What changed in this filing

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Item 9A. Controls and Procedures

2021-03-11 compared with 2020-03-12 · 337 added, 319 removed, 1057 unchanged (38% of the section changed)

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Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated, as of the end of the period covered by this Annual Report on Form 10-K, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act).

Based on such evaluation, our Chief Executive Officer

and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2019.

Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2020.

Management’s annual report on internal control over financial reporting

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Parmar, M.D., Ph.D.

Chairman of the Board

Patterson (1)

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Tzianabos currently serves as a director of Stoke Therapeutics, Inc.

and is Chairman of the board of directors of Akouos, Inc.

Tzianabos previously served as a director of BIND Therapeutics, Inc.

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Prior to that, Mr.

Kelly spent eight years, from 2009 to 2017, at Shire plc, a biotechnology company, where he served most recently as Senior Vice President and Head of Biologics Operating Unit from May 2016 to January 2017, and prior to that served in roles of increasing responsibility, including Interim Head of Technical Operations from August 2015 to April 2016 and Head of Product Strategy & Planning from 2014 to July 2015.

& Planning from 2014 to July 2015.

He was previously the Head of Technical Operations at UCB S.A.

also held roles of increasing responsibility at Biogen Idec, including Senior Director of International Operations.

Kelly also held roles of increasing responsibility at Biogen Idec, including Senior Director of International Operations.

Kelly holds a B.S.

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Gillis led its acquisition by Emergent BioSolutions in the fall 2010.

Gillis currently serves as a director of Takeda Pharmaceutical Company Limited (and as director of Shire plc prior to its acquisition by Takeda) and Pulmatrix, Inc., and serves as a director and chairman of VBI Vaccines Inc.

Gillis currently serves as a director of Takeda Pharmaceutical Company Limited (and as director of Shire plc prior to its acquisition by Takeda), and serves as a director and chairman of VBI Vaccines Inc.

Gillis also currently serves as a director of several private companies.

Gillis previously served as a director at PhaseRx, Inc.

Gillis previously served as a director at and Pulmatrix, Inc.

from 2008 to 2020, at PhaseRx, Inc.

from 2008 to 2018 and at bluebird bio, Inc.

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Parmar, M.D., Ph.D.

has served as a member of our board of directors since 2015.

has served as a member of our board of directors since 2015 and as Chairman of the Board since March 2018.

Parmar is a Managing Partner at 5AM Venture Management LLC, an early stage venture capital firm focused on the life sciences, where he has been since 2010.

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physician scientist fellow in the joint Harvard-MIT Health Sciences and Technology Program.

Parmar currently serves on the boards of numerous private companies.

Parmar currently serves on the boards of 5:01 Acquisition Corp.

and Akouos, Inc., as well as the boards of numerous private companies.

He previously served as a board member or observer for Arvinas, Inc., Achaogen, Inc., Audentes Therapeutics, Inc.

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and Genzyme Corporation.

Patterson serves as a director of Vor Biopharma, Inc.

and 5:01 Acquisition Corp., and also serves as a director of several private companies .

Patterson holds a B.A.

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Patterson’s experience in the biotechnology and biopharmaceutical industries, as well as his service on the board of directors of a public company provide him with the qualifications to serve as a director of our company.

Poulton has served as a member of our board of directors since July 2020.

Poulton has served as Executive Vice President and Chief Financial Officer at Alnylam Pharmaceuticals, Inc., a biopharmaceutical company, since August 2019.

Prior to joining Alnylam, Mr.

Poulton served as Chief Financial Officer of Indigo Agriculture, a plant microbiome company, from January 2018 to April 2019, where he supported the initial commercial scale-up of the business, including expansion outside the U.S.

Between 2003 and December 2017, Mr.

Poulton held various roles of increasing responsibility at Shire plc, most recently as Chief Financial Officer and a member of Shire’s Executive Committee and Board of Directors from January 2015 to December 2017.

During his tenure at Shire, Mr.

Poulton also led Shire’s rare disease U.S., LATAM and Asia Pacific commercial operations, as well as Shire’s global rare disease business unit.

Prior to Shire, Mr.

Poulton led corporate finance and business development initiatives in both the gas and electric utilities industry and the materials manufacturing sector, serving in financial leadership positions at Cinergy Corp.

and PPG Industries.

Poulton also served in the United States Navy as a Commissioned Officer.

Poulton holds a B.A.

in Economics from Duke University and an M.B.A.

from Indiana University.

We believe that Mr.

Poulton is qualified to serve on our board of directors due to his finance background and industry experience.

Alise Reicin, M.D.

has served as a member of our board of directors since July 2019.

Reicin has served as Chief Executive Officer of Tectonic Therapeutic, Inc., a biotechnology company, since August 2020.

Prior to Tectonic.

Reicin served as President, Global Clinical Development at Celgene Corporation, a pharmaceutical company, from November 2018 to December 2019.

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Reicin’s clinical expertise and leadership roles in the biotechnology and biopharmaceutical industries provide her with the qualifications to serve as a director of our company.

Mary Thistle has served as a member of our board of directors since March 2018.

Thistle has served as the Chief of Staff of the Bill & Melinda Gates Medical Research Institute, a non-profit biotech organization, since January 2018.

Mary Thistle has served as a member of our board of directors since 2018.

Thistle has served as Special Advisor to the Bill & Melinda Gates Medical Research Institute, a non-profit biotech organization, since the fall of 2020, and previously served as the organization’s Chief of Staff from January 2018 until assuming her current role.

Prior to that, she held senior leadership positions at Dimension Therapeutics, Inc., a gene therapy company, including Chief Operating Officer from 2016 to 2017 and Chief Business Officer from 2015 to 2016.

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and PerkinElmer Inc.

Thistle serves as a director of Enterome SA, a pharmaceutical and diagnostics company based in Paris, France and Cocoon Biotech Inc.

Thistle currently serves on the board of directors of Ziopharm Oncology, Inc., as well as the boards of several private companies.

Thistle holds a B.S.

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Based on our review of the copies of such forms filed with the SEC and upon any written representations of the Reporting Persons received by us, we believe that there has been compliance with all Section 16(a) filing requirements applicable to such Reporting Persons with respect to the year ended December 31, 2020.

There was one late Form 4 filing in January 2020 (reporting one transaction) for Richard J.

Gregory, Ph.D.

Code of Ethics

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We have a separately-designated standing audit committee (“Audit Committee”).

The members of the Audit Committee are Richard Gregory, Matthew R.

Patterson and Mary Thistle.

Thistle serves as the Chairperson of the committee.

The members of the Audit Committee are Matthew R.

Patterson, Jeffrey V.

Poulton and Mary Thistle.

Thistle serves as the Chairperson of the Audit Committee.

The members of our Audit Committee meet the requirements for financial literacy under the applicable rules of the SEC and Nasdaq.

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Bradford Smith, Chief Financial Officer.

This discussion may contain forward-looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs.

Actual compensation programs that we adopt following the completion of this offering may differ materially from the currently planned programs summarized in this discussion.

2020 Summary Compensation Table

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Bradford Smith

Chief Financial Officer, Treasurer and Secretary

Amounts reflect the full grant date fair value of stock options granted during the applicable year computed in accordance with ASC Topic 718, rather than the amounts paid to or realized by the named individual.

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Seymour and 40% for Mr.

In December 2019, our board of directors met to review performance against the 2019 bonus goals and approved cash bonuses for the named executive officers in the amounts set forth in the Non-Equity Incentive Plan Compensation column of the 2019 “Summary Compensation Table” above.

In December 2019, based on its determination that the corporate and individual goals had been achieved at 100% of target level, our board of directors approved the target bonus amounts, expressed as a percentage of annual base salary, for 2020 for our named executive officers as follows:

Tzianabos, 40% for Dr.

Seymour and 40% for Mr.

In December 2020, our board of directors met to review performance against the 2020 bonus goals and, based on its determination that the corporate and individual goals had been achieved at 100% of target level, approved cash bonuses for the named executive officers in the amounts set forth in the Non-Equity Incentive Plan Compensation column of the 2020 “Summary Compensation Table” above.

In December 2020, our board of directors approved maintaining the same target bonus amounts for each of our named executive officers for 2021.

Equity Compensation

We generally offer stock options to our employees, including our named executive officers, as the long-term incentive component of our compensation program.

We did not make any grants of equity awards to our named executive officers in 2020.

However, we typically offer stock options to our employees, including our named executive officers, as the long-term incentive component of our compensation program.

Stock options allow our employees to purchase shares of our common stock at a price equal to the fair market value of our common stock on the date of grant, as determined by the board of directors.

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We maintain the 2018 Incentive Award Plan to facilitate the grant of cash and equity incentives to directors, employees (including our named executive officers) and consultants of our company and to enable our company to obtain and retain services of these individuals.

In December 2019, our named executive officers were granted the stock options set forth in the table below under our 2018 Incentive Award Plan.

These stock options were granted with exercise prices equal to the fair market value of our common stock on the date of grant, as determined under the terms of our 2018 Incentive Award Plan, and are subject to the standard vesting schedule for periodic awards described above.

Named Executive Officer

December 11, 2019

Stock Options Granted

Tzianabos, Ph.D.

Albert Seymour, Ph.D.

Bradford Smith

Please refer to our Outstanding Equity Awards at 2020 Fiscal Year End table below for additional information regarding the stock options held by our named executive officers.

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Employee contributions are allocated to each participant’s individual account and are then invested in selected investment alternatives according to the participants’ directions.

Employees are immediately and fully vested in their own contributions.

Employees are immediately and fully

vested in their own contributions.

Employer contributions vest over three years according to the employees’ years of service.

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

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

Employee Benefits

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Unexercisable

Vested (#)(2)

Vested ($)(3)

Tzianabos, Ph.D.

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As a result, all of such options were exercisable as of December 31, 2020.

The number of shares for which each such option is shown as being exercisable and unexercisable represent, respectively, the number of shares for which each such option was vested and unvested as of December 31, 2019.

Represents shares of unvested restricted stock acquired by the named executive officer upon exercise of an unvested stock option.

The remaining shares of restricted stock vest in equal monthly installments ending March 28, 2020, subject to the named executive officer’s continued employment with the Company through each applicable vesting date and potential accelerated vesting as described under the heading “Employment Agreements” below.

Market value calculated using the closing price per share of our common stock on December 31, 2019 of $20.70.

The number of shares for which each such option is shown as being exercisable and unexercisable represents, respectively, the number of shares for which each such option was vested and unvested as of December 31, 2020.

Awards vest as to 25% of the underlying shares on the first anniversary of the specified vesting commencement date and in equal monthly installments over the following 36 months, subject to the named executive officer’s continued employment with the Company through each applicable vesting date and potential accelerated vesting as described under the heading “Employment Agreements” below.

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Smith without “cause” or he resigns for “good reason,” subject to his timely executing a release of claims and continued compliance with a separate restrictive covenant agreement, he is entitled to receive (i) base salary continuation for a period of nine months (or, for Dr.

Tzianabos, 12 months), (ii) payment of all bonuses earned but unpaid as of the date of termination and (iii) direct payment of or reimbursement for continued medical, dental or vision coverage pursuant to COBRA for up to nine months (or, for Dr.

months (or, for Dr.

Tzianabos, 12 months), less the amount he would have had to pay to receive such coverage as an active employee based on the cost sharing levels in effect on his termination date.

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Seymour or Mr.

Smith without “cause” or he resigns for “good reason,” in either case, on or within 12 months following a change in control, then, in lieu of the severance benefits described above, subject to his timely executing a release of claims, he is entitled to receive (i) an amount equal in cash equal to 1.0 times (or, for Dr.

Tzianabos, 1.5 times) the sum of his base salary plus target annual bonus for the year of termination, (ii) payment of all bonuses earned but unpaid as of the date of termination, (iii) direct payment of or reimbursement for continued medical, dental or vision coverage pursuant to COBRA for up to 12 months (or, for Dr.

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Parmar, M.D., Ph.D.

Cameron Wheeler, Ph.D.

Amounts reflect the grant date fair value of stock options granted during the applicable year computed in accordance with ASC Topic 718, rather than the amounts paid to or realized by the named individual.

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Represents the grant date fair value of an option to purchase 18,000 shares of our common stock granted to each then-current non-employee director on June 10, 2020 with an exercise price of $16.32 per share.

Represents the grant date fair value of an initial grant of an option to purchase 31,160 shares of our common stock with an exercise price of $19.25 per share to Dr.

Reicin upon her becoming a director on July 11, 2019.

Shah resigned from our board of directors on June 5, 2019.

Wheeler resigned from our board of directors on July 9, 2019.

Poulton was appointed to our board of directors on July 21, 2020.

Poulton’s fees for his board and committee service were prorated as if he had served during the entire second half of 2020.

Represents the grant date fair value of an initial grant of an option to purchase 36,000 shares of our common stock with an exercise price of $16.48 per share granted to Mr.

Poulton upon his appointment as a director on July 21, 2020.

The table below shows the aggregate numbers of shares subject to option awards held as of December 31, 2020 by each non-employee director.

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We maintain a compensation program for our non-employee directors under which each non-employee director receives the following amounts for their service on our board of directors.

As amended effective January 1, 2020, our non-employee director compensation program provides for the following:

an option to purchase 36,000 shares of our common stock upon the director’s initial election or appointment to our board of directors (the “Initial Award”),

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

In December 2019, following the recommendation of our compensation committee, our board of directors approved amending our non-employee director compensation program, effective January 1, 2020, to (i) increase the annual director fee to $40,000, (ii) increase the additional annual fee paid to the chairman of the nominating and corporate governance committee to $8,000, (iii) provide that each Initial Award will cover 36,000 shares of our common stock and (iv) provide that each Annual Award will cover 18,000 shares of our common stock.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

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

Equity Compensation Plan Information

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The 2018 Plan provides for an annual increase on the first day of each calendar year beginning on January 1, 2019 and ending on and including January 1, 2028, by an amount equal to the lesser of (i) 4% of the aggregate number of shares of common stock outstanding on the final day of the immediately preceding calendar year and (ii) such smaller number of shares of common stock as determined by our board of directors (but no more than 20,887,347 shares may be issued upon the exercise of incentive stock options), plus any shares that were subject to awards outstanding under the 2015 Plan as of the effective date of the 2018 Plan which are forfeited, expire, lapse for any reason or are settled for cash without the issuance of shares.

The 2018 ESPP provides for an annual increase on the first day of each calendar year beginning on January 1, 2019 and ending on and including January 1, 2028, by an amount equal to the lesser of (i) 1% of the aggregate number of shares of common stock outstanding on the final day of the immediately preceding calendar year and (ii) such smaller number of shares of

common stock as is determined by our board of directors, provided that no more than 4,778,738 shares of our common stock may be issued under the 2018 ESPP.

Security Ownership of Certain Beneficial Owners and Management

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Entities affiliated with 5AM Ventures (3)

RTW Investments, LP (3)

Entities affiliated with Deerfield (4)

JPMorgan Chase & Co.

TLS Beta Pte.

Rowe Price Group, Inc.

BlackRock, Inc.

Named Executive Officers and Directors

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Steven Gillis, M.D., Ph.D., one of our directors, is a managing director at ARCH Venture Partners.

Director Steven Gillis owns an interest in ARCH Partners VIII but does not have voting or investment control

over the shares held by ARCH Fund VIII, and disclaims beneficial ownership of such shares, except to the extent of any pecuniary interest therein.

Director Steven Gillis owns an interest in ARCH Partners VIII but does not have voting or investment control over the shares held by ARCH Fund VIII, and disclaims beneficial ownership of such shares, except to the extent of any pecuniary interest therein.

The address of ARCH Fund VIII and ARCH Fund Overage is 8755 West Higgins Road, Suite 1025, Chicago, Illinois 60631.

Based on a Schedule 13G filed with the SEC on November 19, 2020, Pfizer Inc.

has sole voting and dispositive power over all 5,000,000 shares.

The address of Pfizer Inc.

is 235 East 42nd Street, New York, NY 10017.

Based on a Schedule 13G filed with the SEC on February 16, 2021 and the Company's records.

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Rocklage, are the managing members of Partners IV and, along with Partners IV, have shared voting and investment power over the shares beneficially owned by Ventures IV and Co-Investors IV.

Parmar, M.D., Ph.D., one of our directors, is an affiliate of Ventures IV.

Parmar, M.D., Ph.D., one of our directors, is an

affiliate of Ventures IV.

Each of Partners IV, Dr.

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The address of all entities affiliated with 5AM Ventures is 501 2nd Street, Suite 350, San Francisco, CA 94107.

Based solely on a Schedule 13G filed with the SEC on February 14, 2020, RTW Investments, LP (the “Adviser”) and Roderick Wong have shared voting and dispositive power over all 4,349,250 shares, and RTW Master Fund, Ltd.

has shared voting and dispositive power over 4,349,250 shares.

Roderick Wong is the Managing Partner of the Adviser.

The Funds and Adviser disclaim beneficial ownership of such shares, except to the extent of any pecuniary interest therein.

The address of the Funds and Adviser is 412 West 15th Street, Floor 9, New York, New York 10011.

Based solely on a Schedule 13D/A filed with the SEC on January 31, 2020, Deerfield Mgmt III, L.P.

and Deerfield Private Design Fund III, L.P.

each has shared voting and dispositive power over 2,321,199 shares of common stock, Deerfield Healthcare Innovations Fund, L.P.

and Deerfield Mgmt HIF, L.P.

each has shared voting and dispositive power over 1,766,106 shares of common stock, and Deerfield Management Company, L.P.

Flynn each has shared voting and dispositive power over 4,087,305 shares of common stock.

Deerfield Mgmt III, L.P.

is the general partner of Deerfield Private Design Fund III, L.P., and Deerfield Mgmt HIF, L.P.

is the general partner of Deerfield Healthcare Innovations Fund, L.P.

Deerfield Management Company, L.P.

is the investment manager of each of Deerfield Private Design Fund III, L.P.

and Deerfield Healthcare Innovations Fund, L.P.

Flynn is the sole member of the general partner of each of Deerfield Mgmt III, L.P., Deerfield Mgmt HIF, L.P., and Deerfield Management Company, L.P.

The address of Deerfield Healthcare Innovations Fund, L.P., Deerfield Private Design Fund III, L.P., Deerfield Mgmt III, L.P., Deerfield Partners, L.P., Deerfield Mgmt, L.P., Deerfield Mgmt HIF, L.P., Deerfield Management Company, L.P.

Flynn is 780 Third Avenue, 37th Floor, New York, New York.

Based solely on a Schedule 13G filed with the SEC on January 25, 2021, JPMorgan Chase & Co.

has sole voting power over 3,054,192 shares and sole dispositive power over 3,441,712 shares.

The address of Blackrock, Inc.

is 383 Madison Avenue, New York, NY 10179.

Based solely on a Schedule 13G filed with the SEC on April 11, 2018, Temasek Holdings (Private) Limited, Fullerton Management Pte Ltd and Temasek Life Sciences Private Limited each has shared voting and dispositive power over 3,220,293 shares of common stock, V-Sciences Investments Pte Ltd has shared voting and dispositive power over 625,000 shares of common stock, and TLS Beta Pte.

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is 60B Orchard Road #06-18 Tower 2, The Atrium@Orchard, Singapore 238891.

Based solely on a Schedule 13G filed with the SEC on February 14, 2020, T.

Rowe Price Associates, Inc.

has sole voting power over 467,599 shares and sole voting and dispositive power over all 2,779,432 shares.

The address of T.

Rowe Price Associates, Inc.

Pratt Street, Baltimore, MD 21202.

Based solely on a Schedule 13G filed with the SEC on February 2, 2021, Blackrock, Inc.

has sole voting power over 2,724,076 shares and sole dispositive power over 2,763,142 shares.

The address of Blackrock, Inc.

is 55 East 52nd Street, New York, NY 10055.

Includes options to purchase 1,177,518 shares of common stock that are or will be immediately exercisable by Dr.

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Consists of options to purchase 10,282 shares of common stock that are or will be immediately exercisable by Ms.

Reicin within 60 days of March 1, 2021.

Consists of options to purchase 46,740 shares of common stock that are or will be immediately exercisable by Ms.

Thistle within 60 days of March 1, 2021.

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Under the policy, our finance department is primarily responsible for developing and implementing processes and procedures to obtain information regarding related persons with respect to potential related person transactions and then determining, based on the facts and circumstances, whether such potential related person transactions do, in fact, constitute related person transactions requiring compliance with the policy.

If our finance department determines that a transaction or relationship is a related person transaction requiring compliance with the policy, our Chief Financial Officer is required to present to the audit committee all relevant facts and circumstances relating to the related person transaction.

our finance department determines that a transaction or relationship is a related person transaction requiring compliance with the policy, our Chief Financial Officer is required to present to the audit committee all relevant facts and circumstances relating to the related person transaction.

Our audit committee must review the relevant facts and circumstances of each related person transaction, including if the transaction is on terms comparable to those that could be obtained in arm's length dealings with an unrelated third party and the extent of the related person's interest in the transaction, take into account the conflicts of interest and corporate opportunity provisions of our code of business conduct and ethics, and either approve or disapprove the related person transaction.

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The following are certain transactions, arrangements and relationships with our directors, executive officers and stockholders owning 5% or more of our outstanding common stock since January 1, 2019.

Stock Purchase Agreement with Pfizer

On November 9, 2020, we entered into a stock purchase agreement, or the Stock Purchase Agreement, with Pfizer Inc., or Pfizer, which holds approximately 9.9% of our common stock as of March 1, 2021, pursuant to which Pfizer purchased 5,000,000 shares of our common stock through a private placement transaction at a purchase price of $12.00 per share, for an aggregate purchase price of $60.0 million.

Under the Stock Purchase Agreement, Pfizer was granted an exclusive right of first refusal, or ROFR, for a 30-month period beginning on the date of the closing of the private placement to negotiate a potential collaboration on the development and commercialization of HMI-102 and HMI-103.

Pfizer may exercise its right of first refusal under the ROFR one time for each of HMI-102 and HMI-103 during the ROFR period.

Additionally, Pfizer has designated a member to join our Scientific Advisory Board to participate in matters related to the development of these programs.

For more information regarding Pfizer and its equity holdings, see Part III, Item 12.

“Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters—Security Ownership of Certain Beneficial Owners and Management.”

2019 Follow-On Offering

In April 2019, we completed a registered public offering pursuant to which we issued and sold an aggregate of 6,388,889 shares of our common stock (including 833,333 shares sold pursuant to the underwriters’ full exercise of their option to purchase additional shares) at a public offering price of $22.50 per share for aggregate net proceeds to us of approximately $134.5 million.

The following table sets forth the number of shares of common stock purchased in our registered public offering by certain holders of more than 5% of our common stock:

The following table sets forth the number of shares of common stock purchased in our registered public offering by certain former holders of more than 5% of our common stock:

Entities affiliated with Deerfield (affiliate of Cameron Wheeler, Ph.D.,

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Rowe Price Group, Inc.

Additional details regarding these stockholders and their equity holdings are provided in this Annual Report under the caption “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”

Employment Agreements

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We have entered into indemnification agreements with each of our directors and executive officers.

These agreements, among other things, require us or will require us to indemnify each director (and in certain cases their related venture capital funds) and executive officer to the fullest extent permitted by Delaware law, including indemnification of expenses such as attorneys’ fees, judgments, fines and settlement amounts incurred by the director or executive officer in any action or proceeding, including any action or proceeding by or in right of us, arising out of the person’s services as a director or executive officer.

attorneys’ fees, judgments, fines and settlement amounts incurred by the director or executive officer in any action or proceeding, including any action or proceeding by or in right of us, arising out of the person’s services as a director or executive officer.

Director Independence

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Patterson, Alise S.

and Mary Thistle each qualify as “independent” in accordance with the listing requirements of Nasdaq.

Reicin, M.D., Jeffrey V.

Poulton and Mary Thistle each qualify as “independent” in accordance with the listing requirements of Nasdaq.

The Nasdaq independence definition includes a series of objective tests, including that the director is not, and has not been for at least three years, one of our employees and that neither the director nor any of his family members has engaged in various types of business dealings with us.

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

Principal Accountant Fees and Services.

Principal Accoun tant Fees and Services.

The following table summarizes the fees of Deloitte & Touche LLP, our independent registered public accounting firm, billed to us in each of the last two fiscal years for audit services and billed to us in each of the last two fiscal years for other services:

(in thousands)

Audit-Related Fees

All Other Fees

Audit fees consist of fees for the audit of our consolidated financial statements, the review of the unaudited interim financial statements included in our quarterly reports on Form 10-Q and other professional services provided in connection with statutory and regulatory filings or engagements and services associated with the issuance of comfort letters and the issuance of consents on registration statements.

Audit-Related Fees

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

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

All Other Fees

All other fees consist of an annual license fee for use of accounting research software and in 2019, fees for services performed related to the adoption the Financial Accounting Standards Board issued Accounting Standards Update Topic 606, Revenue from Contracts with Customers .

Audit Committee Pre-Approval Policy and Procedures

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Consolidated Statements of Comprehensive Loss

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

Consolidated Statements of Stockholders’ Equity

Consolidated Statements of Cash Flows

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Amended and Restated Investors’ Rights Agreement, dated July 28, 2017, by and among Homology Medicines, Inc.

and the investors named therein

and the investors named therein, as amended

Specimen Stock Certificate evidencing the shares of common stock

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and Novartis Institutes for BioMedical Research, Inc.

Amendment to Collaboration and License Agreement, dated December 17, 2018, between Homology Medicines, Inc.

and Novartis Institutes for BioMedical Research, Inc.

Second Amendment to C ollaboration and License Agreement, dated October 30, 2020, between Homology Medicines, Inc.

and Novartis Institutes for BioMedical Research, Inc.

Exclusive License Agreement, dated April 28, 2016, between Homology Medicines, Inc.

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and California Institute of Technology

Stock Purchase Agreement, dated November 9, 2020, by and between Homology Medicines, Inc.

and Pfizer Inc.

Subsidiaries of Homology Medicines, Inc.

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Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

Filed herewith

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March 11, 2021

/s/ Jeffrey V.

March 11, 2021

/s/ Mary Thistle

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Consolidated Statements of Comprehensive Loss

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

Consolidated Statements of Stockholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT REGIST ERED PUBLIC ACCOUNTING FIRM

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of Homology Medicines, Inc.

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We have audited the accompanying consolidated balance sheets of Homology Medicines, Inc.

and its subsidiary (the "Company") as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive loss, convertible preferred stock and stockholders' equity (deficit), and cash flows, for the years then ended, and the related notes (collectively referred to as the "financial statements").

and its subsidiary (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, stockholders' equity, and cash flows, for the years then ended, and the related notes (collectively referred to as the "financial statements").

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

Change in Accounting Principle

As discussed in Note 2 to the financial statements, the Company has changed its method of accounting for revenue from contracts with customers in 2019 due to the adoption of the Financial Accounting Standards Board Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) , using the full retrospective transition method.

As discussed in Note 2 to the financial statements, the Company changed its method of accounting for leases in 2020 due to the adoption of Accounting Standards update No.

2016-02, Leases (Topic 842), as amended, using the modified retrospective approach.

Basis for Opinion

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Property and equipment, net

Right-of-use assets

Restricted cash

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Accrued expenses and other liabilities

Operating lease liabilities

Deferred rent

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Non-current liabilities:

Operating lease liabilities, net of current portion

Deferred rent, net of current portion

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Total liabilities

Commitments and contingencies (Note 8)

Stockholders’ equity:

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Additional paid-in capital

Accumulated other comprehensive loss

Accumulated other comprehensive gain

Accumulated deficit

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HOMOLOGY MEDICINES, INC.

CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND

STOCKHOLDERS’ EQUITY (DEFICIT)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share and per share amounts)

Preferred Stock

$0.0001 Par Value

Comprehensive

Stockholders’

Balance at December 31, 2017

Conversion of convertible preferred

stock into common stock

upon initial public offering

Issuance of common stock in initial

public offering, net of discounts

and issuance costs

Vesting of common stock from

option exercises

Issuance of common stock from

option exercises

Stock-based compensation

Other comprehensive loss

Balance at December 31, 2018 (as revised)

Balance at January 1, 2019

Issuance of common stock in follow-on offering,

net of discounts and issuance costs

Issuance of common stock pursuant to ATM,

Issuance of common stock pursuant to ATM financing,

net of discounts and issuance costs

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Balance at December 31, 2019

Vesting of common stock from

option exercises

Issuance of common stock from

option exercises

Issuance of common stock pursuant to

employee stock purchase plan

Issuance of common stock pursuant to

private placement

Stock-based compensation

Other comprehensive loss

Balance at December 31, 2020

See notes to consolidated financial statements.

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Adjustments to reconcile net loss to net cash used in operating activities:

Noncash lease expense

Stock-based compensation expense

Amortization of premium on short-term investments

Accretion of short-term investments

Loss on disposal of property and equipment

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Deferred rent

Operating lease liabilities

Net cash used in operating activities

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Purchases of property and equipment

Net cash used in investing activities

Net cash provided by (used in) investing activities

Cash flows from financing activities:

Proceeds from issuance of common stock in initial public offering,

net of discounts and issuance costs

Proceeds from issuance of common stock in private placement

Proceeds from issuance of common stock in follow-on public offering,

net of discounts and issuance costs

Proceeds from issuance of common stock pursuant to ATM,

Proceeds from issuance of common stock pursuant to ATM financing,

net of discounts and issuance costs

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Proceeds from issuance of common stock pursuant to employee stock purchase plan

Proceeds from issuance of restricted common stock

Net cash provided by financing activities

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Supplemental disclosures of noncash investing and financing activities:

Conversion of Series A convertible preferred stock into common stock

upon initial public offering

Conversion of Series B convertible preferred stock into common stock

upon initial public offering

Reclassification of liability for common stock vested

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Property and equipment additions included in accrued expenses and other liabilities

Unrealized gain on available for sale securities, net

Unrealized (loss) gain on available for sale securities, net

Offering costs included in accrued expenses and other liabilities

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Nature of Business —Homology Medicines, Inc.

(the “Company”) is a clinical stage biopharmaceutical company dedicated to translating proprietary gene therapy and gene editing technology into novel treatments for patients with rare genetic diseases with significant unmet medical needs by curing the underlying cause of the disease.

(the “Company”) is a clinical-stage genetic medicines company dedicated to translating proprietary gene therapy and gene editing technology into novel treatments for patients with rare genetic diseases with significant unmet medical needs by curing the underlying cause of the disease.

The Company was founded in March 2015 as a Delaware corporation.

Its principal offices are in Bedford, Massachusetts.

Since its inception, the Company has devoted substantially all of its resources to recruiting personnel, developing its technology platform and advancing its pipeline of product candidates, developing and implementing manufacturing processes, building out manufacturing and research and development space, and maintaining and building its intellectual property portfolio.

Since its inception, the Company has devoted substantially all of its resources to recruiting personnel, developing its technology platform and advancing its pipeline of product candidates, developing and implementing manufacturing processes, building out internal manufacturing and research and development space, and maintaining and building its intellectual property portfolio.

The Company is subject to a number of risks similar to those of other companies conducting high-risk, early-stage research and development of product candidates.

Principal among these risks are dependency on key individuals and intellectual property, competition from other products and companies, and the technical risks associated with the successful research, development and clinical manufacturing of its product candidates.

The Company’s success is dependent upon its ability to continue to raise additional capital in order to fund ongoing research and development, obtain regulatory approval of its products, successfully commercialize its products, generate revenue, meet its obligations, and, ultimately, attain profitable operations.

The Company’s success is dependent upon its ability to continue to raise additional capital in order to fund ongoing research and development, conduct clinical trials, obtain regulatory approval of its products, further expand its manufacturing capacity, successfully commercialize its products, generate revenue, meet its obligations, and, ultimately, attain profitable operations.

On April 2, 2018, the Company completed its initial public offering (“IPO”) with the sale of 10,350,000 shares of its common stock, including shares issued upon the exercise in full of the underwriters’ over-allotment option, at a public offering price of $ 16.00 per share, resulting in net proceeds of $ 150.8 million, after deducting underwriting discounts and commissions and offering expenses.

Upon the closing of the IPO, all of the Company’s outstanding shares of convertible preferred stock automatically converted into 24,168,656 shares of common stock at the applicable conversion ratio then in effect.

Subsequent to the closing of the IPO, there were no shares of preferred stock outstanding.

On April 1, 2019, the Company filed a Registration Statement on Form S-3 (File No.

333-230664) (the “Shelf”) with the Securities and Exchange Commission (“SEC”) in relation to the registration of common stock, preferred stock, debt securities, warrants and/or units of any combination thereof in the aggregate amount of up to $350.0 million for a period up to three years from the date of the filing.

The Shelf became effective on April 9, 2019.

The Company also simultaneously entered into a sales agreement with Cowen and Company, LLC, as sales agent, providing for the offering, issuance and sale by the Company of up to an aggregate $100.0 million of its common stock from time to time in “at-the-market” offerings under the Shelf (the “ATM”).

During the year ended December 31, 2019, the Company sold 1,105,000 shares of common stock and received net proceeds of $22.5 million pursuant to the ATM.

At December 31, 2019, there remained $76.8 million of common stock available for sale under the ATM.

On April 12, 2019, pursuant to the Shelf, the Company completed a follow-on public offering of its common stock.

On April 12, 2019, the Company completed a follow-on public offering of its common stock.

The Company sold 5,555,556 shares of its common stock at a public offering price of $ 22.50 per share and received net proceeds of $ 116.9 million, after deducting underwriting discounts and commissions and offering expenses.

In addition, on April 26, 2019 and May 7, 2019, in connection with the exercise in full of the underwriters’ option to purchase additional shares, the Company issued an aggregate of 833,333 shares of its common stock at a public offering price of $ 22.50 per share and received net proceeds of $ 17.6 million, after deducting underwriting discounts and commissions.

On March 12, 2020, the Company filed a Registration Statement on Form S-3 (File No.

333-237131) (the “Shelf”) with the Securities and Exchange Commission (“SEC”) in relation to the registration of common stock, preferred stock, debt securities, warrants and/or units of any combination thereof for a period up to three years from the date of the filing.

The Shelf became effective on March 12, 2020 .

The Company also simultaneously entered into a sales agreement with Cowen and Company, LLC (“Cowen”) , as sales agent, providing for the offering, issuance and sale by the Company of up to an aggregate $ 150.0 million of its common stock from time to time in “at-the-market” offerings under the Shelf (the “ATM”).

The Company did no t sell any shares of common stock pursuant to the ATM during the year ended December 31, 2020 .

At December 31, 2020, there remained $ 150.0 million of common stock available for sale under the ATM.

Simultaneous with the filing of the Shelf, the previous Registration Statement on Form S-3 (File No.

333-230664) filed with the SEC on April 1, 2019, and a prior sales agreement with Cowen providing for the offering, issuance and sale by the Company of up to an aggregate $ 100.0 million of its common stock from time to time in “at-the-market” offerings, with $ 76.8 million of remaining capacity, were terminated.

On November 9, 2020, the Company entered into a common stock purchase agreement (the “Stock Purchase Agreement”) with Pfizer Inc.

(“Pfizer”), pursuant to which the Company agreed to issue and sell to Pfizer 5,000,000 shares of the Company’s common stock through a private placement transaction (the “Private Placement”) at a purchase price of $ 12.00 per share, for an aggregate purchase price of $ 60.0 million (see Note 16).

To date, the Company has not generated any revenue from product sales and does not expect to generate any revenue from the sale of product in the foreseeable future.

Through December 31, 2019, the Company has financed its operations primarily through public offerings of its common stock, the issuance of convertible preferred stock, and with proceeds from its collaboration and license agreement with Novartis (see Note 15).

Through December 31, 2020, the Company has financed its operations primarily through public offerings of its common stock, the issuance of convertible preferred stock, and with proceeds from its collaboration and license agreement with Novartis Institutes of BioMedical Research, Inc.

(“Novartis”) (see Note 15) and its private placement with Pfizer.

During the year ended December 31, 2020, the Company incurred a net loss of $ 128.7 million and as of December 31, 2020, had $ 328.4 million in accumulated deficit.

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

Based on current projections, management believes that existing cash, cash equivalents and short-term investments will enable the Company to continue its operations into the fourth quarter of 2021.

Based on current projections, management believes that existing cash and cash equivalents will enable the Company to continue its operations into the third quarter of 202 2 .

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

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Short-Term Investments —Short-term investments represent holdings of available-for-sale marketable securities in accordance with the Company’s investment policy and cash management strategy.

Short-term investments mature within one-year from the balance sheet date.

Short-term investments have maturities of greater than 90 days at the time of purchase and mature within one-year from the balance sheet date.

Investments in marketable securities are recorded at fair value, with any unrealized gains and losses, reported within accumulated other comprehensive income as a separate component of stockholders’ equity until realized or until a determination is made that an other-than-temporary decline in market value has occurred.

The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity.

Any premium or discount arising at purchase is amortized and/or accreted to interest income and/or expense over the life of the underlying security.

Such amortization and accretion, together with interest on securities, are included in interest income in the Company’s consolidated statements of operations.

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We believe that the market risk arising from our holdings of these financial instruments is mitigated based on the fact that many of these securities are either government - backed or of high credit rating.

Deferred Offering Costs —The Company capitalizes incremental legal, professional accounting and other third-party fees that are directly associated with equity financings as other current assets until the transactions are completed.

Offering Costs —The Company capitalizes incremental legal, professional accounting and other third-party fees that are directly associated with equity financings as other current assets until the transactions are completed.

After equity financings are complete, these costs are recorded in stockholders’ equity as a reduction of additional paid-in capital generated as a result of the offering.

Leases — In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2016-02, Leases (Topic 842) (“ASU 2016-02”), which eliminated the tests for lease classification under prior U.S.

GAAP and requires lessees to recognize right-of-use assets and related lease liabilities on the balance sheet.

The FASB subsequently issued the following amendments to ASU 2016-02 that have the same effective date and transition date:

2018-01 – Leases (Topic 842):

Land Easement Practical Expedient for Transition to Topic 842 , ASU No.

2018-10 – Codification Improvements to Topic 842 , Leases , ASU No.

2018-11 – Leases (Topic 842):

Targeted Improvements , ASU No.

2018-20 – Leases (Topic 842):

Narrow-Scope Improvements for Lessors , and ASU No.

2019-01 – Leases (Topic 842):

Codification Improvements .

The Company adopted these amendments with ASU 2016-02 (collectively, the new leasing standards) effective January 1, 2020.

The Company adopted the new leasing standards using the modified retrospective approach, as of January 1, 2020, with no restatement of prior periods or cumulative adjustments to accumulated deficit.

The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which, among other things, allows the Company to carry forward the historical lease classification.

In addition, the Company elected the practical expedient not to apply the recognition requirements in the leasing standards to short-term leases (a lease that at commencement date has a lease term of 12 months or less and does not contain a purchase option that it is reasonably certain to exercise) and the practical expedient that permits lessees to make an accounting policy election (by class of underlying asset) to not separate lease components of a contract from non-lease components.

The Company determines if an arrangement is a lease at contract inception.

The Company’s contracts are determined to contain a lease when all of the following criteria based on the specific circumstances of the arrangement are met:

(1) there is an identified asset for which there are no substantive substitution rights;

(2) the Company has the right to obtain substantially all of the economic benefits from the identified asset;

and (3) the Company has the right to direct the use of the identified asset.

At the commencement date, operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of future lease payments over the expected lease term.

The Company’s lease agreements do not provide an implicit rate.

As a result, the Company utilizes an estimated incremental borrowing rate to discount lease payments, which is based on the rate of interest the Company would have to pay to borrow a similar amount on a collateralized basis over a similar term.

Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or lease incentives received.

Operating lease cost is recognized over the expected term on a straight-line basis.

Variable lease cost is recognized as incurred.

The Company acts as sublessor related to a sublease of the Company's former headquarters.

Fixed sublease payments received are recognized on a straight-line basis over the sublease term.

Right-of-use assets are periodically evaluated for impairment.

The expected lease term for those leases commencing prior to January 1, 2020 did not change with the adoption of the new leasing standards.

The expected lease term for leases commencing after the adoption of the new leasing standards includes noncancelable lease periods and, when applicable, periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option, as well as periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise that option.

As a result of the adoption of the new leasing standards, on January 1, 2020, the Company recorded non-cash transactions to recognize a right-of-use asset of $ 6.8 million, operating lease liabilities of $ 17.7 million and the derecognition of deferred rent of $ 10.9 million originally accounted for under legacy guidance.

The adoption did not have a material impact on the condensed consolidated statement of operations.

For additional information on the adoption of the new leasing standards, refer to Note 8.

January 1, 2020

(in thousands)

Prior to adoption

of new leasing

Adjustment for

of new leasing

Right-of-use assets (1)(2)

Deferred rent (2)

Deferred rent, net of current portion (2)

Operating lease liabilities (3)

Operating lease liabilities, net of current portion (3)

(1) Represents capitalization of operating right-of-use assets

(2) Represents reclassification of deferred rent and incentives as a reduction to operating right-of-use assets

(3) Represents recognition of operating lease liabilities

Guarantees and Indemnifications —As permitted under Delaware law, the Company indemnifies its officers, directors, consultants and employees for certain events or occurrences that happen by reason of the relationship with, or position held at, the Company.

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The Company determines whether it is more likely than not that a tax position will be sustained upon examination.

The tax benefit to be recognized for any tax position that meets the more-likely-than-not recognition threshold is calculated as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.

If it is not more likely than not that a position will be sustained, none of the benefit attributable to the position is recognized.

The tax benefit to be recognized for any tax position that meets the more-likely-than-not recognition threshold is calculated as the largest amount that is more than 50% likely of being realized upon resolution of the contingency.

The Company accounts for interest and penalties related to uncertain tax positions as part of its provision for income taxes.

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All of the Company’s tangible assets are held in the United States.

Revenue Recognition— In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2014-09, Revenue (Topic 606):

Revenue from Contracts with Customers (“ASU 2014-09”), which amends the guidance for accounting for revenue from contracts with customers.

ASU 2014-09 supersedes the revenue recognition requirements in FASB ASC Topic 605, Revenue Recognition (“ASC 605”), and creates a new Topic 606, Revenue from Contracts with Customers (“ASC 606”).

Revenue Recognition— Revenue is recognized in accordance with FASB Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”).

On January 1, 2019, the Company adopted ASC 606 using the full retrospective transition method.

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.

Under ASC 606, the Company 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:

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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.

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.

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The Company evaluates the measure of progress for its over-time arrangements at each reporting period and, if necessary, updates the measure of progress and revenue recognized.

The Company adopted ASC 606 effective January 1, 2019, using the full retrospective transition method.

Under this method, the Company revised its consolidated financial statements for prior period amounts as if ASC 606 had been effective for such periods.

The references "as revised" used herein refer to revisions of data for the year ended December 31, 2018 as a result of the adoption of ASC 606.

The adoption of ASC 606 did not have an impact on periods prior to January 1, 2018.

In addition to revisions to financial statement amounts and related tables, Note 15 has been revised to reflect the adoption of ASC 606.

As part of the adoption, the Company reviewed its collaboration and license agreement with Novartis to determine the cumulative effect impact related to the adoption of ASC 606.

(For a complete discussion of the accounting for the Company’s agreement with Novartis, see Note 15.) The adoption of ASC 606 resulted in a change to the pattern of revenue recognition whereby the Company expects to recognize revenue from its collaboration agreement with Novartis as costs are incurred, which likely will not occur evenly over the performance period as a result of applying the cost-to-cost method, in contrast to recognizing revenue on a straight-line basis over the estimated performance period under ASC 605.

The impact on previously reported amounts as a result of the adoption of ASC 606 is as follows:

Consolidated Balance Sheets

December 31, 2018

(in thousands)

under ASC 606

As originally

under ASC 605

Current portion of deferred revenue

Long-term portion of deferred revenue

Accumulated deficit

Consolidated Statements of Operations and Comprehensive Loss

For the Year Ended December 31, 2018

(in thousands, except per share amounts)

under ASC 606

As originally

under ASC 605

Collaboration revenue

Loss from operations

Net loss per share attributable to common

stockholders-basic and diluted

Consolidated Statement of Cash Flows

For the Year Ended December 31, 2018

(in thousands)

under ASC 606

As originally

under ASC 605

Adjustments to reconcile net loss to net cash used in operating activities:

Deferred revenue

Cash, cash equivalents and restricted cash, beginning of period

Cash, cash equivalents and restricted cash, end of period

Stock-based Compensation —The Company recognizes compensation expense for awards to employees based on the grant date fair value of stock-based awards on a straight-line basis over the period during which an award holder provides service in exchange for the award.

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As an emerging growth company, the Company has elected to take advantage of this extended transition period.

In February 2016, the FASB issued ASU No.

2016-02, Leases (Topic 842) (“ASU 2016-02”) , which eliminates the current tests for lease classification under U.S.

GAAP and requires lessees to recognize the right-to-use assets and related lease liabilities in the balance sheet.

The new standard provides for a modified retrospective application.

ASU 2016-02 was initially effective for the Company beginning January 1, 2020 with early application permitted.

In October 2019, the FASB approved an update that would delay the effective date of this standard for Company until the interim and annual period beginning after December 15, 2020, with early adoption permitted.

The Company adopted this standard early on January 1, 2020.

The Company expects to elect the package of practical expedients permitted under the transition guidance within the new standard, which, among other things, allows the Company to carry forward historical lease classification.

The Company has substantially completed its evaluation of the impact of the adoption of ASU 2016-02 on its consolidated financial statements and upon adoption, expects to recognize a lease liability and related right-of-use asset on its consolidated balance sheet of approximately $17.0 million to $18.0 million and approximately $6.0 million to $7.0 million, respectively, and a reduction to deferred rent of approximately $10.0 million to $11.0 million to eliminate the deferred rent balance.

The Company does not expect the standard to have a material impact on its results of operations or cash flows.

In addition, the Company is currently implementing changes to processes and controls to support lease accounting and related disclosures under the new standard.

In February 2016, the FASB issued new leasing standards to increase transparency and comparability among organization related to their leasing activities.

For additional information on the adoption of the new leasing standards, please refer to section titled “Leases” above, and Note 8.

In June 2016, the FASB issued ASU No.

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The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.

In December 2016, the FASB issued ASU No.

2016-18, Statement of Cash Flows (Topic 230):

Restricted Cash (a consensus of the FASB Emerging Issues Task Force) (“ASU 2016-18”) , which requires that amounts described as restricted cash or cash equivalents must be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.

The Company adopted ASU 2016-18 on January 1, 2019, and reclassified restricted cash in the consolidated statements of cash flows to be included in cash and cash equivalents.

The reclassification was not material to the periods presented.

In June 2018, the FASB issued ASU No.

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Under ASU 2018-07, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees.

ASU 2018-07 is effective for the Company beginning January 1, 2020.

Early application of this standard is permitted.

The Company does not expect the adoption of ASU 2018-07 to have a material impact on its consolidated financial statements and related disclosures.

The Company adopted ASU 2018-07 on January 1, 2020.

The adoption of ASU 2018-07 did not have a material impact on the Company’s consolidated financial statements and related disclosures.

In October 2020, the FASB issued ASU 2020-10, Codification Improvements , which updates various codification topics by clarifying or improving disclosure requirements to align with the SEC’s regulations.

The Company will adopt ASU 2020-10 as of the reporting period beginning January 1, 2021.

The adoption of this update is not expected to have a material effect on the Company’s consolidated financial statements.

CASH AND CASH EQUIVALENTS

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(in thousands)

Treasury securities

Commercial paper

Repurchase agreements

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SHORT-TERM INVESTMENTS

The Company invests its excess cash in fixed income instruments denominated and payable in U.S.

The Company may invest its excess cash in fixed income instruments denominated and payable in U.S.

dollars including U.S.

treasury securities, commercial paper, corporate debt securities and asset-backed securities in accordance with the Company’s investment policy that primarily seeks to maintain adequate liquidity and preserve capital.

The Company has designated all investments as available-for-sale and therefore such investments are reported at fair value.

The Company has designated all investments as available-for-sale and therefore such investments are reported at fair value and classified as short-term investments on the Company’s consolidated balance sheets .

Unrealized gains or losses on investments are recorded in accumulated other comprehensive income or loss, a component of stockholders’ equity, on the Company’s consolidated balance sheets.

The following table summarizes the Company’s investments, which are included in cash equivalents and short-term investments:

The Company had no short-term investments as of December 31, 2020.

The following table summarizes the Company’s short-term investments as of December 31, 2019:

As of December 31, 2019

(in thousands)

Repurchase agreements

Asset-backed securities

Money market mutual funds

Commercial paper

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Corporate debt securities

As of December 31, 2018

(in thousands)

Asset-backed securities

Treasury securities

Money market mutual funds

Corporate debt securities

Commercial paper

As of December 31, 2019, the Company had no securities that are in an unrealized loss position.

Total short-term investments

The Company utilizes the specific identification method in computing realized gains and losses.

The Company had no realized gains and losses on its available-for-sale securities for the years ended December 31, 2019 and 2018.

The Company had no realized gains and losses on its short-term investments for the years ended December 31, 2020 and 2019.

The contractual maturity dates of all of the Company’s investments are less than one year.

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Money market mutual funds

Repurchase agreements

Total cash equivalents

Short-term investments:

Asset-backed securities

Commercial paper

Treasury securities

Corporate debt securities

Total short-term investments

Total financial assets

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Money market mutual funds

Commercial paper

Treasury securities

Repurchase agreements

Total cash equivalents

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Asset-backed securities

Commercial paper

Treasury securities

Corporate debt securities

Commercial paper

Total short-term investments

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Short-term securities are valued using models or other valuation methodologies that use Level 2 inputs.

These models are primarily industry-standard models that consider various assumptions, including time value, yield curve, volatility factors, default rates, current market and contractual prices for the underlying financial instruments, as well as other relevant economic measures.

These models are primarily industry-standard models that consider various assumptions, including time value, yield curve, volatility factors,

default rates, current market and contractual prices for the underlying financial instruments, as well as other relevant economic measures.

Substantially all of these assumptions are observable in the marketplace, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.

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Depreciation expense for the years ended December 31, 2020 and 2019 was approximately $ 8.0 million and $ 6.3 million, respectively.

The Company disposed of $13,000 and approximately $0.1 million of property and equipment, net during the years ended December 31, 2019 and 2018, respectively.

Leasehold improvements consist primarily of costs associated with the buildout of the Company’s research and development, manufacturing and general office space in Bedford, Massachusetts, which the Company occupied as of December 31, 2018.

The Company disposed of $ 0.9 million and less than $ 0.1 million of property and equipment, net during the years ended December 31, 2020 and 2019, respectively.

ACCRUED EXPENSES AND OTHER LIABILITIES

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The rent commencement date of the sublease was December 2018, and the sublease will terminate on the scheduled termination date of the original lease.

Under the terms of the sublease, the subtenant is obligated to pay the Company aggregate base rent of approximately $2.7 million over the term of the sublease in addition to a passthrough of operating expenses and real estate taxes charged by the landlord.

The Company did not record a loss on the sublease as future payments to its landlord were not materially different from future rent payments expected from the subtenant over the term of the sublease.

Under the terms of the sublease, the subtenant is obligated to pay the Company aggregate base rent of approximately $ 2.7 million over the term of the sublease, based on the same level of rent the Company is obligated to pay the landlord, in addition to a passthrough of operating expenses and real estate taxes charged by the landlord.

In December 2017, the Company entered into a noncancelable operating lease for approximately 67,000 square feet of research and development, manufacturing and general office space in Bedford, Massachusetts.

The lease expires in February 2027 with an option for an additional five-year term.

Rent became due under the lease in two phases;

rent on the first 46,000 square feet started in September 2018 and rent on the remaining 21,000 square feet started in March 2019 .

The initial annual base rent was $ 39.50 per square foot and increases by three percent annually.

The Company is obligated to pay, on a pro-rata basis, real estate taxes and operating costs related to the premises.

Future minimum lease payments, net of anticipated sublease payments, as of December 31, 2019, are as follows:

The Company is obligated to pay, on a pro-rata

basis, real estate taxes and operating costs related to the premises.

The lease agreement entered into in December 2017 allowed for a tenant improvement allowance not to exceed $ 10.9 million, which the Company received in full, to be applied to the total cost of tenant improvements to the leased premises.

The unamortized balance of the tenant improvement allowance was included in deferred rent incentives and has been recorded as a reduction to operating right-of-use asset upon adoption of the new leasing standards.

The Company maintains letters of credit, secured by restricted cash, for security deposits totaling $ 1.3 million as of December 31, 2020 and 2019, respectively, in conjunction with its current leases.

The following table summarizes operating lease costs and variable lease costs, as well as sublease income for the year ended December 31, 2020:

Year ended December 31, 2020

(in thousands)

Operating lease costs

Variable lease costs

Sublease income

Net lease cost

Rent expense for the year ended December 31, 2019 was $ 1.4 million.

The maturities of our operating lease liabilities as of December 31, 2020 were as follows:

For the Years Ending December 31,

(in thousands)

Total future minimum lease payments

The lease agreement entered into in December 2017 allowed for a tenant improvement allowance not to exceed $10.9 million to be applied to the total cost of tenant improvements to the leased premises.

The total tenant improvement allowance of $10.9 million was recorded as deferred rent incentives on the Company’s consolidated balance sheets and is being recognized as a reduction to rent expense over the term of the lease.

As of December 31, 2019, deferred rent incentives totaled $8.3 million.

Rent expense, net of amortization of the deferred rent incentive, for the years ended December 31, 2019 and 2018 was $1.4 million and $2.7 million, respectively.

The Company maintains letters of credit, secured by restricted cash, for security deposits totaling $1.3 million and $1.8 million as of December 31, 2019 and 2018, respectively, in conjunction with its current leases.

Total undiscounted lease payments

imputed interest

Present value of operating lease liabilities

The following table summarizes the lease term and discount rate as of December 31, 2020:

December 31, 2020

Weighted-average remaining lease term (years)

Operating leases

Weighted-average discount rate

Operating leases

The following table summarizes the supplemental cash flow information related to the Company's operating leases for the year ended December 31, 2020.

December 31, 2020

(in thousands)

Cash paid for amounts included in the measurement of lease liabilities

LICENSE AGREEMENTS

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During the year ended December 31, 2019, the Company paid $ 50,000 to COH upon dosing the first patient in the pheNIX Phase 1/2 clinical trial.

During the year ended December 31, 2020, the Company paid $ 75,000 plus interest to COH in connection with achievement of a milestone event.

As a result of the execution of the Collaboration Agreement with Novartis (see Note 15), the Company paid $ 4.5 million to COH in December 2017, under the terms of the license agreement.

In May 2015, the Company entered into a sponsored research agreement with COH with a goal to identify potential treatments for diseases in humans.

Under this agreement, the Company recorded $0.1 million in research and development expense for each of the years ended December 31, 2019 and 2018.

Under this agreement, the Company recorded $ 0.1 million in research and development expense for the year ended December 31, 2019.

The agreement terminated in September 2019 in accordance with its terms.

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Realization of the future tax benefits is dependent on many factors, including the Company’s ability to generate taxable income within the net operating loss carryforward period.

Under the provisions of the Internal Revenue Code, certain substantial changes in the Company’s ownership, including a sale of the Company or significant changes in ownership due to sales of equity, may have limited, or may limit in the future, the amount of net operating loss carryforwards that could be used

annually to offset future taxable income.

The Company has not completed a study to assess whether a change of control has occurred or whether there have been multiple changes of control since the Company’s formation due to the significant complexity and cost associated with such study and because there could be additional changes in control in the future.

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Upon effectiveness of the 2018 Plan, the Company ceased granting new awards under the 2015 Plan.

The 2018 Plan provides for the grant of incentive stock options, nonqualified stock options, restricted stock awards, restricted stock units, stock appreciation rights and other stock or cash-based awards to employees and consultants of the

Company and certain affiliates and directors of the Company.

The number of shares of common stock initially available for issuance under the 2018 Plan was 3,186,205 shares of common stock plus the number of shares subject to awards outstanding under the 2015 Plan that expire, terminate or are otherwise surrendered, cancelled, forfeited or repurchased by the Company on or after the effective date of the 2018 Plan.

In addition, the number of shares of common stock available for issuance under the 2018 Plan is subject to an annual increase on the first day of each calendar year beginning on January 1, 2019 and ending on and including January 1, 2028 equal to the lesser of (i) 4% of the Company’s outstanding shares of common stock on the final day of the immediately preceding calendar year and (ii) such smaller number of shares of common stock as determined by the Company’s Board of Directors, provided that not more than 20,887,347 shares of common stock may be issued under the 2018 Plan upon the exercise of incentive stock options.

Therefore, on January 1, 2020, an additional 1,804,670 shares were added to the 2018 Plan, representing 4% of total common shares outstanding at December 31, 2019.

In addition, the number of shares of common stock available for issuance under the 2018 Plan is subject to an annual increase on the first day of each calendar year beginning on January 1, 2019 and ending on and including January 1, 2028 equal to the lesser of (i) 4 % of the Company’s outstanding shares of common stock on the final day of the immediately preceding calendar year and (ii) such smaller number of shares of common stock as determined by the Company’s Board of Directors, provided that not more than 20,887,347 shares of common stock may be issued under the 2018 Plan upon the exercise of incentive stock options (the “Evergreen Provision”).

As of December 31, 2020, there were 2,397,547 shares available for future grant under the 2018 Plan.

On January 1, 2021, pursuant to the Evergreen Provision, an additional 2,010,623 shares were added to the 2018 Plan, representing 4 % of total common shares outstanding at December 31, 2020.

2018 Employee Stock Purchase Plan

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The 2018 ESPP allows employees to buy Company stock through after-tax payroll deductions at a discount from market value.

The number of shares of common stock initially available for issuance under the 2018 ESPP was 353,980 shares of common stock plus an annual increase on the first day of each calendar year beginning on January 1, 2019 and ending on and including January 1, 2028 equal to the lesser of (i) 1% of the Company’s outstanding shares of common stock on the final day of the immediately preceding calendar year and (ii) such smaller number of shares of common stock as determined by the Company’s Board of Directors, provided that not more than 4,778,738 shares of common stock may be issued under the 2018 ESPP.

Therefore, on January 1, 2020, an additional 451,167 shares were added to the 2018 ESPP, representing 1% of total common shares outstanding at December 31, 2019.

The 2018 ESPP is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code.

The number of shares of common stock initially available for issuance under the 2018 ESPP was 353,980 shares of common stock plus an annual increase on the first day of each calendar year beginning on January 1, 2019 and ending on and including January 1, 2028 equal to the lesser of (i) 1 % of the Company’s outstanding shares of common stock on the final day of the immediately preceding calendar year and (ii) such smaller number of shares of common stock as determined by the Company’s Board of Directors, provided that not more than 4,778,738 shares of common stock may be issued under the 2018 ESPP (the “ESPP Evergreen Provision”).

At December 31, 2020, there were 1,039,650 shares available for future issuance under the 2018 ESPP.

The Company commenced offerings under the 2018 ESPP on September 1, 2018.

On January 1, 2021, pursuant to the ESPP Evergreen Provision, an additional 502,655 shares were added to the 2018 ESPP, representing 1 % of total common shares outstanding at December 31, 2020.

Under the 2018 ESPP, employees may purchase common stock through after-tax payroll deductions at a price equal to 85 % of the lower of the fair market value on the first trading day of an offering period or the last trading day of an offering period.

The 2018 ESPP generally provides for offering periods of six months in duration that end on the final trading day of each February and August.

In accordance with the Internal Revenue Code, no employee will be permitted to accrue the right to purchase stock under the ESPP at a rate in excess of $25,000 worth of shares during any calendar year during which such a purchase right is outstanding (based on the fair market value per share of our common stock as of the first day of the offering period).

In accordance with the Internal Revenue Code, no employee will be permitted to accrue the right to purchase stock under the 2018 ESPP at a rate in excess of $25,000 worth of shares during any calendar year during which such a purchase right is outstanding (based on the fair market value per share of the Company’s common stock as of the first day of the offering period).

During the year ended December 31, 2020, 83,848 shares were issued under the 2018 ESPP for aggregate proceeds to the Company of $ 0.9 million.

There were no shares issued pursuant to the 2018 ESPP during the year ended December 31, 2018.

The Company recorded $0.2 million and $0.1 million of stock-based compensation pursuant to the 2018 ESPP for the years ended December 31, 2019 and 2018, respectively.

During the year ended December 31, 2019, 55,234 shares were issued under the 2018 ESPP for aggregate proceeds to the Company of $ 0.8 million.

Pursuant to the 2018 ESPP, the Company recorded stock-based compensation of $ 0.2 million and $ 0.2 million for the years ended December 31, 2020 and 2019, respectively.

Stock-based compensation expense

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The Company recognizes forfeitures as they occur.

The Company recorded stock-based compensation expense related to stock options and shares purchased under the 2018 ESPP as follows:

For the Years Ended December 31,

(in thousands)

Research and development

General and administrative

As of December 31, 2019, there was $31.5 million of unrecognized compensation expense related to unvested employee and non-employee share-based compensation arrangements granted under the Plans.

The unrecognized compensation expense is estimated to be recognized over a period of 2.9 years at December 31, 2019.

In determining the exercise prices for options granted, the Company’s Board of Directors considered the fair value of the common stock as of the measurement date.

For awards granted prior the Company’s IPO, the Board of Directors determined the fair value of the common stock at each award grant date based upon a variety of factors, including the results obtained from an independent third-party valuation, the Company’s financial position and historical financial performance, the status of technological developments within the Company’s proposed products, an evaluation or benchmark of the Company’s competition, the current business climate in the marketplace, the illiquid nature of the common stock, arm’s length sales of the Company’s capital stock, including convertible preferred stock, the effect of the rights and preferences of the preferred shareholders, and the prospects of a liquidity event, among others.

For awards granted after the Company’s IPO, the exercise price is equal to the closing price as quoted by Nasdaq on the grant date of the awards.

The assumptions used in the Black-Scholes option pricing model are as follows:

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$12.73 — $30.34

The Company recorded stock-based compensation expense related to stock options and shares purchased under the 2018 ESPP as follows:

For the Years Ended December 31,

(in thousands)

Research and development

General and administrative

As of December 31, 2020, there was $ 29.2 million of unrecognized compensation expense related to unvested employee and non-employee share-based compensation arrangements granted under the Plans.

The unrecognized compensation expense is estimated to be recognized over a period of 2.4 years at December 31, 2020.

A summary of option activity under the Plans during the year ended December 31, 2020 is as follows:

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(in thousands)

Outstanding as of January 1, 2019

Outstanding at January 1, 2020

Cancelled/Forfeited

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Stock options granted pursuant to the 2015 Plan permit option holders to elect to exercise unvested options in exchange for unvested common stock.

Options granted under the 2015 Plan that are exercised prior to vesting will continue to vest

according to the respective option agreement, and such unvested shares are subject to repurchase by the Company at the optionee’s original exercise price in the event the optionee’s service with the Company voluntarily or involuntarily terminates.

Options granted under the 2015 Plan that are exercised prior to vesting will continue to vest according to the respective option agreement, and such unvested shares are subject to repurchase by the Company at the optionee’s original exercise price in the event the optionee’s service with the Company voluntarily or involuntarily terminates.

A summary of the Company’s unvested common stock from early exercises that is subject to repurchase by the Company is as follows:

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Unvested shares—December 31, 2020

As of December 31, 2019 and 2018, 21,666 shares and 151,289 shares, respectively, remained subject to a repurchase right by the Company, with a related liability included in accrued expenses and other liabilities in the consolidated balance sheets of approximately $0.1 million as of each date.

As of December 31, 2020 and 2019, 3,091 shares and 21,666 shares, respectively, remained subject to a repurchase right by the Company, with a related liability included in accrued expenses and other liabilities in the consolidated balance sheets of less than $ 0.1 million as of each date.

NET LOSS PER SHARE

The Company’s potential dilutive securities, which include unvested common stock from the early-exercise of stock options and outstanding common stock options, have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share.

effect would be to reduce the net loss per share.

Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same.

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Summary of Agreement

In November 2017, the Company entered into a collaboration and license agreement (the “Collaboration Agreement”) with Novartis Institutes of BioMedical Research, Inc.

(“Novartis”) for the research, development, manufacturing and commercialization of products using the Company’s gene-editing technology for the treatment of certain ophthalmic targets and sickle cell disease.

In November 2017, the Company entered into a collaboration and license agreement with Novartis (as amended, the “Collaboration Agreement”) for the research, development, manufacturing and commercialization of products using the Company’s gene-editing technology for the treatment of certain ophthalmic targets and sickle cell disease.

In February 2019, Novartis elected to discontinue the sickle cell disease program under the Collaboration Agreement effective in August 2019.

The Company continues to work with Novartis to identify new targets for the partnership based on the existing exploratory research component of the agreement and the collaboration on ophthalmic programs also continues.

Under the terms of the Collaboration Agreement, taking into account Novartis’ election to discontinue the sickle cell disease program, the Company granted Novartis a research license, a development and commercialization license, and a manufacturing license, under certain of its intellectual property rights to research, develop, manufacture and commercialize the ophthalmic targets.

Upon entering into the Collaboration Agreement, the Company received an upfront, nonrefundable payment of $35.0 million and issued additional shares of its Series B preferred stock to Novartis for consideration of $10.0 million.

The Company recorded the Series B preferred stock at its estimated fair value of $11.7 million, including $1.7

million of the upfront payment, and allocated the remaining $33.3 million of the upfront payment to the Collaboration Agreement.

The Collaboration Agreement consists of a research term, where the Company and Novartis are collaborating to perform research and conduct preclinical development to identify candidates that modulate the ophthalmic targets.

In May 2020, Novartis confirmed an ophthalmic target for a therapeutic editing program.

Additionally, in accordance with the terms of the Collaboration Agreement, Novartis’ right to substitute other ophthalmic targets expired.

For additional information on the Collaboration Agreement, please refer to Note 17.

Under the terms of the Collaboration Agreement, the Company granted Novartis a research license, a development and commercialization license, and a manufacturing license, under certain of its intellectual property rights to research, develop, manufacture and commercialize ophthalmic targets.

Upon entering into the Collaboration Agreement in November 2017, the Company received an upfront, nonrefundable payment of $ 35.0 million and issued additional shares of its Series B preferred stock to Novartis for consideration of $ 10.0 million, in addition to the $ 5.0 million of Series B preferred stock Novartis had purchased in July 2017.

The Company recorded the November 2017 issuance of Series B preferred stock at its estimated fair value of $ 11.7 million, including $ 1.7 million of the upfront payment, and allocated the remaining $ 33.3 million of the upfront payment to the Collaboration Agreement.

The Collaboration Agreement consists of a research term, where the Company and Novartis were collaborating to perform research and conduct preclinical development to identify candidates that modulate ophthalmic targets.

The Collaboration Agreement also includes exploratory work on the applicability of the gene editing technology with respect to other gene targets.

The Company’s obligation to perform such exploratory research concludes in November 2020.

Novartis may select up to two ophthalmic targets, with limited substitution rights.

The Company is responsible for the manufacturing of proprietary research grade human hematopoietic stem cell derived adeno-associated virus vectors (“AAVHSCs”) during the research term.

Research activities performed by the Company are being reimbursed at a full-time equivalent rate (“FTE”) and manufacturing activities will be reimbursed at cost, up to a maximum of $17.0 million during the research term, as specified and defined in the Collaboration Agreement.

Novartis is required to pay the Company a target fee of $5.0 million for each target that meets certain success criteria during the research term (the “target fee trigger date”), up to a maximum of two targets.

The research term will continue for five years from the effective date of the Collaboration Agreement.

Pursuant to the Collaboration Agreement, the Company will also participate on a joint steering committee and a joint manufacturing subcommittee, with equal representation from both the Company and Novartis.

Novartis has the exclusive right to develop and commercialize up to two ophthalmic candidates or products arising from the research activities.

Subject to certain limitations pursuant to the terms of the Collaboration Agreement, Novartis will fund all development and commercialization costs.

The Company will be responsible for manufacturing candidates and products for Novartis during the development and commercialization terms.

The Company’s manufacturing activities will be reimbursed at cost during the development term and at cost plus a margin during the commercialization term, as defined in the Collaboration Agreement.

If the Company is not able to manufacture candidates or products that meet the quality or quantity requirements of Novartis, then Novartis shall have the right to designate a third-party contract manufacturer or manufacture such candidates or products itself.

In accordance with the Collaboration Agreement, taking into consideration Novartis’ election to discontinue the sickle cell disease program, the Company is also eligible to receive up to a total of $530.0 million in milestone payments, including up to $180.0 million in development milestone payments, up to $170.0 million in regulatory milestone payments and up to $180.0 million in commercial milestone payments, with respect to the licensed products.

The Company is also eligible to earn tiered royalties on net sales of licensed products by Novartis, its affiliates or sublicensees, ranging from mid single-digit, to sub-teen double-digit percentages, and such royalties are potentially subject to various reductions and offsets.

If any of the exploratory research efforts are advanced into formal research and development programs, the parties will negotiate the economics including potential milestone payments for such programs at that time.

Unless earlier terminated, the Collaboration Agreement will continue on a target-by-target basis until the expiration of all applicable royalty terms with respect to all products that modulate such target on a country-by-country-basis.

Either party may terminate the agreement on a target-by-target basis for the other party’s material breach with respect to such target, or in the event of the other party’s bankruptcy.

Novartis may terminate the agreement for convenience on a target-by-target basis.

The Company may terminate the agreement if Novartis files, or joins a third party in filing or maintaining, a patent challenge against certain of the patent rights licensed to Novartis under the terms of the agreement.

There are no performance, cancellation, termination or refund provisions in the arrangement that contain material financial consequences to the Company.

The Company’s obligation to perform such exploratory research was extended pursuant an amendment to the Collaboration Agreement was set to conclude in May 2021.

The Company was responsible for the manufacturing of proprietary research grade human hematopoietic stem cell derived adeno-associated virus vectors (“AAVHSCs”) during the research term.

Novartis agreed to reimburse research activities performed by the Company at a full-time equivalent rate (“FTE”) and manufacturing activities at cost, up to a maximum of $ 17.0 million during the research term, as specified and defined in the Collaboration Agreement.

Novartis agreed to pay the Company a target fee of $ 5.0 million if the target meets certain success criteria during the research term (the “target fee trigger date”).

The research term was to continue for five years from the effective date of the Collaboration Agreement.

Pursuant to the Collaboration Agreement, the Company also agreed to participate on a joint steering committee and a joint manufacturing subcommittee, with equal representation from both the Company and Novartis.

Novartis had the exclusive right to develop and commercialize one ophthalmic candidate or product arising from the research activities.

Subject to certain limitations pursuant to the terms of the Collaboration Agreement, Novartis agreed to fund all development and commercialization costs.

The Company was responsible for manufacturing candidates and products for Novartis during the development and commercialization terms.

The Company’s manufacturing activities were to be reimbursed at cost during the development term and at cost plus a margin during the commercialization term, as defined in the Collaboration Agreement.

If the Company was not able to manufacture candidates or products that met the quality or quantity requirements of Novartis, then Novartis would have had the right to designate a third-party contract manufacturer or manufacture such candidates or products itself.

In accordance with the Collaboration Agreement, taking into consideration Novartis’ election to discontinue the sickle cell disease program, and the expiration of Novartis’ rights to make substitutions of an ophthalmic target, the Company was also eligible to receive up to a total of $ 265.0 million in milestone payments, including up to $ 90.0 million in development milestone payments, up to $ 85.0 million in regulatory milestone payments and up to $ 90.0 million in commercial milestone payments, with respect to the licensed products.

The Company was also eligible to earn tiered royalties on net sales of licensed products by Novartis, its affiliates or sublicensees, ranging from mid-single-digit, to sub-teen double-digit percentages, and such royalties were potentially subject to various reductions and offsets.

If any of the exploratory research efforts were advanced into formal research and development programs, the parties agreed to negotiate the economics including potential milestone payments for such programs at that time.

Revenue Recognition

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The Company identified only one performance obligation in the Collaboration Agreement.

Therefore, the Company will allocate the transaction price at the onset of the contract to the single performance obligation.

Therefore, the Company allocated the transaction price at the onset of the contract to the single performance obligation.

The Company recognizes revenue over time using a cost-to-cost method, which it believes best depicts the transfer of control to the customer.

1 unchanged sentence

Under this method, revenue is recorded over the performance period as a percentage of the estimated transaction price based on the extent of progress towards completion.

As of December 31, 2019, the aggregate amount of the transaction price related to the unsatisfied portion of the performance obligation is $31.0 million, and the Company will recognize this revenue as the research and manufacturing activities are performed, which is expected to occur over a period of time that is estimated will conclude in 2027.

The Company does not expect collaboration revenue to be recognized evenly over this period as it will be recognized on a percentage of completion basis as the Company performs the research, development and manufacturing services, which will likely vary from period to period.

In estimating the total costs to satisfy its single performance obligation pursuant to the Novartis agreement, the Company is required to make significant estimates including the expected time it will take to fulfill the performance obligation, which currently is expected to be approximately ten years from the date the Collaboration Agreement was entered into, and the expected costs associated with manufacturing during the research and development terms for a novel manufacturing process as well as the probability of success of a target to move into the development phase.

As of December 31, 2020, the aggregate amount of the transaction price related to the unsatisfied portion of the performance obligation is $ 30.2 million, and the Company will recognize this revenue as the research and manufacturing activities are performed, which was expected to occur over a period of time that was estimated to conclude in 2027.

In estimating the total costs to satisfy its single performance obligation pursuant to the Novartis agreement, the Company is required to make significant estimates including the expected time it will take to fulfill the performance obligation, which, as of December 31, 2020, was expected to be approximately ten years from the date the Collaboration Agreement was entered into, and the expected costs associated with manufacturing during the research and development terms for a novel manufacturing process as well as the probability of success of a target to move into the development phase.

The Company has made estimates of such costs utilizing its experience with similar product candidates, however not identical to those in the Collaboration Agreement.

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While such revisions will have no impact on the Company’s reported cash flows, a significant change in these assumptions and estimates could have a material impact on the timing and amount of revenue recognized in future periods.

In February 2019, Novartis elected to discontinue the sickle cell disease program under the Collaboration Agreement effective in August 2019.

Future costs associated with this target were removed from the estimated total costs in the cost-to-cost model, which resulted in an insignificant adjustment to revenue during the period.

During the years ended December 31, 2020 and 2019, the Company recognized revenue under the Collaboration Agreement of $ 2.3 million and $ 1.7 million, respectively, of which $ 0.8 million and $ 0.6 million was included in deferred revenue at the beginning of each such period.

As of December 31, 2020 and 2019, there was approximately $ 30.2 million and $ 31.0 million of deferred revenue related to the Collaboration Agreement, respectively.

In addition, as of December 31, 2019 and 2018, the Company has recorded accounts receivable of $0.4 million and $0.8 million, respectively, related to reimbursable research and development costs under the Collaboration Agreement, which are included in prepaid expenses and other current assets on the consolidated balance sheets.

In addition, as of December 31, 2020 and 2019, the Company has recorded accounts receivable of $ 0.4 million, related to reimbursable research and development costs under the Collaboration Agreement, which are included in prepaid expenses and other current assets on the consolidated balance sheets.

PFIZER STOCK PURCHASE AGREEMENT

On November 9, 2020, the Company entered into a common stock purchase agreement (the “Stock Purchase Agreement”) with Pfizer Inc.

The shares of common stock sold to Pfizer are subject to a one-year lock-up from closing, during which time Pfizer is prohibited from selling or otherwise disposing of such shares.

Under the Stock Purchase Agreement, Pfizer was granted an exclusive right of first refusal (the “ROFR”) for a 30-month period (the “ROFR Period”) beginning on the date of the closing of the Private Placement (collectively, the “ROFR Provision”), to negotiate a potential collaboration on the development and commercialization of HMI-102 and HMI-103.

Pfizer may exercise its right of first refusal under the ROFR Provision one time for each of HMI-102 and HMI-103 during the ROFR period.

In addition to the ROFR, the Stock Purchase Agreement provides for an information sharing committee (the “Information Committee”), comprised of representatives of each company which will serve as a forum for sharing information regarding the development of HMI-102 and HMI-103 during the ROFR Period.

The Company recorded the issuance of common stock at its estimated fair value of $ 52.0 million, which reflects a discount for the lack of marketability of the shares.

The remaining $ 8.0 million of aggregate purchase price was allocated to the other elements of the Stock Purchase Agreement, which represent a contract with a customer.

The Company concluded that the Information Committee represents the only performance obligation under the contract.

The ROFR does not provide Pfizer with a material right and is therefore not a performance obligation.

As such, the Company allocated the $ 8.0 million to the Information Committee obligation.

The Company will recognize revenue over time as the measure of progress which it believes best depicts the transfer of control to Pfizer.

The Information Committee will meet regularly over the ROFR Period to share information which results in recognition of the transaction price over the 30-month ROFR Period.

During the year ended December 31, 2020, the Company recognized collaboration of $ 0.4 million, and as of December 31, 2020, there was approximately $ 7.6 million of deferred revenue related to the Company’s obligation to Pfizer.

SUBSEQUENT EVENT

On February 26, 2021, Homology received notice from Novartis that they had elected to terminate the Collaboration Agreement with the Company, with respect to the remaining ophthalmic target under the Collaboration Agreement.

Accordingly, the notice served as notice of Novartis’ termination of the Collaboration Agreement in its entirety, which will be effective on August 26, 2021.

As a result of the termination of the Collaboration Agreement, Homology regained worldwide exclusive rights from Novartis to research, develop, manufacture and commercialize Homology’s proprietary nuclease-free gene editing technology platform for an ophthalmic target (see Note 15).

Homology announced its plans to continue to advance the program toward naming a development candidate.

The Company and Novartis believe that results of studies conducted

under the C ollaboration Agreement provide early proof-of-principle and support a nuclease-independent approach to editing of relevant cell types in the eye after sub-retinal injection, and are the subject of a planned presentation at an upcoming scientific meeting .

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

What changed 10-K

Item 9A. Controls and Procedures