Editas Medicine, Inc. 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk. We are exposed to market risk related to changes in interest rates. As of December 31, 2023, we had cash and cash equivalents of $123.7 million, primarily held in money market mutual funds consisting of U.S. government-backed securities, and marketable securities of $303.5 million, primarily consisting of U.S. government-backed securities, U.S. Treasuries 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. Treasury and U.S. government agency obligations. Due to the short-term maturities and low risk profiles of our investments, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our investments. While we contract with certain vendors and institutions internationally, substantially all of our total liabilities as of December 31, 2023 were denominated in the United States dollar and we believe that we do not have any material exposure to foreign currency exchange rate risk. 112 Table of Contents Item 8. Financial Statement and Other Supplementary Information. EDITAS MEDICINE, INC. INDEX TO FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB ID 42 ) 114 Consolidated Balance Sheets 116 Consolidated Statements of Operations 117 Consolidated Statements of Comprehensive Loss 118 Consolidated Statements of Stockholders’ Equity 119 Consolidated Statements of Cash Flows 120 Notes to Consolidated Financial Statements 121 113 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Editas Medicine, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Editas Medicine, Inc. (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the consolidated “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 28, 2024 expressed an unqualified opinion thereon. 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 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. 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. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated 114 Table of Contents financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Research and Development Accruals Description of the Matter The Company’s accrual for research and development expenses totaled $16.2 million at December 31, 2023. As discussed in Note 2 to the consolidated financial statements, the Company expenses research and development costs as incurred. The Company’s determination of costs incurred to conduct research and development on the Company’s product candidates, as well as the related accrued expenses at each reporting period incorporates judgment and utilizes various assumptions, including an evaluation of the information provided to the Company by third parties on actual costs incurred but not yet billed, estimated project timelines and patient enrollment. Payments for these activities are based on the terms of the individual arrangements, which often differ from the pattern of costs incurred. Auditing the Company’s research and development accruals is especially complex due to the judgments and estimations of the research and development expenses. The Company uses judgment and estimation to estimate costs incurred and not yet billed at each reporting period as a result of the volume of R&D contracts, as well as the extent of third-party vendors utilized. Additionally, due to the timing of invoices received from third parties, actual amounts incurred are not always known as of the audit report date. How We Addressed the Matter in Our Audit We obtained an understanding of the Company’s process, evaluated and tested the design and operating effectiveness of internal controls that address the risks related to the completeness and valuation of accrued research and development expenses. 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 research and development projects with the Company’s research and development personnel that oversee the clinical trials and the related manufacturing activities, and reviewed information received from third party vendors, which included the third parties’ estimate of costs incurred to date. We also tested subsequent invoicing received from third parties. / s/ Ernst & Young LLP We have served as the Company’s auditor since 2015. Boston, Massachusetts February 28, 2024 115 Table of Contents Editas Medicine, Inc. Consolidated Balance Sheets (amounts in thousands, except share and per share data) December 31, 2023 2022 ASSETS Current assets: Cash and cash equivalents $ 123,652 $ 141,522 Marketable securities 199,459 202,752 Accounts receivable 10,187 5,145 Prepaid expenses and other current assets 7,531 7,335 Total current assets 340,829 356,754 Marketable securities 104,024 93,097 Property and equipment, net 12,032 15,569 Right-of-use assets 33,680 43,648 Restricted cash and other non-current assets 8,588 5,253 Total assets $ 499,153 $ 514,321 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 8,269 $ 9,511 Accrued expenses 34,563 31,296 Deferred revenue, current 8,221 8,221 Operating lease liabilities 12,164 11,082 Total current liabilities 63,217 60,110 Operating lease liabilities, net of current portion 24,372 32,864 Deferred revenue, net of current portion 60,667 60,667 Other non-current liabilities 1,800 — Total liabilities 150,056 153,641 Stockholders’ equity Preferred stock, $ 0.0001 par value per share: 5,000,000 shares authorized; no shares issued or outstanding — — Common stock, $ 0.0001 par value per share: 195,000,000 shares authorized; 81,767,263 and 68,847,382 shares issued, and 81,767,263 and 68,847,382 shares outstanding at December 31, 2023 and December 31, 2022, respectively 8 7 Additional paid-in capital 1,580,241 1,442,405 Accumulated other comprehensive income (loss) 198 ( 3,601 ) Accumulated deficit ( 1,231,350 ) ( 1,078,131 ) Total stockholders’ equity 349,097 360,680 Total liabilities and stockholders’ equity $ 499,153 $ 514,321 The accompanying notes are an integral part of the consolidated financial statements. 116 Table of Contents Editas Medicine, Inc. Consolidated Statements of Operations (amounts in thousands, except per share and share data) Year Ended December 31, 2023 2022 2021 Collaboration and other research and development revenues $ 78,123 $ 19,712 $ 25,544 Operating expenses: Research and development 177,651 174,958 142,507 General and administrative 69,653 70,704 76,183 Total operating expenses 247,304 245,662 218,690 Operating loss ( 169,181 ) ( 225,950 ) ( 193,146 ) Other income, net: Other income, net ( 1,604 ) — 37 Interest income, net 17,566 5,518 607 Total other income, net 15,962 5,518 644 Net loss $ ( 153,219 ) $ ( 220,432 ) $ ( 192,502 ) Net loss per share, basic and diluted $ ( 2.02 ) $ ( 3.21 ) $ ( 2.85 ) Weighted-average common shares outstanding, basic and diluted 75,965,633 68,664,822 67,619,388 The accompanying notes are an integral part of the consolidated financial statements. 117 Table of Contents Editas Medicine, Inc. Consolidated Statements of Comprehensive Loss (amounts in thousands) Year Ended December 31, 2023 2022 2021 Net loss $ ( 153,219 ) $ ( 220,432 ) $ ( 192,502 ) Other comprehensive income (loss): Unrealized gain (loss) on marketable debt securities 3,799 ( 3,108 ) ( 447 ) Comprehensive loss $ ( 149,420 ) $ ( 223,540 ) $ ( 192,949 ) The accompanying notes are an integral part of the consolidated financial statements. 118 Table of Contents Editas Medicine, Inc. Consolidated Statements of Stockholders’ Equity (amounts in thousands except share data) Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity Shares Amount Balance at December 31, 2020 62,563,457 $ 6 $ 1,058,823 $ ( 665,197 ) $ ( 46 ) $ 393,586 Issuance of common stock from public offering, net of issuance costs of $0.3 million 4,025,000 1 249,458 — — 249,459 Issuance of common stock for repayment of notes payable 303,599 — 27,500 — — 27,500 Exercise of stock options 1,233,958 — 31,495 — — 31,495 Stock-based compensation expense — — 43,399 — — 43,399 Vesting of restricted common stock awards 267,268 — — — — — Purchase of common stock under benefits plans 41,975 — 1,152 — — 1,152 Unrealized loss on marketable debt securities — — — — ( 447 ) ( 447 ) Net loss — — — ( 192,502 ) — ( 192,502 ) Balance at December 31, 2021 68,435,257 $ 7 $ 1,411,827 $ ( 857,699 ) $ ( 493 ) $ 553,642 Exercise of stock options 19,769 — 305 — — 305 Stock-based compensation expense — — 29,294 — — 29,294 Vesting of restricted common stock awards 286,642 — — — — — Purchase of common stock under benefit plan 105,714 — 979 — — 979 Unrealized loss on marketable debt securities — — — — ( 3,108 ) ( 3,108 ) Net loss — — — ( 220,432 ) — ( 220,432 ) Balance at December 31, 2022 68,847,382 $ 7 $ 1,442,405 $ ( 1,078,131 ) $ ( 3,601 ) $ 360,680 Issuance of common stock from public offering, net commissions, underwriting discounts and offering costs 12,500,000 1 117,078 — — 117,079 Exercise of stock options 6,587 — 41 — — 41 Stock-based compensation expense — — 19,798 — — 19,798 Vesting of restricted common stock awards 297,934 — — — — — Purchase of common stock under benefit plans 115,360 — 919 — — 919 Unrealized gain on marketable debt securities — — — — 3,799 3,799 Net loss — — — ( 153,219 ) — ( 153,219 ) Balance at December 31, 2023 81,767,263 $ 8 $ 1,580,241 $ ( 1,231,350 ) $ 198 $ 349,097 The accompanying notes are an integral part of the consolidated financial statements. 119 Table of Contents Editas Medicine, Inc. Consolidated Statements of Cash Flows (amounts in thousands) Year Ended December 31, 2023 2022 2021 Cash flow from operating activities Net loss $ ( 153,219 ) $ ( 220,432 ) $ ( 192,502 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation expense 19,798 29,294 43,399 Depreciation 6,064 6,337 5,053 Net amortization of premiums and discounts on marketable securities ( 4,823 ) ( 724 ) 1,657 Other non-cash items, net 1,596 — — Changes in operating assets and liabilities: Accounts receivable ( 5,042 ) ( 4,878 ) 5,781 Prepaid expenses and other current assets ( 197 ) ( 137 ) 3,731 Right-of-use assets 9,968 ( 17,475 ) 9,691 Other non-current assets ( 3,335 ) 1,558 ( 2,108 ) Accounts payable ( 1,492 ) 4,368 ( 1,139 ) Accrued expenses 4,114 10,505 ( 4,166 ) Deferred revenue — ( 3,333 ) ( 22,706 ) Operating lease liabilities ( 7,410 ) 17,568 ( 10,494 ) Other current and non-current liabilities 1,800 — — Net cash used in operating activities ( 132,178 ) ( 177,349 ) ( 163,803 ) Cash flow from investing activities Purchases of property and equipment ( 4,719 ) ( 4,118 ) ( 7,977 ) Proceeds from the sale of equipment — 18 — Purchases of marketable securities ( 258,517 ) ( 315,186 ) ( 408,891 ) Proceeds from maturities of marketable securities 259,505 433,354 362,402 Net cash provided by (used in) investing activities ( 3,731 ) 114,068 ( 54,466 ) Cash flow from financing activities Proceeds from offering of common stock, net of issuance costs 117,079 — 249,459 Proceeds from exercise of stock options 41 305 31,495 Issuance of common stock under benefit plans 919 979 1,152 Net cash provided by financing activities 118,039 1,284 282,106 Net (decrease) increase in cash, cash equivalents, and restricted cash ( 17,870 ) ( 61,997 ) 63,837 Cash, cash equivalents, and restricted cash, beginning of period 145,399 207,396 143,559 Cash, cash equivalents, and restricted cash, end of period $ 127,529 $ 145,399 $ 207,396 Supplemental disclosure of cash and non-cash activities: Fixed asset additions included in accounts payable and accrued expenses $ 845 $ 1,440 $ 749 Cash paid in connection with operating lease liabilities 12,428 14,851 13,094 Right-of-use assets obtained in exchange of operating lease obligations 2,752 29,861 10,736 The accompanying notes are an integral part of the consolidated financial statements. 120 Table of Contents Editas Medicine, Inc. Notes to Consolidated Financial Statements 1. Nature of Business Editas Medicine, Inc. (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. Its principal offices are in Cambridge, Massachusetts. 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 (“BMS”), payments received under a strategic alliance and option agreement with Allergan Pharmaceuticals International Limited (together with its affiliates, “Allergan”) and payments received in conjunction with the Company’s license agreement with Vertex Pharmaceuticals, Inc (“Vertex”). 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. Liquidity As of December 31, 2023, the Company has raised an aggregate of $ 1.0 billion in net proceeds through the sale of shares of its common stock in public offerings and at-the-market offerings. The Company also has funded its business from payments received under its license agreement with Vertex, its research collaboration with BMS and its former strategic alliance with Allergan. As of December 31, 2023, the Company had cash, cash equivalents and marketable securities of $ 427.1 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”). As of December 31, 2023 the Company has not sold any shares of its common stock under the ATM Facility. The Company has incurred annual net operating losses in every year since its inception. The Company has an accumulated deficit of $ 1.2 billion at December 31, 2023. As of February 28, 2024, the issuance date of the consolidated financial statements, the Company expects that its existing cash, cash equivalents and marketable securities will be sufficient to fund its operating expenses and capital expenditure requirements for at least twelve months from the issuance date of the consolidate financial statements. The Company has never generated any product revenue. There can be no assurance that the Company will be able to obtain additional debt or equity financing or generate product revenue or revenues from collaborative partners, on terms acceptable to the Company, on a timely basis or at all. The failure of the Company to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on the Company’s business, results of operations, and financial condition. 2. Summary of Significant Accounting Policies Principles of Consolidation The accompanying consolidated financial statements include the accounts of Editas Medicine, Inc. and its wholly owned subsidiaries, Editas Securities Corporation, which is a Delaware subsidiary created to buy, sell and hold securities, and Editas Medicine, LLC, a Delaware limited liability company. All intercompany transactions and balances have been eliminated. 121 Table of Contents Basis of Presentation The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. On an ongoing basis, the Company’s management evaluates its estimates, which include, but are not limited to, estimates related to revenue recognition, stock-based compensation expense, the accrual for research and development expenses, valuations of in-process research and development assets and deferred tax valuation allowances. The Company bases its estimates on historical experience and other market-specific or relevant assumptions that it believes to be reasonable under the circumstances. Actual results may differ from those estimates or assumptions. Fair Value of Financial Instruments ASC Topic 820, Fair Value Measurement (“ASC 820”), establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. 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. ASC 820 identifies fair value as the exchange price representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy that distinguishes between the following: • Level 1 – Quoted market prices in active markets for identical assets or liabilities. • Level 2 – Inputs other than Level 1 inputs that are either directly or indirectly observable, such as quoted market prices, interest rates, and yield curves. • Level 3 – Unobservable inputs developed using estimates of assumptions developed by the Company, which reflect those that a market participant would use. 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. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. 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 carrying amounts reflected in the consolidated balance sheets for cash and cash equivalents, restricted cash, marketable securities, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses, and other current liabilities approximate their fair values, due to their short-term nature. Cash, Cash Equivalents, and Restricted Cash The Company considers all highly liquid investments purchased with original maturities of 90 days or less at acquisition to be cash equivalents. Cash and cash equivalents include cash held in banks and amounts held in money market funds. The Company has restricted cash of $ 3.9 million held as collateral for the Company’s office and lab facilities and credit card program. The restricted funds are maintained in a traditional bank account. 122 Table of Contents The following table presents cash, cash equivalents, and restricted cash as reported on the consolidated balance sheets that equal the total amounts on the consolidated statements of cash flows (in thousands): Year Ended December 31, 2023 2022 Cash and cash equivalents $ 123,652 $ 141,522 Restricted cash included in "Restricted cash and other non-current assets" 3,877 3,877 Total cash, cash equivalents, and restricted cash $ 127,529 $ 145,399 Marketable Securities The Company classifies marketable securities with a remaining maturity when purchased of greater than three months and less than one year from the balance sheet date as current. 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. For the years ended December 31, 2023 and 2022, the Company’s marketable securities consisted of investments in available-for-sale debt securities and corporate equity securities. Available-for-sale debt securities are carried at fair value with the unrealized gains and losses included in accumulated other comprehensive income (loss) as a component of stockholders’ equity until realized. Any premium or discount arising at purchase is amortized and/or accreted to interest income and/or expense over the life of the of the underlying security. Realized gains and losses are included in other income (expense). At each reporting date, the Company records an allowance for credit losses and reports it as credit loss expense which is included in “Other income (expense), net” in the Company’s consolidated statement of operations. The estimate for credit losses includes a measure of the expected risk of credit loss even if the risk is remote. When assessing financial assets for credit losses, the Company pools financial assets with similar risk characteristics and performs a collective evaluation. A credit loss on an available-for-sale debt security is limited to the difference in fair value and the amortized cost. A previously recognized credit loss may be increased or decreased in subsequent periods if the Company’s estimate of fair value changes. To determine whether to record a credit loss, the Company considers issuer or vendor specific credit ratings and historical losses as well as current economic conditions and its expectations for future economic conditions. To date, the Company has not had any credit losses, and the Company did not have an allowance for credit losses as of December 31, 2023 and 2022. The Company classified investments in equity securities that had a readily determinable fair value as marketable securities in the Company’s consolidated balance sheets. The fair value of these securities were based on a quoted price for an identical equity security. If the equity security had a restriction that was determined to be an attribute of the security that would transfer to a market participant, the fair value of the security was measured based on the quoted price for an otherwise identical unrestricted equity security, adjusted for the effect of the restriction. The adjustment reflects the discount that a market participant would demand for the risk relating to the inability to dispose of the security for a specified period of time. The Company recorded changes in the fair value of its equity securities in “Other income (expense), net” in the Company’s consolidated statement of operations. Accounts Receivable The Company makes judgments as to its ability to collect outstanding receivables and provides an allowance for receivables when collection becomes doubtful. 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 significant. To date, the Company has not had any write-offs of bad debt, and the Company did not have an allowance for doubtful accounts as of December 31, 2023 and 2022. Concentrations of Credit Risk and Off-Balance Sheet Risk The Company has no financial instruments with off-balance sheet risk such as foreign exchange contracts, option contracts, or other foreign hedging arrangements. Financial instruments that potentially subject the Company to a concentration of credit risk are cash, cash equivalents, marketable securities and receivables owed to the Company from 123 Table of Contents collaboration partners. The Company’s cash, cash equivalents and marketable securities are held in accounts at a financial institution that may exceed federally insured limits. The Company has not experienced any credit losses in such accounts and does not believe it is exposed to any significant credit risk on these funds. Property and Equipment Property and equipment consists of computers, laboratory equipment, furniture and office equipment, and leasehold improvements and is stated at cost, less accumulated depreciation. Maintenance and repairs that do not improve or extend the lives of the respective assets are expensed to operations as incurred, while costs of major additions and betterments are capitalized. Depreciation is calculated over the estimated useful lives of the assets using the straight-line method. The Company capitalizes laboratory equipment used for research and development if it has alternative future use in research and development or otherwise. Asset: Estimated Useful life Labratory and manufacturing equipment 5 years Computer equipment and software 3 years Furniture and equipment 5 years Leasehold improvements Shorter of useful life or remaining lease term Impairment of Long-lived Assets The Company evaluates long-lived assets for potential impairment when events or changes in circumstances indicate the carrying value of the assets may not be recoverable. Recoverability is measured by comparing the book values of the assets to the expected future net undiscounted cash flows that the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the book values of the assets exceed their fair value. The Company has not recognized any impairment losses from inception through December 31, 2023. Revenue Recognition The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). The Company enters into collaboration agreements and certain other agreements that are within the scope of ASC 606, under which the Company licenses, may license or grants an option to license rights to certain of the Company’s product candidates and performs research and development services in connection with such arrangements. The terms of these arrangements typically include payment of one or more of the following: non-refundable, up-front fees; reimbursement of research and development costs; development, clinical, regulatory and commercial sales milestone payments; and royalties on net sales of licensed products. 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 the appropriate amount of revenue to be recognized for arrangements determined to be within the scope of ASC 606, the Company performs the following five steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect consideration it is entitled to in exchange for the goods or services it transfers to the customer. The promised goods or services in the Company’s arrangements typically consist of a license, or option to license, rights to the Company’s intellectual property or research and development services. The Company provides options to additional items in such arrangements, which are accounted for as separate contracts when the customer elects to exercise such options, unless the option provides a material right to the customer. Performance obligations are promised goods or services in a contract to transfer a distinct good or service to the customer and are considered distinct when (i) the customer can benefit from the good or service on its own or together with other readily available resources and (ii) the promised good or service is separately identifiable from other promises in the contract. In assessing whether promised good or services are distinct, the Company considers factors such as the stage of development of the underlying intellectual 124 Table of Contents property, the capabilities of the customer to develop the intellectual property on its own or whether the required expertise is readily available and whether the goods or services are integral or dependent to other goods or services in the contract. The Company estimates the transaction price based on the amount expected to be received for transferring the promised goods or services in the contract. The consideration may include fixed consideration or variable consideration. At the inception of each arrangement that includes variable consideration, the Company evaluates the amount of potential payment and the likelihood that the payments will be received. The Company utilizes either the most likely amount method or expected value method to estimate the amount expected to be received based on which method best predicts the amount expected to be received. The amount of variable consideration that is included in the transaction price may be constrained and is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. The Company’s contracts often include development and regulatory milestone payments that are as assessed under the most likely amount method and constrained if it is probable that a significant revenue reversal would occur. Milestone payments that are not within the Company’s control or the licensee’s control, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. At the end of each reporting period, the Company re-evaluates the probability of achievement of such development and clinical 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 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). To date, the Company has not recognized any royalty revenue resulting from any of the Company’s collaboration or strategic alliance arrangements. The Company allocates the transaction price based on the estimated standalone selling price. The Company must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract. The Company utilizes key assumptions to determine the stand-alone selling price, which may include other comparable transactions, pricing considered in negotiating the transaction and the estimated costs. Variable consideration is allocated specifically to one or more performance obligations in a contract when the terms of the variable consideration relate to the satisfaction of the performance obligation and the resulting amounts allocated are consistent with the amounts the Company would expect to receive for the satisfaction of each performance obligation. The consideration allocated to each performance obligation is recognized as revenue when control is transferred for the related goods or services. For performance obligations which consist of licenses and other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. The Company receives payments from its customers based on billing schedules established in each contract. Up-front payments and fees are recorded as deferred revenue upon receipt or when due until the Company performs its obligations under these arrangements. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional. Research and Development Expenses Research and development expenses are charged to expense as incurred in performing research and development activities. The costs include employee-related expenses including salaries, benefits, and stock-based compensation expense, costs of funding research performed by third parties that conduct research and development and preclinical and clinical activities on the Company’s behalf, the cost of purchasing lab supplies and non-capital equipment used in preclinical and clinical activities and in manufacturing preclinical and clinical study materials, consultant fees, facility costs including rent, depreciation, and maintenance expenses, and fees for acquiring and maintaining licenses under third party licensing agreements which are typically expensed when incurred if the technology licensed has no alternate future uses, including any sublicensing or success payments made to the Company’s licensors. In accruing service 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 accrual or prepaid is 125 Table of Contents adjusted accordingly. The Company defers and capitalizes non-refundable advance payments made by the Company for research and development activities until the related goods are received or the related services are performed. In circumstances where amounts have been paid in excess of costs incurred, the Company records a prepaid expense. In-process Research and Development Assets In-process research and development assets that are acquired in a transaction that does not qualify as a business combination under GAAP and that do not have an alternative future use are expensed in the period in which the assets are acquired. Patent Costs The Company expenses patent and patent application costs and related legal costs for the prosecution and maintenance of such patents and patent applications, including patents and patent applications the Company in-licenses, as incurred, and classifies such costs as general and administrative expenses in the accompanying consolidated statements of operations. Leases The Company accounts for leases in accordance with ASC 842. At the inception of an arrangement the Company determines whether the arrangement contains a lease. If a lease is identified in an arrangement, the Company recognizes a right-of-use asset and liability on its balance sheet and determines whether the lease should be classified as a finance or operating lease. The Company does not recognize assets or liabilities for leases with lease terms of less than 12 months. Lease payments for short-term leases are recorded to operating expense on a straight-line basis over the lease term and variable lease payments are recorded in the period in which the obligation for those payments is incurred. A lease qualifies as a finance lease if any of the following criteria are met at the inception of the lease: (i) there is a transfer of ownership of the leased asset to the Company by the end of the lease term, (ii) the Company holds an option to purchase the leased asset that it is reasonably certain to exercise, (iii) the lease term is for a major part of the remaining economic life of the leased asset, (iv) the present value of the sum of lease payments equals or exceeds substantially all of the fair value of the leased asset, and (v) the nature of the leased asset is specialized to the point that it is expected to provide the lessor no alternative use at the end of the lease term. All other leases are recorded as operating leases. Finance and operating lease assets and liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term using the discount rate implicit in the lease. If the rate is not readily determinable, the Company utilizes its incremental borrowing rate at the lease commencement date. Operating lease assets are further adjusted for prepaid or accrued lease payments. Operating lease payments are expensed using the straight-line method as an operating expense over the lease term. Finance lease assets are amortized to depreciation expense using the straight-line method over the shorter of the useful life of the related asset or the lease term. Finance lease payments are bifurcated into (i) a portion that is recorded as imputed interest expense and (ii) a portion that reduces the finance liability associated with the lease. The Company does not separate lease and non-lease components when determining which lease payments to include in the calculation of its lease assets and liabilities. Variable lease payments are expensed as incurred. If a lease includes an option to extend or terminate the lease, the Company reflects the option in the lease term if it is reasonably certain it will exercise the option. Stock-based Compensation Expense The Company accounts for all stock-based awards granted to employees and non-employees as stock-based compensation expense at fair value in accordance with FASB ASC Topic 718 Compensation—Stock Compensation (“ASC 718”). The Company estimates the grant date fair value of restricted stock based on the market value of the Company’s common stock on the date of the grant. The Company estimates the grant date fair value of each option award using the Black-Scholes option-pricing model. The Black-Scholes option pricing model requires the input of certain assumptions, including (1) the expected stock price volatility, (2) the calculation of expected term of the award, (3) the risk-free interest rate, and (4) the expected dividend yield. The Company used its own historical volatility data for its estimates of expected volatility. The Company 126 Table of Contents calculates historical volatility based on a period of time commensurate with the expected term. The Company uses the simplified method as prescribed by the Securities and Exchange Commission’s Staff Accounting Bulletin No. 107, Share-Based Payment, to calculate the expected term for options granted to employees as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. For options granted to non-employees, the Company utilizes the contractual term of the arrangement as the basis for the expected term. The Company determines the risk-free interest rate based on a treasury instrument whose term is consistent with the expected term of the stock options. The Company uses an assumed dividend yield of zero as the Company has never paid dividends and does not have current plans to pay any dividends on its common stock. Restricted stock awards (“RSAs”) are subject to repurchase rights. Accordingly, the Company has recorded the proceeds from the issuance of RSAs as a liability in the consolidated balance sheets. The restricted stock liability is reclassified into stockholders’ equity as the restricted stock vests. Service-Based Awards For stock-based awards issued to employees, non-employee service providers and members of the Company’s board of directors (the “Board”), the Company recognizes the grant date fair value of the service-based options, RSAs or restricted stock unit awards (“RSUs”) on a straight-line basis over the requisite service period, which is generally the vesting period of the respective award. If an employee or non-employee service requirement is concluded to be non-substantive, the stock-based compensation expense would be expensed immediately. Market-Based Awards For market-based awards, the Company recognizes the grant date fair value of the market-based options over the earlier of the derived service period, pursuant to a Monte-Carlo simulation model, or when the market-based vesting conditions are met. The Company estimates an award's derived service period based on the best estimate of the period over which an award's vesting condition(s) will be achieved. If the market-based vesting conditions are met ahead of the derived service period, the expense will be accelerated. If the market-based vesting conditions are not met and the market-based award is cancelled, the expense will not be reversed unless the market-based award is forfeited. Performance-Based Awards For performance-based awards, the Company recognizes the grant date fair value of the performance-based options or RSUs over the requisite service period using the accelerated attribution method to the extent achievement of the performance condition is probable. Certain awards are subject to both performance and continued service conditions. The Company classifies stock-based compensation expense in its consolidated statement of operations and comprehensive loss in the same manner in which the award recipient’s salary or service payments are classified. Forfeitures are recorded as they occur. If factors change or different assumptions are used, the Company’s stock-based compensation expense could be materially different in the future. Success Payments, Research Funding Payments and Notes Payables Certain arrangements require the Company to make payments, if and when, the Company’s market capitalization reaches specified thresholds for a specific period of time or upon a sale of the Company for consideration in excess of those thresholds or above a specific amount. The payments are accounted for under the provisions of ASC 718, whereby the Company recognizes the expense and liability when it becomes probable that the amounts will become due. The Company records this expense as a research and development expense in its consolidated statements of operations. The arrangements and payments are described more fully in Note 8. The payments are payable in either cash, common stock or promissory notes payable, depending upon the licensor and the Company’s election. If the Company elects to issue a promissory note relating to contractual obligations, the promissory note bears interest at 4.8 % per annum. Outstanding principal and accrued interest on the promissory notes are typically payable on the earlier of five months or a specified period of time following a Company sale or change of control event, subject to certain exceptions. 127 Table of Contents Income taxes Income taxes are recorded in accordance with ASC Topic 740, Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and the tax reporting basis of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. The Company provides a valuation allowance against net deferred tax assets unless, based upon the weight of available evidence, it is more likely than not that the deferred tax assets will be realized. The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. The Company assesses the impact of various tax reform proposals and modifications to existing tax treaties in all jurisdictions where they have operations to determine the potential effect on the Company’s business and any assumptions they have made about their future taxable income. The Company cannot predict whether any specific proposals will be enacted, the terms of any such proposals or what effect, if any, such proposals would have on the Company if they were to be enacted. Beginning in 2022, the Tax Cut and Jobs Act of 2017 eliminates the currently available option to deduct research and development expenditures and requires taxpayers to amortize them over five years. The U.S. Congress is considering legislation that would defer the amortization requirement to future periods, however, the Company has no assurance that the provision will be repealed or otherwise modified. Comprehensive Loss Comprehensive loss currently consists of net loss and changes in unrealized gains and losses on marketable securities. Segment Information Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker in deciding how to allocate resources and assess performance. The Company and the Company’s chief operating decision maker, the Company’s Chief Executive Officer, view the Company’s operations and manage the Company’s business as a single operating segment, which is the business of developing and commercializing genome editing technology. Recently Issued Accounting Pronouncements In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2023-09 "Income Taxes (Topic 740): Improvements to Income Tax Disclosures." This guidance is intended to enhance the transparency and decision-usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to disclosure regarding rate reconciliation and income taxes paid both in the United States and in foreign jurisdictions. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 on a prospective basis, with the option to apply the standard retrospectively. Early adoption is permitted. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statement disclosures. In October 2023, the FASB issued ASU 2023-06 "Disclosure Improvements: Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative." which incorporates certain SEC disclosure requirements into the FASB Accounting Standards Codification ("Codification"). The amendments in the ASU are expected to clarify or improve disclosure and presentation requirements of a variety Codification topics, allow investors to more easily compare entities subject to the SEC's existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the Codification with the SEC's regulations. The effective date for each amendment will be the date on which the SEC's removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. The amendments in this ASU should be applied prospectively. The Company doe not expect ASU 2023-06 will have a material impact to its consolidated financial statements. 128 Table of Contents 3. Cash Equivalents and Marketable Securities Cash equivalents and marketable securities consisted of the following at December 31, 2023 (in thousands): December 31, 2023 Amortized Cost Allowance for Credit Losses Gross Unrealized Gains Gross Unrealized Losses Fair Value Cash equivalents and marketable securities: Money market funds $ 123,652 $ — $ — $ — $ 123,652 U.S. Treasuries 168,858 — 611 169,469 Government agency securities 103,507 — — ( 327 ) 103,180 Corporate notes/bonds 30,920 — — ( 86 ) 30,834 Total $ 426,937 $ — $ 611 $ ( 413 ) $ 427,135 Cash equivalents and marketable securities consisted of the following at December 31, 2022 (in thousands): December 31, 2022 Amortized Cost Allowance for Credit Losses Gross Unrealized Gains Gross Unrealized Losses Fair Value Cash equivalents and marketable securities: Money market funds $ 141,522 $ — $ — $ — $ 141,522 U.S. Treasuries 50,019 — 3 ( 229 ) 49,793 Government agency securities 161,902 — 11 ( 2,556 ) 159,357 Commercial paper 29,954 — 3 ( 141 ) 29,816 Corporate notes/bonds 57,575 — 2 ( 694 ) 56,883 Total $ 440,972 $ — $ 19 $ ( 3,620 ) $ 437,371 The Company's available-for-sale securities are subject to a periodic impairment review. A debt security is considered to be impaired when its fair value is less than its carrying cost, in which case the Company would further review the investment to determine whether it is other-than-temporarily impaired. When evaluating an investment for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and any changes thereto, intent to sell, and whether it is more likely than not we will be required to sell the investment before the recovery of its cost basis. If an investment is other-than-temporarily impaired or subject to credit losses, the Company writes it down through the statement of operations and comprehensive loss to its fair value and establishes that value as a new cost basis for the investment. We determined that none of our available-for-sale securities were other-than-temporarily impaired as of December 31, 2023 and 2022, and we did not hold any marketable securities that had been in an unrealized loss position for more than twelve months. As such, the Company believes that it is more likely than not that the investments will be held until maturity or a forecasted recovery of fair value. Based on our procedures under the expected credit loss model, including an assessment of unrealized losses in our portfolio, the Company concluded that any unrealized losses on marketable securities were not attributable to credit and, therefore, did not record an allowance for credit losses for these securities as of December 31, 2023 and 2022." As of December 31, 2023, the Company holds 23 securities with an aggregate fair value of $ 104.0 million that had remaining maturities between one and two years . All other securities had a contractual maturity of less than a year. 129 Table of Contents 4. Fair Value Measurements Assets measured at fair value on a recurring basis as of December 31, 2023 were as follows (in thousands): Financial Assets December 31, 2023 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Cash equivalents: Money market funds $ 123,652 $ 123,652 $ — $ — Marketable securities: Government agency securities 103,180 — 103,180 — Corporate bonds 30,834 — 30,834 — U.S. Treasuries 169,469 169,469 — — Restricted cash and other non-current assets: Money market funds 3,877 3,877 — — Total financial assets $ 431,012 $ 296,998 $ 134,014 $ — Assets measured at fair value on a recurring basis as of December 31, 2022 were as follows (in thousands): Financial Assets December 31, 2022 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Cash equivalents: Money market funds $ 141,522 $ 141,522 $ — $ — Marketable securities: Government agency securities 159,357 — 159,357 — Corporate bonds 56,883 — 56,883 — U.S. Treasuries 49,793 49,793 — — Commercial paper 29,816 — 29,816 — Restricted cash and other non-current assets: Money market funds 3,877 3,877 — — Total financial assets $ 441,248 $ 195,192 $ 246,056 $ — 130 Table of Contents 5. Property and Equipment, Net Property and equipment, net consisted of the following (in thousands): As of December 31, 2023 December 31, 2022 Laboratory and manufacturing equipment $ 25,043 $ 24,407 Leasehold improvements 9,648 9,761 Construction-in-progress 2,060 1,573 Computer equipment 1,062 875 Furniture and office equipment 264 264 Software 215 215 Total property and equipment 38,292 37,095 Less: accumulated depreciation ( 26,260 ) ( 21,526 ) Property and equipment, net $ 12,032 $ 15,569 The Company recorded $ 6.1 million, $ 6.3 million, and $ 5.1 million in depreciation expense during the years ended December 31, 2023, 2022 and 2021, respectively. 6. Accrued Expenses Accrued expenses consisted of the following (in thousands): As of December 31, 2023 2022 External research and development expenses $ 16,204 $ 16,452 Employee related expenses 11,280 10,140 Sublicense and license fees 5,063 559 Intellectual property and patent related fees 983 1,809 Professional service expenses 750 1,260 Other expenses 283 1,076 Total accrued expenses $ 34,563 $ 31,296 7. Leases The Company has multiple lease agreements for office, laboratory and manufacturing space with varying contractual terms set to expire between 2024 and 2028. Typically, base rent payments commence at the beginning of each lease term and continue through the term of the respective lease. The Company’s lease agreements have escalating rent clauses, which require higher rent payments in future years. The Company has two significant leases for office and laboratory space located in Cambridge, Massachusetts that are summarized below. The Company’s leases are included on its consolidated balance sheet as follows (in thousands): As of December 31, 2023 December 31, 2022 Right-of-use assets $ 33,680 $ 43,648 Operating lease liabilities, current $ ( 12,164 ) $ ( 11,082 ) Operating lease liabilities, noncurrent $ ( 24,372 ) $ ( 32,864 ) 131 Table of Contents During the years ended December 31, 2023, 2022 and 2021, the Company recorded $ 15.2 million, $ 13.6 million and $ 10.9 million related to operating lease costs and $ 3.3 million, $ 3.0 million and $ 2.1 million related to variable costs associated with the Company’s operating leases. Maturities of the Company’s lease liabilities as of December 31, 2023 were as follows (in thousands): Maturity of lease liabilities: Year Ended December 31, 2023 2024 $ 14,847 2025 $ 8,391 2026 $ 7,134 2027 $ 7,076 2028 $ 6,000 Thereafter $ — Total minimum lease payments $ 43,448 Less: imputed interest $ ( 6,912 ) Total operating lease liabilities at December 31, 2023 $ 36,536 The weighted-average remaining lease term is 3.8 years and the weighted-average discount rate is 8.9 %. In the second quarter of 2023, the Company entered into a license and service agreement pursuant to which it will lease manufacturing space for our continued research and development activities. As of December 31, 2023, the lease has not commenced for accounting purposes and it is not expected to commence until the first half of 2024. The license and service agreement provides for total remaining lease payments of up to $ 85.4 million over a 10-year lease term. The Company may terminate the license and service agreement in the Company's discretion upon twelve months' prior written notice. Hurley Street In 2016, the Company entered into a lease agreement for 59,783 square feet of office and laboratory space located on Hurley Street in Cambridge, Massachusetts. The term of the lease began on October 1, 2016 and continues until October 2028. 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, 2023 and December 31, 2022. One Main Street In 2019, the Company entered into a lease agreement for 31,571 square feet of office space located on One Main Street in Cambridge, Massachusetts. The term of the lease began on January 15, 2020 and continues until January 2025. In connection with the lease and as a security deposit, the Company issued a letter of credit in the amount of approximately $ 0.8 million. 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. 132 Table of Contents 8. Commitments and Contingencies The Company is a party to a number of license agreements under which the Company licenses patents, patent applications and other intellectual property from third parties. As such, the Company is obligated to reimburse licensors for various costs including upfront licenses fees, annual license fees, certain licensor expense reimbursements, success payments, research funding payments, and milestones triggerable upon certain development, regulatory, and commercial events as well as royalties on future products. These contracts are generally cancellable, with notice, at the Company’s option and do not have significant cancellation penalties. Broad Sponsored Research Agreement In 2018, the Company entered into a sponsored research agreement (the “Sponsored Research Agreement”) with The Broad Institute, Inc. (“Broad”). The Sponsored Research Agreement provides for Broad to conduct research useful or relevant to genome editing in the field of genomic medicines for the prevention or treatment of human disease with funding from the Company. Under the Sponsored Research Agreement, Broad granted to the Company an exclusive right of first negotiation for licenses from Broad with respect to patentable inventions developed by Broad in the course of the sponsored research, subject to certain limitations and retained rights (“Sponsored Invention Licenses”). Under the Sponsored Research Agreement, the Company is obligated to make payments (“Market Cap Research Funding”) in the event the Company’s market capitalization reaches certain amounts for a specified period of time. Unless the Company has undergone a change in control, Market Cap Research Funding is payable by the Company in cash, in shares of common stock, or in the form of promissory notes, which may be settled in shares of common stock at the election of the Company. In aggregate, the Company has triggered $ 25.0 million in Market Cap Research Funding and has primarily settled these amounts through the issuance of shares of its common stock. The remaining $ 100.0 million in Market Cap Research Funding may be triggered when the Company’s market capitalization reaches various low- ten to eleven dollar amounts or in the event of a Company sale. The Company is not required to make additional Market Cap Research Funding payments if the Company, whether directly or through its affiliates or sublicensees, is not researching, developing, or commercializing products based on or incorporating inventions exclusively licensed to the Company from Broad subject to certain exclusions. The Sponsored Research Agreement is terminable by each party upon the occurrence of specified bankruptcy events of the other party and otherwise will continue in effect until the remaining Market Cap Research Funding payments are received by Broad and such time as the Company has no further rights of first negotiation for Sponsored Invention Licenses, unless otherwise mutually agreed between the parties. Broad & Harvard License Agreements The Company has entered into agreements with Broad and the President and Fellows of Harvard College (“Harvard”) to license certain patent rights owned or co-owned by the institutions. The foundational patent rights that were in-licensed by the Company include Cas9-I (“Cas9-I License Agreement”), Cas12a (formerly known as Cpf1) (“Cpf1 License Agreement”), and Cas9-II (“Cas9-II License Agreement”) (collectively referred to herein as the “License Agreements”). The Company received exclusive, worldwide, royalty-bearing, sublicensable licenses to certain patent rights to develop and commercialize licensed product and a non-exclusive, worldwide, royalty-bearing sublicensable license under the same patent rights for all other purposes, subject to certain limitations and retained rights. The Company is obligated to use commercially reasonable efforts to research, develop, and commercialize licensed products. The Company is also required to achieve certain development milestones within specified time periods for products covered by the License Agreements, with Broad or Harvard, as applicable, having the right to terminate the License Agreements, on a license agreement-by-license agreement basis, if the Company fails to achieve these milestones within the required time periods. Broad or Harvard may grant licenses under specified circumstances to third parties that wish to develop and commercialize products that target a particular gene that otherwise would fall within the scope of the exclusive licenses granted to the Company, provided that the Company is not, directly or through any of its affiliates, sublicensees, or collaborators, researching, developing, or commercializing a product directed toward the same gene target, or can demonstrate to Broad’s and/or Harvard’s, as applicable, reasonable satisfaction that the Company is interested in researching, developing, and commercializing a product directed toward the same gene target, that the Company has a commercially reasonable research, development, and commercialization plan to do so, and the Company commences and continues reasonable commercial efforts under such plan . The Company has the right to terminate each of the License Agreements at will with four months written notice to Broad. Unless terminated earlier, the term of each of the License 133 Table of Contents Agreements will expire on a country-by-country basis, upon the expiration of the last to expire valid claim of the licensed patent rights in such country. Milestones In aggregate, the Company may pay up to $ 14.8 million, $ 20.0 million, and $ 3.7 million in clinical and regulatory milestones under the Cas9-I License Agreement, Cpf1 License Agreement, and Cas9-II License Agreement, respectively. In addition, the Company owes aggregate sales milestones totaling $ 54.0 million, $ 54.0 million, and $ 13.5 million under the Cas9-I License Agreement, Cpf1 License Agreement, and Cas9-II License Agreement, respectively. If the licensed product or service prevents or treats a human disease that afflicts fewer than a specified number of patients in the aggregate in the United States (“U.S.”) or a specified number of patients per year in the U.S., the clinical and regulatory milestones reduce to $ 4.1 million, $ 5.5 million, and $ 1.1 million under the Cas9-I License Agreement, Cpf1 License Agreement, and Cas9-II License Agreement, respectively. In addition, the aggregated sales milestones reduce to $ 36.0 million, $ 36.0 million, and $ 9.0 million under the Cas9-I License Agreement, Cpf1 License Agreement, and Cas9-II License Agreement, respectively. Certain clinical and regulatory milestones are subject to a multiplier payout equivalent to a double-digit percentage in the event of a change of control. Royalties The Company is required to pay on a product-by-product and country-by-country basis, a mid single-digit percentage royalty on net sales of licensed products made by the Company, its affiliates, or its sublicensees. The royalty percentage depends on the product and service, and whether such licensed product or licensed service is covered by a valid claim. If the Company is legally required to pay royalties to a third party on net sales of the Company’s products because such third party holds patent rights that cover such licensed product, then the Company can credit up to a specified percentage of the amount paid to such third party against the royalties due to the institutions. Such credit may not exceed 50 % of the applicable royalties paid by the Company to the applicable third party. The Company’s obligation to pay royalties will expire on a product-by-product and country-by-country basis upon the later of the expiration of the last to expire valid claim of the patent rights that covers each licensed product or service in each country or the tenth anniversary of the date of the first commercial sale of the licensed product or licensed service. Licensor Expense Reimbursements The Company is obligated to reimburse to Broad and Harvard for expenses incurred by each of them associated with the prosecution and maintenance of the patent rights that the Company licenses from them pursuant to the license agreement by and among the Company, Broad and Harvard, including the interference and opposition proceedings involving patents licensed to the Company under the license agreement, and other license agreements between the Company and Broad. As such, the Company anticipates that it has a substantial commitment in connection with these proceedings until such time as these proceedings have been resolved, but the amount of such commitment is not determinable. The Company incurred an aggregate of $ 7.5 million, $ 8.8 million, and $ 10.6 million in expense during the years ended December 31, 2023, 2022 and 2021, respectively, for such reimbursement. Success Payments Under the Cpf1 License Agreement and Cas9-II License Agreement, the Company is obligated to make payments (“Success Payments”) in the event the Company’s market capitalization reaches certain thresholds for a specified period of time, or in the event of a change in control of the Company, if the consideration is in excess of those thresholds. Unless the Company has undergone a change in control, Success Payments are payable by the Company in cash or in the form of promissory notes, which may be settled in shares of common stock at the election of the Company. In the event of a change in control of the Company, the Success Payments are required to be paid in cash. The Success Payments under the Cpf1 License Agreement are triggered when the Company’s market capitalization reaches certain amounts ranging from $ 750.0 million to $ 10.0 billion for a specified period of time. The Success Payments under the Cas9-II License Agreement are triggered when the Company’s market capitalization reaches certain amounts ranging from $ 1.0 billion to $ 9.0 billion for a specified period of time. In aggregate, the Company has triggered $ 25.0 million and $ 7.5 million of Success Payments under the Cpf1 License Agreement and Cas9-II License Agreement, respectively. The Company has primarily settled these amounts through the issuance of shares of its common stock. 134 Table of Contents The remaining $ 100.0 million and $ 22.5 million in Success Payments under the Cpf1 License Agreement and Cas9-II License Agreement, respectively are only payable if the market capitalization threshold are met and the Company or any affiliate or sublicensee has at least one product candidate covered by a claim of a patent right licensed to the Company that is or was subject of a clinical trial. Other Payments The Company pays nominal annual license fees to the institutions. If the Company sublicenses any of the patent rights to a third party, the institutions have the right to receive sublicense income, which may be offset by the licensor expense reimbursement payments that the Company has made to the institution subject to certain limitations. Litigation The Company is not a party to any litigation and did not have contingency reserves established for any litigation liabilities as of December 31, 2023 or 2022. 9. Collaboration Agreements 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, 2023, the Company’s contract liabilities were primarily related to the Company’s collaboration with BMS and the Company's license agreement with Vertex. The following table presents changes in the Company’s accounts receivable and contract liabilities for the year ended December 31, 2023 (in thousands): For the year ended December 31, 2023 Balance at December 31, 2022 Additions Deductions Balance at December 31, 2023 Accounts receivable $ 5,145 $ 14,864 $ ( 9,822 ) $ 10,187 Contract liabilities: Deferred revenue $ 68,888 $ — $ — $ 68,888 BMS Collaboration Agreement 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, 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 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). 135 Table of Contents 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 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 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. The Company identified the following performance obligations: (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 BMS. The Company also concluded that there was not an implicit promise to perform research and development services. As of December 31, 2023 the total transaction price was approximately $ 118.0 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) $ 6.0 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, 2023, 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 BMS. 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. The Company concluded that rights and attributes of each of the development and commercialization licenses are identical for both the license granted at inception and the licenses that may be issued in the future upon exercise of the associated option. The Company has considered the early stage of the science and the uncertainty of success and concluded that the probability of scientific success and opt-in is equal amongst all Programs. In addition, each Program is multi-functional, and a combination of Programs can be utilized in the development of a product candidate. As such, the Company concluded that the standalone selling price of each material right is the same. The Company will recognize the transaction price allocated to each material right when the material right is exercised, lapsed or expired. During the years ended December 31, 2023, 2022 and 2021, the Company recognized $ 4.5 million, $ 18.8 million and $ 24.7 million of revenue related to BMS. As of December 31, 2023, the Company recorded $ 56.7 million of deferred revenue, of which $ 56.7 million is classified as long-term on the Company's consolidated balance sheets. 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, 2023 and 2022. 136 Table of Contents Beam Therapeutics License Agreement In 2018, the Company entered into a license agreement with Beam Therapeutics Inc. (“Beam,” and such agreement, the “Beam License Agreement”). Pursuant to the Beam License Agreement, the Company granted to Beam a worldwide, exclusive (subject to certain exceptions), sublicensable (subject to certain conditions), development and commercialization license under certain intellectual property controlled by the Company for the use of base editing therapies for the treatment of any field of human diseases and conditions, such to certain exceptions. Additionally, the Company granted Beam a non-exclusive research license. Lastly, the Company provided to Beam with an exclusive option to obtain three development and commercialization licenses to additional groups of intellectual property owned or controlled by the Company, on a group-by-group basis, during the specified option period, subject to certain exceptions. The Company received preferred stock valued at $ 3.6 million and received a nominal upfront cash payment. The Company subsequently sold its equity investment in Beam following Beam’s initial public offering in 2022. The Company is also eligible to receive additional consideration if Beam exercises its option to obtain additional licenses for a fee ranging from a mid-teen million-dollar amount to a low to mid-eight-digit dollar amount per license, depending on the timing of the option exercise. To the extent that any products are commercialized, the Company would be entitled to receive tiered low single-digit royalty payments, plus any royalties that would be due from the Company to any applicable licensors related to the sale of such licensed products. Unless earlier terminated by either party pursuant to the terms of the agreement, the Beam License Agreement will continue in full force and effect and will expire on a licensed product-by-licensed product and country-by-country basis upon the expiration of the royalty term with respect to such licensed product in such country. Beam has the right, at its sole discretion, at any time to terminate the Beam License Agreement in its entirety or on a group-by-group of intellectual property basis, upon ninety days written notice to the Company. Upon termination, all rights and licenses granted by the Company will immediately terminate. Accounting Assessment The Company identified the following performance obligations (i) the research license and (ii) the initial development and commercialization license. In addition, the Company concluded that the three options for the additional development and commercialization licenses are not discounted and therefore they do not represent material rights. The total transaction price at the inception of the arrangement was determined to be approximately $ 3.8 million, consisting of the upfront cash payment and the non-cash value of the preferred shares received by the Company. The consideration associated with the exercise of the option(s) will be accounted for if and when Beam elects to exercise their options. The other forms of consideration, including nominal cost reimbursement for past patent and license fees and sublicense income reimbursement are based on the most-likely amount and were excluded from the initial transaction price as the most likely amount was estimated to be zero or the amount was otherwise fully constrained due to the significant uncertainties surrounding each payment. The commercial-based milestone reimbursement and the sales-based royalty payments will be recognized when the related sales occur as they were determined to relate predominantly to the licenses granted and therefore have also been excluded from the transaction price. Since both of the performance obligations were delivered at the inception of the arrangement and the licenses were made available for Beam’s use and benefit, the Company recognized the total transaction price at the inception of the agreement. During the years ended December 31, 2023, 2022 and 2021, the Company recognized revenue under the Beam License Agreement of approximately $ 0.2 million, $ 0.3 million and $ 0.3 million, respectively. Vertex Pharmaceuticals License Agreement On December 12, 2023, the Company and Vertex Pharmaceuticals entered into a license agreement. Under terms of the agreement, Vertex obtained a non-exclusive license for Editas Medicine’s Cas9 gene editing technology for ex vivo gene editing medicines targeting the BC11A gene in the fields of sickle cell disease and beta thalassemia, including exagamglogene autotemcel (exa-cel). In connection with the License Agreement, the Company received an upfront payment of $ 50.0 million. The Company is also eligible to receive annual license fees ranging from $ 10.0 million to $ 40.0 million annually, inclusive of certain sales-based annual license fee increases, through 2034 and other contingent fees of $ 50.0 million. 137 Table of Contents Accounting Assessment The Company assessed this arrangement in accordance with Topic 606 and concluded that the contract counterparty, Vertex Pharmaceuticals, is a customer. The Company identified a single performance obligation, which is the non-exclusive license to certain Cas9-I patents. The total transaction price at the inception of the arrangement was determined to be $ 60.0 million, consisting of an upfront cash payment and the first annual license fee installment. The remaining annual license fees and contingent fees represent variable consideration that was evaluated under the most likely amount method, and excluded from the initial transaction price because the amounts were fully constrained. As part of its evaluation of the constraint, the Company considered numerous factors, including that receipt of the annual license fees and contingent fees are outside the control of the Company. They will be recognized when each payment is determined to be probable. The Company will re-evaluate the transaction price in each reporting period, as uncertain events are resolved, or as other changes in circumstances occur. Since the single performance obligation was delivered at the inception of the arrangement and the license was made available for Vertex’s use and benefit, the Company recognized the total transaction price at the inception of the agreement. During the year ended December 31, 2023, the Company recognized revenue under the Vertex License Agreement of $ 60.0 million. 10. Preferred Stock The Company’s amended and restated certificate of incorporation authorized 5,000,000 shares of undesignated preferred stock that may be issued from time to time by the Company’s board of directors in one or more series. As of December 31, 2023, the Company had no shares of preferred stock issued or outstanding. 11. Common Stock The voting, dividend, and liquidation rights of the holders of the common stock are subject to and qualified by the rights, powers, and preferences of holders of the preferred stock that may be issued from time to time. The common stock had the following characteristics as of December 31, 2023: Voting The holders of shares of common stock are entitled to one vote for each share of common stock held at any meeting of stockholders and at the time of any written action in lieu of a meeting. Dividends The holders of shares of common stock are entitled to receive dividends, if and when declared by the Company’s board of directors. Cash dividends may not be declared or paid to holders of shares of common stock until all unpaid dividends on any outstanding redeemable convertible preferred stock have been paid in accordance with their terms. No dividends have been declared or paid by the Company since its inception. 2013 Stock Incentive Plan In September 2013, the board of directors adopted the 2013 Stock Incentive Plan, which was subsequently amended (as amended, the “2013 Plan”), which provides for the grant of incentive stock options and nonqualified stock options or other awards including restricted stock awards, unrestricted stock awards, and restricted stock units to the Company’s employees, officers, directors, advisors, and consultants for the purchase of up to 1,057,692 shares of the Company’s common stock, which has been amended several times, and as of July 2015, a total of 6,317,769 shares were reserved. The terms of stock awards agreements, including vesting requirements, are determined by the board of directors and are subject to the provisions of the 2013 Plan. The stock options granted to employees generally vest over a four-year period and expire ten years from the date of grant. Certain awards contain performance based vesting criteria. There has only been one such award to date. Certain options provide for accelerated vesting in the event of a change in control, as defined in the applicable options. Awards granted to non-employee consultants generally vest monthly over a period of one 138 Table of Contents to four years . In connection with the Company’s initial public offering (“IPO”), the Company’s board of directors determined to grant no further awards under the 2013 Plan. 2015 Stock Incentive Plan The Company’s board of directors adopted and the Company’s stockholders approved the 2015 stock incentive plan (the “2015 Plan”). The 2015 Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock awards, restricted stock units, stock appreciation rights and other stock-based awards. The Company’s employees, officers, directors and consultants and advisors are eligible to receive awards under the 2015 Plan. 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 2024, the shares under the 2015 Plan increased by 3,270,691 shares pursuant to the annual increase described in the prior sentence. 2015 Employee Stock Purchase Plan The Company’s board of directors adopted and the Company’s stockholders approved the 2015 employee stock purchase plan (the “2015 ESPP”). The number of shares reserved for issuance under the 2015 ESPP is subject to annual increases, to be added as of the first day of each fiscal year, from January 1, 2017 until, and including, January 1, 2026, in an amount equal to the least of (a) 769,230 shares of common stock, (b) 1 % of the total number of shares of common stock outstanding on the first day of the applicable year, and (c) an amount determined by the board of directors. The first offering under the 2015 ESPP opened on December 1, 2017. In January 2024, the board of directors determined that there should be no increase in shares available under the 2015 ESPP for 2024. Inducement Awards From time to time the Company’s board of directors approves inducement awards to certain employees outside of the existing equity compensation plans in connection with such employees commencing employment with the Company. 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 May 2023, July 2023 and September 2023, the Company’s board of directors approved three inducement grants to the Company’s recently hired Chief Financial Officer, Chief Scientific and Chief Commercial and Strategy Officer, respectively. Shares Reserved for Future Issuance As of December 31, 2023 2022 Shares reserved for outstanding stock option awards under the 2013 Stock Incentive Plan, as amended 115,942 143,055 Shares reserved for outstanding stock option awards and restricted stock units under the 2015 Stock Incentive Plan 6,450,615 5,253,299 Shares reserved for outstanding inducement stock option award and restricted stock units 1,690,235 1,378,864 Remaining shares reserved, but unissued, for future awards under the 2015 Stock Incentive Plan 9,100,247 7,812,540 Remaining shares reserved, but unissued, for future awards under the 2015 Employee Stock Purchase Plan 3,185,493 3,300,853 20,542,532 17,888,611 139 Table of Contents 12. Stock-Based Compensation Total compensation cost recognized for all stock-based compensation awards in the consolidated statements of operations was as follows (in thousands): Year Ended December 31, 2023 2022 Research and development $ 9,842 $ 12,425 General and administrative 9,956 16,869 Total stock-based compensation expense $ 19,798 $ 29,294 Restricted Stock and Restricted Stock Unit Awards The following table summarizes restricted stock and restricted stock unit awards activity for the instruments discussed above as of December 31, 2023 and 2022 is as follows: Shares Weighted Average Grant Date Fair Value Per Share Unvested restricted stock and restricted stock unit awards as of December 31, 2022 1,499,070 $ 18.70 Issued 1,375,602 $ 8.70 Vested ( 297,934 ) $ 20.08 Forfeited ( 469,591 ) $ 18.77 Unvested restricted stock and restricted stock unit awards as of December 31, 2023 2,107,147 $ 11.96 The expense related to restricted stock and restricted stock unit awards granted for the years ended December 31, 2023, 2022 and 2021 was $ 5.1 million, $ 7.9 million, and $ 14.6 million, respectively. The restricted stock and restricted stock units granted in the year ended December 31, 2023 include 437,842 units granted to certain employees that contain performance-based vesting provisions. The expense related to the performance-based vesting of restricted stock units was $ 0.5 million and $ 4.4 million for the years ended December 31, 2023 and December 31, 2022, respectively. As of December 31, 2023, total unrecognized compensation expense related to unvested restricted stock and restricted stock unit awards was $ 13.8 million, which the Company expects to recognize over a remaining weighted-average period of 2.3 years. Stock Options The following is a summary of stock option activity for the year ended December 31, 2023: Shares Weighted Average Exercise Price Remaining Contractual Life (years) Aggregate Intrinsic Value (in thousands) Outstanding at December 31, 2022 5,276,148 $ 23.99 8.00 $ 402 Granted 2,393,380 $ 8.70 Exercised ( 6,587 ) $ 6.14 Cancelled ( 1,513,296 ) $ 30.45 Outstanding at December 31, 2023 6,149,645 $ 16.47 6.89 $ 3,195 Exercisable at December 31, 2023 2,708,255 $ 22.27 5.39 $ 773 140 Table of Contents The total intrinsic value of options exercised for the years ended December 31, 2023, 2022 and 2021 was $ 0.03 million, $ 0.09 million, and $ 27.2 million, respectively. Using the Black-Scholes option pricing model, the weighted average fair value of options containing service-based vesting granted during the years ended December 31, 2023, 2022, and 2021 was $ 6.04 , $ 15.87 , and $ 17.54 , respectively. The expense related to options containing service-based vesting was $ 13.9 million, $ 14.1 million, and $ 18.8 million for the years ended December 31, 2023, 2022, and 2021, respectively. The fair value of each service-based vesting option issued was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: Year Ended December 31, 2023 2022 2021 Expected volatility 75.2 % 64.2 % 61.2 % Expected option term (in years) 6.19 6.25 6.25 Risk free interest rate 4.2 % 1.7 % 1.5 % Expected dividend yield — — — As of December 31, 2023, total unrecognized compensation expense related to stock options was $ 25.8 million, which the Company expects to recognize over a remaining weighted-average period of 2.57 years. 13. 401(k) Savings Plan The Company has a defined-contribution savings plan under Section 401(k) of the Internal Revenue Code of 1986, as amended (the “401(k) Plan”). The 401(k) Plan covers all employees who meet defined minimum age and service requirements, and allows participants to defer a portion of their annual compensation on a pretax basis. Effective in 2017, the Company will provide a 200 % match of employee contributions up to a limit on the Company’s contributions of the lesser of $ 6,000 and 3 % of the employee’s salary. The Company made $ 1.2 million, $ 1.4 million, and $ 1.2 million in contributions to the 401(k) Plan for the years ended December 31, 2023, 2022 and 2021, respectively. 14. Income Taxes The Company had no income tax expense due to operating losses incurred for the years ended December 31, 2023 and 2022. 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: Year Ended December 31, 2023 2022 Income tax computed at federal statutory tax rate 21.0 % 21.0 % State taxes, net of federal benefit 6.0 % 6.9 % General business credit carryovers 2.5 % ( 2.0 ) % 162m limitation — % — % Stock options ( 4.3 ) % ( 2.3 ) % Non-deductible expenses ( 0.2 ) % ( 0.1 ) % Tax rate changes ( 4.5 ) % ( 3.3 ) % Change in valuation allowance ( 21.8 ) % ( 20.0 ) % Other 1.3 % ( 0.2 ) % — % — % 141 Table of Contents The principal components of the Company’s deferred tax assets and liabilities consist of the following at December 31, 2023 and 2022 (in thousands): Year Ended December 31, 2023 2022 Deferred tax assets: Net operating loss carryforwards $ 153,365 $ 144,849 Tax credit carryforwards 25,646 20,077 Accrued expenses 3,975 2,869 Capitalized patent costs 56,955 58,387 Capitalized research 60,891 41,915 Lease liabilities 9,966 12,627 Deferred revenue 18,791 17,495 Depreciation and amortization 905 299 Other 7,323 10,119 Total deferred tax assets 337,817 308,637 Less valuation allowance ( 328,630 ) ( 296,095 ) Net deferred tax assets 9,187 12,542 Deferred tax liabilities ( 9,187 ) ( 12,542 ) Depreciation and amortization — — Right-of-use assets ( 9,187 ) ( 12,542 ) 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 $ 60.9 million for the year ended December 31, 2023. The Company has incurred net operating losses (“NOL”) since inception. At December 31, 2023 and 2022, the Company had federal net operating loss carryforwards of $ 546.7 million and $ 517.5 million, respectively. Of the amount as of December 31, 2023, $ 472.0 million will carryforward indefinitely while $ 74.8 million will expire beginning in 2035 and will continue to expire through 2037. As of December 31, 2023, and 2022, the Company also had state net operating loss carryforwards of approximately $ 648.0 million and $ 609.5 million, respectively, which may be available to offset future income tax liabilities and will expire beginning in 2035 and will continue to expire through 2043. 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. 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. As a result of this analysis, the Company does not believe there are any significant limitations on its ability to utilize these carryforwards. However, future changes in ownership occurring after December 31, 2019 could affect the limitation in future years, and any limitation may result in expiration of a portion of the NOL or research and development credit carryforwards before utilization. Management has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, which principally comprise of NOL carryforwards, research and development credit carryforwards and capitalized license and patent costs. The Company’s management has determined that it is more likely than not that the Company will not recognize the benefits of its federal and state deferred tax assets, and as a result, a valuation allowance of $ 328.6 million and $ 296.1 million has been established at December 31, 2023 and 2022, respectively. The increase in the valuation 142 Table of Contents allowance of $ 32.5 million for the year ended December 31, 2023 was primarily due to current period pre-tax losses incurred and research tax credits generated. The Company applies ASC 740 related to accounting for uncertainty in income taxes. 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. 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, 2023 and 2022 (in thousands): Year Ended December 31, 2023 Balance as of December 31, 2022 $ 11,797 Gross increases for tax positions related to current year 1,384 Gross increases for tax positions related to prior year 478 Balance as of December 31, 2023 $ 13,659 At December 31, 2023 and 2022, the Company had unrecognized tax benefits of $ 13.7 million and $ 11.8 million, respectively. The Company will recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2023 and 2022, 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. This study may result in an adjustment to the Company’s research and development credit carryforwards; 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. Thus, there would be no impact to the consolidated balance sheets or statements of operations if an adjustment were required. The Company files income tax returns in the U.S. federal tax jurisdiction, the Massachusetts state jurisdiction, the California state jurisdiction and the Colorado state jurisdiction. Since the Company is in a loss carryforward position, the Company is generally subject to examination by the U.S. federal, state and local income tax authorities for all tax years in which a loss carryforward is available. The Company did not have any international operations as of December 31, 2023. 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. 15. Net Loss per Share Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock and potentially dilutive securities outstanding for the period determined using the treasury stock and if converted methods. Contingently issuable shares are included in the calculation of basic loss per share as of the beginning of the period in which all the necessary conditions have been satisfied. Contingently issuable shares are included in diluted loss per share based on the number of shares, if any, that would be issuable under the terms of the arrangement if the end of the reporting period was the end of the contingency period, if the results are dilutive. For purposes of the diluted net loss per share calculation, stock options are considered to be common stock equivalents, but they were excluded from the Company’s calculation of diluted net loss per share allocable to common stockholders because their inclusion would have been anti-dilutive. Therefore, basic and diluted net loss per share applicable to common stockholders was the same for all periods presented. 143 Table of Contents The following common stock equivalents were excluded from the calculation of diluted net loss per share allocable to common stockholders because their inclusion would have been anti-dilutive: As of December 31, 2023 2022 Unvested restricted stock and restricted stock unit awards 2,107,147 1,499,070 Outstanding stock options 6,149,645 5,276,148 Total 8,256,792 6,775,218 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. 16. Subsequent Events None. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.