In July 2022, the Company entered into the Strategic Collaboration and License Agreement (the “Vertex Agreement”) with Vertex Pharmaceuticals Incorporated (“Vertex”) for an exclusive, four-year worldwide research collaboration focused on developing in vivo gene editing candidates toward an undisclosed target for the treatment of a single liver disease. Additionally, the Company entered into a stock purchase agreement (the “Stock Purchase Agreement”) with Vertex, pursuant to which the Company sold 1,519,756 shares of its common stock to Vertex at a price of $23.03 per share, for an aggregate purchase price of $35.0 million.

Pursuant to the Vertex Agreement, the Company is responsible for discovery, research and certain preclinical development of novel in vivo gene editing development candidates for the target of interest. The Company’s research activities are focused on (i) identifying and engineering specific gene editing systems and in vivo delivery systems directed to the target and (ii) evaluating and optimizing development candidates to achieve criteria specified in the Vertex Agreement. Vertex is obligated to reimburse the Company’s research expenses consistent with a mutually agreed-upon research plan and budget (“Research Plan”). The research term has an initial term of four years and may be extended by Vertex for up to one additional year (“Research Term”). The Research Plan is overseen by a Joint Research Committee (“JRC”) as detailed in the Vertex Agreement. Any material amendments to the Research Plan are required to be mutually agreed to by the JRC.

During the Research Term, Vertex may select certain gene editing systems and in vivo delivery systems directed at the target to become a licensed agent. Upon the designation of the licensed agent, Vertex shall receive a license to exploit the licensed agent, and the licensed agent will continue to be developed under the Research Plan in order to achieve certain development candidate criteria agreed to by the JRC. Following the Research Term, Vertex will be solely responsible for subsequent development, manufacturing and commercialization of any product candidate resulting from the licensed agent.

The Company received an upfront payment from Vertex of $25 million and is eligible to receive (i) success payments of up to $22 million for each product candidate (up to a maximum of $66 million) that achieves the applicable development criteria, (ii) up to an aggregate of $175 million in development milestones and (iii) up to an aggregate of $165 million in commercial milestone payments. The Company is also eligible to receive tiered single-digit royalties on net sales, with the rate dependent upon the type of product and subject to specified reductions. Such royalty payments will terminate on a country-by-country and product-by-product basis upon the later to occur of (i) the expiration of the last to expire valid claim under the patent rights covering such product in such country, (ii) the period of regulatory exclusivity associated with such product in such country or (iii) ten years after the first commercial sale of such product in such country.

Prior to the first patient dosing of the first Phase 1b clinical trial for the first product candidate developed under the Vertex Agreement, the Company also has the right to opt-in to a profit share arrangement pursuant to which Vertex and the Company would share the costs and net profits for all product candidates emerging from the collaboration. If the Company exercises its opt-in right, in lieu of milestones and royalties, it will be obligated to pay for a specified percentage of the development and commercialization costs, and it will have the right to receive a specified percentage of the profits from any sales of any product candidates advanced under the collaboration. At the time the Company exercises the option, it may elect a profit/cost share of up to 40% (with Vertex retaining a minimum of 60%). In order to exercise its opt-in right, the Company is required to pay a fee ranging from $25 million to $70 million, depending on the profit/cost percentage elected by the Company and the Company’s licensed technology included in the most advanced product candidate at the time it exercises its opt-in right. Under all profit share scenarios, Vertex will control the worldwide development and commercialization of any product candidates resulting from the collaboration.

The Vertex Agreement includes customary representations and warranties, covenants and indemnification obligations for a transaction of this nature. The Company and Vertex each have the right to terminate the agreement for material breach by, or insolvency of, the other party following notice, and if applicable, a cure period. Vertex may also terminate the Vertex Agreement in its entirety for convenience upon 90 days’ notice.

The Company assessed the promised goods and services under the Vertex Agreement, in accordance with ASC 606. At inception, the Vertex Agreement included the following performance obligations: (i) the research services obligation which relates to the research and development services to be provided under the Research Plan (the

“Research Services”) and (ii) three licensed agent material rights related to the options to obtain licenses to exploit a licensed agent, at a discount.

The Company identified $20.0 million of fixed transaction price consisting of the $25.0 million upfront fee offset by a discount of $5.0 million related to the 1,519,756 shares sold to Vertex under the Stock Purchase Agreement when measured at fair value on the date of issuance. The Company is also entitled to reimbursement of costs incurred associated with the delivery of services under the Research Plan. The Company utilized the most likely amount approach and estimated the expected cost reimbursement to be $5.8 million at inception. The Company concluded that these amounts do not require a constraint and are included in the transaction price at inception. The Company considers this estimate at each reporting date and updates the estimate based on information available. As of December 31, 2022, the estimate of the expected reimbursement is $5.8 million based on expectations as of such date. Additional consideration to be paid to the Company upon reaching certain milestones are excluded from the transaction price as that consideration may only be earned subsequent to an option exercise.

The Company has concluded that the variable consideration related to the cost reimbursement of the Research Services obligation will be allocated entirely to that obligation as the cost reimbursement relates specifically to the services being performed under the Research Plan. The reimbursement of Research Services is considered to be at a market rate and therefore depicts the estimated amount it would expect to receive for this obligation. As a result, the Company allocated the fixed consideration of $20.0 million to the three licensed agent material rights based on their relative standalone selling prices. The estimated standalone selling price for each material right was based on an adjusted market assessment approach. The Company concluded that the market would be willing to pay an equal amount for each licensed agent license on a standalone basis before being adjusted for the probability of the option becoming exercisable upon the successful completion of research activities to identify the licensed agents. The Company reached this conclusion after considering (i) the downstream economics including success fees, milestones and royalties related to each licensed agent being identical and (ii) that all licensed agents are targeting the same gene. As such, based on the relative standalone selling price for each of the three material rights, the allocation of the transaction price to the separate performance obligations is as follows:


Performance obligation	Amount
	(in thousands)
Research services obligation	$	5,845
First licensed agent material right		6,667
Second licensed agent material right		6,667
Third licensed agent material right		6,666
Total	$	25,845

The amount allocated to the Research Services obligation will be recognized on a proportional performance basis over the period of service using input-based measurements of total cost of research incurred to estimate the proportion performed and remeasured at the end of each reporting period. The amount allocated to the licensed agent material rights was recorded as deferred revenue and will commence recognition upon exercise of each option or, if an option is never exercised, it will be recognized in full upon expiry of the Research Term.

During the year ended December 31, 2022, the Company recognized $1.9 million of revenue associated with the Vertex Agreement related to research services performed during the period. As of December 31, 2022, the Company has recorded $20.0 million as non-current deferred revenue.

Costs incurred relating to the Company’s collaboration programs under the Vertex Agreement consist of internal and external research costs, which primarily include: salaries and benefits, and preclinical research studies. These costs are included in research and development expenses in the Company’s consolidated statements of operations during the year ended December 31, 2022.