responsible Officer setting forth details of the
Event of Default, and the action which Borrower has taken or proposes to take with respect thereto.
(e) Bank (through any of its officers, employees, or agents) shall have the right, upon reasonable prior
notice, from time to time during Borrower’s usual business hours but no more than once a year (unless an Event of Default has
occurred and is continuing), to inspect Borrower’s Books and to make copies thereof and to check, test, inspect, audit and
appraise the Collateral at Borrower’s expense in order to verify Borrower’s financial condition or the amount, condition of, or any
other matter relating to, the Collateral.
strategic business updates in a form satisfactory to Bank.
(f) Borrower shall deliver to Bank, promptly following the end of each calendar quarter, quarterly
Borrower may deliver to Bank on an electronic basis any certificates, reports or information required pursuant to this
Section 6.2, and Bank shall be entitled to rely on the information contained in the electronic files, provided that Bank in good
faith believes that the files were delivered by a Responsible Officer. Borrower shall include a submission date on any certificates
and reports to be delivered electronically.
6.3 Inventory and Equipment; Returns . Borrower shall keep all Inventory and Equipment in good and
merchantable condition, ordinary wear and tear excepted, free from all material defects except for Inventory and Equipment (i)
sold in the ordinary course of business, and (ii) for which adequate reserves have been made, in all cases in the United States and
such other locations as to which Borrower gives prior written notice. Returns and allowances, if any, as between Borrower and
its account debtors shall be on the same basis and in accordance with the usual customary practices of Borrower, as they exist on
the Closing Date. Borrower shall promptly notify Bank of all returns and recoveries and of all disputes and claims involving
inventory having a book value of more than $250,000.
6.4 Taxes. Borrower shall make, and cause each Subsidiary to make, due and timely payment or deposit of all
material federal, state, and local taxes, assessments, or contributions required of it by law, including, but not limited to, those laws
concerning income taxes, F.I.C.A., F.U.T.A. and state disability, and will execute and deliver to Bank, on demand, proof
satisfactory to Bank indicating that Borrower or a Subsidiary has made such payments or deposits and any appropriate certificates
attesting to the payment or deposit thereof; provided that Borrower or a Subsidiary need not make any payment if the amount or
validity of such payment is contested in good faith by appropriate proceedings and is reserved against (to the extent required by
GAAP) by Borrower or such Subsidiary.
11.
6.5 Insurance. Borrower, at its expense, shall (i) keep the Collateral insured against loss or damage, and (ii)
maintain liability and other insurance, in each case as ordinarily insured against by other owners in businesses similar to
Borrower’s. All such policies of insurance shall be in such form, with such companies, and in such amounts as reasonably
satisfactory to Bank. All policies of property insurance shall contain a lender’s loss payable endorsement, in a form satisfactory
to Bank, showing Bank as lender's loss payee. All liability insurance policies shall show, or have endorsements showing, Bank as
an additional insured. Any such insurance policies shall specify that the insurer must give at least 20 days’ notice to Bank before
canceling its policy for any reason. Within 30 days of the Closing Date, Borrower shall cause to be furnished to Bank a copy of
its policies including any endorsements covering Bank or showing Bank as an additional insured. Upon Bank’s request,
Borrower shall deliver to Bank certified copies of the policies of insurance and evidence of all premium payments. Proceeds
payable under any casualty policy will, at Borrower’s option, be payable to Borrower to replace the property subject to the claim,
provided that any such replacement property shall be deemed Collateral in which Bank has been granted a first priority security
interest, provided that if an Event of Default has occurred and is continuing, all proceeds payable under any such policy shall, at
Bank’s option, be payable to Bank to be applied on account of the Obligations.
6.6 Primary Depository. At all times when the aggregate balance of Borrower’s Cash at Bank and Bank’s
affiliates is less than the Deposit Account Threshold, Borrower shall maintain, and shall cause all of its Subsidiaries to maintain,
all depository and operating accounts with Bank and all investment accounts with Bank or Bank’s affiliates. At all times when the
aggregate balance of Borrower’s Cash at Bank and Bank’s affiliates equals or exceeds the Deposit Account Threshold, Borrower
and its Subsidiaries may maintain Cash balances that exceed the Deposit Account Threshold in depository, operating, and
investments accounts outside of Bank or Bank’s affiliates, so long as each such account outside of Bank is subject to a duly-
executed account control agreement in favor of Bank, and in form and substance reasonably satisfactory to Bank. Prior to
Borrower maintaining any investment accounts with Bank’s affiliates, Borrower, Bank, and any such affiliate shall have entered
into a securities account control agreement with respect to any such investment accounts, in form and substance reasonably
satisfactory to Bank.
6.7 Financial Covenants. Borrower shall at all times maintain the following financial ratios and covenants:
(a) Minimum Cash . At all times, an aggregate balance of Cash at Bank and Bank’s Affiliates
(excluding any amounts held in Excluded Accounts) equal to or greater than the aggregate outstanding amount of Obligations.
Borrower acknowledges and agrees that any request by Borrower or any other Person to pay or otherwise transfer funds that
would cause Borrower’s balance of Cash at Bank to be less than the amount required pursuant to this Section 6.7(a) shall
constitute an Event of Default under this Agreement.
6.8 Intellectual Property.
(a) Borrower shall promptly give Bank written notice of any applications or registrations of
intellectual property rights filed with the United States Patent and Trademark Office, including the date of such filing and the
registration or application numbers, if any.
12.
(b) Borrower shall use commercially reasonably efforts to (i) protect, defend and maintain the validity
and enforceability of the trade secrets, Trademarks, Patents and Copyrights, (ii) use commercially reasonable efforts to detect
infringements of the Trademarks, Patents and Copyrights and promptly advise Bank in writing of material infringements detected,
and (iii) not allow any material Trademarks, Patents or Copyrights to be abandoned, forfeited or dedicated to the public without
the written consent of Bank, which shall not be unreasonably withheld.
6.9 Consent of Inbound Licensors. Prior to entering into or becoming bound by any material inbound license
or agreement (other than non-customized, “off-the-shelf” licenses), Borrower shall: (i) provide written notice to Bank of the
material terms of such license or agreement with a description of its likely impact on Borrower’s business or financial condition;
and (ii) in good faith use commercially reasonable efforts to obtain the consent of, or waiver by, any person whose consent or
waiver is necessary for Borrower’s interest in such licenses or contract rights to be deemed Collateral and for Bank to have a
security interest in it that might otherwise be restricted by the terms of the applicable license or agreement, whether now existing
or entered into in the future, provided, however, that the failure to obtain any such consent or waiver shall not constitute a default
under this Agreement.
6.10 Creation/Acquisition of Subsidiaries. In the event any Borrower or any Subsidiary of any Borrower
creates or acquires any Subsidiary, Borrower or such Subsidiary shall promptly notify Bank of such creation or acquisition, and
Borrower or such Subsidiary shall take all actions reasonably requested by Bank to achieve any of the following with respect to
such “New Subsidiary” (defined as a Subsidiary formed after the date hereof during the term of this Agreement): (i) to cause
New Subsidiary to become either a co-Borrower or a secured guarantor with respect to the Obligations hereunder, if such New
Subsidiary is organized under the laws of the United States; and (ii) to grant and pledge to Bank a perfected security interest in
100% of the stock, units or other evidence of ownership held by Borrower or its Subsidiaries of any such New Subsidiary which
is organized under the laws of the United States, and 65% of the stock, units or other evidence of ownership held by Borrower or
its Subsidiaries of any such New Subsidiary which is not organized under the laws of the United States.
instruments and take such further action as may reasonably be requested by Bank to effect the purposes of this Agreement.
6.11 Further Assurances. At any time and from time to time Borrower shall execute and deliver such further
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder shall be available and until the outstanding
Obligations are paid in full or for so long as Bank may have any commitment to make any Credit Extensions, Borrower will not
do any of the following without Bank’s prior written consent, which shall not be unreasonably withheld:
7.1 Dispositions. Convey, sell, lease, license, transfer or otherwise dispose of (collectively, to “Transfer”), or
permit any of its Subsidiaries to Transfer, all or any part of its business or property, or move cash balances on deposit with Bank
to accounts opened at another financial institution, other than Permitted Transfers.
13.
7.2 Change in Name, Location, Executive Office, or Executive Management; Change in Business;
Change in Fiscal Year; Change in Control. Change its name or the state of Borrower’s formation or relocate its chief executive
office without 30 days prior written notification to Bank; replace or suffer the departure of its chief executive officer or chief
financial officer without delivering written notification to Bank within 10 days; fail to appoint an interim replacement or fill a
vacancy in the position of chief executive officer or chief financial officer for more than 30 consecutive days; suffer a change on
Parent’s board of directors which results in the failure of at least one partner of venBio (or its Affiliates) to serve as a voting
member without the prior written consent of Bank, which may be withheld in Bank’s sole discretion; take action to liquidate,
wind up, or otherwise cease to conduct business in the ordinary course; engage in any business, or permit any of its Subsidiaries
to engage in any business, other than or reasonably related or incidental to the businesses currently engaged in by Borrower;
change its fiscal year end; have a Change in Control.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate,
with or into any other business organization (other than mergers or consolidations of a Subsidiary into another Subsidiary or into
Borrower), or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of
another Person except where (a) each of the following conditions is applicable: (i) the consideration paid in connection with such
transactions (including assumption of liabilities) does not in the aggregate exceed $500,000 during any fiscal year, (ii) no Event
of Default has occurred, is continuing or would exist after giving effect to such transactions, (iii) such transactions do not result in
a Change in Control, and (iv) Borrower is the surviving entity; or (b) the Obligations are repaid in full concurrently with the
closing of any merger or consolidation of Borrower in which Borrower is not the surviving entity; provided, however, that
Borrower shall not, without Bank’s prior written consent, enter into any binding contractual arrangement with any Person to
attempt to facilitate a merger or acquisition of Borrower, unless (i) no Event of Default exists when such agreement is entered
into by Borrower, (ii) such agreement does not give such Person the right to claim any fee, payment or damages from any parties,
other than from Borrower or Borrower’s investors, in connection with a sale of Borrower’s stock or assets pursuant to or resulting
from an assignment for the benefit of creditors, an asset turnover to Borrower’s creditors (including, without limitation, Bank),
foreclosure, bankruptcy or similar liquidation, and (iii) Borrower notifies Bank in advance of entering into such an agreement
(provided, the failure to give such notification shall not be deemed a material breach of this Agreement).
7.4 Indebtedness. Create, incur, assume, guarantee or be or remain liable with respect to any Indebtedness, or
permit any Subsidiary so to do, other than Permitted Indebtedness, or prepay any Indebtedness or take any actions which impose
on Borrower an obligation to prepay any Indebtedness, except Indebtedness to Bank.
7.5 Encumbrances . Create, incur, assume or allow any Lien with respect to its property, or assign or
otherwise convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries so to do,
except for Permitted Liens, or covenant to any other Person (other than (i) the licensors of in-licensed property with respect to
such property or (ii) the lessors of specific equipment or lenders financing specific equipment with respect to such leased or
financed equipment) that Borrower in the future will refrain from creating, incurring, assuming or allowing any Lien with respect
to any of Borrower’s property.
14.
7.6 Distributions . Pay any dividends or make any other distribution or payment on account of or in
redemption, retirement or purchase of any capital stock, except that Borrower may (i) repurchase the stock of former employees
or directors pursuant to stock repurchase agreements in an aggregate amount not to exceed $500,000 in any fiscal year, as long as
an Event of Default does not exist prior to such repurchase or would not exist after giving effect to such repurchase, and (ii)
repurchase the stock of former employees or directors pursuant to stock repurchase agreements by the cancellation of
indebtedness owed by such former employees or directors to Borrower regardless of whether an Event of Default exists.
7.7 Investments. Directly or indirectly acquire or own an Investment in, or make any Investment in or to any
Person, or permit any of its Subsidiaries so to do, other than Permitted Investments, or maintain or invest any of its investment
property with a Person other than Bank or permit any Subsidiary to do so unless such Person has entered into a control agreement
with Bank, in form and substance satisfactory to Bank, or suffer or permit any Subsidiary to be a party to, or be bound by, an
agreement that restricts such Subsidiary from paying dividends or otherwise distributing property to Borrower.
($40,000,000) in the aggregate during each fiscal year of Borrower.
7.8 Capitalized Expenditures . Make Capitalized Expenditures in excess of Forty Million Dollars
7.9 Transactions with Affiliates. Directly or indirectly enter into or permit to exist any material transaction
with any Affiliate of Borrower except for (i) transactions that are in the ordinary course of Borrower’s business, upon fair and
reasonable terms that are no less favorable to Borrower than would be obtained in an arm’s length transaction with a non-
affiliated Person, and (ii) the sale of Borrower’s equity securities in bona fide transactions with Borrower’s existing investors that
do not result in a Change in Control.
7.10 Subordinated Debt . Make any payment in respect of any Subordinated Debt, or permit any of its
Subsidiaries to make any such payment, except in compliance with the terms of such Subordinated Debt, or amend any provision
affecting Bank’s rights contained in any documentation relating to the Subordinated Debt without Bank’s prior written consent.
7.11 Inventory and Equipment. Store the Inventory or the Equipment of an aggregate book value in excess of
$500,000 with a bailee, warehouseman, collocation facility or similar third party unless the third party has been notified of Bank’s
security interest and Bank (a) has received an acknowledgment from the third party that it is holding or will hold the Inventory or
Equipment for Bank’s benefit or (b) is in possession of the warehouse receipt, where negotiable, covering such Inventory or
Equipment. Except for Inventory sold in the ordinary course of business and for movable items of personal property having an
aggregate book value not in excess of $200,000, and except for such other locations as Bank may approve in writing, Borrower
shall keep the Inventory and Equipment only at the location set forth in Section 10 and such other locations of which Borrower
gives Bank prior written notice and as to which Bank is able to take such actions as may be necessary to perfect its security
interest or to obtain a bailee’s acknowledgment of Bank’s rights in the Collateral.
within the meaning of the Investment Company Act of 1940, or become
7.12 No Investment Company; Margin Regulation. Become or be controlled by an “investment company,”
15.
principally engaged in, or undertake as one of its important activities, the business of extending credit for the purpose of
purchasing or carrying margin stock, or use the proceeds of any Credit Extension for such purpose.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an Event of Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay any of the Obligations when due;
8.2 Covenant Default.
(a) If Borrower fails to perform any obligation under Sections 6.2 (financial reporting), 6.4 (taxes),
6.5 (insurance), 6.6 (primary accounts), or 6.7 (financial covenants), or violates any of the covenants contained in Article 7 of this
Agreement; or
(b) If Borrower fails or neglects to perform or observe any other material term, provision, condition,
covenant contained in this Agreement, in any of the Loan Documents, or in any other present or future agreement between
Borrower and Bank and as to any default under such other term, provision, condition or covenant that can be cured, has failed to
cure such default within 15 days after Borrower receives notice thereof or any officer of Borrower becomes aware thereof;
provided, however, that if the default cannot by its nature be cured within the 15 day period or cannot after diligent attempts by
Borrower be cured within such 15 day period, and such default is likely to be cured within a reasonable time, then Borrower shall
have an additional reasonable period (which shall not in any case exceed 30 days) to attempt to cure such default, and within such
reasonable time period the failure to have cured such default shall not be deemed an Event of Default but no Credit Extensions
will be made;
reasonably be expected to have a Material Adverse Effect;
8.3 Material Adverse Change . If there occurs any circumstance or any circumstances which would
8.4 Attachment. If any material portion of Borrower’s assets is attached, seized, subjected to a writ or distress
warrant, or is levied upon, or comes into the possession of any trustee, receiver or person acting in a similar capacity and such
attachment, seizure, writ or distress warrant or levy has not been removed, discharged or rescinded within 10 days, or if Borrower
is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business
affairs, or if a judgment or other claim becomes a lien or encumbrance upon any material portion of Borrower’s assets, or if a
notice of lien, levy, or assessment is filed of record with respect to any material portion of Borrower’s assets by the United States
Government, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency,
and the same is not paid within ten days after Borrower receives notice thereof, provided that none of the foregoing shall
constitute an Event of Default where such action or event is stayed or an adequate bond has been posted pending a good faith
contest by Borrower (provided that no Credit Extensions will be made during such cure period);
if an Insolvency Proceeding is commenced against Borrower and
8.5 Insolvency. If Borrower becomes insolvent, or if an Insolvency Proceeding is commenced by Borrower, or
16.
is not dismissed or stayed within 45 days (provided that no Credit Extensions will be made prior to the dismissal of such
Insolvency Proceeding);
8.6 Other Agreements . If (a) there is a default or other failure to perform in any agreement to which
Borrower is a party with a third party or parties (i) resulting in a right by such third party or parties, whether or not exercised, to
accelerate the maturity of any Indebtedness in an amount in excess of $500,000, (ii) in connection with any lease of real property
material to the conduct of Borrower’s business, if such default or failure to perform gives another party the right to terminate the
lease, or (iii) that would reasonably be expected to have a Material Adverse Effect, or (b) any default or event of default (however
designated) shall occur with respect to any Subordinated Debt which is not cured within any applicable cure period;
8.7 Judgments . If a final, uninsured judgment or judgments for the payment of money in an amount,
individually or in the aggregate, of at least $500,000 shall be rendered against Borrower and shall remain unsatisfied and
unstayed for a period of 10 days (provided that no Credit Extensions will be made prior to the satisfaction or stay of the
judgment); or
8.8 Misrepresentations. If any material misrepresentation or material misstatement exists now or hereafter in
any warranty or representation set forth herein or in any certificate delivered to Bank by any Responsible Officer pursuant to this
Agreement or to induce Bank to enter into this Agreement or any other Loan Document.
9. BANK’S RIGHTS AND REMEDIES.
9.1 Rights and Remedies . Upon the occurrence and during the continuance of an Event of Default, Bank
may, at its election, without notice of its election and without demand, do any one or more of the following, all of which are
authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan
Documents, or otherwise, immediately due and payable (provided that upon the occurrence of an Event of Default described in
Section 8.5 (insolvency), all Obligations shall become immediately due and payable without any action by Bank);
(b) Demand that Borrower (i) deposit cash with Bank in an amount equal to the amount of any
Letters of Credit remaining undrawn, as collateral security for the repayment of any future drawings under such Letters of Credit,
and (ii) pay in advance all Letter of Credit fees scheduled to be paid or payable over the remaining term of the Letters of Credit,
and Borrower shall promptly deposit and pay such amounts;
or under any other agreement between Borrower and Bank;
(c) Cease advancing money or extending credit to or for the benefit of Borrower under this Agreement
whatever order that Bank reasonably considers advisable;
(d) Settle or adjust disputes and claims directly with account debtors for amounts, upon terms and in
(e) Make such payments and do such acts as Bank considers necessary or reasonable to protect its
security interest in the Collateral. Borrower agrees to assemble the Collateral if Bank so requires, and to make the Collateral
available to Bank as Bank may designate.
17.
Borrower authorizes Bank to enter the premises where the Collateral is located, to take and maintain possession of the Collateral,
or any part of it, and to pay, purchase, contest, or compromise any encumbrance, charge, or lien which in Bank’s determination
appears to be prior or superior to its security interest and to pay all expenses incurred in connection therewith. With respect to
any of Borrower’s owned premises, Borrower hereby grants Bank a license to enter into possession of such premises and to
occupy the same, without charge, in order to exercise any of Bank’s rights or remedies provided herein, at law, in equity, or
otherwise;
(f) place a “hold” on any account maintained with Bank and not honor any presentment (including but
not limited to checks, wires and ACH drafts) against such account at Bank and/or deliver a notice of exclusive control, any
entitlement order, or other directions or instructions pursuant to any control agreement or similar agreements providing control of
any Collateral;
Bank, and (ii) indebtedness at any time owing to or for the credit or the account of Borrower held by Bank;
(g) Set off and apply to the Obligations any and all (i) balances and deposits of Borrower held by
(h) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell
(in the manner provided for herein) the Collateral. Bank is hereby granted a license or other right, solely pursuant to the
provisions of this Section 9.1, to use, without charge, Borrower’s labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the
Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Bank’s exercise of
its rights under this Section 9.1, Borrower’s rights under all licenses and all franchise agreements shall inure to Bank’s benefit;
(i) Sell the Collateral at either a public or private sale, or both, by way of one or more contracts or
transactions, for cash or on terms, in such manner and at such places (including Borrower’s premises) as Bank determines is
commercially reasonable, and apply any proceeds to the Obligations in whatever manner or order Bank deems appropriate. Bank
may sell the Collateral without giving any warranties as to the Collateral. Bank may specifically disclaim any warranties of title
or the like. This procedure will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral.
If Bank sells any of the Collateral upon credit, Borrower will be credited only with payments actually made by the purchaser,
received by Bank, and applied to the indebtedness of the purchaser. If the purchaser fails to pay for the Collateral, Bank may
resell the Collateral and Borrower shall be credited with the proceeds of the sale;
(j) Bank may credit bid and purchase at any public sale;
(k) Apply for the appointment of a receiver, trustee, liquidator or conservator of the Collateral,
without notice and without regard to the adequacy of the security for the Obligations and without regard to the solvency of
Borrower, any guarantor or any other Person liable for any of the Obligations; and
18.
immediately by Borrower.
(l) Any deficiency that exists after disposition of the Collateral as provided above will be paid
Bank may comply with any applicable state or federal law requirements in connection with a disposition of the Collateral and
compliance will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral.
9.2 Power of Attorney . Effective only upon the occurrence and during the continuance of an Event of
Default, Borrower hereby irrevocably appoints Bank (and any of Bank’s designated officers, or employees) as Borrower’s true
and lawful attorney to: (a) send requests for verification of Accounts or notify account debtors of Bank’s security interest in the
Accounts; (b) endorse Borrower’s name on any checks or other forms of payment or security that may come into Bank’s
possession; (c) sign Borrower’s name on any invoice or bill of lading relating to any Account, drafts against account debtors,
schedules and assignments of Accounts, verifications of Accounts, and notices to account debtors; (d) dispose of any Collateral;
(e) make, settle, and adjust all claims under and decisions with respect to Borrower’s policies of insurance; (f) settle and adjust
disputes and claims respecting the accounts directly with account debtors, for amounts and upon terms which Bank determines to
be reasonable; and (g) file, in its sole discretion, one or more financing or continuation statements and amendments thereto,
relative to any of the Collateral; provided Bank may exercise such power of attorney to sign the name of Borrower on any of the
documents described in clause (g) above, regardless of whether an Event of Default has occurred. The appointment of Bank as
Borrower’s attorney in fact, and each and every one of Bank’s rights and powers, being coupled with an interest, is irrevocable
until all of the Obligations have been fully repaid and performed and Bank’s obligation to provide advances hereunder is
terminated.
9.3 Accounts Collection. At any time after the occurrence and during the continuation of an Event of Default,
Bank may notify any Person owing funds to Borrower of Bank’s security interest in such funds and verify the amount of such
Account. Borrower shall collect all amounts owing to Borrower for Bank, receive in trust all payments as Bank’s trustee, and
immediately deliver such payments to Bank in their original form as received from the account debtor, with proper endorsements
for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish any required proof of payment due to
third persons or entities, as required under the terms of this Agreement, then Bank may do any or all of the following after
reasonable notice to Borrower: (a) make payment of the same or any part thereof; and/or (b) set up such reserves under the
Revolving Line as Bank deems necessary to protect Bank from the exposure created by such failure; or (c) obtain and maintain
insurance policies of the type discussed in Section 6.5 of this Agreement, and take any action with respect to such policies as
Bank deems prudent. Any amounts so paid or deposited by Bank shall constitute Bank Expenses, shall be immediately due and
payable, and shall bear interest at the then applicable rate hereinabove provided, and shall be secured by the Collateral. Any
payments made by Bank shall not constitute an agreement by Bank to make similar payments in the future or a waiver by Bank of
any Event of Default under this Agreement.
19.
sale. All risk of loss, damage or destruction of the Collateral shall be borne by Borrower.
9.5 Bank’s Liability for Collateral. Bank has no obligation to clean up or otherwise prepare the Collateral for
9.6 No Obligation to Pursue Others . Bank has no obligation to attempt to satisfy the Obligations by
collecting them from any other person liable for them and Bank may release, modify or waive any collateral provided by any
other Person to secure any of the Obligations, all without affecting Bank’s rights against Borrower. Borrower waives any right it
may have to require Bank to pursue any other Person for any of the Obligations.
9.7 Remedies Cumulative. Bank’s rights and remedies under this Agreement, the Loan Documents, and all
other agreements shall be cumulative. Bank shall have all other rights and remedies not inconsistent herewith as provided under
the Code, by law, or in equity. No exercise by Bank of one right or remedy shall be deemed an election, and no waiver by Bank
of any Event of Default on Borrower’s part shall be deemed a continuing waiver. No delay by Bank shall constitute a waiver,
election, or acquiescence by it. No waiver by Bank shall be effective unless made in a written document signed on behalf of
Bank and then shall be effective only in the specific instance and for the specific purpose for which it was given. Borrower
expressly agrees that this Section 9.7 may not be waived or modified by Bank by course of performance, conduct, estoppel or
otherwise.
9.8 Demand; Protest. Except as otherwise provided in this Agreement, Borrower waives demand, protest,
notice of protest, notice of default or dishonor, notice of payment and nonpayment and any other notices relating to the
Obligations.
10. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any
other agreement entered into in connection herewith shall be in writing and (except for financial statements and other reporting
required pursuant to Section 6.2 of this Agreement, which shall be sent as directed in the monthly reporting forms provided by
Bank) shall be personally delivered or sent by a recognized overnight delivery service, certified mail, postage prepaid, return
receipt requested, or by telefacsimile or electronic mail to Borrower or to Bank, as the case may be, at its addresses set forth
below:
If to Borrower:
If to Bank:
Precision Biosciences, Inc.
ELO Life Systems, Inc.
302 East Pettigrew Street
Dibrell Bldg., Suite A-100
Durham, NC 27701
Attn: Abid Ansari, VP Finance
FAX: (____)
E-Mail: abid.ansari@precisionbiosciences.com
Pacific Western Bank
406 Blackwell Street, Suite 240
Durham, North Carolina 27701
20.
with a copy to:
Attn: Loan Operations Manager
FAX: (919) 314-3080
E-Mail: loannotices@square1bank.com
Pacific Western Bank
406 Blackwell Street, Suite 240
Durham, North Carolina 27701
Attn: Evan Travis
FAX: (919) 314-3090
The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the
foregoing manner given to the other.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of North Carolina, without
regard to principles of conflicts of law. Jurisdiction shall lie in the State of North Carolina. All disputes, controversies, claims,
actions and similar proceedings arising with respect to Borrower’s account or any related agreement or transaction shall be
brought in the General Court of Justice of North Carolina sitting in Durham County, North Carolina or the United States District
Court for the Middle District of North Carolina, except as provided below with respect to arbitration of such matters. BANK
AND BORROWER EACH ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE,
BUT THAT IT MAY BE WAIVED. EACH OF THEM, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO
CONSULT, WITH COUNSEL OF THEIR CHOICE, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES
ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING
OUT OF THIS AGREEMENT OR ANY RELATED INSTRUMENT OR LOAN DOCUMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY COURSE OF CONDUCT, DEALING,
STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTION OF ANY OF THEM. THESE PROVISIONS SHALL NOT
BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY BANK OR BORROWER,
EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY EACH OF THEM. If the jury waiver set forth in this Section 11 is
not enforceable, then any dispute, controversy, claim, action or similar proceeding arising out of or relating to this Agreement, the
Loan Documents or any of the transactions contemplated therein shall be settled by final and binding arbitration held in Durham
County, North Carolina in accordance with the then current Commercial Arbitration Rules of the American Arbitration
Association by one arbitrator appointed in accordance with those rules. The arbitrator shall apply North Carolina law to the
resolution of any dispute, without reference to rules of conflicts of law or rules of statutory arbitration. Judgment upon any award
resulting from arbitration may be entered into and enforced by any state or federal court having jurisdiction thereof.
Notwithstanding the foregoing, the parties may apply to any court of competent jurisdiction for preliminary or interim equitable
relief, or to compel arbitration in accordance with this Section. The costs and expenses of the arbitration, including without
limitation, the arbitrator’s fees and expert witness fees, and reasonable attorneys’ fees, incurred by the parties to the arbitration
may be awarded to the prevailing party, in the discretion of the arbitrator, or may be apportioned between the parties in any
manner deemed appropriate by the arbitrator. Unless
21.
and until the arbitrator decides that one party is to pay for all (or a share) of such costs and expenses, both parties shall share
equally in the payment of the arbitrator’s fees as and when billed by the arbitrator.
12. GENERAL PROVISIONS.
12.1 Successors and Assigns. This Agreement shall bind and inure to the benefit of the respective successors
and permitted assigns of each of the parties and shall bind all persons who become bound as a debtor to this Agreement;
provided, however, that neither this Agreement nor any rights hereunder may be assigned by Borrower without Bank’s prior
written consent, which consent may be granted or withheld in Bank’s sole discretion. Bank shall have the right without the
consent of or notice to Borrower to sell, assign, transfer, negotiate, or grant participation in all or any part of, or any interest in,
Bank’s obligations, rights and benefits hereunder. Notwithstanding the preceding sentence, an assignment or transfer by Bank of
its obligations, rights, and benefits hereunder shall require the consent of Borrower (not to be unreasonably withheld, delayed, or
conditioned) if ( a) no Event of Default has occurred at any time during the term of this Agreement, and (b) such assignment or
transfer is not in connection with a merger or acquisition of the stock or assets of Bank generally or to an Affiliate of Bank.
12.2 Indemnification. Borrower shall defend, indemnify and hold harmless Bank and its officers, directors,
employees, affiliates, advisors and agents against: (a) all obligations, demands, claims, and liabilities claimed or asserted by any
other party in connection with the transactions contemplated by this Agreement; and (b) all losses or Bank Expenses in any way
suffered, incurred, or paid by Bank, its officers, employees and agents as a result of or in any way arising out of, following, or
consequential to transactions between Bank and Borrower whether under this Agreement, or otherwise (including without
limitation reasonable attorneys’ fees and expenses), except for losses caused by Bank’s gross negligence or willful misconduct as
determined by a court of competent jurisdiction by final and non-appealable order.
12.3 Time of Essence. Time is of the essence for the performance of all obligations set forth in this Agreement.
provision of this Agreement for the purpose of determining the legal enforceability of any specific provision.
12.4 Severability of Provisions . Each provision of this Agreement shall be severable from every other
12.5 Amendments in Writing, Integration. All amendments to or terminations of this Agreement or the other
Loan Documents must be in writing. All prior agreements, understandings, representations, warranties, and negotiations between
the parties hereto with respect to the subject matter of this Agreement and the other Loan Documents, if any, are merged into this
Agreement and the Loan Documents.
12.6 Counterparts. This Agreement may be executed in any number of counterparts and by different parties on
separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when
taken together, shall constitute but one and the same Agreement. Executed copies of the signature pages of this Agreement sent
by facsimile or transmitted electronically in Portable Document Format (“PDF”), or any similar
22.
format, shall be treated as originals, fully binding and with full legal force and effect, and the parties waive any rights they may
have to object to such treatment.
12.7 Survival . All covenants, representations and warranties made in this Agreement shall continue in full
force and effect so long as any Obligations remain outstanding or Bank has any obligation to make any Credit Extension to
Borrower. The obligations of Borrower to indemnify Bank with respect to the expenses, damages, losses, costs and liabilities
described in Section 12.2 shall survive until all applicable statute of limitations periods with respect to actions that may be
brought against Bank have run.
12.8 Confidentiality and Publicity.
(a) Borrower shall not, and shall not permit any of its Affiliates to: (i) publish or disclose any materials
containing Bank’s name, including in any press release or otherwise in connection with any advertising or marketing, without
first obtaining Bank’s prior written consent, or (ii) use Bank’s name (or the name of any of its Affiliates) in connection with its
operations or business. Notwithstanding the foregoing, Bank acknowledges that Borrower may disclose and make available to
the public materials containing Bank’s name or other information to the extent required by the Securities and Exchange
Commission or in connection with Borrower’s submission of reports or information to the Securities and Exchange Commission.
(b) In handling any confidential information, Bank shall exercise commercially reasonable efforts to maintain in
confidence, in accordance with its customary procedures for handling confidential information, all written non-public information
furnished to Bank on a confidential basis clearly identified at the time of delivery as such (“Confidential Information”) other than
any such Confidential Information that becomes generally available to the public or becomes available to Bank from a source
other than Borrower and that is not known to Bank to be subject to confidentiality obligations; provided, that Bank and its
Affiliates shall have the right to disclose Confidential Information to: (i) such Person’s Affiliates; (ii) such Person or such
Person’s Affiliates’ lenders, funding sources, or financing sources; (iii) such Person’s or such Person’s Affiliates’ directors,
officers, trustees, partners, members, managers, employees, agents, advisors, representatives, attorneys, equity owners,
professional consultants, portfolio management services and rating agencies; (iv) any successor or assign of Bank; (v) any Person
to whom Bank offers to sell, assign or transfer any Credit Extension or any part thereof or any interest or participation therein;
(vi) any Person that provides statistical analysis and/or information services to Bank or its Affiliates; and (vii) any Person (A) to
the extent required by it by law, (B) as may be required in connection with the examination, audit, or similar investigation of
Bank, (C) in response to any subpoena or other legal process or informal investigative demand, (D) in connection with any
litigation, or (E) in connection with the actual or potential exercise or enforcement of any right or remedy under any Loan
Document. The obligations of Bank and its Affiliates under this Section 12.8 shall supersede and replace any other
confidentiality obligations agreed to by Bank or its Affiliates.
13. CO-BORROWER PROVISIONS.
remain in effect notwithstanding future changes in conditions, including
13.1 Primary Obligation . This Agreement is a primary and original obligation of each Borrower and shall
23.
any change of law or any invalidity or irregularity in the creation or acquisition of any Obligations or in the execution or delivery
of any agreement between Bank and any Borrower. Each Borrower shall be liable for existing and future Obligations as fully as
if all of all Credit Extensions were advanced to such Borrower. Bank may rely on any certificate or representation made by any
Borrower as made on behalf of, and binding on, all Borrowers, including without limitation Disbursement Request Forms and
Compliance Certificates.
13.2 Enforcement of Rights . Borrowers are jointly and severally liable for the Obligations and Bank may
proceed against one or more of the Borrowers to enforce the Obligations without waiving its right to proceed against any of the
other Borrowers.
13.3 Borrowers as Agents. Each Borrower appoints the other Borrower as its agent with all necessary power
and authority to give and receive notices, certificates or demands for and on behalf of both Borrowers, to act as disbursing agent
for receipt of any Credit Extensions on behalf of each Borrower and to apply to Bank on behalf of each Borrower for Credit
Extensions, any waivers and any consents. This authorization cannot be revoked, and Bank need not inquire as to each
Borrower’s authority to act for or on behalf of Borrower.
13.4 Subrogation and Similar Rights. Notwithstanding any other provision of this Agreement or any other
Loan Document, each Borrower irrevocably waives all rights that it may have at law or in equity (including, without limitation,
any law subrogating Borrower to the rights of Bank under the Loan Documents) to seek contribution, indemnification, or any
other form of reimbursement from any other Borrower, or any other Person now or hereafter primarily or secondarily liable for
any of the Obligations, for any payment made by Borrower with respect to the Obligations in connection with the Loan
Documents or otherwise and all rights that it might have to benefit from, or to participate in, any security for the Obligations as a
result of any payment made by Borrower with respect to the Obligations in connection with the Loan Documents or otherwise.
Any agreement providing for indemnification, reimbursement or any other arrangement prohibited under this Section 13.4 shall
be null and void. If any payment is made to a Borrower in contravention of this Section 13.4, such Borrower shall hold such
payment in trust for Bank and such payment shall be promptly delivered to Bank for application to the Obligations, whether
matured or unmatured.
13.5 Waivers of Notice . Except as otherwise provided in this Agreement, each Borrower waives notice of
acceptance hereof; notice of the existence, creation or acquisition of any of the Obligations; notice of an Event of Default; notice
of the amount of the Obligations outstanding at any time; notice of intent to accelerate; notice of acceleration; notice of any
adverse change in the financial condition of any other Borrower or of any other fact that might increase Borrower’s risk;
presentment for payment; demand; protest and notice thereof as to any instrument; default; and all other notices and demands to
which Borrower would otherwise be entitled. Each Borrower waives any defense arising from any defense of any other
Borrower, or by reason of the cessation from any cause whatsoever of the liability of any other Borrower. Bank’s failure at any
time to require strict performance by any Borrower of any provision of the Loan Documents shall not waive, alter or diminish any
right of Bank thereafter to demand strict compliance and performance therewith. Nothing contained herein shall prevent Bank
from foreclosing on the Lien of any deed of trust, mortgage or other security instrument, or exercising any rights available
thereunder, and the exercise of any such rights shall not constitute a legal or
24.
equitable discharge of any Borrower. Each Borrower also waives any defense arising from any act or omission of Bank that
changes the scope of Borrower’s risks hereunder.
13.6 Subrogation Defenses. Each Borrower hereby waives any defense based on impairment or destruction of
its subrogation or other rights against any other Borrower and waives all benefits which might otherwise be available to it under
any statutory or common law suretyship defenses or marshalling rights, now or hereafter in effect.
13.7 Right to Settle, Release.
(a) The liability of Borrowers hereunder shall not be diminished by (i) any agreement, understanding
or representation that any of the Obligations is or was to be guaranteed by another Person or secured by other property, or (ii) any
release or unenforceability, whether partial or total, of rights, if any, which Bank may now or hereafter have against any other
Person, including another Borrower, or property with respect to any of the Obligations.
(b) Without affecting the liability of any Borrower hereunder, Bank may (i) compromise, settle, renew,
extend the time for payment, change the manner or terms of payment, discharge the performance of, decline to enforce, or release
all or any of the Obligations with respect to a Borrower, (ii) grant other indulgences to a Borrower in respect of the Obligations,
(iii) modify in any manner any documents relating to the Obligations with respect to a Borrower, (iv) release, surrender or
exchange any deposits or other property securing the Obligations, whether pledged by a Borrower or any other Person, or (v)
compromise, settle, renew, or extend the time for payment, discharge the performance of, decline to enforce, or release all or any
obligations of any guarantor, endorser or other Person who is now or may hereafter be liable with respect to any of the
Obligations.
13.8 Subordination . All indebtedness of a Borrower now or hereafter arising held by another Borrower is
subordinated to the Obligations and the Borrower holding the indebtedness shall take all actions reasonably requested by Bank to
effect, to enforce and to give notice of such subordination.
25.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.
PRECISION BIOSCIENCES, INC.
By:
/s/ Abid Ansari
Name: Abid Ansari
Title:
Chief Financial Officer
ELO LIFE SYSTEMS, INC.
By:
/s/ Fayaz Khazi
Name: Fayaz Khazi
Title:
Chief Executive Officer
PACIFIC WESTERN BANK
By:
/s/ Zack Robbins
Name: Zack Robbins
Title: VP
26.
DEFINITIONS
EXHIBIT A
“Accounts” means all presently existing and hereafter arising accounts, contract rights, payment intangibles and all other forms
of obligations owing to Borrower arising out of the sale or lease of goods (including, without limitation, the licensing of software
and other technology) or the rendering of services by Borrower and any and all credit insurance, guaranties, and other security
therefor, as well as all merchandise returned to or reclaimed by Borrower and Borrower’s Books relating to any of the foregoing.
“Advance” or “Advances” means a cash advance or cash advances under the Revolving Line.
“Affiliate” means, with respect to any Person, any Person that owns or controls directly or indirectly such Person, any Person that
controls or is controlled by or is under common control with such Person, and each of such Person’s senior executive officers,
directors, and general partners.
“Authorized Officer” means someone designated as such in the corporate resolution provided by Borrower to Bank in which this
Agreement and the transactions contemplated hereunder are authorized by Borrower’s board of directors. If Borrower provides
subsequent corporate resolutions to Bank after the Closing Date, the individual(s) designated as “Authorized Officer(s)” in the
most recently provided resolution shall be the only “Authorized Officers” for purposes of this Agreement.
“Bank Expenses” means all reasonable costs or expenses (including reasonable attorneys’ fees and expenses, whether generated
by in-house or by outside counsel) incurred in connection with the preparation, negotiation, administration, and enforcement of
the Loan Documents; reasonable Collateral audit fees; and Bank’s reasonable attorneys’ fees and expenses (whether generated
in-house or by outside counsel) incurred in amending, enforcing or defending the Loan Documents (including fees and expenses
of appeal), incurred before, during and after an Insolvency Proceeding, whether or not suit is brought.
“Borrower’s Books” means all of Borrower’s books and records, including: ledgers; records concerning Borrower’s assets or
liabilities, the Collateral, business operations or financial condition; and all computer programs, or tape files, and the equipment,
containing such information.
“Business Day” means any day that is not a Saturday, Sunday, or other day on which banks in the State of North Carolina are
authorized or required to close.
“Capitalized Expenditures” means current period unfinanced cash expenditures that are capitalized and amortized over a period
of time in accordance with GAAP, including but not limited to capitalized cash expenditures for capital equipment, capitalized
manufacturing and labor costs as they relate to inventory, and capitalized cash expenditures for software development.
“Cash” means unrestricted cash and cash equivalents.
1.
“Change in Control” shall mean (a) a transaction other than a bona fide equity financing or series of financings on terms and from
investors reasonably acceptable to Bank in which any “person” or “group” (within the meaning of Section 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934) becomes the “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange
Act of 1934), directly or indirectly, of a sufficient number of shares of all classes of stock then outstanding of Parent ordinarily
entitled to vote in the election of directors, empowering such “person” or “group” to elect a majority of the Board of Directors of
Parent, who did not have such power before such transaction; or (b) Borrower shall cease to own and control 100% of the equity
interests in each of its Subsidiaries.
“Closing Date” means the date of this Agreement.
“Code” means the North Carolina Uniform Commercial Code as amended or supplemented from time to time.
“Collateral” means the property described on Exhibit B attached hereto and all Negotiable Collateral to the extent not described
on Exhibit B, except to the extent any such property (i) is non-assignable by its terms without the consent of the licensor thereof
or another party (but only to the extent such prohibition on transfer is enforceable under applicable law, including, without
limitation, Sections §25-9-406 and §25-9-408 of the Code), (ii) is property for which the granting of a security interest therein is
contrary to applicable law, provided that upon the cessation of any such restriction or prohibition, such property shall
automatically become part of the Collateral, (iii) constitutes the capital stock of a controlled foreign corporation (as defined in the
IRC), in excess of 65% of the voting power of all classes of capital stock of such controlled foreign corporations entitled to vote,
(iv) property (including any attachments, accessions or replacements) that is subject to a Lien that is permitted pursuant to clause
(c) of the definition of Permitted Liens, if the grant of a security interest with respect to such property pursuant to this Agreement
would be prohibited by the agreement creating such Permitted Lien or would otherwise constitute a default thereunder, provided,
that such property will be deemed "Collateral" hereunder upon the termination and release of such Permitted Lien, or (v) is an
Excluded Account.
“Collateral State” means the state or states where the Collateral is located, which is North Carolina.
“Compliance Certificate” means a compliance certificate, in substantially the form of Exhibit D attached hereto, executed by a
Responsible Officer of Borrower.
“Contingent Obligation” means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person
with respect to (i) any indebtedness, lease, dividend, letter of credit or other obligation of another, including, without limitation,
any such obligation directly or indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by that Person, or in
respect of which that Person is otherwise directly or indirectly liable; (ii) any obligations with respect to undrawn letters of credit,
corporate credit cards or merchant services issued for the account of that Person; and (iii) all obligations arising under any interest
rate, currency or commodity swap agreement, interest rate cap agreement, interest rate collar agreement, or other agreement or
arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices;
provided, however, that the term “Contingent Obligation” shall not include endorsements for collection or deposit in the ordinary
course of
2.
business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of
the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof as determined by such Person in good faith; provided, however, that such
amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement.
“Copyrights” means any and all copyright rights, copyright applications, copyright registrations and like protections in each work
or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade
secret, now or hereafter existing, created, acquired or held.
“Credit Card Line” means a Credit Extension of up to $75,000, to be used exclusively for the provision of Credit Card Services.
“Credit Card Maturity Date” means the date that is 364 days after the Closing Date.
“Credit Extension” means each Advance, the Credit Card Services provided under the Credit Card Line, or any other extension of
credit by Bank to or for the benefit of Borrower hereunder.
“Deposit Account Threshold” means One Hundred Million Dollars ($100,000,000), provided that the calculation of Borrower’s
Cash held at Bank and Bank’s affiliates shall exclude any amounts held in Excluded Accounts for purposes of calculating whether
Borrower meets the Deposit Account Threshold as of any date of determination.
“Early Termination Fee” is defined in Section 2.5(c).
“Equipment” means all present and future machinery, equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts
and attachments in which Borrower has any interest.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder.
“Event of Default” has the meaning assigned in Article 8.
“Excluded Accounts” means deposit accounts exclusively used for payroll, payroll taxes, and other employee wage and benefit
payments to or for the benefit of Borrower’s employees and identified to Bank by Borrower as such; provided that the amount of
funds in such accounts does not at any time exceeds in the aggregate: the sum of (x) two (2) weeks of Borrower’s then-current
payroll expenses, plus (y) the amount held in trust for Borrower’s employees directly from employee wage and benefit payments.
“Extension Milestone” means Borrower has delivered evidence acceptable to Bank that Borrower has received, during the
twelve-month period beginning on March 1, 2019, aggregate gross Cash proceeds of not less than $175,000,000 from the
issuance of Borrower’s equity securities on term and conditions, and from investors, satisfactory to Bank. Bank acknowledges
that the Extension Milestone has been achieved on or prior to the Closing Date.
3.
“GAAP” means generally accepted accounting principles, consistently applied, as in effect from time to time in the United States.
“Indebtedness” means (a) all indebtedness for borrowed money or the deferred purchase price of property or services, including
without limitation reimbursement and other obligations with respect to surety bonds and letters of credit, (b) all obligations
evidenced by notes, bonds, debentures or similar instruments, (c) all capital lease obligations, and (d) all Contingent Obligations,
including but not limited to any sublimit contained herein.
“Insolvency Proceeding” means any proceeding commenced by or against any Person or entity under any provision of the United
States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law, including assignments for the benefit of
creditors, formal or informal moratoria, compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
“Intellectual Property” means all of Borrower’s right, title, and interest in and to the following:
(a) Copyrights, Trademarks and Patents;
(b) Any and all trade secrets, and any and all intellectual property rights in computer software and computer software products
now or hereafter existing, created, acquired or held;
(c) Any and all design rights which may be available to Borrower now or hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of past, present and future infringement of any of the rights included above, with the
right, but not the obligation, to sue for and collect such damages for said use or infringement of the intellectual property rights
identified above;
(e) All licenses or other rights to use any of the Copyrights, Patents or Trademarks, and all license fees and royalties arising
from such use to the extent permitted by such license or rights;
(f) All amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents; and
(g) All proceeds and products of the foregoing, including without limitation all payments under insurance or any indemnity or
warranty payable in respect of any of the foregoing.
“Inventory” means all present and future inventory in which Borrower has any interest.
“Investment” means any beneficial ownership of (including stock, partnership or limited liability company interest or other
securities) any Person, or any loan, advance or capital contribution to any Person.
“IRC” means the Internal Revenue Code of 1986, as amended, and the regulations thereunder.
“Letter of Credit” means a commercial or standby letter of credit or similar undertaking issued by Bank (or any of its
correspondent banks) at Borrower’s request.
4.
“Lien” means any mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance.
“Loan Documents” means, collectively, this Agreement, any note or notes executed by Borrower, and any other document,
instrument or agreement entered into in connection with this Agreement, all as amended or extended from time to time.
“Material Adverse Effect” means a material adverse effect on (i) the operations, business or financial condition of Borrower and
its Subsidiaries taken as a whole, (ii) the ability of Borrower to repay the Obligations or otherwise perform its obligations under
the Loan Documents, or (iii) Borrower’s interest in, or the value, perfection or priority of Bank’s security interest in the
Collateral.
“Negotiable Collateral” means all of Borrower’s present and future letters of credit of which it is a beneficiary, drafts, instruments
(including promissory notes), securities, documents of title, and chattel paper, and Borrower’s Books relating to any of the
foregoing.
“Obligations” means all debt, principal, interest, Bank Expenses, obligations in respect of Credit Card Services, and other
amounts owed to Bank by Borrower pursuant to this Agreement or any other agreement, whether absolute or contingent, due or to
become due, now existing or hereafter arising, including any interest that accrues after the commencement of an Insolvency
Proceeding and including any debt, liability, or obligation owing from Borrower to others that Bank may have obtained by
assignment or otherwise.
“Patents” means all patents, patent applications and like protections including without limitation improvements, divisions,
continuations, renewals, reissues, extensions and continuations-in-part of the same.
“Periodic Payments” means all installments or similar recurring payments that Borrower may now or hereafter become obligated
to pay to Bank pursuant to the terms and provisions of any instrument, or agreement now or hereafter in existence between
Borrower and Bank.
“Permitted Indebtedness” means:
(a) Indebtedness of Borrower in favor of Bank arising under this Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in the Schedule;
(c)
Indebtedness not to exceed $500,000 in the aggregate at any time secured by a lien described in clause (c) of the defined
term “Permitted Liens,” provided such Indebtedness does not exceed at the time it is incurred the lesser of the cost or fair market
value of the property financed with such Indebtedness;
(d) Subordinated Debt;
(e) Indebtedness from one Borrower to any other Borrower;
5.
(f)
Indebtedness to trade creditors incurred in the ordinary course of business; and
(g) Extensions, refinancings and renewals of any items of Permitted Indebtedness, provided that the principal amount is not
increased or the terms modified to impose more burdensome terms upon Borrower or its Subsidiary, as the case may be.
“Permitted Investment” means:
(a) Investments existing on the Closing Date disclosed in the Schedule;
(b) (i) Marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency or any
State thereof maturing within one year from the date of acquisition thereof, (ii) commercial paper maturing no more than one year
from the date of creation thereof and currently having rating of at least A-2 or P-2 from either Standard & Poor’s Corporation or
Moody’s Investors Service, (iii) Bank’s certificates of deposit maturing no more than one year from the date of investment
therein, and (iv) Bank’s money market accounts; (v) Investments in regular deposit or checking accounts held with Bank or as
otherwise permitted by, and subject to the terms and conditions of, Section 6.6 of this Agreement; and (vi) Investments consistent
with any investment policy adopted by Borrower’s board of directors;
(c) Investments accepted in connection with Permitted Transfers;
(d) Investments of Subsidiaries in or to other Subsidiaries or Borrower and Investments by Borrower in Subsidiaries not to
exceed $500,000 in the aggregate in any fiscal year;
(e) Investments not to exceed $500,000 outstanding in the aggregate at any time consisting of (i) travel advances and employee
relocation loans and other employee loans and advances in the ordinary course of business, and (ii) loans to employees, officers
or directors relating to the purchase of equity securities of Borrower or its Subsidiaries pursuant to employee stock purchase plan
agreements approved by Borrower’s Board of Directors;
(f)
Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or
suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary
course of Borrower’s business;
(g) Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers
who are not Affiliates, in the ordinary course of business, provided that this subparagraph (g) shall not apply to Investments of
Borrower in any Subsidiary;
(h) Joint ventures or strategic alliances in the ordinary course of Borrower’s business consisting of the non-exclusive licensing
of technology, the development of technology or the providing of technical support, provided that any cash Investments by
Borrower do not exceed $500,000 in the aggregate in any fiscal year; and
(i)
Investments permitted under Section 7.3.
“Permitted Liens” means the following:
6.
(a) Any Liens existing on the Closing Date and disclosed in the Schedule (excluding Liens to be satisfied with the proceeds of
the Credit Extensions) or arising under this Agreement, the other Loan Documents, or any other agreement in favor of Bank;
(b) Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good
faith by appropriate proceedings and for which Borrower maintains adequate reserves;
(c) Liens not to exceed $500,000 in the aggregate at any time (i) upon or in any Equipment (other than Equipment financed by a
Credit Extension) acquired or held by Borrower or any of its Subsidiaries to secure the purchase price of such Equipment or
indebtedness incurred solely for the purpose of financing the acquisition or lease of such Equipment, or (ii) existing on such
Equipment at the time of its acquisition, in each case provided that the Lien is confined solely to the property so acquired and
improvements thereon, and the proceeds of such Equipment;
(d) Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type
described in clauses (a) through (c) above, provided that any extension, renewal or replacement Lien shall be limited to the
property encumbered by the existing Lien and the principal amount of the indebtedness being extended, renewed or refinanced
does not increase; and
(e) Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under Sections
8.4 (attachment) or8.8 (judgments).
“Permitted Transfer” means the conveyance, sale, lease, transfer or disposition by Borrower or any Subsidiary of:
(a) Inventory in the ordinary course of business;
licenses and similar arrangements for the use of the property of Borrower or its Subsidiaries in the ordinary course of
(b)
business;
(c) worn-out, surplus or obsolete Equipment not financed with the proceeds of Credit Extensions;
(d) grants of security interests and other Liens that constitute Permitted Liens; and
(e) other assets of Borrower or its Subsidiaries that do not in the aggregate exceed $250,000 during any fiscal year.
“Person” means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated
organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or
governmental agency.
“Prime Rate” means the variable rate of interest, per annum, most recently announced by Bank, as its “prime rate,” whether or
not such announced rate is the lowest rate available from Bank.
“Responsible Officer” means each of the Chief Executive Officer, the Chief Operating Officer, the Chief Financial Officer, Vice
President of Finance and the Controller of Borrower, as well as any
7.
other officer or employee identified as an Authorized Officer in the corporate resolution delivered by Borrower to Bank in
connection with this Agreement.
“Revolving Line” means a Credit Extension of up to $50,000,000.
“Revolving Maturity Date” means May 15, 2020; provided, however, that if Borrower achieves the “Extension Milestone”, then
“Revolving Maturity Date” shall instead mean May 15, 2022.
“Schedule” means the schedule of exceptions attached hereto and approved by Bank, if any.
“Shares” means (i) sixty-five percent (65%) of the issued and outstanding capital stock, membership units or other securities
owned or held of record by Borrower in any Subsidiary of Borrower which is not an entity organized under the laws of the United
States or territory thereof, and (ii) one hundred percent (100%) of the issued and outstanding capital stock, membership units or
other securities owned or held of record by Borrower in any Subsidiary of Borrower which is an entity organized under the laws
of the United States or any territory thereof.
“SOS Reports” means the official reports from the Secretaries of State of each Collateral State, the state where Borrower’s chief
executive office is located, the state of Borrower’s formation and other applicable federal, state or local government offices
identifying all current security interests filed in the Collateral and Liens of record as of the date of such report.
“Subordinated Debt” means any debt incurred by Borrower that is subordinated in writing to the debt owing by Borrower to Bank
on terms reasonably acceptable to Bank (and identified as being such by Borrower and Bank).
“Subsidiary” means any corporation, partnership or limited liability company or joint venture in which (i) any general partnership
interest or (ii) more than 50% of the stock, limited liability company interest or joint venture of which by the terms thereof
ordinary voting power to elect the Board of Directors, managers or trustees of the entity, at the time as of which any
determination is being made, is owned by Borrower, either directly or through an Affiliate.
“Trademarks” means any trademark and servicemark rights, whether registered or not, applications to register and registrations of
the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by such
trademarks.
8.
DEBTOR
PRECISION BIOSCIENCES, INC.
SECURED PARTY:
PACIFIC WESTERN BANK
EXHIBIT B
COLLATERAL DESCRIPTION ATTACHMENT TO LOAN AND SECURITY AGREEMENT
All personal property of Borrower (herein referred to as “Borrower” or “Debtor”) whether presently existing or hereafter created
or acquired, and wherever located, including, but not limited to:
(a) all accounts (including health-care-insurance receivables), chattel paper (including tangible and electronic chattel paper),
deposit accounts, documents (including negotiable documents), equipment (including all accessions and additions thereto),
financial assets, general intangibles (including patents, trademarks, copyrights, goodwill, payment intangibles, domain names and
software), goods (including fixtures), instruments (including promissory notes), inventory (including all goods held for sale or
lease or to be furnished under a contract of service, and including returns and repossessions), investment property (including
securities and securities entitlements), letter of credit rights, money, and all of Debtor’s books and records with respect to any of
the foregoing, and the computers and equipment containing said books and records;
(b) any and all cash proceeds and/or noncash proceeds of any of the foregoing, including, without limitation, insurance
proceeds, and all supporting obligations and the security therefor or for any right to payment. All terms above have the meanings
given to them in the North Carolina Uniform Commercial Code, as amended or supplemented from time to time, including
revised Division 9 of the Uniform Commercial Code-Secured Transactions.
Notwithstanding the foregoing, the Collateral shall not include any of the intellectual property, in any medium,
of any kind or nature whatsoever, now or hereafter owned or acquired or received by Borrower, or in which Borrower now holds
or hereafter acquires or receives any right or interest (collectively, the “Intellectual Property”); provided, however, that the
Collateral shall include all accounts and general intangibles that consist of rights to payment and proceeds from the sale, licensing
or disposition of all or any part, or rights in, the foregoing (the “Rights to Payment”).
Notwithstanding the foregoing, if a judicial authority (including a U.S. Bankruptcy Court) holds that a security
interest in the underlying Intellectual Property is necessary to have a security interest in the Rights to Payment, then the Collateral
shall automatically, and effective as of May 15, 2019, include the Intellectual Property to the extent and only to the extent
necessary to permit perfection of Bank’s security interest in the Rights to Payment, and further provided, however, that Bank’s
enforcement rights with respect to any security interest in the Intellectual Property shall be absolutely limited to the Rights to
Payment only, and Bank shall have no recourse whatsoever with respect to the underlying Intellectual Property.
DEBTOR
ELO LIFE SYSTEMS, INC.
SECURED PARTY:
PACIFIC WESTERN BANK
EXHIBIT B-1
COLLATERAL DESCRIPTION ATTACHMENT TO LOAN AND SECURITY AGREEMENT
All personal property of Borrower (herein referred to as “Borrower” or “Debtor”) whether presently existing or hereafter created
or acquired, and wherever located, including, but not limited to:
(a) all accounts (including health-care-insurance receivables), chattel paper (including tangible and electronic chattel paper),
deposit accounts, documents (including negotiable documents), equipment (including all accessions and additions thereto),
financial assets, general intangibles (including patents, trademarks, copyrights, goodwill, payment intangibles, domain names and
software), goods (including fixtures), instruments (including promissory notes), inventory (including all goods held for sale or
lease or to be furnished under a contract of service, and including returns and repossessions), investment property (including
securities and securities entitlements), letter of credit rights, money, and all of Debtor’s books and records with respect to any of
the foregoing, and the computers and equipment containing said books and records;
(b) any and all cash proceeds and/or noncash proceeds of any of the foregoing, including, without limitation, insurance
proceeds, and all supporting obligations and the security therefor or for any right to payment. All terms above have the meanings
given to them in the North Carolina Uniform Commercial Code, as amended or supplemented from time to time, including
revised Division 9 of the Uniform Commercial Code-Secured Transactions.
Notwithstanding the foregoing, the Collateral shall not include any of the intellectual property, in any medium,
of any kind or nature whatsoever, now or hereafter owned or acquired or received by Borrower, or in which Borrower now holds
or hereafter acquires or receives any right or interest (collectively, the “Intellectual Property”); provided, however, that the
Collateral shall include all accounts and general intangibles that consist of rights to payment and proceeds from the sale, licensing
or disposition of all or any part, or rights in, the foregoing (the “Rights to Payment”).
Notwithstanding the foregoing, if a judicial authority (including a U.S. Bankruptcy Court) holds that a security
interest in the underlying Intellectual Property is necessary to have a security interest in the Rights to Payment, then the Collateral
shall automatically, and effective as of May 15, 2019, include the Intellectual Property to the extent and only to the extent
necessary to permit perfection of Bank’s security interest in the Rights to Payment, and further provided, however, that Bank’s
enforcement rights with respect to any security interest in the Intellectual Property shall be absolutely limited to the Rights to
Payment only, and Bank shall have no recourse whatsoever with respect to the underlying Intellectual Property.
EXHIBIT C
LOAN ADVANCE/PAYDOWN REQUEST FORM
[Please refer to New Borrower Kit]
EXHIBIT D
COMPLIANCE CERTIFICATE
[Please refer to New Borrower Kit]
SCHEDULE OF EXCEPTIONS
(omitted pursuant to SEC regulations)
Permitted Indebtedness (Exhibit A)
Permitted Investments (Exhibit A)
Prior Names (Section 5.5)
Litigation (Section 5.6)
Inbound Licenses (Section 5.12)
FIRST AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
This First Amendment to Loan and Security Agreement (this “Amendment”) is made and entered into as of September 18,
2019, by and among PACIFIC WESTERN BANK, a California state chartered bank (“Bank”), and PRECISION
BIOSCIENCES, INC. and ELO LIFE SYSTEMS, INC. (individually and collectively, jointly and severally, “Borrower”).
Borrower and Bank are parties to that certain Loan and Security Agreement dated as of May 15, 2019 (as amended from time
to time, the “Agreement”). The parties desire to amend the Agreement in accordance with the terms of this Amendment.
RECITALS
NOW, THEREFORE, the parties agree as follows:
1) Section 6.6 of the Agreement is hereby amended and restated, as follows:
6.6 Primary Depository. At all times when the aggregate balance of Borrower’s Cash at Bank and Bank’s affiliates is less
than the Deposit Account Threshold, Borrower shall maintain, and shall cause all of its Subsidiaries to maintain, all depository
and operating accounts with Bank and all investment accounts with Bank or Bank’s affiliates. At all times when the aggregate
balance of Borrower’s Cash at Bank and Bank’s affiliates equals or exceeds the Deposit Account Threshold, Borrower and its
Subsidiaries may maintain Cash balances that exceed the Deposit Account Threshold in depository, operating, and investments
accounts outside of Bank or Bank’s affiliates, so long as each such account outside of Bank is subject to a dulyexecuted
account control agreement in favor of Bank, and in form and substance reasonably satisfactory to Bank. Notwithstanding the
foregoing, Precision UK may maintain a bank account in the United Kingdom, with such account not subject to an account
control agreement in favor of Bank, so long as the balance in such account does not exceed $150,000 (or its USD equivalent)
at any time. Prior to Borrower maintaining any investment accounts with Bank’s affiliates, Borrower, Bank, and any such
affiliate shall have entered into a securities account control agreement with respect to any such investment accounts, in form
and substance reasonably satisfactory to Bank.
2) A new Section 7.13 is hereby added to the Agreement, as follows:
7.13 UK Subsidiary. Permit Precision UK to maintain cash exceeding $150,000 or non- cash assets exceeding a book value of
$50,000 at any time.
3) Bank’s notice addresses in Article 10 of the Agreement are hereby amended and restated, as follows:
If to Bank:
Pacific Western Bank
406 Blackwell Street, Suite 240
Durham, North Carolina 27701
Attn: Loan Operations Manager
with a Copy to:
FAX: (919) 314-3080
Email: loannotices@pacwest.com
Pacific Western Bank
131 Oliver Street, Suite 250
Boston, Massachusetts 02110 Attn: Scott Hansen
Email: shansen@pacwest.com
4) Subsection (d) of the defined term “Permitted Investment” in Exhibit A to the Agreement is hereby amended and restated,
as follows:
(d) Investments of Subsidiaries in or to other Subsidiaries or Borrower and Investments by Borrower in
Subsidiaries not to exceed $1,000,000 in the aggregate in any fiscal year;
5) The following defined term is hereby added to Exhibit A of the Agreement, as follows: “Precision UK” means Precision
Biosciences UK Limited, a private limited
company formed under the laws of England and Wales and a wholly owned Subsidiary of Borrower.
6) Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement. The
Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and
hereby is ratified and confirmed in all respects. Except as expressly set forth herein, the execution, delivery, and
performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of
Bank under the Agreement, as in effect prior to the date hereof. Each Borrower ratifies and reaffirms the continuing
effectiveness of all agreements entered into in connection with the Agreement.
7) Each Borrower represents and warrants that the representations and warranties contained in the Agreement are true and
correct in all material respects as of the date of this Amendment (except that any representations and warranties that
expressly refer to an earlier date shall be true and correct in all material respects as of such date, and except for
representations and warranties that by their terms include a materiality qualification, which shall be true and correct in all
respects).
8) This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
9) As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to
Bank, the following:
a)
this Amendment, duly executed by each Borrower;
b) payment for all Bank Expenses incurred through the date of this Amendment, including Bank’s expenses for the
documentation of this Amendment and any UCC, good standing or intellectual property search or filing fees, which
may be debited from any of Borrower’s accounts; and
c)
such other documents and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
[Signature Page Follows]
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.
PRECISION BIOSCIENCES, INC.
PACIFIC WESTERN BANK
/s/ Abid Ansari
By:
Name: Abid Ansari
Title: CFO
ELO LIFE SYSTEMS, INC.
/s/ Abid Ansari
By:
Name: Abid Ansari
CFO
Title:
By:
Name:
Title:
[Signature Page to First Amendment to Loan and Security Agreement]
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.
PRECISION BIOSCIENCES, INC.
PACIFIC WESTERN BANK
By:
Name:
Title:
ARTICLE 1.ELO LIFE SYSTEMS, INC.
By:
Name:
Title:
/s/ Joseph Holmes Dague
By:
Name: Joseph Holmes Dague
Senior Vice President
Title:
[Signature Page to First Amendment to Loan and Security Agreement]
SECOND AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
This Second Amendment to Loan and Security Agreement (this “Amendment”) is made and entered into as of December 3, 2019,
by and among PACIFIC WESTERN BANK, a California state chartered bank (“Bank”), and PRECISION BIOSCIENCES, INC.
and ELO LIFE SYSTEMS, INC. (individually and collectively, jointly and severally, “Borrower”).
RECITALS
Borrower and Bank are parties to that certain Loan and Security Agreement dated as of May 15, 2019 (as amended from time to
time, the “Agreement”). The parties desire to amend the Agreement in accordance with the terms of this Amendment.
NOW, THEREFORE, the parties agree as follows:
1) Section 6.6 of the Agreement is hereby amended and restated, as follows:
6.6 Primary Depository. At all times when the aggregate balance of Borrower’s Cash at Bank and Bank’s affiliates is
less than the Deposit Account Threshold, Borrower shall maintain, and shall cause all of its Subsidiaries to maintain, all
depository and operating accounts with Bank and all investment accounts with Bank or Bank’s affiliates. At all times when
the aggregate balance of Borrower’s Cash at Bank and Bank’s affiliates equals or exceeds the Deposit Account Threshold,
Borrower and its Subsidiaries may maintain Cash balances that exceed the Deposit Account Threshold in depository,
operating, and investments accounts outside of Bank or Bank’s affiliates, so long as each such account outside of Bank is
subject to a duly-executed account control agreement in favor of Bank, and in form and substance reasonably satisfactory to
Bank. Notwithstanding the foregoing, Precision UK may maintain a bank account in the United Kingdom, with such account
not subject to an account control agreement in favor of Bank, so long as the balance in such account does not exceed
£1,500,000 (or its US Dollar equivalent) at any time. Prior to Borrower maintaining any investment accounts with Bank’s
affiliates, Borrower, Bank, and any such affiliate shall have entered into a securities account control agreement with respect
to any such investment accounts, in form and substance reasonably satisfactory to Bank.
2) Section 7.13 of the Agreement is hereby amended and restated, as follows:
7.13 UK Subsidiary. Permit Precision UK to maintain cash exceeding £1,500,000 or non-cash assets exceeding a book
value of $50,000 at any time.
3) Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement. The
Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and
hereby is ratified and confirmed in all respects. Except as expressly set forth herein, the execution, delivery, and
performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of
Bank under the Agreement, as in effect prior to the date hereof. Each Borrower ratifies and reaffirms the continuing
effectiveness of all agreements entered into in connection with the Agreement.
4) Each Borrower represents and warrants that the representations and warranties contained in the Agreement are true and
correct in all material respects as of the date of this Amendment (except that any representations and warranties that
expressly refer to an earlier date shall be true and correct in all material respects as of such date, and except for
representations and warranties that by their terms include a materiality qualification, which shall be true and correct in all
respects).
5) This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
6) As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to
Bank, the following:
a)
this Amendment, duly executed by each Borrower;
b) payment for all Bank Expenses incurred through the date of this Amendment, including Bank’s expenses for the
documentation of this Amendment and any UCC, good standing or intellectual property search or filing fees, which may
be debited from any of Borrower’s accounts; and
c)
such other documents and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
[Signature Page Follows]
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.
PRECISION BIOSCIENCES, INC.
PRECISION BIOSCIENCES, INC.
/s/Abid Ansari
By:
Name: Abid Ansari
Title: CFO
ELO LIFE SYSTEMS, INC.
/s/Abid Ansari
By:
Name: Abid Ansari
Title: CFO
/s/Joseph Holmes Dague
By:
Name: Joseph Holmes Dague
Senior Vice President
Title:
[Signature Page to Second Amendment to Loan and Security Agreement]
THIRD AMENDMENT TO
LOAN AND SECURITY AGREEMENT
This Third Amendment to Loan and Security Agreement (this “Amendment”) is entered into as of June 23, 2020, by and
among PACIFIC WESTERN BANK, a California state chartered bank (“Bank”), and PRECISION BIOSCIENCES, INC. and
ELO LIFE SYSTEMS, INC. (individually and collectively, jointly and severally, “Borrower”).
RECITALS
Borrower and Bank are parties to that certain Loan and Security Agreement dated as of May 15, 2019 (as amended,
restated, supplemented or otherwise modified from time to time, the “Agreement”). The parties desire to amend the Agreement
in accordance with the terms of this Amendment, such amendment to become effective as of the Third Amendment Date.
NOW, THEREFORE, the parties agree as follows:
1) Amendments.
a) Section 2.1 (b) (i) of the Agreement is amended to read as follows:
(i)
Amount. Subject to and upon the terms and conditions of this Agreement, Borrower may request Advances in an
aggregate outstanding principal amount not to exceed the Revolving Line any time prior to the Revolving Maturity Date.
Advances may be repaid and reborrowed at any time prior to the Revolving Maturity Date. On the Revolving Maturity Date, all
Advances shall be immediately due and payable. Subject to Sections 2.5(c) and 2.5(f), Borrower may prepay any Advances
without penalty or premium at any time.
b) Section 2.3 (a) (i) of the Agreement is amended to read as follows:
(i) Advances. Except as set forth in Section 2.3(b), the Advances shall bear interest, on the outstanding daily balance
thereof, at a variable annual rate equal to the greater of (A) 2.75% above the Prime Rate, and (B) 6.00%.
c) Section 2.5 of the Agreement is amended to read as follows:
(a) Facility Fee. None.
the Closing Date, all Bank Expenses, as and when they become due.
(b) Bank Expenses. On the Closing Date, all Bank Expenses incurred through the Closing Date, and, after
(c) Early Termination Fee. If this Agreement is terminated before the Revolving Maturity Date for any
reason, including Bank’s election to terminate following the occurrence of an Event of Default, on the date of such termination, a
fee in an amount equal to Six Hundred Thousand Dollars ($600,000).
(d) Unused Fee. None.
(e) Success Fee. Upon the occurrence of a Success Fee Event, (i) a fee of $135,000 if paid on or before June
30, 2021, and (ii) a fee of $275,000 if paid after June 30, 2021 (the “Success Fee”). Borrower shall deliver reasonable advance
written notice to Bank of a Success Fee Event, and shall pay Bank the Success Fee within five (5) days upon receipt of proceeds
upon the consummation of a Success Fee Event. This Section 2.5(e) shall survive termination of this Agreement.
(f) Final Payment Fee. On the soonest to occur of (i) the Revolving Maturity Date, (ii) the date that
Borrower repays all Advances and elects to terminate the Revolving Line, and (iii) the date that the Advances become due or
Bank elects to terminate this Agreement in connection with the occurrence of an Event of Default, a fee equal to one percent
(1.00%) of the maximum principal amount of the Advances outstanding at any time.
d) Section 6.2 (a) (iii) of the Agreement is amended to read as follows:
(iii) an annual budget approved by Borrower’s Board of Directors as soon as available, but no later than the earlier of (i)
90 days after the end of each fiscal year of (ii) 15 days following approval by Borrower’s Board of Directors.
e) Section 6.6 of the Agreement is amended to read as follows:
6.6 Primary Depository. Within 60 days after the Third Amendment Date, Borrower shall maintain and shall cause of
its Subsidiaries to maintain the lesser of (a) $100,000,000, or (b) substantially all cash (other than cash held in Excluded
Accounts) in depositary and operating accounts with Bank, provided all cash held outside Bank shall be subject to an account
control agreement in favor of Bank. Notwithstanding the foregoing, Precision UK may maintain a bank account in the United
Kingdom, with such account not subject to an account control agreement in favor of Bank, so long as the balance in such account
does not exceed £1,500,000 (or its US Dollar equivalent) at any time.
f) Section 6.7 of the Agreement is amended to read as follows:
6.7 Financial Covenants. Borrower shall at all times maintain the following covenant:
(a) Minimum Cash . At all times, an aggregate balance of unrestricted cash at Bank (excluding any amounts
held in Excluded Accounts) equal to or greater than $10,000,000. Borrower acknowledges and agrees that any request by
Borrower or any other Person to pay or otherwise transfer funds that would cause Borrower’s balance of Cash at Bank to be less
than the amount required pursuant to this Section 6.7(a) shall constitute an Event of Default under this Agreement.
g) Exhibit A to the Agreement is amended by amending or restating, or adding, in appropriate alphabetical order, as
applicable, the following defined terms to read as follows:
then “Credit Card Maturity Date” shall instead mean June 23, 2023.
“Credit Card Maturity Date” means June 23, 2022, provided that if Borrower achieves the Extension Milestone,
“Extension Milestone” means Borrower has delivered evidence acceptable to Bank that Borrower has received
aggregate gross Cash proceeds of not less than $125,000,000 from the issuance of Borrower’s equity securities and/or upfront
Cash proceeds from strategic partnerships on terms and conditions reasonably satisfactory to Bank.
“Revolving Line” means a Credit Extension of up to $30,000,000.
then “Revolving Maturity Date” shall instead mean June 23, 2023.
“Revolving Maturity Date” means June 23, 2022, provided that if Borrower achieves the Extension Milestone,
“Success Fee Event” is (a) any merger or consolidation of Borrower with or into another entity (except one in
which the holders of equity of the Borrower immediately prior to such merger or consolidation continue to hold at least a majority
of the voting power of the equity interests in the surviving entity), (b) any sale of all or substantially all of the assets of Borrower
and its Subsidiaries taken as a whole (in one or more related and contemporaneous transactions), or (c) closing of one or more
related and contemporaneous sales or issuances of Borrower’s equity or Subordinated Debt securities and/or up-front cash
proceeds from one or more strategic partnerships in which the aggregate gross cash proceeds to Borrower are at least
$50,000,000.
“Third Amendment Date” means June 23, 2020.
h) Exhibit D to the Agreement is amended as set forth in Exhibit D attached hereto.
2) Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement. The
Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its terms. Except as
expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as
an amendment of, any right, power, or remedy of Bank under the Agreement, as in effect prior to the date hereof. Borrower
ratifies and reaffirms the continuing effectiveness of all agreements entered into in connection with the Agreement and the
security interest as granted as of the Closing Date continues without novation. Unused Fees accruing before the Third
Amendment Date are not refundable. The Early Termination Fee provided for in Section 2.5(c) in effect before the Third
Amendment Date is superseded by the fee provided for in this Amendment in respect of Section 2.5(c).
3) Borrower represents and warrants that the representations and warranties contained in the Agreement are true and correct in
all material respects as of the date of this Amendment (provided, that those representations and warranties expressly
referring to another date are true and correct in all material respects as of such date, and provided further that any
representation or warranty that contains a materiality qualification therein is true and correct in all respects). No Event of
Default or failure of condition has occurred or exists, or would exist with notice or lapse of time or both under the
Agreement or any other Loan Document. A true and correct copy of each of Borrower’s certificate of incorporation and
bylaws, as in effect as of the Third Amendment Date has been delivered to Bank.
4) This Amendment and any documents executed in connection herewith or pursuant hereto contain the entire agreement
between the parties with respect to the subject matter hereof and supersede all prior agreements, understandings, offers and
negotiations, oral or written, with respect thereto and no extrinsic evidence whatsoever may be introduced in any judicial or
arbitration proceeding, if any, involving this Amendment; except that any financing statements or other agreements or
instruments filed by Bank with respect to Borrower remain in full force and effect.
5) This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
6) The terms of Article 11 of the Agreement are incorporated by reference herein, mutatis mutandis.
7) As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance reasonably
satisfactory to Bank, the following:
a)
b)
this Amendment, duly executed by Borrower and Bank;
an officer’s certificate of Borrower with respect to incumbency and resolutions authorizing the execution and delivery
of this Amendment;
c) payment of Bank Expenses, which may be debited from any of Borrower’s deposit account maintained with Bank; and
d)
such other documents and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
[SIGNATURE PAGE FOLLOWS]
[SIGNATURE PAGE TO THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.
PRECISION BIOSCIENCES, INC.
/s/ Abid Ansari
By:
Name: Abid Ansari
Title: CFO
ELO LIFE SYSTEMS, INC.
/s/ Fayaz Khazi
By:
Name: Fayaz Khazi
Title: CEO
PACIFIC WESTERN BANK
/s/ Scott Hansen
By:
Name: Scott Hansen
EVP
Title:
EXHIBIT D
COMPLIANCE CERTIFICATE
[***]
SCHEDULE OF EXCEPTIONS
Permitted Indebtedness (Exhibit A) – [***]
Permitted Investments (Exhibit A) – [***]
Permitted Liens (Exhibit A) – [***]
Prior Names (Section 5.5) –
Elo Life Systems, Inc. was formerly known as Precision PlantSciences, Inc.
Litigation (Section 5.6) – [***]
Inbound Licenses (Section 5.12) – [***]
FOURTH AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
This Fourth Amendment to Loan and Security Agreement (this “Amendment”) is made and entered into as of December 3, 2020,
by and among PACIFIC WESTERN BANK, a California state chartered bank (“Bank”), and PRECISION BIOSCIENCES, INC.
and ELO LIFE SYSTEMS, INC. (individually and collectively, jointly and severally, “Borrower”).
Borrower and Bank are parties to that certain Loan and Security Agreement dated as of May 15, 2019 (as amended from time to
time, the “Agreement”). The parties desire to amend the Agreement in accordance with the terms of this Amendment.
NOW, THEREFORE, the parties agree as follows:
RECITALS
1) Bank hereby waives any and all of Borrower’s violations of the Primary Depository covenant, as more particularly
described in Section 6.6 of the Agreement (as such section was in effect immediately prior to the effectiveness of this
Amendment), occurring on or before the date hereof, for maintaining cash in an account outside of Bank not subject to
an account control agreement in favor of Bank.
2) Section 6.6 of the Agreement is hereby amended and restated, as follows:
6.6 Primary Depository. Borrower shall maintain and shall cause all of its Subsidiaries to maintain the lesser of (a)
$100,000,000, or (b) substantially all cash (other than cash held in Excluded Accounts) in depository and operating accounts
with Bank, provided all cash held outside Bank shall be subject to an account control agreement in favor of Bank.
Notwithstanding the foregoing, (a) Precision UK may maintain a bank account in the United Kingdom, with such account not
subject to an account control agreement in favor of Bank, so long as the balance in such account does not exceed £1,500,000
(or its US Dollar equivalent) at any time, and (b) ELO Australia may maintain a bank account with National Australia Bank,
with such account not subject to an account control agreement in favor of Bank, so long as the balance in such account does
not exceed $250,000 AUD (or its US Dollar equivalent) at any time.
3) The following defined term is hereby added to Exhibit A of the Agreement, as follows:
“ELO Australia” means ELO Life Systems Australia Pty LTD, a proprietary limited company formed under the
laws of Australia and a wholly owned Subsidiary of ELO Life Systems, Inc.
4) Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement. The
Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and
hereby is ratified and confirmed in all respects. Except as expressly set forth herein, the execution, delivery, and
performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of
Bank under the
Agreement, as in effect prior to the date hereof. Each Borrower ratifies and reaffirms the continuing effectiveness of all
agreements entered into in connection with the Agreement.
5) Each Borrower represents and warrants that the representations and warranties contained in the Agreement are true and
correct in all material respects as of the date of this Amendment (except that any representations and warranties that
expressly refer to an earlier date shall be true and correct in all material respects as of such date, and except for
representations and warranties that by their terms include a materiality qualification, which shall be true and correct in all
respects).
6) This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one instrument.
7) As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to
Bank, the following:
a.
this Amendment, duly executed by each Borrower;
b.
payment for all Bank Expenses incurred through the date of this Amendment, including Bank’s expenses for the
documentation of this Amendment and any UCC, good standing or intellectual property search or filing fees,
which may be debited from any of Borrower’s accounts; and
c.
such other documents and completion of such other matters, as Bank may reasonably deem necessary or
appropriate.
[Signature Page Follows]
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.
PRECISION BIOSCIENCES, INC.
PACIFIC WESTERN BANK
/s/ Abid Ansari_
By:
Name: Abid Ansari_
Title: CFO
ELO LIFE SYSTEMS, INC.
/s/ Fayaz Khazi
By:
Name: Fayaz Khazi
Title: CEO
/s/ Ashley N. Pittman
By:
Name: Ashley N. Pittman
Title:
SVP
[Signature Page to Fourth Amendment to Loan and Security Agreement]
CONSENT AND FIFTH AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
This Consent and Fifth Amendment to Loan and Security Agreement (the “Amendment”), is entered into as of May 18, 2021, by
and among PACIFIC WESTERN BANK, a California state chartered bank (the “Bank”) and PRECISION BIOSCIENCES, INC.
(“Precision”) and ELO LIFE SYSTEMS, INC. (“ELO”, and individually and collectively, jointly and severally, with Precision,
the “Borrower”).
RECITALS
Borrower and Bank are parties to that certain Loan and Security Agreement dated as of May 15, 2019 (as amended from time to
time, the “Agreement”). The parties desire to amend the Agreement in accordance with the terms of this Amendment.
NOW, THEREFORE, the parties agree as follows:
1) Contingent upon the upfront re-purchase price not exceeding $25,000,000 and no more than $2,000,000 of such re-
purchase price being paid in cash, Bank hereby consents to Precision entering into the Program Purchase Agreement,
dated on or about April 9, 2021, in substantially the form delivered to Bank on the date of this Amendment (the “PPA”),
which when effective will (i) terminate that certain Development and Commercial License Agreement, effective
February 24, 2016, as amended, by and among Precision, Les Laboratoires Servier, a corporation incorporated under the
laws of France having a principal place of business at 50 rue Carnot, 92150 Suresnes, France (“LLS”) and Institut De
Recherches Internationales Servier, a corporation incorporated under the laws of France having its principal place of
business at 50 rue Carnot, 92150 Suresnes, France (“IRIS”) (LLS and IRIS together jointly and severally, “Servier”), and
(ii) result in Precision re-acquiring the rights of Servier under the Reversion Program (as defined in the PPA).
2) Subject to the Obligations (as defined in the ELO LSA) thereunder being guaranteed by Precision, Bank hereby
consents to ELO entering into a Loan and Security Agreement with Bank (the “ELO LSA”), under which Bank agrees to
make a term loan to Borrower in an aggregate principal amount not to exceed $2,500,000.
3) Section 6.8(a) of the Agreement is hereby amended and restated, as follows:
(a)
Within 30 days after the last day of each quarter, Borrower shall promptly give Bank written notice of any
applications or registrations of intellectual property rights filed with the United States Patent and Trademark Office,
including the date of such filing and the registration or application numbers, if any.
4) The following definition in Exhibit A to the Agreement is hereby amended and restated, as follows:
“Shares” means one hundred percent (100%) of the issued and outstanding capital stock, membership units, or
other securities owned or held of record by Borrower in any Subsidiary of Borrower.
5) No course of dealing on the part of Bank or its officers, nor any failure or delay in the exercise of any right by Bank,
shall operate as a waiver thereof, and any single or partial exercise of any such right shall not preclude any later exercise
of any such right. Bank's failure at any time to require strict performance by Borrower of any provision shall not affect
any right of Bank thereafter to demand strict compliance and performance. Any suspension or waiver of a right must be
in writing signed by an officer of Bank.
6) Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement. The
Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and
hereby is ratified and confirmed in all respects. Except as expressly set forth herein, the execution, delivery, and
performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of
Bank under the Agreement, as in effect prior to the date hereof. Borrower ratifies and reaffirms the continuing
effectiveness of all agreements entered into in connection with the Agreement.
7) Borrower represents and warrants that the representations and warranties contained in the Agreement are true and
correct as of the date of this Amendment, and that no Event of Default has occurred and is continuing.
8) This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one instrument.
9) As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to
Bank, the following:
a)
this Amendment, duly executed by Borrower;
b)
an officer’s certificate of Borrower with respect to incumbency and resolutions authorizing the execution and
delivery of this Amendment;
c) payment of all Bank expenses, including Bank’s expenses for the documentation of this amendment and any related
documents, and any UCC, good standing or intellectual property search or filing fees, which may be debited from
any of Borrower's accounts; and
d)
such other documents and completion of such other matters, as Bank may reasonably deem necessary or
appropriate.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date
above written.
PRECISION BIOSCIENCES, INC.
PACIFIC WESTERN BANK
By: /s/ John Alexander Kelly
Name: John Alexander Kelly
Title: Interim Chief Financial Officer
ELO LIFE SYSTEMS, INC.
By: /s/ Fayaz Khazi
Name: Fayaz Khazi
Title: CEO
By: /s/ Ashley Pittman
Name: Ashley Pittman
Title: SVP
CONSENT AND SIXTH AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
This Consent and Sixth Amendment to Loan and Security Agreement (this “Amendment”), is entered into as of December 17,
2021, by and among PACIFIC WESTERN BANK, a California state-chartered bank (the “Bank”), PRECISION BIOSCIENCES,
INC. (“Precision”), and ELO LIFE SYSTEMS, INC. (“ELO”, and individually and collectively, jointly and severally, with
Precision, the “Borrower”).
RECITALS
Borrower and Bank are parties to that certain Loan and Security Agreement dated as of May 15, 2019 (as has been and may be
further amended from time to time, the “Agreement”). The parties desire to amend the Agreement in accordance with the terms
of this Amendment.
NOW, THEREFORE, the parties agree as follows:
1) Precision, ELO, and AccelR8 Venture Fund I LLC, a Delaware limited liability company (“AccelR8”) have executed a
Letter of Intent (see Appendix I) to establish the principal terms pursuant to which (i) substantially all of the assets of
ELO will be spun-out from Precision; (ii) ELO and Precision will enter into (a) a Contribution Agreement (see Appendix
II) relating to the creation of a new company, Epsilon Holdings, Inc., a Delaware corporation (“New ELO”), which will
own substantially all of the assets and will assume certain liabilities of ELO, and (b) an Inter-Company License
Agreement (see Appendix III), under which Precision will grant a royalty-free license to New ELO to use certain of
Precision’s technology for plant and other specified applications; and (iii) New ELO will complete an offering of its
Series A Preferred Stock in a financing round (the “Series A Round”) led by AccelR8 ((i), (ii), and (iii) being
collectively, the “Contemplated Transactions”).
2) As consideration for the Contemplated Transactions, Precision will (i) receive a nonconvertible promissory note in the
face amount of Ten Million Dollars ($10,000,000) payable by New ELO (the “New ELO Note”), and (ii) New ELO will
issue to Precision 14,284 shares of common stock or approximately thirty-one percent (31%) of the fully-diluted
ownership of New ELO, as adjusted for the closing of the Series A Round.
3) Subject to the Obligations (as defined in that certain Loan and Security Agreement, dated May 19, 2021, by and
between Bank and ELO) being indefeasibly repaid in full, Bank hereby consents to Borrower entering into the
Contemplated Transactions.
4) Bank hereby consents to the dissolution and winding up of ELO following the consummation of the Contemplated
Transactions in accordance with applicable law. Immediately upon a certificate of dissolution filed with the Secretary of
State of the State of Delaware becoming effective, all references to “Borrower” in the Agreement shall be deemed to
refer only to Precision and not to ELO.
5) Section 2.1(b)(ii) of the Agreement is hereby amended by deleting the phrase “by facsimile transmission or email to be
received no later than 3:30 p.m. Eastern time” and replacing it with the phrase “by email (or, if permitted by Bank,
through the use of an E-System) to be received no later than 3:30 p.m. Eastern time”.
6) Section 5.7 of the Agreement is hereby amended by deleting the phrase “that are delivered by Borrower to Bank fairly
present in all material respects” and replacing it with the phrase “that are delivered by Borrower to Bank or otherwise
submitted to Bank fairly present in all material respects”.
7) Section 5.14 of the Agreement is hereby amended and restated as follows:
5.14 Full Disclosure. No representation, warranty or other statement made by Borrower in any
report, certificate, or written statement furnished or submitted to Bank taken together with all such reports,
certificates, and written statements furnished or submitted to Bank contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements contained in such reports, certificates, or
statements not misleading in light of the circumstances in which they were made, it being recognized by Bank
that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions
are not to be viewed as facts and that actual results during the period or periods covered by any such projections
and forecasts may differ from the projected or forecasted results.
8) The last paragraph of Section 6.2 of the Agreement is hereby deleted in its entirety and replaced with the following two
paragraphs, as follows:
Borrower may deliver to Bank on an electronic basis any certificates, reports, requests, or information
required pursuant to this Section 6.2, and Bank shall be entitled to rely on the information contained in the
electronic files, provided that Bank in good faith believes that the files were delivered by, or on behalf of, a
Responsible Officer. Borrower shall include a submission date on any certificates, statements, and reports to be
delivered electronically.
Any submission by Borrower of a Compliance Certificate, Borrowing Base Certificate or other
financial statement pursuant to this Section 6.2 or otherwise submitted to Bank shall be deemed to be a
representation by Borrower that (i) as of the date of such Compliance Certificate, Borrowing Base Certificate,
financial statement, or request, the information and calculations set forth therein are true, accurate and correct,
(ii) as of the end of the compliance period set forth in such submission, Borrower is in complete compliance
with all required covenants except as noted in such Compliance Certificate, Borrowing Base Certificate or
financial statement, as applicable; (iii) as of the date of such submission, no Events of Default have occurred or
are continuing; and (iv) all representations and warranties other than any representations or warranties that are
made as of a specific date in Section 5 remain true and correct in all material respects as of the date of such
submission except as noted in such Compliance Certificate, Borrowing Base Certificate, financial statement, or
request, as applicable.
9) Section 8.8 of the Agreement is hereby amended and restated as follows:
8.8 Misrepresentations. If any material misrepresentation or material misstatement exists now or
hereafter in any warranty or representation set forth herein or in any report, certificate or other writing delivered
to Bank by any Responsible Officer pursuant to this Agreement or to induce Bank to enter into this Agreement
or any other Loan Document.
10) Section 12.6 of the Agreement is hereby amended and restated as follows:
12.6 Counterparts; Electronic Transmission; Electronic Signatures. This Agreement may be
executed in any number of counterparts and by different parties on separate counterparts, each of which, when
executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute
but one and the same Agreement. Executed copies of this Agreement or the signature pages of this Agreement
sent by facsimile or transmitted electronically in Portable Document Format (“PDF”) or any similar format, or
transmitted electronically by digital image, DocuSign, or other means of electronic transmission, shall be treated
as originals, fully binding and with full legal force and effect, and the parties waive any rights they may have to
object to such treatment. The words “execution,” “signed,” “signature,” “delivery,” and words of like import in
or relating to this Agreement and/or any document to be signed in connection with this Agreement and the
transactions contemplated hereby shall be deemed to include Electronic Signatures (as defined below),
deliveries or the keeping of records in electronic form, each of which shall be of the same legal effect, validity
or enforceability as a manually executed signature, physical delivery thereof or the use of a paper-based
recordkeeping system, as the case may be. As used herein, “Electronic Signatures” means any electronic symbol
or process attached to, or associated with, any contract or other record and adopted by a person with the intent to
sign, authenticate or accept such contract or record.
11) A new Section 12.9 is hereby added to the Agreement, as follows:
12.9 E-Systems. Bank is hereby authorized by Borrower to establish procedures (and to amend such
procedures from time to time) to facilitate administration and servicing of the Credit Extensions and other
matters incidental thereto. Without limiting the generality of the foregoing, Bank is hereby authorized to
establish procedures to make available or deliver, or to accept, notices, documents and similar items, by posting
to or submitting and/or completion, on E-Systems. Borrower acknowledges and agrees that the use of
transmissions via an E-System or electronic mail is not necessarily secure and that there are risks associated
with such use, including risks of interception, disclosure and abuse, and Borrower assumes and accepts such
risks by hereby authorizing the transmission via E-Systems or electronic mail. All uses of an E-System shall be
governed by and subject to, in addition to this Section, the separate terms and conditions posted or referenced in
such E-System (or such terms and conditions as may be updated from time to time, including on such E-System)
and related contractual obligations executed by
Borrower in connection with the use of such E-System. ALL E-SYSTEMS AND ELECTRONIC
TRANSMISSIONS SHALL BE PROVIDED “AS-IS” AND “AS AVAILABLE”. NO REPRESENTATION OR
WARRANTY OF ANY KIND IS MADE BY BANK OR ANY OF ITS AFFILIATES IN CONNECTION
WITH ANY ESYSTEMS.
12) Section 13.1 of the Agreement is hereby amended and restated, as follows:
13.1 Primary Obligation. This Agreement is a primary and original obligation of each Borrower and
shall remain in effect notwithstanding future changes in conditions, including any change of law or any
invalidity or irregularity in the creation or acquisition of any Obligations or in the execution or delivery of any
agreement between Bank and any Borrower. Each Borrower shall be liable for existing and future Obligations as
fully as if all of all Credit Extensions were advanced to such Borrower. Bank may rely on any certificate, report,
or representation made by any Borrower as made on behalf of, and binding on, all Borrowers, including without
limitation any Disbursement Request Forms, Borrowing Base Certificates, Compliance Certificates, and
Accordion Option Request.
13) Exhibit A to the Agreement is hereby amended by adding the defined term and its definition
thereto, in the appropriate alphabetical order:
“E-System” means any electronic system approved by Bank, including any Internet or extranet-based site,
whether such electronic system is owned, operated or hosted by Bank, any of its Affiliates or any other Person,
providing for access to data protected by passcodes or other security system, or otherwise used to facilitate
communication between Borrower and Bank with respect to the Loan Documents.
14) The following definition in Exhibit A to the Agreement is hereby amended and restated, as follows:
“Shares” means (i) one hundred percent (100%) of the issued and outstanding capital stock, membership units,
or other securities owned or held of record by Borrower in any Subsidiary of Borrower and (ii) all of the issued
and outstanding common stock owned or held of record by Borrower in Epsilon Holdings, Inc., a Delaware
corporation.
15) No course of dealing on the part of Bank or its officers, nor any failure or delay in the exercise of any right by Bank,
shall operate as a waiver thereof, and any single or partial exercise of any such right shall not preclude any later exercise
of any such right. Bank's failure at any time to require strict performance by Borrower of any provision shall not affect
any right of Bank thereafter to demand strict compliance and performance. Any suspension or waiver of a right must be
in writing signed by an officer of Bank.
16) Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement. The
Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and
hereby is ratified and confirmed in all respects.
Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a
waiver of, or as an amendment of, any right, power, or remedy of Bank under the Agreement, as in effect prior to the
date hereof. Borrower ratifies and reaffirms the continuing effectiveness of all agreements entered into in connection
with the Agreement.
17) Borrower represents and warrants that the representations and warranties contained in the Agreement are true and
correct as of the date of this Amendment, and that no Event of Default has occurred and is continuing.
18) This Amendment may be executed in any number of counterparts and by different parties on separate counterparts, each
of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall
constitute but one and the same Amendment. Executed copies of this Amendment or the signature pages of this
Amendment sent by facsimile or transmitted electronically in Portable Document Format (“PDF”) or any similar format,
or transmitted electronically by digital image, DocuSign, or other means of electronic transmission, shall be treated as
originals, fully binding and with full legal force and effect, and the parties waive any rights they may have to object to
such treatment. The words “execution,” “signed,” “signature,” “delivery,” and words of like import in or relating to this
Amendment and/or any document to be signed in connection with this Amendment and the transactions contemplated
hereby shall be deemed to include Electronic Signatures (as defined below), deliveries or the keeping of records in
electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed
signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the case may be. As used
herein, “Electronic Signatures” means any electronic symbol or process attached to, or associated with, any contract or
other record and adopted by a person with the intent to sign, authenticate or accept such contract or record.
19) As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to
Bank, the following:
a)
b)
this Amendment, duly executed by Borrower;
an officer’s certificate of each Borrower with respect to incumbency and resolutions authorizing the execution and
delivery of this Amendment;
c)
a collateral assignment of the New ELO Note, duly executed by Precision;
d)
a Stock Power, duly executed by Precision in blank, for the shares of New ELO common stock issued to Precision
in connection with the Contemplated Transactions;
e) payment of all Bank expenses, including Bank’s expenses for the documentation of this Amendment and any related
documents, and any UCC, good standing or intellectual property search or filing fees, which may be debited from
any of Borrower's accounts; and
f)
such other documents and completion of such other matters, as Bank may reasonably deem necessary or
appropriate.
[Signatures appear on the following page.]
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date
above written.
PRECISION BIOSCIENCES, INC.
PACIFIC WESTERN BANK
By: /s/ John Alexander Kelly
Name: John Alexander Kelly
Title: Chief Financial Officer
ELO LIFE SYSTEMS, INC.
By:
/s/ Dario Scimeca
Name: Dario Scimeca
Title: General Counsel & Secretary
By: /s/ Ashley Pittman
Name: Ashley Pittman
Title: SVP Portfolio Manager
APPENDIX I
LETTER OF INTENT
[***]
APPENDIX II
CONTRIBUTION AGREEMENT
[***]
APPENDIX III
INTER-COMPANY LICENSE AND ASSIGNMENT AGREEMENT
[***]
EXHIBIT C
IP Assignment
[***]
SEVENTH AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
This Seventh Amendment to Loan and Security Agreement (this “Amendment”) is entered into as of May 27, 2022, by and among
PACIFIC WESTERN BANK, a California state-chartered bank (“Bank”), PRECISION BIOSCIENCES, INC. (“Precision”), and
PRECISION PLANTSCIENCES, INC. f/k/a ELO LIFE SYSTEMS, INC. (“PlantSciences” or “ELO”, and individually and collectively,
jointly and severally, with Precision, “Borrower”).
Borrower and Bank are parties to that certain Loan and Security Agreement dated as of May 15, 2019 (as has been and may be
further amended, restated, supplemented, or otherwise modified from time to time, the “Agreement”). The parties desire to amend the
Agreement in accordance with the terms of this Amendment.
RECITALS
NOW, THEREFORE, the parties agree as follows:
1)
Amendments.
a)
ELO hereby confirms that it changed its legal name to PRECISION PLANTSCIENCES, INC. on December 21, 2021. Bank and
each Borrower hereby agree that the Agreement, the prior amendments, and any and all other Loan Documents are hereby
amended wherever necessary to reflect that the legal name of ELO LIFE SYSTEMS, INC. has changed to PRECISION
PLANTSCIENCES, INC.
b)
Section 2.3(a)(i) of the Agreement is hereby amended and restated in its entirety to read as follows:
(i)
Advances. Except as set forth in Section 2.3(b), the Advances shall bear interest, on the outstanding daily balance
thereof, at a variable annual rate equal to the greater of (A) 0.75% above the Prime Rate, and (B) 4.25%.
c)
Section 2.5(a) of the Agreement is hereby amended and restated in its entirety to read as follows:
(a)
Facility Fee. On the Seventh Amendment Date, a fee in an amount equal to Thirty Thousand Dollars ($30,000).
d)
Section 2.5(e) of the Agreement is hereby amended and restated in its entirety to read as follows:
(e) Success Fee. Upon the occurrence of a Success Fee Event, a one-time fee of (i) $150,000 if paid on or before
December 31, 2022, or (ii) $250,000 if paid after December 31, 2022 (the “Success Fee”). Borrower shall
deliver reasonable advance written notice to Bank of a Success Fee Event, and shall pay Bank the Success
Fee no later than five (5) days following receipt of proceeds upon the consummation of a Success Fee Event.
This Section 2.5(e) shall survive termination of this Agreement. For the avoidance of doubt, the occurrence
of more than one Success Fee Event will not obligate Borrower to pay more than one Success Fee.
e)
Section 5.8 of the Agreement is hereby amended and restated in its entirety to read as follows:
5.8 Solvency, Payment of Debts. Precision is able to pay its debts (including trade debts) as they mature; the fair
saleable value of Precision’s assets (including goodwill minus disposition
costs) exceeds the fair value of its liabilities; and Precision is not left with unreasonably small capital after the transactions
contemplated by this Agreement.
f)
Exhibit A to the Agreement is amended by amending and restating in their entirety, or adding, in appropriate alphabetical order,
as applicable, the following defined terms to read as follows:
“Credit Card Maturity Date” means June 23, 2023; provided however, that (i) if Borrower achieves Extension Milestone 1,
the “Credit Card Maturity Date” shall instead mean August 31, 2023; (ii) if Borrower achieves Extension Milestone 1 and Extension
Milestone 2, the “Credit Card Maturity Date” shall instead mean March 23, 2024; and (iii) if Borrower achieves Extension Milestone 1,
Extension Milestone 2, and Extension Milestone 3, the “Credit Card Maturity Date” shall instead mean June 23, 2024.
that Borrower has received aggregate New Gross Proceeds of at least Twenty Million Dollars ($20,000,000).
“Extension Milestone 1” means Borrower has delivered to Bank, on or before June 23, 2023, evidence acceptable to Bank
Bank that Borrower has received aggregate New Gross Proceeds of at least Seventy-Five Million Dollars ($75,000,000).
“Extension Milestone 2” means Borrower has delivered to Bank, on or before August 31, 2023, evidence acceptable to
Bank that Borrower has received aggregate New Gross Proceeds of at least One Hundred Million Dollars ($100,000,000).
“Extension Milestone 3” means Borrower has delivered to Bank, on or before March 23, 2024, evidence acceptable to
“New Gross Proceeds” means gross Cash proceeds received by Borrower on or after May 1, 2022, from (i) the issuance of
Borrower’s equity securities (including without limitation, from at-the market (ATM) offerings, private investment in public equity (PIPE)
offerings, follow-on offerings, or other public or private offerings) or (ii) Cash proceeds from strategic partnerships or other out-licensing or
similar arrangements (including without limitation, new target nomination fees or option exercise fees and any royalties or development or
commercial milestone payments); in either case, whether arising under agreements entered into before, on or after the Seventh Amendment
Date, and on commercially reasonable terms and conditions.
“Revolving Maturity Date” means June 23, 2023; provided however, that (i) if Borrower achieves Extension Milestone 1,
the “Revolving Maturity Date” shall instead mean August 31, 2023; (ii) if Borrower achieves Extension Milestone 1 and Extension Milestone
2, the “Revolving Maturity Date” shall instead mean March 23, 2024; and (iii) if Borrower achieves Extension Milestone 1, Extension
Milestone 2, and Extension Milestone 3, the “Revolving Maturity Date” shall instead mean June 23, 2024.
“Seventh Amendment Date” means May 27, 2022.
“Success Fee Event” is (a) any merger or consolidation of Precision with or into another entity (except one in which the
holders of equity of Precision immediately prior to such merger or consolidation continue to hold at least a majority of the voting power of
the equity interests in the surviving entity), (b) any sale of all or substantially all of the assets of Precision and its Subsidiaries taken as a
whole (in one or more related and contemporaneous transactions), or (c) closing of one or more related and contemporaneous transactions in
which the aggregate New Gross Proceeds to Precision are at least Seventy-Five Million Dollars ($75,000,000).
2)
No course of dealing on the part of Bank or its officers, nor any failure or delay in the exercise of any right by Bank, shall operate as a
waiver thereof, and any single or partial exercise of any such right shall not preclude any later exercise of any such right. Bank's failure
at any time to require strict performance by Borrower of any provision shall not affect any right of Bank thereafter to demand strict
compliance and performance. Any
3)
4)
5)
6)
7)
suspension or waiver of a right must be in writing signed by an officer of Bank.
Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement. The Agreement, as
amended hereby, shall be and remain in full force and effect in accordance with its respective terms and hereby is ratified and
confirmed in all respects. Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not
operate as a waiver of, or as an amendment of, any right, power, or remedy of Bank under the Agreement, as in effect prior to the date
hereof. Borrower ratifies and reaffirms the continuing effectiveness of all agreements entered into in connection with the Agreement.
Borrower represents and warrants that the representations and warranties contained in the Agreement are true and correct as of the date
of this Amendment, and that no Event of Default has occurred and is continuing.
This Amendment may be executed in any number of counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the
same Amendment. Executed copies of this Amendment or the signature pages of this Amendment sent by facsimile or transmitted
electronically in Portable Document Format (“PDF”) or any similar format, or transmitted electronically by digital image, DocuSign,
or other means of electronic transmission, shall be treated as originals, fully binding and with full legal force and effect, and the parties
waive any rights they may have to object to such treatment. The words “execution,” “signed,” “signature,” “delivery,” and words of
like import in or relating to this Amendment and/or any document to be signed in connection with this Amendment and the
transactions contemplated hereby shall be deemed to include Electronic Signatures (as defined below), deliveries or the keeping of
records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature,
physical delivery thereof or the use of a paper-based recordkeeping system, as the case may be. As used herein, “Electronic
Signatures” means any electronic symbol or process attached to, or associated with, any contract or other record and adopted by a
person with the intent to sign, authenticate or accept such contract or record.
The terms of Article 11 of the Agreement are incorporated by reference herein, mutatis mutandis.
As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the
following:
a)
b)
this Amendment, duly executed by Borrower and Bank;
an officer’s certificate of each Borrower with respect to incumbency and resolutions authorizing the execution and delivery of
this Amendment;
payment of all Bank Expenses, including Bank’s expenses for the documentation of this Amendment and any related documents,
and any UCC, good standing or intellectual property search or filing fees, which may be debited from any of Borrower’s deposit
accounts maintained with Bank; and
such other documents and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
c)
d)
[Signatures appear on the following page.]
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.
PRECISION BIOSCIENCES, INC
PACIFIC WESTERN BANK
/s/ John Alexander Kelly
By:
Name: Alex Kelly
Title: Chief Financial Officer
PRECISION PLANTSCIENCES, INC
f/k/a ELO LIFE SYSTEMS, INC.
/s/ Dario Scimeca
By:
Name: Dario Scimeca
Title: General Counsel & Secretary
/s/ Ryan Kelley
By:
Name: Ryan Kelley
Title: Vice President Client Manager
Exhibit 10.22
AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT
This Amended and Restated Executive Employment Agreement (the “Agreement”) is made and entered into as of May
27, 2021 (the “Effective Date”), by and between Precision BioSciences, Inc. (the “Company”), and Alex Kelly (“Executive”).
The Company and Executive are sometimes referred to in this Agreement individually as a “Party” and collectively as the
“Parties.” This Agreement amends, restates and supercedes that certain Executive Employment Agreement by and between with
an effective date of October 5, 2020 (the “Prior Agreement”), and as of the Effective Date the Prior Agreement shall be
terminated in all material respects and shall be of no further force or effect and neither the Company nor Executive shall have any
further rights or obligations thereunder.
BACKGROUND
The Company wishes to employ Executive on the terms set forth in this Agreement, and Executive wishes to accept such
employment on the same terms.
NOW, THEREFORE, in consideration of the foregoing, of the mutual promises herein, and of other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowl(cid:0)edged, the parties hereto, intending legally to be bound,
hereby agree as follows:
1.
EMPLOYMENT. As of the Effective Date, the Company hereby employs Executive and Executive hereby
accepts employment as Chief Financial Officer of the Company upon the terms and conditions of this Agreement.
2.
NATURE OF EMPLOYMENT/DUTIES. Executive shall serve as Chief Financial Officer of the Company
and shall have such responsibilities and authority as the Company may designate from time to time consistent with Executive’s
title and position.
comply with, all Company policies, procedures, practices and directions.
2.1
Executive shall perform all duties and exercise all authority in accordance with, and otherwise
2.2
Executive shall devote substantially all working time, best efforts, knowledge and experience
to perform successfully Executive’s duties and advance the Company’s interests. During Executive’s employment, Executive
may, with the Board’s consent (which shall not be unreasonably withheld), engage in other business activities for compensation
(including board memberships), provided that, such activities do not present a conflict of interest nor violate the Restrictive
Covenant Agreement (defined in Section 6), nor otherwise prohibit Executive from fulfilling Executive’s obligations hereunder.
3.
COMPENSATION.
3.1
Base Salary. Executive’s annual base salary for all services rendered shall be Four Hundred
Twenty Thousand and 00/100 Dollars ($420,000.00) (less applicable taxes and withholdings) payable in accordance with the
Company’s payroll practices as they may exist from time to time (“Base Salary”) effective as of January 1, 2021. Base Salary
may be reviewed and adjusted by the Company, at its discretion, in accordance with the Company’s policies, procedures, and
practices as they may exist from time to time, provided that the Base Salary shall not be decreased unless the decrease is an
across-the-board decrease for all senior management employees of the Company.
3.2
Business Expenses. Executive shall be reimbursed for reasonable and necessary expenses
actually incurred by Executive in performing services under this Agreement in accordance with and subject to the terms and
conditions of the applicable Company reimbursement policies, procedures, and practices as they may exist from time to time. All
such reimbursements shall be made no later than the end of the calendar year following the year in which the expense was
incurred.
3.3
Bonus. Executive may participate in any Company bonus plan the Company may adopt for
senior management subject to the terms, conditions, and any eligibility requirements that may exist in such plan or plans.
Executive’s annual incentive compensation under such bonus plan (the “Annual Bonus”) shall be targeted at Forty Percent (40%)
of Executive’s Base Salary effective as of January 1, 2021 (such target, as may be increased by the Board from time to time, the
“Target Annual Bonus”). The Annual Bonus payable under the bonus plan shall be based on the achievement of performance
goals to be determined by the Board. The payment of any Annual Bonus pursuant to the bonus plan shall be subject to
Executive’s continued employment with the Company through the date of payment.
3.4
Equity. Executive shall be eligible to participate in any equity compensation plan or similar
program adopted by the Company when approved by the Board and, if applicable, the Company’s shareholders, for executives at
Executive’s level. The amount awarded, if any, to the Executive under any such plan shall be in the discretion of the Board or
any committee administering such plan and shall be subject to the terms and conditions of any plan or program adopted or
approved by the Board. Any such grants will be effective when made and shall be subject to terms and conditions to be imposed
by the Board under the Company’s plans, programs or applicable award agreement.
3.5
Benefits. Executive may participate in all medical, dental and disability insurance, 401(k),
personal leave and other employee benefit plans and programs of the Company for which Executive is eligible, provided,
however, that Executive’s participation in benefit plans and programs is subject to the applicable terms, conditions and eligibility
requirements of these plans and programs, some of which are within the plan administrator’s discretion, as they may exist from
time to time. The Company shall pay annual dues and expenses for Executive’s membership and participation in such
professional organizations as may be approved by the Board.
October 5, 2020 (the “Prior Effective Date”), Executive received a signing
3.6
Signing Bonus. Following commencement of employment as Chief of Corporate Affairs on
bonus in the gross amount of Fifty Thousand Dollars ($50,000.00) (less applicable withholdings) paid as a lump sum in
Executive’s first base salary payroll. The signing bonus remains subject to repayment in the following circumstances: If
Executive’s employment is terminated for Cause or if Executive voluntarily terminates without Good Reason (both as defined
below) within one year of the Prior Effective Date, Executive shall repay the Company the full amount of the signing bonus no
later than 45 days after Executive’s last day of employment.
3.7 Relocation Assistance. Following the Prior Effective Date, Executive was eligible for relocation
assistance in accordance with, and subject to the terms, conditions and eligibility requirements of, the Tier I Relocation Policy
through Berkshire Hathaway in connection with relocation from Westfield, New Jersey to North Carolina. In the event that
Executive’s employment is terminated for Cause or if Executive voluntarily terminates without Good Reason (both defined
below), Executive shall repay the relocation assistance as follows: (i) termination up to and including the 1st anniversary of the
Prior Effective Date, Executive shall repay one hundred percent (100%) of all relocation expenses paid to Executive or on
Executive’s behalf, and (ii) termination after the 1st anniversary of the Prior Effective Date and up to and including the 2nd
anniversary of the Prior Effective Date, Executive shall repay a prorated portion of all relocation expenses paid to Executive or on
Executive’s behalf. The pro-rated repayment amount will be calculated as follows: [Total Relocation Expenses Paid] minus
[1/24th x [Total Relocation Expenses Paid] x Number of full months worked]. All repayment must be made no later than 45 days
after Executive’s last day of employment.
4.
TERM OF EMPLOYMENT AND TERMINATION. The Company and Executive acknowledge that
Executive's employment is and shall continue to be at-will, as defined under applicable law, and that Executive's employment
with the Company may be terminated by either Party at any time for any or no reason (subject to the notice requirements of this
Section 4). This "at-will" nature of Executive's employment shall remain unchanged during Executive's tenure as an employee
and may not be changed, except in an express writing signed by Executive and a duly authorized officer of the Company. The
term of this Agreement and Executive’s employment hereunder shall commence on the Effective Date and continue until
terminated as set forth in this Section 4. The date on which Executive’s employment terminates, as determined by the Company,
regardless of the reason, shall be referred to herein as the “Separation Date.” Upon termination of Executive's employment for
any reason, Executive shall be deemed to have resigned from all offices and directorships, if any, then held with the Company or
any of its subsidiaries.
employment and this Agreement without Cause at any time upon giving the other party thirty (30) days written notice.
4.1
Without Cause, Upon Notice. Either the Company or Executive may terminate Executive’s
immediately without notice at any time for “Cause,” which shall mean the following:
4.2
For Cause. The Company may terminate Executive’s employment and this Agreement
Executive's material failure to perform Executive’s duties or to
carryout the reasonable and lawful instructions of the Chief Executive Officer or the Board of Directors (other than any
such failure resulting from incapacity due to physical or mental illness);
4.2.1
misconduct, which is, in each case, materially injurious to the Company or its affiliates;
4.2.2
Executive's engagement in dishonesty, illegal conduct, or gross
related to the Executive's employment with the Company;
4.2.3
Executive's embezzlement, misappropriation, or fraud, whether or not
Executive's conviction of or plea of guilty or nolo contendere to a
crime that constitutes a felony (or state law equivalent) or a crime that constitutes a misdemeanor involving moral
turpitude;
4.2.4
investigation or formal proceeding;
4.2.5
Executive’s failure
to cooperate with
the Company
in any
Executive's material breach of any material obligation under this
Agreement, the Restrictive Covenant Agreement (as defined in Section 6), or any other written agreement between the
Executive and the Company; or
4.2.6
written policies or rules, as they may be in effect from time to time.
4.2.7
any material failure by Executive to comply with the Company's
Provided, however, that prior to termination based on Sections 4.2.1, 4.2.6 or 4.2.7, Executive shall be given written
notice of the facts allegedly constituting Cause and a ten (10) day opportunity to cure.
4.3
By Death or Disability. Executive’s employment and this Agreement shall terminate upon
Executive’s Disability or death. For purposes of this Agreement, “Disability” shall mean Executive's inability, due to physical or
mental incapacity, to perform the essential functions of Executive's job, with or without reasonable accommodation, for one
hundred eighty (180) days out of any three hundred sixty-five (365) day period; provided however, in the event that the Company
temporarily replaces the Executive, or transfers the Executive's duties or responsibilities to another individual on account of the
Executive's inability to perform such duties due to a mental or physical incapacity which is, or is reasonably expected to become,
a Disability, then the Executive's employment shall not be deemed terminated by the Company. Any question as to the existence
of the Executive's Disability as to which the Executive and the Company cannot agree shall be determined in writing by a
qualified independent physician mutually acceptable to the Executive and the Company. If the Executive and the Company
cannot agree as to a qualified independent physician, each shall appoint such a physician and those two physicians shall select a
third who shall make such determination in writing. The determination of Disability made in writing to the Company and the
Executive shall be final and conclusive for all purposes of this Agreement. The Company shall give Executive written notice of
termination for Disability and the termination shall be effective as of the date specified in such notice.
which shall mean the occurrence of any of the following, in each case without the Executive's written consent:
4.4
For Good Reason. Executive may terminate Executive’s employment for “Good Reason,”
reduction in Base Salary that affects all similarly situated executives;
4.4.1
a material reduction in Executive's Base Salary other than a general
employment by more than thirty five (35) miles; or
4.4.2
an involuntary relocation of the Executive's principal place of
4.4.3
the Company's failure to obtain an agreement from any successor to
the Company to assume and agree to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform if no succession had taken place, except where such assumption occurs by
operation of law.
Executive cannot terminate Executive’s employment for Good Reason unless Executive has provided written notice to the
Company of the existence of the circumstances providing grounds for termination for Good Reason within thirty (30) days of the
initial existence of such grounds and the Company has had at least thirty (30) days from the date on which such notice is provided
to cure such circumstances. If the Executive does not terminate Executive’s employment for Good Reason within sixty (60) days
after the first occurrence of the applicable grounds, then the Executive will be deemed to have waived Executive’s right to
terminate for Good Reason with respect to such grounds.
5.
COMPENSATION AND BENEFITS UPON TERMINATION. If Executive's employment terminates for
any reason, Executive shall not be entitled to any payments, benefits, damages, award or compensation other than as provided in
this Agreement or otherwise agreed to in writing by the Company or as provided by applicable law. Upon termination of
Executive's employment pursuant to any of the circumstances listed in Section 4, Executive (or Executive's estate) shall be
entitled to receive the sum of: (i) the portion of Executive's Base Salary earned through the Separation Date, but not yet paid to
Executive; (ii) any expense reimbursements owed to Executive pursuant to Section 3.2; and (iii) any amount accrued and arising
from Executive's participation in, or benefits accrued under any employee benefit plans, programs or arrangements, which
amounts shall be payable in accordance with the terms and conditions of such employee benefit plans, programs or arrangements
(collectively, the "Accrued Obligations"). Except as otherwise expressly required by law (e.g., COBRA) or as specifically
provided herein, all of Executive's rights to salary, severance, benefits, bonuses and other compensatory amounts hereunder (if
any) shall cease upon the termination of Executive's employment hereunder. In the event that Executive's employment is
terminated by the Company for any reason, Executive's sole and exclusive remedy shall be to receive the payments and benefits
described in this Section 5.
5.1
By the Company for Cause or because of Executive’s Death or Disability, or by Executive
Without Cause, Upon Notice. If Executive’s employment and this Agreement are terminated by the Company for Cause or
because of Executive’s death or Disability, or by Executive pursuant to Section 4.1 (Without Cause, Upon Notice), then the
Company’s obligation to compensate Executive ceases on the Separation Date except for the Accrued Obligations.
By the Company Without Cause or by Executive for Good Reason. If the Company
terminates Executive’s employment and this Agreement pursuant to Section 4.1 (Without Cause, Upon Notice) or Executive
terminates Executive’s employment and this
5.2
Agreement pursuant to Section 4.4 (for Good Reason), subject to Executive’s continued compliance with Executive’s obligations
under the Restrictive Covenant Agreement then the Company shall pay Executive the Accrued Obligations and subject to Section
5.5 (Required Release), Executive shall be entitled to the following:
5.2.1
pay Executive an amount equal to Nine (9) months of Executive’s
then current monthly base salary (less applicable taxes and withholdings (the “Severance Period”), payable in substantially equal
monthly installments on the same payroll schedule applicable to Executive immediately prior to Executive’s separation from
service and commencing on the first such payroll date on or following the date on which the release of claims required by Section
5.5 becomes effective and non-revocable, but not later than ninety (90) days following termination from employment; provided
however that if the 90th day following Executive’s termination from employment occurs in the year following the year in which
Executive’s termination occurs, then the payments shall commence no earlier than January 1 of such subsequent year and
provided further that if such payments commence in such subsequent year, the first such payment shall be a lump sum in an
amount equal to the payments that would have come due since Executive’s separation from service, and
5.2.2
If Executive timely and properly elects health continuation
coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), during the Severance Period, the
Company shall reimburse Executive for the difference between the monthly COBRA premium paid by the Executive and the
monthly premium amount paid by Executive immediately prior to the date that Executive’s employment terminated. Such
reimbursement shall be paid to the Executive on or before the tenth (10th) day of the month immediately following the month in
which the Executive timely remits the premium payment, with such reimbursements to commence when the payments under
Section 5.2.1 commence. Executive shall be eligible to receive such reimbursement until the earliest of: (i) the twelfth-month
anniversary of the Separation Date; (ii) the date the Executive is no longer eligible to receive COBRA continuation coverage; and
(iii) the date on which the Executive becomes eligible to receive substantially similar coverage from another employer or other
source. Notwithstanding the foregoing, if the Company's making payments under this Section 5.2.2 would violate the
nondiscrimination rules applicable to non-grandfathered plans under the Affordable Care Act (the "ACA"), or result in the
imposition of penalties under the ACA and the related regulations and guidance promulgated thereunder), the parties agree to
reform this Section 5.2.2 in a manner as is necessary to comply with the ACA. Executive shall provide the Company with notice
of subsequent employment and comparable coverage within thirty (30) days of commencement of such comparable coverage.
5.3
Following a Change in Control, by the Company Without Cause or by Executive for
Good Reason. If within three (3) month prior to or twelve (12) months following the occurrence of a Change in Control, as
defined herein, either the Company terminates Executive’s employment and this Agreement pursuant to Section 4.1 (Without
Cause, Upon Notice) or Executive terminates Executive’s employment and this Agreement pursuant to Section 4.4 (for Good
Reason), then in lieu of any benefits under Section 5.2, and subject to Executive’s continued compliance with Executive’s
obligations under the Restrictive Covenant Agreement, the Company shall pay Executive the Accrued Obligations and, subject to
Section 5.5 (Required Release), Executive shall be entitled to the following:
The Company shall pay Executive an amount equal to Twelve (12)
months of Executive’s then current monthly base salary (less applicable taxes and withholdings) (the “CIC Severance Period”)
plus One (1) times Executive’s target bonus for the year during which the Separation Date occurs, payable in lump sum seventy-
five (75) days following the Separation Date;
5.3.1
5.3.2
If Executive timely and properly elects health continuation
coverage under COBRA, during the CIC Severance Period, the Company shall reimburse Executive for the difference between
the monthly COBRA premium paid by the Executive and the monthly premium amount paid by Executive immediately prior to
the date that Executive’s employment terminated. Such reimbursement shall be paid to the Executive on or before the tenth (10th)
day of the month immediately following the month in which Executive timely remits the premium payment, with such
reimbursements to commence in the month following the month the release under Section 5.4 becomes effective and non-
revocable. Executive shall be eligible to receive such reimbursement until the earliest of: (i) the twelfth-month anniversary of the
Separation Date; (ii) the date the Executive is no longer eligible to receive COBRA continuation coverage; and (iii) the date on
which the Executive becomes eligible to receive substantially similar coverage from another employer or other source.
Notwithstanding the foregoing, if the Company's making payments under this Section 5.3.2 would violate the nondiscrimination
rules applicable to non-grandfathered plans under the ACA, or result in the imposition of penalties under the ACA and the related
regulations and guidance promulgated thereunder), the parties agree to reform this Section 5.3.2 in a manner as is necessary to
comply with the ACA. Executive shall provide the Company with notice of subsequent employment and comparable coverage
within thirty (30) days of commencement of such comparable coverage; and
All unvested time-based equity grants shall vest in full as of the
Separation Date, provided that such equity shall remain subject to the other terms and conditions of the applicable Company
incentive award plan(s) and individual award agreement(s).
5.3.3
5.4
Definition of Change in Control.
5.4.1
“Change in Control” means and includes each of the following:
(a)
A transaction or series of transactions (other than an offering of Common Stock to the
general public through a registration statement filed with the Securities and Exchange Commission or a transaction or series of
transactions that meets the requirements of clauses (i) and (ii) of subsection (c) below) whereby any “person” or related “group”
of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”)) (other than the Company, any of its Subsidiaries, an employee benefit plan maintained by the Company or any
of its Subsidiaries or a “person” that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common
control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the
Exchange Act) of securities of the Company possessing more than 50% of the total combined voting power of the Company’s
securities outstanding immediately after such acquisition; provided, however, that for purposes of this Agreement, “Subsidiary”
means any entity (other than the Company), whether domestic or foreign, in an unbroken chain of entities beginning with the
Company if each of the entities other than the last entity in the unbroken chain beneficially owns, at the time of the determination,
securities or interests representing at least 50% of the total combined voting power of all classes of securities or interests in one of
the other entities in such chain; or
(b)
During any period of two consecutive years, individuals who, at the beginning of such
period, constitute the Board of Directors (the “Board”) together with any new director(s) of the Board (other than a director
designated by a person who shall have entered into an agreement with the Company to effect a transaction described in
subsections (a) or (c)) whose election by the Board or nomination for election by the Company’s stockholders was approved by a
vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or
whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or
The consummation by the Company (whether directly involving the Company or
indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business
combination or (y) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series
of related transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:
(c)
(i)
which results in the Company’s
voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by
being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or
indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to
the business of the Company (the Company or such person, the “Successor Entity”)) directly or indirectly, at least a majority of
the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and
after which no person or group
beneficially owns voting securities representing 50% or more of the combined voting power of the Successor Entity; provided,
however, that no person or group shall be treated for purposes of this clause (ii) as beneficially owning 50% or more of the
combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the
consummation of the transaction.
(ii)
5.4.2
Notwithstanding the foregoing, if a Change in Control constitutes a
payment event under this Agreement that provides for the deferral of compensation that is subject to Section 409A of the Internal
Revenue Code of 1986, as amended (the “Code”), and the regulations thereunder (collectively, “Section 409A”), to the extent
required to avoid the imposition of additional taxes under Section 409A, the transaction or event described in subsection (a), (b)
or (c) with respect to such payment (or portion thereof) shall only constitute a Change in Control for purposes of the payment
timing if such transaction also constitutes a “change in control event,” as defined in Treasury Regulation Section 1.409A-3(i)(5).
its discretion, to determine conclusively whether a Change in Control has occurred
5.4.3
The Company shall have full and final authority, which shall be exercised in
pursuant to the above definition, the date of the occurrence of such Change in Control and any incidental matters relating thereto;
provided that any exercise of authority in conjunction with a determination of whether a Change in Control is a “change in
control event” as defined in Treasury Regulation Section 1.409A-3(i)(5) shall be consistent with such regulation.
5.5
Required Release. Notwithstanding any provision of this Agreement to the contrary, the
Company’s obligation to provide the payments and reimbursements under Sections 5.2.1, 5.2.2, 5.3.1 and 5.3.2 is conditioned
upon Executive’s execution of a standard form of an enforceable release of claims and Executive’s compliance with the
Restrictive Covenant Agreement. If Executive chooses not to execute such a release or fails to comply with the Restrictive
Covenant Agreement, then the Company’s obligation to compensate Executive ceases on the Separation Date except as to
amounts due at the time. The release of claims shall be provided to Executive within ten (10) days of Executive’s separation
from service and Executive must execute it within the time period specified in the release (which shall not be longer than forty-
five (45) days from the date of receipt). Such release shall not be effective until any applicable revocation period has expired.
5.6
Benefits in Lieu of Other Severance. Executive is not entitled to receive any compensation
or benefits upon Executive’s termination except as: (i) set forth in this Agreement; (ii) otherwise required by law; or (iii)
otherwise required by any employee benefit plan in which Executive participates. Moreover, the terms and conditions afforded
Executive under this Agreement are in lieu of any severance benefits to which Executive otherwise might be entitled pursuant to
any severance plan, policy and practice of the Company.
6.
RESTRICTIVE COVENANTS. As a condition of employment, Executive will be obligated under the
Proprietary Information, Inventions, Non-Competition and Non-Solicitation Agreement, executed simultaneously herewith (the
“Restrictive Covenant Agreement”). Executive agrees to abide by the terms of the Restrictive Covenant Agreement, or any other
subsequent agreement with the Company relating to proprietary information, inventions, intellectual property, non-competition or
non-solicitation, the terms of which are hereby incorporated by reference into this Agreement. Executive acknowledges that the
provisions of the Restrictive Covenant Agreement, or any subsequent similar agreement, will survive the termination of
Executive's employment and/or the termination of this Agreement.
7.
COMPANY PROPERTY. Upon the termination of Executive’s employment or upon Company’s earlier
request, Executive shall: (i) deliver to the Company all records, memoranda, data, documents and other property of any
description which refer or relate in any way to trade secrets or confidential information, including all copies thereof, which are in
Executive’s possession, custody or control; (ii) deliver to the Company all Company property (including, but not limited to, keys,
credit cards, customer files, contracts, proposals, work in process, manuals, forms, computer-stored work in process and other
computer data, research materials, other items of business information concerning any Company customer, or Company business
or business methods, including all copies thereof) which is in Executive’s possession, custody or control; (iii) bring all such
records, files and other materials up to date before returning them; and (iv) fully cooperate with the Company in winding up
Executive’s work and transferring that work to other individuals designated by the Company.
8.
EMPLOYEE REPRESENTATION. Executive represents and warrants that Executive’s employment and
obligations under this Agreement will not (i) breach any duty or obligation Executive owes to another or (ii) violate any law,
recognized ethics standard or recognized business custom.
9.
AMENDMENTS; WAIVERS. This Agreement may not be modified, amended, or terminated except by an
instrument in writing, signed by Executive and a duly authorized officer of Company. By an instrument in writing similarly
executed, Executive or a duly authorized officer of the Company may waive compliance by the other Party with any specifically
identified provision of this Agreement that such other Party was or is obligated to comply with or perform; provided, however,
that such waiver shall not operate as a waiver of, or estoppel with respect to, any other or subsequent failure. No failure to
exercise and no delay in exercising any right, remedy, or power hereunder will preclude any other or further exercise of any other
right, remedy, or power provided herein or by law or in equity.
10.
ENTIRE AGREEMENT. Except as expressly provided in this Agreement, this Agreement: (i) supersedes and
cancels all other understandings and agreements, oral or written, with respect to Executive’s employment with the Company; (ii)
supersedes all other understandings and agreements, oral or written, between the parties with respect to the subject matter of this
Agreement; and (iii) constitutes the sole agreement between the parties with respect to this subject matter. Each party
acknowledges that: (i) no representations, inducements, promises or agreements, oral or written, have been made by any party or
by anyone acting on behalf of any party, which are not embodied in this Agreement; and (ii) no agreement, statement or promise
not contained in this Agreement shall be valid. No change or modification of this Agreement shall be valid or binding upon the
parties unless such change or modification is in writing and is signed by the parties.
11.
SEVERABILITY. If a court of competent jurisdiction holds that any provision or sub-part thereof contained in
this Agreement is invalid, illegal, or unenforceable, that invalidity, illegality, or unenforceability shall not affect any other
provision in this Agreement.
12.
ASSIGNMENT AND SUCCESSORS. The Company may assign its rights and obligations under this
Agreement to any of its affiliates or to any successor to all or substantially all of the business or the assets of the Company (by
merger or otherwise), and may assign or encumber this Agreement and its rights hereunder as security for
indebtedness of the
Company and its affiliates. This Agreement shall be binding upon and inure to the benefit of the Company, Executive and their
respective successors, assigns, personnel and legal representatives, executors, administrators, heirs, distributees, devisees, and
legatees, as applicable. None of Executive's rights or obligations may be assigned or transferred by Executive, other than
Executive's rights to payments hereunder, which may be transferred only by will or operation of law.
13.
GOVERNING LAW. This Agreement shall be construed, interpreted, and governed in accordance with and by
North Carolina law and the applicable provisions of federal law (“Applicable Federal Law”). Any and all claims, controversies,
and causes of action arising out of or relating to this Agreement, whether sounding in contract, tort, or statute, shall be governed
by the laws of the state of North Carolina, including its statutes of limitations, except for Applicable Federal Law, without giving
effect to any North Carolina conflict-of-laws rule that
would result in the application of the laws of a different jurisdiction. Both Executive and the Company acknowledge and agree
that the state or federal courts located in North Carolina have personal jurisdiction over them and over any dispute arising under
this Agreement, and both Executive and the Company irrevocably consent to the jurisdiction of such courts.
14.
COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be an original, with
the same effect as if the signatures affixed thereto were upon the same instrument.
15.
NOTICES. Any notice, request, claim, demand, document and other communication hereunder to any Party
shall be effective upon receipt (or refusal of receipt) and shall be in writing and delivered personally or sent by facsimile or
certified or registered mail, postage prepaid, as follows:
headquarters,
or
15.1
15.2
15.3
If to the Company, to the Chief Executive Officer of the Company at the Company's
If to Executive, to the last address that the Company has in its personnel records for Executive,
At any other address as any Party shall have specified by notice in writing to the other Party.
16.
SECTION 409A OF THE INTERNAL REVENUE CODE. The parties intend that the provisions of this
Agreement comply with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations
thereunder (collectively, “Section 409A”) and all provisions of this Agreement shall be construed in a manner consistent with the
requirements for avoiding taxes or penalties under Section 409A. If any provision of this Agreement (or of any award of
compensation, including equity compensation or benefits) would cause Executive to incur any additional tax or interest under
Section 409A, the Company shall, upon the specific request of Executive, use its reasonable business efforts to in good faith
reform such provision to comply with Code Section 409A; provided, that to the maximum extent practicable, the original intent
and economic benefit to Executive and the Company of the applicable provision shall be maintained, and the Company shall have
no obligation to make any changes that could create any additional economic cost or loss of benefit to the Company. The
Company shall timely use its reasonable business efforts to amend any plans and programs in which Executive participates to
bring it in compliance with Section 409A. Notwithstanding the foregoing, the Company shall have no liability with regard to any
failure to comply with Section 409A so long as it has acted in good faith with regard to compliance therewith.
16.1
Separation from Service. A termination of employment shall not be deemed to have occurred
for purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following a
termination of employment unless such termination also constitutes a “Separation from Service” within the meaning of Section
409A and, for purposes of any such provision of this Agreement, references to a “termination,” “termination of employment,”
“separation from service” or like terms shall mean Separation from Service.
considered a separate payment for purposes of Section 409A.
16.2
Separate Payments. Each installment payment required under this Agreement shall be
16.3
Delayed Distribution to Specified Employee. If the Company determines in accordance with
Sections 409A and 416(i) of the Code and the regulations promulgated thereunder, in the Company’s sole discretion, that
Executive is a Specified Employee of the Company on the date Executive’s employment with the Company terminates and that a
delay in benefits provided under this Agreement is necessary to comply with Code Section 409A(A)(2)(B)(i), then any severance
payments and any continuation of benefits or reimbursement of benefit costs provided by this Agreement, and not otherwise
exempt from Section 409A, shall be delayed for a period of six (6) months following the date of termination of Executive’s
employment (the “409A Delay Period”). In such event, any severance payments and the cost of any continuation of benefits
provided under this Agreement that would otherwise be due and payable to Executive during the 409A Delay Period shall be paid
to Executive in a lump sum cash amount in the month following the end of the 409A Delay Period. For purposes of this
Agreement, “Specified Employee” shall mean an employee who, on an Identification Date (“Identification Date” shall mean each
December 31) is a specified employee as defined in Section 416(i) of the Code without regard to paragraph (5) thereof. If
Executive is identified as a Specified Employee on an Identification Date, then Executive shall be considered a Specified
Employee for purposes of this Agreement during the period beginning on the first April 1 following the Identification Date and
ending on the following March 31.
16.4
Reimbursements. To the extent required by Section 409A, each reimbursement or in-kind
benefit provided under this Agreement shall be provided in accordance with the following: (a) the amount of expenses eligible
for reimbursement, or in-kind benefits provided, during each calendar year cannot affect the expenses eligible for reimbursement,
or in-kind benefits to be provided, in any other calendar year; (b) any reimbursement of an eligible expense shall be paid to
Executive on or before the last day of the calendar year following the calendar year in which the expense was incurred; and (c)
any right to reimbursements or in-kind benefits under this Agreement shall not be subject to liquidation or exchange for another
benefit.
17.
PARACHUTE PAYMENTS. Notwithstanding any other provisions of this Agreement or any Company equity
plan or agreement, in the event that any payment or benefit by the Company or otherwise to or for the benefit of Executive,
whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (all such payments
and benefits, including the payments and benefits under Section 5 hereof, being hereinafter referred to as the "Total Payments"),
would be subject (in whole or in part) to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then the Total
Payments shall be reduced (in the order provided in Section 16.1) to the minimum extent necessary to avoid the imposition of the
Excise Tax on the Total Payments, but only if (i) the net amount of such Total Payments, as so reduced (and after subtracting the
net amount of federal, state and local income and employment taxes on such reduced Total Payments and after taking into
account the phase out of itemized deductions and personal exemptions attributable to such reduced Total Payments), is greater
than or equal to (ii) the net amount of such Total Payments without such reduction (but after subtracting the net amount of
federal, state and local income and employment taxes on such Total Payments and the amount of the Excise Tax to which
Executive would be subject in respect of such
unreduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions
attributable to such unreduced Total Payments).
17.1
Order of Reduction. The Total Payments shall be reduced in the following order: (i)
reduction on a pro-rata basis of any cash severance payments that are exempt from Section 409A of the Code ("Section 409A"),
(ii) reduction on a pro-rata basis of any non-cash severance payments or benefits that are exempt from Section 409A, (iii)
reduction on a pro-rata basis of any other payments or benefits that are exempt from Section 409A, and (iv) reduction of any
payments or benefits otherwise payable to Executive on a pro-rata basis or such other manner that complies with Section 409A;
provided, in case of clauses (ii), (iii) and (iv), that reduction of any payments attributable to the acceleration of vesting of
Company equity awards shall be first applied to Company equity awards that would otherwise vest last in time.
17.2
Determinations. All determinations regarding the application of this Section 17 shall be made
by an accounting firm or consulting group with experience in performing calculations regarding the applicability of Section 280G
of the Code and the Excise Tax selected by the Company (the "Independent Advisors"). For purposes of determinations, no
portion of the Total Payments shall be taken into account which, in the opinion of the Independent Advisors, (i) does not
constitute a "parachute payment" within the meaning of Section 280G(b)(2) of the Code (including by reason of Section 280G(b)
(4)(A) of the Code) or (ii) constitutes reasonable compensation for services actually rendered, within the meaning of Section
280G(b)(4)(B) of the Code, in excess of the "base amount" (as defined in Section 280G(b)(3) of the Code) allocable to such
reasonable compensation. The costs of obtaining such determination and all related fees and expenses (including related fees and
expenses incurred in any later audit) shall be borne by the Company.
Additional Reductions. In the event it is later determined that a greater reduction in the Total
Payments should have been made to implement the objective and intent of this Section 17, the excess amount shall be returned
promptly by Executive to the Company.
17.3
[The remainder of this page is intentionally left blank.]
[Signature Page for Employment Agreement]
IN WITNESS WHEREOF, the parties have entered into this Agreement on the day and year first written above.
ALEX KELLY
/s/ Alex Kelly_____________________________
PRECISION BIOSCIENCES, INC.
By: /s/ Matthew Kane ______________________
Title: Chief Executive Officer ________________
EXECUTIVE EMPLOYMENT AGREEMENT AMENDMENT
This Executive Employment Agreement Amendment (the “Amendment”) is made as of November 7, 2022, by and among
Precision BioSciences, Inc. (the “Company”) and the individual whose name appears on the signature page hereto (the
“Executive”). Except as set forth in this Amendment, capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Employment Agreement (as defined below).
WITNESSETH
WHEREAS, the Executive previously entered into an executive employment agreement with the Company (the
“Employment Agreement”); and
WHEREAS, the Executive and the Company each desire to amend the terms of the Employment Agreement as set forth in
this Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged,
the Executive and the Company hereby agree to the following:
1. Amendment to the Employment Agreement. The Employment Agreement is hereby amended by adding the following to
the definition of “Good Reason” set forth in Section 4.4:
“a material, adverse change in Executive’s title, authority, duties, or responsibilities (other than temporarily
while the Executive is physically or mentally incapacitated or as required by applicable law), provided that this
shall not apply following an acquisition of or merger by the Company if Executive is provided with similar title,
responsibilities, duties and authority in a larger organization, but only with respect to the business of the
Company and its subsidiaries;”
2. No Other Amendment. Except as expressly set forth in this Amendment, the Employment Agreement shall remain
unchanged and shall continue in full force and effect according to its terms.
3. Entire Agreement. This Amendment, together with the Employment Agreement (to the extent not amended hereby),
represents the entire agreement of the parties with respect to the subject matter hereof and shall supersede any and all
previous contracts, arrangements or understandings between the parties.
[signature page follows]
IN WITNESS WHEREOF, the Company and the Employee have executed this Amendment as of the date first written above.
PRECISION BIOSCIENCES, INC.
By: /s/ Michael Amoroso
Name: Michael Amoroso
Title: Chief Executive Officer
EXECUTIVE
/s/ John Alexander Kelly
John Alexander Kelly
Exhibit 10.23
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (the “Agreement”) is made and entered into as of this 26th day of April, 2021
(the “Effective Date”), by and between Precision BioSciences, Inc. (the “Company”), and Dr. Alan List (“Executive”). The
Company and Executive are sometimes referred to in this Agreement individually as a “Party” and collectively as the “Parties.”
BACKGROUND
The Company wishes to employ Executive on the terms set forth in this Agreement, and Executive wishes to accept such
employment on the same terms.
NOW, THEREFORE, in consideration of the foregoing, of the mutual promises herein, and of other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowl(cid:0)edged, the parties hereto, intending legally to be bound,
hereby agree as follows:
1. EMPLOYMENT. As of the Effective Date, the Company hereby employs Executive and Executive hereby
accepts employment as Chief Medical Officer of the Company upon the terms and conditions of this Agreement.
2. NATURE OF EMPLOYMENT/DUTIES. Executive shall serve as Chief Medical Officer of the Company and
shall have such responsibilities and authority as the Company may designate from time to time consistent with Executive’s title
and position.
with, all Company policies, procedures, practices and directions.
2.1 Executive shall perform all duties and exercise all authority in accordance with, and otherwise comply
2.2 Executive shall devote substantially all working time, best efforts, knowledge and experience to perform
successfully Executive’s duties and advance the Company’s interests. During Executive’s employment, Executive may, with the
Board’s consent (which shall not be unreasonably withheld), engage in other business activities for compensation (including
board memberships), provided that, such activities do not present a conflict of interest nor violate the Restrictive Covenant
Agreement (defined in Section 6), nor otherwise prohibit Executive from fulfilling Executive’s obligations hereunder.
Executive’s role at the Company in the future, either as an employee or advisor, with a focus on clinical development strategy.
2.3 The parties have mutual interest in engaging in good faith discussions concerning a possible evolution of
3. COMPENSATION.
3.1 Base Salary. Executive’s annual base salary for all services rendered shall be four hundred fifth-three
thousand and 00/100 Dollars ($453,000) (less applicable taxes and withholdings) payable in accordance with the Company’s
payroll practices as they may exist from time to time (“Base Salary”). Base Salary may be reviewed and adjusted by the
Company, at its discretion, in accordance with the Company’s policies, procedures, and practices as they may exist
from time to time, provided that the Base Salary shall not be decreased unless the decrease is an across-the-board decrease for all
senior management employees of the Company.
3.2 Business Expenses. Executive shall be reimbursed for reasonable and necessary expenses actually
incurred by Executive in performing services under this Agreement in accordance with and subject to the terms and conditions of
the applicable Company reimbursement policies, procedures, and practices as they may exist from time to time. All such
reimbursements shall be made no later than the end of the calendar year following the year in which the expense was incurred.
3.3 Bonus. Executive may participate in any Company bonus plan the Company may adopt for senior
management subject to the terms, conditions, and any eligibility requirements that may exist in such plan or plans. Executive’s
annual incentive compensation under such bonus plan (the “Annual Bonus”) shall be targeted at forty percent (40%) of
Executive’s Base Salary (such target, as may be increased by the Board from time to time, the “Target Annual Bonus”). The
Annual Bonus payable under the bonus plan shall be based on the achievement of performance goals to be determined by the
Board. The payment of any Annual Bonus pursuant to the bonus plan shall be subject to Executive’s continued employment with
the Company through the date of payment.
3.4 Equity. Executive shall be eligible to participate in any equity compensation plan or similar program
adopted by the Company when approved by the Board and, if applicable, the Company’s shareholders, for executives at
Executive’s level. Executive will receive a stock option grant after joining the Company. The amount awarded, if any, to the
Executive under any such plan shall be in the discretion of the Board or any committee administering such plan and shall be
subject to the terms and conditions of any plan or program adopted or approved by the Board. Any such grants will be effective
when made and shall be subject to terms and conditions to be imposed by the Board under the Company’s plans, programs or
applicable award agreement.
3.5 Benefits. Executive may participate in all medical, dental and disability insurance, 401(k), personal leave
and other employee benefit plans and programs of the Company for which Executive is eligible, provided, however, that
Executive’s participation in benefit plans and programs is subject to the applicable terms, conditions and eligibility requirements
of these plans and programs, some of which are within the plan administrator’s discretion, as they may exist from time to time.
The Company shall pay annual dues and expenses for Executive’s membership and participation in such professional
organizations as may be approved by the Board.
4.
TERM OF EMPLOYMENT AND TERMINATION. The Company and Executive acknowledge that
Executive's employment is and shall continue to be at-will, as defined under applicable law, and that Executive's employment
with the Company may be terminated by either Party at any time for any or no reason (subject to the notice requirements of this
Section 4). This "at-will" nature of Executive's employment shall remain unchanged during Executive's tenure as an employee
and may not be changed, except in an express writing signed by Executive and a duly authorized officer of the Company. The
term of this Agreement and Executive’s employment hereunder shall commence on the Effective Date and continue until
terminated as set forth in this Section 4. The date on which Executive’s employment terminates, as determined by the Company,
regardless of the reason, shall be referred to herein as the “Separation Date.” Upon termination of
Executive's employment for any reason, Executive shall be deemed to have resigned from all offices and directorships, if any,
then held with the Company or any of its subsidiaries.
and this Agreement without Cause at any time upon giving the other party thirty (30) days written notice.
4.1 Without Cause, Upon Notice. Either the Company or Executive may terminate Executive’s employment
without notice at any time for “Cause,” which shall mean the following:
4.2 For Cause. The Company may terminate Executive’s employment and this Agreement immediately
Executive's material failure to perform his duties or to carryout the reasonable and
lawful instructions of the Chief Executive Officer or the Board of Directors (other than any such failure resulting from
incapacity due to physical or mental illness);
4.2.1
The Company concludes that Executive has, whether during or prior to his
employment with the Company, engaged in dishonesty, illegal conduct, or gross misconduct, whether or not related to
Executive’s employment with the Company;
4.2.2
Executive's employment with the Company;
4.2.3
Executive's embezzlement, misappropriation, or fraud, whether or not related to the
Executive is criminally charged, convicted, enters a plea, or agrees to any deferred
judgment, deferred prosecution agreement or non-prosecution agreement, for any federal or state crime other than a
traffic-related misdemeanor;
4.2.4
4.2.5
Executive is excluded, suspended, debarred, disqualified, indicted or otherwise
criminally or civilly charged by any government entity with commission of the kinds of conduct for which a person may
be excluded, suspended, debarred. or disqualified, under the Generic Drug Enforcement Act of 1992, as amended (21
USC § 335a, et seq.), section 1128 of the Social Security Act (42 USC § 1320a-7), or under any similar law or
regulation of any state or country;
proceeding;
4.2.6
Executive’s failure to cooperate with the Company in any investigation or formal
Executive's material breach of any material obligation under this Agreement, the
Restrictive Covenant Agreement (as defined in Section 6), or any other written agreement between the Executive and
the Company; or
4.2.7
any material failure by Executive to comply with the Company's written policies or
rules, including but not limited to the Company’s conflict of interest policies or rules, as they may be in effect from time
to time.
4.2.8
Provided, however, that prior to termination based on Sections 4.2.1, 4.2.6 or 4.2.7, Executive shall be given written
notice of the facts allegedly constituting Cause and a ten (10) day opportunity to cure.
4.3 By Death or Disability. Executive’s employment and this Agreement shall terminate upon Executive’s
Disability or death. For purposes of this Agreement, “Disability” shall mean Executive's inability, due to physical or mental
incapacity, to perform the essential functions of Executive's job, with or without reasonable accommodation, for one hundred
eighty (180) days out of any three hundred sixty-five (365) day period; provided however, in the event that the Company
temporarily replaces the Executive, or transfers the Executive's duties or responsibilities to another individual on account of the
Executive's inability to perform such duties due to a mental or physical incapacity which is, or is reasonably expected to become,
a Disability, then the Executive's employment shall not be deemed terminated by the Company. Any question as to the existence
of the Executive's Disability as to which the Executive and the Company cannot agree shall be determined in writing by a
qualified independent physician mutually acceptable to the Executive and the Company. If the Executive and the Company
cannot agree as to a qualified independent physician, each shall appoint such a physician and those two physicians shall select a
third who shall make such determination in writing. The determination of Disability made in writing to the Company and the
Executive shall be final and conclusive for all purposes of this Agreement. The Company shall give Executive written notice of
termination for Disability and the termination shall be effective as of the date specified in such notice.
mean the occurrence of any of the following, in each case without the Executive's written consent:
4.4 For Good Reason. Executive may terminate Executive’s employment for “Good Reason,” which shall
4.4.1
Base Salary that affects all similarly situated executives;
a material reduction in Executive's Base Salary other than a general reduction in
than thirty five (35) miles; or
4.4.2
an involuntary relocation of the Executive's principal place of employment by more
the Company's failure to obtain an agreement from any successor to the Company to
assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be
required to perform if no succession had taken place, except where such assumption occurs by operation of law.
4.4.3
Executive cannot terminate Executive’s employment for Good Reason unless Executive has provided written notice to the
Company of the existence of the circumstances providing grounds for termination for Good Reason within thirty (30) days of the
initial existence of such grounds and the Company has had at least thirty (30) days from the date on which such notice is provided
to cure such circumstances. If the Executive does not terminate Executive’s employment for Good Reason within sixty (60) days
after the first occurrence of the applicable grounds, then the Executive will be deemed to have waived Executive’s right to
terminate for Good Reason with respect to such grounds.
5. COMPENSATION AND BENEFITS UPON TERMINATION. If Executive's employment terminates for any
reason, Executive shall not be entitled to any payments, benefits, damages, award or compensation other than as provided in this
Agreement or otherwise agreed to in writing by the Company or as provided by applicable law. Upon termination of Executive's
employment pursuant to any of the circumstances listed in Section 4, Executive (or Executive's estate) shall be entitled to receive
the sum of: (i) the portion of Executive's Base Salary earned through the Separation Date, but not yet paid to Executive; (ii) any
expense reimbursements owed to Executive pursuant to Section 3.2; and (iii) any amount accrued and arising from Executive's
participation in, or benefits accrued under any employee benefit plans, programs or arrangements, which amounts shall be
payable in accordance with the terms and conditions of such employee benefit plans, programs or arrangements (collectively, the
"Accrued Obligations"). Except as otherwise expressly required by law (e.g., COBRA) or as specifically provided herein, all of
Executive's rights to salary, severance, benefits, bonuses and other compensatory amounts hereunder (if any) shall cease upon the
termination of Executive's employment hereunder. In the event that Executive's employment is terminated by the Company for
any reason, Executive's sole and exclusive remedy shall be to receive the payments and benefits described in this Section 5.
5.1 By the Company for Cause or because of Executive’s Death or Disability, or by Executive Without
Cause, Upon Notice. If Executive’s employment and this Agreement are terminated by the Company for Cause or because of
Executive’s death or Disability, or by Executive pursuant to Section 4.1 (Without Cause, Upon Notice), then the Company’s
obligation to compensate Executive ceases on the Separation Date except for the Accrued Obligations.
5.2 By the Company Without Cause or by Executive for Good Reason. If the Company terminates
Executive’s employment and this Agreement pursuant to Section 4.1 (Without Cause, Upon Notice) or Executive terminates
Executive’s employment and this Agreement pursuant to Section 4.4 (for Good Reason), subject to Executive’s continued
compliance with Executive’s obligations under the Restrictive Covenant Agreement then the Company shall pay Executive the
Accrued Obligations and subject to Section 5.5 (Required Release), Executive shall be entitled to the following:
5.2.1
pay Executive an amount equal to nine (9) months of Executive’s then current
monthly base salary (less applicable taxes and withholdings (the “Severance Period”), payable in substantially equal monthly
installments on the same payroll schedule applicable to Executive immediately prior to Executive’s separation from service and
commencing on the first such payroll date on or following the date on which the release of claims required by Section 5.5
becomes effective and non-revocable, but not later than ninety (90) days following termination from employment; provided
however that if the 90th day following Executive’s termination from employment occurs in the year following the year in which
Executive’s termination occurs, then the payments shall commence no earlier than January 1 of such subsequent year and
provided further that if such payments commence in such subsequent year, the first such payment shall be a lump sum in an
amount equal to the payments that would have come due since Executive’s separation from service, and
5.2.2
If Executive timely and properly elects health continuation coverage under the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), during the Severance Period, the Company shall
reimburse Executive for the difference between the monthly COBRA premium paid by the Executive and the monthly premium
amount paid by Executive immediately prior to the date that Executive’s employment terminated. Such reimbursement shall be
paid to the Executive on or before the tenth (10th) day of the month immediately following the month in which the Executive
timely remits the premium payment,
with such reimbursements to commence when the payments under Section 5.2.1 commence. Executive shall be eligible to receive
such reimbursement until the earliest of: (i) the twelfth-month anniversary of the Separation Date; (ii) the date the Executive is no
longer eligible to receive COBRA continuation coverage; and (iii) the date on which the Executive becomes eligible to receive
substantially similar coverage from another employer or other source. Notwithstanding the foregoing, if the Company's making
payments under this Section 5.2.2 would violate the nondiscrimination rules applicable to non-grandfathered plans under the
Affordable Care Act (the "ACA"), or result in the imposition of penalties under the ACA and the related regulations and guidance
promulgated thereunder), the parties agree to reform this Section 5.2.2 in a manner as is necessary to comply with the ACA.
Executive shall provide the Company with notice of subsequent employment and comparable coverage within thirty (30) days of
commencement of such comparable coverage.
5.3 Following a Change in Control, by the Company Without Cause or by Executive for Good Reason.
If within three (3) month prior to or twelve (12) months following the occurrence of a Change in Control, as defined herein, either
the Company terminates Executive’s employment and this Agreement pursuant to Section 4.1 (Without Cause, Upon Notice) or
Executive terminates Executive’s employment and this Agreement pursuant to Section 4.4 (for Good Reason), then in lieu of any
benefits under Section 5.2, and subject to Executive’s continued compliance with Executive’s obligations under the Restrictive
Covenant Agreement, the Company shall pay Executive the Accrued Obligations and, subject to Section 5.5 (Required Release),
Executive shall be entitled to the following:
The Company shall pay Executive an amount equal to twelve (12) months of
Executive’s then current monthly base salary (less applicable taxes and withholdings) (the “CIC Severance Period”) plus one (1)
times Executive’s target bonus for the year during which the Separation Date occurs, payable in lump sum seventy-five (75) days
following the Separation Date;
5.3.1
5.3.2
If Executive timely and properly elects health continuation coverage under COBRA,
during the CIC Severance Period, the Company shall reimburse Executive for the difference between the monthly COBRA
premium paid by the Executive and the monthly premium amount paid by Executive immediately prior to the date that
Executive’s employment terminated. Such reimbursement shall be paid to the Executive on or before the tenth (10th) day of the
month immediately following the month in which Executive timely remits the premium payment, with such reimbursements to
commence in the month following the month the release under Section 5.4 becomes effective and non-revocable. Executive shall
be eligible to receive such reimbursement until the earliest of: (i) the twelfth-month anniversary of the Separation Date; (ii) the
date the Executive is no longer eligible to receive COBRA continuation coverage; and (iii) the date on which the Executive
becomes eligible to receive substantially similar coverage from another employer or other source. Notwithstanding the
foregoing, if the Company's making payments under this Section 5.3.2 would violate the nondiscrimination rules applicable to
non-grandfathered plans under the ACA, or result in the imposition of penalties under the ACA and the related regulations and
guidance promulgated thereunder), the parties agree to reform this Section 5.3.2 in a manner as is necessary to comply with the
ACA. Executive shall provide the Company with notice of subsequent employment and comparable coverage within thirty (30)
days of commencement of such comparable coverage; and
All unvested time-based equity grants shall vest in full as of the Separation Date,
provided that such equity shall remain subject to the other terms and conditions of the applicable Company incentive award
plan(s) and individual award agreement(s).
5.3.3
5.4 Definition of Change in Control.
5.4.1
“Change in Control” means and includes each of the following:
(a) A transaction or series of transactions (other than an offering of Common Stock to the general
public through a registration statement filed with the Securities and Exchange Commission or a transaction or series of
transactions that meets the requirements of clauses (i) and (ii) of subsection (c) below) whereby any “person” or related “group”
of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”)) (other than the Company, any of its Subsidiaries, an employee benefit plan maintained by the Company or any
of its Subsidiaries or a “person” that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common
control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the
Exchange Act) of securities of the Company possessing more than 50% of the total combined voting power of the Company’s
securities outstanding immediately after such acquisition; provided, however, that for purposes of this Agreement, “Subsidiary”
means any entity (other than the Company), whether domestic or foreign, in an unbroken chain of entities beginning with the
Company if each of the entities other than the last entity in the unbroken chain beneficially owns, at the time of the determination,
securities or interests representing at least 50% of the total combined voting power of all classes of securities or interests in one of
the other entities in such chain; or
(b) During any period of two consecutive years, individuals who, at the beginning of such period,
constitute the Board of Directors (the “Board”) together with any new director(s) of the Board (other than a director designated
by a person who shall have entered into an agreement with the Company to effect a transaction described in subsections (a) or
(c)) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least
two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election
or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or
(c) The consummation by the Company (whether directly involving the Company or indirectly
involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business
combination or (y) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series
of related transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:
(i) which results in the Company’s voting securities outstanding immediately before the
transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company
or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or
substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the
“Successor Entity”)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding
voting securities immediately after the transaction, and
(ii) after which no person or group beneficially owns voting securities representing 50% or
more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for
purposes of this clause (ii) as beneficially owning 50% or more of the combined voting power of the Successor Entity solely as a
result of the voting power held in the Company prior to the consummation of the transaction.
5.4.2
Notwithstanding the foregoing, if a Change in Control constitutes a payment event
under this Agreement that provides for the deferral of compensation that is subject to Section 409A of the Internal Revenue Code
of 1986, as amended (the “Code”), and the regulations thereunder (collectively, “Section 409A”), to the extent required to avoid
the imposition of additional taxes under Section 409A, the transaction or event described in subsection (a), (b) or (c) with respect
to such payment (or portion thereof) shall only constitute a Change in Control for purposes of the payment timing if such
transaction also constitutes a “change in control event,” as defined in Treasury Regulation Section 1.409A-3(i)(5).
5.4.3
The Company shall have full and final authority, which shall be exercised in its discretion, to
determine conclusively whether a Change in Control has occurred pursuant to the above definition, the date of the occurrence of
such Change in Control and any incidental matters relating thereto; provided that any exercise of authority in conjunction with a
determination of whether a Change in Control is a “change in control event” as defined in Treasury Regulation Section 1.409A-
3(i)(5) shall be consistent with such regulation.
5.5 Required Release. Notwithstanding any provision of this Agreement to the contrary, the Company’s
obligation to provide the payments and reimbursements under Sections 5.2.1, 5.2.2, 5.3.1 and 5.3.2 is conditioned upon
Executive’s execution of a standard form of an enforceable release of claims and Executive’s compliance with the Restrictive
Covenant Agreement. If Executive chooses not to execute such a release or fails to comply with the Restrictive Covenant
Agreement, then the Company’s obligation to compensate Executive ceases on the Separation Date except as to amounts due at
the time. The release of claims shall be provided to Executive within ten (10) days of Executive’s separation from service and
Executive must execute it within the time period specified in the release (which shall not be longer than forty-five (45) days from
the date of receipt). Such release shall not be effective until any applicable revocation period has expired.
5.6 Benefits in Lieu of Other Severance. Executive is not entitled to receive any compensation or benefits
upon Executive’s termination except as: (i) set forth in this Agreement; (ii) otherwise required by law; or (iii) otherwise required
by any employee benefit plan in which Executive participates. Moreover, the terms and conditions afforded Executive under this
Agreement are in lieu of any severance benefits to which Executive otherwise might be entitled pursuant to any severance plan,
policy and practice of the Company. However, in the event Executive departs the Company, either upon Executive’s termination
or if employment is terminated by the Company pursuant to Section 4.1, Executive will be provided with the
opportunity to review and comment upon the content of the press release, and the Company will consider such comments in good
faith.
6. RESTRICTIVE COVENANTS. As a condition of employment, Executive will be obligated under the Proprietary
Information, Inventions, Non-Competition and Non-Solicitation Agreement, executed simultaneously herewith (the “Restrictive
Covenant Agreement”). Executive agrees to abide by the terms of the Restrictive Covenant Agreement, or any other subsequent
agreement with the Company relating to proprietary information, inventions, intellectual property, non-competition or non-
solicitation, the terms of which are hereby incorporated by reference into this Agreement. Executive acknowledges that the
provisions of the Restrictive Covenant Agreement, or any subsequent similar agreement, will survive the termination of
Executive's employment and/or the termination of this Agreement.
7. COMPANY PROPERTY. Upon the termination of Executive’s employment or upon Company’s earlier request,
Executive shall: (i) deliver to the Company all records, memoranda, data, documents and other property of any description which
refer or relate in any way to trade secrets or confidential information, including all copies thereof, which are in Executive’s
possession, custody or control; (ii) deliver to the Company all Company property (including, but not limited to, keys, credit cards,
customer files, contracts, proposals, work in process, manuals, forms, computer-stored work in process and other computer data,
research materials, other items of business information concerning any Company customer, or Company business or business
methods, including all copies thereof) which is in Executive’s possession, custody or control; (iii) bring all such records, files and
other materials up to date before returning them; and (iv) fully cooperate with the Company in winding up Executive’s work and
transferring that work to other individuals designated by the Company.
8. CONSULTING AGREEMENT. Upon the Effective Date, the Consulting Agreement by and between the parties
dated April 14, 2020 and as amended by its terms on August 31, 2020 (the “Consulting Agreement”), shall be terminated in all
material respects and shall be of no further force or effect and this Agreement shall supersede the Consulting Agreement and
neither the Company nor Executive shall have any further rights or obligations thereunder. For the avoidance of doubt, in
entering into this Agreement, Employee acknowledges, agrees and represents that the Consulting Agreement has been terminated
in its entirety; such termination is due to the Employee’s voluntary termination of the Consulting Agreement pursuant to Section
10(C) of such agreement, with all notice obligations under Section 10(C) of the Consulting Agreement being deemed satisfied in
full. Employee expressly acknowledges and agrees that the rights and obligations contained in each of Sections 4 (“Ownership of
Inventions / Work Product”), and 8 (“Confidential Information”) of the Consulting Agreement survives the termination of the
Consulting Agreement and shall continue in effect pursuant to its terms. The stock options granted pursuant to the Consulting
Agreement shall continue to vest in accordance with the terms and conditions to of the Company’s plans, programs or applicable
award agreement.
9. EMPLOYEE REPRESENTATION. Executive represents and warrants that Executive’s employment and
obligations under this Agreement will not (i) breach any duty or obligation Executive owes to another or (ii) violate any law,
recognized ethics standard or recognized business custom.
10. AMENDMENTS; WAIVERS. This Agreement may not be modified, amended, or terminated except by an
instrument in writing, signed by Executive and a duly authorized officer of Company. By an instrument in writing similarly
executed, Executive or a duly authorized officer of the Company may waive compliance by the other Party with any specifically
identified provision of this Agreement that such other Party was or is obligated to comply with or perform; provided, however,
that such waiver shall not operate as a waiver of, or estoppel with respect to, any other or subsequent failure. No failure to
exercise and no delay in exercising any right, remedy, or power hereunder will preclude any other or further exercise of any other
right, remedy, or power provided herein or by law or in equity.
11. ENTIRE AGREEMENT. Except as expressly provided in this Agreement, this Agreement: (i) supersedes and
cancels all other understandings and agreements, oral or written, with respect to Executive’s employment with the Company; (ii)
supersedes all other understandings and agreements, oral or written, between the parties with respect to the subject matter of this
Agreement; and (iii) constitutes the sole agreement between the parties with respect to this subject matter. Each party
acknowledges that: (i) no representations, inducements, promises or agreements, oral or written, have been made by any party or
by anyone acting on behalf of any party, which are not embodied in this Agreement; and (ii) no agreement, statement or promise
not contained in this Agreement shall be valid. No change or modification of this Agreement shall be valid or binding upon the
parties unless such change or modification is in writing and is signed by the parties.
12. SEVERABILITY. If a court of competent jurisdiction holds that any provision or sub-part thereof contained in
this Agreement is invalid, illegal, or unenforceable, that invalidity, illegality, or unenforceability shall not affect any other
provision in this Agreement.
13. ASSIGNMENT AND SUCCESSORS. The Company may assign its rights and obligations under this Agreement
to any of its affiliates or to any successor to all or substantially all of the business or the assets of the Company (by merger or
otherwise), and may assign or encumber this Agreement and its rights hereunder as security for
indebtedness of the Company
and its affiliates. This Agreement shall be binding upon and inure to the benefit of the Company, Executive and their respective
successors, assigns, personnel and legal representatives, executors, administrators, heirs, distributees, devisees, and legatees, as
applicable. None of Executive's rights or obligations may be assigned or transferred by Executive, other than Executive's rights to
payments hereunder, which may be transferred only by will or operation of law.
14. GOVERNING LAW. This Agreement shall be construed, interpreted, and governed in accordance with and by
North Carolina law and the applicable provisions of federal law (“Applicable Federal Law”). Any and all claims, controversies,
and causes of action arising out of or relating to this Agreement, whether sounding in contract, tort, or statute, shall be governed
by the laws of the state of North Carolina, including its statutes of limitations, except for Applicable Federal Law, without giving
effect to any North Carolina conflict-of-laws rule that would result in the application of the laws of a different jurisdiction. Both
Executive and the Company acknowledge and agree that the state or federal courts located in North Carolina have personal
jurisdiction over them and over any dispute arising under this Agreement, and both Executive and the Company irrevocably
consent to the jurisdiction of such courts.
15. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be an original, with the
same effect as if the signatures affixed thereto were upon the same instrument.
16. NOTICES. Any notice, request, claim, demand, document and other communication hereunder to any Party shall
be effective upon receipt (or refusal of receipt) and shall be in writing and delivered personally or sent by facsimile or certified or
registered mail, postage prepaid, as follows:
16.1 If to the Company, to the Chief Executive Officer of the Company at the Company's headquarters,
16.2 If to Executive, to the last address that the Company has in its personnel records for Executive, or
16.3 At any other address as any Party shall have specified by notice in writing to the other Party.
17. SECTION 409A OF THE INTERNAL REVENUE CODE. The parties intend that the provisions of this
Agreement comply with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations
thereunder (collectively, “Section 409A”) and all provisions of this Agreement shall be construed in a manner consistent with the
requirements for avoiding taxes or penalties under Section 409A. If any provision of this Agreement (or of any award of
compensation, including equity compensation or benefits) would cause Executive to incur any additional tax or interest under
Section 409A, the Company shall, upon the specific request of Executive, use its reasonable business efforts to in good faith
reform such provision to comply with Code Section 409A; provided, that to the maximum extent practicable, the original intent
and economic benefit to Executive and the Company of the applicable provision shall be maintained, and the Company shall have
no obligation to make any changes that could create any additional economic cost or loss of benefit to the Company. The
Company shall timely use its reasonable business efforts to amend any plans and programs in which Executive participates to
bring it in compliance with Section 409A. Notwithstanding the foregoing, the Company shall have no liability with regard to any
failure to comply with Section 409A so long as it has acted in good faith with regard to compliance therewith.
17.1 Separation from Service. A termination of employment shall not be deemed to have occurred for
purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following a
termination of employment unless such termination also constitutes a “Separation from Service” within the meaning of Section
409A and, for purposes of any such provision of this Agreement, references to a “termination,” “termination of employment,”
“separation from service” or like terms shall mean Separation from Service.
separate payment for purposes of Section 409A.
17.2 Separate Payments. Each installment payment required under this Agreement shall be considered a
17.3 Delayed Distribution to Specified Employee. If the Company determines in accordance with Sections
409A and 416(i) of the Code and the regulations promulgated thereunder, in the Company’s sole discretion, that Executive is a
Specified Employee of the
Company on the date Executive’s employment with the Company terminates and that a delay in benefits provided under this
Agreement is necessary to comply with Code Section 409A(A)(2)(B)(i), then any severance payments and any continuation of
benefits or reimbursement of benefit costs provided by this Agreement, and not otherwise exempt from Section 409A, shall be
delayed for a period of six (6) months following the date of termination of Executive’s employment (the “409A Delay Period”).
In such event, any severance payments and the cost of any continuation of benefits provided under this Agreement that would
otherwise be due and payable to Executive during the 409A Delay Period shall be paid to Executive in a lump sum cash amount
in the month following the end of the 409A Delay Period. For purposes of this Agreement, “Specified Employee” shall mean an
employee who, on an Identification Date (“Identification Date” shall mean each December 31) is a specified employee as defined
in Section 416(i) of the Code without regard to paragraph (5) thereof. If Executive is identified as a Specified Employee on an
Identification Date, then Executive shall be considered a Specified Employee for purposes of this Agreement during the period
beginning on the first April 1 following the Identification Date and ending on the following March 31.
17.4 Reimbursements. To the extent required by Section 409A, each reimbursement or in-kind benefit
provided under this Agreement shall be provided in accordance with the following: (a) the amount of expenses eligible for
reimbursement, or in-kind benefits provided, during each calendar year cannot affect the expenses eligible for reimbursement, or
in-kind benefits to be provided, in any other calendar year; (b) any reimbursement of an eligible expense shall be paid to
Executive on or before the last day of the calendar year following the calendar year in which the expense was incurred; and (c)
any right to reimbursements or in-kind benefits under this Agreement shall not be subject to liquidation or exchange for another
benefit.
18. PARACHUTE PAYMENTS. Notwithstanding any other provisions of this Agreement or any Company equity
plan or agreement, in the event that any payment or benefit by the Company or otherwise to or for the benefit of Executive,
whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (all such payments
and benefits, including the payments and benefits under Section 5 hereof, being hereinafter referred to as the "Total Payments"),
would be subject (in whole or in part) to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then the Total
Payments shall be reduced (in the order provided in Section 16.1) to the minimum extent necessary to avoid the imposition of the
Excise Tax on the Total Payments, but only if (i) the net amount of such Total Payments, as so reduced (and after subtracting the
net amount of federal, state and local income and employment taxes on such reduced Total Payments and after taking into
account the phase out of itemized deductions and personal exemptions attributable to such reduced Total Payments), is greater
than or equal to (ii) the net amount of such Total Payments without such reduction (but after subtracting the net amount of
federal, state and local income and employment taxes on such Total Payments and the amount of the Excise Tax to which
Executive would be subject in respect of such unreduced Total Payments and after taking into account the phase out of itemized
deductions and personal exemptions attributable to such unreduced Total Payments).
18.1 Order of Reduction. The Total Payments shall be reduced in the following order: (i) reduction on a pro-
rata basis of any cash severance payments that are exempt from Section 409A of the Code ("Section 409A"), (ii) reduction on a
pro-rata basis of any non-cash severance payments or benefits that are exempt from Section 409A, (iii) reduction on a pro-rata
basis of any other payments or benefits that are exempt from Section 409A, and (iv) reduction of any payments or benefits
otherwise payable to Executive on a pro-rata basis or such other manner that complies with Section 409A; provided, in case of
clauses (ii), (iii) and (iv), that reduction of any payments attributable to the acceleration of vesting of Company equity awards
shall be first applied to Company equity awards that would otherwise vest last in time.
18.2 Determinations. All determinations regarding the application of this Section 17 shall be made by an
accounting firm or consulting group with experience in performing calculations regarding the applicability of Section 280G of the
Code and the Excise Tax selected by the Company (the "Independent Advisors"). For purposes of determinations, no portion of
the Total Payments shall be taken into account which, in the opinion of the Independent Advisors, (i) does not constitute a
"parachute payment" within the meaning of Section 280G(b)(2) of the Code (including by reason of Section 280G(b)(4)(A) of the
Code) or (ii) constitutes reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of
the Code, in excess of the "base amount" (as defined in Section 280G(b)(3) of the Code) allocable to such reasonable
compensation. The costs of obtaining such determination and all related fees and expenses (including related fees and expenses
incurred in any later audit) shall be borne by the Company.
18.3 Additional Reductions. In the event it is later determined that a greater reduction in the Total Payments
should have been made to implement the objective and intent of this Section 17, the excess amount shall be returned promptly by
Executive to the Company.
[The remainder of this page is intentionally left blank.]
[Signature Page for Employment Agreement]
IN WITNESS WHEREOF, the parties have entered into this Agreement on the day and year first written above.
DR. ALAN LIST
/s/ Alan List, M.D.
PRECISION BIOSCIENCES, INC.
By:
/s/ Matthew R. Kane
Title:
CEO
EXECUTIVE EMPLOYMENT AGREEMENT AMENDMENT
This Executive Employment Agreement Amendment (the “Amendment”) is made as of November 7, 2022, by and among
Precision BioSciences, Inc. (the “Company”) and the individual whose name appears on the signature page hereto (the
“Executive”). Except as set forth in this Amendment, capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Employment Agreement (as defined below).
WITNESSETH
WHEREAS, the Executive previously entered into an executive employment agreement with the Company (the
“Employment Agreement”); and
WHEREAS, the Executive and the Company each desire to amend the terms of the Employment Agreement as set forth in
this Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged,
the Executive and the Company hereby agree to the following:
1. Amendment to the Employment Agreement. The Employment Agreement is hereby amended by adding the following to
the definition of “Good Reason” set forth in Section 4.4:
“a material, adverse change in Executive’s title, authority, duties, or responsibilities (other than temporarily
while the Executive is physically or mentally incapacitated or as required by applicable law), provided that this
shall not apply following an acquisition of or merger by the Company if Executive is provided with similar title,
responsibilities, duties and authority in a larger organization, but only with respect to the business of the
Company and its subsidiaries;”
2. No Other Amendment. Except as expressly set forth in this Amendment, the Employment Agreement shall remain
unchanged and shall continue in full force and effect according to its terms.
3. Entire Agreement. This Amendment, together with the Employment Agreement (to the extent not amended hereby),
represents the entire agreement of the parties with respect to the subject matter hereof and shall supersede any and all
previous contracts, arrangements or understandings between the parties.
[signature page follows]
IN WITNESS WHEREOF, the Company and the Employee have executed this Amendment as of the date first written above.
PRECISION BIOSCIENCES, INC.
By: /s/ Michael Amoroso
Name: Michael Amoroso
Title: Chief Executive Officer
EXECUTIVE
/s/ Alan List
Alan List
Exhibit 10.24
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (the “Agreement”) is made and entered into as of this 15th day of March, 2019
(the “Effective Date”), by and between Precision BioSciences, Inc. (the “Company”), and Dario Scimeca (“Executive”). The
Company and Executive are sometimes referred to in this Agreement individually as a “Party” and collectively as the “Parties.”
BACKGROUND
The Company wishes to employ Executive on the terms set forth in this Agreement, and Executive wishes to accept such
employment on the same terms.
NOW, THEREFORE, in consideration of the foregoing, of the mutual promises herein, and of other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowl(cid:0)edged, the parties hereto, intending legally to be bound,
hereby agree as follows:
1.
EMPLOYMENT. As of the Effective Date, the Company hereby employs Executive and Executive hereby
accepts employment as the General Counsel of the Company upon the terms and conditions of this Agreement.
2.
NATURE OF EMPLOYMENT/DUTIES. Executive shall serve as the General Counsel of the Company and
shall have such responsibilities and authority as the Company may designate from time to time consistent with Executive’s title
and position.
comply with, all Company policies, procedures, practices and directions.
2.1
Executive shall perform all duties and exercise all authority in accordance with, and otherwise
2.2
Executive shall devote substantially all working time, best efforts, knowledge and experience
to perform successfully Executive’s duties and advance the Company’s interests. During Executive’s employment, Executive
may, with the Board’s consent (which shall not be unreasonably withheld), engage in other business activities for compensation
(including board memberships), provided that, such activities do not present a conflict of interest nor violate the Restrictive
Covenant Agreement (defined in Section 6), nor otherwise prohibit Executive from fulfilling Executive’s obligations hereunder.
3.
COMPENSATION.
3.1
Base Salary. Executive’s annual base salary for all services rendered shall be Three Hundred
Ten Thousand and 00/100 Dollars ($310,000.00) (less applicable taxes and withholdings) payable in accordance with the
Company’s payroll practices as they may exist from time to time (the “Base Salary”). Base Salary may be reviewed and adjusted
by the Company, at its discretion, in accordance with the Company’s policies, procedures, and practices as they may exist from
time to time, provided that the Base Salary shall not be decreased unless the decrease is an across-the-board decrease for all
senior management employees of the Company.
actually incurred by Executive in performing services under this Agreement
3.2
Business Expenses. Executive shall be reimbursed for reasonable and necessary expenses
in accordance with and subject to the terms and conditions of the applicable Company reimbursement policies, procedures, and
practices as they may exist from time to time. All such reimbursements shall be made no later than the end of the calendar year
following the year in which the expense was incurred.
3.3
Bonus. Executive may participate in any Company bonus plan the Company may adopt for
senior management subject to the terms, conditions, and any eligibility requirements that may exist in such plan or plans.
Executive’s annual incentive compensation under the bonus plan (the “Annual Bonus”) shall be targeted at 35% of Executive’s
Base Salary (the “Target Annual Bonus”). The Annual Bonus payable under the bonus plan shall be based on the achievement of
performance goals to be determined by the Board. The payment of any Annual Bonus pursuant to the bonus plan shall be subject
to Executive’s continued employment with the Company through the date of payment.
3.4
Equity. Executive shall be eligible to participate in any equity compensation plan or similar
program adopted by the Company when approved by the Board and, if applicable, the Company’s shareholders, for executives at
Executive’s level. The amount awarded, if any, to the Executive under any such plan shall be in the discretion of the Board or
any committee administering such plan and shall be subject to the terms and conditions of any plan or program adopted or
approved by the Board. Subject to approval by the Board, the Company will make an initial grant to Executive of no fewer than
140,000 options to purchase shares of common stock of the Company, priced at fair market value at the time of grant. Such grant
will be effective when made and shall be subject to terms and conditions to be imposed by the Board under the Company’s plans,
programs or applicable award agreement.
3.5
Benefits. Executive may participate in all medical, dental and disability insurance, 401(k),
personal leave and other employee benefit plans and programs of the Company for which Executive is eligible, provided,
however, that Executive’s participation in benefit plans and programs is subject to the applicable terms, conditions and eligibility
requirements of these plans and programs, some of which are within the plan administrator’s discretion, as they may exist from
time to time. The Company shall pay annual dues and expenses for Executive’s membership and participation in such
professional organizations as may be approved by the Board.
4.
TERM OF EMPLOYMENT AND TERMINATION. The Company and Executive acknowledge that
Executive's employment is and shall continue to be “at-will,” as defined under applicable law, and that Executive's employment
with the Company may be terminated by either Party at any time for any or no reason (subject to the notice requirements of this
Section 4). This "at-will" nature of Executive's employment shall remain unchanged during Executive's tenure as an employee
and may not be changed, except in an express writing signed by Executive and a duly authorized officer of the Company. The
term of this Agreement and Executive’s employment hereunder shall commence on the Effective Date and continue until
terminated as set forth in this Section 4. The date on which Executive’s employment terminates, as determined by the Company,
regardless of the reason, shall be referred to herein as the “Separation Date.” Upon termination of Executive's employment for
any reason, Executive shall be deemed to have resigned from all offices and directorships, if any, then held with the Company or
any of its subsidiaries.
employment and this Agreement without Cause at any time upon giving the other party thirty (30) days written notice.
4.1
Without Cause, Upon Notice. Either the Company or Executive may terminate Executive’s
immediately without notice at any time for “Cause,” which shall mean the following:
4.2
For Cause. The Company may terminate Executive’s employment and this Agreement
Executive's material failure to perform Executive’s duties or to
carryout the reasonable and lawful instructions of the Chief Executive Officer or the Board of Directors (other than any
such failure resulting from incapacity due to physical or mental illness);
4.2.1
misconduct, which is, in each case, materially injurious to the Company or its affiliates;
4.2.2
Executive's engagement in dishonesty, illegal conduct, or gross
4.2.3
related to the Executive's employment with the Company;
Executive's embezzlement, misappropriation, or fraud, whether or not
Executive's conviction of or plea of guilty or nolo contendere to a
crime that constitutes a felony (or state law equivalent) or a crime that constitutes a misdemeanor involving moral
turpitude;
4.2.4
investigation or formal proceeding;
4.2.5
Executive’s failure
to cooperate with
the Company
in any
Executive's material breach of any material obligation under this
Agreement, the Restrictive Covenant Agreement (as defined in Section 6), or any other written agreement between the
Executive and the Company; or
4.2.6
written policies or rules, as they may be in effect from time to time.
4.2.7
any material failure by Executive to comply with the Company's
Provided, however, that prior to termination based on Sections 4.2.1, 4.2.7 or 4.2.8, Executive shall be given written
notice of the facts allegedly constituting Cause and a ten (10) day opportunity to cure.
4.3
By Death or Disability. Executive’s employment and this Agreement shall terminate upon
Executive’s Disability or death. For purposes of this Agreement, “Disability” shall mean Executive's inability, due to physical or
mental incapacity, to perform the essential functions of Executive's job, with or without reasonable accommodation, for one
hundred eighty (180) days out of any three hundred sixty-five (365) day period; provided however, in the event that the Company
temporarily replaces the Executive, or transfers the Executive's duties or responsibilities to another individual on account of the
Executive's inability to perform such duties due to a mental or physical incapacity which is, or is reasonably expected to become,
a Disability, then the Executive's employment shall not be deemed terminated by the Company. Any question as to the existence
of the Executive's Disability as to which the Executive and the Company cannot agree shall be determined in writing by a
qualified independent physician mutually acceptable to the
Executive and the Company. If the Executive and the Company cannot agree as to a qualified independent physician, each shall
appoint such a physician and those two physicians shall select a third who shall make such determination in writing. The
determination of Disability made in writing to the Company and the Executive shall be final and conclusive for all purposes of
this Agreement. The Company shall give Executive written notice of termination for Disability and the termination shall be
effective as of the date specified in such notice.
which shall mean the occurrence of any of the following, in each case without the Executive's written consent:
4.4
For Good Reason. Executive may terminate Executive’s employment for “Good Reason,”
reduction in Base Salary that affects all similarly situated executives;
4.4.1
a material reduction in Executive's Base Salary other than a general
employment by more than thirty five (35) miles; or
4.4.2
an involuntary relocation of the Executive's principal place of
the Company's failure to obtain an agreement from any successor to
the Company to assume and agree to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform if no succession had taken place, except where such assumption occurs by
operation of law.
4.4.3
Executive cannot terminate Executive’s employment for Good Reason unless Executive has provided written notice to the
Company of the existence of the circumstances providing grounds for termination for Good Reason within thirty (30) days of the
initial existence of such grounds and the Company has had at least thirty (30) days from the date on which such notice is provided
to cure such circumstances. If the Executive does not terminate Executive’s employment for Good Reason within sixty (60) days
after the first occurrence of the applicable grounds, then the Executive will be deemed to have waived Executive’s right to
terminate for Good Reason with respect to such grounds.
5.
COMPENSATION AND BENEFITS UPON TERMINATION. If Executive's employment terminates for
any reason, Executive shall not be entitled to any payments, benefits, damages, award or compensation other than as provided in
this Agreement or otherwise agreed to in writing by the Company or as provided by applicable law. Upon termination of
Executive's employment pursuant to any of the circumstances listed in Section 4, Executive (or Executive's estate) shall be
entitled to receive the sum of: (i) the portion of Executive's Base Salary earned through the Separation Date, but not yet paid to
Executive; (ii) any expense reimbursements owed to Executive pursuant to Section 3.2; and (iii) any amount accrued and arising
from Executive's participation in, or benefits accrued under any employee benefit plans, programs or arrangements, which
amounts shall be payable in accordance with the terms and conditions of such employee benefit plans, programs or arrangements
(collectively, the "Accrued Obligations"). Except as otherwise expressly required by law (e.g., COBRA) or as specifically
provided herein, all of Executive's rights to salary, severance, benefits, bonuses and other compensatory amounts hereunder (if
any) shall cease upon the termination of Executive's employment hereunder. In the event that Executive's employment is
terminated by the Company for any reason, Executive's sole and exclusive remedy shall be to receive the payments and benefits
described in this Section 5.
5.1
By the Company for Cause or because of Executive’s Death or Disability, or by Executive
Without Cause, Upon Notice. If Executive’s employment and this Agreement are terminated by the Company for Cause or
because of Executive’s death or Disability, or by Executive pursuant to Section 4.1 (Without Cause, Upon Notice), then the
Company’s obligation to compensate Executive ceases on the Separation Date except for the Accrued Obligations.
5.2
By the Company Without Cause or by Executive for Good Reason. If the Company
terminates Executive’s employment and this Agreement pursuant to Section 4.1 (Without Cause, Upon Notice) or Executive
terminates Executive’s employment and this Agreement pursuant to Section 4.4 (for Good Reason), subject to Executive’s
continued compliance with Executive’s obligations under the Restrictive Covenant Agreement then the Company shall pay
Executive the Accrued Obligations and subject to Section 5.5 (Required Release), Executive shall be entitled to the following:
5.2.1
pay Executive an amount equal to nine (9) months of Executive’s
then current monthly base salary (less applicable taxes and withholdings (the “Severance Period”), payable in
substantially equal monthly installments on the same payroll schedule applicable to Executive immediately prior to
Executive’s separation from service and commencing on the first such payroll date on or following the date on which the
release of claims required by Section 5.5 becomes effective and non-revocable, but not later than ninety (90) days
following termination from employment; provided however that if the 90th day following Executive’s termination from
employment occurs in the year following the year in which Executive’s termination occurs, then the payments shall
commence no earlier than January 1 of such subsequent year and provided further that if such payments commence in
such subsequent year, the first such payment shall be a lump sum in an amount equal to the payments that would have
come due since Executive’s separation from service, and
5.2.2
If Executive timely and properly elects health continuation coverage
under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), during the Severance Period, the
Company shall reimburse Executive for the difference between the monthly COBRA premium paid by the Executive for
and the monthly premium amount paid by Executive immediately prior to the date that Executive’s employment
terminated. Such reimbursement shall be paid to the Executive on or before the tenth (10th) day of the month
immediately following the month in which the Executive timely remits the premium payment, with such reimbursements
to commence when the payments under Section 5.2.1 commence. Executive shall be eligible to receive such
reimbursement until the earliest of: (i) the twelfth-month anniversary of the Separation Date; (ii) the date the Executive
is no longer eligible to receive COBRA continuation coverage; and (iii) the date on which the Executive becomes
eligible to receive substantially similar coverage from another employer or other source. Notwithstanding the foregoing,
if the Company's making payments under this Section 5.2.2 would violate the nondiscrimination rules applicable to non-
grandfathered plans under the Affordable Care Act (the "ACA"), or result in the imposition of penalties under the ACA
and the related regulations and guidance promulgated thereunder), the parties agree to reform this Section 5.2.2 in a
manner as is necessary to comply with the ACA. Executive shall provide
the Company with notice of subsequent employment and comparable coverage within thirty (30) days of commencement
of such comparable coverage.
5.3
Following a Change in Control, by the Company Without Cause or by Executive for
Good Reason. If within three (3) month prior to or twelve (12) months following the occurrence of a Change in Control, as
defined herein, either the Company terminates Executive’s employment and this Agreement pursuant to Section 4.1 (Without
Cause, Upon Notice) or Executive terminates Executive’s employment and this Agreement pursuant to Section 4.4 (for Good
Reason), then in lieu of any benefits under Section 5.2, and subject to Executive’s continue compliance with Executive’s
obligations under the Restrictive Covenant Agreement, the Company shall pay Executive the Accrued Obligations and, subject to
Section 5.5 (Required Release), Executive shall be entitled to the following:
The Company shall pay Executive an amount equal to twelve (12)
months of Executive’s then current monthly base salary (less applicable taxes and withholdings) (the “CIC Severance
Period”) plus one (1) times Executive’s target bonus for the year during which the Separation Date occurs, payable in
lump sum Seventy-five (75) days following the Separation Date;
5.3.1
5.3.2
If Executive timely and properly elects health continuation coverage
under COBRA, during the CIC Severance Period, the Company shall reimburse Executive for the difference between the
monthly COBRA premium paid by the Executive for and the monthly premium amount paid by Executive immediately
prior to the date that Executive’s employment terminated. Such reimbursement shall be paid to the Executive on or
before the tenth (10th) day of the month immediately following the month in which Executive timely remits the premium
payment, with such reimbursements to commence in the month following the month the release under Section 5.4
becomes effective and non-revocable. Executive shall be eligible to receive such reimbursement until the earliest of: (i)
the twelfth-month anniversary of the Separation Date; (ii) the date the Executive is no longer eligible to receive COBRA
continuation coverage; and (iii) the date on which the Executive becomes eligible to receive substantially similar
coverage from another employer or other source. Notwithstanding the foregoing, if the Company's making payments
under this Section 5.3.2 would violate the nondiscrimination rules applicable to non-grandfathered plans under the ACA,
or result in the imposition of penalties under the ACA and the related regulations and guidance promulgated thereunder),
the parties agree to reform this Section 5.3.2 in a manner as is necessary to comply with the ACA. Executive shall
provide the Company with notice of subsequent employment and comparable coverage within thirty (30) days of
commencement of such comparable coverage; and
All unvested time-based equity grants shall vest in full as of the
Separation Date, provided that such equity shall remain subject to the other terms and conditions of the applicable
Company incentive award plan(s) and individual award agreement(s).
5.3.3
5.4
Definition of Change in Control.
5.4.1
“Change in Control” means and includes each of the following:
(a)
A transaction or series of transactions (other than an offering of
Common Stock to the general public through a registration statement filed with the Securities and Exchange Commission or a
transaction or series of transactions that meets the requirements of clauses (i) and (ii) of subsection (c) below) whereby any
“person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”)) (other than the Company, any of its Subsidiaries, an employee benefit plan maintained
by the Company or any of its Subsidiaries or a “person” that, prior to such transaction, directly or indirectly controls, is controlled
by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of
Rule 13d-3 under the Exchange Act) of securities of the Company possessing more than 50% of the total combined voting power
of the Company’s securities outstanding immediately after such acquisition; provided, however, that for purposes of this
Agreement, “Subsidiary” means any entity (other than the Company), whether domestic or foreign, in an unbroken chain of
entities beginning with the Company if each of the entities other than the last entity in the unbroken chain beneficially owns, at
the time of the determination, securities or interests representing at least 50% of the total combined voting power of all classes of
securities or interests in one of the other entities in such chain; or
(b)
During any period of two consecutive years, individuals who, at the
beginning of such period, constitute the Board of Directors (the “Board”) together with any new director(s) of the Board (other
than a director designated by a person who shall have entered into an agreement with the Company to effect a transaction
described in subsections (a) or (c)) whose election by the Board or nomination for election by the Company’s stockholders was
approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-
year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a
majority thereof; or
The consummation by the Company (whether directly involving the
Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation,
reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Company’s assets in any
single transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case other than
a transaction:
(c)
which results
in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining
outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls,
directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise
succeeds to the business of the Company (the Company or such person, the “Successor Entity”)) directly or indirectly, at least a
majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction,
and
(i)
after which
no person or group beneficially owns voting securities representing 50% or more of the combined voting power of the Successor
Entity; provided, however, that no person or group shall be treated for purposes of this clause (ii) as beneficially owning 50% or
more of the combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to
the consummation of the transaction.
(ii)
5.4.2
Notwithstanding the foregoing, (i) a Change in Control shall not
include an IPO (referenced in Background, Section B of this Agreement); and (ii) if a Change in Control constitutes a
payment event under this Agreement that provides for the deferral of compensation that is subject to Section 409A of the
Internal Revenue Code of 1986, as amended (the “Code”), and the regulations thereunder (collectively, “Section 409A”),
to the extent required to avoid the imposition of additional taxes under Section 409A, the transaction or event described
in subsection (a), (b) or (c) with respect to such payment (or portion thereof) shall only constitute a Change in Control
for purposes of the payment timing if such transaction also constitutes a “change in control event,” as defined in
Treasury Regulation Section 1.409A-3(i)(5).
5.4.3
The Company shall have full and final authority, which shall be
exercised in its discretion, to determine conclusively whether a Change in Control has occurred pursuant to the above
definition, the date of the occurrence of such Change in Control and any incidental matters relating thereto; provided that
any exercise of authority in conjunction with a determination of whether a Change in Control is a “change in control
event” as defined in Treasury Regulation Section 1.409A-3(i)(5) shall be consistent with such regulation.
5.5
Required Release. Notwithstanding any provision of this Agreement to the contrary, the
Company’s obligation to provide the payments and reimbursements under Sections 5.2.1, 5.2.2, 5.3.1 and 5.3.2 is conditioned
upon Executive’s execution of a standard form of an enforceable release of claims and Executive’s compliance with the
Restrictive Covenant Agreement. If Executive chooses not to execute such a release or fails to comply with the Restrictive
Covenant Agreement, then the Company’s obligation to compensate Executive ceases on the Separation Date except as to
amounts due at the time. The release of claims shall be provided to Executive within ten (10) days of Executive’s separation
from service and Executive must execute it within the time period specified in the release (which shall not be longer than forty-
five (45) days from the date of receipt). Such release shall not be effective until any applicable revocation period has expired.
5.6
Benefits in Lieu of Other Severance. Executive is not entitled to receive any compensation
or benefits upon Executive’s termination except as: (i) set forth in this Agreement; (ii) otherwise required by law; or (iii)
otherwise required by any employee benefit plan in which Executive participates. Moreover, the terms and conditions afforded
Executive under this Agreement are in lieu of any severance benefits to which Executive otherwise might be entitled pursuant to
any severance plan, policy and practice of the Company.
6.
RESTRICTIVE COVENANTS. As a condition of employment, Executive will be obligated under the
Proprietary Information, Inventions, Non-Competition and Non-Solicitation Agreement, executed simultaneously herewith (the
“Restrictive Covenant Agreement”). Executive
agrees to abide by the terms of the Restrictive Covenant Agreement, or any other subsequent agreement with the Company
relating to proprietary information, inventions, intellectual property, non-competition or non-solicitation, the terms of which are
hereby incorporated by reference into this Agreement. Executive acknowledges that the provisions of the Restrictive Covenant
Agreement, or any subsequent similar agreement, will survive the termination of Executive's employment and/or the termination
of this Agreement.
7.
COMPANY PROPERTY. Upon the termination of Executive’s employment or upon Company’s earlier
request, Executive shall: (i) deliver to the Company all records, memoranda, data, documents and other property of any
description which refer or relate in any way to trade secrets or confidential information, including all copies thereof, which are in
Executive’s possession, custody or control; (ii) deliver to the Company all Company property (including, but not limited to, keys,
credit cards, customer files, contracts, proposals, work in process, manuals, forms, computer-stored work in process and other
computer data, research materials, other items of business information concerning any Company customer, or Company business
or business methods, including all copies thereof) which is in Executive’s possession, custody or control; (iii) bring all such
records, files and other materials up to date before returning them; and (iv) fully cooperate with the Company in winding up
Executive’s work and transferring that work to other individuals designated by the Company.
8.
EMPLOYEE REPRESENTATION. Executive represents and warrants that Executive’s employment and
obligations under this Agreement will not (i) breach any duty or obligation Executive owes to another or (ii) violate any law,
recognized ethics standard or recognized business custom.
9.
AMENDMENTS; WAIVERS. This Agreement may not be modified, amended, or terminated except by an
instrument in writing, signed by Executive and a duly authorized officer of Company. By an instrument in writing similarly
executed, Executive or a duly authorized officer of the Company may waive compliance by the other Party with any specifically
identified provision of this Agreement that such other Party was or is obligated to comply with or perform; provided, however,
that such waiver shall not operate as a waiver of, or estoppel with respect to, any other or subsequent failure. No failure to
exercise and no delay in exercising any right, remedy, or power hereunder will preclude any other or further exercise of any other
right, remedy, or power provided herein or by law or in equity.
10.
ENTIRE AGREEMENT. Except as expressly provided in this Agreement, this Agreement: (i) supersedes and
cancels all other understandings and agreements, oral or written, with respect to Executive’s employment with the Company; (ii)
supersedes all other understandings and agreements, oral or written, between the parties with respect to the subject matter of this
Agreement; and (iii) constitutes the sole agreement between the parties with respect to this subject matter. Each party
acknowledges that: (i) no representations, inducements, promises or agreements, oral or written, have been made by any party or
by anyone acting on behalf of any party, which are not embodied in this Agreement; and (ii) no agreement, statement or promise
not contained in this Agreement shall be valid. No change or modification of this Agreement shall be valid or binding upon the
parties unless such change or modification is in writing and is signed by the parties.
11.
SEVERABILITY. If a court of competent jurisdiction holds that any provision or sub-part thereof contained in
this Agreement is invalid, illegal, or unenforceable, that invalidity, illegality, or unenforceability shall not affect any other
provision in this Agreement.
12.
ASSIGNMENT AND SUCCESSORS. The Company may assign its rights and obligations under this
Agreement to any of its affiliates or to any successor to all or substantially all of the business or the assets of the Company (by
merger or otherwise), and may assign or encumber this Agreement and its rights hereunder as security for
indebtedness of the
Company and its affiliates. This Agreement shall be binding upon and inure to the benefit of the Company, Executive and their
respective successors, assigns, personnel and legal representatives, executors, administrators, heirs, distributees, devisees, and
legatees, as applicable. None of Executive's rights or obligations may be assigned or transferred by Executive, other than
Executive's rights to payments hereunder, which may be transferred only by will or operation of law.
13.
GOVERNING LAW. This Agreement shall be construed, interpreted, and governed in accordance with and by
North Carolina law and the applicable provisions of federal law (“Applicable Federal Law”). Any and all claims, controversies,
and causes of action arising out of or relating to this Agreement, whether sounding in contract, tort, or statute, shall be governed
by the laws of the state of North Carolina, including its statutes of limitations, except for Applicable Federal Law, without giving
effect to any North Carolina conflict-of-laws rule that would result in the application of the laws of a different jurisdiction. Both
Executive and the Company acknowledge and agree that the state or federal courts located in North Carolina have personal
jurisdiction over them and over any dispute arising under this Agreement, and both Executive and the Company irrevocably
consent to the jurisdiction of such courts.
14.
COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be an original, with
the same effect as if the signatures affixed thereto were upon the same instrument.
15.
NOTICES. Any notice, request, claim, demand, document and other communication hereunder to any Party
shall be effective upon receipt (or refusal of receipt) and shall be in writing and delivered personally or sent by facsimile or
certified or registered mail, postage prepaid, as follows:
headquarters,
or
15.1
15.2
15.3
If to the Company, to the Chief Executive Officer of the Company at the Company's
If to Executive, to the last address that the Company has in its personnel records for Executive,
At any other address as any Party shall have specified by notice in writing to the other Party.
16.
SECTION 409A OF THE INTERNAL REVENUE CODE. The parties intend that the provisions of this
Agreement comply with Section 409A of the Code and all provisions of this Agreement shall be construed in a manner consistent
with the requirements for avoiding taxes or penalties under Section 409A. If any provision of this Agreement (or of any award of
compensation, including equity compensation or benefits) would cause Executive to incur any additional tax or interest under
Section 409A, the Company shall, upon the specific request of Executive, use its reasonable business efforts to in good faith
reform such provision to comply with Code Section 409A; provided, that to the maximum extent practicable, the original intent
and economic benefit to Executive and the Company of the applicable provision shall be maintained, and the Company shall have
no obligation to make any changes that could create any additional economic cost or loss of benefit to the Company. The
Company shall timely use its reasonable business efforts to amend any plans and programs in which Executive participates to
bring it in compliance with Section 409A. Notwithstanding the foregoing, the Company shall have no liability with regard to any
failure to comply with Section 409A so long as it has acted in good faith with regard to compliance therewith.
16.1
Separation from Service. A termination of employment shall not be deemed to have occurred
for purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following a
termination of employment unless such termination also constitutes a “Separation from Service” within the meaning of Section
409A and, for purposes of any such provision of this Agreement, references to a “termination,” “termination of employment,”
“separation from service” or like terms shall mean Separation from Service.
considered a separate payment for purposes of Section 409A.
16.2
Separate Payments. Each installment payment required under this Agreement shall be
16.3
Delayed Distribution to Specified Employee. If the Company determines in accordance with
Sections 409A and 416(i) of the Code and the regulations promulgated thereunder, in the Company’s sole discretion, that
Executive is a Specified Employee of the Company on the date Executive’s employment with the Company terminates and that a
delay in benefits provided under this Agreement is necessary to comply with Code Section 409A(A)(2)(B)(i), then any severance
payments and any continuation of benefits or reimbursement of benefit costs provided by this Agreement, and not otherwise
exempt from Section 409A, shall be delayed for a period of six (6) months following the date of termination of Executive’s
employment (the “409A Delay Period”). In such event, any severance payments and the cost of any continuation of benefits
provided under this Agreement that would otherwise be due and payable to Executive during the 409A Delay Period shall be paid
to Executive in a lump sum cash amount in the month following the end of the 409A Delay Period. For purposes of this
Agreement, “Specified Employee” shall mean an employee who, on an Identification Date (“Identification Date” shall mean each
December 31) is a specified employee as defined in Section 416(i) of the Code without regard to paragraph (5) thereof. If
Executive is identified as a Specified Employee on an Identification Date, then Executive shall be considered a Specified
Employee for purposes of this Agreement during the period beginning on the first April 1 following the Identification Date and
ending on the following March 31.
16.4
Reimbursements. To the extent required by Section 409A, each reimbursement or in-kind
benefit provided under this Agreement shall be provided in accordance with the following: (a) the amount of expenses eligible
for reimbursement, or in-kind benefits provided, during each calendar year cannot affect the expenses eligible for reimbursement,
or in-kind benefits to be provided, in any other calendar year; (b) any reimbursement of an eligible expense shall be paid to
Executive on or before the last day of the calendar year following the
calendar year in which the expense was incurred; and (c) any right to reimbursements or in-kind benefits under this Agreement
shall not be subject to liquidation or exchange for another benefit.
17.
PARACHUTE PAYMENTS. Notwithstanding any other provisions of this Agreement or any Company equity
plan or agreement, in the event that any payment or benefit by the Company or otherwise to or for the benefit of Executive,
whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (all such payments
and benefits, including the payments and benefits under Section 5 hereof, being hereinafter referred to as the "Total Payments"),
would be subject (in whole or in part) to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then the Total
Payments shall be reduced (in the order provided in Section 16.1) to the minimum extent necessary to avoid the imposition of the
Excise Tax on the Total Payments, but only if (i) the net amount of such Total Payments, as so reduced (and after subtracting the
net amount of federal, state and local income and employment taxes on such reduced Total Payments and after taking into
account the phase out of itemized deductions and personal exemptions attributable to such reduced Total Payments), is greater
than or equal to (ii) the net amount of such Total Payments without such reduction (but after subtracting the net amount of
federal, state and local income and employment taxes on such Total Payments and the amount of the Excise Tax to which
Executive would be subject in respect of such unreduced Total Payments and after taking into account the phase out of itemized
deductions and personal exemptions attributable to such unreduced Total Payments).
17.1
Order of Reduction. The Total Payments shall be reduced in the following order: (i)
reduction on a pro-rata basis of any cash severance payments that are exempt from Section 409A of the Code, (ii) reduction on a
pro-rata basis of any non-cash severance payments or benefits that are exempt from Section 409A, (iii) reduction on a pro-rata
basis of any other payments or benefits that are exempt from Section 409A, and (iv) reduction of any payments or benefits
otherwise payable to Executive on a pro-rata basis or such other manner that complies with Section 409A; provided, in case of
clauses (ii), (iii) and (iv), that reduction of any payments attributable to the acceleration of vesting of Company equity awards
shall be first applied to Company equity awards that would otherwise vest last in time.
17.2
Determinations. All determinations regarding the application of this Section 17 shall be made
by an accounting firm or consulting group with experience in performing calculations regarding the applicability of Section 280G
of the Code and the Excise Tax selected by the Company (the "Independent Advisors"). For purposes of determinations, no
portion of the Total Payments shall be taken into account which, in the opinion of the Independent Advisors, (i) does not
constitute a "parachute payment" within the meaning of Section 280G(b)(2) of the Code (including by reason of Section 280G(b)
(4)(A) of the Code) or (ii) constitutes reasonable compensation for services actually rendered, within the meaning of Section
280G(b)(4)(B) of the Code, in excess of the "base amount" (as defined in Section 280G(b)(3) of the Code) allocable to such
reasonable compensation. The costs of obtaining such determination and all related fees and expenses (including related fees and
expenses incurred in any later audit) shall be borne by the Company.
Additional Reductions. In the event it is later determined that a greater reduction in the Total
Payments should have been made to implement the objective and intent of this Section 17, the excess amount shall be returned
promptly by Executive to the Company.
17.3
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[Signature Page for Executive Employment Agreement]
IN WITNESS WHEREOF, the parties have entered into this Agreement on the day and year first written above.
DARIO SCIMECA
/s/Dario Scimeca
PRECISION BIOSCIENCES, INC.
By:
/s/Michael Nicholson
Title:
Chief People Officer
EXECUTIVE EMPLOYMENT AGREEMENT AMENDMENT
This Executive Employment Agreement Amendment (the “Amendment”) is made as of November 7, 2022, by and among
Precision BioSciences, Inc. (the “Company”) and the individual whose name appears on the signature page hereto (the
“Executive”). Except as set forth in this Amendment, capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Employment Agreement (as defined below).
WITNESSETH
WHEREAS, the Executive previously entered into an executive employment agreement with the Company (the
“Employment Agreement”); and
WHEREAS, the Executive and the Company each desire to amend the terms of the Employment Agreement as set forth in
this Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged,
the Executive and the Company hereby agree to the following:
1. Amendment to the Employment Agreement. The Employment Agreement is hereby amended by adding the following to
the definition of “Good Reason” set forth in Section 4.4:
“a material, adverse change in Executive’s title, authority, duties, or responsibilities (other than temporarily
while the Executive is physically or mentally incapacitated or as required by applicable law), provided that this
shall not apply following an acquisition of or merger by the Company if Executive is provided with similar title,
responsibilities, duties and authority in a larger organization, but only with respect to the business of the
Company and its subsidiaries;”
2. No Other Amendment. Except as expressly set forth in this Amendment, the Employment Agreement shall remain
unchanged and shall continue in full force and effect according to its terms.
3. Entire Agreement. This Amendment, together with the Employment Agreement (to the extent not amended hereby),
represents the entire agreement of the parties with respect to the subject matter hereof and shall supersede any and all
previous contracts, arrangements or understandings between the parties.
[signature page follows]
IN WITNESS WHEREOF, the Company and the Employee have executed this Amendment as of the date first written above.
PRECISION BIOSCIENCES, INC.
By: /s/ Michael Amoroso
Name: Michael Amoroso
Title: Chief Executive Officer
EXECUTIVE
/s/ Dario Scimeca
Dario Scimeca
Precision BioSciences, Inc. has no subsidiaries.
Subsidiaries
Exhibit 21.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-230671, 333-259369, and 333-267079 on
Form S-8 and Registration Statement No. 333-238857 on Form S-3 of our report dated March 9, 2023, relating to the financial
statements of Precision BioSciences, Inc., appearing in this Annual Report on Form 10-K for the year ended December 31,
2022.
Exhibit 23.1
/s/ Deloitte & Touche LLP
Raleigh, North Carolina
March 9, 2023
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, Michael Amoroso, certify that:
1.
2.
3.
I have reviewed this Annual Report on Form 10-K for the fiscal year ended December 31, 2022 of Precision BioSciences, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: March 9, 2023
By:
/s/ Michael Amoroso
Michael Amoroso
President, Chief Executive Officer and Director
(principal executive officer)
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, John Alexander Kelly, certify that:
1.
2.
3.
I have reviewed this Annual Report on Form 10-K for the fiscal year ended December 31, 2022 of Precision BioSciences, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: March 9, 2023
By:
/s/ John Alexander Kelly
John Alexander Kelly
Chief Financial Officer
(principal financial officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Precision BioSciences, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2022 as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906
of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date: March 9, 2023
By:
/s/ Michael Amoroso
Michael Amoroso
President, Chief Executive Officer and Director
(principal executive officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of Precision BioSciences, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2022 as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906
of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date: March 9, 2023
By:
/s/ John Alexander Kelly
John Alexander Kelly
Chief Financial Officer
(principal financial officer)