Beam Therapeutics Inc. (BEAM)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes to those statements included elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Some of the numbers included herein have been rounded for the convenience of presentation. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under Item 1A, Risk factors, in this Annual Report on Form 10-K.

Information pertaining to fiscal year 2022 was included in our Annual Report on Form 10-K for the year ended December 31, 2023 on pages 115 through 126 under Part II, Item 7, “Management’s Discussion and Analysis of Financial Position and Results of Operations,” which was filed with the Securities and Exchange Commission (the “SEC”) on February 27, 2024.

Overview

We are a biotechnology company committed to establishing the leading, fully integrated platform for precision genetic medicines. Our vision is to provide life-long cures to patients suffering from serious diseases. To achieve this vision, we have assembled a platform that includes a suite of gene editing and delivery technologies as well as internal manufacturing capabilities.

Our suite of gene editing technologies is anchored by our proprietary base editing technology, which potentially enables a differentiated class of precision genetic medicines that target a single base in the genome without making a double-stranded break in the DNA. This approach uses a chemical reaction designed to create precise, predictable and efficient genetic outcomes at the targeted sequence. Our proprietary base editors have two principal components: (i) a clustered regularly interspaced short palindromic repeats, or CRISPR, protein, bound to a guide RNA, that leverages the established DNA-targeting ability of CRISPR, but is modified to not cause a double-stranded break, and (ii) a base editing enzyme, such as a deaminase, which carries out the desired chemical modification of the target DNA base. We believe this design contributes to a more precise and efficient edit compared to traditional gene editing methods, with the potential to dramatically increase the impact of gene editing. We are also pursuing a suite of both delivery modalities, including both ex vivo and in vivo approaches, depending on tissue type. The elegance of the base editing approach, combined with a tissue specific delivery modality, provides the basis for a targeted, efficient, precise, and highly versatile gene editing system that is designed to be capable of gene correction, gene silencing or gene activation, gene modification, and/or multiplex editing of several genes simultaneously.

Our goal is to advance a broad, diversified portfolio of base editing programs against distinct, genetically validated editing targets, as well as an innovative, platform business model that will expand the reach of our programs to more patients. Overall, we are seeking to build the leading integrated platform for precision genetic medicine, which may have broad therapeutic applicability and the potential to transform the field of precision genetic medicines.

Hematology

We are advancing hematology base editing programs in which hematopoietic stem cells, or HSCs, are collected from a patient, edited using electroporation, and then infused back into the patient following a conditioning regimen, such as treatment with busulfan, the standard of care in HSC transplantation, or HSCT, today. Once reinfused, the HSCs begin repopulating a portion of the bone marrow in a process known as engraftment. The engrafted, edited HSCs give rise to progenitor cell types with the corrected gene sequences. We are deploying this ex vivo approach in our BEAM-101 and ESCAPE base editing programs.

We are pursuing a long-term, staged development strategy for our base editing approach to treat hematological diseases that consists of advancing our lead ex vivo program, BEAM-101, in Wave 1, improving patient conditioning regimens in Wave 2, and enabling in vivo base editing with delivery directly into HSCs of patients via lipid nanoparticles, or LNPs, in Wave 3. We believe this suite of technologies – base editing, improved conditioning and in vivo delivery for editing HSCs – can maximize the potential applicability of our sickle cell disease programs to patients as well as create a platform for the treatment of many other severe genetic blood disorders.

Wave 1: Ex Vivo Base Editing via Autologous Transplant with BEAM-101

We are using base editing to pursue the development of BEAM-101 for the treatment of sickle cell disease. BEAM-101 is a patient-specific, autologous HSC investigational therapy designed to offer a potentially best-in-class profile, incorporating base edits that are intended to mimic single nucleotide polymorphisms seen in individuals with hereditary persistence of fetal hemoglobin, or HbF. BEAM-101 aims to alleviate the effects of sickle cell disease by increasing HbF, which is expected to increase functional hemoglobin production and, in the case of sickle cell disease, inhibit hemoglobin S, or HbS, polymerization.

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We are conducting a Phase 1/2 clinical trial designed to assess the safety and efficacy of BEAM-101 for the treatment of sickle cell disease, which we refer to as our BEACON trial. The BEACON trial initially includes up to 45 patients ages 18 to 35 with severe sickle cell disease who have received prior treatment with at least one disease-modifying agent with inadequate response or intolerance. Following mobilization, conditioning and treatment with BEAM-101, patients are assessed for safety and tolerability, with safety endpoints including neutrophil and platelet engraftment. Patients are also assessed for efficacy, with efficacy endpoints including the change from baseline in severe vaso-occlusive events, transfusion requirements, HbF levels, and quality of life assessments. In December 2024, we announced preliminary positive data from our Phase 1/2 clinical trial of BEAM-101, which we refer to as the BEACON trial. The adult enrollment target for BEACON has been achieved, and the first adolescent patients have cleared screening and enrolled in the trial. We expect to dose 30 patients in the BEACON trial by mid-2025. We also plan to present updated data from the trial in mid-2025.

Wave 2: Non-genotoxic Conditioning

In parallel with Wave 1 development, we also aim to improve the transplant conditioning regimen for patients undergoing HSCT, thereby reducing toxicity challenges associated with HSCT. Conditioning is a critical component necessary to prepare a patient’s body to receive the ex vivo edited cells that must engraft in the patient’s bone marrow in order to be effective. However, current conditioning regimens rely on nonspecific chemotherapy or radiation, which are associated with significant toxicities. As a potential alternative to genotoxic conditioning regimens in HSCT, we are advancing our ESCAPE program. ESCAPE aims to avoid toxicity challenges associated with currently available conditioning regimens for patients with sickle cell disease and beta-thalassemia ahead of autologous HSCT, by combining antibody-based conditioning with multiplex gene edited HSCs. ESCAPE may also have applications in other diseases of the blood and immune system where HSCT could deliver potential benefits but has been limited by toxicities associated with current standard of care conditioning regimens.

We have nominated a development candidate for our ESCAPE technology comprised of two investigational drug products: BEAM-103, an anti-CD117 monoclonal antibody, and BEAM-104, a cell therapy that includes the same therapeutic edit as BEAM-101 (editing the HBG1/2 genes to elevate fetal hemoglobin), plus an additional edit to CD117 designed to block binding of BEAM-103, allowing the edited cells to evade suppression by the antibody. We intend to advance BEAM-103 and BEAM-104 for development in sickle cell disease and beta-thalassemia, potentially building on the same regulatory, manufacturing, clinical and commercial foundations being established with BEAM-101. We expect to initiate a Phase 1 healthy volunteer clinical trial of BEAM-103 by the end of 2025.

Wave 3: In Vivo Base Editing via HSC-targeted LNPs

We are also exploring the potential for in vivo base editing programs for sickle cell disease, in which base editors would be delivered to the patient through an infusion of LNPs targeted to HSCs, eliminating the need for transplantation altogether. This approach could provide a more accessible option for patients, particularly in regions where ex vivo treatment is challenging.

Genetic Diseases

BEAM-302: In Vivo LNP liver-targeting for AATD

BEAM-302 is a liver-targeting LNP formulation of base editing reagents designed to offer a one-time treatment to correct the E342K point mutation (PiZZ genotype) predominantly responsible for the severe form of alpha-1 antitrypsin deficiency, or AATD. AATD is an inherited genetic disorder that can cause early onset emphysema and liver disease. The most severe form of AATD arises when a patient has a point mutation in both copies of the SERPINA1 gene at amino acid 342 position (E342K, also known as the PiZ mutation or the “Z” allele). This point mutation causes Alpha-1 antitrypsin, or AAT, to misfold, accumulating inside liver cells rather than being secreted, resulting in very low levels (10%-15%) of circulating AAT. In addition to resulting in lower levels, the PiZ AAT protein variant is also less enzymatically effective compared to wildtype AAT protein. As a consequence, the lung is left unprotected from neutrophil elastase, resulting in progressive, destructive changes in the lung, such as emphysema, which can result in the need for lung transplants. The mutant AAT protein also accumulates in the liver, causing liver inflammation and cirrhosis, which can ultimately cause liver failure or cancer requiring patients to undergo a liver transplant. It is estimated that approximately 100,000 individuals in the United States have two copies of the Z allele. There are currently no curative treatments for patients with AATD.

We are conducting a Phase 1/2 open label, dose escalation clinical trial of BEAM-302 at sites located in the United Kingdom for the treatment of AATD. The trial will evaluate the safety, pharmacodynamics, pharmacokinetics and efficacy of BEAM-302 initially in patients with AATD-associated lung disease. The study design includes a dose exploration portion followed by a dose expansion portion to identify the optimal dose to take forward in a pivotal study. We continue to progress enrollment and global site activation and expect to report initial clinical data from multiple cohorts in the trial in the first half of 2025.

BEAM-301: In Vivo LNP liver-targeting for GSD1a

BEAM-301 is a liver-targeting LNP formulation of base editing reagents designed to correct the R83C mutation, the most prevalent disease-causing mutation for, and the mutation which results in the most severe form of, glycogen storage disease 1a, or GSD1a. GSD1a is an autosomal recessive disorder caused by mutations in the G6PC gene that disrupts a key enzyme, G6Pase, critical for

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maintaining glucose homeostasis. Inhibition of G6Pase activity results in low fasting blood glucose levels that can result in seizures and be fatal. Patients with this mutation typically require ongoing corn starch administration, without which they may enter into hypoglycemic shock within one to three hours.

We are conducting a Phase 1/2 clinical trial of BEAM-301 at a select number of sites in the United States. The trial is an open-label, multi-cohort, single-ascending dose evaluation of BEAM-301 for the treatment of GSD1a in patients with the R83C mutation. Key endpoints of the trial include safety and tolerability, time to hypoglycemia during fasting, and changes from baseline in corn starch supplementation. We are continuing site activation activities and expect dosing to commence in early 2025.

Manufacturing

Due to the critical importance of high-quality manufacturing and control of production timing and know-how, we have established a 100,000 square foot manufacturing facility in Research Triangle Park, North Carolina intended to support a broad range of clinical programs. The cGMP facility is designed to support manufacturing for our ex vivo cell therapy programs in hematology and in vivo non-viral delivery programs for liver and liver-mediated diseases, with the capability to scale-up to support potential commercial supply. For our initial clinical trials, we expect to rely primarily on our internal manufacturing capabilities, along with CMOs with relevant manufacturing experience in genetic medicines. We believe this investment will maximize the value of our portfolio and capabilities, the probability of technical success of our programs, and the speed at which we can provide potentially life-long cures to patients.

Financial operations overview

General

We were founded in January 2017 and began operations in July 2017. Since our inception, we have devoted substantially all of our resources to building our base editing platform and advancing development of our portfolio of programs, establishing and protecting our intellectual property, conducting research and development activities, organizing and staffing our company, conducting clinical trials, maintaining and expanding internal manufacturing capabilities, business planning, raising capital and providing general and administrative support for these operations. To date, we have financed our operations primarily through the sales of our redeemable convertible preferred stock, proceeds from offerings of our common stock and payments received under collaboration and license agreements.

We are an early-stage company, and the majority of our programs are at a preclinical or clinical stage of development. To date, we have not generated any revenue from product sales and do not expect to generate revenue from the sale of products for the foreseeable future. Our revenue to date has been primarily derived from license and collaboration agreements with partners. Since inception we have incurred significant operating losses. Our net losses for the years ended December 31, 2024, 2023 and 2022 were $376.7 million, $132.5 million and $289.1 million, respectively. As of December 31, 2024, we had an accumulated deficit of $1.6 billion. We expect to continue to incur significant expenses and increasing operating losses in connection with ongoing development activities related to our internal programs and collaborations as we continue our preclinical and clinical development of product candidates; advance additional product candidates toward clinical development; operate our cGMP facility in North Carolina; further develop our base editing platform; continue to make investments in delivery technology for our base editors; conduct research activities as we seek to discover and develop additional product candidates; maintain, expand, enforce, defend and protect our intellectual property portfolio; and continue to hire research and development, clinical, technical operations and commercial personnel. In addition, we expect to continue to incur the costs associated with operating as a public company.

As a result of these anticipated expenditures, we will need to raise additional capital to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances, and licensing arrangements. We may be unable to raise additional funds or enter into such other agreements when needed on favorable terms or at all. Our inability to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. We can give no assurance that we will be able to secure such additional sources of capital to support our operations, or, if such capital is available to us, that such additional capital will be sufficient to meet our needs for the short or long term.

Revenue recognition

In April 2019, we entered into a collaboration and license agreement, or the Verve Agreement, with Verve Therapeutics, Inc., or Verve, a company focused on gene editing for cardiovascular disease treatments. In June 2021, we entered into a research collaboration agreement, or the Apellis Agreement, with Apellis Pharmaceuticals, Inc., or Apellis, focused on the use of our base editing technology to discover new treatments for complement system-driven diseases. In October 2021, we entered into an option and license agreement, or the Sana Agreement, with Sana Biotechnology, Inc., or Sana, pursuant to which we granted Sana non-exclusive research and development and commercial rights to our CRISPR Cas12b technology to perform nuclease editing for certain ex vivo engineered cell therapy programs. In December 2021, we entered into a four-year research collaboration agreement, or the Pfizer Agreement, with Pfizer Inc., or Pfizer, focused on in vivo base editing programs for three targets for rare genetic diseases of the liver, muscle and central nervous system. In September 2022, we entered into a License and Research Collaboration Agreement, or the

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Orbital Agreement, with Orbital Therapeutics, Inc., or Orbital, a newly formed entity focused on advancing non-viral delivery and RNA technologies. In October 2023, we entered into a Transfer and Delegation Agreement, or the Lilly Agreement, with Eli Lilly and Company, or Lilly, pursuant to which Lilly acquired certain assets and other rights under the Verve Agreement, including our opt-in rights to co-develop and co-commercialize Verve’s base editing programs for cardiovascular disease.

We have not generated any revenue to date from product sales and do not expect to do so in the near future. During the years ended December 31, 2024, 2023, and 2022, we recognized $63.5 million, $377.7 million and $60.9 million respectively, of revenue from our license and collaboration agreements.

For additional information about our revenue recognition policy, see Note 2 and Note 10 of the notes to our audited consolidated financial statements included in this Annual Report on Form 10-K.

Research and development expenses

Research and development expenses consist of costs incurred in performing research and development activities, which include:

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expenses incurred in connection with our clinical trials, including contract research organization costs and costs related to study preparation;

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the cost of manufacturing materials for use in our preclinical studies, IND-enabling studies and clinical trials;

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expenses incurred in connection with investments in delivery technology for our base editors;

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expenses incurred in connection with the discovery and preclinical development of our research programs, including under agreements with third parties, such as consultants, contractors and contract research organizations;

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personnel-related expenses, including salaries, bonuses, benefits and stock-based compensation for employees engaged in research and development functions;

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the cost to obtain licenses to intellectual property, such as those with Harvard University, or Harvard, The Broad Institute, Inc., or Broad Institute, Editas Medicine, Inc., or Editas, and Bio Palette Co., Ltd., or Bio Palette, and related future payments should certain success, development and regulatory milestones be achieved;

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expenses incurred in connection with the building of our base editing platform;

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expenses incurred in connection with regulatory filings;

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laboratory supplies and research materials; and

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facilities, depreciation and other expenses which include direct and allocated expenses.

Our external research and development expenses support our various preclinical and clinical programs. Our internal research and development expenses consist of employee-related expenses, facility-related expenses, and other indirect research and development expenses incurred in support of overall research and development. We expense research and development costs as incurred. Advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the benefits are consumed.

In the early phases of development, our research and development costs are often devoted to product platform and proof-of-concept preclinical studies that are not necessarily allocable to a specific target.

We expect that our research and development expenses will increase substantially as we advance our programs through their planned preclinical and clinical development.

General and administrative expenses

General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, intellectual property, business development and administrative functions. General and administrative expenses also include legal fees relating to intellectual property and corporate matters, professional fees for accounting, auditing, tax and consulting services, insurance costs, travel, and direct and allocated facility related expenses and other operating costs.

We anticipate that our general and administrative expenses will increase in the future to support our increased research and development activities. We also expect to continue to incur costs associated with being a public company and maintaining controls over financial reporting, including costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with Nasdaq and SEC requirements, director and officer insurance costs, and investor and public relations costs.

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Other income and expenses

Other income and expenses consist of the following items:

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Change in fair value of derivative liabilities consists primarily of remeasurement gains or losses associated with changes in success payment liabilities associated with our license agreement with Harvard, dated as of June 27, 2017, as amended, or the Harvard License Agreement, the license agreement with The Broad Institute, as amended, dated as of May 9, 2018, or the Broad License Agreement, and settlement payment derivative liabilities associated with a settlement agreement with a research institution.

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Change in fair value of non-controlling equity investments consists of changes in the fair value of our investments in equity securities.

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Change in fair value of contingent consideration liabilities consists of remeasurement of the fair market value of the technology and product contingent consideration liabilities related to the acquisition of Guide.

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Interest and other income (expense), net consists primarily of interest income from our investments in fixed income securities as well as interest expense related to our equipment financings.

Results of operations

For discussion of 2023 results and comparison with 2022 results, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Comparison of the years ended December 31, 2024 and 2023

The following table summarizes our results of operations (in thousands):

License and collaboration revenue

License and collaboration revenue was approximately $63.5 million for the year ended December 31, 2024, compared to approximately $377.7 million for the year ended December 31, 2023, a decrease of $314.2 million. License and collaboration revenue recorded in 2024 represents revenue recorded under the Pfizer, Apellis and Orbital Agreements, as well as $27.0 million of revenue recognized from development and regulatory milestones achieved under our agreements with Lilly and Sana. In 2023, we recorded $377.7 million of total revenue, inclusive of license revenue related to the Lilly, Pfizer, Apellis, Orbital and Verve Agreements and $1.8 million of revenue recognized from development and regulatory milestones achieved under our agreements with Sana. The decrease in revenue is driven primarily by $216.4 million of up-front revenue recognized in the year ended December 31, 2023, from the transaction with Lilly (see Note 10) and the net change in activity amongst our collaboration agreements. Revenue recognized under the Pfizer and Apellis agreements relate to nonrefundable up-front payments and are recognized based upon a measure of progress using total actual costs incurred as compared to total estimated costs.

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Research and development expenses

Research and development expenses were $367.6 million and $437.4 million for the years ended December 31, 2024 and 2023, respectively. The following table summarizes our research and development expenses for the years ended December 31, 2024 and December 31, 2023, together with the changes in those items in dollars (in thousands):

The decrease of $69.8 million was primarily due to the following:

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A $39.7 million decrease in external research and development expenses driven by a $29.6 million decrease in outsourced services, primarily due to the strategic reprioritization of pipeline programs, timing of manufacturing spend and fewer IND-enabling activities, partially offset by increased clinical activities. Also contributing to the decrease is a $10.1 million decrease in lab supply expenses due to the strategic reprioritization of pipeline programs and a shift of programs beyond research activities

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A decrease of $38.8 million in other expense primarily due to decreases of accrued liabilities for estimated license fees associated with the Lilly transaction; and

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A decrease of $11.1 million of employee related expenses due to the annualized impact of the higher number of research and development employees prior to our strategic restructuring in October 2023 and the severance related to the restructuring.

The decrease was partially offset by the following:

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An increase of $15.7 million in stock-based compensation from additional stock options and restricted stock units granted during the year; and

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An increase of $4.0 million of facility and information technology, or IT, related costs, including depreciation and the expense allocated to research and development related to our leased facilities.

Research and development expenses are expected to continue to increase as we advance clinical trials for BEAM-101, BEAM-302, and BEAM-301, continue our current research programs, initiate new research programs, continue the preclinical and clinical development of our product candidates, conduct any future preclinical studies, and begin to enroll patients in and conduct clinical trials for any of our product candidates.

General and administrative expenses

General and administrative expenses were $111.5 million and $116.8 million for the years ended December 31, 2024 and 2023, respectively. The decrease of $5.3 million was primarily due to the following:

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A decrease of $16.9 million attributable to the settlement of a contingent liability;

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A decrease of $0.4 million in insurance costs; and

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A decrease of $0.2 million in other expenses.

The decrease was partially offset by the following:

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An increase of $6.3 million in stock-based compensation from additional stock options and restricted stock units granted during the year; and

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An increase of $5.9 million in personnel related costs due to an increase in the number of general and administrative employees between December 31, 2023 and December 31, 2024, and increases in salaries and bonuses to existing employees.

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Change in fair value of derivative liabilities

During the year ended December 31, 2024, we recorded $2.3 million of other income related to the change in fair value of the derivative liabilities as compared to $7.5 million for the year ended December 31, 2023, driven primarily by the decline in the price of our common stock. A portion of the success payments was paid in June 2021; the remaining success payment obligations are still outstanding as of December 31, 2024 and will continue to be revalued at each reporting period.

Change in fair value of non-controlling equity investments

During the years ended December 31, 2024 and 2023, we recorded other expense of $14.1 million and $18.6 million, respectively, as a result of changes in the fair value of our investments in Verve and Prime Medicine common stock.

Change in contingent consideration liabilities

During the years ended December 31, 2024 and 2023, we recorded $1.6 million and $9.7 million, respectively, of other income related to the change in fair value of the Guide technology and product contingent consideration liabilities as a result of an update in project timelines and the expected probability of achievement of the milestones.

Interest and other income (expense), net

Interest and other income (expense), net was $49.1 million and $46.7 million of other income for the years ended December 31, 2024 and December 31, 2023, respectively. The increase was primarily due to increases in interest income driven by increased market rates and growth of our investment portfolio.

Provision for income taxes

We recorded an income tax provision of less than $0.1 million for the year ended December 31, 2024 and a provision of $1.4 million for the year ended December 31, 2023, which reflects that we generated taxable income that was not fully offset by the use of tax operating loss carryforwards and tax credits. Our taxable income includes income recognized related to our license and collaboration agreements with Apellis, Pfizer, Lilly, Sana and Orbital in the year ended December 31, 2024. Taxable income in the year ended December 31, 2023 included income recognized related to the Lilly Agreement.

Liquidity and capital resources

Since our inception in January 2017, we have not generated any revenue from product sales, have generated only limited revenue from our license and collaboration agreements, and have incurred significant operating losses and negative cash flows from our operations. We expect to incur significant expenses and operating losses for the foreseeable future as we advance the preclinical and the clinical development of our product candidates.

In February 2024, we filed a universal automatic shelf registration statement on Form S-3 with the SEC, to register for sale an indeterminate amount of our common stock, preferred stock, debt securities, warrants and/or units in one or more offerings, which became effective upon filing with the SEC (File No. 333-277427).

We have entered into an at the market sales agreement, or the Sales Agreement, with Jefferies LLC, or Jefferies, pursuant to which we are entitled to offer and sell, from time to time at prevailing market prices, shares of our common stock having aggregate gross proceeds of up to $1.1 billion. We agreed to pay Jefferies a commission of up to 3.0% of the aggregate gross sale proceeds of any shares sold by Jefferies under the Sales Agreement. There were no shares sold under the Sales Agreement during the year ended December 31, 2024. As of December 31, 2024, we have sold 13,769,001 shares of our common stock under the Sales Agreement at an average price of $62.75 per share for aggregate gross proceeds of $864.0 million, before deducting commissions and offering expenses payable by us.

As of December 31, 2024, we had $850.7 million in cash, cash equivalents, and marketable securities.

We are required to make success payments to Harvard and Broad Institute based on increases in the per share fair market value of our common stock. The amounts due may be settled in cash or shares of our common stock, at our discretion. We may owe Harvard and Broad Institute success payments of up to an additional $90.0 million each.

We have not yet commercialized any of our product candidates, and we do not expect to generate revenue from the sale of our product candidates for the foreseeable future. We anticipate that we may need to raise additional capital in order to continue to fund our research and development, including our planned preclinical studies and clinical trials, maintaining and operating our commercial-scale cGMP manufacturing facility, and new product development, as well as to fund our general operations. As necessary, we will seek to raise additional capital through various potential sources, such as equity and debt financings or through corporate collaboration and license agreements. We can give no assurances that we will be able to secure such additional sources of capital to support our operations, or, if such funds are available to us, that such additional financing will be sufficient to meet our needs.

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Cash flows

The following table summarizes our sources and uses of cash (in thousands):

Operating activities

Net cash used in operating activities for the year ended December 31, 2024 was $347.2 million, including our net loss of $376.7 million, decreases in accrued expenses and other liabilities of $57.7 million, deferred revenue of $36.5 million and operating lease liabilities of $13.0 million, and an increase in prepaid expenses and other current assets of $5.4 million. In addition, noncash items, including the amortization of investment discounts and premiums of $22.8 million, decreases in the fair value of derivative liabilities of $2.3 million and a change in the fair value of contingent consideration liabilities of $1.6 million, also contributed to net cash used in operating activities.

These uses of cash were partially offset by increases in accounts payable of $1.8 million and other long-term liabilities of $0.5 million, as well as noncash items, including stock-based compensation expense of $120.7 million, depreciation and amortization expense of $21.9 million, a decrease in the fair value of non-controlling equity investments of $14.1 million and a decrease in operating lease right-of-use, or ROU, assets of $9.7 million.

Net cash used in operating activities for the year ended December 31, 2023 was $149.2 million, including $216.4 million of cash received under the Lilly transaction, increases in accrued expenses and other liabilities of $67.7 million, as well as noncash items consisting of stock-based compensation expense of $98.6 million, a decrease in the fair value of non-controlling equity investments of $18.6 million, depreciation and amortization expense of $20.0 million and changes in operating lease ROU assets of $9.5 million.

These sources of cash were offset in part by our net loss of $132.5 million, a decrease in deferred revenue of $159.6 million, a decrease in operating lease liabilities of $10.2 million, decreases in accounts payable of $7.6 million, other long-term liabilities of $0.2 million, increases in prepaid expenses and other current assets of $6.5 million and collaborations receivables of $0.1 million, as well as noncash items including amortization of investment discounts and premiums of $29.7 million, decreases in the fair value of derivative liabilities of $7.5 million and a change in the fair value of contingent consideration liabilities of $9.7 million.

Investing activities

For the year ended December 31, 2024, cash provided by investing activities of $185.0 million was primarily the result of net maturities of marketable securities partially offset by purchases of marketable securities, in addition to purchases of property and equipment of $8.9 million.

For the year ended December 31, 2023, cash provided by investing activities of $71.8 million was primarily the net result of maturities of marketable securities partially offset by purchases of marketable securities, in addition to purchases of property and equipment of $33.7 million.

Financing activities

Net cash provided by financing activities for the year ended December 31, 2024 of $7.7 million consisted of proceeds from the exercise of stock options of $5.6 million and $2.6 million of proceeds from the issuance of common stock under our Employee Stock Purchase Plan, or ESPP, offset in part by net repayments of equipment financing liabilities of $0.5 million.

Net cash provided by financing activities for the year ended December 31, 2023 of $276.4 million consisted primarily of proceeds from equity offerings of $236.6 million, net of sales commissions, proceeds from the issuance of shares from the Lilly Agreement of $33.6 million, $6.1 million of proceeds from the exercise of stock options, and $3.0 million of proceeds from the issuance of common stock under our ESPP, offset in part by net repayments of equipment financing liabilities of $2.3 million and payment of equity offering costs of $0.6 million.

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Funding requirements

Our operating expenses are expected to continue to increase substantially as we continue to advance our portfolio of programs.

Specifically, our expenses will increase if and as we:

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advance clinical trials of our product candidates;

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continue our research programs and our preclinical development of product candidates from our research programs;

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seek to identify additional research programs and additional product candidates;

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initiate preclinical studies and clinical trials for additional product candidates we identify and develop;

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seek marketing approvals for any of our product candidates that successfully complete clinical trials;

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establish a sales, marketing, and distribution infrastructure to commercialize any medicines for which we may obtain marketing approval;

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maintain, expand, enforce, defend, and protect our intellectual property portfolio and provide reimbursement of third-party expenses related to our patent portfolio;

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further develop our base editing platform;

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continue to hire additional personnel including research and development, clinical and commercial personnel;

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add operational, financial, and management information systems and personnel, including personnel to support our product development;

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acquire or in-license products, intellectual property, medicines and technologies; and

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maintain and operate a commercial-scale cGMP manufacturing facility.

We expect that our cash, cash equivalents, and marketable securities at December 31, 2024 will enable us to fund our current and planned operating expenses and capital expenditures for at least the next 12 months from the date of issuance of our accompanying consolidated financial statements. We have based these estimates on assumptions that may prove to be imprecise, and we may exhaust our available capital resources sooner that we currently expect. Because of the numerous risks and uncertainties associated with the development our programs, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates.

Our future funding requirements will depend on many factors including:

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the cost of continuing to build our base editing platform;

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the costs of acquiring licenses for the delivery modalities that will be used with our product candidates;

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the scope, progress, results, and costs of discovery, preclinical development, laboratory testing, manufacturing and clinical trials for the product candidates we may develop;

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the costs of preparing, filing, and prosecuting patent applications, maintaining and enforcing our intellectual property and proprietary rights, and defending intellectual property-related claims;

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the costs, timing, and outcome of regulatory review of the product candidates we develop;

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the costs of future activities, including product sales, medical affairs, marketing, manufacturing, distribution, coverage and reimbursement for any product candidates for which we receive regulatory approval;

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the success of our license agreements and our collaborations;

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our ability to establish and maintain additional collaborations on favorable terms, if at all;

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the achievement of milestones or occurrence of other developments that trigger payments under any collaboration agreements we are a party to or may become a party to, including our agreement with Guide;

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the payment of success liabilities to Harvard and Broad Institute pursuant to the respective terms of the Harvard License Agreement and the Broad Institute License Agreement, should we choose to pay in cash;

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the extent to which we acquire or in-license products, intellectual property, and technologies;

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the costs of operating and expanding our manufacturing capacity; and

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the impact on our business of macro-economic conditions, as well as the prevailing level of macro-economic, business, and operational uncertainty, including as a result of geopolitical events or other global or regional events.

A change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Further, our operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such operating plans.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, and licensing arrangements. We do not have any committed external source of capital. We have historically relied on equity issuances to fund our capital needs and will likely rely on equity issuances in the future. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends.

If we raise capital through additional collaborations, strategic alliances, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, or product candidates, or we may have to grant licenses on terms that may not be favorable to us. If we are unable to raise additional capital through equity or debt financings when needed, we may be required to delay, limit, reduce, or terminate our product development or, if approved, future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. We can give no assurance that we will be able to secure such additional sources of funds to support our operations, or, if such funds are available to us, that such additional funding will be sufficient to meet our needs.

Contractual obligations

We lease certain assets under noncancelable operating leases, which expire through 2037. The leases relate primarily to office space, laboratory and manufacturing space, and equipment. Aggregate future minimum commitments under these office and laboratory leases and equipment leases are $227.7 million as of December 31, 2024, excluding any related common area maintenance charges or real estate taxes.

In May 2021, the first success payment measurements under the Harvard License Agreement and Broad License Agreement occurred and success payments to Harvard and Broad Institute were calculated to be $15.0 million and $15.0 million, respectively. We elected to make each payment in shares of our common stock and issued 174,825 shares of our common stock to each of Harvard and Broad Institute to settle these liabilities in June 2021. The remaining success payment obligations are still outstanding as of December 31, 2024. We may additionally owe Harvard and Broad Institute success payments of up to an additional $90.0 million each.

We are potentially obligated to pay certain milestone and success fees, non-royalty sublicense income fees, royalty fees, licensing maintenance fees, and reimbursement of patent maintenance costs under agreements we have entered into with certain institutions to license intellectual property. Our agreements to license intellectual property include potential milestone payments that are dependent upon the development of products using the intellectual property licensed under the agreements and contingent upon the achievement of development or regulatory approval milestones, as well as commercial and success payment milestones. These amounts are contingent upon the occurrence of future events and the timing and likelihood of such potential obligations are not known with certainty.

In addition, we agreed to pay Guide’s former stockholders and optionholders up to an additional $100.0 million in technology milestone payments and $220.0 million in product milestone payments, payable in our common stock valued using the volume-weighted average price of our common stock over the ten-day trading period ending two trading days prior to the date on which the applicable milestone is received. These payments are contingent upon the occurrence of future events and the timing and likelihood of such potential obligations are not known with certainty.

Additionally, we enter into contracts in the normal course of business with CROs, CMOs and other vendors to assist in the performance of our research and development activities and other services and products for operating purposes. These contracts generally provide for termination on notice, and therefore are cancelable contracts.

Critical accounting policies and significant judgments and estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which we have prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

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While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements in this Annual Report on Form 10-K, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.

Revenue recognition

At inception, we determine whether contracts are within the scope of ASC 606, Revenue from Contracts with Customers, or ASC 606, or other topics. For contracts that are determined to be within the scope of ASC 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which we expect to be entitled to receive in exchange for these goods and services. To achieve this core principle, we apply the following five steps (i) identify the contract with the customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when the performance obligation is satisfied. We only apply the five-step model to contracts when we determine that collection of substantially all consideration for goods and services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration.

Performance obligations promised in a contract are identified based on the goods and services that will be transferred to the customer that are both capable of being distinct and are distinct in the context of the contract. To the extent a contract includes multiple promised goods and services, we apply judgment to determine whether promised goods and services are both capable of being distinct and are distinct in the context of the contract. If these criteria are not met, the promised goods and services are accounted for as a combined performance obligation.

The transaction price is determined based on the consideration to which we will be entitled in exchange for transferring goods and services to the customer. To the extent the transaction price includes variable consideration, we estimate the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method, depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in management’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Any estimates, including the effect of the constraint on variable consideration, are evaluated at each reporting period for any changes. Determining the transaction price requires significant judgment and is discussed in further detail for each of our license and collaboration agreements in Note 10 to our consolidated financial statements in this Annual Report on Form 10-K.

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation on a relative standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct service that forms part of a single performance obligation. The consideration to be received is allocated among the separate performance obligations based on relative standalone selling prices. Determining the standalone selling price requires significant judgment and is discussed in further detail for each of our license and collaboration agreements in Note 10.

We satisfy performance obligations either over time or at a point in time. Revenue is recognized over time if either (i) the customer simultaneously receives and consumes the benefits provided by the entity’s performance, (ii) the entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced, or (iii) the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date. If the entity does not satisfy a performance obligation over time, the related performance obligation is satisfied at a point in time by transferring the control of a promised good or service to a customer.

The timing of when services are performed and the occurrence of external costs associated with the programs under the collaboration agreements could impact how revenue is recognized in a certain period.

Licenses of intellectual property, or IP: If the license to our IP is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenues from consideration allocated to the license when the license is transferred to the customer and the customer can use and benefit from the licenses. For licenses that are combined with other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition. We generally recognize revenue using the cost incurred to date as compared to the total estimated cost. Changes in estimates of total internal and external costs expected to be incurred and timing of when those costs are expected to be incurred are recognized in the period of change as a cumulative catch-up adjustment. If estimates of the total estimated cost change, or if contract amendments change the scope of the performance obligations, the impacts could be material. Determining the revenue recognition of IP licenses requires significant judgment and is discussed in further detail for each of our license and collaboration agreements in Notes 9 and 10.

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Milestone payments: At the inception of each arrangement that includes development or regulatory milestone payments, we evaluate the probability of reaching the milestones and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur in the future, the associated milestone value is included in the transaction price. Milestone payments that are not within our control or the licensee’s, such as regulatory approvals, are not considered probable of being achieved until those approvals are received and therefore revenue recognized is constrained as management is unable to assert that a reversal of revenue would not be possible. The transaction price is then allocated to each performance obligation on a relative standalone selling price basis, for which we recognize revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, we re-evaluate the probability of achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment. To date, we have not recognized any milestone revenue resulting from any of our agreements.

Commercial Milestone Payments and Royalties: For arrangements that include sales-based royalties, including milestone payments based on levels of sales, if the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, we have not recognized any royalty revenue resulting from any of our agreements.

When no performance obligations are required of us, or following the completion of the performance obligation period, amounts are recognized as revenue upon transfer of control of the goods or services to the customer. Generally, all amounts received or due other than sales-based milestones and royalties are classified as license and collaboration revenue. Sales-based milestones and royalties will be recognized as royalty revenue at the later of when the related sales occur or when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

Deferred revenue expected to be recognized within the next twelve months is classified as a current liability.

Fair value measurements – Success payments

We are required to make success payments to Harvard and Broad Institute based on increases in the per share fair market value of our common stock. Any amounts due may be settled in cash or shares of our common stock, at our discretion. The success payments are accounted for as a derivative under Accounting Standards Codification 815, Derivatives and Hedging and were initially recorded at fair value with a corresponding charge to research and development expense. The liabilities are marked to market at each balance sheet date with all changes in value recognized in interest and other income (expense) in the consolidated statement of operations and other comprehensive loss. We will continue to adjust the liability for changes in fair value until the earlier of the achievement or expiration of the success payment obligation. To determine the estimated fair value of the success payments, we used a Monte Carlo simulation model, which models the value of the liability based on several key variables, including probability of event occurrence, timing of event occurrence, as well as the price per share at the time of success payment. A significant change in our stock price or volatility could have a significant impact on the value of the liability.

Accrued and prepaid research and development costs

As part of the process of preparing our financial statements, we are required to estimate our accrued expenses and prepaid research and development costs. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. Examples of estimated accrued research and development expenses include fees paid to vendors in connection with preclinical development activities and vendors related to development, manufacturing and distribution of product candidate materials.

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We base our expenses related to preclinical studies on our estimates of the services received and efforts expended pursuant to contracts with multiple vendors that conduct and manage preclinical studies on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period and adjust accordingly.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes to those statements included elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Some of the numbers included herein have been rounded for the convenience of presentation. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under Item 1A, Risk factors, in this Annual Report on Form 10-K.

Information pertaining to fiscal year 2021 was included in our Annual Report on Form 10-K for the year ended December 31, 2022 on pages 120 through 126 under Part II, Item 7, “Management’s Discussion and Analysis of Financial Position and Results of Operations,” which was filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2023.

Overview

We are a biotechnology company committed to establishing the leading, fully integrated platform for precision genetic medicines. Our vision is to provide life-long cures to patients suffering from serious diseases. To achieve this vision, we have assembled a platform that includes a suite of gene editing and delivery technologies as well as internal manufacturing capabilities.

Our suite of gene editing technologies is anchored by our proprietary base editing technology, which potentially enables a differentiated class of precision genetic medicines that target a single base in the genome without making a double-stranded break in the DNA. This approach uses a chemical reaction designed to create precise, predictable and efficient genetic outcomes at the targeted sequence. Our proprietary base editors have two principal components: (i) a clustered regularly interspaced short palindromic repeats, or CRISPR, protein, bound to a guide RNA, that leverages the established DNA-targeting ability of CRISPR, but is modified to not cause a double-stranded break, and (ii) a base editing enzyme, such as a deaminase, which carries out the desired chemical modification of the target DNA base. We believe this design contributes to a more precise and efficient edit compared to traditional gene editing methods, with the potential to dramatically increase the impact of gene editing. We are also pursuing a suite of both delivery modalities, including both ex vivo and in vivo approaches, depending on tissue type. The elegance of the base editing approach, combined with a tissue specific delivery modality, provides the basis for a targeted, efficient, precise, and highly versatile gene editing system that is designed to be capable of gene correction, gene silencing or gene activation, gene modification, and/or multiplex editing of several genes simultaneously.

Our goal is to advance a broad, diversified portfolio of base editing programs against distinct, genetically validated editing targets, as well as an innovative, platform business model that will expand the reach of our programs to more patients. Overall, we are seeking to build the leading integrated platform for precision genetic medicine, which may have broad therapeutic applicability and the potential to transform the field of precision genetic medicines.

Manufacturing

Due to the critical importance of high-quality manufacturing and control of production timing and know-how, we have established a 100,000 square foot manufacturing facility in Research Triangle Park, North Carolina intended to support a broad range of clinical programs. The facility, which initiated cGMP operations in late 2023, is designed to support manufacturing for our ex vivo cell therapy programs in hematology and in vivo non-viral delivery programs for liver and liver-mediated diseases, with the capability to scale-up to support potential commercial supply. For our initial clinical trials, we expect to rely primarily on our internal manufacturing capabilities, along with CMOs with relevant manufacturing experience in genetic medicines. We believe this investment will maximize the value of our portfolio and capabilities, the probability of technical success of our programs, and the speed at which we can provide potentially life-long cures to patients.

Acquisitions

In February 2021, we acquired Guide Therapeutics, Inc., or Guide, for upfront consideration in an aggregate amount of $120.0 million, excluding customary purchase price adjustments, in shares of our common stock, based upon the volume-weighted average price of the common stock over the ten trading-day period ending on February 19, 2021. In addition, Guide’s former stockholders and optionholders are eligible to receive up to an additional $100.0 million in technology milestone payments and $220.0 million in product milestone payments, payable in our common stock.

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Financial operations overview

General

We were founded in January 2017 and began operations in July 2017. Since our inception, we have devoted substantially all of our resources to building our base editing platform and advancing development of our portfolio of programs, establishing and protecting our intellectual property, conducting research and development activities, organizing and staffing our company, business planning, raising capital and providing general and administrative support for these operations. To date, we have financed our operations primarily through the sales of our redeemable convertible preferred stock, proceeds from offerings of our common stock and payments received under collaboration and license agreements.

We are an early-stage company, and the majority of our programs are at a preclinical or early clinical stage of development. To date, we have not generated any revenue from product sales and do not expect to generate revenue from the sale of products for the foreseeable future. Our revenue to date has been primarily derived from license and collaboration agreements with partners. Since inception we have incurred significant operating losses. Our net losses for the years ended December 31, 2023, 2022 and 2021 were $132.5 million, $289.1 million and $370.6 million, respectively. As of December 31, 2023, we had an accumulated deficit of $1.2 billion. We expect to continue to incur significant expenses and increasing operating losses in connection with ongoing development activities related to our internal programs and collaborations as we continue our preclinical and clinical development of product candidates; advance additional product candidates toward clinical development; operate our cGMP facility in North Carolina; further develop our base editing platform; continue to make investments in delivery technology for our base editors, including the LNP technology we acquired through our acquisition of Guide; conduct research activities as we seek to discover and develop additional product candidates; maintain, expand, enforce, defend and protect our intellectual property portfolio; and continue to hire research and development, clinical, technical operations and commercial personnel. In addition, we expect to continue to incur the costs associated with operating as a public company.

As a result of these anticipated expenditures, we will need to raise additional capital to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances, and licensing arrangements. We may be unable to raise additional funds or enter into such other agreements when needed on favorable terms or at all. Our inability to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. We can give no assurance that we will be able to secure such additional sources of capital to support our operations, or, if such capital is available to us, that such additional capital will be sufficient to meet our needs for the short or long term.

Revenue Recognition

In April 2019, we entered into a collaboration and license agreement, or the Verve Agreement, with Verve Therapeutics, Inc., or Verve, a company focused on gene editing for cardiovascular disease treatments. In June 2021, we entered into a research collaboration agreement, or the Apellis Agreement, with Apellis Pharmaceuticals, Inc., or Apellis, focused on the use of certain of our base editing technology to discover new treatments for complement system-driven diseases. In October 2021, we entered into an option and license agreement, or the Sana Agreement, with Sana Biotechnology, Inc., or Sana, pursuant to which we granted Sana non-exclusive research and development and commercial rights to our CRISPR Cas12b technology to perform nuclease editing for certain ex vivo engineered cell therapy programs. In December 2021, we entered into a four-year research collaboration agreement, or the Pfizer Agreement, with Pfizer Inc., or Pfizer, focused on in vivo base editing programs for three targets for rare genetic diseases of the liver, muscle and central nervous system. In September 2022, we entered into a License and Research Collaboration Agreement, or the Orbital Agreement, with Orbital Therapeutics, Inc., or Orbital, a newly formed entity focused on advancing non-viral delivery and RNA technologies. In October 2023, we entered into a Transfer and Delegation Agreement, or the Lilly Agreement, with Eli Lilly and Company, or Lilly, pursuant to which Lilly acquired certain assets and other rights under our amended collaboration and license agreement, or the Verve Agreement, with Verve Therapeutics, Inc., or Verve, including our opt-in rights to co-develop and co-commercialize Verve’s base editing programs for cardiovascular disease.

We have not generated any revenue to date from product sales and do not expect to do so in the near future. During the years ended December 31, 2023, 2022, and 2021, we recognized $377.7 million, $60.9 million and $51.8 million respectively, of revenue from our license and collaboration agreements.

For additional information about our revenue recognition policy, see Note 2 and Note 11 of the notes to our audited consolidated financial statements included in this Annual Report on Form 10-K.

Research and development expenses

Research and development expenses consist of costs incurred in performing research and development activities, which include:

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expenses incurred in connection with our clinical trials, including contract research organization costs and costs related to study preparation;

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the cost of manufacturing materials for use in our preclinical studies, IND-enabling studies and clinical trials;

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expenses incurred in connection with investments in delivery technology for our base editors, including the LNP technology we acquired through our acquisition of Guide;

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expenses incurred in connection with the discovery and preclinical development of our research programs, including under agreements with third parties, such as consultants, contractors and contract research organizations;

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personnel-related expenses, including salaries, bonuses, benefits and stock-based compensation for employees engaged in research and development functions;

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the cost to obtain licenses to intellectual property, such as those with Harvard University, or Harvard, The Broad Institute, Inc., or Broad Institute, Editas Medicine, Inc., or Editas, and Bio Palette Co., Ltd., or Bio Palette, and related future payments should certain success, development and regulatory milestones be achieved;

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expenses incurred in connection with the building of our base editing platform;

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expenses incurred in connection with regulatory filings;

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laboratory supplies and research materials; and

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facilities, depreciation and other expenses which include direct and allocated expenses.

Our external research and development expenses support our various preclinical and clinical programs. Our internal research and development expenses consist of employee-related expenses, facility-related expenses, and other indirect research and development expenses incurred in support of overall research and development. We expense research and development costs as incurred. Advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the benefits are consumed.

In the early phases of development, our research and development costs are often devoted to product platform and proof-of-concept preclinical studies that are not necessarily allocable to a specific target.

We expect that our research and development expenses will increase substantially as we advance our programs through their planned preclinical and clinical development.

General and administrative expenses

General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, intellectual property, business development and administrative functions. General and administrative expenses also include legal fees relating to intellectual property and corporate matters, professional fees for accounting, auditing, tax and consulting services, insurance costs, travel, and direct and allocated facility related expenses and other operating costs.

We anticipate that our general and administrative expenses will increase in the future to support our increased research and development activities. We also expect to continue to incur costs associated with being a public company and maintaining controls over financial reporting, including costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with Nasdaq and SEC requirements, director and officer insurance costs, and investor and public relations costs.

Other income and expenses

Other income and expenses consist of the following items:

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Change in fair value of derivative liabilities consists primarily of remeasurement gains or losses associated with changes in success payment liabilities associated with our license agreement with Harvard, dated as of June 27, 2017, as amended, or the Harvard License Agreement, and the license agreement with The Broad Institute, as amended, dated as of May 9, 2018, or the Broad License Agreement.

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Change in fair value of non-controlling equity investments consists of changes in the fair value of our investments in equity securities.

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Change in fair value of contingent consideration liabilities consists of remeasurement of the fair market value of the technology and product contingent consideration liabilities related to the acquisition of Guide.

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Interest and other income (expense), net consists primarily of interest income from our investments in fixed income securities as well as interest expense related to our equipment financings.

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Results of operations

For discussion of 2022 results and comparison with 2021 results, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Comparison of the years ended December 31, 2023 and 2022

The following table summarizes our results of operations (in thousands):

License and collaboration revenue

License and collaboration revenue was approximately $377.7 million for the year ended December 31, 2023 compared to approximately $60.9 million for the year ended December 31, 2022, an increase of $316.8 million. License and collaboration revenue recorded in 2023 represents revenue recorded under the Lilly, Pfizer, Apellis, Orbital and Verve Agreements. In 2022, we recorded $60.9 million of license revenue related to the Pfizer Agreement as well as revenue related to the Apellis and Verve Agreements. The increase in revenue reflects $216.4 million from the transaction with Lilly (see Note 11), and increases in revenue recognized related to the Pfizer and Apellis transactions as a result of services performed in 2023 as compared to 2022. Revenue for Pfizer and Apellis, which relates to nonrefundable up-front payments, are recognized based upon a measure of progress using total actual costs incurred as compared to total estimated costs.

Research and development expenses

Research and development expenses were $437.4 million and $311.6 million for the years ended December 31, 2023 and 2022, respectively. The following table summarizes our research and development expenses for the years ended December 31, 2023 and December 31, 2022, together with the changes in those items in dollars (in thousands):

The increase of $125.8 million was primarily due to the following:

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A $42.4 million increase in external research and development expenses driven by a $45.6 million increase in outsourced services, driven primarily by clinical and manufacturing expenses for our clinical stage programs and IND enabling activities for our lead liver programs as well as animal studies conducted to further our collaboration programs and LNP platform. Partially offsetting the rise in external research and development expenses is a decrease of $3.2 million in lab supplies due primarily to the movement of our lead programs beyond research and process development activities;

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An increase of $42.0 million in other expenses primarily due to increases of accrued liabilities for estimated license fees associated with our transaction with Lilly;

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An increase of $20.3 million of employee related expenses and $15.3 million of facility and information technology (IT) related costs, including depreciation, due to the annualized impact of the higher number of research and development employees prior to our strategic restructuring in October 2023, the severance related to the restructuring and the expense allocated to research and development related to our leased facilities; and

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An increase of $5.8 million in stock-based compensation from additional stock options and restricted stock units granted during the year.

Research and development expenses are expected to continue to increase as we advance clinical trials for BEAM-101, BEAM-201, BEAM-302, and BEAM-301, continue our current research programs, initiate new research programs, continue the preclinical and clinical development of our product candidates, conduct any future preclinical studies, and begin to enroll patients in and conduct clinical trials for any of our product candidates.

General and administrative expenses

General and administrative expenses were $116.8 million and $87.8 million for the years ended December 31, 2023 and 2022, respectively. The increase of $29.0 million was primarily due to the following:

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An increase of $8.5 million in stock-based compensation from additional stock options and restricted stock units granted during the year;

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An increase of $14.1 million in legal expenses; and

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An increase of $3.9 million in personnel related costs and $3.0 million of facility and IT related costs, including depreciation, due to costs associated with our strategic restructuring in October 2023, as well as the expense allocated to general and administrative expenses related to our leased facilities.

The increase was partially offset by the following:

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A net decrease of $0.5 million of other expenses driven primarily by reduced insurance costs.

Change in fair value of derivative liabilities

During the year ended December 31, 2023, we recorded $7.5 million of other income related to the change in fair value of the success payment liabilities as compared to $23.9 million for the year ended December 31, 2022, driven by the decline in the price of our common stock. A portion of the success payments was paid in June 2021; the remaining success payment obligations are still outstanding as of December 31, 2023 and will continue to be revalued at each reporting period.

Change in fair value of non-controlling equity investments

During the years ended December 31, 2023 and 2022,we recorded other expense of $18.6 million and other income of $20.2 million, respectively, as a result of changes in the fair value of our investments in Verve and Prime Medicine common stock.

Change in contingent consideration liabilities

During the years ended December 31, 2023 and 2022, we recorded $9.7 million and $18.9 million, respectively, of other income related to the change in fair value of the Guide technology and product contingent consideration liabilities as a result of an update in project timelines and the expected probability of achievement of the milestones.

Interest and other income (expense), net

Interest and other income (expense), net was $46.7 million and $15.3 million of other income for the years ended December 31, 2023 and December 31, 2022, respectively. The increase was primarily due to increases in interest income driven by increased market rates and growth of our investment portfolio.

Provision for income taxes

We recorded income tax provision of $1.4 million and $3.4 million for the years ended December 31, 2023 and 2022, respectively, which reflects that we generated taxable income that was not fully offset by the use of tax operating loss carryforwards and tax credits Our taxable income includes income recognized in the year ended December 31, 2023 related to the Lilly Agreement and in the year ended December 31, 2022 income recognized related to collaboration agreements with Apellis and Pfizer, which were deferred in 2021 for tax purposes. In addition, taxable income is higher than book expenses due to the requirement under the Tax Cuts and Jobs Act of 2017 for taxpayers to capitalize and amortize research and development expenditures over five or fifteen years.

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Loss from equity method investment

For the year ended December 31, 2022, we recorded a loss from equity method investment of $25.5 million in association with a basis difference attributable to Orbital's in-process research and development with no alternative future use, which was immediately expensed as of the date of this investment. As of December 31, 2022 the investment had been written down to zero. See Notes 2 and 11 to our consolidated financial statements for more information regarding the equity method of accounting.

Liquidity and capital resources

Since our inception in January 2017, we have not generated any revenue from product sales, have generated only limited revenue from our license and collaboration agreements, and have incurred significant operating losses and negative cash flows from our operations. We expect to incur significant expenses and operating losses for the foreseeable future as we advance the preclinical and the clinical development of our product candidates.

In April 2021, we filed a universal automatic shelf registration statement on Form S-3 with the SEC, or the 2021 Shelf, to register for sale an indeterminate amount of our common stock, preferred stock, debt securities, warrants and/or units in one or more offerings, which became effective upon filing with the SEC (File No. 333-254946).

In April 2021, we entered into an at the market, or ATM, sales agreement, or the Sales Agreement, with Jefferies LLC, or Jefferies, pursuant to which we were entitled to offer and sell, from time to time at prevailing market prices, shares of our common stock having aggregate gross proceeds of up to $300.0 million. We agreed to pay Jefferies a commission of up to 3.0% of the aggregate gross sale proceeds of any shares sold by Jefferies under the Sales Agreement. As of December 31, 2023, we have sold 2,908,009 shares of our common stock under the Sales Agreement at an average price of $103.16 per share for aggregate gross proceeds of $300.0 million, before deducting commissions and offering expenses payable by us.

In July 2021 and May 2023, we and Jefferies entered into amendments to the Sales Agreement to provide for increases in the aggregate offering amount under the Sales Agreement, such that as of May 10, 2023, we may offer and sell shares of common stock having an aggregate offering price of an additional $800.0 million. As of December 31, 2023, we have sold 10,860,992 additional shares of our common stock under the amended Sales Agreement at an average price of $51.93 per share for aggregate gross proceeds of $564.0 million, before deducting commissions and offering expenses payable by us.

In October 2023, we entered into the Lilly Agreement, with Eli Lilly and Company, or Lilly, pursuant to which Lilly acquired certain assets and other rights under our amended collaboration and license agreement, or the Verve Agreement, with Verve, including our opt-in rights to co-develop and co-commercialize Verve’s base editing programs for cardiovascular disease. We received a $200.0 million upfront payment and are eligible to receive up to $350.0 million in potential future development-stage payments upon the completion of certain clinical, regulatory and alliance events. In connection with the Lilly Agreement, we and Lilly entered into a Stock Purchase Agreement providing for the sale and issuance of 2,004,811 shares of our common stock to Lilly for an aggregate purchase price of $50.0 million. We received the consideration under the Stock Purchase Agreement of $50.0 million in October 2023 and the upfront payment of $200.0 million in November 2023. We have accrued approximately $43.3 million of contingent obligations that may be due associated with payments received under the Lilly Agreement for which discussions are continuing related to the potential applicability to such payments of the terms of license agreements.

As of December 31, 2023, we had $1.2 billion in cash, cash equivalents, and marketable securities.

We are required to make success payments to Harvard and Broad Institute based on increases in the per share fair market value of our common stock. The amounts due may be settled in cash or shares of our common stock, at our discretion. We may owe Harvard and Broad Institute success payments of up to an additional $90.0 million each.

We have not yet commercialized any of our product candidates, and we do not expect to generate revenue from the sale of our product candidates for the foreseeable future. We anticipate that we may need to raise additional capital in order to continue to fund our research and development, including our planned preclinical studies and clinical trials, maintaining and operating our commercial-scale cGMP manufacturing facility, and new product development, as well as to fund our general operations. As necessary, we will seek to raise additional capital through various potential sources, such as equity and debt financings or through corporate collaboration and license agreements. We can give no assurances that we will be able to secure such additional sources of capital to support our operations, or, if such funds are available to us, that such additional financing will be sufficient to meet our needs.

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Cash flows

The following table summarizes our sources and uses of cash (in thousands):

Operating activities

Net cash used in operating activities for the year ended December 31, 2023 was $149.2 million including, $216.4 million of cash received under the Lilly transaction, increases in accrued expenses and other liabilities of $67.7 million, as well as noncash items consisting of stock-based compensation expense of $98.6 million, a decrease in the fair value of non-controlling equity investments of $18.6 million, depreciation and amortization expense of $20.0 million and changes in operating lease ROU assets of $9.5 million.

These sources of cash were offset in part by our net loss of $132.5 million, a decrease in deferred revenue of $159.6 million, a decrease in operating lease liabilities of $10.2 million, decreases in accounts payable of $7.6 million, other long-term liabilities of $0.2 million, increases in prepaid expenses and other current assets of $6.5 million and collaborations receivables of $0.1 million, as well as noncash items including amortization of investment discounts and premiums of $29.7 million, decreases in the fair value of derivative liabilities of $7.5 million and a change in the fair value of contingent consideration liabilities of $9.7 million.

Net cash provided by operating activities for the year ended December 31, 2022 was $22.5 million, consisting primarily of the collection of collaboration receivables of $300.0 million related to the Pfizer Agreement, an increase in operating lease liabilities of $12.4 million and an increase in accounts payable of $2.4 million, as well as noncash items consisting of stock-based compensation expense of $84.3 million, a loss from an equity method investment of $25.5 million, depreciation and amortization expense of $14.1 million and changes in operating lease ROU assets of $8.4 million.

These sources of cash were offset in part by our net loss of $289.1 million, a decrease in deferred revenue of $35.9 million, net of the $25.0 million First Anniversary Payment collected from Apellis during the year ended December 31, 2022, decreases in accrued expenses and other liabilities of $16.9 million, an increase in prepaid expenses and other current assets of $7.8 million and a decrease in other long-term liabilities of $2.6 million, as well as noncash items including a decrease in the fair value of derivative liabilities of $23.9 million, an increase in the fair value of non-controlling equity investments of $20.2 million, a change in the fair value of contingent consideration liabilities of $18.9 million and amortization of investment discounts and premiums of $9.4 million.

Investing activities

For the year ended December 31, 2023, cash provided by investing activities of $71.8 million was primarily the net result of maturities of marketable securities partially offset by purchases of marketable securities, in addition to purchases of property and equipment of $33.7 million.

For the year ended December 31, 2022, cash used in investing activities was primarily the net result of purchases of marketable securities partially offset by maturities of marketable securities of $412.4 million, in addition to purchases of property and equipment of $49.0 million.

Financing activities

Net cash provided by financing activities for the year ended December 31, 2023 of $276.4 million consisted primarily of proceeds from equity offerings of $236.6 million, net of sales commissions, proceeds from the issuance of shares from the Lilly Agreement of $33.6 million, $6.1 million of proceeds from the exercise of stock options, and $3.0 million of proceeds from the issuance of common stock under our Employee Stock Purchase Plan, offset in part by net repayments of equipment financing liabilities of $2.3 million and payment of equity offering costs of $0.6 million.

Net cash provided by financing activities for the year ended December 31, 2022 consisted primarily of proceeds from equity offerings of $108.3 million, net of sales commissions, $3.1 million of proceeds from the issuance of common stock under our Employee Stock Purchase Plan, and $2.7 million of proceeds from the exercise of stock options, offset in part by repayments of equipment financing liabilities of $2.3 million and payment of equity offering costs of $0.2 million.

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Funding requirements

Our operating expenses have increased and are expected to continue to increase substantially as we continue to advance our portfolio of programs.

Specifically, our expenses will increase if and as we:

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advance clinical trials of our product candidates;

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continue our research programs and our preclinical development of product candidates from our research programs;

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seek to identify additional research programs and additional product candidates;

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initiate preclinical studies and clinical trials for additional product candidates we identify and develop;

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maintain, expand, enforce, defend, and protect our intellectual property portfolio and provide reimbursement of third-party expenses related to our patent portfolio;

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seek marketing approvals for any of our product candidates that successfully complete clinical trials;

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establish a sales, marketing, and distribution infrastructure to commercialize any medicines for which we may obtain marketing approval;

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further develop our base editing platform;

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continue to hire additional personnel including research and development, clinical and commercial personnel;

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add operational, financial, and management information systems and personnel, including personnel to support our product development;

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acquire or in-license products, intellectual property, medicines and technologies; and

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maintain and operate a commercial-scale cGMP manufacturing facility.

We expect that our cash, cash equivalents, and marketable securities at December 31, 2023 will enable us to fund our current and planned operating expenses and capital expenditures for at least the next 12 months from the date of issuance of our accompanying consolidated financial statements. We have based these estimates on assumptions that may prove to be imprecise, and we may exhaust our available capital resources sooner that we currently expect. Because of the numerous risks and uncertainties associated with the development our programs, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates.

Our future funding requirements will depend on many factors including:

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the cost of continuing to build our base editing platform;

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the costs of acquiring licenses for the delivery modalities that will be used with our product candidates;

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the scope, progress, results, and costs of discovery, preclinical development, laboratory testing, manufacturing and clinical trials for the product candidates we may develop;

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the costs of preparing, filing, and prosecuting patent applications, maintaining and enforcing our intellectual property and proprietary rights, and defending intellectual property-related claims;

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the costs, timing, and outcome of regulatory review of the product candidates we develop;

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the costs of future activities, including product sales, medical affairs, marketing, manufacturing, distribution, coverage and reimbursement for any product candidates for which we receive regulatory approval;

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the success of our license agreements and our collaborations;

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our ability to establish and maintain additional collaborations on favorable terms, if at all;

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the achievement of milestones or occurrence of other developments that trigger payments under any collaboration agreements we are a party to or may become a party to, including our agreement with Guide;

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the payment of success liabilities to Harvard and Broad Institute pursuant to the respective terms of the Harvard License Agreement and the Broad Institute License Agreement, should we choose to pay in cash;

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the extent to which we acquire or in-license products, intellectual property, and technologies;

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the actual savings or benefits we realize from our recent portfolio prioritization and strategic restructuring;

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the costs of operating and expanding our manufacturing capacity; and

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the impact on our business of macro-economic conditions, as well as the prevailing level of macro-economic, business, and operational uncertainty, including as a result of geopolitical events or other global or regional events.

A change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Further, our operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such operating plans.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, and licensing arrangements. We do not have any committed external source of capital. We have historically relied on equity issuances to fund our capital needs and will likely rely on equity issuances in the future. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends.

If we raise capital through additional collaborations, strategic alliances, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, or product candidates, or we may have to grant licenses on terms that may not be favorable to us. If we are unable to raise additional capital through equity or debt financings when needed, we may be required to delay, limit, reduce, or terminate our product development or, if approved, future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. We can give no assurance that we will be able to secure such additional sources of funds to support our operations, or, if such funds are available to us, that such additional funding will be sufficient to meet our needs.

Contractual obligations

We lease certain assets under noncancelable operating leases, which expire through 2037. The leases relate primarily to office space, laboratory and manufacturing space, and equipment. Aggregate future minimum commitments under these office and laboratory leases and equipment leases are $251.4 million as of December 31, 2023, excluding any related common area maintenance charges or real estate taxes.

In May 2021, the first success payment measurements under the Harvard License Agreement and Broad License Agreement occurred and success payments to Harvard and Broad Institute were calculated to be $15.0 million and $15.0 million, respectively. We elected to make each payment in shares of our common stock and issued 174,825 shares of our common stock to each of Harvard and Broad Institute to settle these liabilities in June 2021. The remaining success payment obligations are still outstanding as of December 31, 2023. We may additionally owe Harvard and Broad Institute success payments of up to an additional $90.0 million each.

We are potentially obligated to pay certain milestone and success fees, non-royalty sublicense income fees, royalty fees, licensing maintenance fees, and reimbursement of patent maintenance costs under agreements we have entered into with certain institutions to license intellectual property. Our agreements to license intellectual property include potential milestone payments that are dependent upon the development of products using the intellectual property licensed under the agreements and contingent upon the achievement of development or regulatory approval milestones, as well as commercial and success payment milestones. These amounts are contingent upon the occurrence of future events and the timing and likelihood of such potential obligations are not known with certainty.

In addition, we agreed to pay Guide’s former stockholders and optionholders up to an additional $100.0 million in technology milestone payments and $220.0 million in product milestone payments, payable in our common stock valued using the volume-weighted average price of our common stock over the ten-day trading period ending two trading days prior to the date on which the applicable milestone is received. These payments are contingent upon the occurrence of future events and the timing and likelihood of such potential obligations are not known with certainty.

Additionally, we enter into contracts in the normal course of business with CROs, CMOs and other vendors to assist in the performance of our research and development activities and other services and products for operating purposes. These contracts generally provide for termination on notice, and therefore are cancelable contracts.

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Critical accounting policies and significant judgments and estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which we have prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements in this Annual Report on Form 10-K, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.

Revenue recognition

At inception, we determine whether contracts are within the scope of ASC 606, Revenue from Contracts with Customers, or ASC 606, or other topics. For contracts that are determined to be within the scope of ASC 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which we expect to be entitled to receive in exchange for these goods and services. To achieve this core principle, we apply the following five steps (i) identify the contract with the customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when the performance obligation is satisfied. We only apply the five-step model to contracts when we determine that collection of substantially all consideration for goods and services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration.

Performance obligations promised in a contract are identified based on the goods and services that will be transferred to the customer that are both capable of being distinct and are distinct in the context of the contract. To the extent a contract includes multiple promised goods and services, we apply judgment to determine whether promised goods and services are both capable of being distinct and are distinct in the context of the contract. If these criteria are not met, the promised goods and services are accounted for as a combined performance obligation.

The transaction price is determined based on the consideration to which we will be entitled in exchange for transferring goods and services to the customer. To the extent the transaction price includes variable consideration, we estimate the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method, depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in management’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Any estimates, including the effect of the constraint on variable consideration, are evaluated at each reporting period for any changes. Determining the transaction price requires significant judgment and is discussed in further detail for each of our license and collaboration agreements in Note 11 to our consolidated financial statements in this Annual Report on Form 10-K.

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation on a relative standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct service that forms part of a single performance obligation. The consideration to be received is allocated among the separate performance obligations based on relative standalone selling prices. Determining the standalone selling price requires significant judgment and is discussed in further detail for each of our license and collaboration agreements in Note 11.

We satisfy performance obligations either over time or at a point in time. Revenue is recognized over time if either (i) the customer simultaneously receives and consumes the benefits provided by the entity’s performance, (ii) the entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced, or (iii) the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date. If the entity does not satisfy a performance obligation over time, the related performance obligation is satisfied at a point in time by transferring the control of a promised good or service to a customer.

The timing of when services are performed and the occurrence of external costs associated with the programs under the collaboration agreements could impact how revenue is recognized in a certain period.

Licenses of intellectual property, or IP: If the license to our IP is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenues from consideration allocated to the license when the license is transferred to the customer and the customer can use and benefit from the licenses. For licenses that are combined with other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related

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revenue recognition. We generally recognize revenue using the cost incurred to date as compared to the total estimated cost. Changes in estimates of total internal and external costs expected to be incurred and timing of when those costs are expected to be incurred are recognized in the period of change as a cumulative catch-up adjustment. If estimates of the total estimated cost change, or if contract amendments change the scope of the performance obligations, the impacts could be material. Determining the revenue recognition of IP licenses requires significant judgment and is discussed in further detail for each of our license and collaboration agreements in Note 10 and 11.

Milestone payments: At the inception of each arrangement that includes development or regulatory milestone payments, we evaluate the probability of reaching the milestones and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur in the future, the associated milestone value is included in the transaction price. Milestone payments that are not within our control or the licensee’s, such as regulatory approvals, are not considered probable of being achieved until those approvals are received and therefore revenue recognized is constrained as management is unable to assert that a reversal of revenue would not be possible. The transaction price is then allocated to each performance obligation on a relative standalone selling price basis, for which we recognize revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, we re-evaluate the probability of achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment. To date, we have not recognized any milestone revenue resulting from any of our agreements.

Commercial Milestone Payments and Royalties: For arrangements that include sales-based royalties, including milestone payments based on levels of sales, if the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, we have not recognized any royalty revenue resulting from any of our agreements.

When no performance obligations are required of us, or following the completion of the performance obligation period, amounts are recognized as revenue upon transfer of control of the goods or services to the customer. Generally, all amounts received or due other than sales-based milestones and royalties are classified as license and collaboration revenue. Sales-based milestones and royalties will be recognized as royalty revenue at the later of when the related sales occur or when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

Deferred revenue expected to be recognized within the next twelve months is classified as a current liability.

Fair value measurements – Success payments

We are required to make success payments to Harvard and Broad Institute based on increases in the per share fair market value of our common stock. Any amounts due may be settled in cash or shares of our common stock, at our discretion. The success payments are accounted for as a derivative under Accounting Standards Codification 815, Derivatives and Hedging and were initially recorded at fair value with a corresponding charge to research and development expense. The liabilities are marked to market at each balance sheet date with all changes in value recognized in interest and other income (expense) in the consolidated statement of operations and other comprehensive loss. We will continue to adjust the liability for changes in fair value until the earlier of the achievement or expiration of the success payment obligation. To determine the estimated fair value of the success payments, we used a Monte Carlo simulation model, which models the value of the liability based on several key variables, including probability of event occurrence, timing of event occurrence, as well as the price per share at the time of success payment. A significant change in our stock price or volatility could have a significant impact on the value of the liability.

Accrued and prepaid research and development costs

As part of the process of preparing our financial statements, we are required to estimate our accrued expenses and prepaid research and development costs. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. Examples of estimated accrued research and development expenses include fees paid to vendors in connection with preclinical development activities and vendors related to development, manufacturing and distribution of product candidate materials.

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We base our expenses related to preclinical studies on our estimates of the services received and efforts expended pursuant to contracts with multiple vendors that conduct and manage preclinical studies on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period and adjust accordingly.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes to those statements included elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Some of the numbers included herein have been rounded for the convenience of presentation. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under Item 1A, Risk factors, in this Annual Report on Form 10-K.

Overview

We are a biotechnology company committed to establishing the leading, fully integrated platform for precision genetic medicines. Our vision is to provide life-long cures to patients suffering from serious diseases. To achieve this vision, we have assembled a platform that includes a suite of gene editing and delivery technologies and are establishing internal manufacturing capabilities. Our suite of gene editing technologies is anchored by our proprietary base editing technology, which potentially enables a differentiated class of precision genetic medicines that target a single base in the genome without making a double-stranded break in the DNA. This approach uses a chemical reaction designed to create precise, predictable and efficient genetic outcomes at the targeted sequence. Our proprietary base editors have two principal components: (i) a clustered regularly interspaced short palindromic repeats, or CRISPR, protein, bound to a guide RNA, that leverages the established DNA-targeting ability of CRISPR, but is modified to not cause a double-stranded break, and (ii) a base editing enzyme, such as a deaminase, which carries out the desired chemical modification of the target DNA base. We believe this design contributes to a more precise and efficient edit compared to traditional gene editing methods, which operate by creating targeted double-stranded breaks in the DNA that can result in unwanted DNA modifications. We believe that the precision of our editors will dramatically increase the impact of gene editing for a broad range of therapeutic applications.

To unlock the full potential of our base editing technology across a wide range of therapeutic applications, we are pursuing a broad suite of both clinically validated and novel delivery modalities, depending on tissue type, including both ex vivo approaches in our hematology and immunology-oncology portfolios as well as in vivo approaches across our programs.

The elegance of the base editing approach combined with a tissue specific delivery modality provides the basis for a targeted efficient, precise, and highly versatile gene editing system, capable of gene correction, gene modification, gene silencing or gene activation, and/or multiplex editing of several genes simultaneously. We are currently advancing a broad, diversified portfolio of base editing programs against distinct editing targets, utilizing the full range of our development capabilities. We believe the flexibility and versatility of our base editors and delivery technologies may have broad therapeutic applicability and have the potential to transform the field of precision genetic medicines.

We believe that building an integrated platform combining our gene editing capabilities with advanced delivery and manufacturing capabilities will give us the flexibility to develop our own sustainable portfolio and to create a hub for partnering with other companies to unlock the full potential of precision genetic medicine across a broad array of possible applications.

Manufacturing

To realize the full potential of base editors as a differentiated class of medicines and to enable our parallel investment strategy in multiple delivery modalities, we are building customized and integrated capabilities across discovery, manufacturing, and preclinical and clinical development. Due to the critical importance of high-quality manufacturing and control of production timing and know-how, we are establishing our own manufacturing facility, which will provide us the flexibility to manufacture a variety of different product modalities. We believe this investment will maximize the value of our portfolio and capabilities, the probability of technical success of our programs, and the speed at which we can provide potentially life-long cures to patients.

We have a 100,000 square foot manufacturing facility in Research Triangle Park, North Carolina intended to support a broad range of clinical programs. The facility became operational in the first quarter of 2023, and we expect it to initiate cGMP operations in late 2023. The project is facilitated, in part, by a Job Development Investment Grant approved by the North Carolina Economic Investment Committee, which authorizes potential reimbursements based on new tax revenues generated through the project. The facility is designed to support manufacturing for our ex vivo cell therapy programs in hematology and oncology and in vivo non-viral delivery programs for liver diseases, with the capability to scale-up to support potential commercial supply.

For our initial waves of clinical trials, we expect to use CMOs with relevant manufacturing experience in genetic medicines alongside our internal manufacturing capabilities.

Acquisitions

In February 2021, we acquired Guide Therapeutics, Inc., or Guide, for upfront consideration in an aggregate amount of $120.0 million, excluding customary purchase price adjustments, in shares of our common stock, based upon the volume-weighted average price of the common stock over the ten trading-day period ending on February 19, 2021. In addition, Guide’s former stockholders and optionholders are eligible to receive up to an additional $100.0 million in technology milestone payments and $220.0 million in product milestone payments, payable in our common stock.

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COVID-19

While the COVID-19 pandemic did not significantly impact our business or results of operations during the year ended December 31, 2022, the extent to which the COVID-19 pandemic or any other public health emergency impacts our business, our corporate development objectives, results of operations and financial condition in future periods will depend on developments that are uncertain. Disruptions to the global economy and supply chain, disruption of global healthcare systems, and other significant impacts of the COVID-19 pandemic or other health emergencies could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

For a more detailed discussion of risks related to COVID-19 and other health emergencies, please see Part II, Item 1A, Risk factors—General risk factors, in this Annual Report on Form 10-K.

Financial operations overview

General

We were founded in January 2017 and began operations in July 2017. Since our inception, we have devoted substantially all of our resources to building our base editing platform and advancing development of our portfolio of programs, establishing and protecting our intellectual property, conducting research and development activities, organizing and staffing our company, business planning, raising capital and providing general and administrative support for these operations. To date, we have financed our operations primarily through the sales of our redeemable convertible preferred stock, proceeds from offerings of our common stock and payments received under collaboration and license agreements.

We are an early-stage company, and the majority of our programs are at a preclinical or early clinical stage of development. To date, we have not generated any revenue from product sales and do not expect to generate revenue from the sale of products for the foreseeable future. Our revenue to date has been primarily derived from license and collaboration agreements with partners. Since inception we have incurred significant operating losses. Our net losses for the years ended December 31, 2022, 2021 and 2020 were $289.1 million, $370.6 million and $194.6 million, respectively. As of December 31, 2022, we had an accumulated deficit of $1.1 billion. We expect to continue to incur significant expenses and increasing operating losses in connection with ongoing development activities related to our internal programs and collaborations as we continue our preclinical and clinical development of product candidates; advance additional product candidates toward clinical development; operate our cGMP facility in North Carolina; further develop our base editing platform; continue to make investments in delivery technology for our base editors, including the LNP technology we acquired through our acquisition of Guide; conduct research activities as we seek to discover and develop additional product candidates; maintain, expand, enforce, defend and protect our intellectual property portfolio; and continue to hire research and development, clinical, technical operations and commercial personnel. In addition, we expect to continue to incur the costs associated with operating as a public company.

As a result of these anticipated expenditures, we will need to raise additional capital to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances, and licensing arrangements. We may be unable to raise additional funds or enter into such other agreements when needed on favorable terms or at all. Our inability to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. We can give no assurance that we will be able to secure such additional sources of capital to support our operations, or, if such capital is available to us, that such additional capital will be sufficient to meet our needs for the short or long term.

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Revenue Recognition

In April 2019, we entered into a collaboration and license agreement, or the Verve Agreement, with Verve Therapeutics, Inc., or Verve, a company focused on gene editing for cardiovascular disease treatments. In June 2021, we entered into a research collaboration agreement, or the Apellis Agreement, with Apellis Pharmaceuticals, Inc., or Apellis, focused on the use of certain of our base editing technology to discover new treatments for complement system-driven diseases. In October 2021, we entered into an option and license agreement, or the Sana Agreement, with Sana Biotechnology, Inc., or Sana, pursuant to which we granted Sana non-exclusive research and development and commercial rights to our CRISPR Cas12b technology to perform nuclease editing for certain ex vivo engineered cell therapy programs. In December 2021, we entered into a four-year research collaboration agreement, or the Pfizer Agreement, with Pfizer Inc., or Pfizer, focused on in vivo base editing programs for three targets for rare genetic diseases of the liver, muscle and central nervous system. In September 2022, we entered into a License and Research Collaboration Agreement, or the Orbital Agreement, with Orbital Therapeutics, Inc., or Orbital, a newly formed entity focused on advancing non-viral delivery and RNA technologies.

We have not generated any revenue to date from product sales and do not expect to do so in the near future. During the years ended December 31, 2022, 2021, and 2020, we recognized $60.9 million, $51.8 million and $24,000 respectively, of revenue from our license and collaboration agreements.

For additional information about our revenue recognition policy, see Note 2 and Note 11 of the notes to our audited consolidated financial statements included in this Annual Report on Form 10-K.

Research and development expenses

Research and development expenses consist of costs incurred in performing research and development activities, which include:

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Expenses incurred in connection with investments in delivery technology for our base editors, including the LNP technology we acquired through our acquisition of Guide;

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the cost to obtain licenses to intellectual property, such as those with Harvard University, or Harvard, The Broad Institute, Inc., or Broad Institute, Editas Medicine, Inc, or Editas, and Bio Palette Co., Ltd., or Bio Palette, and related future payments should certain success, development and regulatory milestones be achieved;

•
personnel-related expenses, including salaries, bonuses, benefits and stock-based compensation for employees engaged in research and development functions;

•
expenses incurred in connection with the discovery and preclinical development of our research programs, including under agreements with third parties, such as consultants, contractors and contract research organizations;

•
expenses incurred in connection with our clinical trials, including CRO costs and costs related to study preparation;

•
expenses incurred in connection with regulatory filings;

•
expenses incurred in connection with the building of our base editing platform;

•
the cost of manufacturing for use in our preclinical studies, IND-enabling studies and clinical trials;

•
laboratory supplies and research materials; and

•
facilities, depreciation and other expenses which include direct and allocated expenses.

Our external research and development expenses support our various preclinical and clinical programs. Our internal research and development expenses consist of employee-related expenses, facility-related expenses, and other indirect research and development expenses incurred in support of overall research and development. We expense research and development costs as incurred. Advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the benefits are consumed.

In the early phases of development, our research and development costs are often devoted to product platform and proof-of-concept preclinical studies that are not necessarily allocable to a specific target.

We expect that our research and development expenses will increase substantially as we advance our programs through their planned preclinical and clinical development.

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General and administrative expenses

General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, intellectual property, business development and administrative functions. General and administrative expenses also include legal fees relating to intellectual property and corporate matters, professional fees for accounting, auditing, tax and consulting services, insurance costs, travel, and direct and allocated facility related expenses and other operating costs.

We anticipate that our general and administrative expenses will increase in the future to support our increased research and development activities. We also expect to continue to incur costs associated with being a public company and maintaining controls over financial reporting, including costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with Nasdaq and SEC requirements, director and officer insurance costs, and investor and public relations costs.

Other income and expenses

Other income and expenses consist of the following items:

•
Change in fair value of derivative liabilities consists primarily of remeasurement gains or losses associated with changes in success payment liabilities associated with our license agreement with Harvard, dated as of June 27, 2017, as amended, or the Harvard License Agreement, and the license agreement with The Broad Institute, as amended, dated as of May 9, 2018, or the Broad License Agreement.

•
Change in fair value of non-controlling equity investments consists of mark-to-market adjustments related to our investments in equity securities.

•
Change in fair value of contingent consideration liabilities consists of remeasurement of the fair market value of the technology and product contingent consideration liabilities related to the acquisition of Guide.

•
Interest and other income (expense), net consists primarily of interest income as well as interest expense related to our equipment financings.

Results of operations

Comparison of the years ended December 31, 2022 and 2021

The following table summarizes our results of operations (in thousands):

License and collaboration revenue

License and collaboration revenue was approximately $60.9 million for the year ended December 31, 2022 compared to approximately $51.8 million for the year ended December 31, 2021. License and collaboration revenue recorded in 2022 represents revenue recorded under the Pfizer, Apellis, Orbital and Verve Agreements. In 2021, we recorded $50.0 million of license revenue related to the Sana Agreement as well as revenue related to the Apellis and Verve Agreements.

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Research and development expenses

Research and development expenses were $311.6 million and $387.1 million for the years ended December 31, 2022 and 2021, respectively. The following table summarizes our research and development expenses for the years ended December 31, 2022 and December 31, 2021, together with the changes in those items in dollars (in thousands):

The decrease of $75.5 million was primarily due to the following:

•
A decrease of $155.0 million of in-process research and development expense due to an asset acquired from Guide during the year ended December 31, 2021, that was determined to have no alternative future use; and

•
A decrease of $38.5 million in other expenses, primarily related to decreases in sublicense expenses related to the Apellis, Sana and Pfizer Agreements and related milestones, as well as a decrease in amortization expense related to intangible assets acquired from Guide.

The decrease was partially offset by the following:

•
An increase of $41.7 million of employee related expenses and $17.3 million of facility and IT related costs, including depreciation. These increases were due to the growth in the number of research and development employees from 279 at December 31, 2021 to 416 at December 31, 2022, and their related activities, as well as the expense allocated to research and development related to our leased facilities;

•
A $33.6 million increase in external research and development expenses driven by a $19.7 million increase in outsourced services, due primarily to animal studies conducted to further our LNP platform, IND enabling activities for lead programs and clinical and manufacturing expenses for BEAM-101. Also contributing to the rise in external research and development expenses is an increase of $13.9 million in lab supplies due to the movement of our lead programs into IND-enabling activities and continued investment in platform and discovery efforts.

•
An increase of $25.4 million in stock-based compensation from additional stock options and restricted stock units granted due to the increase in the number of research and development employees and additional grants given to existing employees.

Research and development expenses are expected to continue to increase as we advance clinical trials for BEAM-101 and BEAM-201, advance preclinical studies for BEAM-301 and BEAM-302, continue our current research programs, initiate new research programs, continue the preclinical and clinical development of our product candidates and conduct any future preclinical studies and begin to enroll patients in and conduct clinical trials for any of our product candidates.

General and administrative expenses

General and administrative expenses were $87.8 million and $57.2 million for the years ended December 31, 2022 and 2021, respectively. The increase of $30.6 million was primarily due to the following:

•
An increase of $15.4 million in stock-based compensation from additional stock options and restricted stock units granted due to an increase in the number of general and administrative employees from 62 employees as of December 31, 2021 to 91 employees as of December 31, 2022, and additional grants given to existing employees, offset by a decrease in the value of our common stock;

•
An increase of $10.9 million in personnel related costs due to the increase in the number of general and administrative employees; and

•
An increase of $4.4 million in legal costs primarily due to a $3.4 million accrual in connection with a dispute with a research institution and legal fees incurred in connection with business development activities; see Note 6 to our consolidated financial statements for more information regarding the dispute.

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Change in fair value of derivative liabilities

During the year ended December 31, 2022, we recorded $23.9 million of other income related to the change in fair value of the success payment liabilities as compared to $1.0 million of expense for the year ended December 31, 2021, driven by the decline in the price of our common stock. A portion of the success payments was paid in June 2021; the remaining success payment obligations are still outstanding as of December 31, 2022 and will continue to be revalued at each reporting period.

Change in fair value of non-controlling equity investments

During the years ended December 31, 2022 and 2021, we recorded other income of $20.2 million and $17.7 million, respectively, driven by changes in the value of our investments in Prime and Verve.

Change in contingent consideration liabilities

During the years ended December 31, 2022 and 2021, we recorded $18.9 million and $5.1 million, respectively, of other income related to the change in fair value of the Guide technology and product contingent consideration liabilities as a result of an update in project timelines and the expected probability of achievement of the milestones.

Interest and other income (expense), net

Interest and other income (expense), net was $15.3 million of other income for the year ended December 31, 2022 as compared to $9,000 of expense for the year ended December 31, 2021. The increase was primarily due to increases in interest income driven by increased market rates and growth of our portfolio.

Provision for income taxes

We recorded an income tax provision of $3.4 million for the year ended December 31, 2022. The provision is primarily attributable to the recognition of revenue for tax purposes under the collaboration agreements with Apellis and Pfizer, which were deferred in 2021 for tax purposes as well as the requirement under the Tax Cuts and Jobs Act of 2017 for taxpayers to capitalize and amortize research and development expenditures over five or fifteen years. There was no income tax provision recorded during the year ended December 31, 2021.

Loss from equity method investment

We record our share of gains or losses from Orbital on a quarterly basis. For the year ended December 31, 2022, we recorded a loss from equity method investment of $25.5 million in association with a basis difference attributable to Orbital's in-process research and development with no alternative future use, which was immediately expensed as of the date of this investment. As of December 31, 2022, the investment had been written down to zero. See Notes 2 and 8 to our consolidated financial statements for more information regarding the equity method of accounting.

Comparison of the years ended December 31, 2021 and 2020

The following table summarizes our results of operations (in thousands):

License revenue

License and collaboration revenue was approximately $51.8 million for the year ended December 31, 2021 compared to approximately $24,000 for the year ended December 31, 2020. License and collaboration revenue recorded in 2021 represents revenue recorded under the Sana, Apellis, and Verve Agreements. License and collaboration revenue recorded in 2020 represents revenue recorded under the Verve Agreement.

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Research and development expenses

Research and development expenses were $387.1 million and $103.2 million for the years ended December 31, 2021 and 2020, respectively. The following table summarizes our research and development expenses for the years ended December 31, 2021 and December 31, 2020, together with the changes in those items in dollars (in thousands):

The increase of $283.9 million was primarily due to the following:

•
A $155.0 million increase of in-process research and development expense due to an asset acquired from Guide during the year ended December 31, 2021, that was determined to have no alternative future use;

•
A $36.9 million increase in external research and development expenses due primarily to outsourced services focused on IND-enabling manufacturing activities, toxicology studies and clinical readiness spend for our lead programs as well as an increase in lab supplies driven by IND-enabling activities and continued investment in platform and discovery efforts;

•
An increase of $33.2 million in other expenses primarily related to increases in non-royalty sublicense income payment obligations to our licensors;

•
Increases of $22.4 million and $21.0 million in employee related expenses and facility related expenses, respectively. These increases were due to the growth in the number of research and development employees from 149 at December 31, 2020 to 279 at December 31, 2021, and their related activities, as well as the expense allocated to research and development related to our leased facilities; and

•
An increase of $15.4 million in stock-based compensation from additional stock options and restricted stock units granted due to the increase in the number of research and development employees, and additional grants given to existing employees, as well as an increase in the value of our common stock.

General and administrative expenses

General and administrative expenses were $57.2 million and $29.6 million for the years ended December 31, 2021 and 2020, respectively. The increase of $27.6 million was primarily due to the following:

•
An increase of $12.8 million in stock-based compensation from additional stock options and restricted stock units granted due to an increase in the number of general and administrative employees from 32 employees as of December 31, 2020 to 62 employees as of December 31, 2021, and additional grants given to existing employees, as well as an increase in the value of our common stock;

•
Increases of $9.3 million in personnel related costs and $1.3 million in facility related costs, including depreciation costs, due to the increase in the number of general and administrative employees, as well as the expense allocated to general and administrative expenses related to our leased facilities;

•
An increase of $3.2 million in legal costs primarily due to legal fees incurred in connection with our acquisition of Guide, as well as legal fees incurred in connection with the Apellis, Sana and Pfizer Agreements; and

•
An increase of $1.6 million in insurance costs due to increased directors and officers insurance costs as a result of our IPO in February 2020 and insurance costs related to our acquisition of Guide in 2021.

Change in fair value of derivative liabilities

During the year ended December 31, 2021, we recorded $1.0 million of expense related to the change in fair value expense related to the success payment liabilities as compared to $63.4 million of expense for the year ended December 31, 2020. We did not experience a significant change in our closing stock price at the end of 2021 as compared to the closing stock price at the end of 2020. A portion of the success payments was paid in June 2021; the remaining success payment obligations are still outstanding as of December 31, 2021 and will continue to be revalued at each reporting period.

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Change in fair value of non-controlling equity investments

During the years ended December 31, 2021 and 2020, we recorded other income of $17.7 million and $0.5 million, respectively, as a result of increases in the value of our investment in Verve's common stock.

Change in contingent consideration liabilities

During the year ended December 31, 2021, we recorded $5.1 million of other income related to the change in fair value of the Guide technology and product contingent consideration liabilities as a result of an update in project timelines and the expected probability of achievement of the milestones.

Interest and other income (expense), net

Interest and other income (expense), net was $9,000 of other expense for the year ended December 31, 2021 as compared to $1.1 million of income for the year ended December 31, 2020. The decrease was primarily due to interest expense on our equipment financing, which was greater than interest income, driven by a decrease in interest rates earned on our investments.

Liquidity and capital resources

Since our inception in January 2017, we have not generated any revenue from product sales, have generated only limited revenue from our license and collaboration agreements, and have incurred significant operating losses and negative cash flows from our operations. We expect to incur significant expenses and operating losses for the foreseeable future as we advance the preclinical and the clinical development of our product candidates.

To date, we have funded our operations primarily through equity offerings. In February 2020, we completed our IPO in which we issued and sold 12,176,471 shares of our common stock, including 1,588,235 shares of common stock sold pursuant to the underwriters’ full exercise of their option to purchase additional shares, at a public offering price of $17.00 per share. We received net proceeds from our IPO of $188.3 million, after deducting underwriting discounts and offering expenses payable by us. In October 2020, we issued and sold 5,750,000 shares of our common stock, including 750,000 shares pursuant to the full exercise of the underwriters’ option to purchase additional shares, at a public offering price of $23.50 per share, for aggregate gross proceeds of $135.1 million. We received approximately $126.6 million in net proceeds after deducting applicable underwriting discounts and offering expenses. In January 2021, we issued and sold 2,795,700 shares of our common stock in a private placement at an offering price of $93.00 per share for aggregate gross proceeds of $260.0 million. We received $252.0 million in net proceeds after deducting offering expenses payable by us.

In April 2021, we filed a universal automatic shelf registration statement on Form S-3 with the SEC, or the 2021 Shelf, to register for sale an indeterminate amount of our common stock, preferred stock, debt securities, warrants and/or units in one or more offerings, which became effective upon filing with the SEC (File No. 333-254946).

In April 2021, we entered into an at the market, or ATM, sales agreement, or the Sales Agreement, with Jefferies LLC, or Jefferies, pursuant to which we were entitled to offer and sell, from time to time at prevailing market prices, shares of our common stock having aggregate gross proceeds of up to $300.0 million. We agreed to pay Jefferies a commission of up to 3.0% of the aggregate gross sale proceeds of any shares sold by Jefferies under the Sales Agreement. As of December 31, 2022, we have sold 2,908,009 shares of our common stock under the Sales Agreement at an average price of $103.16 per share for aggregate gross proceeds of $300.0 million, before deducting commissions and offering expenses payable by us.

In July 2021, we and Jefferies entered into an amendment to the Sales Agreement to provide for an increase in the aggregate offering amount under the Sales Agreement, such that as of July 7, 2021, we may offer and sell shares of common stock having an aggregate offering price of an additional $500.0 million. As of December 31, 2022, we have sold 3,908,289 additional shares of our common stock under the amended Sales Agreement at an average price of $82.38 per share for aggregate gross proceeds of $322.0 million, before deducting commissions and offering expenses payable by us, resulting in an aggregate of $622.0 million in gross proceeds received under the Sales Agreement as of December 31, 2022.

In June 2021, we entered into the Apellis Agreement, which is focused on the use of certain of our base editing technology to discover new treatments for complement system-driven diseases. Pursuant to the Apellis Agreement, we received an upfront payment of $50.0 million in July 2021 and were eligible to receive an additional $25.0 million payment on the one-year anniversary of the effective date of the Apellis Agreement, or the First Anniversary Payment. In June 2022, we received the $25.0 million First Anniversary Payment.

In October 2021, we entered into the Sana Agreement, pursuant to which we granted Sana non-exclusive research and development commercial rights to our CRISPR Cas12b technology to perform nuclease editing for certain ex vivo engineered cell therapy programs. Pursuant to the Sana Agreement, we received an upfront payment of $50.0 million in October 2021.

In December 2021, we entered into the Pfizer Agreement, which is focused on in vivo base editing programs for three targets for rare genetic diseases of the liver, muscle and central nervous system. Under the terms of the Pfizer Agreement, we will conduct all research activities through development candidate selection for three undisclosed targets, which are not included in our existing programs. Pursuant to the Pfizer Agreement, we received an upfront payment of $300.0 million in January 2022.

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As of December 31, 2022, we had $1.1 billion in cash, cash equivalents, and marketable securities.

We are required to make success payments to Harvard and Broad Institute based on increases in the per share fair market value of our Series A-1 Preferred Stock and Series A-2 Preferred Stock or, subsequent to our IPO, our common stock. The amounts due may be settled in cash or shares of our common stock, at our discretion. In May 2021, the first success payment measurements occurred and success payments to Harvard and Broad Institute were calculated to be $15.0 million and $15.0 million, respectively. We elected to make each payment in shares of our common stock and issued 174,825 shares to each of Harvard and Broad Institute to settle these liabilities in June 2021. We may additionally owe Harvard and Broad Institute success payments of up to an additional $90.0 million each.

We have not yet commercialized any of our product candidates, and we do not expect to generate revenue from the sale of our product candidates for the foreseeable future. We anticipate that we may need to raise additional capital in order to continue to fund our research and development, including our planned preclinical studies and clinical trials, building, maintaining and operating a commercial-scale cGMP manufacturing facility, and new product development, as well as to fund our general operations. As necessary, we will seek to raise additional capital through various potential sources, such as equity and debt financings or through corporate collaboration and license agreements. We can give no assurances that we will be able to secure such additional sources of capital to support our operations, or, if such funds are available to us, that such additional financing will be sufficient to meet our needs.

Cash flows

The following table summarizes our sources and uses of cash (in thousands):

Operating activities

Net cash provided by operating activities for the year ended December 31, 2022 was $22.5 million, consisting primarily of the collection of collaboration receivables of $300.0 million related to the Pfizer Agreement, an increase in operating lease liabilities of $12.4 million and an increase in accounts payable of $2.4 million, as well as noncash items consisting of stock-based compensation expense of $84.3 million, a loss from an equity method investment of $25.5 million, depreciation and amortization expense of $14.1 million and changes in operating lease ROU assets of $8.4 million.

These sources of cash were offset in part by our net loss of $289.1 million, a decrease in deferred revenue of $35.9 million, net of the $25.0 million First Anniversary Payment collected from Apellis during the twelve months ended December 31, 2022, decreases in accrued expenses and other liabilities of $16.9 million, an increase in prepaid expenses and other current assets of $7.8 million and a decrease in other long-term liabilities of $2.6 million, as well as noncash items including a decrease in the fair value of derivative liabilities of $23.9 million, an increase in the fair value of non-controlling equity investments of $20.2 million, a change in the fair value of contingent consideration liabilities of $18.9 million and amortization of investment premiums of $9.4 million.

Net cash used in operating activities for the year ended December 31, 2021 was $66.3 million, consisting primarily of our net loss of $370.6 million and an increase in collaboration receivable of $300.0 million, primarily related to the Pfizer Agreement, as well as noncash items including an increase in the fair value of a non-controlling equity investment of $17.7 million and a change in the fair value of contingent consideration liabilities of $5.1 million. These uses of cash were offset in part by cash provided by increases in deferred revenue of $348.2 million, primarily related to the Pfizer and Apellis Agreements, other accrued expenses and other liabilities of $43.9 million, operating lease liabilities of $16.0 million and accounts payable and other long-term liabilities of $2.6 million as well as noncash items consisting primarily of in-process research and development of $155.0 million, stock-based compensation expense of $43.6 million, change in operating lease ROU assets of $9.0 million, depreciation and amortization expense of $7.5 million and change in fair value of derivative liabilities of $1.0 million.

Net cash used in operating activities for the year ended December 31, 2020 was $95.7 million, consisting primarily of our net loss of $194.6 million and an increase in prepaid expenses and other current assets of $5.7 million, offset by cash provided by increases in accrued expenses of $7.0 million, operating lease liabilities of $3.2 million and long-term liabilities of $1.0 million. Net cash used in operating activities was also offset by non-cash charges consisting primarily of a change in the fair value of derivative liabilities of $63.4 million, stock-based compensation expense of $15.4 million, non-cash license expenses of $5.7 million, depreciation of $4.7 million, and non-cash lease expense of $4.7 million, offset by a $0.5 million non-cash change in the fair value of equity investments.

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Investing activities

For the year ended December 31, 2022, cash used in investing activities was primarily the net result of purchases of marketable securities partially offset by maturities of marketable securities of $412.4 million, in addition to purchases of property and equipment of $49.0 million.

For the year ended December 31, 2021, cash used in investing activities was primarily the net result of purchases of marketable securities partially offset by maturities of marketable securities of $248.0 million, in addition to purchases of property and equipment of $46.8 million. We also received $0.6 million in net cash from our acquisition of Guide, after the payment of acquisition costs.

For the year ended December 31, 2020, cash used in investing activities was primarily the net result of purchases of marketable securities partially offset by maturities of marketable securities of $83.0 million, in addition to purchases of property and equipment of $16.4 million.

Financing activities

Net cash provided by financing activities for the year ended December 31, 2022 consisted primarily of proceeds from equity offerings of $108.3 million, net of sales commissions, $3.1 million of proceeds from the issuance of common stock under our Employee Stock Purchase Plan, and $2.7 million of proceeds from the exercise of stock options, offset in part by repayments of equipment financing liabilities of $2.3 million and payment of equity offering costs of $0.2 million.

Net cash provided by financing activities for the year ended December 31, 2021 consisted primarily of proceeds from equity offerings of $757.4 million, net of sales commissions and underwriting discounts, and proceeds from the exercise of stock options of $9.6 million, offset in part by the payment of equity offering costs of $8.8 million and repayments of equipment financing liabilities of $2.1 million.

Net cash provided by financing activities for the year ended December 31, 2020 consisted primarily of proceeds from our IPO and follow-on public offering of $319.5 million, net of underwriting discounts, net proceeds of $3.3 million from equipment financing, and proceeds from the exercise of stock options of $3.2 million, offset in part by the payment of equity offering costs of $2.1 million and repayments of equipment financing liabilities of $1.6 million.

Funding requirements

Our operating expenses have increased and are expected to continue to increase substantially as we continue to advance our portfolio of programs.

Specifically, our expenses will increase if and as we:

•
advance clinical trials of our product candidates, including our BEACON trial and our trial of BEAM-201;

•
continue our research programs and our preclinical development of product candidates from our research programs;

•
seek to identify additional research programs and additional product candidates;

•
initiate preclinical studies and clinical trials for additional product candidates we identify and develop;

•
maintain, expand, enforce, defend, and protect our intellectual property portfolio and provide reimbursement of third-party expenses related to our patent portfolio;

•
seek marketing approvals for any of our product candidates that successfully complete clinical trials;

•
establish a sales, marketing, and distribution infrastructure to commercialize any medicines for which we may obtain marketing approval;

•
further develop our base editing platform;

•
further develop delivery technology for our base editors, including the LNP technology we acquired through our acquisition of Guide;

•
continue to hire additional personnel including research and development, clinical and commercial personnel;

•
add operational, financial, and management information systems and personnel, including personnel to support our product development;

•
acquire or in-license products, intellectual property, medicines and technologies; and

•
maintain and operate a commercial-scale cGMP manufacturing facility.

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We expect that our cash, cash equivalents at December 31, 2022 will enable us to fund our current and planned operating expenses and capital expenditures for at least the twelve calendar months beginning January 1, 2023, and beyond such twelve-month period. We have based these estimates on assumptions that may prove to be imprecise, and we may exhaust our available capital resources sooner that we currently expect. Because of the numerous risks and uncertainties associated with the development our programs, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates.

Our future funding requirements will depend on many factors including:

•
the cost of continuing to build our base editing platform;

•
the costs of acquiring licenses for the delivery modalities that will be used with our product candidates;

•
the scope, progress, results, and costs of discovery, preclinical development, laboratory testing, manufacturing and clinical trials for the product candidates we may develop;

•
the costs of preparing, filing, and prosecuting patent applications, maintaining and enforcing our intellectual property and proprietary rights, and defending intellectual property-related claims;

•
the costs, timing, and outcome of regulatory review of the product candidates we develop;

•
the costs of future activities, including product sales, medical affairs, marketing, manufacturing, distribution, coverage and reimbursement for any product candidates for which we receive regulatory approval;

•
the success of our license agreements and our collaborations;

•
our ability to establish and maintain additional collaborations on favorable terms, if at all;

•
the achievement of milestones or occurrence of other developments that trigger payments under any collaboration agreements we are a party to or may become a party to, including our agreement with Guide;

•
the payment of success liabilities to Harvard and Broad Institute pursuant to the respective terms of the Harvard License Agreement and the Broad Institute License Agreement, should we choose to pay in cash;

•
the extent to which we acquire or in-license products, intellectual property, and technologies;

•
the costs of obtaining, building, operating and expanding our manufacturing capacity; and

•
the impact on our business of macro-economic conditions, as well as the prevailing level of macro-economic, business, and operational uncertainty, including as a result of geopolitical events or other global or regional events such as the COVID-19 pandemic.

A change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Further, our operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such operating plans.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, and licensing arrangements. We do not have any committed external source of capital. We have historically relied on equity issuances to fund our capital needs and will likely rely on equity issuances in the future. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends.

If we raise capital through additional collaborations, strategic alliances, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, or product candidates, or we may have to grant licenses on terms that may not be favorable to us. If we are unable to raise additional capital through equity or debt financings when needed, we may be required to delay, limit, reduce, or terminate our product development or, if approved, future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. We can give no assurance that we will be able to secure such additional sources of funds to support our operations, or, if such funds are available to us, that such additional funding will be sufficient to meet our needs.

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Contractual obligations

We lease certain assets under noncancelable operating and finance leases, which expire through 2037. The leases relate primarily to office space, laboratory and manufacturing space in addition to equipment. Aggregate future minimum commitments under these office and laboratory leases and equipment leases are $268.0 million and $2.5 million, respectively, as of December 31, 2022, excluding any related common area maintenance charges or real estate taxes.

In May 2021, the first success payment measurements under the Harvard License Agreement and Broad License Agreement occurred and success payments to Harvard and Broad Institute were calculated to be $15.0 million and $15.0 million, respectively. We elected to make each payment in shares of our common stock and issued 174,825 shares of our common stock to each of Harvard and Broad Institute to settle these liabilities in June 2021. The remaining success payment obligations are still outstanding as of December 31, 2022. We may additionally owe Harvard and Broad Institute success payments of up to an additional $90.0 million each.

We are potentially obligated to pay certain milestone and success fees, non-royalty sublicense income fees, royalty fees, licensing maintenance fees, and reimbursement of patent maintenance costs that we may be required to pay under agreements we have entered into with certain institutions to license intellectual property. Our agreements to license intellectual property include potential milestone payments that are dependent upon the development of products using the intellectual property licensed under the agreements and contingent upon the achievement of development or regulatory approval milestones, as well as commercial and success payment milestones. These amounts are contingent upon the occurrence of future events and the timing and likelihood of such potential obligations are not known with certainty.

In addition, we agreed to pay Guide’s former stockholders and optionholders up to an additional $100.0 million in technology milestone payments and $220.0 million in product milestone payments, payable in our common stock valued using the volume-weighted average price of our common stock over the ten-day trading period ending two trading days prior to the date on which the applicable milestone is received. These payments are contingent upon the occurrence of future events and the timing and likelihood of such potential obligations are not known with certainty.

Additionally, we enter into contracts in the normal course of business with CROs, CMOs and other vendors to assist in the performance of our research and development activities and other services and products for operating purposes. These contracts generally provide for termination on notice, and therefore are cancelable contracts.

Critical accounting policies and significant judgments and estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which we have prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in Note 2, Summary of significant accounting policies, to our consolidated financial statements in this Annual Report on Form 10-K, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.

Revenue recognition

We recognize revenue in accordance with ASC 606.

At inception, we determine whether contracts are within the scope of ASC 606 or other topics. For contracts that are determined to be within the scope of ASC 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which we expect to be entitled to receive in exchange for these goods and services. To achieve this core principle, we apply the following five steps (i) identify the contract with the customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when the performance obligation is satisfied. We only apply the five-step model to contracts when we determine that collection of substantially all consideration for goods and services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration.

Performance obligations promised in a contract are identified based on the goods and services that will be transferred to the customer that are both capable of being distinct and are distinct in the context of the contract. To the extent a contract includes multiple promised goods and services, we apply judgment to determine whether promised goods and services are both capable of being distinct and are distinct in the context of the contract. If these criteria are not met, the promised goods and services are accounted for as a combined performance obligation.

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The transaction price is determined based on the consideration to which we will be entitled in exchange for transferring goods and services to the customer. To the extent the transaction price includes variable consideration, we estimate the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method, depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in management’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Any estimates, including the effect of the constraint on variable consideration, are evaluated at each reporting period for any changes. Determining the transaction price requires significant judgment and is discussed in further detail for each of our license and collaboration agreements in Note 11 to our consolidated financial statements in this Annual Report on Form 10-K.

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation on a relative standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct service that forms part of a single performance obligation. The consideration to be received is allocated among the separate performance obligations based on relative standalone selling prices. Determining the standalone selling price requires significant judgment and is discussed in further detail for each of our license and collaboration agreements in Note 11.

We satisfy performance obligations either over time or at a point in time. Revenue is recognized over time if either (i) the customer simultaneously receives and consumes the benefits provided by the entity’s performance, (ii) the entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced, or (iii) the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date. If the entity does not satisfy a performance obligation over time, the related performance obligation is satisfied at a point in time by transferring the control of a promised good or service to a customer.

The timing of when services are performed and the occurrence of external costs associated with the programs under the collaboration agreements could impact how revenue is recognized in a certain period.

Licenses of intellectual property, or IP: If the license to our IP is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenues from consideration allocated to the license when the license is transferred to the customer and the customer can use and benefit from the licenses. For licenses that are combined with other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition. Determining the revenue recognition of IP licenses requires significant judgment and is discussed in further detail for each of our license and collaboration agreements in Note 10 and 11.

Milestone payments: At the inception of each arrangement that includes development or regulatory milestone payments, we evaluate the probability of reaching the milestones and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur in the future, the associated milestone value is included in the transaction price. Milestone payments that are not within our control or the licensee’s, such as regulatory approvals, are not considered probable of being achieved until those approvals are received and therefore revenue recognized is constrained as management is unable to assert that a reversal of revenue would not be possible. The transaction price is then allocated to each performance obligation on a relative standalone selling price basis, for which we recognize revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, we re-evaluate the probability of achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment. To date, we have not recognized any milestone revenue resulting from any of our agreements.

Commercial Milestone Payments and Royalties: For arrangements that include sales-based royalties, including milestone payments based on levels of sales, if the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, we have not recognized any royalty revenue resulting from any of our agreements.

When no performance obligations are required of us, or following the completion of the performance obligation period, such amounts are recognized as revenue upon transfer of control of the goods or services to the customer. Generally, all amounts received or due other than sales-based milestones and royalties are classified as license and collaboration revenue. Sales-based milestones and royalties will be recognized as royalty revenue at the later of when the related sales occur or when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

Deferred revenue expected to be recognized within the next twelve months is classified as a current liability.

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Asset acquisitions

In 2018, we adopted ASU 2017-01, Business Combinations, or ASU 2017-01, which clarified the definition of a business. We measure and recognize asset acquisitions that are not deemed to be business combinations based on the cost to acquire the assets, which includes transaction costs, and the consideration is allocated to the items acquired based on a relative fair value methodology. Goodwill is not recognized in asset acquisitions. In an asset acquisition, the cost allocated to acquire in-process research and development with no alternative future use is charged to research and development expense at the acquisition date.

At the time of acquisition, we determine if a transaction should be accounted for as a business combination or acquisition of assets.

Equity method of accounting

In circumstances where we have the ability to exercise significant influence, but not control, over the operating and financial policies of an entity in which we have an investment in common stock or in-substance common stock, we utilize the equity method of accounting for recording related investment activity. In assessing whether we exercise significant influence, we consider the nature and magnitude of the investment, participating rights we hold, and relevant factors such as the presence of a collaborative or other business relationship.

Under the equity method of accounting, our investments are initially recorded at cost on the consolidated balance sheets. Upon recording an equity method investment, we evaluate whether there are basis differences between the carrying value and fair value of our proportionate share of the investee’s underlying net assets. Typically, we amortize basis differences identified on a straight-line basis over the underlying asset’s or liability's estimated useful lives when calculating the attributable earnings or losses, excluding the basis differences attributable to in-process research and development, or IPR&D, that has no alternative future use. To the extent a basis difference relates to IPR&D and the investee is not a business as defined in ASC 805, Business Combinations, we immediately expense such basis difference related to IPR&D. If we are unable to attribute all of the basis difference to specific assets or liabilities of the investee, the residual excess of the cost of the investment over the proportional fair value of the investee’s assets and liabilities is considered to be Equity Method Goodwill and is recognized within the equity investment balance, which is tracked separately within our memo accounts. We subsequently record in the consolidated statements of operations and comprehensive loss our share of income or loss of the other entity within the loss from equity method investment line item. If the share of losses exceeds the carrying value of our investment, we will suspend recognizing additional losses and will continue to do so unless we commit to providing additional funding or commit to guarantee investee liabilities.

We evaluate our equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may be impaired and consider qualitative and quantitative factors including the investee’s financial metrics, product and commercial outlook and cash usage. If a decline in the value of an equity method investment is determined to be other than temporary, a loss is recorded in earnings in the current period and the investment is written down to fair value.

At December 31, 2022, we accounted for our investment in Orbital under the equity method of accounting and the investment has been written down to zero as of December 31, 2022. Refer to Note 8 of our consolidated financial statements for further details.

Contingent consideration liabilities

We may be required to make milestone payments to the former stockholders and optionholders of Guide in the form of our common stock based on the achievement of certain product and technology milestones. The payments are accounted for under ASC 480, Distinguishing Liabilities from Equity. These contingent consideration liabilities are carried at fair value which was estimated by applying a probability-based model, which utilized inputs primarily based upon the achievement and related timing of certain product and technology milestones that were unobservable in the market. The estimated fair value of contingent consideration liabilities, initially measured and recorded on the acquisition date, are considered to be a Level 3 measurement and are reviewed quarterly, or whenever events or circumstances occur that indicate a change in fair value. The contingent consideration liabilities are recorded at fair value at the end of each reporting period with changes in estimated fair values recorded in other income (expense) in the consolidated statements of operations and other comprehensive loss.

The estimated fair value is determined based on probability adjusted discounted cash flow models that include significant estimates and assumptions pertaining to technology and product development. Significant changes in any of the probabilities of success would result in a significantly higher or lower fair value measurement. Significant changes in the probabilities as to the periods in which milestones will be achieved would result in a significantly lower or higher fair value measurement.

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Fair value measurements – Success payments

We are required to make success payments to Harvard and Broad Institute based on increases in the per share fair market value of our Series A-1 Preferred Stock and Series A-2 Preferred Stock or, subsequent to our IPO, our common stock. Any amounts due may be settled in cash or shares of our common stock, at our discretion. The success payments are accounted for under Accounting Standards Codification 815, Derivatives and Hedging and were initially recorded at fair value with a corresponding charge to research and development expense. The liabilities are marked to market at each balance sheet date with all changes in value recognized in interest and other income (expense) in the consolidated statement of operations and other comprehensive loss. We will continue to adjust the liability for changes in fair value until the earlier of the achievement or expiration of the success payment obligation. To determine the estimated fair value of the success payments, we used a Monte Carlo simulation model, which models the value of the liability based on several key variables, including probability of event occurrence, timing of event occurrence, as well as the price per share at the time of success payment. A significant change in our stock price or volatility could have a significant impact on the value of the liability.

Accrued research and development costs

As part of the process of preparing our financial statements, we are required to estimate our accrued expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. Examples of estimated accrued research and development expenses include fees paid to vendors in connection with preclinical development activities and vendors related to development, manufacturing and distribution of product candidate materials.

We base our expenses related to preclinical studies on our estimates of the services received and efforts expended pursuant to contracts with multiple vendors that conduct and manage preclinical studies on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period and adjust accordingly.

Stock-based compensation

We measure stock options and other stock-based awards granted to our employees, directors, consultants or founders based upon their fair value on the date of the grant and recognize stock-based compensation expense over the requisite service period, which is generally the vesting period of the respective award. We recognize forfeitures as they occur.

The majority of our stock-based compensation awards are subject to service-based vesting conditions. We apply the straight-line method of expense recognition to all awards with service-based vesting. We also have performance-based awards, where stock-based compensation expense is recognized over the service period using the accelerated attribution method to the extent achievement of the of performance condition is probable.

We estimate the fair value of each stock option grant on the date of grant using the Black-Scholes option-pricing model, which uses inputs such as the fair value of our common stock, assumptions we make for the volatility of our common stock, the expected term of our stock options, the risk-free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield. The fair value of our common stock is used to determine the fair value of restricted stock awards.

Prior to our IPO in February 2020, there was no public market for our common stock. As a result, prior to our IPO, the estimated fair value of our common stock was determined by our board of directors as of the date of each option grant, with input from management, considering our most recently available third-party valuations of common stock and our board of directors’ assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant. Following our IPO, the fair value of our common stock is determined based on the quoted market price of our common stock.

Leases

On January 1, 2019, we adopted ASU No. 2016-02, Leases (Topic 842), or ASC 842, which requires the recognition of the right-of-use assets and related operating and finance lease liabilities on the balance sheet.

For contracts entered into on or after the effective date, at the inception of a contract, we assess whether the contract is, or contains, a lease. The assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether we have the right to direct the use of the asset. At inception of a lease, we allocate the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments.

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Leases are classified as either finance leases or operating leases. A lease is classified as a finance lease if any one of the following criteria are met: the lease transfers ownership of the asset by the end of the lease term, the lease contains an option to purchase the asset that is reasonably certain to be exercised, the lease term is for a major part of the remaining useful life of the asset or the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. A lease is classified as an operating lease if it does not meet any of these criteria.

For all leases at the lease commencement date, a right-of-use asset and a lease liability are recognized. The right-of-use asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease.

The right-of-use asset is initially measured at cost, which primarily comprises the initial amount of the lease liability, plus any initial direct costs incurred if any, less any lease incentives received. All right-of-use assets are reviewed for impairment. The lease liability is initially measured at the present value of the lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, our secured incremental borrowing rate for the same term as the underlying lease. For real estate leases and other operating leases, we use our secured incremental borrowing rate. For finance leases, we use the rate implicit in the lease or our secured incremental borrowing rate if the implicit lease rate cannot be determined.

Lease payments included in the measurement of the lease liability comprise the following: the fixed noncancelable lease payments, payments for optional renewal periods where it is reasonably certain the renewal period will be exercised, and payments for early termination options unless it is reasonably certain the lease will not be terminated early.

Lease cost for operating leases consists of the lease payments plus any initial direct costs, primarily brokerage commissions, and is recognized on a straight-line basis over the lease term. Included in lease cost are any variable lease payments incurred in the period that are not included in the initial lease liability and lease payments incurred in the period for any leases with an initial term of 12 months or less. Lease cost for finance leases consists of the amortization of the right-of-use asset on a straight-line basis over the lease term and interest expense determined on an amortized cost basis. The lease payments are allocated between a reduction of the lease liability and interest expense.

Leasehold improvements are not unique and are retained by the lessor at the end of the lease. However, in the case of a space designed to be suitable for our specific real estate needs and if we are responsible for cost overruns, we are the accounting owner of the leasehold improvements.

We made an accounting policy election to not recognize leases with an initial term of 12 months or less within our consolidated balance sheets and to recognize those lease payments on a straight-line basis in our consolidated statements of income over the lease term.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes to those statements included elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Some of the numbers included herein have been rounded for the convenience of presentation. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under Item 1A, Risk factors, in this Annual Report on Form 10-K.

Overview

We are a biotechnology company committed to establishing the leading, fully integrated platform for precision genetic medicines. Our vision is to provide life-long cures to patients suffering from serious diseases. To achieve this vision, we have assembled a platform that includes a suite of gene editing and delivery technologies and are in the process of developing internal manufacturing capabilities. Our suite of gene editing technologies is anchored by our proprietary base editing technology, which potentially enables a differentiated class of precision genetic medicines that target a single base in the genome without making a double-stranded break in the DNA. This approach uses a chemical reaction designed to create precise, predictable and efficient genetic outcomes at the targeted sequence. Our proprietary base editors have two principal components: (i) a clustered regularly interspaced short palindromic repeats, or CRISPR, protein, bound to a guide RNA, that leverages the established DNA-targeting ability of CRISPR, but is modified to not cause a double-stranded break, and (ii) a base editing enzyme, such as a deaminase, which carries out the desired chemical modification of the target DNA base. We believe this design contributes to a more precise and efficient edit compared to traditional gene editing methods, which operate by creating targeted double-stranded breaks in the DNA that can result in unwanted DNA modifications. We believe that the precision of our editors will dramatically increase the impact of gene editing for a broad range of therapeutic applications.

To unlock the full potential of our base editing technology across a wide range of therapeutic applications, we are pursuing a broad suite of both clinically validated and novel delivery modalities, depending on tissue type, including: (1) electroporation for efficient delivery to blood cells and immune cells ex vivo; (2) lipid nanoparticles, or LNPs, for non-viral in vivo delivery to the liver and potentially other organs in the future; and (3) adeno-associated viral vectors, or AAV, for in vivo viral delivery to the eye and potentially other organs.

The elegance of the base editing approach combined with a tissue specific delivery modality provides the basis for a targeted efficient, precise, and highly versatile gene editing system, capable of gene correction, gene modification, gene silencing or gene activation, and/or multiplex editing of several genes simultaneously. We are currently advancing a broad, diversified portfolio of base editing programs against distinct editing targets, utilizing the full range of our development capabilities. We believe the flexibility and versatility of our base editors and delivery technologies may have broad therapeutic applicability and have the potential to transform the field of precision genetic medicines.

We believe that building an integrated platform combining our gene editing capabilities with advanced delivery and manufacturing capabilities will give us the flexibility to develop our own sustainable portfolio and to create a hub for partnering with other companies to unlock the full potential of precision genetic medicine across a broad array of possible applications.

Manufacturing

To realize the full potential of base editors as a differentiated class of medicines and to enable our parallel investment strategy in multiple delivery modalities, we are building customized and integrated capabilities across discovery, manufacturing, and preclinical and clinical development. Due to the critical importance of high-quality manufacturing and control of production timing and know-how, we have taken steps toward establishing our own manufacturing facility, which will provide us the flexibility to manufacture a variety of different product modalities. We believe this investment will maximize the value of our portfolio and capabilities, the probability of technical success of our programs, and the speed at which we can provide potentially life-long cures to patients.

In August 2020, we entered into a lease agreement with Alexandria Real Estate Equities, Inc. to build a 100,000 square foot current cGMP compliant manufacturing facility in Research Triangle Park, North Carolina intended to support a broad range of clinical programs. The initial estimate of the minimum amount of undiscounted lease payments due under this lease is $69.0 million. The tabular disclosure of minimum lease payments under Note 7, Leases, to our consolidated financial statements in this Annual Report on Form 10-K does not include payments due under this lease. We anticipate that the facility will be operational in the first quarter of 2023. The project is facilitated, in part, by a Job Development Investment Grant approved by the North Carolina Economic Investment Committee, which authorizes potential reimbursements based on new tax revenues generated through the project. The facility is designed to support manufacturing for our ex vivo cell therapy programs in hematology and oncology and in vivo non-viral delivery programs for liver diseases, with flexibility to support manufacturing of our viral delivery programs, and ultimately, scale-up to support potential commercial supply.

For our initial waves of clinical trials, we expect to use CMOs with relevant manufacturing experience in genetic medicines.

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Acquisitions

In February 2021, we acquired Guide Therapeutics, Inc., or Guide, for upfront consideration in an aggregate amount of $120.0 million, excluding customary purchase price adjustments, in shares of our common stock, based upon the volume-weighted average price of the common stock over the ten trading-day period ending on February 19, 2021. In addition, Guide’s former stockholders and optionholders are eligible to receive up to an additional $100.0 million in technology milestone payments and $220.0 million in product milestone payments, payable in our common stock.

COVID-19

With the ongoing concerns related to the COVID-19 pandemic, during the year ended December 31, 2021, we maintained and expanded our business continuity plans to address and mitigate the impact of the COVID-19 pandemic on our business. We expect to continue incurring additional costs to ensure we adhere to the guidelines instituted by the Centers for Disease Control and to provide a safe working environment to our onsite employees.

The extent to which the COVID-19 pandemic impacts our business, our corporate development objectives, results of operations and financial condition, including the value of and market for our common stock, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the duration, scope and severity of the pandemic, the existence and duration of any travel restrictions or business restrictions in the United States and other countries, business closures and business disruptions, the effectiveness of actions taken in the United States and other countries to contain and treat the disease, periodic spikes in infection rates, new strains of the virus that cause outbreaks of COVID-19, and the broad availability of effective vaccines and therapeutics.

Disruptions to the global economy and supply chain, disruption of global healthcare systems, and other significant impacts of the COVID-19 pandemic could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

While the COVID-19 pandemic did not significantly impact our business or results of operations during the year ended December 31, 2021, the length and extent of the pandemic, its consequences, and containment efforts will determine its future impact on our operations and financial condition. For a more detailed discussion of risks related to COVID-19, please see Part II, Item 1A, Risk factors—General risk factors, in this Annual Report on Form 10-K.

Financial operations overview

General

We were founded in January 2017 and began operations in July 2017. Since our inception, we have devoted substantially all of our resources to building our base editing platform and advancing development of our portfolio of programs, establishing and protecting our intellectual property, conducting research and development activities, organizing and staffing our company, business planning, raising capital and providing general and administrative support for these operations. To date, we have financed our operations primarily through the sales of our redeemable convertible preferred stock, proceeds from offerings of our common stock and payments received under collaboration and license agreements.

We are an early-stage company, and all of our programs are at a preclinical or early clinical stage of development. To date, we have not generated any revenue from product sales and do not expect to generate revenue from the sale of products for the foreseeable future. Our revenue to date has been primarily derived from license and collaboration agreements with partners. Since inception we have incurred significant operating losses. Our net losses for the years ended December 31, 2021, 2020 and 2019 were $370.6 million, $194.6 million and $78.3 million, respectively. As of December 31, 2021, we had an accumulated deficit of $768.3 million. We expect to continue to incur significant expenses and increasing operating losses in connection with ongoing development activities related to our internal programs and collaborations as we continue our preclinical and clinical development of product candidates; advance additional product candidates toward clinical development; build and operate our cGMP facility in North Carolina; further develop our base editing platform; continue to make investments in delivery technology for our base editors, including the LNP technology we acquired through our acquisition of Guide; conduct research activities as we seek to discover and develop additional product candidates; maintain, expand, enforce, defend and protect our intellectual property portfolio; and continue to hire research and development, clinical, technical operations and commercial personnel. In addition, we expect to continue to incur the costs associated with operating as a public company.

As a result of these anticipated expenditures, we will need to raise additional capital to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances, and licensing arrangements. We may be unable to raise additional funds or enter into such other agreements when needed on favorable terms or at all. Our inability to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. We can give no assurance that we will be able to secure such additional sources of capital to support our operations, or, if such capital is available to us, that such additional capital will be sufficient to meet our needs for the short or long term.

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Revenue Recognition

In April 2019, we entered into a collaboration and license agreement, or the Verve Agreement, with Verve Therapeutics, Inc., or Verve, a company focused on gene editing for cardiovascular disease treatments. In June 2021, we entered into a research collaboration agreement, or the Apellis Agreement, with Apellis Pharmaceuticals, Inc., or Apellis, focused on the use of certain of our base editing technology to discover new treatments for complement system-driven diseases. In October 2021, we entered into an option and license agreement, or the Sana Agreement, with Sana Biotechnology, Inc., or Sana, pursuant to which we granted Sana non-exclusive research and development and commercial rights to our CRISPR Cas12b technology to perform nuclease editing for certain ex vivo engineered cell therapy programs. In December 2021, we entered into a four-year research collaboration agreement, or the Pfizer Agreement, with Pfizer Inc., or Pfizer, focused on in vivo base editing programs for three targets for rare genetic diseases of the liver, muscle and central nervous system.

We have not generated any revenue to date from product sales and do not expect to do so in the near future. During the years ended December 31, 2021, 2020, and 2019, we recognized $51.8 million, $24,000 and $18,000, respectively, of revenue. In 2021, our revenue recorded was related to our collaboration and license agreements with Sana, Apellis and Verve. In 2020 and 2019, our revenue recorded was related to our license agreement with Verve.

For additional information about our revenue recognition policy, see Note 2 and Note 10 of the notes to our audited consolidated financial statements included in this Annual Report on Form 10-K.

Research and development expenses

Research and development expenses consist of costs incurred in performing research and development activities, which include:

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Expenses incurred in connection with investments in delivery technology for our base editors, including the LNP technology we acquired through our acquisition of Guide;

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the cost to obtain licenses to intellectual property, such as those with Harvard University, or Harvard, The Broad Institute, Inc., or Broad Institute, Editas Medicine, Inc, or Editas, and Bio Palette Co., Ltd., or Bio Palette, and related future payments should certain success, development and regulatory milestones be achieved;

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personnel-related expenses, including salaries, bonuses, benefits and stock-based compensation for employees engaged in research and development functions;

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expenses incurred in connection with the discovery and preclinical development of our research programs, including under agreements with third parties, such as consultants, contractors and contract research organizations;

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expenses incurred in connection with the initiation of clinical trials, including CRO costs and costs related to study preparation;

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expenses incurred in connection with regulatory filings;

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expenses incurred in connection with the building of our base editing platform;

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the cost of manufacturing for use in our preclinical studies, IND-enabling studies and clinical trials;

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laboratory supplies and research materials; and

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facilities, depreciation and other expenses which include direct and allocated expenses.

We expense research and development costs as incurred. Advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the benefits are consumed.

In the early phases of development, our research and development costs are often devoted to product platform and proof-of-concept preclinical studies that are not necessarily allocable to a specific target.

We expect that our research and development expenses will increase substantially as we advance our programs through their planned preclinical and clinical development.

General and administrative expenses

General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, intellectual property, business development and administrative functions. General and administrative expenses also include legal fees relating to intellectual property and corporate matters, professional fees for accounting, auditing, tax and consulting services, insurance costs, travel, and direct and allocated facility related expenses and other operating costs.

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We anticipate that our general and administrative expenses will increase in the future to support our increased research and development activities. We also expect to continue to incur costs associated with being a public company and maintaining controls over financial reporting, including costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with Nasdaq and SEC requirements, director and officer insurance costs, and investor and public relations costs.

Other income and expenses

Other income and expenses consist of the following items:

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Change in fair value of derivative liabilities consists primarily of remeasurement gains or losses associated with changes in success payment liabilities associated with our license agreement with Harvard, dated as of June 27, 2017, as amended, or the Harvard License Agreement, and the license agreement with The Broad Institute, as amended, dated as of May 9, 2018, or the Broad License Agreement.

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Change in fair value of non-controlling equity investments consists of mark-to-market adjustments related to our investments in equity securities.

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Change in fair value of contingent consideration liabilities consists of remeasurement of the fair market value of the technology and product contingent consideration liabilities related to the acquisition of Guide.

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Interest and other income (expense), net consists primarily of interest income as well as interest expense related to our equipment financings.

Results of operations

Comparison of the years ended December 31, 2021 and 2020

The following table summarizes our results of operations (in thousands):

License and collaboration revenue

License and collaboration revenue was approximately $51.8 million for the year ended December 31, 2021 compared to approximately $24,000 for the year ended December 31, 2020. License and collaboration revenue recorded in 2021 represents revenue recorded under the Sana, Apellis and Verve Agreements. We recorded $50.0 million of license revenue related to the Sana Agreement for the twelve months ended December 31, 2021. License and collaboration revenue recorded in 2020 represents revenue recorded under the Verve Agreement.

Research and development expenses

Research and development expenses were $387.1 million and $103.2 million for the years ended December 31, 2021 and 2020, respectively. The increase of $283.9 million was primarily due to the following:

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$155.0 million of expense related to in-process research and development asset acquired from Guide as there was determined to be no alternative future use.

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An increase of $32.7 million in milestone and license expenses. During the year ended December 31, 2021, we recorded $39.9 million in non-royalty sublicense fees and $0.9 million of expense for milestones related to our technology license agreements. During the year ended December 31, 2020, we recognized $5.5 million in expense representing the fair value of the common stock we issued to Prime Medicine Inc., or Prime Medicine, in October 2020 and $2.3 million expense for a milestone payment made to Bio Palette, upon the issuance of a certain patent in the United States becoming probable.

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Increases of $22.9 million in personnel-related costs and $15.4 million in facility-related costs, including depreciation. These increases were due to the growth in the number of research and development employees from 149 at December 31, 2020 to 279 at December 31, 2021, and their related activities, as well as the expense allocated to research and development related to our leased facilities.

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An increase of $21.2 million in outsourced services, driven by process development, IND-enabling materials and clinical readiness spend for BEAM-101, BEAM-201 and BEAM-102, assay development and qualification of gRNA and mRNA materials for BEAM-101 and BEAM-201, and toxicology studies and activities for BEAM-101, BEAM-102 and BEAM-201.

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An increase of $15.5 million in stock-based compensation from additional stock options and restricted stock units granted due to the increase in the number of research and development employees, additional grants given to existing employees, as well as an increase in the value of our common stock.

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An increase of $15.1 million in lab supplies due to the movement of our lead programs into IND-enabling activities and continued investment in platform and discovery efforts.

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An increase of $6.1 million in other expenses, primarily related to an increase in research and development specific software costs.

Research and development expenses are expected to continue to increase as we initiate clinical trials for BEAM-101, continue IND-enabling studies for BEAM-102 and BEAM-201, begin IND-enabling studies for BEAM-301, continue our current research programs, initiate new research programs, continue the preclinical and clinical development of our product candidates and conduct any future preclinical studies and begin to enroll patients in and conduct clinical trials for any of our product candidates.

General and administrative expenses

General and administrative expenses were $57.2 million and $29.6 million for the years ended December 31, 2021 and 2020, respectively. The increase of $27.6 million was primarily due to the following:

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An increase of $12.8 million in stock-based compensation from additional stock options and restricted stock units granted due to an increase in the number of general and administrative employees from 32 employees as of December 31, 2020 to 62 employees as of December 31, 2021, additional grants given to existing employees, as well as an increase in the value of our common stock.

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Increases of $9.3 million in personnel related costs and $1.3 million in facility related costs, including depreciation costs, due to the increase in the number of general and administrative employees, as well as the expense allocated to general and administrative expenses related to our leased facilities.

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An increase of $3.2 million in legal costs primarily due to legal fees incurred in connection with our acquisition of Guide, as well as the completion of the Apellis, Sana and Pfizer Agreements.

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An increase of $1.6 million in insurance costs due to increased directors and officers insurance costs as a result of our IPO in February 2020 and insurance costs related to our acquisition of Guide in 2021.

Change in fair value of derivative liabilities

During the year ended December 31, 2021, we recorded a $1.0 million expense related to the change in fair value expense related to the success payment liabilities as compared to a $63.4 million expense for the year ended December 31, 2020. We did not experience a significant change in our closing stock price at the end of 2021, as compared to the closing stock price at the end of 2020. A portion of the success payments was paid in June 2021; the remaining success payment obligations are still outstanding as of December 31, 2021 and will continue to be revalued at each reporting period.

Change in fair value of non-controlling equity investments

During the years ended December 31, 2021 and December 31, 2020, we recorded other income of $17.7 million and $0.5 million, respectively, as a result of increases in the value of our investment in Verve's common stock.

Change in contingent consideration liabilities

During the year ended December 31, 2021, we recorded $5.1 million of other income related to the change in fair value of the Guide technology and product contingent consideration liabilities as a result of an update in project timelines and the expected probability of achievement of the milestones.

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Interest and other income (expense), net

Interest and other income (expense), net was $9,000 for the year ended December 31, 2021 as compared to $1.1 million of income for the year ended December 31, 2020. The decrease was primarily due to interest expense on our equipment financing, which was greater than interest income driven by a decrease in interest rates earned on our investments.

Comparison of the years ended December 31, 2020 and 2019

The following table summarizes our results of operations (in thousands):

License revenue

License revenue was approximately $24,000 for the year ended December 31, 2020 compared to approximately $18,000 for the year ended December 31, 2019. License revenue represents Verve license revenue recorded under the Collaboration and License Agreement executed in April 2019.

Research and development expenses

Research and development expenses were $103.2 million and $54.6 million for the years ended December 31, 2020 and 2019, respectively. The increase of $48.6 million was primarily due to the following:

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An increase of $20.8 million in outsourced services and lab supplies, driven primarily by external research services such as CMOs, IND-enabling studies and sponsored research agreements.

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An increase of $5.9 million in milestone and license expenses, primarily related to our agreement with Prime Medicine. During the year ended December 31, 2020, we recognized $5.5 million of expense, representing the fair value of our common stock issued to Prime Medicine in October 2020.

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Increases of $8.6 million in personnel-related costs and $5.6 million in facility-related costs, including depreciation. These increases were due to the growth in the number of research and development employees from 97 at December 31, 2019 to 149 at December 31, 2020, and their related activities, as well as the expense allocated to research and development related to our leased facilities.

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An increase of $7.0 million in stock-based compensation from additional stock options and restricted stock awards granted due to the increase in the number of research and development employees, as well as an increase in the value of our common stock.

Research and development expenses will continue to increase as we continue our current research programs, initiate new research programs, continue our preclinical development of product candidates and conduct future clinical trials for any of our product candidates.

General and administrative expenses

General and administrative expenses were $29.6 million and $20.6 million for the years ended December 31, 2020 and 2019, respectively. The increase of $9.1 million was primarily due to the following:

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An increase of $2.9 million in insurance costs due to increased directors and officers insurance costs as a result of our being a public company.

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Increases of $2.7 million in personnel related costs and $1.1 million in other (primarily information technology related) costs due to an increase in general and administrative employees from 21 employees as of December 31, 2019 to 32 employees as of December 31, 2020.

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An increase of $1.5 million in intellectual property costs, offset by a $0.6 million decrease in corporate legal expenses.

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An increase of $1.4 million in stock-based compensation from additional stock options granted due to an increase in the number of general and administrative employees, as well as an increase in the value of our common stock.

Change in fair value of derivative liabilities

During the year ended December 31, 2020, we recorded a $63.4 million change in fair value expense related to the success payment liabilities as compared to a $5.4 million expense for the year ended December 31, 2019, due to a significant increase in the value of our common stock.

Change in fair value of non-controlling equity investments

During the year ended December 31, 2020, we recorded other income of $0.5 million as a result of an increase in the value of our investment in Verve's common stock.

Interest and other income (expense), net

Interest and other income (expense), net was $1.1 million for the year ended December 31, 2020 as compared to $2.2 million for the year ended December 31, 2019. The decrease of $1.2 million was primarily due to a decrease in interest income of $1.1 million as a result of decreases in interest rates related to our investment portfolio and an increase in interest expense of $0.4 million due to the occurrence of additional drawdowns on our equipment line in 2020.

Liquidity and capital resources

Since our inception in January 2017, we have not generated any revenue from product sales, have generated only limited license and collaboration revenue from the Verve Agreement, the Apellis Agreement and the Sana Agreement, and have incurred significant operating losses and negative cash flows from our operations. We expect to incur significant expenses and operating losses for the foreseeable future as we advance the preclinical and the clinical development of our product candidates.

To date, we have funded our operations primarily through equity offerings. In February 2020, we completed our IPO in which we issued and sold 12,176,471 shares of our common stock, including 1,588,235 shares of common stock sold pursuant to the underwriters’ full exercise of their option to purchase additional shares, at a public offering price of $17.00 per share. We received net proceeds from our IPO of $188.3 million, after deducting underwriting discounts and offering expenses payable by us. In October 2020, we issued and sold 5,750,000 shares of our common stock, including 750,000 shares pursuant to the full exercise of the underwriters’ option to purchase additional shares, at a public offering price of $23.50 per share, for aggregate gross proceeds of $135.1 million. We received approximately $126.6 million in net proceeds after deducting applicable underwriting discounts and offering expenses. In January 2021, we issued and sold 2,795,700 shares of our common stock in a private placement at an offering price of $93.00 per share for aggregate gross proceeds of $260.0 million. We received $252.0 million in net proceeds after deducting offering expenses payable by us.

In April 2021, we filed a universal automatic shelf registration statement on Form S-3 with the SEC, or the 2021 Shelf, to register for sale an indeterminate amount of our common stock, preferred stock, debt securities, warrants and/or units in one or more offerings, which became effective upon filing with the SEC (File No. 333-254946).

In April 2021, we entered into an at the market, or ATM, sales agreement, or the Sales Agreement, with Jefferies LLC, or Jefferies, pursuant to which we were entitled to offer and sell, from time to time at prevailing market prices, shares of our common stock having aggregate gross proceeds of up to $300.0 million. We agreed to pay Jefferies a commission of up to 3.0% of the aggregate gross sale proceeds of any shares sold by Jefferies under the Sales Agreement. As of December 31, 2021, we have sold 2,908,009 shares of our common stock under the Sales Agreement at an average price of $103.16 per share for aggregate gross proceeds of $300.0 million, before deducting commissions and offering expenses payable by us.

In July 2021, we and Jefferies entered into an amendment to the Sales Agreement to provide for an increase in the aggregate offering amount under the Sales Agreement, such that as of July 7, 2021, we may offer and sell shares of common stock having an aggregate offering price of an additional $500.0 million. As of December 31, 2021, we have sold 1,999,186 additional shares of our common stock under the amended Sales Agreement at an average price of $105.65 per share for aggregate gross proceeds of $211.2 million, before deducting commissions and offering expenses payable by us, resulting in an aggregate of $511.2 million in gross proceeds received under the Sales Agreement as of December 31, 2021.

In June 2021, we entered into the Apellis Agreement, which is focused on the use of certain of our base editing technology to discover new treatments for complement system-driven diseases. Pursuant to the Apellis Agreement, we received an upfront payment of $50.0 million in July 2021. We are also eligible to receive an additional payment of $25.0 million on June 30, 2022, the one-year anniversary of the effective date of the Apellis Agreement.

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In October 2021, we entered into the Sana Agreement, pursuant to which we granted Sana non-exclusive research and development commercial rights to our CRISPR Cas12b technology to perform nuclease editing for certain ex vivo engineered cell therapy programs. Pursuant to the Sana Agreement, we received an upfront payment of $50.0 million in October 2021.

In December 2021, we entered into the Pfizer Agreement, which is focused on in vivo base editing programs for three targets for rare genetic diseases of the liver, muscle and central nervous system. Under the terms of the Pfizer Agreement, we will conduct all research activities through development candidate selection for three undisclosed targets, which are not included in our existing programs. Pursuant to the Pfizer Agreement, we received an upfront payment of $300.0 million in January 2022. As we did not receive the $300.0 million upfront fee before December 31, 2021, we recorded a collaboration receivable for $300.0 million with a corresponding deferred revenue liability in our consolidated financial statements for the year ended December 31, 2021

As of December 31, 2021, we had $965.6 million in cash, cash equivalents, and marketable securities.

We are required to make success payments to Harvard and Broad Institute based on increases in the per share fair market value of our Series A-1 Preferred Stock and Series A-2 Preferred Stock or, subsequent to our IPO, our common stock. The amounts due may be settled in cash or shares of our common stock, at our discretion. In May 2021, the first success payment measurements occurred and success payments to Harvard and Broad Institute were calculated to be $15.0 million and $15.0 million, respectively. We elected to make each payment in shares of our common stock and issued 174,825 shares to each of Harvard and Broad Institute to settle these liabilities in June 2021. We may additionally owe Harvard and Broad Institute success payments of up to an additional $90.0 million each.

We have not yet commercialized any of our product candidates, and we do not expect to generate revenue from the sale of our product candidates for the foreseeable future. We anticipate that we may need to raise additional capital in order to continue to fund our research and development, including our planned preclinical studies and clinical trials, building, maintaining and operating a commercial-scale cGMP manufacturing facility, and new product development, as well as to fund our general operations. As necessary, we will seek to raise additional capital through various potential sources, such as equity and debt financings or through corporate collaboration and license agreements. We can give no assurances that we will be able to secure such additional sources of capital to support our operations, or, if such funds are available to us, that such additional financing will be sufficient to meet our needs.

Cash flows

The following table summarizes our sources and uses of cash (in thousands):

Operating activities

Net cash used in operating activities for the year ended December 31, 2021 was $66.3 million, consisting primarily of our net loss of $370.6 million and an increase in collaboration receivable of $300.0 million, primarily related to the Pfizer Agreement, as well as noncash items including an increase in the fair value of a non-controlling equity investment of $17.7 million and a change in the fair value of contingent consideration liabilities of $5.1 million. These uses of cash were offset in part by cash provided by increases in deferred revenue of $348.2 million, primarily related to the Pfizer and Apellis Agreements, other accrued expenses and other liabilities of $43.9 million, operating lease liabilities of $16.0 million and accounts payable and other long-term liabilities of $2.6 million as well as noncash items consisting primarily of in-process research and development of $155.0 million, stock-based compensation expense of $43.6 million, change in operating lease ROU assets of $9.0 million, depreciation and amortization expense of $7.5 million and change in fair value of derivative liabilities of $1.0 million.

Net cash used in operating activities for the year ended December 31, 2020 was $95.7 million, consisting primarily of our net loss of $194.6 million and an increase in prepaid expenses and other current assets of $5.7 million, offset by cash provided by increases in accrued expenses of $7.0 million, operating lease liabilities of $3.2 million and long-term liabilities of $1.0 million. Net cash used in operating activities was also offset by non-cash charges consisting primarily of a change in the fair value of derivative liabilities of $63.4 million, stock-based compensation expense of $15.4 million, non-cash license expenses of $5.7 million, depreciation of $4.7 million, and non-cash lease expense of $4.7 million, offset by a $0.5 million non-cash change in the fair value of equity investments.

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Net cash used in operating activities for the year ended December 31, 2019 was $72.0 million, consisting primarily of our net loss of $78.3 million, a decrease in financing milestone liabilities of $13.8 million resulting from payment of these liabilities, a decrease in operating lease liabilities of $2.5 million, and an increase in prepaids and other assets of $1.9 million offset by cash provided by increases in accounts payable and accrued expenses of $7.7 million and non-cash charges consisting primarily of stock based compensation expense of $7.0 million, change in fair value of derivative liabilities of $5.4 million, depreciation of $3.5 million, and non-cash lease expense of $1.9 million, offset by amortization of investment premiums of $0.9 million.

Investing activities

For the year ended December 31, 2021, cash used in investing activities was primarily the net result of purchases of marketable securities partially offset by maturities of marketable securities of $248.0 million, in addition to purchases of property and equipment of $46.8 million. We also received $0.6 million in net cash from our acquisition of Guide, after the payment of acquisition costs.

For the year ended December 31, 2020, cash used in investing activities was primarily the net result of purchases of marketable securities partially offset by maturities of marketable securities of $83.0 million, in addition to purchases of property and equipment of $16.4 million.

For the year ended December 31, 2019, cash used in investing activities was primarily the net result of purchases of marketable securities partially offset by maturities of marketable securities of $53.7 million, in addition to purchases of property and equipment of $12.5 million.

Financing activities

Net cash provided by financing activities for the year ended December 31, 2021 consisted primarily of proceeds from equity offerings of $757.4 million and proceeds from the exercise of stock options of $9.6 million, offset in part by the payment of equity offering costs of $8.8 million and repayments of equipment financing liabilities of $2.1 million.

Net cash provided by financing activities for the year ended December 31, 2020 consisted primarily of proceeds from our IPO and follow-on public offering of $319.5 million, net of underwriting discounts, net proceeds of $3.3 million from equipment financing, and proceeds from the exercise of stock options of $3.2 million, offset in part by the payment of equity offering costs of $2.1 million and repayments of equipment financing liabilities of $1.6 million.

Net cash provided by financing activities for the year ended December 31, 2019 consisted primarily of the net proceeds from the issuance of Series B Preferred Stock of $37.9 million, and net proceeds of $5.7 million from equipment financing, offset by the payment of equity issuance costs of $2.5 million.

Funding requirements

Our operating expenses are expected to increase substantially as we continue to advance our portfolio of programs.

Specifically, our expenses will increase if and as we:

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initiate clinical trials of our product candidates, including our BEACON-101 trial;

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continue our research programs and our preclinical development of product candidates from our research programs;

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seek to identify additional research programs and additional product candidates;

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initiate preclinical studies and clinical trials for additional product candidates we identify and develop;

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maintain, expand, enforce, defend, and protect our intellectual property portfolio and provide reimbursement of third-party expenses related to our patent portfolio;

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seek marketing approvals for any of our product candidates that successfully complete clinical trials;

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establish a sales, marketing, and distribution infrastructure to commercialize any medicines for which we may obtain marketing approval;

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further develop our base editing platform;

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further develop delivery technology for our base editors, including the LNP technology we acquired through our acquisition of Guide;

•
continue to hire additional personnel including research and development, clinical and commercial personnel;

•
add operational, financial, and management information systems and personnel, including personnel to support our product development;

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acquire or in-license products, intellectual property, medicines and technologies; and

•
build, maintain, and operate a commercial-scale cGMP manufacturing facility.

We expect that our cash, cash equivalents at December 31, 2021 will enable us to fund our current and planned operating expenses and capital expenditures for at least the twelve calendar months beginning January 1, 2022 and beyond such twelve-month period. We have based these estimates on assumptions that may prove to be imprecise, and we may exhaust our available capital resources sooner that we currently expect. Because of the numerous risks and uncertainties associated with the development our programs, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates.

Our future funding requirements will depend on many factors including:

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the cost of continuing to build our base editing platform;

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the costs of acquiring licenses for the delivery modalities that will be used with our product candidates;

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the scope, progress, results, and costs of discovery, preclinical development, laboratory testing, manufacturing and clinical trials for the product candidates we may develop;

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the costs of preparing, filing, and prosecuting patent applications, maintaining and enforcing our intellectual property and proprietary rights, and defending intellectual property-related claims;

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the costs, timing, and outcome of regulatory review of the product candidates we develop;

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the costs of future activities, including product sales, medical affairs, marketing, manufacturing, distribution, coverage and reimbursement for any product candidates for which we receive regulatory approval;

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the success of our license agreements and our collaborations;

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our ability to establish and maintain additional collaborations on favorable terms, if at all;

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the achievement of milestones or occurrence of other developments that trigger payments under any collaboration agreements we are a party to or may become a party to;

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the payment of success liabilities to Harvard and Broad Institute pursuant to the respective terms of the Harvard License Agreement and the Broad Institute License Agreement, should we choose to pay in cash;

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the extent to which we acquire or in-license products, intellectual property, and technologies;

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the costs of obtaining, building, operating and expanding our manufacturing capacity; and

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the impacts of the COVID-19 pandemic and our response to it.

A change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Further, our operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such operating plans.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, and licensing arrangements. We do not have any committed external source of capital. We have historically relied on equity issuances to fund our capital needs and will likely rely on equity issuances in the future. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends.

If we raise capital through additional collaborations, strategic alliances, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, or product candidates, or we may have to grant licenses on terms that may not be favorable to us. If we are unable to raise additional capital through equity or debt financings when needed, we may be required to delay, limit, reduce, or terminate our product development or, if approved, future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. We can give no assurance that we will be able to secure such additional sources of funds to support our operations, or, if such funds are available to us, that such additional funding will be sufficient to meet our needs.

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Contractual obligations

We lease certain assets under noncancelable operating and finance leases, which expire through 2034. The leases relate primarily to office space and laboratory space in addition to equipment. Aggregate future minimum commitments under these office and laboratory leases and equipment leases are $204.6 million and $5.2 million, respectively, as of December 31, 2021, excluding any related common area maintenance charges or real estate taxes.

In August 2021, we executed a lease amendment to our April 2019 lease for office and laboratory space in Cambridge, Massachusetts to occupy additional space. The term of this lease will run concurrent with the term of the April 2019 lease. The initial estimate of the minimum amount of undiscounted lease payments due under this lease is $11.1 million which is not included in the aggregate future minimum lease commitments amounts discussed above.

In addition, the aggregate future minimum lease commitments amounts discussed above do not include our lease agreement with Alexandria Real Estate Equities, Inc. to build a 100,000 square foot manufacturing facility in Research Triangle Park, North Carolina. The initial estimate of minimum amount of undiscounted lease payments due under this lease is $69.0 million, which is expected to be paid over a lease term of 15 years.

In May 2021, the first success payment measurements under the Harvard License Agreement and Broad License Agreement occurred and success payments to Harvard and Broad Institute were calculated to be $15.0 million and $15.0 million, respectively. We elected to make each payment in shares of our common stock and issued 174,825 shares of our common stock to each of Harvard and Broad Institute to settle these liabilities in June 2021. The remaining success payment obligations are still outstanding as of December 31, 2021. We may additionally owe Harvard and Broad Institute success payments of up to an additional $90.0 million each.

The aggregate future minimum commitments amounts discussed above also do not include potential milestone and success fees, non-royalty sublicense income fees, royalty fees, licensing maintenance fees, and reimbursement of patent maintenance costs that we may be required to pay under agreements we have entered into with certain institutions to license intellectual property. Our agreements to license intellectual property include potential milestone payments that are dependent upon the development of products using the intellectual property licensed under the agreements and contingent upon the achievement of development or regulatory approval milestones, as well as commercial and success payment milestones. We have not included such amounts in the aggregate future minimum commitments amounts discussed above because they are contingent upon the occurrence of future events and the timing and likelihood of such potential obligations are not known with certainty.

In addition, we agreed to pay Guide’s former stockholders and optionholders up to an additional $100.0 million in technology milestone payments and $220.0 million in product milestone payments, payable in our common stock valued using the volume-weighted average price of our common stock over the ten-day trading period ending two trading days prior to the date on which the applicable milestone is received. The amounts discussed above do not include such payments because they are contingent upon the occurrence of future events and the timing and likelihood of such potential obligations are not known with certainty.

Additionally, we enter into contracts in the normal course of business with CROs, CMOs and other vendors to assist in the performance of our research and development activities and other services and products for operating purposes. These contracts generally provide for termination on notice, and therefore are cancelable contracts and not included in the aggregate future minimum commitments amounts discussed above.

Critical accounting policies and significant judgements and estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which we have prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in Note 2, Summary of significant accounting policies, to our consolidated financial statements in this Annual Report on Form 10-K, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.

Revenue recognition

We recognize revenue in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606) and its related amendments, or, collectively, ASC 606.

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At inception, we determine whether contracts are within the scope of ASC 606 or other topics. For contracts that are determined to be within the scope of ASC 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which we expect to be entitled to receive in exchange for these goods and services. To achieve this core principle, we apply the following five steps (i) identify the contract with the customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when the performance obligation is satisfied. We only apply the five-step model to contracts when we determine that collection of substantially all consideration for goods and services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration.

Performance obligations promised in a contract are identified based on the goods and services that will be transferred to the customer that are both capable of being distinct and are distinct in the context of the contract. To the extent a contract includes multiple promised goods and services, we apply judgment to determine whether promised goods and services are both capable of being distinct and are distinct in the context of the contract. If these criteria are not met, the promised goods and services are accounted for as a combined performance obligation.

The transaction price is determined based on the consideration to which we will be entitled in exchange for transferring goods and services to the customer. To the extent the transaction price includes variable consideration, we estimate the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method, depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in management’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Any estimates, including the effect of the constraint on variable consideration, are evaluated at each reporting period for any changes. Determining the transaction price requires significant judgment and is discussed in further detail for each of our license and collaboration agreements in Note 10, Collaboration and license agreements, to our consolidated financial statements in this Annual Report on Form 10-K, or Note 10.

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation on a relative standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct service that forms part of a single performance obligation. The consideration to be received is allocated among the separate performance obligations based on relative standalone selling prices. Determining the standalone selling price requires significant judgment and is discussed in further detail for each of our license and collaboration agreements in Note 10.

We satisfy performance obligations either over time or at a point in time. Revenue is recognized over time if either (i) the customer simultaneously receives and consumes the benefits provided by the entity’s performance, (ii) the entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced, or (iii) the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date. If the entity does not satisfy a performance obligation over time, the related performance obligation is satisfied at a point in time by transferring the control of a promised good or service to a customer.

The timing of when services are performed and the occurrence of external costs associated with the programs under the collaboration agreements could impact how revenue is recognized in a certain period.

Licenses of intellectual property, or IP: If the license to our IP is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenues from consideration allocated to the license when the license is transferred to the customer and the customer can use and benefit from the licenses. For licenses that are combined with other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition. Determining the revenue recognition of IP licenses requires significant judgment and is discussed in further detail for each of our license and collaboration agreements in Note 10.

Milestone payments: At the inception of each arrangement that includes development or regulatory milestone payments, we evaluate the probability of reaching the milestones and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur in the future, the associated milestone value is included in the transaction price. Milestone payments that are not within our control or the licensee’s, such as regulatory approvals, are not considered probable of being achieved until those approvals are received and therefore revenue recognized is constrained as management is unable to assert that a reversal of revenue would not be possible. The transaction price is then allocated to each performance obligation on a relative standalone selling price basis, for which we recognize revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, we re-evaluate the probability of achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment. To date, we have not recognized any milestone revenue resulting from any of our agreements.

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Commercial Milestone Payments and Royalties: For arrangements that include sales-based royalties, including milestone payments based on levels of sales, if the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, we have not recognized any royalty revenue resulting from any of our agreements.

When no performance obligations are required of us, or following the completion of the performance obligation period, such amounts are recognized as revenue upon transfer of control of the goods or services to the customer. Generally, all amounts received or due other than sales-based milestones and royalties are classified as license and collaboration revenue. Sales-based milestones and royalties will be recognized as royalty revenue at the later of when the related sales occur or when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

Deferred revenue expected to be recognized within the next twelve months is classified as a current liability.

Asset Acquisitions

In 2018, we adopted ASU 2017-01, Business Combinations, or ASU 2017-01, which clarified the definition of a business. We measure and recognize asset acquisitions that are not deemed to be business combinations based on the cost to acquire the assets, which includes transaction costs, and the consideration is allocated to the items acquired based on a relative fair value methodology. Goodwill is not recognized in asset acquisitions. In an asset acquisition, the cost allocated to acquire in-process research and development with no alternative future use is charged to research and development expense at the acquisition date.

At the time of acquisition, we determine if a transaction should be accounted for as a business combination or acquisition of assets.

Contingent Consideration Liabilities

We may be required to make milestone payments to the former stockholders and optionholders of Guide in the form of our common stock based on the achievement of certain product and technology milestones. The payments are accounted for under ASC 480, Distinguishing Liabilities from Equity. These contingent consideration liabilities are carried at fair value which was estimated by applying a probability-based model, which utilized inputs primarily based upon the achievement and related timing of certain product and technology milestones that were unobservable in the market. The estimated fair value of contingent consideration liabilities, initially measured and recorded on the acquisition date, are considered to be a Level 3 measurement and are reviewed quarterly, or whenever events or circumstances occur that indicate a change in fair value. The contingent consideration liabilities are recorded at fair value at the end of each reporting period with changes in estimated fair values recorded in other income (expense) in the consolidated statements of operations and other comprehensive loss.

The estimated fair value is determined based on probability adjusted discounted cash flow models that include significant estimates and assumptions pertaining to technology and product development. Significant changes in any of the probabilities of success would result in a significantly higher or lower fair value measurement. Significant changes in the probabilities as to the periods in which milestones will be achieved would result in a significantly lower or higher fair value measurement.

Fair value measurements – Success payments

We are required to make success payments to Harvard and Broad Institute based on increases in the per share fair market value of our Series A-1 Preferred Stock and Series A-2 Preferred Stock or, subsequent to our IPO, our common stock. Any amounts due may be settled in cash or shares of our common stock, at our discretion. The success payments are accounted for under Accounting Standards Codification 815, Derivatives and Hedging and were initially recorded at fair value with a corresponding charge to research and development expense. The liabilities are marked to market at each balance sheet date with all changes in value recognized in interest and other income (expense) in the consolidated statement of operations and other comprehensive loss. We will continue to adjust the liability for changes in fair value until the earlier of the achievement or expiration of the success payment obligation. To determine the estimated fair value of the success payments, we used a Monte Carlo simulation model, which models the value of the liability based on several key variables, including probability of event occurrence, timing of event occurrence, as well as the price per share at the time of success payment. A significant change in our stock price or volatility could have a significant impact on the value of the liability.

Accrued research and development costs

As part of the process of preparing our financial statements, we are required to estimate our accrued expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. Examples of estimated accrued research and development expenses include fees paid to vendors in connection with preclinical development activities and vendors related to development, manufacturing and distribution of product candidate materials.

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We base our expenses related to preclinical studies on our estimates of the services received and efforts expended pursuant to contracts with multiple vendors that conduct and manage preclinical studies on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period and adjust accordingly.

Stock-based compensation

We measure stock options and other stock-based awards granted to our employees, directors, consultants or founders based upon their fair value on the date of the grant and recognize stock-based compensation expense over the requisite service period, which is generally the vesting period of the respective award. We recognize forfeitures as they occur.

The majority of our stock-based compensation awards are subject to service-based vesting conditions. We apply the straight-line method of expense recognition to all awards with service-based vesting. We also have performance-based awards, where stock-based compensation expense is recognized over the service period using the accelerated attribution method to the extent achievement of the of performance condition is probable.

We estimate the fair value of each stock option grant on the date of grant using the Black-Scholes option-pricing model, which uses inputs such as the fair value of our common stock, assumptions we make for the volatility of our common stock, the expected term of our stock options, the risk-free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield. The fair value of our common stock is used to determine the fair value of restricted stock awards.

Prior to our IPO in February 2020, there was no public market for our common stock. As a result, prior to our IPO, the estimated fair value of our common stock was determined by our board of directors as of the date of each option grant, with input from management, considering our most recently available third-party valuations of common stock and our board of directors’ assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant. Following our IPO, the fair value of our common stock is determined based on the quoted market price of our common stock.

Leases

On January 1, 2019, we adopted ASU No. 2016-02, Leases (Topic 842), or ASC 842, which requires the recognition of the right-of-use assets and related operating and finance lease liabilities on the balance sheet.

For contracts entered into on or after the effective date, at the inception of a contract, we assess whether the contract is, or contains, a lease. The assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether we have the right to direct the use of the asset. At inception of a lease, we allocate the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments.

Leases are classified as either finance leases or operating leases. A lease is classified as a finance lease if any one of the following criteria are met: the lease transfers ownership of the asset by the end of the lease term, the lease contains an option to purchase the asset that is reasonably certain to be exercised, the lease term is for a major part of the remaining useful life of the asset or the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. A lease is classified as an operating lease if it does not meet any of these criteria.

For all leases at the lease commencement date, a right-of-use asset and a lease liability are recognized. The right-of-use asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease.

The right-of-use asset is initially measured at cost, which primarily comprises the initial amount of the lease liability, plus any initial direct costs incurred if any, less any lease incentives received. All right-of-use assets are reviewed for impairment. The lease liability is initially measured at the present value of the lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, our secured incremental borrowing rate for the same term as the underlying lease. For real estate leases and other operating leases, we use our secured incremental borrowing rate. For finance leases, we use the rate implicit in the lease or our secured incremental borrowing rate if the implicit lease rate cannot be determined.

Lease payments included in the measurement of the lease liability comprise the following: the fixed noncancelable lease payments, payments for optional renewal periods where it is reasonably certain the renewal period will be exercised, and payments for early termination options unless it is reasonably certain the lease will not be terminated early.

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Lease cost for operating leases consists of the lease payments plus any initial direct costs, primarily brokerage commissions, and is recognized on a straight-line basis over the lease term. Included in lease cost are any variable lease payments incurred in the period that are not included in the initial lease liability and lease payments incurred in the period for any leases with an initial term of 12 months or less. Lease cost for finance leases consists of the amortization of the right-of-use asset on a straight-line basis over the lease term and interest expense determined on an amortized cost basis. The lease payments are allocated between a reduction of the lease liability and interest expense.

Leasehold improvements are not unique and are retained by the lessor at the end of the lease. However, in the case of a space designed to be suitable for our specific real estate needs and if we are responsible for cost overruns, we are the accounting owner of the leasehold improvements.

We made an accounting policy election to not recognize leases with an initial term of 12 months or less within our consolidated balance sheets and to recognize those lease payments on a straight-line basis in our consolidated statements of income over the lease term.