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Item 9A. Controls and Procedures

2021-03-18 compared with 2020-03-10 · 234 added, 781 removed, 627 unchanged (62% of the section changed)

4 unchanged sentences

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, 2019.

Our management, with the participation of our Chief Executive Officer and Interim 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 Interim Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2020.

Management’s annual report on internal control over financial reporting

This Annual Report on Form 10-K does not include a report of management’s assessment regarding our internal control over financial reporting or an attestation report of our independent registered accounting firm due to a transition period established by rules of the SEC for newly public companies.

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

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, 2020, 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

2 unchanged sentences

Directors, Executive Officers and Corporate Governance.

Executive Officers and Directors

The following table sets forth the name, age and position of each of our executive officers and directors as of March 2, 2020.

Executive Officers

President, Chief Executive Officer and Director

Derek Jantz, Ph.D.

Chief Scientific Officer and Director

Chief Financial Officer

Christopher Heery, M.D.

Chief Medical Officer

Dario Scimeca

General Counsel and Secretary

Fayaz Khazi, Ph.D.

Chief Executive Officer, Elo Life Systems

David Thomson, Ph.D.

Chief Operating Officer

Non-Employee Directors

Kevin Buehler (1)(3)

Raymond Schinazi Ph.D.

Shalini Sharp (1)(2)

Tony Yao, M.D., Ph.D.

Member of the audit committee.

Member of the compensation committee.

Member of the nominating and corporate governance committee.

Executive Officers

Matthew Kane , a co-founder of Precision, has served as our President and Chief Executive Officer and a director since our inception in 2006.

Kane has nearly 20 years of experience in the life sciences industry, most of which has been spent specifically working in genome editing.

Prior to co-founding Precision, Mr.

Kane was with Suros Surgical Systems.

Kane received a B.S.

in mechanical engineering and an M.S.

in biomedical engineering from the Rose-Hulman Institute of Technology and an M.B.A.

from Duke University.

We believe that Mr.

Kane is qualified to serve on our board of directors because of the perspective and experience he provides as one of our founders and as our President and Chief Executive Officer, as well as his many years of experience within the life sciences and agricultural biotechnology industries.

Derek Jantz , Ph.D.

, a co-founder of Precision, has been our Chief Scientific Officer since August 2013 and has served on our board of directors since January 2006.

He previously served as our Vice President of Scientific Development from our inception in 2006 to August 2013.

Jantz is the co-inventor of several of our foundational patents and other intellectual property.

As a protein engineer, he was an early developer of zinc finger technology and has spent most of his research career designing proteins for genome editing applications.

Jantz received a B.A.

in biology from the University of Colorado at Boulder and a Ph.D.

in biophysics from the Johns Hopkins University School of Medicine.

We believe that Dr.

Jantz’s extensive experience in genome editing and as an inventor of ARCUS, in addition to his perspective as one of our founders and senior executives, qualifies him to serve on our board of directors.

Abid Ansari has served as our Chief Financial Officer since February 2019.

Ansari previously served as our Vice President, Finance & Operations from July 2016 to February 2019.

Prior to joining us, Mr.

Ansari served as Senior Director, Deal Finance and M&A from November 2013 to July 2016 and Senior Director, Head of Portfolio Analysis Group from September 2011 to November 2013 for GlaxoSmithKline plc, a multinational pharmaceutical company.

Before that, he served for five years in commercial and capital finance roles at MedImmune, LLC and three years as a plant controller at Uniqema (previously a division of Imperial Chemical Industries Plc).

Ansari received a B.S.

in chemical engineering and an M.B.A.

from Purdue University.

Ansari is also a Certified Public Accountant.

Christopher Heery, M.D.

has served as our Chief Medical Officer since May 2019.

Prior to joining us, Dr.

Heery served as Chief Medical Officer at Bavarian Nordic A/S , a biotechnology company, from October 2016 to April 2019, where he oversaw clinical development programs for its immune-oncology and infectious disease portfolios.

Prior to that, he was a Staff Clinician and then an Associate Research Physician and Head of the Clinical Trials Group of the Laboratory of Tumor Immunology and Biology at the National Cancer Institute, or NCI, a U.S.

government health agency, from April 2012 to November 2013 and November 2013 to September 2016, respectively, where he was part of a larger effort to create new immunotherapies for the treatment of cancer.

He joined the NCI Medical Oncology Branch as a Medical Oncology Fellow in 2009 and also served as an Adjunct Appointment in the Genitourinary Malignancies Branch.

Heery is board certified in Medical Oncology and Internal Medicine.

He received a B.A.

from Duke University and a M.D.

from East Carolina University Brody School of Medicine, and completed his internal medicine residency at the University of Illinois at Chicago.

Dario Scimeca has served as our General Counsel since June 2019.

Prior to joining us, Mr.

Scimeca served in various roles for Genentech, a biotechnology company, U.S.

affiliate of Roche, from January 2013 to June 2019, including most recently as Assistant General Counsel, where he counseled on legal issues associated with the development and commercialization of multiple drug oncology and rare disease products.

Prior to that, he was corporate counsel at Elan Pharmaceuticals where he, among other things, oversaw FDA and EMA regulatory compliance matters.

He has previously worked in both corporate transactional law and patent litigation at three national law firms.

Scimeca received a B.S.

from Santa Clara University, his J.D.

from the University of California, Berkeley, School of Law, and clerked for Judge James L.

Dennis on the United States Fifth Circuit Court of Appeals in New Orleans, Louisiana.

Fayaz Khazi , Ph.D.

, has served as the CEO of our food-focused subsidiary, Elo Life Systems, since May 2018 and, prior to that, served as President of Elo Life Systems beginning in May 2017.

From May 2014 to April 2017, Dr.

Khazi served as the CEO of KeyGene USA, an agricultural biotechnology company.

Khazi also held several executive leadership positions at Intrexon Corporation directing translation programs in the food, human health and agricultural biotechnology sectors, including serving as Vice President, Business Analytics and Strategy from January 2012 to January 2014, and also serving as Intrexon’s founding Director of Translational Medicine.

Khazi received a B.Sc.

from the University of Agricultural Sciences, Bangalore, and a Ph.D.

in biological sciences from Auburn University.

He trained as a Howard Hughes Medical Institute post-doctoral fellow and a senior researcher at the Children’s Hospital of Philadelphia, where he studied the genotoxicity of gene therapy vectors and developed in vivo genome-editing technologies to treat genetic diseases.

David Thomson, Ph.D.

, has served as our Chief Operating Officer since August 2019 and, prior to that, served as our Chief Development Officer beginning in June 2017.

Prior to joining us, he served as Senior Vice President Research and Nonclinical Development for Shire plc, a specialty biopharmaceutical company, beginning in May 2016 until May 2017 where he was responsible for the strategy and operational direction of the Global Research and Nonclinical Development Organization, including transitioning programs from research into clinical development and support of programs through commercialization.

Prior to that, he served as Senior Vice President and Global Head, Research and Development Operations for Shire from February 2015 to May 2016.

From May 2014 to January 2015, Dr.

Thomson served as the Director of the Biomanufacturing Research Institute and Technology Enterprise and a Professor in the Department of Pharmaceutical Sciences of North Carolina Central University.

From September 2012 to April 2014, Dr.

Thomson served as Vice President, Shire Human Genetic Therapies and later Senior Vice President, Global Head of Research and Nonclinical Development for Shire plc.

He received a B.Sc.

in chemistry from the University of Strathclyde and a Ph.D.

in organic chemistry from the University of Toronto, and he completed post-doctoral work at Yale University.

Non-Employee Directors

Kevin Buehler has served on our board of directors since November 2019.

Buehler has over 30 years of experience in the healthcare industry, having most recently served from April 2011 to May 2014 as the Division Head of Alcon Laboratories, Inc., a division of Novartis AG, a multinational pharmaceutical company.

Prior to that, from April 2009 to April 2011, he served as the Chief Executive Officer and President of Alcon Inc., after having served from 2007 to 2009 as Alcon Inc.’s Senior Vice President, Global Markets and Chief Marketing Officer and, from 2006 to 2007, as its Senior Vice President of the U.S.

market and the Chief Marketing Officer.

Buehler began his career with Alcon, Inc.

in August 1984.

Buehler holds a B.A.

degree from Carroll University in Waukesha, WI, with concentrations in Business Administration and Political Science, and is a graduate of the Harvard Executive Program for Management Development.

We believe that Mr.

Buehler’s more than 30 years of experience in the healthcare and industry, including both executive and board roles, qualify him to serve as member of our board of directors.

Raymond Schinazi, Ph.D., D.Sc ., has served on our board of directors since March 2019.

Schinazi has been the Frances Winship Walters Professor of Pediatrics and the Director of the Laboratory of Biochemical Pharmacology at Emory University, a private research university, since 2008 and 1992 respectively.

From November 2014 to January 2019, Dr.

Schinazi served on the board of directors of Cocrystal Pharma, Inc.

Schinazi was also instrumental in the founding of a number of biotechnology companies, including Triangle Pharmaceuticals, Idenix Pharmaceuticals and Pharmasset, Inc.

Schinazi currently serves on the board of directors of Brace Pharma Capital, ReViral Pharmaceuticals Ltd, Gliknik Inc., and serves on the board of trustees of amfAR, ICMEC and GVN.

Schinazi is also a Charter Fellow of the National Academy of Inventors and a Fellow of the American Society of Microbiology.

Schinazi received a B.Sc.

in chemistry and D.Sc.

in biotechnology from the University of Bath.

We believe that Dr.

Schinazi’s medical background and biotechnology experience qualify him to serve as a member of our board of directors.

Shalini Sharp has served on our board of directors since December 2018.

Since 2012, Ms.

Sharp has served as Executive Vice President and Chief Financial Officer of Ultragenyx Pharmaceutical Inc., a biopharmaceutical company, holding the position of Chief Financial Officer since May 2012 and the position of Executive Vice President since January 2016.

Between May 2012 and January 2016, she served as Senior Vice President of Ultragenyx.

Prior to Ultragenyx, Ms.

Sharp served in various executive capacities, and ultimately as Chief Financial Officer, of Agenus Inc., a biotechnology company, from August 2003 until May 2012.

Sharp currently serves on the board of directors of Neurocrine Biosciences, Inc..

and Sutro Biopharma, Inc.

and previously served on the board of directors of Agenus, Inc.

and Array BioPharma Inc.

Sharp received a B.A.

in English literature and an M.B.A.

from Harvard University.

We believe that Ms.

Sharp’s more than 20 years of experience in the life sciences industry including both executive and board roles as well as her expertise in biotechnology, corporate strategy and finance qualify her to serve as a member of our board of directors.

Tony Yao, M.D., Ph.D., has served on our board of directors since May 2018.

Since April 2012, Dr.

Yao has served as a portfolio manager at ArrowMark Partners, an asset management firm, where he leads the healthcare team and manages the healthcare portfolio.

Yao currently serves on the board of directors of 4D Molecular Therapeutics, Inc.

and NexImmune, Inc.

Yao began his investment career in February 2002 as an analyst and later an assistant portfolio manager at Janus Capital Group.

Yao received a Sc.B.

in biochemistry from Brown University and a M.D.

in immunology from Stanford University.

We believe that Dr.

Yao’s medical background and experience in private equity investing, particularly with healthcare companies, qualify him to serve as a member of our board of directors.

Audit Committee

We have a separately designated standing audit committee.

The current members of our audit committee are Kevin J.

Buehler, Shalini Sharp and Tony Yao, M.D., Ph.D.

Shalini Sharp serves as the chairperson of the committee.

All members of our audit committee meet the requirements for financial literacy under the Nasdaq rules.

Our board of directors has determined that each of Kevin J.

Buehler, Shalini Sharp and Tony Yao, M.D., Ph.D.

meet the independence requirements of Rule 10A-3 under the Exchange Act and the applicable Nasdaq rules.

Our board of directors has determined that each of Kevin Buehler and Shalini Sharp is an “audit committee financial expert” as defined by applicable SEC rules and has the requisite financial sophistication as defined under the applicable Nasdaq rules.

Code of Ethics

We have adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.

Our code of business conduct and ethics is available under the Corporate Governance section of our website at www.precisionbiosciences.com .

In addition, we intend to post on our website all disclosures that are required by law or the Nasdaq rules concerning any amendments to, or waivers from, any provision of the code.

The reference to our website address does not constitute incorporation by reference of the information contained at or available through our website, and you should not consider it to be a part of this Annual Report on Form 10-K.

The information required by this item will be included in our definitive proxy statement (or the “2021 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.

Executive Compensation.

This section discusses the material components of our 2019 compensation program for our principal executive officer and next two most highly compensated executive officers who are named in the Summary Compensation Table below.

These “named executive officers” and their positions are:

Matthew Kane, President and Chief Executive Officer;

Christopher Heery, Chief Medical Officer;

Dario Scimeca, General Counsel.

Summary Compensation Table

The following table sets forth information concerning the compensation of our named executive officers for the years presented:

Name and principal position

awards ($)(2)

compensation($)

President and Chief Executive Officer

Christopher Heery(5)

Chief Medical Officer

Dario Scimeca(7)

General Counsel

The amounts reported for 2019 represent bonuses based upon our board’s assessment of the achievement of company and individual performance objectives for 2019, which were paid in February 2020.

Heery and Mr.

Scimeca, the amounts shown also include one-time signing bonuses of $50,000 for Dr.

Heery and $35,000 for Mr.

Scimeca that were paid in connection with their commencing employment with us during 2019.

The amounts reported reflect the grant date fair value of stock options computed in accordance with Accounting Standards Codification 718, Compensation—Stock Compensation, or ASC 718, rather than the amounts paid to or realized by the named individual.

We provide information regarding the assumptions used to calculate the value of the option awards in Note 5 to our consolidated financial statements included in this Annual Report on Form 10-K.

The amount reported includes 401(k) matching contributions by us of $10,672, nondiscriminatory life insurance premiums of $1,353, supplemental disability insurance premiums available to certain executives of $2,327, and tax gross-ups of $8 in connection with nondiscriminatory wellness and phone reimbursements for 2019.

The amount reported includes 401(k) matching contributions by us of $5,733, nondiscriminatory life insurance premiums of $789, and supplemental disability insurance premiums available to certain executives of $310.

Heery was not employed with the company in 2018, and accordingly, compensation information for 2018 is not included in the table above.

The amount reported represents relocation and housing expenses of $45,666 and $18,853 of tax gross-ups in connection therewith, nondiscriminatory life insurance premiums of $789, supplemental disability insurance premiums available to certain executives of $207, and tax gross-ups of $17 in connection with nondiscriminatory wellness and phone reimbursements for 2019.

Scimeca was not employed with the company in 2018, and accordingly, compensation information for 2018 is not included in the table above.

Annual Base Salaries

Our named executive officers receive a base salary to compensate them for services rendered to us.

The base salary payable to each named executive officer is intended to provide a fixed component of compensation reflecting the executive’s skill set, experience, role and responsibilities.

None of our named executive officers is currently party to an employment agreement or other agreement or arrangement that provides for automatic or scheduled increases in base salary.

The following table shows the annual base salaries for 2019 of our named executive officers:

Matthew Kane(1)

Christopher Heery

Dario Scimeca

Kane’s annual base salary was increased from $350,000 to $523,000 in connection with our IPO.

In addition to base salaries, our named executive officers were eligible to receive a cash bonus based on company and individual performance for 2019.

The performance objectives for 2019 cash bonuses related to attaining certain clinical and non-clinical milestones, as well as financial and administrative achievements.

In connection with our IPO, the target bonus amount for Mr.

Kane was set at 50% of his base salary.

The target bonus amount for Dr.

Heery and Mr.

Scimeca is 35% of their respective base salaries.

The actual bonus amounts paid to our named executive officers for 2019 are set forth above in the 2019 Summary Compensation Table in the column entitled “Bonus.”

In addition to their 2019 annual bonuses, Dr.

Heery and Mr.

Scimeca received sign-on bonuses of $50,000 and $35,000, respectively, in connection with commencing employment with us during 2019.

Each sign-on bonus is subject to repayment in the event the executive voluntarily resigns or is terminated for cause within the first year of employment.

Equity Compensation

Our equity award program is the primary vehicle for offering long-term incentives to our executives.

We believe that equity awards provide our executives with a strong link to our long-term performance, create an ownership culture and help to align the interests of our executives and our stockholders.

To date, we have used stock option grants for this purpose because we believe they are an effective means by which to align the long-term interests of our executive officers with those of our stockholders.

The use of options also can provide tax and other advantages to our executive officers relative to other forms of equity compensation.

We believe that our equity awards are an important retention tool for our executive officers, as well as for our other employees.

We award stock options broadly to our employees, including to our non-executive employees.

Grants to our executives and other employees are made at the discretion of our board of directors and are not made at any specific time period during a year.

In connection with our IPO, we adopted our 2019 Incentive Award Plan, referred to as the 2019 Plan, to facilitate the grant of cash and equity incentives to directors, employees (including our named executive officers) and consultants of our company and to enable our company to obtain and retain services of these individuals, which we believe are essential to our long-term success.

Following the effectiveness of our 2019 Plan, we ceased making grants under our 2015 Plan.

However, our 2015 Plan continues to govern the terms and conditions of the outstanding awards granted under it.

We granted the following stock options to our named executive officers during 2019 under our 2019 Plan:

Named executive officers

Stock options

Matthew Kane(1)

Christopher Heery(2)

Dario Scimeca(3)

The option vests as to 25% of the underlying shares on April 1, 2020 and vests in equal installments at the end of each successive three-month period over the 36 months following such date.

The option vests as to 25% of the underlying shares on May 1, 2020 and vests in equal installments at the end of each successive three-month period over the 36 months following such date.

The option vests as to 25% of the underlying shares on June 10, 2020 and vests in equal installments at the end of each successive three-month period over the following 36 months.

Retirement Plans

We currently maintain the Precision BioSciences, Inc.

401(k) Plan, a defined contribution retirement savings plan, or the 401(k) Plan, for the benefit of our employees, including our named executive officers, who satisfy certain eligibility requirements.

Our named executive officers are eligible to participate in the 401(k) Plan on the same terms as other full-time employees.

The Code allows eligible employees to defer a portion of their compensation, within prescribed limits, on a pre-tax basis through contributions to the 401(k) Plan.

In 2019, we matched participants’ elective salary deferral contributions to the 401(k) Plan up to 100% of the first 4% of the employee’s salary deferred.

Matching contributions made by us vest immediately.

We believe that providing a vehicle for tax-deferred retirement savings though our 401(k) Plan, and making matching contributions, adds to the overall desirability of our executive compensation package and further incentivizes our employees, including our named executive officers, in accordance with our compensation policies.

Employee Benefits and Perquisites

Our named executive officers are eligible to participate in our employee benefit plans and programs, which include medical, dental and vision benefits, health and flexible spending accounts, life, short-term, long-term and supplemental individual disability, and supplemental insurance and wellness and tuition reimbursement to the same extent as our other full-time employees generally, subject to the terms and eligibility requirements of those plans.

We also provide Messrs.

Kane and Scimeca and Dr.

Heery, along with certain other executive officers and senior employees, with certain supplemental disability insurance benefits.

We also provide relocation benefits to our named executive officers as determined in our board’s discretion.

Outstanding Equity Awards at 2019 Fiscal Year-End

The following table summarizes the number of shares of common stock underlying outstanding equity incentive plan awards for each of our named executive officers as of December 31, 2019.

Option awards

(#) exercisable

(#) unexercisable

Christopher Heery

Dario Scimeca

The option vested as to 25% of the underlying shares on March 24, 2018 and vests in equal installments at the end of each successive three-month period over the following 36 months.

The option vested as to 25% of the underlying shares on September 28, 2019 and vests in equal installments at the end of each successive three-month period over the following 36 months.

The option vests as to 25% of the underlying shares on April 1, 2020 and vests in equal installments at the end of each successive three-month period over the following 36 months.

The option vests as to 25% of the underlying shares on May 1, 2020 and vests in equal installments at the end of each successive three-month period over the following 36 months.

The option vests as to 25% of the underlying shares on June 10, 2020 and vests in equal installments at the end of each successive three-month period over the following 36 months.

Employment Agreements

We have entered into employment agreements with each of our named executive officers that set forth the terms and conditions of each executive’s employment with us.

Each employment agreement establishes an annual base salary and target bonus opportunity for each named executive officer, the current amounts of which are described above under the headings “Annual Base Salaries” and “Bonuses”.

The named executive officers are eligible to participate in our medical, dental and disability insurance, the 401(k), personal leave and other employee benefit plans and programs for which the named executive officer is eligible, subject to the terms and conditions of such plans and programs.

Each named executive officer’s employment agreement and employment are terminable by either the named executive officer or us without cause on 30-days’ notice.

In the event that a named executive officer’s employment is terminated by us without cause or by the executive for good reason, in each case as defined in the employment agreements, then in addition to payment of any accrued amounts and subject to such named executive officer’s timely executing a release of claims and continuing to comply with obligations under his proprietary information agreement, he will be entitled to receive (1) base salary continuation for 12 months in the case of Mr.

Kane or nine months in the case of Dr.

Heery and Mr.

Scimeca, and (2) reimbursement for additional costs the executive incurs for continued coverage under our group health insurance under the Consolidated Budget Reconciliation Act of 1985, or COBRA, for up to 12 months in the case of Mr.

Kane or nine months in the case of Dr.

Heery and Mr.

In lieu of the foregoing, the employment agreements provide that, in the event a named executive officer’s employment is terminated by us without cause or by the named executive officer for good reason three months prior to or 12 months after the occurrence of a change in control, then, subject to his timely executing a release of claims and continuing to comply with obligations under his proprietary information agreement, then such named executive officer shall be entitled to (1) a lump sum payment equal to, in the case of Mr.

Kane, 18 months of his then current base salary plus 1.5 times his target bonus, and in the case of Dr.

Heery and Mr.

Scimeca, 12 months of base salary plus one times his target bonus, (2) reimbursement for the additional costs the executive incurs for continued coverage under our group health insurance under COBRA for up to 18 months in the case of Mr.

Kane and up to 12 months in the case of Dr.

Heery and Mr.

Scimeca, and (3) accelerated vesting of all unvested time-based equity grants.

Under the separate proprietary information, inventions, non-competition and non-solicitation agreement with each of Mr.

Heery and Mr.

Scimeca, referred to as the proprietary information agreement above, each named executive officer has agreed to refrain from competing with us or soliciting our employees, independent contractors, customers or suppliers, in each case, while employed and following the termination of his employment for any reason for a period of one year.

Notwithstanding the foregoing, no such post-employment restrictions are intended to restrain Mr.

Scimeca’s ability to practice law or violate any rules of professional conduct to which he is subject.

Each named executive officer has acknowledged our ownership rights in any intellectual property and assigned any such ownership rights to us.

Director Compensation

2019 Option Grants to Non-Employee Directors

In connection with our IPO, Dr.

Schinazi was granted an option to purchase 34,544 shares, which option will vest as to 34% of the underlying shares on March 27, 2020 and in equal installments at the end of each three-month period over the following 24 months.

In November 2019 in connection with his election to our board, Mr.

Buehler was granted an option as an initial award under our non-employee director compensation program to purchase 60,776 shares of common stock.

This option vests in 36 substantially equal monthly installments following November 8, 2019.

Non-Employee Director Compensation Policy

In connection with our IPO, we adopted and our stockholders approved a compensation program for our non-employee directors under which each non-employee director is eligible to receive the following amounts for their services on our board of directors:

Upon the director’s initial election or appointment to our board of directors, an option to purchase shares of our common stock having an aggregate fair value of $350,000 (as determined under the policy);

If the director has served on our board of directors for at least six months as of the date of an annual meeting of stockholders and will continue to serve as a director immediately following such meeting, an option to purchase shares of our common stock on the date of the annual meeting having an aggregate fair value of $175,000 (as determined under the policy);

An annual director fee of $40,000;

If the director serves on a committee of our board of directors, an additional annual fee as follows:

Chairman of the audit committee, $15,000;

Audit committee member other than the chairman, $7,500;

Chairman of the compensation committee, $12,250;

Compensation committee member other than the chairman, $6,000;

Chairman of the nominating and corporate governance committee, $8,250;

Nominating and corporate governance committee member other than the chairman, $4,500.

Director fees under the program are payable in arrears in four equal quarterly installments not later than the fifteenth day following the final day of each calendar quarter, provided that the amount of each payment will be prorated for any portion of a quarter that a director is not serving on our board.

Stock options granted to our non-employee directors under the program have an exercise price equal to the fair market value of our common stock on the date of grant and expire not later than ten years after the date of grant.

The stock options granted upon a director’s initial election or appointment vest in thirty-six substantially equal monthly installments following the date of grant.

The stock options granted annually to directors vest in a single installment on the earlier of the day before the next annual meeting or the first anniversary of the date of grant.

In addition, all unvested stock options vest in full upon the occurrence of a change in control .

2019 Director Compensation

The following table sets forth the compensation earned by our non-employee directors for their service on our board during 2019:

Fees earned or

paid in cash ($)

awards ($)(1)

Kevin Buehler

Raymond Schinazi, Ph.D.

Shalini Sharp

Tony Yao, M.D., Ph.D.

We provide information regarding the assumptions used to calculate the value of the option awards in Note 5 to our consolidated financial statements included in this Annual Report.

The amount shown represents cash fees earned by Dr.

Yao for his service on our board during 2019.

Due to his association with ArrowMark Funds (as defined below), Dr.

Yao is not permitted to receive compensation for his service on our board and elected to forego $29,000 of such fees.

Yao was not granted options to purchase shares of our common stock during 2019.

The table below shows the aggregate numbers of option awards held as of December 31, 2019 by each non-employee director who was serving as of December 31, 2019.

Option Awards

securities underlying

unexercised options

Number of securities

underlying unexercised

Kevin Buehler

Raymond Schinazi, Ph.D.

Shalini Sharp

Tony Yao, M.D., Ph.D.

The information required by this item will be included in our 2021 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.

Security Ownership of Certain Beneficial Own ers and Management and Related Stockholder Matters.

Equity Compensation Plan Information

The following table provides information on our equity compensation plans as of December 31, 2019.

Plan Category

Exercise Price of

Available for

column (a))(4)

Equity Compensation Plans Approved by Stockholders (1)

Equity Compensation Plans Not Approved by Stockholders

Consists of the Company’s 2006 Stock Incentive Plan, as amended (the “2006 Plan”), 2015 Stock Incentive Plan, as amended (the “2015 Plan”), 2019 Incentive Award Plan (the “2019 Plan”) and 2019 Employee Stock Purchase Plan (the “2019 ESPP”).

Includes 1,385,203 outstanding options to purchase shares of our common stock under the 2006 Plan, 5,462,954 outstanding options to purchase shares of our common stock under the 2015 Plan and 2,070,959 outstanding options to purchase shares of our common stock under the 2019 Plan.

Excludes purchase rights accruing under the 2019 ESPP.

As of December 31, 2019, the weighted-average exercise price of outstanding options under the 2006 Plan was $0.04, under the 2015 Plan was $7.27, and under the 2019 Plan was $11.05.

Includes 2,679,041 shares available for future issuance under the 2019 Plan and 525,000 shares available for future issuance under the 2019 ESPP (of which 44,197 shares were issued with respect to the purchase period in effect as of December 31, 2019, which ended February 29, 2020).

The 2019 Plan provides for an annual increase on the first day of each calendar year beginning on January 1, 2020 and ending on and including January 1, 2029 equal to the lesser of (A) 4% of the aggregate number of shares of common stock outstanding on the final day of the immediately preceding calendar year and (B) such smaller number of shares as is determined by the board.

The number of shares available for issuance under the 2019 ESPP will be annually increased on the first day of each calendar year beginning on January 1, 2020 and ending on and including January 1, 2029, by an amount equal to the lesser of (A) 1% of the shares of common stock outstanding on the final day of the immediately preceding calendar year and (b) such smaller number of shares of common stock as determined by the board.

The 2006 Plan expired in accordance with its terms in May 2016, and no further stock awards may be granted under the 2006 Plan.

Additionally, following the effective date of the 2019 Plan, we ceased making grants under the 2015 Plan.

To the extent outstanding stock options under the 2006 Plan or the 2015 Plan are forfeited or lapse unexercised, the shares of common stock subject to such stock options will be available for issuance under the 2019 Plan .

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth information with respect to the beneficial ownership of our common stock as of March 2, 2020 by:

each person or group of affiliated persons known by us to beneficially own more than 5% of our common stock;

each of our named executive officers;

each of our directors;

all of our executive officers and directors as a group.

The number of shares beneficially owned by each individual or entity listed in the table below is determined under rules promulgated by the SEC.

Under these rules, beneficial ownership includes any shares as to which the individual or entity has sole or shared voting power or investment power , which includes the power to dispose of or to direct the disposition of such security .

In computing the number of shares beneficially owned by an individual or entity and the percentage ownership of such person, shares of common stock subject to options or other rights held by such person that are currently exercisable or will become exercisable within 60 days of March 2, 2020 are considered outstanding, although these shares are not considered outstanding for purposes of computing the percentage ownership of any other person.

Unless otherwise noted, the address of all listed individuals or entities is c/o Precision BioSciences, 302 East Pettigrew St., Suite A-100, Durham, North Carolina 27701.

Each of individual and entity listed has sole voting and investment power with respect to the shares beneficially owned by such person unless otherwise noted, subject to community property laws where applicable.

Name of Beneficial Owner

Number of Shares

Beneficially Owned

Percentage of Shares

Beneficially Owned

5% or Greater Shareholders

venBio Global Strategic Fund, L.P.

Derek Jantz, Ph.D.

Capital World Investors (3)

Named Executive Officers and Directors

Matthew Kane (5)

Christopher Heery, M.D.

Dario Scimeca (7)

Schinazi, Ph.D.

Shalini Sharp (10)

Tony Yao, M.D., Ph.D.

All executive officers and directors as a group (11 persons) (12)

* Represents less than 1%.

Based on information reported on a Schedule 13D filed on April 9, 2019, each of venBio Global Strategic Fund, L.P.

(the “Fund”), venBio Global Strategic GP, L.P.

(the “General Partner”), venBio Global Strategic GP, Ltd.

(the “GP Ltd.”) and Robert Adelman and Corey Goodman (collectively, the “Directors”) have shared voting power and shared dispositive power over 4,265,141 shares of our common stock.

The Fund directly holds 4,265,141 shares of our common stock.

As the sole general partner of the Fund, the General Partner may be deemed to beneficially own the shares held by the Fund and as the sole general partner of the General Partner, the GP Ltd.

may be deemed to beneficially own the shares held by the Fund.

As directors of the GP Ltd., each of the Directors may be deemed to beneficially own the shares held by the Fund.

The business address of each of the reporting persons listed in this footnote is 1700 Owens Street, Suite 595, San Francisco, CA 94158.

Consists of (a) 3,858,346 shares of common stock and (b) 357,832 shares of common stock underlying options exercisable within 60 days of March 2, 2020.

Based on information reported on a Schedule 13G filed on February 14, 2020, Capital World Investors, a division of Capital Research and Management Company (CRMC), has sole voting power and sole dispositive power over 4,062,000 shares of our common stock.

The business address of Capital World Investors is 333 South Hope Street, Los Angeles, CA 90071.

Based on information reported on a Schedule 13G/A filed on February 7, 2020, FMR LLC has sole voting power over 2,534,287 shares of our common stock and sole dispositive power over 2,630,134 shares of our common stock, and Abigail P.

Johnson has sole dispositive power over 2,630,134 shares of our common stock.

The business address of each of the reporting persons listed in this footnote is 245 Summer Street, Boston, Massachusetts 02210.

Consists of (a) 1,815,922 shares of common stock held directly by Mr.

Kane, (b) 8,718 shares of common stock held by Chelsea Lynam, Mr.

Kane’s wife, (c) 448,542 shares of common stock underlying options held by Mr.

Kane exercisable within 60 days of March 2, 2020 and (d) 25,474 shares of common stock underlying options held by Ms.

Lynam exercisable within 60 days of March 2, 2020.

Consists of (a) 2,485 shares of common stock and (b) 50,000 shares of common stock underlying options exercisable within 60 days of March 2, 2020.

Consists of 2,072 shares of common stock.

Consists of (a) 8,440 shares of common stock underlying options exercisable within 60 days of March 2, 2020.

Consists of (a) 93,048 shares of common stock held by RFS Partners, LP, or RFS.

RFS & Associates, LLC, or RFS & Associates, is the general partner of RFS and Dr.

Schinazi is a limited partner of RFS as well as the manager of RFS & Associates.

Schinazi may be considered the beneficial owner of the shares held by RFS and disclaims beneficial ownership of such shares, except to the extent of any pecuniary interest therein.

The principal business address of RFS is 1860 Montreal Road, Tucker, GA 30084 and (b) 15,258 shares of common stock underlying options held by Dr.

Schinazi exercisable within 60 days of March 2, 2020.

Consists of 62,345 shares of common stock underlying options exercisable within 60 days of March 2, 2020.

Consists of (a) 4,450 shares of common stock held directly by Dr.

Yao, (b) 151,516 shares of common stock held by ArrowMark Life Science Fund, LP, or ArrowMark Fund, and (c) 4,450 shares of common stock held by THB Iron Rose, LLC Life Science Portfolio, or THB Fund.

ArrowMark Colorado Holdings LLC, or ArrowMark Colorado, is an investment advisor to ArrowMark Fund and THB Fund.

Yao, one of our directors, is employed as a portfolio manager for ArrowMark Colorado and has direct voting and dispositive control over the shares held by ArrowMark Fund and THB Fund.

Yao may be considered the beneficial owner of the shares held by ArrowMark Fund and THB Fund and disclaims beneficial ownership of such shares, except to the extent of any pecuniary interest therein.

The principal business address of ArrowMark Fund and THB Fund is 100 Fillmore Street, Suite 325, Denver, Colorado 80206.

Consists of (a) 6,184,909 shares of common stock and (b) 1,337,472 shares of common stock underlying options exercisable within 60 days of March 2, 2020.

Certain Relationships and Related Transactions, and Director Independence.

Our board of directors recognizes that transactions with related persons present a heightened risk of conflicts of interests and/or improper valuation (or the perception thereof).

Our board of directors has adopted a written policy on transactions with related persons, which requires that our audit committee approve or ratify related person transactions required to be disclosed pursuant to Item 404(a) or, if applicable, Item 404(d) of Regulation S-K.

Item 404 of Regulation S-K requires disclosure, subject to certain exceptions, of transactions in which we were or are to be a participant and the amount involved exceeds $120,000 (or such other amount is applicable while we remain a smaller reporting company) and in which any “related person” as defined under Item 404(a) of Regulation S-K had or will have a direct or indirect material interest).

It is our policy that directors interested in a related person transaction will recuse themselves from any vote on a related person transaction in which they have an interest.

Each of the transactions described below entered into following the adoption of our related person transaction policy was approved in accordance with such policy.

As more fully described in Part I, Item 1.

“Business—License and Collaboration Agreements—Duke University,” we are party to the Duke License, pursuant to which Duke granted us an exclusive license (subject to certain exceptions) under certain patents owned by Duke related to certain meganucleases and methods of making such meganucleases.

The patents in-licensed by us from Duke pursuant to the Duke License were invented by Dr.

Jantz, one of our executive officers, a director and a beneficial owner of more than 5% of our common stock, Jeff Smith, Ph.D., one of our employees and formerly a beneficial owner of more than 5% of our common stock, and another inventor who is not affiliated with us.

Pursuant to Duke’s inventors’ policy, inventors of intellectual property invented at Duke, including the inventors of patents licensed to us under the Duke License, are entitled to a portion of the income derived from such inventions.

Accordingly, Drs.

Jantz and Smith are entitled to receive a portion of the amounts we pay to Duke under the Duke License, together with amounts received by Duke from sales of common stock that we issued to Duke at the inception of the Duke License, are payable by Duke directly to Drs.

Jantz and Smith.

In connection with the Duke License, Drs.

Jantz and Smith each received $284,869 from Duke during the year ended December 31, 2018, and each received $440,625 from Duke during the year ended December 31, 2019.

Participation in our Initial Public Offering

In connection with our IPO, certain of our stockholders and members of our board of directors purchased shares of our common stock from the underwriters at the initial public offering price of $16.00 per share, and on the same terms as other investors in our IPO.

The following table summarizes purchases of shares of our common stock in our IPO by beneficial owners of more than 5% of our capital stock and entities affiliated with members of our board of directors.

Shares Purchased

Total Purchase Price

5% or greater stockholders and directors

F-Prime Capital Partners Healthcare Fund IV LP

RA Capital Healthcare Fund, L.P.

venBio Global Strategic Fund, L.P.(1)

Robert Adelman, M.D., a former member of our board of directors, is a partner at venBio Global Strategic Fund, L.P.

Series B Preferred Stock Financing

From May 2018 to July 2018, we issued and sold to investors in a private placement 21,956,095 shares of our Series B preferred stock at a price per share of $5.01, for aggregate gross proceeds of $110.0 million.

The following table summarizes the Series B preferred stock purchased by directors, executive officers, then beneficial owners of more than 5% of our capital stock or any member of the immediate family of any of the foregoing persons.

Preferred Stock

Total Purchase Price

5% or greater stockholders and directors

Amgen Investments Ltd.(1)

F-Prime Capital Partners Healthcare Fund IV LP(2)

RA Capital Healthcare Fund, L.P.

venBio Global Strategic Fund, L.P.(3)

RFS Partners, LP(5)

Series B preferred stock was purchased by Amgen Ventures LLC, an affiliate of Amgen Investment Ltd.

Ben Auspitz, a former member of our board of directors, is a partner at F-Prime Capital Partners, a fund affiliated with FMR LLC.

Auspitz does not hold voting or dispositive power over the shares held by F-Prime Capital Partners Healthcare Fund IV LP.

See Part III, Item 12.

“Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” for more information.

Robert Adelman, M.D., a former member of our board of directors, is a partner at venBio Global Strategic Fund, L.P.

See Part III, Item 12.

“Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” for more information.

Tony Yao, M.D., Ph.D.

is a current member of our board of directors.

Yao is associated with the ArrowMark Funds (as defined below).

See Part III, Item 12.

“Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” for more information.

Raymond Schinazi, Ph.D.

is a current member of our board of directors.

Schinazi is associated with RFS Partners, LP.

See Part III, Item 12.

“Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” for more information.

Convertible Note Financing

In March 2019, we sold and issued $39.6 million aggregate principal amount of convertible notes payable, or the 2019 Notes, in a private placement transaction.

ArrowMark Fundamental Opportunity Fund, L.P.

purchased $0.6 million of 2019 Notes, and ArrowMark Life Science Fund, L.P.

purchased $0.5 million of 2019 Notes.

Tony Yao, M.D., Ph.D.

is a current member of our board of directors and is associated with the ArrowMark Funds (as defined below).

RFS Partners, LP purchased $0.5 million of 2019 Notes.

Raymond Schinazi, Ph.D.

is a current member of our board of directors and is associated with RFS Partners, LP.

The 2019 Notes converted into 2,921,461 shares of common stock immediately prior to the closing of our IPO.

Investors’ Rights Agreement

We are party to an amended and restated investors’ rights agreement, as amended, which we refer to as our investors’ rights agreement, with each holder of our convertible preferred stock and 2019 Notes and certain holders of our common stock (Derek Jantz, Matthew Kane and Jeff Smith), which includes each holder of more than 5% of our capital stock and certain of our directors (Matthew Kane, Derek Jantz, Raymond Schinazi and Tony Yao, M.D., Ph.D.) (or, in some cases, entities affiliated therewith).

Our investors’ rights agreement imposes certain affirmative obligations on us and also grants certain rights to the holders, including certain registration rights with respect to the registrable securities held by them that survived our IPO.

Director and Officer Indemnification and Insurance

We have agreed to indemnify each of our directors and executive officers against certain liabilities, costs and expenses and have purchased directors’ and officers’ liability insurance.

Employment Agreements

We have entered into employment agreements with certain of our executive officers, including our named executive officers.

For more information regarding the agreements with our named executive officers, see Part III, Item 11, “Executive Compensation—Employment Agreements.”

Stock Option Grants to Executive Officers and Directors

We have granted stock options to our executive officers as more fully described in Part III, Item 11, “Executive Compensation.”

Other Transactions

Chelsea Lynam, Mr.

Kane’s wife, serves as our Manager, Facilities Planning & Design.

Lynam earned total compensation of $273,375 in 2018 in respect of base salary, bonus and the grant date fair value of options to purchase 28,106 shares of our common stock.

Lynam earned total compensation of $111,518 in 2019 in respect of base salary and bonus.

Lynam also participates in other employee benefit plans and arrangements that are made generally available to other employees.

Director Independence

Our board of directors has determined that, of our six directors serving as of March 2, 2020 , Kevin Buehler, Raymond Schinazi Ph.D., Shalini Sharp and Tony Yao, M.D., Ph.D.

do not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under the applicable listing rules of The Nasdaq Stock Market LLC, or the Nasdaq rules.

Furthermore, the board of directors determined that, during his service as a director during 2019, Robert Adelman, M.D., qualified as an independent director under applicable Nasdaq rules.

There are no family relationships among any of our directors or executive officers.

Principal Accountant Fees and Services.

The following table summarizes the fees of Deloitte & Touche LLP, our independent registered public accounting firm, billed to us in each of the last two fiscal years (in thousands):

All other fees

Audit fees consisted of the following:

F ees for the audit of our consolidated financial statements, the review of the unaudited interim financial statements included in our quarterly reports on Form 10-Q and other professional services provided in connection with statutory and regulatory filings or engagements .

F ees for assurance and related services that are reasonably related to the performance of the audit or review of the registrant's financial statements, including for assurance reporting on our historical financial information included in our SEC registration statement in connection with our initial public offering.

Tax fees consisted of fees for tax compliance, tax advice, and tax planning services.

All Other Fees

All other fees consisted of subscription fees for accounting research software.

Audit Committee Pre-Approval Policy and Procedures

The formal written charter for our audit committee requires that the audit committee pre-approve all audit services to be provided to us, whether provided by our principal auditor or other firms, and all other services (review, attest and non-audit) to be provided to us by our independent registered public accounting firm, other than de minimis non-audit services approved in accordance with applicable SEC rules.

The audit committee has adopted a policy (the “Pre-Approval Policy”) that sets forth the procedures and conditions pursuant to which audit and non-audit services proposed to be performed by our independent registered public accounting firm may be pre-approved.

The Pre-Approval Policy generally provides that the audit committee will not engage an independent registered public accounting firm to render any audit, audit-related, tax or permissible non-audit service unless the service is either (i) explicitly approved by the audit committee (“specific pre-approval”) or (ii) entered into pursuant to the pre-approval policies and procedures described in the Pre-Approval Policy (“general pre-approval”).

Unless a type of service to be provided by our independent registered public accounting firm has received general pre-approval under the Pre-Approval Policy, it requires specific pre-approval by the audit committee or by a designated member of the audit committee to whom the committee has delegated the authority to grant pre-approvals.

Any member of the audit committee to whom the committee delegates authority to make pre-approval decisions must report any such pre-approval decisions to the audit committee at its next scheduled meeting.

If circumstances arise where it becomes necessary to engage the independent registered public accounting firm for additional services not contemplated in the original pre-approval categories or above the pre-approved amounts, the audit committee requires pre-approval for such additional services or such additional amounts.

Any proposed services exceeding pre-approved cost levels or budgeted amounts will also require specific pre-approval.

For both types of pre-approval, the audit committee will consider whether such services are consistent with the SEC’s rules on auditor independence.

On an annual basis, the audit committee reviews and generally pre-approves the services (and related fee levels or budgeted amounts) that may be provided by our independent registered accounting firm without first obtaining specific pre-approval from the Audit Committee.

The audit committee may revise the list of general pre-approved services from time to time, based on subsequent determinations.

The services provided to us by Deloitte & Touche LLP in 2019 and 2018 were provided in accordance with our pre-approval policies and procedures, as then applicable.

Exhibits, Financial Statement Schedules.

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and certain of its stockholders and the holders of the 2019 Notes, dated May 25, 2018, as amended

Form of Indenture.

Description of the Registrant's Securities

Loan and Security Agreement, dated May 15, 2019, among Precision BioSciences, Inc., Elo Life Systems, Inc.

and Pacific Western Bank

First Amendment, dated September 18, 2019, to Loan and Security Agreement, dated May 15, 2019, among Precision BioSciences, Inc., Elo Life Systems, Inc.

and Pacific Western Bank

Second Amendment, dated December 3, 2019, to Loan and Security Agreement, dated May 15, 2019, among Precision BioSciences, Inc., Elo Life Systems, Inc.

and Pacific Western Bank

and Pacific Western Bank, as amended

Development and Commercial License Agreement by and between Les Laboratoires Servier and Precision BioSciences, Inc., dated February 24, 2016, as amended

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5, dated September 18, 2019, to Development and 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 Commercial License Agreement by and between Les Laboratoires Servier, Institut de Recherches Internationales Servier and Precision BioSciences, Inc., dated February 24, 2016, as amended

Development and License Agreement between Eli Lilly and Company and Precision BioSciences, Inc., dated November 19, 2020

Stock Purchase Agreement between Eli Lilly and Company and Precision BioSciences, Inc., dated November 19, 2020

License Agreement by and between Duke University and Precision BioSciences, Inc., dated April 17, 2006, as amended

Patent Cross‑License Agreement by and between Cellectis SA and Precision BioSciences, Inc., dated January 23, 2014

Collaboration and License Agreement by and between Gilead Sciences, Inc.

and Precision BioSciences, Inc., dated September 10, 2018

Lease Agreement between Precision BioSciences, Inc.

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Employment Agreement between Precision BioSciences, Inc.

and Abid Ansari, dated February 27, 2019

Employment Agreement between Precision BioSciences, Inc.

and David Thomson, dated February 27, 2019, as amended

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

Precision BioSciences, Inc.

March 18, 2021

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March 18, 2021

/s/Abid Ansari

Chief Financial Officer

/s/ Derek Jantz

Chief Scientific Officer and Director

( principal executive officer )

March 18, 2021

Derek Jantz, Ph.D.

/s/ John Alexander Kelly

Interim Chief Financial Officer

( principal financial officer )

March 18, 2021

John Alexander Kelly

/s/ Shane Barton

Vice President and Corporate Controller

( principal accounting officer)

March 18, 2021

/s/ Raymond Schinazi

March 18, 2021

Raymond Schinazi, PhD, DSc

Raymond Schinazi, Ph.D., DSc

/s/ Shalini Sharp

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Kevin Buehler

/s/ Geno Germano

March 18, 2021

Tony Yao, MD, PhD

Re port of Independent Regist ered Public Accounting Firm

March 18, 2021

Tony Yao, M.D., Ph.D.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

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In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for revenue from contracts with customers in 2019 due to the adoption of Accounting Standards Update No.

2014-09, Revenue from Contracts with Customers .

Basis for Opinion

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Intangible assets—net

Right-of-use assets—net

Liabilities and Stockholders’ Equity

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Accrued clinical and research and development expenses

Accrued other expenses and other current liabilities

Deferred revenue

Lease liabilities

Other current liabilities

Total current liabilities

Deferred revenue—noncurrent

Deferred rent—noncurrent

Deferred revenue

Deferred rent

Lease liabilities

Other noncurrent liabilities

Total liabilities

1 unchanged sentence

Stockholders’ equity:

Series A convertible preferred stock;

$0.0001 par value— no shares issued and outstanding as of December 31, 2019;

25,650,000 shares authorized, issued and outstanding as of December 31, 2018

Series B convertible preferred stock;

$0.0001 par value— no shares issued and outstanding as of December 31, 2019;

21,956,100 shares authorized;

21,956,095 shares issued and outstanding as of December 31, 2018

Preferred stock, $0.0001 par value— 10,000,000 shares authorized as of December 31, 2019 and no shares authorized as of December 31, 2018;

no shares issued and outstanding as of December 31, 2019

Preferred stock, $0.0001 par value— 10,000,000 shares authorized as of December 31, 2020 and December 31, 2019;

no shares issued and outstanding as of December 31, 2020 and December 31, 2019

Common stock;

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Balance- January 1,

Issuance of Series B

convertible preferred

stock, net of issuance

Stock option exercises

Balance- December 31,

Adjustment to beginning

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Balance- December 31,

Stock option exercises

Issuance of common stock under employee

stock purchase plan

Balance- December 31,

See notes to consolidated financial statements

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Change in fair value of convertible notes payable

Amortization of right-of-use assets

Changes in operating assets and liabilities:

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Accounts payable

Accrued other expenses and other current liabilities

Other current liabilities

Deferred revenue

Lease liabilities and right-of-use assets

Other noncurrent liabilities

Net cash used in operating activities

Cash flows from investing activities:

Acquisition of license rights

Purchases of property, equipment and software

Proceeds from disposal of property, equipment, and software

Net cash used in investing activities

1 unchanged sentence

Proceeds from stock option exercises

Issuance of Series B convertible preferred stock, net of issuance costs

Proceeds from employee stock purchase plan

Deferred offering costs

2 unchanged sentences

Net cash provided by financing activities

Net increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents—beginning of period

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Precision BioSciences, Inc.

No tes to Consolidated Financial Statements (Unaudited)

Notes to C onsolidated Financial Statements

DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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(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 focused on utilizing its proprietary genome editing platform to help overcome cancers, cure genetic diseases and enable the development of safer, more productive food sources.

The Company is dedicated to improving life through the application of its pioneering, proprietary ARCUS genome editing platform to treat human diseases and create healthy and sustainable food and agricultural solutions.

The Company is actively developing product candidates through two reportable segments:

Therapeutics and Food.

The Therapeutics segment is focused on allogeneic CAR T cell immunotherapy and in vivo gene correction.

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

The Company’s 100% owned subsidiary, Precision PlantSciences, Inc., was incorporated on January 4, 2012.

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Elo Life Systems Australia Pty Ltd was incorporated on May 29, 2018 as a 100% owned subsidiary of Elo Life Systems, Inc.

The Company’s 100% owned subsidiary, Precision BioSciences UK Limited, was incorporated on June 17, 2019.

Additionally, the Company’s 100% owned subsidiary, Precision BioSciences UK Limited, was incorporated on June 17, 2019.

The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries.

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During the year ended December 31, 2020, the Company incurred a net loss of $109.0 million and, as of December 31, 2020, has an accumulated deficit of $286.1 million.

The Company has financed operations primarily through its IPO, private placements of convertible preferred stock and convertible debt and with proceeds from its development and commercial license agreement with Les Laboratoires Servier, (“Servier”) and Gilead Sciences, Inc.

(“Gilead”) (see Note 12).

The Company has financed operations primarily through upfront payments from collaboration and licensing agreements, its initial public

offering (“IPO”), and private placements of convertible preferred stock and convertible debt .

The Company expects to incur additional operating losses and negative operating cash flows for the foreseeable future.

Management believes that existing cash and cash equivalents will allow the Company to continue its operations into 2021.

Management believes that 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 the Company to continue its operations into 2023.

In the absence of a significant source of recurring revenue, the continued viability of the Company beyond that point is dependent on its ability to continue to raise additional capital to finance its operations.

There can be no assurance that the Company will be able to obtain sufficient capital to cover its costs on acceptable terms, if at all.

Reclassifications

Certain reclassifications have been made to the presentation of amounts in our Consolidated Balance Sheet as of December 31, 2019 to conform to the prior year presentation.

Specifically, certain current liabilities were reclassified from accrued expenses and other current liabilities and are now presented separately on our Consolidated Balance Sheets.

Summary of Significant Accounting Policies

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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, 2019 and December 31, 2018, the Company held cash equivalents composed of money market funds and repurchase agreements that were collateralized by deposits in the form of government securities and obligations.

As of December 31, 2020, the Company held an insignificant amount of cash equivalents.

As of December 31, 2019, the Company held cash equivalents 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.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents.

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash.

All of the Company’s cash and cash equivalents are held at financial institutions that management believes to be of high credit quality.

3 unchanged sentences

The Company has not experienced any losses on cash and cash equivalents to date.

Revenue from two development and license agreements accounted for 60% and 33% of revenue during 2019 and 34% and 53% of revenue during 2018, as well as 2% and 98% of deferred revenue as of December 31, 2019.

Revenue from two development and license agreements accounted for 16% and 74% of revenue during 2020 and 60% and 33% of revenue during 2019.

One development and license agreement accounted for 98% of deferred revenue as of December 31, 2020.

Deferred Equity Offering Costs

1 unchanged sentence

After consummation, these costs are recorded in stockholders’ equity (deficit) as a reduction of additional paid-in capital.

If the equity offering is not completed, any costs deferred will be expensed immediately.

If the equity offering is aborted, any costs deferred are expensed immediately.

Property, Equipment and Software

3 unchanged sentences

The depreciation and amortization periods for the Company’s significant property, equipment and software categories are as follows:

Computer hardware and software

Lab equipment

Furniture and office equipment

Laboratory equipment

Furniture and fixtures and office equipment

Leasehold improvements

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An impairment charge is recognized for the amount by which the carrying amount exceeds the fair value of the asset.

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (“ASC 842”), to enhance the transparency and comparability of financial reporting related to leasing arrangements.

The Company adopted ASC 842 on January 1, 2020, or the effective date, and used the effective date as its date of initial application.

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.

Certain adjustments to the right-of-use asset were required for items such as prepaid and deferred rent.

In calculating the present value of the lease payments, the Company has elected to apply the discount rate based on the remaining lease term as of the transition date, January 1, 2020.

As the rate implicit in the lease is 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 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

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2014-09, Revenue from Contracts with Customers (“ASC 606”), using the modified retrospective transition method.

Under this method, results for reporting periods beginning on January 1, 2019 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with ASC Topic 605, Revenue Recognition (“ASC 605”).

The Company applied the modified retrospective transition method to contracts that were not completed as of January 1, 2019.

For the year ended December 31, 2019, the Company reduced revenue recognition by $1.4 million for changes in total estimated time to be incurred in the future to satisfy the performance obligation.

ASC 606 applies to all contracts with customers, except for contracts that are within the scope of other standards.

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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.

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.

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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.

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

For the year ended December 31, 2020, the Company recorded cumulative catch up adjustments that reduced revenue recognition by $5.2 million, in addition to a contract liability adjustment, for changes in total estimated effort to be incurred in the future to satisfy the performance obligation and changes to the transaction price related to variable consideration for development milestones that were constrained in prior periods.

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 deferred revenue – noncurrent.

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

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.

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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.

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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.

Although the Company does not expect its estimates to be materially different from amounts actually incurred, the Company’s understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in the Company reporting amounts that are too high or too low in any particular period.

To date, the Company has not made any material adjustments to prior estimates of accrued research and development expenses.

Common Stock Valuation

Prior to the IPO, due to the absence of an active market for the Company’s common stock, the Company utilized methodologies in accordance with the framework of the American Institute of Certified Public Accountants Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, to estimate the fair value of its common stock.

In determining the exercise prices for stock options granted prior to the IPO, the Company considered the estimated fair value of the common stock as of the measurement date.

The estimated fair value of the common stock was determined based upon a variety of factors, including the illiquid nature of the common stock, the Company’s financial position and historical financial performance, the status of technological developments within the Company’s research, the composition and ability of the current research and management team, an evaluation or benchmark of the Company’s competition and the current business climate in the marketplace.

Significant changes to the key assumptions underlying the factors used could result in different fair values of common stock at each valuation date.

Comprehensive Loss

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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.

Diluted net loss per share is the same as basic net loss per share for the years ended December 31, 2019 and December 31, 2018 since all potential shares of common stock are anti-dilutive as a result of the net loss.

Diluted net loss per share is the same as basic net loss per share for the years ended December 31, 2020 and December 31, 2019 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, including stock options and the employee stock purchase plan at fair value and recognizes compensation expense for those equity 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 equity 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 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.

As the Company has limited trading history, expected volatility is estimated based on the historical volatility of publicly traded peer companies and the Company expects to continue to do so until such time as it has adequate historical data regarding the volatility of our traded share price.

The expected term of the 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 fair value of each equity 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.

The expected term of the 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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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 $1.07 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, has been a public company for at least 12 months and have filed one annual report on Form 10-K.

In May 2014, the Financial Accounting Standards Board, or FASB, issued ASC 606, which superseded the revenue requirements in ASC 605.

In February 2016, the FASB issued ASU 2016-02, Leases (“ASC 842”).

This standard was issued in order to improve comparability among organizations by recognizing lease assets and liabilities for all leases, with certain exceptions, on the balance sheet.

The Company elected to early adopt ASC 842 on January 1, 2020, or the effective date, and used the effective date as its date of initial application.

As such, the Company did not adjust prior period amounts.

The Company also elected to utilize various practical expedients upon transition, which permits companies to not reassess lease identification, classification, and initial direct costs under ASC 842 for leases that commenced prior to the effective date.

Upon adoption, the Company recorded lease liabilities of $11.6 million, right-of-use assets of $6.8 million, and a reduction of existing deferred rent balances of $4.8 million on the balance sheet as of January 1, 2020.

In May 2014, the FASB, issued ASC 606, which superseded the revenue requirements in ASC 605.

In 2015 and 2016, the FASB issued additional ASUs related to ASC 606 that delayed the effective date of the guidance and clarified various aspects of the new revenue guidance, including principal versus agent considerations, identifying performance obligations, and licensing, and they include other improvements and practical expedients.

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As a result of adopting ASC 606, the Company recorded a $1.0 million transition adjustment in the first quarter of 2019 to reduce the opening balance of accumulated deficit as of January 1, 2019 primarily as a result of the treatment of the up-front consideration received from the Company’s collaboration agreements under prior revenue recognition guidance.

A summary of the amount by which each financial statement line item was affected by the impact of the cumulative adjustment is set forth in the table below:

Impact of ASC 606 Adoption on Consolidated

Balance Sheet as of January 1, 2019

(in thousands)

under ASC 606

Balances without

adoption of ASC 606

Deferred revenue - current liabilities

Deferred revenue - noncurrent liabilities

Accumulated deficit

A summary of the amount by which each financial statement line item was affected in the current reporting period by ASC 606 as compared with the guidance that was in effect prior to adoption is set forth in the tables below:

Impact of ASC 606 Adoption on Consolidated

Balance Sheet as of December 31, 2019

(in thousands)

under ASC 606

Balances without

adoption of ASC 606

Deferred revenue - current liabilities

Deferred revenue - noncurrent liabilities

Accumulated deficit

Impact of ASC 606 Adoption on

Consolidated Statement of Operations

for the Years Ended December 31, 2019

(in thousands, except per share data)

Balances without

Net loss per share - basic and diluted

Impact of ASC 606 Adoption on Consolidated

Statement of Cash Flows for the Years Ended December 31, 2019

(in thousands)

under ASC 606

Balances without

adoption of ASC 606

Changes in deferred revenue

During the year ended December 31, 2020, the Company recorded $19.5 million in revenue that was included in deferred revenue as of December 31, 2019.

The most significant change to the Company’s revenue recognition as a result of the adoption of ASC 606 relates to the accounting for certain option fees and milestone payments in determining the transaction price (step (iii)), and the revenue recognition pattern (step (v)) related to the Company’s development and commercial license agreement with Servier.

Under ASC 605, the option fees payable by the Company to exercise the 50/50 co-development and co-promotion option was accounted for as a reduction in the arrangement consideration, and certain development milestones that may be earned for early-stage pre-IND development milestones were included in the arrangement consideration as the early-stage pre-IND development milestones were deemed to be non-substantive.

Under ASC 606, the option fees were not accounted for as a reduction in the transaction price as the option fees are contingent upon Servier’s exercise of its commercial (customer) options on licensed product candidates, and the milestone payments were excluded from the transaction price based on the assessment of the most likely amount and application of the variable consideration constraint, since the milestones relate to successful achievement of certain developmental goals, which may not be achieved.

In addition, under ASC 605, the Company recognized revenue on a straight‑line basis over the period the Company expected to complete its obligations.

Under ASC 606, the Company recognizes revenue based on the proportional performance of the services related to the performance obligation expected.

For further discussion of the adoption of ASC 606 see Note 12, “Collaboration and license agreements.”

In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”).

ASU 2018-07 substantially aligns accounting for share-based payments to employees and non-employees.

This ASU became effective for annual periods beginning after December 15, 2018 including interim periods within that period, and early adoption is permitted.

The Company adopted ASU 2018-07 effective January 1, 2019.

The adoption of the standard did not have a material impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measuremen t (“ASU 2018-13”).

ASU 2018-13 is intended to improve the effectiveness of disclosures in the notes to financial statements related to fair value measurements in Topic 820.

This ASU will become effective for annual periods beginning after December 15, 2019, including interim periods within that period, and early adoption is permitted.

The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements and related disclosures.

In November 2018, the FASB issued ASU No.

2018-18, Collaborative Arrangements (Topic 808)—Clarifying the Interaction between Topic 808 and ASC 606 (“ASU 2018-18”).

The amendments in ASU 2018-18 make targeted improvements to GAAP for collaborative arrangements by clarifying that certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606 when the collaborative arrangement participant is a customer in the context of a unit of account.

In those situations, all the guidance in ASC 606 should be applied, including recognition, measurement, presentation, and disclosure requirements.

In addition, unit-of-account guidance in ASU 2018-18 was aligned with the guidance in ASC 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of ASC 606.

ASU 2018-18 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.

Early adoption is permitted, including adoption in any interim period.

The amendments should be applied retrospectively to the date of initial application of ASC 606.

The Company adopted this guidance effective January 1, 2019 with its initial application of ASC 606.

The adoption of the standard did not have an impact on the Company’s consolidated financial statements.

In November 2019, the FASB issued ASU 2019-10, Financial Instruments — Credit losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) (“ASU 2019-10”) , which provides a one-year deferral of the effective dates of ASU No.

2016-02, Leases (Topic 842) (“ASU 2016-02”), issued in February 2016.

ASU 2016-02 was issued in order to improve comparability among organizations by recognizing lease assets and liabilities in the consolidated balance sheets for those leases previously classified as operating leases under GAAP.

The update requires a lessee to recognize in its consolidated balance sheet a liability to make lease payments and also a right-of-use asset representing its right to use the underlying asset for the lease term.

ASU 2019-10 is effective for fiscal years beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021.

The Company is currently evaluating the impact that this standard will have on its consolidated financial statements and expects to have an increase in total assets and total liabilities as a result of adopting the lease standard.

Other accounting standards updates issued, but not effective until after December 31, 2020, 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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Property, equipment and software - net

In July 2019, we completed construction and opened our Manufacturing Center for Advanced Therapeutics, or MCAT, a manufacturing facility supporting our therapeutic product development platform, in a leased facility in Research Triangle Park.

Of the $8.6 million construction-in-progress (CIP) balance as of December 31, 2018, $2.5 million related to the MCAT and $4.4 million related to our other leased facilities in Durham was recognized as leasehold improvements in the year ending December 31, 2019.

Depreciation expense, including amortization of leasehold improvements and software, was $8.7 million and $5.3 million for the years ended December 31, 2020 and December 31, 2019, respectively.

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Intangible assets, net

Amortization expense of the intangible assets was $0.1 million for the years ended December 31, 2019 and December 31, 2018.

In September 2018, the Company entered into a license agreement to obtain the rights to intellectual property for the production of biological materials for use in its development programs.

The Company paid the licensor a one-time, non-refundable license fee of $1.4 million for rights to a cell line that can be used on up to four product candidates.

The intellectual property rights are being amortized on a straight-line basis over a period of 216 to 257 months depending on the date the company adds product candidates to the agreement.

Amortization expense will be approximately $0.1 million for each of the next five years with the remaining $0.9 million amortized to expense in 2025 and beyond.

Amortization expense of intangible assets was less than $0.1 million for the years ended December 31, 2020 and December 31, 2019.

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 $0.7 million amortized to expense in 2026 and beyond.

STOCKHOLDERS’ EQUITY

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SHARE-BASED COMPENSATION

Under the terms of its equity incentive award plans, the Company’s board of directors may grant equity or equity-based awards to employees, directors and other service providers.

The Company granted stock options under the 2006 Stock Incentive Plan (“2006 Plan”) until April 2015 when the 2015 Stock Incentive Plan (“2015 Plan”) was adopted.

The 2006 Plan expired in 2016 and there are no remaining shares available to be granted under the 2006 Plan.

There were 1,385,203 stock options outstanding under the 2006 Plan as of December 31, 2019.

Upon adoption of the 2015 Plan, there were 5,270,095 shares of common stock reserved for issuance.

In May 2018, the Company amended the 2015 Plan to increase the number of shares reserved for issuance to 8,211,980.

The 2015 Plan had 5,462,954 stock options outstanding as of December 31, 2019.

The Company’s board of directors determined the terms of stock options granted under the 2015 Plan, including option exercise prices and vesting.

On March 12, 2019, the Company’s board of directors adopted, and, on or about March 14, 2019 the Company’s stockholders approved, the Precision BioSciences, Inc.

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, 2020 there were 5,031,848 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.

On March 27, 2019, the Company ceased granting new awards under the 2015 Plan.

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 initially equal to 4,750,000 shares of common stock.

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 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.

The number of shares available for issuance under the 2019 Plan was increased by 2,046,209 on January 1, 2020 pursuant to this provision.

As of January 1, 2021, the aggregate number of shares available for issuance under the 2019 Plan has been increased by 4,153,915 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, 2020, 1,933,781 shares were available to be issued under the 2019 Plan.

The 2019 Plan had 5,512,422 stock options outstanding as of December 31, 2020.

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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.

The number of shares available for issuance under the 2019 ESPP was increased by 511,552 shares on January 1, 2020 pursuant to this provision.

As of January 1, 2021, the aggregate number of shares available for issuance under the 2019 ESPP has been increased by 1,038,478 shares pursuant to this provision.

No more than 5,250,000 shares of our common stock may be issued under our 2019 ESPP.

The purchase price of the shares, 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.

The first ESPP offering period commenced on October 21, 2019 and ended on February 29, 2020;

44,197 shares were issued with respect to this offering period.

The next ESPP offering period commenced on March 1, 2020 and will end on August 31, 2020.

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, 2020, we had issued 126,228 shares under the 2019 ESPP.

As of December 31, 2020, 910,324 shares were available to be issued under the 2019 ESPP.

The Company recognized share-based compensation expense related to the ESPP of $0.4 million and less than $0.1 million during the years ended December 31, 2020 and December 31, 2019, respectively.

The Company recorded employee and nonemployee share-based compensation expense as follows (in thousands):

Years Ended December 31,

Share-based compensation expense related to stock options is included in the following line items in the consolidated statements of operations (in thousands):

Share-based compensation expense is included in the following line items in the consolidated statements of operations (in thousands):

Years Ended December 31,

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The risk-free rate is based on the United States Treasury yield curve during the expected life of the option.

The following table summarizes activity in the Company’s stock option plans for the years ended December 31, 2019 and December 31, 2018:

The following table summarizes activity in the Company’s stock option plans for the year s ended December 31, 2020 and December 31, 2019 :

Exercise Price

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$0.41 - $1.20

$7.74 - $9.46

$10.17 - $13.80

$14.91 - $16.00

RETIREMENT PLAN

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The Company made contributions of $0.8 million and $0.6 million to the Retirement Plan during the years ended December 31, 2020 and December 31, 2019, 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.

COMMITMENTS AND CONTINGENCIES

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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.

The Company leases office and laboratory space under long-term operating leases.

These leases provide tenant improvement allowances and rent abatements as incentives for the Company to either enter into the initial lease agreement or expand within existing premises already under lease and represent all of the Company’s lease obligations as of December 31, 2019.

These leases include the following:

Office and laboratory space at 302 East Pettigrew Street, Durham, North Carolina, which is the Company’s corporate headquarters.

The property is leased through July 2024 with the option to extend.

Laboratory and office space at 3054 Cornwallis Road Durham, North Carolina.

The property is leased through April 2026 with the option to extend.

Laboratory space at 20 TW Alexander Drive, Research Triangle Park, North Carolina.

In December 2019, the Company expanded the amount of spaced leased at this site and extended to lease to August 2027.

The following is a schedule of future minimum lease payments for all leases as of December 31, 2019 (in thousands):

COVID-19 Pandemic

In March 2020, the World Health Organization designated the outbreak of the novel strain of coronavirus known as COVID-19 as a global pandemic.

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.

The Company is working closely with its clinical sites, physician partners and the patient community to monitor and manage the ongoing impact of the COVID-19 pandemic.

The Company remains committed to its clinical programs and development plans, however, disruptions, competing resource demands and safety concerns caused by the COVID-19 pandemic have caused delays in the Company’s clinical trial site activation and impacted its ability to enroll patients.

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

While the extent to which COVID-19 may continue to impact the Company’s future results will depend on future developments, the pandemic and associated economic impacts could result in a material impact to the Company’s future financial condition, results of operations and cash flows.

The Company is continuing to assess the impact of the COVID-19 pandemic to best mitigate risk and continue the operations of its business.

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.

Reflected in the right-of-use asset and lease liabilities on the Company’s consolidated balance sheet are the periods provided by renewal and extension options that the Company is reasonably certain to exercise, as well as the periods provided by termination options that the Company is reasonably certain to not exercise.

The Company has existing leases that include variable lease payments that are not included in the right-of-use asset and lease liabilities and are 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 asset s and lease liabilit ies but rather reflected as an expense in the period incurred.

The elements of lease expense were as follows:

(in thousands)

Year Ended December 31, 2020

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

Future lease payments under non-cancelable leases with terms of greater than one year as of December 31, 2020, were as follows:

(in thousands)

December 31, 2020

2026 and beyond

Total lease payments

imputed interest

Total operating lease liabilities

Supply Agreements

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Years Ended December 31,

Series A preferred stock (as converted to common stock)

Series B preferred stock (as converted to common stock)

Outstanding share-based compensation awards converted to common stock

Outstanding share-based compensation awards

In March 2019, the Company entered into a note purchase agreement pursuant to which it sold and issued an aggregate of $39.6 million of convertible notes payable (the “2019 Notes”).

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Revolving Line

In May 2019, the Company entered into a loan and security agreement with Pacific Western Bank (the “Pacific Western Loan Agreement”) pursuant to which the Company may request advances on a revolving line of credit of up to an aggregate principal of $50.0 million (the “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 the Company maintains a daily balance of cash in its demand deposit accounts at Pacific Western Bank 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 the Company does not maintain a daily balance of cash in demand deposit accounts at Pacific Western Bank of at least $25.0 million.

The Pacific Western Loan Agreement requires that the Company 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 the Company maintains a daily balance in its demand deposit accounts of at least $25.0 million.

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

The Company granted Pacific Western Bank a security interest in substantially all of its 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.

The Company is prohibited from paying cash dividends without the prior written consent of Pacific Western Bank.

The Pacific Western Loan Agreement includes customary representations, warranties and covenants (affirmative and negative) and was amended 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.

There were no borrowings, and the Company was in compliance with its financial covenants, under the Pacific Western Loan Agreement as of December 31, 2019.

The Company recorded no income tax expense due to the operating losses incurred for the years ended December 31, 2019 and December 31, 2018.

On June 23, 2020, the Company and Pacific Western Bank (“Bank”) entered into the Third Amendment to Loan and Security Agreement to the revolving line of credit agreement dated as of May 15, 2019 (as amended, the “Pacific Western Loan”).

The aggregate availability under the Pacific Western Loan is $30.0 million.

The Pacific Western Loan matures on June 23, 2023 as a result of the events discussed in Note 14, Subsequent Events.

All outstanding principal amounts are due on the maturity date.

The Company must also maintain an aggregate balance of unrestricted cash at Bank (not including amounts in certain specified accounts) equal to or greater than $10.0 million.

The interest rate under the Pacific Western Loan is a variable annual rate equal to the greater of (a) 2.75% above the Prime Rate (as defined in the Pacific Western Loan), or (b) 6.00%.

There have been no borrowings under the Pacific Western Loan as of the date of this Annual Report on Form 10-K.

The Company was in compliance with its financial covenants under the Pacific Western Loan as of December 31, 2020.

The Company recorded no federal income tax expense and due to the operating losses incurred for the years ended December 31, 2020 and December 31, 2019.

The Company recorded less than $0.1 million and no state income expense for the years ended December 31, 2020 and December 31, 2019, respectively.

Significant components of the Company’s deferred tax assets and deferred tax liabilities are as follows (in thousands):

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Deferred rent

Lease liability

Deferred revenue

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Property and equipment

Right of use asset

Total deferred tax liabilities, noncurrent

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As of December 31, 2020 and December 31, 2019, 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, 2019 of $25.0 million is comprised of an increase in deferred tax assets, primarily related to deferred revenue and net operating loss carryforwards, for the year.

The net increase in the valuation allowance for the year ended December 31, 2020 of $31.5 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 carryforwards for the year.

The reasons for the difference between actual income tax benefit for the years ended December 31, 2020 and December 31, 2019 and the amount computed by applying the statutory federal income tax rate to losses before income tax benefit are as follows (in thousands):

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R&D and orphan drug credits

Change in state tax rate

Change in valuation allowance

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As of December 31, 2020, the Company had federal, state, and foreign net operating loss (“NOL”) carryforwards of approximately $172.7 million, $116.5 million, and $0.6 million respectively.

At December 31, 2018, the Company had federal and state NOL carryforwards of approximately $40 million and $39.8 million, respectively.

As of December 31, 2019, the Company had federal, state, and foreign NOL carryforwards of approximately $101.3 million, $101.7 million, and $0.4 million, respectively.

Federal NOL carryforwards of $19.7 million begin to expire in 2030 while the remaining federal NOL carryforward of $153.0 million carries forward indefinitely.

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At December 31, 2019, the Company had federal and state tax R&D credits of $7.2 million and an amount less than $0.1 million which begin to expire in 2027 and 2030, respectively.

At December 31, 2019 and December 31, 2018, the Company had federal Orphan Drug credits of $1.8 million and $0.7 million, respectively, which begin to expire in 2038.

At December 31, 2019 and December 31, 2018, the Company had federal contribution carryforwards of $0.1 million and an amount less than $0.1 million, respectively, which begin to expire in 2020.

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

At December 31, 2020 and December 31, 2019, the Company had federal contribution carryforwards of $0.2 million and $0.1 million, respectively, which begin to expire in 2021.

The Company incorporated a subsidiary in Australia in 2018.

However, the subsidiary has had minimal losses since inception.

As such, there are no undistributed earnings as of December 31, 2019.

As such, there are no undistributed earnings as of December 31, 2020 and December 31, 2019.

The Company incorporated a subsidiary in the United Kingdom in 2019.

However, the subsidiary has had minimal activity since inception.

As such, there are no undistributed earnings as of December 31, 2019.

As such, there are no undistributed earnings as of December 31, 2020 and December 31, 2019.

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.

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As of December 31, 2020 and December 31, 2019, 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.

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, 2020 and December 31, 2019 , the Company had no such accruals.

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Investments in repurchase agreements are classified within Level 2 as these instruments are valued using observable market inputs including reported trades, broker/dealer quotes, bids and/or offers.

As of December 31, 2019 and December 31, 2018, 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, 2020, the Company held an insignificant amount of cash equivalents.

As of December 31, 2019, the Company held cash equivalents which were 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.

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

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This agreement establishes a collaboration between the Company and Servier to develop allogeneic chimeric antigen receptor T (“CAR T”) cell therapies for up to six unique antigen targets selected by Servier.

Servier selected one target at the agreement’s inception.

Servier is required to make a milestone payment to the Company upon achievement of an early-stage pre- investigational new drug application (“IND”) development milestone event completed for each of the remaining five targets selected, if any.

The Company granted Servier a development license and will perform early-stage R&D on the selected targets and develop the resulting therapeutic product candidates through Phase 1 clinical trials and manufacture clinical trial material for use in Phase 2 clinical trials.

Servier selected one target at the agreement’s inception and, in 2020, selected two additional hematological cancer targets beyond CD19 and two new solid tumor targets.

for use in Phase 2 clinical trials.

Also, the Company and Servier have formed a joint steering committee (“JSC”) to provide high-level oversight and decision making regarding the activities covered under the agreement .

The Company received an upfront payment of $105.0 million under the agreement.

The Company received an upfront payment of $105.0 million under the agreement in 2016.

At the Phase 2 readiness stage for any product candidate, Servier may exercise a commercial option, subject to payment of commercial option exercise fees, to proceed with development and commercialization of the product candidate and perform late-stage R&D, including Phase 2 and Phase 3 clinical trials and obtaining regulatory approvals.

The Company has the ability to receive total payments, in the aggregate across all six targets that may be selected by Servier, of up to approximately $1.6 billion, including the upfront payment of $105.0 million and 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.

The Company has the ability to receive total payments, in the aggregate across all five targets selected by Servier, of up to approximately $1.4 billion, including the upfront payment of $105.0 million and 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.

The Company is also entitled to receive tiered royalties ranging from the mid-single digit percentages to the sub-teen percentages on worldwide net sales of any products developed, subject to customary potential reductions.

The Company also has the right to opt in and participate in the development and commercialization of any products resulting from the collaboration through a 50/50 codevelopment and co-promotion option in the United States.

This will require the Company to pay a codevelopment and co-promotion option fee on each licensed product for which the Company elects to participate.

The Company also has the right to opt in and participate in the development and commercialization of any products resulting from the collaboration through a 50/50 co-development and co-promotion option in the United States.

This will require the Company to pay a co-development and co-promotion option fee on each licensed product for which the Company elects to participate.

This option is exercisable at the Phase 2 readiness stage and only after Servier exercises its commercial option.

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 six targets are not distinct because they are all based on the ARCUS proprietary genome editing platform.

The Company has determined that the promises associated with the research and development activities for each of the five targets are not distinct because they are all based on the ARCUS proprietary genome editing platform.

The Company has concluded that the agreement with Servier contains the following promises:

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The commercial option exercise fees that may be received are excluded from the transaction price until each customer option is exercised as it was determined that the options are not material rights.

The potential development milestone payments that the Company is eligible to receive prior to the exercise of the options as well as commercial milestones, were excluded from the transaction price, as all milestone amounts were fully constrained based on the probability of achievement, since the milestones relate to successful achievement of certain developmental goals, which might not be achieved.

The potential development milestone payments that the Company is eligible to receive prior to the exercise of the options as well as commercial milestones, were excluded from the transaction price at the outset of the arrangement, as all milestone amounts were fully constrained based on the probability of achievement, since the milestones relate to successful achievement of certain developmental goals, which might not be achieved.

None of the future royalty payments were included in the transaction price, as the potential payments represent sales-based consideration.

The Company will reevaluate the transaction price, including all constrained amounts, at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur, and, if necessary, adjust its estimate of the transaction price.

The Company recognizes revenue from the upfront payment of $105.0 million based 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.

The Company recognizes revenue from the upfront payment of $105.0 million and variable consideration related to development milestones achieved 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 accomplishments and the probability of continuing research efforts in the future.

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.

The remaining performance obligation associated with the $105.0 million upfront payment is expected to be satisfied over a four year period as of December 31, 2019.

The remaining performance obligation is expected to be satisfied over approximately a five year period as of December 31, 2020.

During the years ended December 31, 2020 and December 31, 2019, the Company recognized revenue under the agreement with Servier of approximately $18.0 million and $7.3 million, respectively.

Deferred revenue related to the agreement with Servier amounted to $82.9 million and $80.9 million as of December 31, 2020 and December 31, 2019, respectively, of which $28.9 million and $15.0 million, respectively, is included in current liabilities.

No development or sales-based milestone payments were received during the year ended December 31, 2019 and December 31, 2018.

Collaboration and License Agreement with Gilead

On September 10, 2018, the Company and Gilead Sciences, Inc.

(“Gilead”) entered into a collaboration and license agreement to develop genome editing tools to target viral DNA associated with Hepatitis B.

Pursuant to the terms of the agreement, Gilead will receive an exclusive license to exploit the resulting synthetic nucleases and products that use them to treat Hepatitis B in humans (“development license”), and the Company is entitled to receive up to $40.0 million in research funding for early-stage R&D services, paid in semi-annual increments, over an initial three year term and development and commercial 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.

The Company is 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.

Gilead is responsible for obtaining regulatory approvals and, upon completion of the collaboration, will assume sole responsibility for the development and commercialization of such gene editing therapies and products.

The Company will provide technology transfer of its development know-how prior to Gilead assuming responsibility.

Also, the Company and Gilead will negotiate a separate supply agreement for the Company to manufacture specifically identified products for Gilead to use in clinical trials at price based on the Company’s costs.

The Company and Gilead have formed a joint steering committee (“JSC”) and a joint research and development committee (“JRDC”) that collectively will provide oversight, decision making and implementation guidance regarding the collaboration activities covered under the agreement.

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 concluded that the agreement with Gilead contains the following promises:

(i) a development license;

(ii) performance of early-stage R&D services, including technology transfer services, iii) JSC and JRDC participation, and (iv) regulatory responsibilities related to non-clinical and chemistry, manufacturing and control (“CMC”) reports.

The Company determined that the license and R&D services were not distinct from each other, as the license and R&D services are highly interdependent upon one another.

Participation on the JSC and JRDC to oversee the research and development activities are combined into the single performance obligation as these activities are highly interdependent with the other R&D services.

The regulatory responsibilities related to non-clinical and CMC filings do not represent separate performance obligations based on their dependence on the research and development efforts.

As such, the Company determined that these promises should be combined into a single performance obligation.

Under the agreement with Gilead, in order to evaluate the appropriate transaction price, the Company determined that the $40.0 million research funding for early-stage R&D services, paid in semi-annual increments over an initial three-year term, constituted the entire consideration to be included in the transaction price as of the outset of the arrangement.

As such, this amount was allocated to the single performance obligation.

The potential development and commercial milestone payments that the Company is eligible to receive were excluded from the transaction price, as all milestone amounts were fully constrained based on the probability of achievement, since the milestones relate to successful achievement of certain developmental goals, which might not be achieved.

None of the future royalty payments were included in the transaction price, as the potential payments represent sales-based consideration.

The Company will reevaluate the transaction price at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur, and, if necessary, adjust its estimate of the transaction price.

Revenue associated with the combined performance obligation is being recognized as revenue on a straight-line basis as the R&D services are provided over the initial three-year term.

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, 2019 and December 31, 2018, the Company recognized revenue under the agreement with Gilead of approximately $13.3 million and $3.7 million, respectively.

Deferred revenue related to the agreement with Gilead amounted to $1.5 million and $2.3 million as of December 31, 2019 and December 31, 2018, respectively, all of which is included in current liabilities.

No development or sales-based milestone payments were received during the year ended December 31, 2019.

Research, Collaboration and License Agreement with the Trustees of the University of Pennsylvania

On January 1, 2018, the Company entered into a Research, Collaboration and License Agreement with the University of Pennsylvania (“Penn”) to collaborate on the preclinical development for gene editing products involving the delivery of an ARCUS nuclease.

The Company will provide semi-annual research funding payments of up to $5.0 million for a three-year term to fund the cost of research programs as specified in a mutually agreed-upon research budget and be responsible for post-IND enabling study development activities.

The research funding payments will be expensed as incurred;

however, if payments made by the Company exceed the costs incurred by Penn in the six-month period, the excess amount will be credited to the Company in the next semi-annual period.

In addition to the research funding payments, if the Company elects to use certain Penn technology, the Company will be required to make development and sales milestone payments totaling up to $16.1 million per product in any one year, assuming the maximum development and sales milestones are met in any one year.

An additional $12.3 million per product in sales milestone payments could be payable in other years if other sales thresholds are achieved, thus totaling $28.4 million in aggregate milestone payments per product.

Low single-digit royalty percentages are also payable on net sales of certain products.

Penn provided the Company a non-exclusive license for patent rights and know-how to be used in exchange for an upfront payment of $0.3 million.

Once the Company has paid $15.0 million in research funding, it then has the option to pay a $1.0 million option fee to obtain a license for additional patent rights.

In October 2019, both parties agreed to adjust the activities conducted under the agreement to focus exclusively on the collaboration’s program to edit the PCSK9 gene to reduce levels of LDL-C in the blood, commonly known as “bad cholesterol”.

The agreement’s termination provisions allow the Company to terminate the agreement by providing written notice at least 60 days prior to the due date of the next semi-annual research funding payment.

In this event, the Company would not make termination payments to Penn other than for non-cancelable costs and reasonable wind-down costs.

On July 6, 2020 (the “Termination Notice Date”), Gilead Sciences (“Gilead”) notified the Company of its termination of the Collaboration and License Agreement between Gilead and the Company, dated September 10, 2018, as subsequently amended by Amendment No.

1 to the Collaboration and License Agreement, dated March 10, 2020 (as amended, the “Gilead Agreement”).

Pursuant to the termination notice, the Gilead Agreement terminated on September 4, 2020, upon which the Company regained full

rights and all data it generated for the in vivo chronic hepatitis B virus (“HBV”) program developed under the Gilead Agreement.

The Company is exploring partnership or alternative opportunities to enable the continued development of ARCUS-based HBV therapies, the progression toward the submission of an IND for this product candidate and the reassessment of the timing of such IND submission.

Revenue associated with the combined performance obligation was recognized on a straight-line basis as the R&D services were provided through the Termination Notice Date.

During the years ended December 31, 2020 and 2019, the Company recognized revenue under the Gilead Agreement of approximately $3.9 million and $13.3 million, respectively.

The Company did not have deferred revenue related to the Gilead Agreement as of December 31, 2020.

Deferred revenue was $1.5 million as of December 31, 2019.

No development or sales-based milestone payments were received during the twelve months ended December 31, 2020.

SEGMENT REPORTING

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

For the year ended December 31, 2018, the Company 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.

The Company has determined that the Food segment is no longer deriving benefit from the Company’s centralized research and development expenditures, thus all these expenditures are 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 Company previously 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 and presented such allocated expenditures separately from segment operational cash expenditures.

Beginning January 1, 2020, such allocated expenditures are included within segment operational cash expenditures.

Prior period information was presented consistent with the current period presentation.

In January 2019, the Food segment moved into a new leased facility at Research Triangle Park, North Carolina.

The Company determined that the Food segment is no longer deriving benefit from the Company’s centralized research and development expenditures for early stage research, nuclease development and the purchase of general laboratory supplies and, as such, all these expenditures are allocated to the Therapeutics segment.

Certain reclassifications have been made to the presentation of reportable segments as centralized research and development expenditures are no longer reported separately.

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.

Certain cost items are not allocated to the Company’s reportable segments.

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Presented below is the financial information with respect to the Company’s reportable segments :

Years Ended December 31,

For the Years Ended December 31,

(in thousands)

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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 loss:

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Corporate general and administrative cash expenditures

Interest income received

Interest income received included in segment operating loss

Depreciation and amortization

Amortization of right-of-use asset

Share-based compensation

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Total consolidated loss from operations

Subsequent Events

Closing of Development and License Agreement and Stock Purchase Agreement with Eli Lilly and Company

On January 6, 2021, the Company and Eli Lilly and Company (“Lilly”) closed their previously announced Development and License Agreement (“the Development and License Agreement”) following clearance under the Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”) and completed the transactions under their previously announced Stock Purchase Agreement (the “Stock Purchase Agreement”).

In connection with the closing, the Company received an upfront cash payment of $100.0 million pursuant to the Development and License Agreement and received $35.0 million from Lilly’s purchase of 3,762,190 newly issued shares of the Company’s common stock pursuant to the Stock Purchase Agreement.

Under the Development and License Agreement, the Company will collaborate with Lilly to discover and develop in vivo gene editing products incorporating the Company’s ARCUS nucleases.

Lilly has initially nominated Duchenne muscular dystrophy 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 the Company 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 the Company for additional clinical and/or initial commercial manufacture of licensed products.

Pursuant to the Development and License Agreement, 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 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.

No revenue was recognized under the Development and License agreement in the twelve months ended December 31 , 2020.

As a result of the closing of the Development and License Agreement in January 2021, we will be required to make payments under the Duke License of $3.0 million in 2021, net of any outstanding credits.

Extension of Maturity date of Revolving Line with Pacific Western bank

Pursuant to the terms of the Pacific Western Loan regarding the Company receiving cash from the issuance of the Company’s equity securities and/or from strategic partnerships, the maturity date of the Revolving Line was extended from June 23, 2022 to June 23, 2023 as a result of the proceeds received from Lilly in connection with the closing of the Development and License Agreement and Stock Purchase Agreement in January 2021.

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 9A. Controls and Procedures