PRECISION BIOSCIENCES INC 10-K

Item 9A. Controls and Procedures. Limitations on Effectiveness of Controls and Procedures In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. Evaluation of disclosure controls and procedures Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this Annual Report on Form 10-K, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2021. 109 Management’s annual report on internal control over financial reporting Our management, with the participation of our principal executive officer and our principal financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our management conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in “Internal Control–Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that, as of December 31, 2021, our internal control over financial reporting was effective. Attestation Report of the Registered Public Accounting Firm Our independent registered accounting firm will not be required to opine on the effectiveness of our internal control over financial reporting pursuant to Section 404 of Sarbanes-Oxley Act of 2002 until we are no longer an “emerging growth company” as defined in the JOBS Act. Changes in internal control over financial reporting There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information. None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. None. 110 PART III Item 10. Directors, Executive Officers and Corporate Governance. The information required by this item will be included in our definitive proxy statement (or the “2022 Proxy Statement”) to be filed with the SEC within 120 days of the end of our fiscal year covered by this Annual Report on Form 10-K and is incorporated herein by reference. Item 11. Executive Compensation. The information required by this item will be included in our 2022 Proxy Statement to be filed with the SEC within 120 days of the end of our fiscal year covered by this Annual Report on Form 10-K and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information required by this item will be included in our 2022 Proxy Statement to be filed with the SEC within 120 days of the end of our fiscal year covered by this Annual Report on Form 10-K and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence. The information required by this item will be included in our 2022 Proxy Statement to be filed with the SEC within 120 days of the end of our fiscal year covered by this Annual Report on Form 10-K and is incorporated herein by reference. Item 14. Principal Accountant Fees and Services. The information required by this item will be included in our 2022 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. 111 PART IV Item 15. Exhibits and Financial Statement Schedules. (a)(1) Financial Statements The following documents are included on pages F-1 through F-26 attached hereto and are filed as part of this Annual Report on Form 10-K. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB ID: 34) F-1 Consolidated Balance Sheets as of December 31, 2021 and December 31, 2020 F-2 Consolidated Statements of Operations for the Years Ended December 31, 2021 and December 31, 2020 F-3 Consolidated Statements of C hanges in Stockholders’ Equity for the Years Ended December 31, 2021 and December 31, 2020 F-4 Consolidated Statements of Cash Flows for the Years Ended December 31, 2021 and December 31, 2020 F-5 Notes to Consolidated Financial Statements F-6 (a)(2) Financial Statement Schedules All financial statement schedules have been omitted because they are not applicable, not required or the information required is shown in the financial statements or the notes thereto. (a)(3) Exhibits The following is a list of exhibits filed, furnished or incorporated by reference as part of this Annual Report on Form 10-K. 112 Exhibit Index Exhibit Number Description Form File No. Exhibit Filing Date Filed Herewith 3.1 Amended and Restated Certificate of Incorporation of Precision BioSciences, Inc. 8‑K 001‑38841 3.1 4/1/2019 3.2 Amended and Restated Bylaws of Precision BioSciences, Inc. 10-Q 001‑38841 3.2 11/10/2020 4.1 Specimen Common Stock Certificate S‑1/A 333‑230034 4.1 3/18/2019 4.2 Amended and Restated Investors’ Rights Agreement among Precision BioSciences, Inc. and certain of its stockholders and the holders of the 2019 Notes, dated May 25, 2018, as amended S‑1/A 333‑230034 4.2 3/18/2019 4.3 Amendment No. 2, dated February 3, 2020, to the Amended and Restated Investors’ Rights Agreement among Precision BioSciences, Inc. and certain of its stockholders and the holders of the 2019 Notes, dated May 25, 2018, as amended 8‑K 001-38841 10.1 2/6/2020 4.4 Form of Indenture. S-3 333-238857 4.3 6/1/2020 4.5 Description of the Registrant's Securities * 10.1 †† Loan and Security Agreement, dated May 15, 2019, among Precision BioSciences, Inc., Elo Life Systems, Inc. and Pacific Western Bank, as amended * 10.2 † Development and Commercial License Agreement by and between Les Laboratoires Servier and Precision BioSciences, Inc., dated February 24, 2016, as amended S‑1 333‑230034 10.1 3/1/2019 10.3 †† Amendment No. 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 10‑Q 001‑38841 10.2 11/12/2019 10.4 †† 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 10-Q 001-38841 10.2 11/10/2020 10.5 †† Program Purchase Agreement by and among Les Laboratoires Servier, Institut de Recherches Internationales Servier, and Precision BioSciences, Inc., dated April 9, 2021 10-Q 001-38841 10.1 5/13/2021 10.6 †† Development and License Agreement between Eli Lilly and Company and Precision BioSciences, Inc., dated November 19, 2020 10-K 001-38841 10.5 3/18/2021 10.7 †† First Amendment to Development and License Agreement between Precision BioSciences, Inc. and Eli Lilly and Company, dated August 9, 2021 10-Q 001-38841 10.2 11/10/21 10.8 Stock Purchase Agreement between Eli Lilly and Company and Precision BioSciences, Inc., dated November 19, 2020 10-K 001-38841 10.6 3/18/2021 10.9 † License Agreement by and between Duke University and Precision BioSciences, Inc., dated April 17, 2006, as amended S‑1 333‑230034 10.2 3/1/2019 10.10 † Patent Cross‑License Agreement by and between Cellectis SA and Precision BioSciences, Inc., dated January 23, 2014 S‑1 333‑230034 10.3 3/1/2019 10.11 Lease Agreement between Precision BioSciences, Inc. and Venable Tenant, LLC, dated April 5, 2010, as amended 10-K 001-38841 10.9 3/18/2021 10.12 Lease Agreement between Precision BioSciences, Inc. and Durham TW Alexander, LLC, dated October 2, 2018, as amended * 113 Exhibit Number Description Form File No. Exhibit Filing Date Filed Herewith 10. 1 3 # 2006 Stock Incentive Plan, as amended, and form of award agreements thereunder S‑1 333‑230034 10.8 3/1/2019 10.14 # 2015 Stock Incentive Plan, as amended, and form of award agreements thereunder S‑1 333‑230034 10.9 3/1/2019 10.15 # 2019 Incentive Award Plan, and forms of award agreements thereunder 10-K 001-38841 10.14 3/18/2021 10.16 # 2019 Employee Stock Purchase Plan S‑1/A 333‑230034 10.11 3/18/2019 10.17 # 2021 Employment Inducement Incentive Award Plan and form of award agreements thereunder S-8 333-259369 99.3 9/7/2021 10.18 # Amended and Restated Executive Employment Agreement between Precision BioSciences, Inc. and Derek Jantz, dated February 27, 2019 S‑1/A 333‑230034 10.13 3/18/2019 10.19 # Executive Employment Agreement between Precision BioSciences, Inc. and Dario Scimeca dated April 11, 2019 10-K 001-38841 10.22 3/10/2020 10.20 # Form of Indemnification Agreement between Precision BioSciences, Inc. and its directors and officers S‑1A 333‑230034 10.17 3/18/2019 10.21 # Non‑Employee Director Compensation Plan (as amended) 10-Q 001-38841 10.4 5/13/2021 10.22# Transition and Separation Agreement between Precision BioSciences, Inc. and Matthew Kane, dated April 5, 2021 8-K 001-38841 10.1 4/6/2021 10.23# Executive Employment Agreement between Precision BioSciences, Inc. and Dr. Alan List, dated April 26, 2021 10-Q 001-38841 10.2 5/13/2021 10.24# Consulting Agreement between Precision BioSciences, Inc. and Dr. Chris Heery, dated April 23, 2021 10-Q 001-38841 10.3 5/13/2021 10.25# Amended and Restated Executive Employment Agreement between Precision BioSciences, Inc. and Alex Kelly, dated May 27, 2021 10-Q 001-38841 10.5 8/12/2021 10.26# Executive Employment Agreement, dated September 18, 2021, by and between Michael Amoroso and Precision Biosciences, Inc 8-K 001-38841 10.1 9/27/2021 10.27# Consulting Agreement between Precision BioSciences, Inc. and Dr. David Thomson, dated July 2, 2021. 10-Q 001-38841 10.4 11/10/2021 21.1 Subsidiaries of Precision BioSciences, Inc. * 23.1 Consent of Deloitte & Touche LLP * 31.1 Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. * 31.2 Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. * 32.1 Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ** 32.2 Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ** 114 Exhibit Number Description Form File No. Exhibit Filing Date Filed Herewith 101.INS XBRL Instance Document * 101.SCH XBRL Taxonomy Extension Schema Document * 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document * 101.DEF XBRL Taxonomy Extension Definition Linkbase Document * 101.LAB XBRL Taxonomy Extension Label Linkbase Document * 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document * 104 Cover Page Interactive Data File (as formatted as Inline XBRL and contained in Exhibit 101) * * Filed herewith ** Furnished herewith † Confidential treatment of certain provisions has been granted by the SEC pursuant to Rule 406 under the Securities Act of 1933, as amended. †† Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K. # Denotes a management contract or compensatory plan or arrangement Item 16. Form 10-K Summary. None. 115 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized . Precision BioSciences, Inc. Date: March 15, 2022 By: /s/ Michael Amoroso Michael Amoroso President, Chief Executive Officer and Director (principal executive office and authorized signatory) Date: March 15, 2022 By: /s/ John Alexander Kelly John Alexander Kelly Chief Financial Officer (principal financial officer) 116 Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. Name Title Date /s/ Michael Amoroso President, Chief Executive Officer and Director ( principal executive officer ) March 15, 2022 Michael Amoroso /s/ John Alexander Kelly Chief Financial Officer ( principal financial officer ) March 15, 2022 John Alexander Kelly /s/ Shane Barton Vice President and Corporate Controller ( principal accounting officer) March 15, 2022 Shane Barton /s/ Derek Jantz Chief Scientific Officer and Director March 15, 2022 Derek Jantz, Ph.D. /s/ Raymond Schinazi Director March 15, 2022 Raymond Schinazi, Ph.D., DSc /s/ Shalini Sharp Director March 15, 2022 Shalini Sharp /s/ Kevin Buehler Director March 15, 2022 Kevin Buehler /s/ Geno Germano Director March 15, 2022 Geno Germano /s/ Stanley Frankel Director March 15, 2022 Stanley Frankel, M.D. /s/ Shari Lisa Pir é Director March 15, 2022 Shari Lisa Pir é, J.D. /s/ Sam Wadsworth Director March 15, 2022 Sam Wadsworth, Ph.D. 117 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of Precision BioSciences, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Precision BioSciences, Inc. and subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of operations, changes in stockholders’ equity, and cash flows, for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Deloitte & Touche LLP Raleigh, North Carolina March 15, 2022 We have served as the Company's auditor since 2017. F-1 PART I. FINANCIAL INFORMATION Item 1. Financial Statements. PRECISION BIOSCIENCES, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) December 31, 2021 December 31, 2020 Assets Current assets: Cash and cash equivalents $ 143,663 $ 89,798 Accounts receivable 488 10,000 Prepaid expenses 17,434 5,762 Other current assets 169 4 Total current assets 161,754 105,564 Property, equipment, and software—net 25,154 35,090 Intangible assets—net 2,048 1,373 Right-of-use assets—net 4,180 6,410 Investment in equity securities 3,091 — Equity method investments 3,751 — Note receivable—net 6,879 — Other assets 4,641 1,721 Total assets $ 211,498 $ 150,158 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 1,144 $ 792 Accrued compensation 6,765 5,745 Accrued clinical research and development expenses 4,028 3,269 Deferred revenue 21,244 30,236 Lease liabilities 1,822 1,933 Other current liabilities 977 854 Total current liabilities 35,980 42,829 Deferred revenue 67,015 53,926 Lease liabilities 4,813 8,586 Long term debt—net 2,478 — Contract liabilities 10,000 — Other noncurrent liabilities 44 392 Total liabilities 120,330 105,733 Stockholders’ equity: Preferred stock, $ 0.0001 par value— 10,000,000 shares authorized as of December 31, 2021 and December 31, 2020; no shares issued and outstanding as of December 31, 2021 and December 31, 2020 — — Common stock; $ 0.000005 par value— 200,000,000 shares authorized, 61,712,577 shares issued and 60,902,105 shares outstanding as of December 31, 2021; 53,503,124 shares issued and 52,692,652 shares outstanding as of December 31, 2020 — — Additional paid-in capital 408,795 331,450 Accumulated deficit ( 316,675 ) ( 286,073 ) Treasury stock ( 952 ) ( 952 ) Total stockholders’ equity 91,168 44,425 Total liabilities and stockholders’ equity $ 211,498 $ 150,158 See notes to consolidated financial statements F-2 PRECISION BIOSCIENCES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share amounts) For the Years Ended December 31, 2021 2020 Revenue $ 115,529 $ 24,285 Operating expenses Research and development 115,238 98,061 General and administrative 39,693 36,052 Total operating expenses 154,931 134,113 Loss from operations ( 39,402 ) ( 109,828 ) Other income (expense), net: Gain on changes in fair value 2,555 — Gain on deconsolidation of subsidiary 5,985 — Income from equity method investments 184 — Interest expense ( 132 ) — Interest income 208 822 Total other income (expense), net 8,800 822 Net loss and net loss attributable to common stockholders $ ( 30,602 ) $ ( 109,006 ) Net loss per share attributable to common stockholders- basic and diluted $ ( 0.52 ) $ ( 2.09 ) Weighted average shares of common stock outstanding- basic and diluted 58,688,102 52,031,740 See notes to consolidated financial statements F-3 PRECISION BIOSCIENCES, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (In thousands, except share amounts) Common Stock Additional Paid-In Accumulated Treasury Total Stockholder's Shares Amount Capital Deficit Stock Equity Balance- January 1, 2020 51,965,708 $ — $ 316,333 $ ( 177,067 ) $ ( 952 ) $ 138,314 Stock option exercises 1,411,188 — 691 — — $ 691 Issuance of common stock under employee stock purchase plan 126,228 — 640 — — $ 640 Share-based compensation expense — — 13,786 — — $ 13,786 Net loss — — — ( 109,006 ) — $ ( 109,006 ) Balance- December 31, 2020 53,503,124 — 331,450 ( 286,073 ) ( 952 ) 44,425 Stock option exercises 1,997,700 — 6,783 — — 6,783 Issuance of common stock under employee stock purchase plan 126,887 — 804 — — 804 Share-based compensation expense — — 16,514 — — 16,514 Issuance of common stock to collaboration partners 3,762,190 — 27,739 — — 27,739 Proceeds from issuance of common stock, net of issuance cost 2,322,676 — 25,505 — — 25,505 Net loss — — — ( 30,602 ) — ( 30,602 ) Balance- December 31, 2021 61,712,577 $ — $ 408,795 $ ( 316,675 ) $ ( 952 ) $ 91,168 See notes to consolidated financial statements F-4 PRECISION BIOSCIENCES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) For the Years Ended December 31, 2021 2020 Cash flows from operating activities: Net loss $ ( 30,602 ) $ ( 109,006 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 8,981 8,777 Share-based compensation 16,514 13,786 Loss on disposal of assets 26 35 Non-cash interest expense 59 — Amortization of right-of-use assets 1,216 1,036 Non-cash consideration received from collaboration partners ( 17,894 ) — Gain on changes in fair value ( 2,555 ) — Gain on deconsolidation of subsidiary ( 5,985 ) — Income from equity method investments ( 184 ) — Amortization of discount on note receivable ( 13 ) — Changes in operating assets and liabilities: Prepaid expenses 5,616 3,735 Accounts receivable 9,512 ( 9,035 ) Other assets and other current assets ( 2,734 ) 2,194 Accounts payable 867 ( 1,455 ) Other liabilities and other current liabilities 1,423 2,475 Deferred revenue ( 3,164 ) 1,781 Lease liabilities and right-of-use assets ( 1,936 ) ( 1,709 ) Contract liabilities 10,000 — Net cash used in operating activities ( 10,853 ) ( 87,386 ) Cash flows from investing activities: Purchases of property, equipment and software ( 5,053 ) ( 5,031 ) Purchases of intangibles assets ( 750 ) — Net cash used in investing activities ( 5,803 ) ( 5,031 ) Cash flows from financing activities: Proceeds from stock option exercises 6,783 689 Proceeds from employee stock purchase plan 804 640 Proceeds from issuance of common stock to collaboration partners 35,000 — Proceeds from offering of common stock, net of issuance costs 25,477 — Proceeds from issuance of term loan, net of issuance costs paid to lender 2,465 — Debt issuance costs ( 13 ) — Payment of term loan ( 2,500 ) — Borrowings from revolving credit facility 2,505 — Net cash provided by financing activities 70,521 1,329 Net increase (decrease) in cash and cash equivalents 53,865 ( 91,088 ) Cash and cash equivalents—beginning of period 89,798 180,886 Cash and cash equivalents —end of period $ 143,663 $ 89,798 Supplemental disclosures of noncash financing and investing activities: Property, equipment and software additions included in accounts payable, accrued expenses and other current liabilities $ 103 $ 665 Unsettled at-the-market issuances of common stock included in other current assets $ 37 $ — Contract liability accrual related to Servier Program Purchase Agreement milestones $ 10,000 $ — Non-cash consideration received from collaboration partners $ 17,894 $ — See notes to consolidated financial statements F-5 Precision BioSciences, Inc. Notes to Consolidated Financial Statements NOTE 1: DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business Precision BioSciences, Inc. (the “Company”) was incorporated on January 26, 2006 under the laws of the State of Delaware and is based in Durham, North Carolina. The Company is a clinical stage gene editing company dedicated to improving life by developing ex vivo allogeneic CAR T immunotherapies and in vivo therapies for genetic and infectious diseases with the application of the Company’s wholly owned proprietary ARCUS genome editing platform. The Company’s 100 % owned subsidiary, Precision PlantSciences, Inc., was incorporated on January 4, 2012 . Precision PlantSciences, Inc. amended its certificate of incorporation on January 16, 2018 to change its name to Elo Life Systems, Inc. In December 2021, the Company entered into an agreement with a syndicate of investors, pursuant to which the Company contributed substantially all of the assets of Elo Life Systems, Inc. to New Elo. In connection with the Elo Transaction, Elo Life Systems, Inc. amended its certificate of incorporation on December 21, 2021 to change its name back to Precision PlantSciences, Inc. in order to permit a newly formed entity (“New Elo”) to change its name to Elo Life Systems, Inc. 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 subsidiary. Intercompany balances and transactions have been eliminated in consolidation. Since its inception, the Company has devoted substantially all of its efforts to research and development activities, recruiting skilled personnel, developing manufacturing processes, establishing its intellectual property portfolio and providing general and administrative support for these operations. The Company is subject to a number of risks similar to those of other companies conducting high-risk, early-stage research and development of product candidates. Principal among these risks are dependence on key individuals and intellectual property, competition from other products and companies, and the technical risks associated with the successful research, development and clinical manufacturing of its product candidates. The Company’s success is dependent upon its ability to continue to raise additional capital in order to fund ongoing research and development, obtain regulatory approval of its products, successfully commercialize its products, generate revenue, meet its obligations, and, ultimately, attain profitable operations. Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and disclosures made in the accompanying notes to the consolidated financial statements. Actual results could differ from those estimates. Significant estimates include recording revenue for performance obligations recognized over time, determination of the fair value of share-based compensation grants and estimating services expended by third-party service providers used to recognize research and development expense. Basis of Presentation These financial statements have been prepared in accordance with GAAP. Additionally, the accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of December 31, 2021, the Company has not generated any revenue from product sales and does not expect to generate any revenue from the sale of product in the foreseeable future. During the year ended December 31, 2021, the Company incurred a net loss of $ 30.6 million and, as of December 31, 2021, has an accumulated deficit of $ 316.7 million. The Company has financed its operations primarily through proceeds from upfront and milestone payments from collaboration and licensing agreements, the Company’s IPO, private placements of convertible preferred stock and convertible debt financings, at-the-market offerings of common stock, and borrowings on credit facilities. The Company expects to incur additional operating losses and negative operating cash flows for the foreseeable future. Management believes that, as of the date of this Annual Report on Form 10-K, existing cash and cash equivalents, expected operational receipts and available credit will allow the Company to fund its operating expense and capital expenditure requirements into mid-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. Summary of Significant Accounting Policies Cash and Cash Equivalents F-6 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, 2021 and December 31, 2020 , the Company held an insignificant amount of cash equivalents. Concentrations of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and notes receivable. All of the Company’s cash and cash equivalents are held at financial institutions that management believes to be of high credit quality. The Company may maintain cash deposits in financial institutions in excess of government insured limits. The Company regularly invests excess cash deposits in money market funds and repurchase agreements. The Company believes that the credit risk arising from the holdings of these financial instruments is mitigated by the fact that these securities are of short duration, government backed and of high credit rating. The Company has not experienced any losses on cash and cash equivalents to date. Revenue from Lilly and Servier accounted for 18 % and 63 % of revenue during 2021, respectively. Revenue from Gilead and Servier accounted for 16 % and 74 % of revenue during 2020, respectively. Lilly accounted for 100 % of deferred revenue as of December 31, 2021. Property, Equipment and Software Property, equipment and software are stated at cost, net of depreciation and amortization. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets ranging from three to seven years. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or estimated useful life of the asset. The depreciation and amortization periods for the Company’s significant property, equipment and software categories are as follows: Laboratory equipment 5 to 7 years Furniture and fixtures and office equipment 3 to 5 years Leasehold improvements Lesser of remaining lease term or useful life Repairs and maintenance are charged to operations as incurred, and expenditures for additions and improvements that extend the useful life of the asset are capitalized. Intangible Assets Intangible assets primarily include licenses and patents. The Company capitalizes license fees paid to acquire access to proprietary technology if the technology is expected to have alternative future use in multiple research and development projects. The cost of licensed technology rights is amortized using the straight-line method over the estimated useful life of the technology. If the access to use the technology rights is one year or less, the cost is recorded as a prepaid expense and amortized over the period identified in the agreement. Amortization expense for licensed technology and capitalized patent costs is included in research and development expenses within the accompanying consolidated statement of operations. Impairment of Long-Lived Assets Long-lived assets, such as property, equipment and software and intangible assets, subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is assessed when future undiscounted cash flows are less than the assets’ carrying value and recognized when the carrying value of the asset exceeds fair value. Fair value is calculated by estimating the discounted future cash flows expected to be generated by the asset as well as other valuation techniques. An impairment charge is recognized for the amount by which the carrying amount exceeds the fair value of the asset. Fair Value Measurements Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. ASC 820, Fair Value Measurement , establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and F-7 the Company’s assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from our independent sources. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances. The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used to value the assets and liabilities: • Level 1 - Observable inputs based on unadjusted quoted prices in active markets for identical assets or liabilities • Level 2 - Inputs, other than quoted prices in active markets, that are observable either directly or indirectly • Level 3 - Unobservable inputs for which there is little or no market date, which require the Company to develop its own assumptions To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The Company’s cash equivalents are reported at fair value within Level 1 as the prices are available from quoted prices in active markets. The Company’s equity investment in iECURE is reported at fair value within Level 3 as the assessed fair value was based on significant unobservable inputs given iECURE equity is not traded on a public exchange. Investments in Equity Securities The Company carries investments in equity securities for which it does not possess the ability to exercise significant influence or control at fair value in the consolidated balance sheets and records changes in fair value in the consolidated statements of operations as a component of other income or expense. As of December 31, 2021, the Company held common stock in iECURE with a fair value of $ 3.1 million. As of December 31, 2020, the Company did no t hold any investments in equity securities. Investments under the Equity Method The Company utilizes the equity method to account for investments when it is determined that the Company possess the ability to exercise significant influence, but not control, over the operating and financial policies of the investee. The ability to exercise significant influence is presumed when the investor possesses more than 20 % of the voting interests of the investee. This presumption may be overcome based on specific facts and circumstances that demonstrate that the ability to exercise significant influence is restricted. In applying the equity method, the Company will subsequently increase or decrease the carrying amount of the investment by the Company’s proportionate share of the net earnings or losses and other comprehensive income of the investee. In the event that net losses of the investee reduce the carrying amount to zero , additional net losses may be recorded if other investments in the investee are at-risk, even if the Company has not committed to provide financial support to the investee. Such additional equity method losses, if any, are based upon the change in the Company’s claim on the investee’s book value. As of December 31, 2021, the Company accounted for its investment in New Elo under the equity method. The Company will subsequently increase or decrease the carrying amount of the investment in New Elo by the Company’s proportionate share of the net earnings or losses and other comprehensive income of New Elo. Leases 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 F-8 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 The Company’s revenues are generated primarily through collaborative research, license, development and commercialization agreements. ASC 606 applies to all contracts with customers, except for contracts that are within the scope of other standards. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company evaluates the performance obligations promised in the contract that are based on goods and services that will be transferred to the customer and determines whether those obligations are both (i) capable of being distinct and (ii) distinct in the context of the contract. Goods or services that meet these criteria are considered distinct performance obligations. If both these criteria are not met, the goods and services are combined into a single performance obligation. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options. The Company assesses if these options provide a material right to the customer and if so, these options are considered performance obligations. The exercise of a material right is accounted for as a contract modification for accounting purposes. The Company recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) each performance obligation is satisfied at a point in time or over time, and if over time this is based on the use of an output or input method. For the year ended December 31, 2021, the Company recorded cumulative catch up adjustments on its contracts with customers that increased revenue recognition by $ 61.2 million; the cumulative catch-up adjustments resulted from a change in the transaction price related to variable consideration for development milestones as well as changes in total estimated effort required to satisfy performance obligations. During the year ended December 31, 2021, the Company recorded $ 74.2 million in revenue that was included in deferred revenue as of December 31, 2020. Invoices issued as stipulated in contracts prior to revenue recognition are recorded as deferred revenue. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue within current liabilities in the accompanying consolidated balance sheets. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as noncurrent deferred revenue. Amounts recognized as revenue, but not yet invoiced are generally recognized as contract assets in the other current assets line item in the accompanying consolidated balance sheets. Milestone Payments – If an arrangement includes development and regulatory milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the Company’s or the licensee’s control, such as regulatory approvals, are not considered probable of being achieved until those approvals are received and therefore revenue recognized is constrained as management is unable to assert that a reversal of revenue would not be probable. The transaction price is then allocated to each performance obligation on a relative standalone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such development milestones and any related constraint, and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect collaboration revenues and earnings in the period of adjustment. F-9 Royalties – For arrangements that include sales-based royalties, including milestone payments based on a level of sales, which are the result of a customer-vendor relationship and for which the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation linked to some or all of the royalty has been satisfied or partially satisfied. To date, the Company has not recognized any royalty revenue resulting from any of its licensing arrangements. Significant Financing Component – In determining the transaction price, the Company adjusts consideration for the effects of the time value of money if the timing of payments provides the Company with a significant benefit of financing. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the licensees and the transfer of the promised goods or services to the licensees will be one year or less. The Company assessed each of its revenue arrangements in order to determine whether a significant financing component exists and concluded that a significant financing component does not exist in any of its arrangements. Collaborative Arrangements – The Company has entered into collaboration agreements, which are within the scope of ASC 606, to discover, develop, manufacture and commercialize product candidates. The terms of these agreements typically contain multiple promises or obligations, which may include: (1) licenses, or options to obtain licenses, to use the Company’s technology, (2) research and development activities to be performed on behalf of the collaboration partner, and (3) in certain cases, services in connection with the manufacturing of preclinical and clinical material. Payments the Company receives under these arrangements typically include one or more of the following: non-refundable, upfront license fees; option exercise fees; funding of research and/or development efforts; clinical and development, regulatory, and sales milestone payments; and royalties on future product sales. The Company analyzes its collaboration arrangements to assess whether the collaboration agreements are within the scope of accounting standards codification (“ASC”) ASC 808, Collaborative Arrangements (“ASC 808”) to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities. This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For collaboration arrangements within the scope of ASC 808 that contain multiple elements, the Company first determines which elements of the collaboration are deemed to be within the scope of ASC 808 and those that are more reflective of a vendor-customer relationship and, therefore, are within the scope of ASC 606. For elements of collaboration arrangements that are accounted for pursuant to ASC 808, an appropriate recognition method is determined and applied consistently, generally by analogy to ASC 606. For those elements of the arrangement that are accounted for pursuant to ASC 606, the Company applies the five-step model described above. For additional discussion of accounting for collaboration revenues, see Note 13, “Collaboration and License Agreements.” Research and Development Research and development costs are expensed as incurred. Research and development expenses are comprised of costs incurred in performing research and development activities including salaries, benefits, share-based compensation, allocations for rent and facility costs, depreciation, preclinical manufacturing expenses, costs of services provided by CROs in connection with preclinical trials and CMOs engaged to manufacture clinical trial material, costs of licensing technology, and costs of services provided by research organizations and service providers. Upfront payments and milestone payments made for the licensing of technology are expensed as research and development in the period in which they are incurred if the technology is not expected to have any alternative future uses other than the specific research and development project for which it was intended. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed rather than when the payment is made. The Company is required to estimate accrued research and development expenses resulting from its obligations under contracts with CROs, CMOs, research organizations, service providers, vendors and consultants in connection with research and development activities. The financial terms of these contracts are subject to negotiations and vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to the Company under such contracts. The Company’s objective is to reflect the appropriate research and development expenses in its consolidated statements of operations by matching those expenses with the period in which the services and efforts are expended. There may be instances in which payments made to the Company’s vendors will exceed the level of services provided and result in a prepayment of the expense. In accruing fees, the Company estimates the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the Company’s estimate, the Company adjusts the accrual or amount of prepaid expense accordingly. Comprehensive Loss F-10 Comprehensive loss includes net loss as well as other changes in stockholders’ equity that result from transactions and economic events other than those with stockholders. For the years ended December 31, 2021 and December 31, 2020 , there was no difference between net loss and comprehensive loss in the accompanying consolidated statement of operations. Net Loss Per Share Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed using the weighted-average number of shares of common stock outstanding during the period and, if dilutive, the weighted-average number of potential shares of common stock. The Company’s diluted net loss per share is the same as basic net loss per share for the years ended December 31, 2021 and December 31, 2020, 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 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. 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 its traded share price. 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. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future. Income Taxes Deferred tax assets and liabilities are determined based on the temporary differences between the consolidated financial statement carrying amounts and the tax basis of assets and liabilities using the enacted tax rates in effect in the years in which the differences are expected to reverse. In estimating future tax consequences, all expected future events are considered other than the enactment of changes in the tax law or rates. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies. Accounting Standards Updates The Company is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may take advantage of reduced reporting requirements that are otherwise applicable to public companies. Section 107 of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with those standards. The Company has elected to use the extended transition period for complying with new or revised accounting standards. The 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). F-11 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 as of the prior June 30th. Other accounting standards updates issued, but not effective until after December 31, 2021, are not expected to have a material effect on the Company’s consolidated financial position, statements of operations or cash flows. NOTE 2 : PROPERTY, EQUIPMENT AND SOFTWARE Property, equipment and software consisted of the following as of December 31 (in thousands): 2021 2020 Construction in progress $ 3,042 $ 1,894 Leasehold improvements 22,784 26,580 Software 312 394 Laboratory equipment 19,291 21,240 Office equipment 1,371 1,542 Furniture and fixtures 2,268 2,518 Total property, equipment and software 49,068 54,168 Less accumulated depreciation and amortization 23,914 19,078 Property, equipment and software - net $ 25,154 $ 35,090 Depreciation expense, including amortization of leasehold improvements and software, was $ 8.9 million and $ 8.7 million for the years ended December 31, 2021 and December 31, 2020, respectively. NOTE 3 : INTANGIBLE ASSETS Intangible assets, net, consisted of the following as of December 31 (in thousands): 2021 2020 License cost $ 2,581 $ 1,831 Less: accumulated amortization ( 415 ) ( 340 ) Less: impairments ( 118 ) ( 118 ) Intangible assets, net 2,048 1,373 Amortization expense of intangible assets was less than $ 0.1 million for the years ended December 31, 2021 and December 31, 2020. Amortization expense for intangible assets with definite lives will be $ 0.1 million for each of the next five years with the remaining $ 1.5 million amortized to expense in 2027 and beyond. NOTE 4 : STOCKHOLDERS’ EQUITY Capital Structure On April 1, 2019, the Company filed an amendment to its amended and restated certificate of incorporation pursuant to which, among other things, the Company increased its authorized shares to 210,000,000 shares of capital stock, of which 200,000,000 shares were designated as $ 0.000005 par value common stock and 10,000,000 shares were designated as $ 0.0001 par value preferred stock. NOTE 5 : SHARE-BASED COMPENSATION The Company previously granted stock options under its 2006 Stock Incentive Plan (the “2006 Plan”) and its 2015 Stock Incentive Plan (the “2015 Plan”). As of December 31, 2021 there were 3,078,604 stock options outstanding under the 2006 Plan and 2015 Plan and no remaining stock options available to be granted under such plans. F-12 On March 12, 2019, the Company’s board of directors adopted, and, on March 14, 2019 the Company’s stockholders approved, the Precision BioSciences, Inc. 2019 Incentive Award Plan (“2019 Plan”) and the 2019 Employee Stock Purchase Plan (“2019 ESPP”), both of which became effective on March 27, 2019. The 2019 Plan provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units and other share-based awards. The number of shares available for issuance under the 2019 Plan initially equaled 4,750,000 shares of common stock. The 2019 Plan provides for an annual increase to the number of shares of common stock available for issuance on the first day of each calendar year beginning January 1, 2020 and ending on and including January 1, 2029 by an amount equal to the lesser of (i) 4 % of the aggregate number of shares of common stock outstanding on the final day of the immediately preceding calendar year and (ii) such smaller number of shares of common stock as determined by the board of directors. As of December 31, 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, 2021, 2,692,171 shares were available to be issued under the 2019 Plan. The 2019 Plan had 5,991,710 stock options and 749,295 RSUs outstanding as of December 31, 2021. Up to 525,000 shares of the Company’s common stock were initially reserved for issuance under the 2019 ESPP. The 2019 ESPP provides for an annual increase to the number of shares available for issuance on the first day of each calendar year beginning January 1, 2020 and ending on and including January 1, 2029 by an amount equal to the lesser of (i) 1 % of the shares outstanding on the final day of the immediately preceding calendar year and (ii) such smaller number of shares as is determined by our board of directors. As of December 31, 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 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, 2021, we had issued 253,115 shares under the 2019 ESPP. As of December 31, 2021, 1,310,363 shares were available to be issued under the 2019 ESPP. The Company recognized share-based compensation expense related to the ESPP of $ 0.3 million and $ 0.4 million during the years ended December 31, 2021 and December 31, 2020, respectively. On August 9, 2021, the Company’s board of directors approved the adoption of the Precision BioSciences, Inc. 2021 Employment Inducement Incentive Award Plan (“Inducement Award Plan”). The Inducement Award Plan provides for the grant of non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units and other share-based awards to newly hired employees who have not previously been an employee or member of the board, or an employee who is being rehired following a bona fide period of non-employment by the Company. The number of shares available for issuance under the Inducement Award Plan is 3,000,000 shares of Common Stock. As of December 31, 2021, 2,125,792 shares were available to be issued under the Inducement Award Plan. The Inducement Award plan had 850,000 stock options and 24,208 restricted stock units outstanding as of December 31, 2021. The Company recorded employee and nonemployee share-based compensation expense as follows (in thousands): Years Ended December 31, 2021 2020 Employee $ 14,963 $ 12,639 Nonemployee 1,551 1,147 $ 16,514 $ 13,786 Share-based compensation expense is included in the following line items in the consolidated statements of operations (in thousands): Years Ended December 31, 2021 2020 Research and development $ 9,101 $ 8,338 General and administrative 7,413 5,448 $ 16,514 $ 13,786 F-13 Determining the appropriate fair value model to measure the fair value of the stock option grants on the date of grant and the related assumptions requires judgment. The fair value of each stock option grant is estimated using a Black-Scholes option-pricing model on the date of grant as follows: Years Ended December 31, 2021 2020 Estimated dividend yield 0.00 % 0.00 % Weighted-average expected stock price volatility 73.02 % 73.70 % Weighted-average risk-free interest rate 1.07 % 0.60 % Expected term of options (in years) 6.25 6.55 Weighted-average fair value per option $ 6.91 $ 4.81 The expected volatility rates are estimated based on the actual volatility of comparable public companies over the expected term. The expected term represents the average time that stock options that vest are expected to be outstanding. The Company does not have sufficient history of exercising stock options to estimate the expected term of employee stock options and thus utilizes a weighted value considering actual history and estimated expected term based on the midpoint of final vest date and expiration date. The risk-free rate is based on the U.S. 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, 2021 and December 31, 2020: Outstanding Option Shares Weighted- Average Exercise Price Balance as of January 1, 2020 8,919,116 7.02 Granted 4,011,728 7.26 Exercised ( 1,411,188 ) 0.49 Forfeited/canceled ( 975,386 ) 8.17 Balance as of December 31, 2020 10,544,270 7.88 Granted 2,831,025 10.62 Exercised ( 1,997,700 ) 3.40 Forfeited/canceled ( 1,457,281 ) 9.84 Balance as of December 31, 2021 9,920,314 9.28 The intrinsic value of stock options exercised was $ 15.5 million and $ 10.3 million during the years ended December 31, 2021 and December 31, 2020, respectively. During the year ended December 31, 2021, the Company granted 849,780 RSUs with a grant date fair value of $ 9.6 million. The fair value of each award was determined based on the market price of the Company’s common stock on the date of grant. The fair value of the RSUs will be recognized as expense over the requisite vesting period. The following table summarizes the Company’s RSU activity for the year ended December 31, 2021: RSU Awards Weighted-Average Grant Date Fair Value Unvested RSUs as of January 1, 2021 — — Granted 849,780 $ 11.30 Forfeited ( 76,277 ) 11.34 Vested — — Unvested RSUs as of December 31, 2021 773,503 $ 11.29 There was approximately $ 35.3 million of total unrecognized compensation cost related to unvested stock options and RSUs as of December 31, 2021, which is expected to be recognized over a weighted-average period of 2.6 years. F-14 The following table summarizes certain information about stock options granted under the stock option plans which are vested or expected to vest as of December 31, 2021 and December 31, 2020. Years Ended December 31, Number of Options Weighted- Average Remaining Contractual Life (in years) Weighted- Average Exercise Price 2021 Expected to be exercisable 9,920,314 7.47 $ 9.28 2021 Currently exercisable 4,840,006 6.09 $ 8.83 2020 Expected to be exercisable 10,544,270 7.23 $ 7.88 2020 Currently exercisable 4,582,708 5.48 $ 6.69 The following table summarizes certain information about stock options outstanding under the stock option plans for the years ended December 31, 2021 and December 31, 2020, respectively: Year Ended December 31, 2021 Exercise price Number of Options Outstanding Weighted- Average Remaining Life Number of Options Exercisable $0.02 - $1.20 878,460 4.28 878,460 $5.67 - $6.31 1,330,901 8.18 477,574 $6.45 - $9.79 3,025,794 8.56 1,010,298 $10.17 - $12.52 2,828,331 7.36 1,237,568 $12.60 - $16.00 1,856,828 6.88 1,236,106 9,920,314 4,840,006 Year Ended December 31, 2020 Exercise price Number of Options Outstanding Weighted- Average Remaining Life Number of Options Exercisable $0.01 - $0.04 717,949 0.61 717,949 $0.41 - $1.20 1,472,717 5.11 1,364,991 $5.67 - $9.46 4,414,103 8.75 494,811 $10.17 - $13.80 3,874,957 7.58 1,954,663 $14.91 - $16.00 64,544 4.51 50,294 10,544,270 4,582,708 NOTE 6 : RETIREMENT PLAN In January 2011, the Company established a defined contribution 401(k) retirement savings plan (the “Retirement Plan”) to all full-time employees. Employee contributions to the Retirement Plan can be 100 % of annual compensation up to the prescribed annual maximum under the Internal Revenue Code. Administrative fees of less than $ 0.1 million were paid by the Company for the years ended December 31, 2021 and December 31, 2020. The Retirement Plan includes a safe-harbor matching employer contribution equal to 100 % of participants’ deferral contributions up to 4 %. The Company made contributions of $ 1.0 million and $ 0.8 million to the Retirement Plan during the years ended December 31, 2021 and December 31, 2020, 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. F-15 NOTE 7 : COMMITMENTS AND CONTINGENCIES Litigation The Company is subject to various legal matters and claims in the ordinary course of business. Although the results of legal proceedings and claims cannot be predicted with certainty, in the opinion of management, there are currently no such known matters that will have a material effect on the consolidated financial condition, results of operations or cash flows of the Company. 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 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 and variants thereof. 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 and variants thereof 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, initiating, enrolling, conducting or completing its planned and ongoing clinical trials or supply chain disruptions, and the Company may incur other unforeseen costs as a result. While the extent to which the COVID-19 pandemic and variants thereof 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. Servier Program Purchase Agreement On April 9, 2021, the Company entered into a program purchase agreement with Les Laboratoires Servier and Institut de Recherches Internationales Servier (collectively, “Servier”), pursuant to which the Company reacquired all of its global development and commercialization rights previously granted to Servier pursuant to the Development and Commercial License Agreement by and between Servier and the Company, dated February 24, 2016, as amended (the “Servier Agreement”), and mutually terminated the Servier Agreement (the “Program Purchase Agreement”). The Program Purchase Agreement requires the Company to make certain payments to Servier based on the achievement of regulatory and commercial milestones for each product, and a low- to mid-single-digit percentage royalty (subject to certain reductions) based on net sales of approved products, if any, resulting from any continued development and commercialization of the programs by the Company, for a period not to exceed ten years after first commercial sale of the applicable product in the United States or certain countries in Europe. If the Company enters into specified product partnering transactions, the Program Purchase Agreement requires the Company to pay to Servier a portion of certain consideration received pursuant to such product partnering transactions in lieu of the foregoing milestones (with the exception of a one-time clinical phase development milestone) and royalties. Regulatory and Commercial Milestones Management assessed the likelihood of each of the regulatory and commercial milestones included in the Program Purchase Agreement in accordance with ASC 450, Contingencies (“ASC 450”). If the assessment of a contingency indicates that it is probable that the milestone will be achieved and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated balance sheets. Accordingly, a $ 10.0 million financial contract liability charged to research and development expense is included in the consolidated financial statements as of and for the year ended December 31, 2021. Product Partnering Transaction Consideration Due to Servier Per the terms of the Program Purchase Agreement, should the Company enter into a product partnering transaction with respect to any of the targets previously nominated by Servier, the Company will pay Servier a percentage of the proceeds received. In accordance with ASC 450, management concluded that the amount of proceeds due to Servier as a result of a future product partnering transaction, if any, cannot be reasonably estimated as of the date of this Annual Report on Form 10-K. As such, no contingency for this provision was included in the consolidated financial statements as of December 31, 2021. F-16 Leases The Company has operating leases for real estate in North Carolina and does not have any finance leases. Many of the Company’s leases contain options to renew and extend lease terms and options to terminate leases early. Reflected in the right-of-use assets and lease liabilities on the Company’s consolidated balance sheets 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 assets 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 assets and lease liabilities but rather reflected as an expense in the period incurred. The elements of lease expense were as follows: For the Years Ended December 31, (in thousands) 2021 2020 Lease Cost Operating lease cost $ 1,951 $ 1,922 Short-term lease cost 342 405 Variable lease cost 1,131 926 Total Lease Cost $ 3,424 $ 3,253 Other Information Operating cash flows used for operating leases $ 2,649 $ 2,755 Operating lease liabilities arising from obtaining right-of-use assets - 623 Operating Leases Weighted average remaining lease term (in years) 3.7 4.7 Operating Leases Weighted average discount rate 7.8 % 7.9 % Future lease payments under non-cancelable operating leases with terms of greater than one year as of December 31, 2021, were as follows: (in thousands) December 31, 2021 2022 $ 2,259 2023 2,323 2024 1,594 2025 529 2026 545 2027 and beyond 372 Total lease payments $ 7,622 Less: imputed interest 987 Total operating lease liabilities $ 6,635 Supply Agreements The Company enters into contracts in the normal course of business with CMOs for the manufacture of clinical trial materials and CROs for clinical trial services. These agreements provide for termination at the request of either party with less than one-year notice and are, therefore, cancelable contracts and, if canceled, are not anticipated to have a material effect on the c onsolidated financial condition, results of operations, or cash flows of the Company. F-17 NOTE 8 : NET LOSS PER SHARE The Company’s potential dilutive securities have been excluded from the computation of diluted net loss per share as the effect of inclusion would be to reduce the net loss per share. Therefore, the weighted-average number of shares of common stock outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. Years Ended December 31, 2021 2020 Net loss attributable to common stockholders (in thousands) $ ( 30,602 ) $ ( 109,006 ) Weighted average shares outstanding - basic and diluted 58,688,102 52,031,740 Net loss per share - basic and diluted ( 0.52 ) ( 2.09 ) The following weighted-average common stock equivalents were excluded from the calculation of diluted loss per share because their inclusion would have been anti-dilutive: Years Ended December 31, 2021 2020 Unvested Restricted Stock Units 430,026 — Stock Options 4,626,930 3,543,844 Unsettled ESPP Contributions 12,550 21,466 Total common stock equivalents excluded from diluted net loss per share 5,069,506 3,565,310 NOTE 9 : DEBT Elo Loan On May 19, 2021, Elo entered into the Elo Loan in the amount of $ 2.5 million. In connection with the Elo Loan, the Company issued warrants to PWB (the “Warrants”). For further discussion of accounting for the Warrants, see Note 12, “Fair Value Measurements.” The Elo Loan discount less than $ 0.1 million upon issuance and includes debt issuance costs incurred by the Company as well as the fair value of the Warrants on the issuance date. On December 14, 2021, the Company repaid all outstanding principal and interest on the Elo Loan with proceeds from the Revolving Line. Revolving Line Pursuant to the terms of the loan and security agreement with Pacific Western Bank (the “Revolving Line”) the Company may request advances on a revolving line of credit of up to an aggregate principal of $ 30.0 million. The Revolving Line matures on June 23, 2023 . All outstanding principal amounts are due on the maturity date. The Company must also maintain an aggregate balance of unrestricted cash at Pacific Western bank (“PWB”) (not including amounts in certain specified accounts) equal to or greater than $ 10.0 million. The interest rate under the Revolving Line is a variable annual rate equal to the greater of (a) 2.75 % above the Prime Rate (as defined in the Revolving Line), or (b) 6.00 %. As of December 31, 2021, the stated interest rate on the Revolving line was 6.0 % and the effective interest rate was 6.8 %. On December 14, 2021, the Company borrowed $ 2.5 million under the Revolving Line to pay all outstanding principal on the Elo Loan. The borrowing was concluded to be a modification of the Elo Loan under ASC 470, Debt . As such, the remaining unamortized discount on the Elo Loan will be amortized to interest expense over the life of the Revolving Line. As of December 31, 2021, no other borrowings have been made under the Revolving Line. F-18 NOTE 10 : INCOME TAXES The Company recorded no federal income tax expense and due to the operating losses incurred for the years ended December 31, 2021 and December 31, 2020. The Company recorded no state income tax expense and less than $ 0.1 million state income expense for the years ended December 31, 2021 and December 31, 2020, respectively. Significant components of the Company’s deferred tax assets and deferred tax liabilities are as follows (in thousands): Years Ended December 31, 2021 2020 Noncurrent deferred tax assets: Net operating loss carryforwards $ 41,162 $ 39,264 Contribution carryforwards 48 39 Deferred rent — — Lease liability 1,526 2,336 Deferred revenue 20,294 18,684 Other assets 11,647 5,015 Tax credits 20,942 15,959 Less: valuation allowance ( 94,071 ) ( 79,273 ) Total deferred tax assets, noncurrent 1,548 2,024 Noncurrent deferred tax liability: Property and equipment — 601 Investments and other 587 — Right of use asset 961 1,423 Total deferred tax liabilities, noncurrent 1,548 2,024 Net deferred tax assets $ — $ — As of December 31, 2021 and December 31, 2020, 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, 2021 of $ 14.8 million is comprised of an increase in the valuation allowance recorded against the deferred tax assets, primarily related to tax credits and NOL carryforwards for the year. The reasons for the difference between actual income tax benefit for the years ended December 31, 2021 and December 31, 2020 and the amount computed by applying the statutory federal income tax rate to losses before income tax benefit are as follows (in thousands): Year Ended December 31, 2021 Year Ended December 31, 2020 Amount % of Pre-Tax Earnings Amount % of Pre-Tax Earnings Income tax expense at statutory rate $ ( 6,677 ) 21.8 % $ ( 22,887 ) 21.0 % State income taxes, net of federal tax benefit ( 634 ) 2.1 % ( 1,309 ) 1.2 % Non-deductible expenses 121 ( 0.4 %) ( 963 ) 0.9 % Stock compensation - nondeductible ( 2,094 ) 6.8 % — 0.0 % R&D and orphan drug credits ( 5,239 ) 17.1 % ( 6,869 ) 6.3 % Other 567 ( 1.9 %) 7 0.1 % Change in state tax rate ( 843 ) 2.8 % 512 ( 0.6 %) Change in valuation allowance 14,799 ( 48.3 %) 31,532 ( 28.9 %) Income tax (benefit) expense $ — 0.0 % $ 23 0.0 % As of December 31, 2021, the Company had federal, state, and foreign NOL carryforwards of approximately $ 181.0 million, $ 122.2 million, and $ 0.4 million respectively. As of December 31, 2020, the Company had federal, state, and foreign NOL carryforwards of approximately $ 172.7 million, $ 116.5 million, and $ 0.6 million, respectively. Federal NOL carryforwards of $ 19.7 million begin to expire in 2030 while the remaining federal NOL carryforward of $ 161.2 million carries forward indefinitely. The state NOL carryforwards begin to expire in 2025 . The foreign NOLs carryforward indefinitely. At December 31, 2021, the Company had federal and state R&D tax credits of $ 11.4 million and an amount less than $ 0.1 million, which F-19 begin to expire in 2027 and 2030 , respectively. At December 31, 2020 , the Company had federal and state tax R&D credits of $ 9.9 million and an amount less than $0.1 million which begin to expire in 2027 and 2030, respectively. A s of December 31, 2021 and December 31, 2020 , the Company had federal Orphan Drug credits of $ 9.5 million and $ 6.0 million, respectively, which begin to expire in 2038 . At December 31, 2021 and December 31, 2020 , the Company had federal contribution carryforwards of $ 0.2 million which begin to expire in 202 2 . The Company incorporated a subsidiary in Australia in 2018. However, in 2021, as part of the ELO transaction, the subsidiary was transferred to New Elo. There are no undistributed earnings as of December 31, 2021 and December 31, 2020. The Company incorporated a subsidiary in the UK in 2019. However, the subsidiary has had minimal activity since inception. As such, there are no undistributed earnings as of December 31, 2021 and December 31, 2020. The Company’s ability to utilize its NOL and R&D credit carryforwards may be substantially limited due to ownership changes that may have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the Code), as well as similar state provisions. These ownership changes may limit the amount of NOL and R&D credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change,” as defined by Section 382 of the Code, results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percent of the outstanding stock of a company by certain stockholders or public groups. The Company has not completed a study to assess whether one or more ownership changes have occurred since the Company became a loss corporation under the definition of Section 382. If the Company has experienced an ownership change, utilization of the NOL or R&D credit carryforwards would be subject to an annual limitation, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term, tax-exempt rate, and then could be subject to additional adjustments, as required. Any such limitation may result in the expiration of a portion of the NOL or R&D credit carryforwards before utilization. Until a study is completed and any limitation known, no amounts are being considered as an uncertain tax position or disclosed as an unrecognized tax benefit. Any carryforwards that expire prior to utilization as a result of such limitations will be removed from deferred tax assets with a corresponding reduction of the valuation allowance. Due to the existence of the valuation allowance, it is not expected that any possible limitation will have an impact on the results of operations of the Company. The Company reflects in the accompanying consolidated financial statements the benefit of positions taken in a previously filed tax return or expected to be taken in a future tax return only if it is considered ‘more-likely-than-not’ that the position taken will be sustained by the appropriate taxing authority. As of December 31, 2021 and December 31, 2020, the Company had no unrecognized income tax benefits. The Company’s policy for recording interest and penalties relating to uncertain income tax positions is to record them as a component of income tax expense in the accompanying consolidated statements of operations. As of December 31, 2021 and December 31, 2020, the Company had no such accruals. In November 2021, North Carolina enacted the 2021 Appropriations Act, which included a gradual corporate income tax rate decrease from the current 2.5 % to 0 % by 2030. Due to the uncertainty of projecting income through 2030, the Company calculated, before consideration of the valuation allowance, its North Carolina net operating losses using the current 2.5% rate which is in effect through 2024. The Company will continue to monitor its future North Carolina taxable income and its ability to utilize its deferred tax asset for its net operating loss carryover. If the Company does not become profitable in North Carolina prior to 2025, or it becomes more certain that the Company will not be able to utilize its North Carolina net operating losses before the tax rate drops to 0%, the Company will then remeasure its deferred tax asset at that time. The TCJA of 2017 subjects a U.S. shareholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income , states that an entity can make an accounting policy election to either recognized deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. The Company has elected to account for GILTI in the year the tax is incurred. The Company does not have a GILTI inclusion in years ends December 31, 2021 or December 31, 2020 and therefore, no GILTI tax has been recorded for the years then ended. NOTE 1 1 : Elo Transaction On December 17, 2021, the Company and its wholly owned subsidiary, Elo Life Systems, Inc., entered into an agreement pursuant to which the Company contributed substantially all of the assets of the Company’s food segment to New Elo. In connection with the contribution, the Company also granted New Elo an exclusive license to certain of the Company’s intellectual property for use in non-medical applications with respect to plants, farm animals and certain other organisms. In addition, all of the Company’s employees in its Food segment, including its management, became employees of New Elo. Promissory Note F-20 As partial consideration for the assets contributed and license granted by the Company to New Elo , the Company received a $ 10.0 million promissory note payable from New Elo (the “Note”). The Note matures on the earlier of (i) December 1, 2028 or (ii) a Deemed Liquidation Event (as defined in the New Elo’s Amended and Restated Certificate of Incorporation). The Note accrues interest at 2.00 % per annum , and is payable annually on December 17th. At acquisition, the Company classified the Note as held-to-maturity as it was concluded the Company has the intent and ability to hold the Note to its maturity date. As the Elo Transaction was concluded to be a nonmonetary transaction per ASC 845, Nonmonetary Transactions, the Note was initially recorded at fair value, as the fair value of the Note was deemed more clearly evident than the fair value of the assets surrendered. The fair value was determined by discounting the future cash flows using the market interest rate of similar debt as of the date of the Elo Transaction. The fair value of the Note at acquisition was $ 6.9 million. The note discount of $ 3.1 million will be amortized to interest income over the life of the Note. Investment in New Elo As partial consideration for the assets contributed and license granted by the Company to New Elo, the Company received Common Stock in New Elo. It was determined that the noncontrolling shareholders of New Elo have substantive rights to participate in the financial and operating decisions of New Elo. As such, it was determined that the Company does not possess control over New Elo or have significant decision-making authority. Accordingly, New Elo will not be consolidated in the Company’s financial statements. However, as the Company obtained approximately 55 % of the voting shares in New Elo, it was determined that the Company possesses the ability to exercise significant influence over the operating and financial policies of New Elo. As such, the Company accounts for its investment in New Elo under the equity method. Per ASC 323, Investments—Equity Method and Joint Ventures, upon the transfer of a subsidiary or group of assets that is a business accounted for under the equity method, the initial carrying value should be recorded based upon the fair value as of the transaction date. As such, the initial carrying value of the Company’s investment in New Elo was determined to be the fair value of the Company’s common stock in New Elo as of December 17, 2021, the transaction date. The Company’s proportionate share of New Elo’s net income for the period of December 18, 2021 to December 31, 2021 was $ 0.2 million, resulting in an increase in the carrying value of the Investment in New Elo and corresponding income from equity method investments. Gain on Deconsolidation of Subsidiary The gain on deconsolidation of subsidiary was determined based on the difference between the $ 4.4 million book value of the net assets that the Company contributed to New Elo and the $ 10.4 million combined fair value of the Note and the Company’s ownership in New Elo as of December 17, 2021. NOTE 1 2 : FAIR VALUE MEASUREMENTS The carrying amounts of the Company’s financial instruments, including accounts receivable, accounts payable, and accrued expenses and other current liabilities, approximate their respective fair values due to their short-term nature. The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis and to minimize the use of unobservable inputs when determining their fair value. The three tiers are defined as follows: Level 1—Observable inputs based on unadjusted quoted prices in active markets for identical assets or liabilities Level 2—Inputs, other than quoted prices in active markets, that are observable either directly or indirectly Level 3—Unobservable inputs for which there is little or no market data, which require the Company to develop its own assumptions Cash Equivalents As of December 31, 2021 and December 31, 2020, the Company held an insignificant amount of cash equivalents which were composed of investments in money market funds. The Company classifies investments in money market funds within Level 1 of the fair value hierarchy as the prices are available from quoted prices in active markets. F-21 Investment in iECURE In August 2021, the Company entered into an Equity Issuance Agreement with iECURE, pursuant to which iECURE granted the Company partial equity ownership in iECURE (the “iECURE equity”) as partial consideration for a license to the Company’s PCSK9-directed ARCUS nuclease to develop gene-insertion therapies for four other rare genetic diseases, including OTC deficiency, Citrullinemia Type 1, PKU, and another program focused on liver disease (the “PCSK9 license”). On issuance, the Company accounted for the iECURE equity at fair value under ASC 825. Accordingly, the Company adjusts the carrying value of the iECURE equity to fair value each reporting period with any changes in fair value recorded to other income (expense). The Company classifies the iECURE equity within Level 3 of the fair value hierarchy as the assessed fair value was based on significant unobservable inputs given iECURE equity is not traded on a public exchange. For additional discussion of accounting for the Company’s Development and License agreement with iECURE and the Equity Issuance Agreement, refer to Note 13, “Collaboration and License Agreements.” Warrant Liability In connection with the Elo Loan, the Company issued $ 50,000 of warrants to PWB on May 19, 2021 (the “Warrants”). The Company accounted for the Warrants in accordance with the guidance contained in ASC 815, under which the Warrants do not meet the criteria for equity treatment and are recorded as a liability. Accordingly, the Company classified the Warrants as a non-current liability at their fair value and adjusted the warrant liability to fair value each reporting period with any changes in fair value recognized in the statement of operations. The Company utilized the Black-Scholes option pricing model to value the warrant liability each reporting period and recorded changes in value to other income (expense). Upon the closing of the Elo Transaction, the Warrants transferred to New Elo. Accordingly, the warrant liability was marked to fair value as of December 17, 2021 and included in the book value of net assets transferred to New Elo upon deconsolidation. The following represents assets measured at fair value on a recurring basis by the Company (in thousands): December 31, 2021 Fair Value Level 1 Level 2 Level 3 Money market funds $ 12 $ 12 $ — $ — Investment in iECURE 3,091 — — 3,091 $ 3,103 $ 12 $ — $ 3,091 December 31, 2020 Fair Value Level 1 Level 2 Level 3 Assets: Money market funds $ 10 $ 10 $ — $ — $ 10 $ 10 $ — $ — The following represents a reconciliation of assets measured and carried at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) for the year ended December 31, 2021 (in thousands): Investment in iECURE Balance December 31, 2020 $ — Acquisitions 538 Gains included in earnings 2,553 Dispositions — Balance December 31, 2021 $ 3,091 The following represents a reconciliation of liabilities measured and carried at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) for the year ended December 31, 2021 (in thousands): Warrant Liability Balance December 31, 2020 $ — Acquisitions ( 30 ) Gains included in earnings 2 Dispositions 28 Balance December 31, 2021 $ — F-22 NOTE 1 3 : COLLABORATION AND LICENSE AGREEMENTS Development and License Agreement with Eli Lilly On November 19, 2020, the Company, entered into the Development and License Agreement with Lilly to collaborate to discover and develop in vivo gene editing products incorporating the Company’s ARCUS nucleases. Lilly has initially nominated Duchenne muscular dystrophy, a liver-directed target and a CNS directed target. Under the terms of the Development and License Agreement, Lilly has the right to nominate up to three additional gene targets for genetic disorders over the 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. Additionally, under the terms of the Development and License Agreement, Lilly has the option to replace up to two gene targets upon Lilly’s election and payment of a replacement target fee. Under the terms of the 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 investigational new drug application (“IND”) enabling activities with respect to the gene targets nominated by Lilly to be subject to the collaboration, including manufacture of initial clinical trial material for the first licensed product. Lilly will be responsible for, and must use commercially reasonable efforts with respect to, conducting clinical development and commercialization activities for licensed products resulting from the collaboration, and may engage the Company for additional clinical and/or initial commercial manufacture of licensed products. Upon closing of the Development and License Agreement on January 6, 2021, the Company received an upfront cash payment of $ 100.0 million. The Company will also be eligible to receive milestone payments of up to an aggregate of $ 420.0 million per licensed product as well as nomination fees for additional targets and certain research funding. If licensed products resulting from the collaboration are approved and sold, the Company will also be entitled to receive tiered royalties ranging from the mid-single digit percentages to the low-teens percentages on world-wide net sales of the licensed products, subject to customary potential reductions. Lilly’s obligation to pay royalties to the Company expires on a country-by-country and licensed product-by-licensed product basis, upon the latest to occur of certain events related to expiration of patents, regulatory exclusivity or a period of ten years following first commercial sale of the licensed product. Simultaneously with the entry into the Development and License Agreement, the Company and Lilly entered into a Share Purchase Agreement (the “Share Purchase Agreement”), pursuant to which Lilly purchased 3,762,190 shares of the Company’s common stock for a purchase price of $ 35.0 million. Management concluded that the Lilly Share Purchase Agreement is to be combined with the Development and License Agreement (together, the “Combined Agreements”) for accounting purposes. Of the total $ 135.0 million upfront compensation, the Company applied equity accounting guidance to measure the $ 27.7 million recorded in equity upon the issuance of the shares, and $ 107.3 million was identified as the transaction price allocated to the revenue arrangement. The Company assessed this arrangement in accordance with ASC 606 and concluded that the promises in the agreement represent transactions with a customer. The Company has determined that the promises associated with the research and development activities for each of the targets are not distinct because they are all based on the ARCUS proprietary genome editing platform. The Company has concluded that the agreement with Lilly contains the following promises: (i) license of intellectual property; (ii) performance of R&D services, (iii) the manufacture of pre-clinical supply, (iv) Joint Steering Committee (“JSC”) Participation, and (v) regulatory responsibilities. The Company determined that the license of intellectual property, R&D services, manufacture of pre-clinical development material, and regulatory responsibilities were not distinct from each other, as the license, R&D services, pre-clinical supply, and regulatory responsibilities are highly interdependent upon one another. The JSC participation was determined to be an immaterial promise as the time commitment and related cost associated with performance of JSC participation is expected to be inconsequential to the total consideration in the contract. As such, the Company determined that these promises should be combined into a single performance obligation. The Company recognizes revenue from the $ 100.0 million upfront cash payment, $ 7.3 million allocated to the transaction price from the Stock Purchase Agreement, and variable consideration on an input method in the form of research effort relative to expected research effort at the completion of the performance obligation, which is based on the actual time of R&D activities performed relative to expected time to be incurred in the future to satisfy the performance obligation. Management evaluates and adjusts the total expected research effort for the performance obligation on a quarterly basis based upon actual research progress to date relative to research progress forecasts. The transfer of control occurs over this time period and, in management’s judgment, is the best measure of progress towards satisfying the performance obligation. During the year ended December 31, 2021, the Company recognized revenue under the agreement with Lilly of approximately $ 21.0 million. The Company recognized no revenue under the agreement with Lilly during the year ended December 31, 2020. Deferred F-23 revenue related to the agreement with Lilly amounted to $ 88.3 million as of December 31, 2021, of which $ 21.2 million was included in current liabilities. No deferred revenue related to the Development and License Agreement with Lilly was recorded as of December 31, 2020. Development and License Agreement with iECURE In August 2021, the Company entered into a development and license agreement with iECURE under which iECURE plans to advance the Company’s PBGENE-PCSK9 candidate through a Phase 1 clinical trial as partial consideration for the PCSK9 License. Pursuant to the iECURE Agreement, the Company retains the rights to PBGENE-PCSK9, including all products developed for indications with increased risk of severe cardiovascular events such as Familial Hypercholesterolemia. Simultaneously with the entry into the iECURE Agreement, the Company and iECURE entered into an Equity Issuance Agreement, pursuant to which iECURE granted the Company partial equity ownership in iECURE as partial consideration for the license to use its PCSK9-directed ARCUS nuclease. Management concluded that the iECURE Equity Issuance Agreement is to be combined with the development and license agreement with iECURE for accounting purposes. Additionally, the Company is eligible to receive milestone and mid-single digit to low double digit royalty payments on sales of iECURE products developed with ARCUS. The Company assessed the iECURE Agreements in accordance with ASC 606 and concluded that the promises in the iECURE Agreements represent a transaction with a customer. The Company has concluded that the iECURE Agreements contain the following promises: (i) the PCSK9 license and (ii) JSC Participation. The JSC participation was determined to be an immaterial promise as the time commitment and related cost associated with performance of JSC participation is expected to be inconsequential to the total consideration in the contract. Accordingly, the Company concluded that the promise of the PCSK9 license is the sole performance obligation in the iECURE Agreements. The fair value of the iECURE equity and the estimated fair value of the costs to be incurred by iECURE to progress the Company’s PBGENE-PCSK9 candidate through Phase 1 studies were concluded to be non-cash consideration, and as such were included in the transaction price of the iECURE Agreements. The Company concluded the PCSK9 license represents functional intellectual property in accordance with ASC 606 given the Company will not be providing any additional services to iECURE outside of the right to use the PCSK9 license. Therefore, the fair value of the iECURE equity and the fair value of the costs to be incurred by iECURE to progress the Company’s PBGENE-PCSK9 candidate through a Phase 1 clinical trial was recognized at the inception of the iECURE Agreements. The fair value of the iECURE equity at inception of the iECURE agreements was assessed to be $ 0.5 million and was initially recorded to the investment in equity securities line item of the consolidated balance sheets. As further discussed in Note 12, “Fair Value Measurements,” on issuance, Management elected to account for the iECURE equity at fair value under ASC 825. Accordingly, the Company adjusts the carrying value of the iECURE equity to fair value each reporting period with any changes in fair value recorded to other income (expense). The fair value of the costs to be incurred by iECURE to progress the Company’s PBGENE-PCSK9 candidate through a Phase 1 clinical trial (the “PCSK9 Prepaid”) was assessed to be $ 17.4 million and was recorded to the prepaid expenses and other assets line items of the consolidated balance sheets. The PCSK9 Prepaid is amortized to research and development expense on a pro-rata basis as iECURE incurs costs to progress the PBGENE-PCSK9 candidate through a Phase 1 clinical trial. During the year ended December 31, 2021, the Company recognized revenue under the iECURE agreements of $ 17.9 million and $ 4.4 million of research and development expense related to amortization of the PCSK9 Prepaid. As of December 31, 2021, the remaining balance of the PCSK9 Prepaid was $ 13.0 million, which is included in the prepaid expenses and other assets line items of the consolidated balance sheets in the amounts of $ 10.4 million and $ 2.6 million, respectively. Development and Commercial License Agreement with Servier The Company has developed certain allogeneic CAR T candidates, including PBCAR0191 and the stealth cell PBCAR19B, each targeting CD19, as well as four additional product targets under the Servier Agreement. Pursuant to the terms of the Program Purchase Agreement, the Company regained full global rights to research, develop, manufacture and commercialize products resulting from such programs, with sole control over all activities. Additionally, per the terms of the Program Purchase Agreement the Company does not have an obligation to continue development of the Servier Targets. With respect to products directed to CD19, Servier has certain rights of negotiation, which may be exercised during a specified time period if the Company elects to initiate a process or entertain third party offers for partnering such products. Pursuant to the terms of the Program Purchase Agreement, the Company made a payment of $ 1.25 million in cash to Servier and agreed to waive earned milestones totaling $ 18.75 million that would have been otherwise payable to the Company. The $ 1.25 million cash payment to Servier is classified as research and development expense in the consolidated statement of operations for the year F-24 ended December 31, 2021. The waiver of earned milestones resulted in a $ 18.75 million reduction in accounts receivable and deferred revenue. The Program Purchase Agreement also requires the Company to make certain payments to Servier based on the achievement of regulatory and commercial milestones for each product, and a low- to mid-single-digit percentage royalty (subject to certain reductions) based on net sales of approved products, if any, resulting from any continued development and commercialization of the programs by the Company, for a period not to exceed ten years after first commercial sale of the applicable product in the United States or certain countries in Europe. If the Company enters into specified product partnering transactions, the Program Purchase Agreement requires the Company to pay to Servier a portion of certain consideration received pursuant to such product partnering transactions in lieu of the foregoing milestones (with the exception of a one-time clinical phase development milestone) and royalties. For additional discussion of accounting for payment obligations arising from the Program Purchase Agreement, refer to Note 7, “Commitments and Contingencies.” Upon the closing of the Program Purchase Agreement, management concluded that the combined performance obligation associated with the Servier Agreement was fully satisfied as the Company is no longer required to perform research and development work on the Servier targets and the Company regained all of its global development and commercialization rights previously granted to under the Servier Agreement. Accordingly, all remaining deferred revenue related to the Servier agreement was recognized as revenue in the year ended December 31, 2021. During the year ended December 31, 2021 and 2020, the Company recognized revenue under the agreement with Servier of approximately $ 72.9 million and $ 18.0 million, respectively. The Company did no t have deferred revenue related to the agreement with Servier as of December 31, 2021. Deferred revenue related to the agreement with Servier amounted to $ 82.9 million as of December 31, 2020, of which $ 28.9 million was included in current liabilities. Collaboration and License Agreement with Gilead On July 6, 2020, Gilead notified the Company of its termination of 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 HBV program developed under the Gilead Agreement. 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, 2021 and 2020, the Company recognized no revenue and approximately $ 3.9 million of revenue under the Gilead Agreement, respectively. The Company did no t have deferred revenue related to the Gilead Agreement as of December 31, 2021 or December 31, 2020. No development or sales-based milestone payments were received under the Gilead Agreement. NOTE 1 4 : SEGMENT REPORTING The Company has determined that the Chief Executive Officer (“CEO”) is the Company’s chief operating decision maker (“CODM”) as the CEO makes decisions as it relates to allocation of resources and key market strategies. Prior to the Elo Transaction, the CODM reviewed financial results disaggregated by our therapeutics and food businesses. As such, prior to December 18, 2021, the Company operated in two reportable segments: Therapeutics and Food. The legacy Therapeutics segment included our development of products in the field of immuno-oncology and of novel products outside immuno-oncology to treat human diseases. The legacy Food segment focused on applying ARCUS to develop food and nutrition products through collaboration agreements with consumer-facing companies. Following the Elo Transaction on December 17, 2021, in which the Company contributed substantially all of the assets of the Food segment to a newly formed entity, the CODM now reviews financial information presented on a consolidated basis and resource allocation and key market strategy decisions are made by the CODM based on consolidated results. As such, the Company has concluded that following the Elo Transaction on December 17, 2021, the Company now operates as one segment. Given the Company was managed under the legacy segment structure of Therapeutics and Food for the majority of the year ended December 31, 2021, segment results for both Therapeutics and Food have been presented in this Annual Report on Form 10-K. Segment operating income (loss) is derived by deducting operational cash expenditures, net, from GAAP revenue. 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). The reportable segment operational cash expenditures F-25 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. These cost items primarily consist of compensation and general operational expenses associated with the Company’s executive, business development, finance, operations, human resources and legal functions. The Company does not allocate non-cash income statement amounts to its reportable segments, such as share based compensation, depreciation and amortization, intangible asset impairment charges, non-cash interest expense and losses on the disposal of assets. When reconciling segment operating loss to consolidated loss from operations, the Company makes an adjustment to convert the cash expenditures to the accrual basis to reflect GAAP. All segment revenue is earned in the United States and there are no intersegment revenues. Additionally, the Company reports assets on a consolidated basis and does not allocate assets to its reportable segments for purposes of assessing segment performance or allocating resources. Presented below is the financial information with respect to the Company’s reportable segments: For the Years Ended December 31, (in thousands) 2021 2020 Revenue: Therapeutics $ 111,723 $ 21,863 Food 3,806 2,422 Total segment revenue 115,529 24,285 Segment operational cash expenditures: Therapeutics $ 79,746 $ 71,841 Food 7,635 7,587 Total segment operational cash expenditures 87,381 79,428 Segment operating income (loss): Therapeutics $ 31,977 $ ( 49,978 ) Food ( 3,829 ) ( 5,165 ) Total segment operating income (loss) $ 28,148 $ ( 55,143 ) Adjustments to reconcile segment operating loss to consolidated loss from operations Corporate general and administrative cash expenditures $ ( 33,096 ) $ ( 30,090 ) Interest income received included in segment operating loss ( 186 ) ( 822 ) Depreciation and amortization ( 8,981 ) ( 8,777 ) Share-based compensation ( 16,514 ) ( 13,786 ) Loss on disposal of assets ( 26 ) 35 Non-cash interest expense ( 59 ) - Amortization of right-of-use assets ( 1,216 ) ( 1,036 ) Adjustments to reconcile cash expenditures to GAAP expenses ( 7,472 ) ( 209 ) Total consolidated loss from operations $ ( 39,402 ) $ ( 109,828 ) F-26