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Item 7. Management’s Discussion and Analysis

2021-03-18 compared with 2020-03-10 · 235 added, 161 removed, 320 unchanged (55% of the section changed)

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

You should read the following discussion and analysis of financial condition and operating results together with the section captioned “Selected Consolidated Financial Data” and our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K.

This discussion contains forward-looking statements that involve risks and uncertainties.

As a result of many factors, such as those set forth in the section of the Annual Report on Form 10-K captioned “Risk Factors” and elsewhere in this Annual Report on Form 10-K, our actual results may differ materially from those anticipated in these forward-looking statements .

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.

“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 on a consolidated basis.

We are a life sciences company dedicated to improving life through the application of our pioneering, proprietary ARCUS genome editing platform.

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We are currently conducting a Phase 1/2a clinical trial of PBCAR0191 in adult patients with relapsed or refractory, or R/R, non-Hodgkin lymphoma, or NHL, or R/R B-cell precursor acute lymphoblastic leukemia, or B-ALL.

PBCAR0191 is our first gene-edited allogeneic chimeric antigen receptor, or CAR, T cell therapy candidate targeting CD19 and is being developed in collaboration with Les Laboratoires Servier, or Servier.

PBCAR0191 is our first gene-edited allogeneic chimeric antigen receptor, or CAR, T cell therapy candidate targeting CD19 and is being developed in collaboration with Servier pursuant to the Servier Agreement.

We have received orphan drug designation for PBCAR0191 from the U.S.

Food and Drug Administration, or FDA, for the treatment of ALL.

Food and Drug Administration (“FDA”), for the treatment of acute lymphoblastic leukemia, or ALL.

In August 2020, the FDA granted Fast Track Designation for PBCAR0191 for the treatment of B-ALL.

The NHL cohort will include patients with mantle cell lymphoma (“MCL”), an aggressive subtype of NHL, for which we have received orphan drug designation from the FDA.

Made from donor-derived T cells modified using our ARCUS genome editing technology, PBCAR0191 recognizes the well characterized tumor cell surface protein CD19, an important and validated target in several B-cell cancers, and is designed to avoid graft-versus-host disease, or GvHD, a significant complication associated with donor-derived, cell-based therapies.

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Furthermore, we believe that our proprietary, one-step engineering process for producing allogeneic CAR T cells with a potentially optimized cell phenotype, at large scale in a cost-effective manner, will enable us to overcome the fundamental clinical and manufacturing challenges that have limited the CAR T field to date.

In December 2019, we announced initial data from this ongoing Phase 1/2a clinical trial of PBCAR0191 in adult patients with R/R NHL and R/R B-ALL.

A total of nine adult patients were reported in these initial Phase 1 trial results, including six with NHL (three treated at Dose Level 1 (3x10 5 cells/kg), or DL1, and three treated at Dose Level 2 (1x10 6 cells/kg), or DL2), and three with B-ALL (all treated at DL2).

These data indicated no serious adverse events or dose limiting toxicities.

In the NHL cohort, four of six patients demonstrated an objective tumor response by Lugano criteria at day 28, for an overall objective response rate of 67%, including three partial responses and one complete response.

In the ALL cohort, one of three patients achieved a complete response at day 28 following treatment with PBCAR0191.

As of December 31, 2019, dosing of patients at Dose Level 3 (3x10 6 cells/kg) was underway.

Based on the data observed at DL1 and DL2, we filed a protocol amendment for this trial with the FDA in December 2019.

The amended trial design is intended to specifically address key clinical questions.

These include assessing the impact of higher total doses of cells on clinical activity and/or the impact of modified lymphodepletion on the ability to achieve durable clinical benefit with associated CAR T cell expansion and persistence.

Following feedback from the FDA in late January 2020, the protocol amendment is now being implemented.

In September 2019, the FDA accepted our investigational new drug, or IND, application for our second allogeneic CAR T cell therapy product candidate, PBCAR20A, for which we expect to commence a Phase 1/2a clinical trial in the first quarter of 2020.

We expect to report updated interim data for the PBCAR0191 study in mid-year 2021.

In April 2020, we commenced patient dosing in a Phase 1/2a clinical trial with our second allogeneic CAR T cell therapy product candidate, PBCAR20A.

PBCAR20A is wholly owned by us and targets the validated tumor cell surface target CD20.

It will be investigated in subjects with NHL, chronic lymphocytic leukemia, or CLL, and small lymphocytic lymphoma, or SLL.

A subset of the NHL patients will have the diagnosis of mantle cell lymphoma, or MCL, and we have received orphan drug designation for PBCAR20A from the FDA for the treatment of this disease.

Based on the adverse events observed to date with PBCAR0191, the FDA has agreed to allow us to commence dosing with PBCAR20A directly at Dose Level 2, which we expect to accelerate the timing for our expected completion of the trial.

In January 2020, the FDA accepted our IND application for our third allogeneic CAR T cell therapy product candidate, PBCAR269A, for which we expect to commence a Phase 1/2a clinical trial in 2020.

It is being investigated in R/R NHL, including those with R/R chronic lymphocytic leukemia, CLL, or R/R small lymphocytic lymphoma, or SLL.

A subset of the NHL patients will have the diagnosis of MCL and we have received orphan drug designation for PBCAR20A from the FDA for the treatment of this disease.

Based on the safety profile observed to date with PBCAR0191, the FDA allowed us to commence dosing with PBCAR20A directly at 1 x 10 6 cells/kg.

The study has continued to escalate through dose level two (3 x 10 6 cells/kg), and, in February 2021, we commenced patient dosing at dose level 3 (480 x 10 6 cell fixed dose) with a max dose of 6 x 10 6 cells/kg.

We expect to report interim data for the PBCAR20A study in 2021.

In June 2020, we commenced patient dosing in a Phase 1/2a clinical trial with our third allogenic CAR T cell therapy product candidate, PBCAR269A.

The starting dose of PBCAR269A is 6 x 10 5 cells/kg.

PBCAR269A is wholly owned by us and is designed to target the validated tumor cell surface target BCMA.

It will be investigated in subjects with R/R multiple myeloma and we have received orphan drug designation from the FDA for this indication.

Also in January 2020, we announced that we expect to advance a program targeting the rare genetic disease primary hyperoxaluria type 1, or PH1 as our lead wholly owned in vivo gene correction program.

It is being investigated in subjects with R/R multiple myeloma and we have received orphan drug designation and Fast Track Designation from the FDA for this indication.

In September 2020, we announced that we entered into a clinical trial collaboration with SpringWorks, a clinical-stage biopharmaceutical company focused on developing medicines for patients with severe rare diseases and cancer.

Pursuant to the collaboration, PBCAR269A will be evaluated in combination with nirogacestat, SpringWorks’ investigational GSI, in patients with R/R multiple myeloma, which is expected to commence in the first half of 2021.

In February 2021, we commenced patient dosing at the highest dose cohort, dose level 3 o f 6 x 10 6 cells/kg and we expect to report interim data on the PBCAR269A trial in 2021.

Additionally, in June 2020, Elo, our wholly-owned subsidiary, established a strategic partnership with the Dole and entered into a Research, Development, and Commercialization Agreement with Dole, with the aim to co-develop banana varieties resistant to Foc TR4, utilizing proprietary computational biology workflows and the ARCUS genome editing platform.

The disease caused by Foc TR4, commonly known as Fusarium wilt, threatens the continued cultivation of the world’s most popular variety of banana called Cavendish, which is of considerable economic significance as this variety is used to produce export bananas for key markets around the globe and Dole is one of the largest producers in the industry.

Fungicides, or other traditional means of disease control have failed as the pandemic continues to spread across vital banana growing economies.

In September 2020, we regained full clinical development and commercialization rights , and all data we generated for the in vivo chronic HBV program developed under our 2018 collaboration agreement with Gilead Sciences.

We are exploring partnership or alternative opportunities to enable the continued development of ARCUS-based HBV therapies.

In October 2020, we announced the U.S.

Patent and Trademark Office’s PTAB issued judgements in our favor in two patent interference proceedings that challenged nine U.S.

patents we owned.

The patents, which issued in 2018, relate to allogeneic CAR T cells produced by inserting a gene encoding a CAR into the TRAC locus, as well as methods of using those cells for cancer immunotherapy.

In the interference proceedings, a third party argued that it had invented the technology in 2012.

The PTAB, however, found that the third-party patent application did not satisfy the written description requirement and rejected these claims while maintaining the claims in all nine of our patents.

In November 2020, we announced a research collaboration and exclusive license agreement with Lilly to utilize ARCUS for the research and development of potential in vivo therapies for genetic disorders, with an initial focus on DMD and two other undisclosed gene targets.

Under the agreement, Lilly has the right to nominate up to three additional gene targets for genetic disorders over the first four years of the Development and License Agreement, which may be extended to six years upon Lilly’s election and payment of an extension fee.

In December 2020, we announced interim clinical results from our Phase 1/2a study of PBCAR0191 as a treatment of R/R NHL and R/R B-ALL.

As of the November 16, 2020 cutoff, 27 patients including 16 patients with aggressive NHL and 11 patients with aggressive B-ALL were enrolled and evaluated.

In this dose escalation and dose expansion study, PBCAR0191 had an acceptable safety profile with no cases of graft versus host disease, no cases of Grade ≥ 3 cytokine release syndrome, and no cases of Grade ≥ 3 neurotoxicity.

PBCAR0191 demonstrated longest durability of response to 11 months in B-ALL.

PBCAR0191 with eLD resulted in objective response rate of 83% (5/6) in NHL and B-ALL as compared to 33% (3/9) in NHL with sLD.

Additionally, in December 2020, researchers at Elo in collaboration with Alan Chambers, Ph.D., and the Tropical Research and Education Center at the University of Florida published a paper in Nature Food , reporting a chromosome-scale, phased Vanilla planifolia genome, which revealed sequence variants for genes that may impact the vanillin pathway, and therefore influence bean quality, including its productivity, flower anatomy, and disease resistance.

In January 2021, we announced that the FDA has accepted our IND application for PBCAR19B, our next-generation, stealth cell, CD19 allogenic CAR T candidate for Non-Hodgkin Lymphoma, and we expect to begin the Phase 1 study by mid-2021.

Additionally, in January 2021, we announced that we received a Notice of Allowance from the U.S.

Patent and Trademark Office for a patent application covering PBCAR19B.

The allowed composition claims of this patent application encompass genetically-modified human T cells comprising the PBCAR19B construct, which is inserted within the T cell receptor alpha constant locus.

Once issued, patents arising from this patent family will have standard expiration dates in April 2040.

In preclinical studies, PBCAR19B has shown to delay both T cell and natural killer cell mediated allogeneic rejection in vitro and may improve the persistence of allogeneic CAR T cells.

We expect to advance a program targeting the rare genetic disease PH1 as our lead wholly owned in vivo gene correction program.

PH1 affects approximately 1-3 people per million in the United States and is caused by loss of function mutations in the AGXT gene, leading to the accumulation of calcium oxalate crystals in the kidneys.

Patients suffer from painful kidney stones which may ultimately lead to renal failure.

Using ARCUS, we are developing a potential therapeutic approach to the treatment of PH1 that involves knocking out a gene called HAO1 which acts upstream of AGXT.

Using ARCUS, we are developing a potential therapeutic approach to PH1 that involves knocking out a gene called HAO1 which acts upstream of AGXT.

Suppressing HAO1 has been shown in preclinical models by us to prevent the formation of calcium oxalate.

We therefore believe that a one-time administration of an ARCUS nuclease targeting HAO1 may be a viable strategy for a durable treatment of PH1 patients.

In preclinical studies we have demonstrated in a mouse model of PH1 that administration of an ARCUS nuclease targeting HAO1 resulted in approximately 70% reduction in urine calcium oxalate levels.

We have also demonstrated that ARCUS efficiently knocked out the HAO1 gene in non-human primates.

We plan to select a clinical candidate for this program during 2020.

During the fiscal year ended December 31, 2019, we opened our Manufacturing Center for Advanced Therapeutics, or MCAT, which we believe is the first in-house current good manufacturing practice, or cGMP, compliant manufacturing facility dedicated to genome-edited, off-the-shelf CAR T cell therapy product candidates in the United States.

MCAT will enable in-house production of three different drug substances:

allogeneic CAR T cells, messenger RNA (including formulations development) and adeno-associated viral vectors.

We are currently using this new manufacturing center to create clinical trial material to be used in our BCMA targeting allogeneic CAR T clinical trials beginning in 2020.

We believe MCAT confers a number of strategic advantages including cost benefits, control of our manufacturing process and strategic flexibility as we execute our clinical trials.

In the longer term, we believe MCAT has the potential to be a commercial launch facility.

Pre-clinical research has continued to progress, and we expect to provide an update on this program in the first half of 2021.

In January 2021, we disclosed our intention to spinout our wholly owned subsidiary, Elo.

We are continuing to explore our strategic options, and the timing of any such sale, spinout or other treatment of Elo remains uncertain.

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 with proceeds from our IPO, the sale of our convertible preferred stock and upfront payments from licensing arrangements.

We have financed our operations primarily with proceeds from upfront payments from collaboration and licensing agreements, our IPO, and private placements of convertible preferred stock and convertible debt.

On April 1, 2019, we completed our IPO of 9,085,000 shares of common stock, including the underwriters’ full exercise of their option to purchase an additional 1,185,000 additional shares of common stock, at an offering price of $16.00 per share, for net proceeds of approximately $130.5 million after deducting underwriting discounts and commissions and offering expenses payable by us.

To date, we have generated approximately $475.4 million from third parties through a combination of financings including through our IPO, preferred stock and convertible note financings, an upfront payment under the Servier Agreement and additional funding from other strategic alliances and grants.

As of December 31, 2020, we have generated approximately $492.5 million from third parties to date.

Since our inception, we have incurred significant operating losses and have not generated any revenue from the sale of products.

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Our Food segment focuses on applying ARCUS to develop food and nutrition products through collaboration agreements with consumer-facing companies.

Collaborations

In September 2018, we and Gilead entered into a collaboration and license agreement, which we refer to as the Gilead Agreement, to develop genome editing tools using ARCUS to target viral DNA associated with the Hepatitis B virus.

Pursuant to the terms of the agreement, Gilead received an exclusive license to exploit the resulting synthetic nucleases and products that use them to treat the Hepatitis B virus in humans, and we are entitled to receive up to approximately $40.0 million in research funding over an initial three year term and milestone payments of up to an aggregate of $445.0 million, consisting of up to $105.0 million in development milestone payments and up to $340.0 million in commercial milestone payments.

We are also entitled to receive tiered royalties ranging from the high single digit percentages to the mid-teen percentages on worldwide net sales of the products developed through the term of the agreement, subject to customary potential reductions.

We recognized $13.3 million and $3.7 million in revenues under the Gilead Agreement during the years ended December 31, 2019 and December 31, 2018, respectively, and recorded $1.5 million and $2.3 million in deferred revenue as of December 31, 2019 and December 31, 2018, respectively.

We did not receive any milestone payments under the Gilead Agreement during the years ended December 31, 2019 or December 31, 2018.

In February 2016, we entered into the Servier Agreement, pursuant to which we have agreed to develop allogeneic CAR T cell therapies for up to six unique antigen targets.

Impact of COVID-19 Pandemic

We are closely monitoring how the ongoing COVID-19 pandemic continues to affect our employees, business, preclinical studies and clinical trials.

The Company has taken steps in line with guidance from the U.S.

Centers for Disease Control and Prevention (“CDC”) and the State of North Carolina to protect the health and safety of its employees and the community.

We have implemented measures to mitigate exposure risks and support operations.

We initiated a health and safety program addressing mandatory use of face masks, social distancing, sanitary handwashing practices, use of personal protective equipment stations, stringent cleaning and sanitization of all facilities and measures to reduce total occupancy in facilities.

We have also implemented temperature and symptom screening procedures at each location, and we have continuously communicated to all our Precisioneers that if they are not comfortable coming to work, regardless of role, then they do not have to do so.

Per guidance from the Cybersecurity & Infrastructure Security Agency, our employees are considered essential workforce and may receive the COVID-19 vaccination as Centers for Disease Control and Prevention defined Group 3 and Group 4.

We are working closely with our clinical sites, physician partners and the patient community to monitor and manage the impact of the evolving COVID-19 pandemic.

We remain committed to our clinical programs and development plans, however, disruptions, competing resource demands and safety concerns caused by the COVID-19 pandemic have caused, and are likely to continue to cause delays in our clinical trial site activation and impact our ability to enroll patients.

We may also experience other difficulties, disruptions or delays in conducting preclinical studies or initiating, enrolling, conducting or completing our planned and ongoing clinical trials, and we may incur other unforeseen costs as a result.

We expect that the COVID-19 pandemic may continue to impact our business, including our preclinical studies and clinical trials.

At this time, there is still significant uncertainty relating to the trajectory of the COVID-19 pandemic and impact of related responses.

The impact of COVID-19 on our preclinical studies and any further impact to our clinical trials will largely depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions, the ultimate impact of COVID-19 on financial markets and the global economy, and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.

The Coronavirus, Aid, Relief and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020, which provides for, among other things, the deferral of the deposit and payment of certain taxes.

Pursuant to the CARES Act, the Company elected to defer payment of the employer's share of social security taxes incurred between May 1, 2020 and December 31, 2020.

See “Risk Factors— The outbreak of the ongoing novel coronavirus disease, COVID-19 has impacted our business, or 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.

Therapeutics Segment Collaborations

Eli Lilly and Company

In November 2020, we entered into a research collaboration and exclusive license agreement (the “Development and License Agreement”) with Lilly to utilize ARCUS for the research and development of potential in vivo therapies for genetic disorders.

Lilly has initially nominated DMD and two gene targets for other genetic disorders, and has the right to nominate up to three additional gene targets for genetic disorders over the first four years of the Development and License Agreement (the “Nomination Period”).

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.

Under the terms of the Development and License Agreement, Lilly will receive 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 January 2021, we and Lilly closed the Development and License Agreement following clearance under the Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”).

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 as described below (the “Stock Purchase Agreement”).

We will also be eligible to receive milestone payments of up to an aggregate of $420 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 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 Development and License 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 Development and License Agreement.

Unless earlier terminated, the Development and License Agreement will remain in effect on a licensed product-by-licensed product and country-by-country basis until the expiration of a defined royalty term for each licensed product and country.

Lilly has the right to terminate the Development and License Agreement for convenience by providing advance notice to us.

Either party may terminate the Development and License Agreement (i) for material breach by the other party and a failure to cure such breach within the time period specified in the agreement or (ii) due to a challenge to its patents brought by the other party.

In February 2016, we entered into the Servier Agreement, pursuant to which we have agreed to develop allogeneic CAR T cell therapies for five unique antigen targets.

One target was selected at the agreement’s inception.

Upon selection of an antigen target under the agreement, we have 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 clinical trial material of such product candidates for use in Phase 2 clinical trials.

We received an upfront payment of $105.0 million under the Servier Agreement.

We have the ability to receive total payments, including the upfront payment, option fees and milestone payments, in the aggregate across all six targets, of up to approximately $1.6 billion.

This includes up to $1.5 billion in milestone payments, consisting of up to $401.3 million in development milestone payments and up to $1.1 billion in commercial milestone payments.

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 and may be eligible to receive additional development milestone payments in 2021.

We may also be eligible to receive option fees, as well as clinical, regulatory and sales milestone payments in addition to royalties on product sales.

Upon selection of an antigen target under the agreement, we have 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.

In October 2020, we entered into Amendment No.

6 to the Servier Agreement, effective as of October 2, 2020 (“Amendment No.

Terms of the Servier Agreement were amended, solely as applicable to PBCAR0191.

Under Amendment No.

6, we are required to complete the ongoing Phase 1/2a clinical trial of PBCAR0191 in adult patients with R/R NHL and R/R B-ALL (the “Clinical Trial”) for a specified number of patients in the Phase 1 portion of the Clinical Trial and a number of patients to be determined by us in the

Phase 2a portion of the Clinical Trial.

We will be solely responsible for all costs and expenses we incur to complete the Clinical Trial, including the production and release of all required clinical trial material.

The results of the Clinical Trial will be used to determine whether specified development milestones have been achieved with respect to PBCAR0191, in which case, specified corresponding development milestone payments are payable by Servier to us.

The results of the Clinical Trial will also be used to determine whether Phase 2 readiness has been achieved for PBCAR0191 and Servier may determine whether, subject to payment of a commercial option exercise fee, to exercise its commercial option and proceed with development and commercialization of PBCAR0191.

Following completion of the Clinical Trial, we are not obligated to conduct any further development activities under the Servier Agreement with respect to PBCAR0191 unless we otherwise agree to conduct such further development activities.

We received an upfront payment of $105.0 million under the Servier Agreement in 2016.

We have the ability to receive total payments, including the upfront payment, option fees and milestone payments, in the aggregate across all five targets, of up to approximately $1.4 billion.

This includes up to $1.3 billion in milestone payments, consisting of up to $329.3 million in development milestone payments and up to $925.0 million in commercial milestone payments.

We are also entitled to receive tiered royalties ranging from the mid-single digit percentages to the sub-teen percentages on worldwide net sales, subject to potential customary reductions.

We also have the right to participate in the development and commercialization of any licensed products resulting from the collaboration through a 50/50 co-development and co-promotion option in the United States, subject to our payment of an option fee, which is exercisable after Servier’s commercial option exercise.

Under the Servier Agreement, we recognized $7.3 million and $5.8 million in revenues during the years ended December 31, 2019 and December 31, 2018, respectively.

Under the Servier Agreement, we recognized $18.0 million and $7.3 million in revenue during the years ended December 31, 2020 and December 31, 2019, respectively.

The amount recorded as deferred revenue was $82.9 million and $80.9 million as of December 31, 2020 and December 31, 2019, respectively.

No development or sales-based milestones were received for the fiscal years ended December 31, 2019 or December 31, 2018.

SpringWorks Therapeutics

In September 2020, we entered into a Clinical Trial Collaboration Agreement with SpringWorks.

Pursuant to the agreement, PBCAR269A will be evaluated in combination with nirogacestat, SpringWorks’ investigational GSI, in patients with R/R multiple myeloma.

Under the terms of the agreement, we will bear all costs with the conduct of the clinical trial including providing PBCAR269A for use in the trial, and SpringWorks is responsible for providing nirogacestat at its sole cost and expense.

On July 6, 2020, Gilead Sciences (“Gilead”) notified us of its termination of the collaboration and license agreement dated September 10, 2018, subsequently amended by Amendment No.

1 dated March 10, 2020 or (the “Gilead Agreement”), to develop genome editing tools using ARCUS to target viral DNA associated with the hepatitis B virus.

Pursuant to the termination notice, the Gilead Agreement terminated on September 4, 2020.

Upon termination, we regained full rights and all data we generated for the in vivo chronic hepatitis B program developed under the Gilead Agreement.

We recognized $3.9 million and $13.3 million in revenue under the Gilead Agreement during the years ended December 31, 2020 and December 31, 2019, respectively, and $1.5 million in deferred revenue as of December 31, 2019.

We did not receive any milestone payments under the Gilead Agreement during the years ended December 31, 2020 or December 31, 2019.

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.

On April 29, 2020, both parties agreed to coordinate a wind-down of all activities in their entirety under the agreement, effective as of June 30, 2020, however, in August 2020 and subsequently in January 2021, both parties agreed to extend certain portions of the agreement until 2022.

We will not be required to make termination payments to Penn.

Food Segment Collaborations

Dole Food Company

Through our wholly owned subsidiary, Elo, in June 2020, we entered into a Research, Development, and Commercialization Agreement with Dole with the aim to co-develop banana varieties resistant to Foc TR4, utilizing proprietary computational biology workflows and the ARCUS genome editing platform.

producers in the industry.

Fungicides, or other traditional means of disease control have failed as the pandemic continues to spread across vital banana growing economies.

Development of Foc TR4 varieties is critically important to save the banana industry, to protect the livelihoods of millions of banana growers and continue to provide consumers an affordable and nutritious fruit.

Under the terms of the collaboration, Dole will fully fund research and development efforts executed by Elo, and Elo is eligible to receive royalties on any commercialized plant product.

Cargill, Inc.

In 2014, through Elo, we and Cargill, Inc.

entered into a collaboration to produce ARCUS-optimized canola varieties with significantly lower levels of saturated fatty acids compared to the current levels in greenhouse studies.

On July 30, 2020, we and Cargill mutually agreed to terminate the collaboration, effective August 31, 2020.

Components of Our Results of Operations

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, annual fees for licenses of our intellectual property and research and development funding.

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

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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, early-stage research and unallocated expenses category in the table below.

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 in the table below.

The following table summarizes our research and development expenses by product candidate or development program for the periods presented :

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BCMA external development costs

Platform development, early-stage research and unallocated expenses:

Platform development and early-stage research expenses:

Employee-related costs

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Research and development activities are central to our business model.

We expect that our research and development expenses will continue to increase substantially for the foreseeable future and will comprise a larger percentage of our total expenses as we continue our Phase 1/2a clinical trial for our CD19 product candidate, commence a Phase 1/2a clinical trial for our CD20 product candidate, commence a Phase 1/2a clinical trial for our BCMA product candidate, and continue to discover and develop additional product candidates.

We cannot determine with certainty the duration and costs of ongoing and future clinical trials of our CD19, CD20, and BCMA 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 expect that our research and development expenses will continue to increase substantially for the foreseeable future and will comprise a larger percentage of our total expenses as we continue our Phase 1/2a clinical trials for our CD19, CD20 and BCMA product candidates, commence our Phase 1 clinical trial of CD19B, and continue to discover and develop additional product candidates.

We cannot determine with certainty the duration and costs of ongoing and future clinical trials of our CD19, CD19B, CD20, and BCMA 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 CD19, CD20, and BCMA 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 CD19, CD20, and BCMA product candidates, as well as of any future clinical trials of other product candidates and other research and development activities that we may conduct;

The duration, costs and timing of clinical trials and development of our CD19, CD19B, CD20, and BCMA 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 CD19, CD19B, CD20, and BCMA 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 COVID-19;

uncertainties in clinical trial design and patient enrollment rates;

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and facility-related expenses, which include direct depreciation costs and expenses for rent and maintenance of facilities and other operating costs that are not specifically attributable to research activities.

We expect that our general and administrative expenses will increase in the future as we increase our personnel headcount to support our continued research activities and development of product candidates.

We also expect to incur increased expenses associated with being a public company, including costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with Nasdaq and SEC requirements;

director and officer insurance costs;

and investor and public relations costs.

We expect that our general and administrative expenses will increase in the future as we continue research activities and development of product candidates.

Change in Fair Value of Convertible Notes Payable

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

Since our inception in 2006, we have generated cumulative federal and state net operating loss 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.

Since our inception in 2006, we have generated cumulative federal and state net operating loss and research and development (“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, 2020, we had federal, state, and foreign net operating loss carryforwards of $172.7 million, $116.5 million, and $0.6 million, respectively, which may be available to offset future taxable income.

federal net operating loss carryforwards of $19.7 million will begin to expire in 2030 while the remaining federal net operating loss carryforwards of $81.6 million carry forward indefinitely.

A portion of the U.S.

federal net operating loss carryforwards in the amount of $19.7 million will begin to expire in 2030 while the remaining federal net operating loss carryforwards of $153.0 million carry forward indefinitely.

The state net operating loss carryforwards begin to expire in 2025.

As of December 31, 2019, we also had federal research and development tax credit carryforwards of $7.2 million, which begin to expire in 2027.

The foreign net operating losses carryforward indefinitely.

As of December 31, 2020, we also had federal research and development tax credit carryforwards of $9.9 million, which begin to expire in 2027, and an amount less than $0.1 million, which begin to expire in 2030.

As of December 31, 2020 and December 31, 2019, we had federal Orphan Drug credits of $6.0 million and $1.8 million, respectively, which begin to expire in 2038.

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Revenue for the year ended December 31, 2020 was $24.3 million, compared to $22.2 million for the year ended December 31, 2019.

The increase of $11.3 million in revenue during the year ended December 31, 2019 was primarily the result of a $9.6 million increase in research revenue recognized from Gilead as 2019 was the first full year of revenue recognized under the Gilead agreement initiated in September 2018 and a $1.5 million increase in collaboration revenue recognized from Servier.

The increase of $2.1 million in revenue during the year ended December 31, 2020 was primarily the result of a $10.7 million increase in collaboration revenue recognized from Servier in connection with the development milestones achieved and work performed on the new targets under the Servier Agreement, a $0.8 million increase in revenue recognized from food segment partners, partially offset by a $9.5 million decrease in revenue recognized from Gilead due to the termination of the Gilead Agreement.

Research and Development Expenses

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BCMA external development costs

Platform development, early-stage research and unallocated expenses:

Platform development and early-stage research expenses:

Employee-related costs

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Research and development expenses for the year ended December 31, 2020 were $98.1 million, compared to $82.4 million for the year ended December 31, 2019.

The increase of $37.3 million was primarily due to a $31.9 million increase in platform development, early-stage research and unallocated expenses, a $9.4 million and $4.9 million increase in direct research and development expenses related to our CD20 and BCMA programs, respectively, partially offset by a decrease in direct research and development expenses related to our CD19 program of $8.9 million.

The increase in direct research and development expenses for our CD20 and BCMA programs was due to increases in lab services and CMO and research organization costs as we prepare to enter planned Phase 1/2a clinical trials in 2020.

This was partially offset by a decrease in our CD19 expenses primarily due to lower spending on CMO and research organization costs.

Platform development , early-stage research and unallocated expenses increased primarily due to a $11.6 million increase in employee-related costs associated with increased headcount to support our technology platform development and manufacturing capabilities, a $7.6 million increase in laboratory supplies and services , a $5.4 million increase in outsourced research and development spending and $2.4 million increase in depreciation and amortization in the year ended December 31, 2019 compared to the year ended December 31, 2018.

The increase of $15.7 million was primarily due to a $16.2 million increase in platform development and early-stage research expenses, a $3.9 million increase in direct research and development expenses related to our CD19 program, partially offset by decreases of $2.7 and $1.8 in direct research and development expenses related to our CD20 and BCMA programs, respectively.

The increase in direct research and development expenses for our CD19 program was primarily due to increase s in CMO and research organization costs as we continue to enroll additional patients in the Phase 1/2a clinical trial.

The decrease in direct research and development expenses for our CD20 and BCMA programs was primarily due to decreases in external CMO costs as we transferred clinical trial material manufacturing activities for CD20 and BCMA in-house to MCAT .

Platform development and early-stage research expenses increased primarily due to a $10.9 million increase in employee-related expense associated with increased headcount to support our technology platform development and manufacturing capabilities, a $6.0 million increase in CMO and research organization expense, primarily related to our planned CD19B clinical trial, a $3.3 million increase in depreciation and amortization expense driven by our higher depreciable asset base during the year ended December 31, 2020, and a $0.3 million increase in facility-related expenses, partially offset by a $4.9 million decrease in outsourced research and development expense in the year ended December 31, 2020 compared to the year ended December 31, 2019.

General and Administrative Expenses

General and administrative expenses were $36.1 million for the year ended December 31, 2020 compared to $27.0 million for the year ended December 31, 2019.

The increase of $13.3 million was primarily due to an increase of $6.2 million in employee-related costs as we increased our general and administrative headcount, $2.7 million in consulting fees, $2.1 million in increased administrative costs, including insurance, franchise and property taxes, bank fees, and costs related to operating as a public company, and $1.4 million in facility related costs.

The increase of $9.1 million was primarily due to an increase of $4.0 million in employee-related expense as we increased our general and administrative headcount, $2.9 million in consulting fees, and $2.5 million in increased administrative expenses, including insurance, information technology, franchise and property taxes, and costs related to operating as a public company, partially offset by a $0.3 million decrease in bank fees and other general and administrative expenses.

Change in Fair Value of Convertible Notes Payable

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Interest income was $0.8 million for the year ended December 31, 2020 compared to $4.3 million for the year ended December 31, 2019.

The increase of $2.4 million of interest income generated on our cash and cash equivalent balances was the result of lower interest rates and having higher cash balances invested in the year ended December 31, 2019 compared to the year ended December 31, 2018.

The decrease of $3.5 million of interest income generated on our cash and cash equivalent balances was the result of lower interest rates and lower cash balances in the year ended December 31, 2020, compared to the year ended December 31, 2019.

Segment Results

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Total segment operational cash expenditures

Allocation of centralized research and development operational

cash expenditures:

Total allocation of centralized research and development

operational cash expenditures

Segment operating income (loss):

Segment operating loss:

Total segment operating loss

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Operational cash expenditures are cash disbursements made that are specifically identifiable to the reportable segment (including specifically identifiable research and development and property, equipment and software expenditures).

For the year ended December 31, 2018, we allocated centralized research and development expenditures for early stage research, nuclease development and the purchase of general laboratory supplies to the Therapeutics and Food segments based on headcount.

In January 2019, the Food segment moved into a new leased facility in Durham , North Carolina.

We have determined that the Food segment is no longer deriving benefit from the Company’s centralized research and development expenditures, thus all these expenditures were allocated to the Therapeutics segment for the year ended December 31, 2019.

The reportable segment and centralized research and development operational cash expenditures include cash disbursements for compensation, laboratory supplies, purchases of property, equipment and software and procuring services from CROs, CMOs and research organizations.

The reportable segment operational cash expenditures include cash disbursements for compensation, laboratory supplies, purchases of property, equipment and software and procuring services from CROs, CMOs and research organizations.

We do not allocate general operational expenses or non-cash income statement amounts to our reportable segments.

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Revenue for the year ended December 31, 2020 was $21.9 million, compared to $20.6 million for the year ended December 31, 2019.

The increase of $11.1 million was primarily the result of a $9.6 million increase in research funding from Gilead and $1.5 million increase in revenue from Servier.

The increase of $1.3 million was the result of a $10.7 increase in collaboration revenue recognized from Servier, partially offset by a $9.5 million decrease in revenue recognized from Gilead due to the termination of the Gilead Agreement.

Segment operational cash expenditures for the year ended December 31, 2020 were $71.8 million, compared to $70.1 million for the year ended December 31, 2019.

The increase of $10.9 million in operational cash expenditures was primarily due to an increase in payments made to service providers for contract manufacturing and clinical trial research, laboratory supplies and services, employee headcount and fixed assets for the build out of our manufacturing capabilities, offset by a decrease in payments made to the University of Pennsylvania, which is early stage research and not considered specific to any one therapeutic area.

As a result, these payments were classified as centralized research and development expenditures in the year ended December 31, 2019 as opposed to being classified as Therapeutics operational cash expenditures in the year ended December 31, 2018.

The increase of $1.7 million in operational cash expenditures was primarily due to an increase in employee costs and payments made to service providers for contract manufacturing and clinical trial research, partially offset by a decrease in capital expenditures for fixed assets and a reduction in payments to external vendors for early-stage research.

Segment operating loss increased $0.6 million from $49.4 million for the year ended December 31, 2019 to $50.0 million for the year ended December 31, 2020 primarily due to the factors discussed above.

Revenue for the year ended December 31, 2020 was $2.4 million, compared to $1.6 million for the year ended December 31, 2019.

The increase of $0.2 million was primarily attributable to $0.4 million from a new customer agreement with a collaboration partner entered into during the year ended December 31, 2019 offset by a $0.2 million decrease in revenue from a collaboration partner.

The increase of $0.8 million was primarily attributable to $0.8 million from an agreement with a new collaboration partner entered into during the year ended December 31, 2020.

Segment operational cash expenditures for the year ended December 31, 2020 were $7.6 million, compared to $7.0 million for the year ended December 31, 2019.

The decrease of $2.1 million was primarily due to a decrease in leasehold improvements, which is attributable to large construction expenditures made in the year ended December 31, 2018 for work done to our leased facility that did not occur in the year ended December 31, 2019, as our Food segment moved into the facility in January 2019.

This decrease in spending was offset by increases in laboratory equipment, furniture and fixtures, laboratory supplies, employee headcount and rent.

The increase of $0.6 million was primarily due to an increase in employee costs and rent payments, partially offset by a decrease in capital expenditures for fixed assets.

Segment operating loss decreased $0.2 million from $5.4 million for the year ended December 31, 2019 to $5.2 million for the year ended December 31, 2020 primarily due to the factors discussed above.

As discussed above, we are assessing various options with respect to a potential separation of Elo from Precision, which could occur during 2021.

Liquidity and Capital Resources

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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.

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 economic downturn and ongoing uncertainty related to the COVID-19 pandemic.

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 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 COVID-19 Pandemic” above and “Risk Factors— The ongoing novel coronavirus disease, COVID-19 has impacted 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 on our business.

We do not currently have any approved products and have never generated any revenue from product sales.

We have financed our operations primarily with proceeds from our IPO, the sale of our convertible preferred stock and upfront payments from collaboration and licensing arrangements.

In May 2019, we entered into a loan and security agreement (the “Pacific Western Loan Agreement”) with PWB pursuant to which we may request advances on a revolving line of credit of up to an aggregate principal of $50.0 million ( the “ Revolving Line ”) .

The Pacific Western Loan Agreement was amended (the “PWB Amendment”) in December 2019 to allow the Company to maintain a bank account with a non-affiliated bank in the United Kingdom provided that the account balance does not exceed 1.5 million GBP or its U.S.

dollar equivalent at any time .

As of December 31, 2019, we had no borrowings under our Revolving Line and were in compliance with its financial covenants .

Through the date of filing this Annual Report on Form 10-K, we have financed our operations primarily with proceeds from our IPO, private placements of our convertible preferred stock, convertible debt and common stock, and upfront payments from collaboration and licensing arrangements.

As of December 31, 2020, we had raised approximately $492.5 million of proceeds from third parties through a combination of financings including our IPO, preferred stock and convertible note financings, payments under the Servier Agreement, 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, 2020, we have not sold any securities under our shelf registration statement.

Our cash and cash equivalents totaled $89.8 million as of December 31, 2020, compared to $180.9 million as of December 31, 2019.

As of December 31, 2019, we had no borrowings under our revolving line of credit.

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

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Net cash provided by financing activities

Increase in cash and cash equivalents

Cash Flows for the Year ended December 31, 2019

Operating Activities

Net cash used in operating activities for the year ended December 31, 2019 was $71.0 million, driven primarily by our net loss of $92.9 million as we incurred expenses associated with our CD19, CD20, and BCMA programs, platform development and early-stage research, and general and administrative expenses, and a decrease in operating assets and liabilities of $2.4 million, partially offset by net non-cash expenses of $24.2 million.

Investing Activities

Net cash used in investing activities for the year ended December 31, 2019 was $24.7 million, which was attributable to purchases of property, equipment and software.

Financing Activities

Net cash provided by financing activities for the year ended December 31, 2019 was $173.4 million, consisting of $130.5 million in proceeds from our IPO, net of issuance costs, the net proceeds from the issuance of our 2019 Notes of $39.6 million, and $1.3 million in proceeds from stock option exercises.

Increase (decrease) in cash and cash equivalents

Cash Used in Operating Activities

Our primary use of cash is to fund operating expenses, which consist primarily of research and development and general and administrative expenses.

Our losses have resulted from expenses incurred in connection with our research and development activities, including our clinical programs, preclinical development activities, and general and administrative costs associated with our operations.

The use of cash in operating activities during the years ended December 31, 2020 and December 31, 2019 resulted from our net loss adjusted for non-cash expenses and changes in working capital.

Cash used in operating activities during the year ended December 31, 2020 was $87.4 million, compared to $71.0 million during the year ended December 31, 2019.

The increase in cash used in operating activities in the year ended December 31, 2020 was primarily due to an increase in employee-related costs associated with increased headcount, increased costs related to our clinical programs with our ongoing CD19 Phase 1/2a clinical trial and initiation of Phase 1/2a clinical trials for our CD20 and BCMA product candidates in 2020, an increase in legal fees and an increase in lease payments.

Cash Used in Investing Activities

Cash used in investing activities primarily relates to leasehold additions, equipment and software.

Net cash used in investing activities during the year ended December 31, 2020 was $5.0 million, compared to $24.7 million in the year ended December 31, 2019.

The decrease in cash used in investing activities during the year ended December 31, 2020 was primarily due to the completion of the build-out of our MCAT facility in Research Triangle Park and other leased facilities in 2019.

Cash Provided by Financing Activities

Net cash provided by financing activities during the year ended December 31, 2020 was $1.3 million, compared to $173.4 million during the year ended December 31, 2019.

The higher cash provided by financing activities during the year ended December 31, 2019, compared to the year ended December 31, 2020, was due to proceeds received from our IPO, which closed in April 2019, and proceeds from the 2019 Notes, which were issued in March 2019.

Financing activities in the twelve months ended December 31, 2020 related to cash proceeds received from stock option exercise and our employee stock purchase plan.

Debt Obligations

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Pursuant to their terms, the 2019 Notes were settled in 2,921,461 shares of our common stock upon the closing of our IPO at a settlement price of $13.60 per share, which is equal to 85% of the IPO price per share.

In May 2019, we entered into a loan and security agreement with Pacific Western Bank pursuant to which we may request advances on a $50.0 million revolving line of credit.

Cash Flows for the Year Ended December 31, 2018

Operating Activities

Net cash used in operating activities for the year ended December 31, 2018 was $51.7 million, primarily consisting of our net loss of $46.0 million as we incurred expenses associated with our CD19 program, platform development and early-stage research and general and administrative expenses.

In addition, we had non-cash charges of $4.8 million for depreciation and amortization and share-based compensation expense.

Net cash used in operating activities was also impacted by $10.5 million in changes in operating assets and liabilities, including $7.5 million in prepaid expenses, $3.2 million in deferred revenue, $0.5 million in accounts receivable, $0.7 million in accounts payable and $0.4 million in other current assets and other assets, which were partially offset by changes of $1.8 million in accrued expenses.

Investing Activities

Net cash used in investing activities for the year ended December 31, 2018 was $15.7 million, which was attributable to purchases of property, equipment and software of $14.3 million and the acquisition of intellectual property of $1.4 million.

Financing Activities

Net cash provided in financing activities for the year ended December 31, 2018 was $107.8 million, consisting of the net proceeds from the issuance of our Series B convertible preferred stock financing of $109.7 million, net of offering costs, and $0.2 million in proceeds from stock option exercises, partially offset by $2.1 million in payments for deferred offering costs associated with our initial public offering.

Loan and Security Agreement

In May 2019, we entered into the Pacific Western Loan Agreement pursuant to which we may request advances on a $50.0 million Revolving Line.

The maturity date of the Revolving Line is May 15, 2022.

The Revolving Line bears interest at an annual rate equal to the greater of (i) 1.25% below the prime rate then in effect, or (ii) 4.25% at all times when we maintain a daily balance of cash in our demand deposit accounts at PWB of at least $25.0 million, and the greater of (i) 0.25% above the prime rate then in effect;

or (ii) 5.75% at all times when we do not maintain a daily balance of cash in demand deposit accounts at PWB of at least $25.0 million;

provided that, we are permitted to maintain a bank account with a non-affiliated bank in the United Kingdom so long as the account balance does not exceed 1.5 million GBP or its U.S.

dollar equivalent at any time, pursuant to the PWB Amendment.

We are required to pay a fee in an amount equal to 0.50% per annum of the unused portion of the Revolving Line each quarter, or the Unused Fee.

The Unused Fee shall be waived for any quarter in which we maintain a daily balance of cash in our demand deposit account at PWB of at least $25.0 million at all times during such quarter.

If the Revolving Line is terminated prior to the maturity date, we are required to pay an early termination fee equal to 1.0% of the Revolving Line.

Under the terms of the Pacific Western Loan Agreement, we granted PWB a security interest in substantially all of our assets, excluding any of the intellectual property now or hereafter owned, (but including any rights to payment from the sale or licensing of any such intellectual property).

We must maintain an aggregate balance of unrestricted cash and cash equivalents on hand at PWB (or PWB’s affiliates) at least equal to any amounts borrowed under the Revolving Line and any other outstanding obligations the we have to PWB.

The agreement was amended in December 2019 to allow a bank account with a non-affiliated bank in the United Kingdom provided that the account balance does not exceed 1.5 million GBP or its U.S.

dollar equivalent at any time.

The Agreement includes customary representations, warranties and covenants (affirmative and negative), and includes standard events of default, including in the event of a material adverse change.

Upon the occurrence of an event of default, PWB may declare all outstanding obligations immediately due and payable and take such other actions as are set forth in the loan and security agreement and increase the interest rate otherwise applicable to the amount outstanding under the Revolving Line by an additional 3.00%.

As of December 31, 2019, we had no borrowings under our Revolving Line, and we were in compliance with the financial covenants, under the Pacific Western Loan Agreement.

In May 2019, we entered into the Pacific Western Loan Agreement with PWB as amended by the First Amendment to Loan and Security Amendment, effective September 18, 2019, the Second Amendment to Loan and Security Amendment, effective December 3, 2019 (the “Original Agreement”).

On June 23, 2020, the Company and PWB entered into the Third Amendment to Loan and Security Agreement (the “Amendment No.

3”) to the Original Agreement (as amended, the “Pacific Western Loan Agreement”).

The terms of Amendment No.

3 (a) decrease the aggregate principal amount of advances on a revolving line of credit (the “Revolving Line”) from $50.0 million to $30.0 million and (b) extend the maturity date of the Revolving Line to June 23, 2022, provided that, if the Company receives aggregate cash proceeds of at least $125.0 million from the issuance of the Company’s equity securities and/or

upfront cash proceeds from strategic partnerships on terms and conditions reasonably satisfactory to PWB, the maturity date shall then instead be June 23, 2023.

Under the terms of Amendment No.

3, the interest rate increased to a variable annual rate eq ual to the greater of (a) 2.75% above the Prime Rate (as defined in the Original Agreement), and (b) 6.00%.

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 .

The Pacific Western Loan Agreement matures on June 23, 2023, as a result of the events discussed in Note 14 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

As of the date of this Annual Report on Form 10-K, there have been no borrowings under our Revolving Line, and we are in compliance with the financial covenants under the Pacific Western Loan Agreement.

Funding Requirements

Our operating expenses increased substantially in 2019 and are expected to increase substantially in the future in connection with the initiation of additional human clinical trials and capital expenditures for MCAT.

We believe our existing cash and cash equivalents, will enable us to fund our operating expenses and capital expenditure requirements into the second half of 2021.

Our operating expenses increased substantially in 2020 and are expected to continue to increase in the future in connection with the continuation of our current clinical trials, planned initiation of additional clinical trials and expected growth in our portfolio.

We believe that our cash and cash equivalents as of December 31, 2020, cash payments received from Lilly in January 2021 in connection with the closing of the Development and License Agreement, expected operational receipts and available credit will allow us to continue its operations into 2023.

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.

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Our future funding requirements will depend on many factors, including:

the progress, costs and results of our clinical development for our CD19, CD20, and BCMA programs as we initiate and progress clinical trials, including CRO costs;

the progress, costs and results of our clinical development for our CD19, CD19B, CD20, and BCMA programs as we progress clinical trials, including CRO costs;

the progress, costs and results of our additional research and preclinical development programs;

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 CD19, CD20, and BCMA programs and other programs we advance through preclinical and clinical development;

the costs and timing of internal process development and manufacturing scale-up activities and contract with CMOs associated with our CD19, CD19B, CD20, and BCMA 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;

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(in thousands)

Operating Lease Obligations (1)

Represents future minimum lease payments under our operating leases for office and/or lab space at the following locations:

302 East Pettigrew Street, Durham, North Carolina expiring in July 2024, 3054 Cornwallis Road, Durham, North Carolina expiring in April 2026 and 20 TW Alexander Drive, Research Triangle Park, North Carolina expiring in August 2027 (see Note 7 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information on these lease agreements).

Lease Obligations (1)

Represents future minimum lease payments under our leases for office and/or lab space at the following locations:

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, 2020 (see Note 7 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information on these lease agreements).

We have entered into a license agreement with an undisclosed licensee for intellectual property used in our research programs.

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We have excluded these potential milestone payments in the contractual obligations table because the timing and likelihood of these contingent payments are not currently known and would be difficult to predict or estimate.

This table does not reflect principal and interest payments payable pursuant to our Pacific Western Loan Agreement.

which we entered into in May 2019, pursuant to which we may request advances on a revolving line of credit of up to an aggregate principal of $50.0 million, or the Revolving Line.

As of December 31, 2019, we had no borrowings under our Revolving Line.

The maturity date of the Revolving Line is May 15, 2022.

or (ii) 5.75% at all times when we do not maintain a daily balance of cash in demand deposit accounts at PWB of at least $25.0 million.

The Pacific Western Loan Agreement requires that we pay a quarterly fee in an amount equal to 0.50% per annum of the unused portion of the Revolving Line.

The unused fee shall be waived for any quarter we maintain a daily balance in our demand deposit accounts of at least $25.0 million.

If the Revolving Line is terminated prior to the maturity date, we are required to pay an early termination fee equal to 1.0% of the Revolving Line.

In addition, we have entered into the Duke License, under which we are obligated to make aggregate future milestone payments of up to $0.2 million upon the achievement of specified corporate milestones as well as low-single digit percent royalty payments based on future net sales of applicable products and generally mid-teen percent royalties based on sublicensing revenue.

This table does not reflect principal and interest payments payable pursuant to our Pacific Western Loan Agreement, pursuant to which we may request advances on the Revolving Line of up to an aggregate principal of $30.0 million.

As of December 31, 2020, we had no borrowings under our Revolving Line and, as of the date of this Annual Report on Form 10-K, the maturity date of the Revolving Line is June 23, 2023.

The Revolving Line bears interest at a variable annual rate equal to the greater of (a) 2.75% above the Prime Rate (as defined in the Original Agreement), and (b) 6.00%.

If the Revolving Line is terminated prior to the maturity date, we are required to pay an early termination fee equal to $0.6 million.

Upon maturity or termination of the revolving line, then we are required to pay an amount equal to 1% of the maximum principal amount of the advances outstanding at any time.

See “Business—License and Collaboration Agreements” for more information regarding our payment obligations under the Duke License.

We have not included future payments under the Duke License in the table above since the payment obligations under the Duke License are contingent upon future events, such as the achievement of specified milestones or generating product sales, and we are unable to estimate the timing or likelihood of achieving these milestones or generating future product sales.

We have also not included our contractual payment obligations under the Duke License in connection with the upfront payment under the Development and License Agreement with Lilly in the table above since, as of December 31, 2020, the completion of the transactions contemplated by the Development and License Agreement had not closed.

We closed the transactions under the Development and License Agreement on January 6, 2021 following receipt of clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and as a result we will be required to make payments under the Duke License of $3.0 million in 2021, net of any outstanding credits.

See Note 14 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information regarding the Development and License Agreement.

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 noncancelable obligations of our service providers, up to the date of cancellation.

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.

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The preparation of our consolidated 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 consolidated 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 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.

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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.

Amounts received prior to revenue recognition are recorded as deferred revenue.

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 deferred revenue – noncurrent.

Amounts recognized as revenue, but not yet received or invoiced are generally recognized as contract assets in the Other line item 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 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.

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

We base our expenses related to preclinical studies on our estimates of the services received and efforts expended pursuant to quotes and contracts with CROs that conduct and manage preclinical studies and clinical trials and CMOs that manufacture product for our research and development activities on our behalf.

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.

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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.

Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may cause us to report amounts that are too high or too low in any particular period.

To date, we have not made any material adjustments to our prior estimates of accrued research and development expenses.

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.

We estimate the fair value of each stock option grant 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 volatility of our common stock, the expected term of our stock options, the risk-free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield.

We estimate the fair value of each stock option grant 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 our stock options, the risk-free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield.

As we have limited trading history, we estimate our expected volatility based on the historical volatility of publicly traded peer companies and expect to continue to do so until such time as we have adequate historical data regarding the volatility of our traded share price.

The expected term of our options has been determined utilizing a weighted value considering actual history and estimated expected term based on the midpoint of final vest date and expiration date.

The expected term of our options has been determined utilizing a weighted 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.

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We have elected to take advantage of the extended transition period for complying with new or revised accounting standards.

The JOBS Act also exempts us 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 $1.07 billion or more, (2) the last day of the fiscal year following the fifth anniversary of the completion of our IPO, (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.

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 $1.07 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.

Quantitative and Qualitative Disclosures About Market Risk.

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Our interest income is sensitive to changes in the general level of interest rates, primarily U.S.

interest rates.

At December 31, 2019, our cash equivalents consisted of money market funds and repurchase agreements that were collateralized by deposits in the form of government securities and obligations.

Such interest-earning instruments carry a degree of interest rate risk;

however, we do not anticipate fluctuations in interest rates to have a significant impact on our financial statements.

We had no debt outstanding as of December 31, 2019 or 2018 .

interest rates, however, we do not anticipate fluctuations in interest rates to have a significant impact on our financial statements.

We are also exposed to foreign exchange rate risk with respect to our global subsidiaries from foreign currency transactions.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis