What changed in this filing

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2023-02-22 compared with 2022-02-24 · 92 added, 86 removed, 755 unchanged (19% of the section changed)

3 unchanged sentences

government-backed securities, and marketable securities of $295.8 million, primarily consisting of U.S.

treasury and government-backed securities, corporate debt securities, and commercial paper.

government-backed securities, commercial paper and corporate debt securities.

Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S.

interest rates, particularly because our investments, including cash equivalents, are in the form, or may be in the form of, money market funds or marketable securities and are or may be invested in U.S.

interest rates, particularly because our investments, including cash equivalents, are in the form, or may be in the form of, money market funds or marketable securities and are or may be

invested in U.S.

Treasury and U.S.

48 unchanged sentences

To test the research and development accrual, our audit procedures included, among others, testing the accuracy and completeness of the underlying data used in the estimates and evaluating and testing the significant assumptions that are used by management to estimate the accruals.

To test the significant assumptions, we inspected the contracts and any amendments to the contracts with third-party service providers, corroborated the progress of pre-clinical and clinical trials and other research and development projects with the Company’s research and development personnel that oversee the clinical trials and the related manufacturing activities, and obtained information received directly from third parties, which included the third parties’ estimate of costs incurred to date.

To test the significant assumptions, we inspected the contracts and any amendments to the contracts with third-party service providers, corroborated the progress of pre-clinical and clinical trials and other research and development projects with the Company’s research and development personnel that oversee the clinical trials and the related manufacturing activities, and obtained information received from third parties, which included the third parties’ estimate of costs incurred to date.

We also tested subsequent invoicing received from third parties.

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Deferred revenue, net of current portion

Other non-current liabilities

Total liabilities

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Accumulated deficit

( 1,078,131 )

Total stockholders’ equity

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Other income, net:

Other (expense) income, net

Other income (expense), net

Interest income, net

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Other comprehensive loss:

Unrealized (loss) gain on marketable debt securities

Unrealized loss on marketable debt securities

Comprehensive loss

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Stockholders’

(Loss) Income

Income (Loss)

Balance at December 31, 2019

Cumulative effect adjustment for adoption of new accounting guidance

Issuance of common stock from at-the-market offering, net of issuance costs of $ 0.2 million

Issuance of common stock from public offering, net of issuance costs of $ 0.3 million

Exercise of stock options

2 unchanged sentences

Purchase of common stock under benefits plans

Unrealized gain on marketable debt securities

Unrealized loss on marketable debt securities

Balance at December 31, 2020

Issuance of common stock from public offering, net of issuance costs of $ 0.3 million

Issuance of common stock for repayment of notes payable

Exercise of stock options

4 unchanged sentences

Balance at December 31, 2021

Issuance of common stock from public offering, net of issuance costs of $ 0.3 million

Issuance of common stock for repayment of notes payable

Exercise of stock options

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Balance at December 31, 2022

( 1,078,131 )

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

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Proceeds from sale of corporate equity securities

Net cash (used in) provided by investing activities

Net cash provided by (used in) investing activities

Cash flow from financing activities

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Net cash provided by financing activities

Net increase (decrease) in cash, cash equivalents, and restricted cash

Net (decrease) increase in cash, cash equivalents, and restricted cash

Cash, cash equivalents, and restricted cash, beginning of period

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Cash paid in connection with operating lease liabilities

Offering costs included in accounts payable and accrued expenses

Right-of-use assets obtained in exchange of operating lease obligations

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Editas Medicine, Inc.

(the “Company”) is a leading, clinical stage genome editing company dedicated to developing potentially transformative genomic medicines to treat a broad range of serious diseases.

(the “Company”) is a clinical stage genome editing company dedicated to developing potentially transformative genomic medicines to treat a broad range of serious diseases.

The Company was incorporated in the state of Delaware in September 2013.

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Since its inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, and raising capital.

The Company has primarily financed its operations through various equity financings, payments received under a research collaboration with Juno Therapeutics, a wholly-owned subsidiary of the Bristol-Myers Squibb Company (“Juno Therapeutics”), and payments received under a strategic alliance and option agreement with Allergan Pharmaceuticals International Limited (together with its affiliates, “Allergan”).

The Company has primarily financed its operations through various equity financings, payments received under a research collaboration with Juno Therapeutics, a wholly-owned subsidiary of the Bristol-Myers Squibb Company (“BMS”), and payments received under a strategic alliance and option agreement with Allergan Pharmaceuticals International Limited (together with its affiliates, “Allergan”).

The Company is subject to risks common to companies in the biotechnology industry, including but not limited to, risks of failure of preclinical studies and clinical trials, the need to obtain marketing approval for any drug product candidate that it may identify and develop, the need to successfully commercialize and gain market acceptance of its product candidates, dependence on key personnel, protection of proprietary technology, compliance with government regulations, development by competitors of technological innovations and ability to transition from pilot-scale manufacturing to large-scale production of products.

In January 2021, the Company completed a public offering whereby it sold 3,500,000 shares of its common stock and received net proceeds of approximately $ 216.9 million.

In February 2021, the underwriters in the public offering exercised their option to purchase an additional 525,000 shares, resulting in additional net proceeds to the Company of approximately $ 32.6 million.

As of December 31, 2022, we have raised an aggregate of $ 898.0 million in net proceeds through the sale of shares of our common stock in public offerings and at-the-market offerings.

We also have funded our business from payments received under our research collaboration with BMS and our former strategic alliance with Allergan.

As of December 31, 2022, we had cash, cash equivalents and marketable securities of $ 437.4 million.

In May 2021, the Company entered into a common stock sales agreement with Cowen and Company, LLC (“Cowen”), under which the Company from time to time can issue and sell shares of its common stock through Cowen in at-the-market offerings for aggregate gross sale proceeds of up to $ 300.0 million (the “ATM Facility”).

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The Company has incurred annual net operating losses in every year since its inception.

The Company has an accumulated deficit of $ 857.7 million at December 31, 2021.

The Company expects that its existing cash, cash equivalents and marketable securities on December 31, 2021 will enable it to fund its operating expenses and capital expenditure requirements through 2023.The Company will require substantial additional capital to fund its operations.

The Company has an accumulated deficit of $ 1.1 billion at December 31, 2022.

The Company expects that its existing cash, cash equivalents and marketable securities on December 31, 2022 fund its operating expenses and capital expenditure requirements into 2025.The Company will require substantial additional capital to fund its operations.

The Company has never generated any product revenue.

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Marketable securities are classified as long-term assets on the consolidated balance sheets if the contractual maturity exceeds one year and the Company does not intend to utilize the marketable securities to fund current operations.

As of December 31, 2021, the Company’s marketable securities consisted of investments in available-for-sale debt securities.

For the years ended December 31, 2022 and 2021, the Company’s marketable securities consisted of investments in available-for-sale debt securities.

Available-for-sale debt securities are carried at fair value with the unrealized gains and losses included in other comprehensive loss as a component of stockholders’ equity until realized.

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The Company's receivables primarily relate to amounts reimbursed under its collaboration agreements.

The Company believes that credit risk associated with its collaborations partners is not

The Company believes that credit risk associated with its collaborations partners is not significant.

To date, the Company has no t had any write-offs of bad debt, and the Company did no t have an allowance for doubtful accounts as of December 31, 2022 and 2021.

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The Company classifies payments owed or receivables recorded as other current liabilities or prepaid expenses and other current assets, respectively, in the Company’s consolidated balance sheets.

The Company had one agreement that was accounted for in accordance with

ASC 808 prior to the termination of the arrangement during the year ended 2020.

The Company had one agreement that was accounted for in accordance with ASC 808 prior to the termination of the arrangement during the year ended 2020.

The arrangements and payments are described more fully in Note 9.

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Any such adjustments are recorded on a cumulative catch-up basis, which would affect collaboration and other research and development revenues in the period of adjustment.

For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and 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 to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

has been allocated has been satisfied (or partially satisfied).

To date, the Company has not recognized any royalty revenue resulting from any of the Company’s collaboration or strategic alliance arrangements.

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Cash equivalents and marketable securities:

Money market funds

Government agency securities

Commercial paper

Money market funds

Corporate notes/bonds

Commercial paper

Cash equivalents and marketable securities consisted of the following at December 31, 2021 (in thousands):

17 unchanged sentences

Government agency securities

Commercial paper

Corporate bonds

Commercial paper

Restricted cash and other non-current assets:

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Accrued expenses consisted of the following (in thousands):

Employee related expenses

External research and development expenses

Professional service expenses

Employee related expenses

Intellectual property and patent related fees

Other expenses

Professional service expenses

Total accrued expenses

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Operating lease liabilities, noncurrent

During the years ended December 31, 2021 and 2020, the Company recorded $ 10.9 million and $ 10.5 million related to operating lease costs and $ 2.1 million and $ 1.1 million related to variable costs associated with the Company’s operating leases.

During the years ended December 31, 2022, 2021 and 2020, the Company recorded $ 13.6 million, $ 10.9 million and $ 10.5 million related to operating lease costs and $ 3.0 million, $ 2.1 million and $ 1.1 million related to variable costs associated with the Company’s operating leases.

Maturities of the Company’s lease liabilities as of December 31, 2022 were as follows (in thousands):

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The term of the lease began on October 1, 2016 and continues until October 2028.

In connection with the lease and as a security deposit, the Company deposited with the landlord a letter of credit in the amount of approximately $ 1.6 million.

In November 2022, the Company entered into an amendment to the lease agreement to extend the term of its existing facility space to October 31, 2028 under the same terms as its existing agreement except for the terms of payment.

As a result of this amendment, the Company recognized an additional right-of-use asset and corresponding lease liability of $ 24.6 million.

In connection with the lease and as a security deposit, the Company holds, with the landlord, a letter of credit in the amount of approximately $ 1.6 million.

Subject to the terms of the lease and certain reduction requirements specified therein, the $ 1.6 million security deposit may decrease over time.

The letter of credit, which is collateralized by the Company, is recorded in restricted cash and other non-current assets in the accompanying consolidated balance sheets as of December 31, 2022 and December 31, 2021.

The Company has the option to extend the lease for an additional five-year term at market-based rates.

The base rent payments commenced in November 2016 and continue through the term of the lease and are subject to increases over the term of the lease.

One Main Street

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The Company has the option to extend the lease for an additional five-year term at market-based rates.

The base rent payments commenced in January 2020 and continue through the term of the lease and are subject to increases over the term of the lease.

rent payments commenced in January 2020 and continue through the term of the lease and are subject to increases over the term of the lease.

Commitments and Contingencies

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Collaboration Agreements

The Company has entered into multiple collaboration and strategic alliances with third parties that typically involve research and development services in exchange for upfront fees, option payments, milestone payments and royalty payments to or from the Company.

The Company has entered into multiple collaborations, out-licenses and strategic alliances with third parties that typically involve payments to or from the Company, including up-front payments, payments for research and development services, option payments, milestone payments and royalty payments to or from the Company.

Collaboration Revenue

As of December 31, 2021, the Company’s contract liabilities were primarily related to the Company’s collaboration with Juno Therapeutics as well as other out-license agreements that are individually insignificant.

As of December 31, 2022, the Company’s contract liabilities were primarily related to the Company’s collaboration with BMS.

The following table presents changes in the Company’s accounts receivable and contract liabilities for the year ended December 31, 2022 (in thousands):

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Performance obligations satisfied in previous periods

Juno Therapeutics Collaboration Agreemen t

In 2019, the Company entered into an amended and restated collaboration agreement (“Juno Collaboration Agreement”) and license agreement (“Juno License Agreement”) with Juno Therapeutics to focus on the research, development, and commercialization of autologous and allogenic alpha-beta T cell medicines for the treatment of all diseases, subject to certain exceptions.

The Company and Juno Therapeutics started their collaboration in 2015 and have amended the agreement twice.

BMS Collaboration Agreemen t

In 2019, the Company entered into an amended and restated collaboration agreement (“BMS Collaboration Agreement”) and license agreement (“BMS License Agreement”) with BMS to focus on the research, development, and commercialization of autologous and allogenic alpha-beta T cell medicines for the treatment of all diseases, subject to certain exceptions.

The Company and BMS started their collaboration in 2015 and have amended the agreement twice.

The Company received a $ 70.0 million up-front, non-refundable, non-creditable cash payment (“Amendment Fee”) in connection with the execution of the 2019 amendment.

The Company may develop genome editing tools, specific to a gene target and enzyme combination (or a “Program”) that, following the exercise of its option and the Company’s grant of a license, Juno Therapeutics may use in its development of gene edited alpha-beta T-cell therapies and certain other T-cell derived from pluripotent stem cells or any other precursor cell for the treatment of all diseases, subject to certain exceptions (the “Juno Field”).

To assess the Programs prior to opt-in, the Company granted Juno Therapeutics a non-exclusive perpetual research license in the Juno Field.

If Juno Therapeutics exercises their option to the Program, they receive an exclusive, worldwide, development and commercialization license in the Juno Field for a nominal option exercise fee.

The Juno License Agreement provided that the Company would manufacture clinical grade materials through a Phase 1 clinical trial if requested by Juno Therapeutics at an incremental cost to be negotiated by the parties.

However, Juno Therapeutics has sole responsibility, at its own cost, for the worldwide research, development, manufacturing, and commercialization of its products.

The Company may develop genome editing tools, specific to a gene target and enzyme combination (or a “Program”) that, following the exercise of its option and the Company’s grant of a license, BMS may use in its development of gene edited alpha-beta T-cell therapies and certain other T-cell derived from pluripotent stem cells or any other precursor cell for the treatment of all diseases, subject to certain exceptions (the “BMS Field”).

To assess the Programs prior to opt-in, the Company granted BMS a non-exclusive perpetual research license in the BMS Field.

If BMS exercises their option to the Program, they receive an exclusive, worldwide, development and commercialization license in the BMS Field for a nominal option exercise fee.

The BMS License Agreement provided that the Company would manufacture clinical grade materials through a Phase 1 clinical trial if requested by BMS at an incremental cost to be negotiated by the parties.

However, BMS has sole responsibility, at its own cost, for the worldwide research, development, manufacturing, and commercialization of its products.

They must use commercially reasonable efforts and meet certain regulatory and commercial diligence requirements.

The first development and commercialization license was delivered to Juno Therapeutics at the onset of the amended arrangement for which the Company received $ 0.5 million in consideration for the license (the “First Development and Commercialization License).

The first development and commercialization license was delivered to BMS at the onset of the amended arrangement for which the Company received $ 0.5 million in consideration for the license (the “First Development and Commercialization License).

On a product-by-product basis, the Company is eligible to receive up to $ 27.5 million in development milestones and $ 107.5 million in regulatory milestones.

The Company is also eligible to receive up to an aggregate of $ 60.0 million for the first two licensed products to reach certain sales milestones.

The Company is entitled to a high-single digit to low double-digit percentage of royalties on net sales of licensed products, subject to reductions in certain

circumstances, through the later of the expiration of the patent(s) related to the licensed products or six years post-first commercial sale of such licensed products.

The amended term of the Juno Collaboration Agreement is five years , which is subject to two one-year extension periods.

During the term, including the extension periods, the Company may not alone, or with a third party, research, develop, manufacture, or commercialize a product in the Juno Field.

Juno Therapeutics has the right to terminate the Juno Collaboration Agreement at any time upon no less than six months prior written notice.

Per the termination provisions of the Juno License Agreement, Juno Therapeutics has the right to terminate the License Agreement either on a licensed product-by-product basis or in its entirety for any reason at any time upon ninety days prior written notice.

If Juno Therapeutics terminates the license agreement without cause, the exclusive licenses granted to Juno Therapeutics automatically revert back to the Company.

The Company is entitled to a high-single digit to low double-digit percentage of royalties on net sales of licensed products, subject to reductions in certain circumstances, through the later of the expiration of the patent(s) related to the licensed products or six years post-first commercial sale of such licensed products.

The amended term of the BMS Collaboration Agreement is five years , which is subject to two one-year extension periods.

During the term, including the extension periods, the Company may not alone, or with a third party, research, develop, manufacture, or commercialize a product in the BMS Field.

BMS has the right to terminate the BMS Collaboration Agreement at any time upon no less than six months prior written notice.

Per the termination provisions of the BMS License Agreement, BMS has the right to terminate the License Agreement either on a licensed product-by-product basis or in its entirety for any reason at any time upon ninety days prior written notice.

If BMS terminates the license agreement without cause, the exclusive licenses granted to BMS automatically revert back to the Company.

Accounting Assessment

The Company concluded that the Juno Collaboration Agreement and the Juno License Agreement qualify as a contract with a customer under ASC 606 as one combined arrangement.

The Company concluded that the BMS Collaboration Agreement and the BMS License Agreement qualify as a contract with a customer under ASC 606 as one combined arrangement.

The contract modification was accounted for on a prospective basis as if it were a termination of the existing contract and the creation of a new contract since the promised goods and services were distinct from the goods and services that were transferred on or before the effective date of the amendment.

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(i) First Development and Commercialization License and (ii) seventeen material rights for additional development and commercialization licenses for other Programs.

The Company also evaluated the (i) the research license, (ii) contract term extensions, (iii) clinical supply arrangement, (iv) participation by employees on the oversight committee, alliance and technology transfer teams and (v) certain intellectual property rights and concluded that none of these met the definition of a performance obligation as a result of the promise being quantitively and qualitatively immaterial in the context of the arrangement or the promise did not convey a material right to Juno Therapeutics.

The Company also concluded that there was not an implicit promise to perform research and development services.

As of December 31, 2022 the total transaction price was approximately $ 117.5 million comprised of the following:

(i) $ 70.0 million Amendment Fee, (ii) $ 32.0 million in remaining deferred revenue balance that was not recognized pursuant the 2018 amendment agreement (iii) $ 3.0 million related to option exercise fees for delivered licenses and (iv) $ 5.0 million related to a development milestone payment that was received by the Company.

(i) $ 70.0 million Amendment Fee, (ii) $ 32.0 million in remaining deferred revenue balance that was not recognized pursuant the 2018 amendment agreement (iii) $ 5.5 million related to option exercise fees for delivered licenses and (iv) $ 10.0 million related to development milestone payments that were received by the Company.

The outstanding milestone payments and extension term fees were fully constrained as of December 31, 2022, as a result of the uncertainty of whether any of the milestones will be achieved or the term would be extended.

The assessment of the constraint utilizing the most likely amount method considers the stage of development and the risks associated with the remaining development required to achieve the milestones, as well as whether the achievement of the milestone is outside the control of the Company or Juno Therapeutics.

The Company has determined that any commercial milestones and sales-based royalties will be recognized when the related sales occurs.

The Company has determined that any commercial milestones and sales-based royalties will be recognized when the related sales occur.

The Company reevaluates the transaction price at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur.

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The Company will recognize the transaction price allocated to each material right when the material right is exercised, lapsed or expired.

During the year ended December 31, 2021 and 2020, the Company recognized $ 24.7 million and $ 11.3 million of revenue related to Juno Therapeutics.

As of December 31, 2021, the Company recorded $ 68.0 million of deferred revenue, of which $ 56.7 million is classified as long-term on our condensed consolidated balance sheet.

During the years ended December 31, 2022, 2021 and 2020, the Company recognized $ 18.8 million, $ 24.7 million and $ 11.3 million of revenue related to BMS.

As of December 31, 2022, the Company recorded $ 56.7 million of deferred revenue, of which $ 56.7 million is classified as long-term on our consolidated balance sheet.

As of December 31, 2021, the $ 56.7 million was classified as long-term in the accompanying consolidated balance sheets.

There were no material sublicense fees paid to licensors in connection with the consideration received pursuant to the Juno

Collaboration Agreement for the year ended December 31, 2021 and 2020.

There were no material sublicense fees paid to licensors in connection with the consideration received pursuant to the BMS Collaboration Agreement for the years ended December 31, 2022 and 2021.

Allergan Pharmaceuticals Strategic Alliance and Profit-Sharing Agreement

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Under the Termination Agreements, Allergan granted the Company a non-exclusive license to certain know-how that is necessary to develop, manufacture and commercialize EDIT-101 and transferred to the Company certain materials produced under the Initial Agreements.

The Company will use commercially reasonable efforts to develop and commercialize products directed at four collaboration targets, one of which is LCA10.

In connection with the Termination Agreements, the Company agreed to make a $ 20.0 million payment to Allergan, $ 17.5 million of which was paid as of December 31, 2020.

The Company is obligated to use commercially reasonable efforts to develop and commercialize products directed at four collaboration targets, one of which is LCA10.

In connection with the Termination Agreements, the Company agreed to make a $ 20.0 million payment to Allergan, which was fully paid as of December 31, 2021.

In addition, the Company will make certain payments on achievements of clinical and regulatory milestones up to $ 20.0 million for each target program and aggregated sales milestones for all products covered by the Termination Agreement up to $ 90.0 million.

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The remainder of the $ 20.0 million payment was recorded as a reduction to the contract liability and partially offset the recognition of $ 77.1 million in previously deferred revenue that was received under the Initial Agreements that was recognized on the termination date.

The contingent payments associated with the collaboration targets not previously licensed by Allergan under the Allergan Agreement did not impact the amount of deferred revenue recognized upon termination because it is not probable that a significant reversal of revenue will occur.

probable that a significant reversal of revenue will occur.

The contingent milestone and royalty payments associated with EDIT-101 qualify for scope exceptions from derivative accounting, and therefore there is no accounting for the contingent payments upon termination.

During the year ended December 31, 2020, the Company recognized revenue related to Allergan of approximately $ 70.6 million.

There was no revenue recognized related to Allergan for the year ended December 31, 2021.

There was no revenue recognized related to Allergan for the years ended December 31, 2021 and 2022.

Beam Therapeutics License Agreement

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The number of shares reserved for issuance under the 2015 Plan is subject to further increases for (a) any additional shares of the Company’s common stock subject to outstanding awards under the 2013 Plan that expire, terminate, or are otherwise surrendered, cancelled, forfeited, or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right and (b) annual increases, to be added as of the first day of each fiscal year, from January 1, 2017 until, and including, January 1, 2026, equal to the lowest of 2,923,076 shares of common stock, 4 % of the number of shares of common stock outstanding on such first day of the fiscal year in question and an amount determined by the Company’s board of directors.

In January 2022, the shares under the 2015 Plan were increased by 2,738,110 shares pursuant to the annual increase described in the prior sentence.

In January 2023, the shares under the 2015 Plan increased by 2,753,895 shares pursuant to the annual increase described in the prior sentence.

2015 Employee Stock Purchase Plan

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The first offering under the 2015 ESPP opened on December 1, 2017.

In January 2022, the shares under the 2015 ESPP Plan were increased by 684,527 shares pursuant to the annual increase described in the prior sentence.

In January 2023, the board of directors determined that there should be no increase in shares available under the 2015 ESPP for 2023.

Inducement Awards

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Inducement awards are typically a service-based option and a restricted stock unit and are subject to the Company’s typical vesting terms and the employee’s continued service relationship with the Company through the applicable vesting dates.

In June 2021, the Company’s board of directors approved two inducement grants to the Company’s recently hired Chief Scientific Officer and Chief Regulatory Officer.

The inducement grant for the Chief Medical Officer, granted in November 2020, was cancelled upon her departure from the Company in February 2022.

In June 2022 and July 2022, the Company’s board of directors approved two inducement grants to the Company’s recently hired Chief Executive Officer and Chief Medical Officer, respectively.

Shares Reserved for Future Issuance

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Outstanding at December 31, 2021

( 1,233,958 )

Outstanding at December 31, 2022

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Expected dividend yield

The stock options granted in the year ended December 31, 2021 include option grants to the Company’s Chief Executive Officer to purchase 196,637 and 341,978 shares of the Company’s common stock that contained market-based and performance-based vesting provisions, respectively.

The total expense for the year ended December 31, 2021 related to awards containing market-based and performance-based vesting provisions was $ 4.3 million and $ 5.3 million, respectively.

As of December 31, 2022, total unrecognized compensation expense related to stock options was $ 33.7 million, which the Company expects to recognize over a remaining weighted-average period of 2.9 years.

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The Company had no income tax expense due to operating losses incurred for the years ended December 31, 2022 and 2021.

A reconciliation of the income tax expense computed using the federal statutory income tax rate to the Company’s effective income tax rate is as follows:

A reconciliation of the income tax expense computed using the federal statutory income tax rate to the

Company’s effective income tax rate is as follows:

Income tax computed at federal statutory tax rate

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Capitalized patent costs

Capitalized research

Lease Liabilities

Deferred revenue

Depreciation and amortization

Total deferred tax assets

5 unchanged sentences

Net deferred taxes

For taxable years beginning after December 31, 2021, the Tax Cuts and Jobs Act (the "Tax Act”) eliminated the option to deduct research and development expenditures in the current year and requires taxpayers to capitalize such expenses pursuant to Internal Revenue Code ( "IRC"

) Section 174.

As a result of this provision of the Tax Act, deferred tax assets related to capitalized research expenses pursuant to IRC Section 174 increased to $ 41.9 million for the year ended December 31, 2022.

The Company has incurred net operating losses (“NOL”) since inception.

At December 31, 2022 and 2021, the Company had federal net operating loss carryforwards of $ 517.5 million and $ 447.4 million, respectively.

Of the amount as of December 31, 2021, $ 371.9 million will carryforward indefinitely while $ 75.5 million will expire beginning in 2033 and will continue to expire through 2037.

Of the amount

as of December 31, 2022, $ 442.7 million will carryforward indefinitely while $ 74.8 million will expire beginning in 2035 and will continue to expire through 2037.

As of December 31, 2022, and 2021, the Company also had state net operating loss carryforwards of approximately $ 609.5 million and $ 507.1 million, respectively, which may be available to offset future income tax liabilities and will expire beginning in 2035 and will continue to expire through 2042.

Loss generated in 2021 expires in 2041.

Under the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), the NOL and tax credit carryforward are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities.

NOL and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes

in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Code, respectively, as well as other similar state provisions.

NOL and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Code, respectively, as well as other similar state provisions.

The Company conducted an analysis under Section 382 to determine if historical changes in ownership through December 31, 2019 would limit or otherwise restrict its ability to utilize its NOL and research and development credit carryforwards.

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The Company’s reserves related to income taxes are based on a determination of whether, and how much of, a tax benefit taken by the Company in its tax filings or positions is more likely than not to be realized following resolution of any potential contingencies present related to the tax benefit.

At December 31, 2021 and 2020, the Company had no unrecognized tax benefits.

Interest and penalty charges, if any, related to unrecognized tax benefits would be classified as income tax expense in the accompanying statements of operations.

The following table summarizes the activity related to the Company’s gross unrecognized tax benefits at the beginning and end of the years ended December 31, 2022 and 2021 (in thousands):

Balance as of December 31, 2021

Gross increases for tax positions related to current year

Gross increases for tax positions related to prior year

Gross decreases for tax positions related to prior year

Balance as of December 31, 2022

At December 31, 2022 and 2021, the Company had unrecognized tax benefits of $ 11.8 million and $ 0 million, respectively.

The Company will recognize interest and penalties related to uncertain tax positions in income tax expense.

As of December 31, 2022 and 2021, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s statement of operations.

The company does not anticipate a material change to unrecognized tax benefits in the next twelve months.

The Company has not as of yet conducted a study of its research and development credit carry forwards.

1 unchanged sentence

however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position.

A full valuation allowance has been provided against the Company’s research and development credits, and if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance.

A full valuation allowance has been provided against the Company’s research and development credits, and if an adjustment is

required, this adjustment would be offset by an adjustment to the valuation allowance.

Thus, there would be no impact to the consolidated balance sheets or statements of operations if an adjustment were required.

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The Company did not have any international operations as of December 31, 2022.

The Company is currently under examination by the Internal Revenue Service ("IRS") for the period ended December 31, 2018 related to its R&D tax credits.

An examination by the Internal Revenue Service ("IRS") for the period ended December 31, 2018 related to its R&D tax credits concluded in December 31, 2022 and resulted in a reduction to the Company’s deferred tax assets.

Net Loss per Share

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Outstanding stock options

Estimated number of shares issuable for convertible notes (1)

(1) Represents the number of shares that would have been issued if the Company had elected to pay the success payment that was triggered in the fourth quarter of 2020 as discussed in Note 8, in shares of the Company’s common stock, based on the closing price of the common stock on December 31, 2020.

The number of shares issued, for purposes of this presentation, is calculated by dividing the principal of the notes payable, including accrued interest, by the stock price per share

The table above reflects restricted stock issued upon exercise of unvested stock options as exercised on the dates that the shares are no longer subject to repurchase.

2 unchanged sentences

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

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk