CRISPR Therapeutics AG

1. Organization and Operations

CRISPR Therapeutics AG (“CRISPR” or the “Company”) was incorporated on October 31, 2013 in Basel, Switzerland. The Company was established to translate CRISPR/Cas9, a genome editing technology, into transformative gene-based medicines for the treatment of serious human diseases. The foundational intellectual property underlying the Company’s operations was licensed to the Company in April 2014. The Company devotes substantially all of its efforts to product research and development activities, initial market development and raising capital. The Company’s principal offices are in Zug, Switzerland, with the U.S. headquarters for research and development in Boston, Massachusetts, additional research and development based in San Francisco, CA, and a cell therapy manufacturing facility in Framingham, Massachusetts.

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

The Company had an accumulated deficit of $999.7 million as of December 31, 2023 and has financed its operations to date from a series of preferred shares and convertible loan issuances, proceeds obtained from its initial public offering, subsequent public offerings of its common shares, at-the-market offerings, as well as upfront fees and milestones received under its collaboration and joint venture arrangements. The Company will require additional capital to fund its research and development and ongoing operating expenses.

As of December 31, 2023, the Company had cash, cash equivalents and marketable securities of $1,695.7 million. While the Company was in a net income position in certain previous years due to upfront payments associated with the Company's collaborations with Vertex Pharmaceuticals Incorporated and certain of its subsidiaries, or Vertex, the Company has a history of recurring losses and expects to continue to incur losses for the foreseeable future. The Company expects its cash and cash equivalents and marketable securities will be sufficient to fund current planned operations for at least the next twenty-four months.

2. Summary of Significant Accounting Policies and Basis of Presentation

Basis of Presentation and Use of Estimates

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, or GAAP, and include the accounts of the Company and its wholly-owned subsidiaries as of December 31, 2023. All intercompany accounts and transactions have been eliminated. Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification, or ASC, and Accounting Standards Updates, or ASUs, of the Financial Accounting Standards Board.

Beginning in 2022, collaboration costs under the Vertex Agreements (as defined in Note 8) accounted for under ASC 808, Collaborative Agreements, or ASC 808, are presented within “collaboration expense, net” in the consolidated statements of operations and comprehensive (loss) income. As a result, collaboration costs under the Vertex Agreements accounted for under ASC 808 for year ended December 31, 2021 have been reclassified to conform to the current presentation. No subtotals in the prior period’s consolidated financial statements were impacted. Refer to Note 8 to these consolidated financial statements for further discussion on the Vertex Agreements.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, the Company’s management evaluates its estimates, which include, but are not limited to, revenue recognition, equity-based compensation expense and reported amounts of research and development expenses during the period. Significant estimates in these consolidated financial statements have been made in connection with revenue recognition and equity-based compensation expense. The Company bases its estimates on historical experience and other market-specific or other relevant assumptions that it believes to be reasonable under the circumstances. Actual results may differ from those estimates or assumptions.

Segment Information

The Company and the Company’s chief operating decision maker, namely, the chief executive officer, view the Company’s operations and manage its business asone operating segment, which is the business of discovering, developing and commercializing therapies derived from or incorporating genome-editing technology.

Foreign Currency Translation and Transactions

The majority of the Company’s operations occur in entities that have the U.S. dollar as their functional currency. Non-U.S. dollar denominated functional currency subsidiaries have assets and liabilities translated into U.S. dollars at rates of exchange in effect at the end of the year. Revenue and expense amounts are translated using the average exchange rates for the period. Net unrealized gains and losses resulting from foreign currency translation are included in “Accumulated other comprehensive (loss) income.” Net foreign currency exchange transaction gains or losses are included in “Other income, net” on the Company’s consolidated statement of operations, the impact of which is not significant.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of three months or less from the purchase date to be cash equivalents. As of December 31, 2023 and 2022, the Company had $389.5 million and $211.9 million in cash and cash equivalents, respectively.

Restricted Cash

As of December 31, 2023 and 2022, the Company had $11.6 million and $12.2 million, respectively, in restricted cash representing letters of credit securing the Company’s obligations under certain leased facilities, as well as certain credit card arrangements. The letters of credit are secured by cash held in a restricted depository account, with $0.0 million and $0.5 million, respectively, included in prepaid expenses and other current assets in the accompanying consolidated balance sheets as of December 31, 2023 and 2022, and $11.6 million and $11.6 million, respectively, included in restricted cash in the accompanying consolidated balance sheets as of December 31, 2023 and 2022.

Marketable Securities

As of December 31, 2023 and 2022, the Company had $1,306.2 million and $1,656.6 million, respectively, in marketable securities. The Company’s investment strategy is focused on capital preservation. The Company invests in instruments that meet the credit quality standards outlined in the Company’s investment policy. The Company classifies marketable securities with a remaining maturity, when purchased, of greater than three months as available-for-sale. Marketable securities are classified as current assets on the consolidated balance sheets if the marketable securities are available to be converted into cash to fund current operations. Marketable securities in an unrealized loss position for greater than one year with a remaining maturity date greater thanone year are classified as non-current assets.

Marketable securities classified as Level 2 within the valuation hierarchy generally consist of U.S. Treasury securities and government agency securities, corporate bonds, and commercial paper. Debt securities are carried at fair value with the unrealized gains and losses included in other comprehensive (loss) income as a component of stockholders’ equity until realized. Any premium arising at purchase is amortized to interest expense over the period of the earliest call date, and any discount arising at purchase is accreted to interest income over the life of the instrument. Realized gains and losses on debt securities are determined using the specific identification method and are included in other income, net.

The Company assesses its available-for-sale debt securities under the available-for-sale debt security impairment model in ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Statements, or ASC 326, as of each reporting date in order to determine if a portion of any decline in fair value below carrying value recognized on its available-for-sale debt securities is the result of a credit loss. The Company records credit losses in the consolidated statements of operations and comprehensive loss as credit loss expense within other expense, net, which is limited to the difference between the fair value and the amortized cost of the security. To date, the Company has not recorded any credit losses on its available-for-sale debt securities.

Concentrations of Credit Risk and Off-balance Sheet Risk

Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash, cash equivalents and marketable securities. The Company’s cash is held in accounts with financial institutions that management believes are creditworthy. The Company has not experienced any credit losses in such accounts and does not believe it is exposed to any significant credit risk on these funds. The Company has no financial instruments with off-balance sheet risk of loss.

Fair Value of Financial Instruments

The Company has certain financial assets and liabilities recorded at fair value which have been classified as Level 1, 2 or 3 within the fair value hierarchy as described in the accounting standards for fair value measurements:

Level 1 — Quoted prices in active markets that are accessible at the market date for identical unrestricted assets or liabilities.

Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs for which all significant inputs are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Items measured at fair value on a recurring basis include marketable securities (see Note 3, Marketable Securities, and Note 4, Fair Value Measurement). The carrying amount of accounts receivable, other receivables, accounts payable and accrued expenses as reported on the consolidated balance sheets as of December 31, 2023 and 2022, approximate fair value, due to the short-term duration of these instruments.

Property and Equipment

Property and equipment are recorded at cost, less accumulated depreciation. Maintenance and repairs that do not improve or extend the lives of the respective assets are expensed to operations as incurred. Upon disposal, the related cost and accumulated depreciation is removed from the accounts and any resulting gain or loss is included in the results of operations. Depreciation is recorded using the straight-line method over the estimated useful lives of the respective assets, which are as follows:

Impairment of Long-lived Assets

The Company reviews long-lived assets when events or changes in circumstances indicate the carrying value of the assets may not be recoverable. Recoverability is measured by comparison of the book values of the assets to future net undiscounted cash flows that the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the book value of the assets exceed their fair value, which is measured based on the projected discounted future net cash flows arising from the assets.

Revenue Recognition

The Company records revenue in accordance with ASC 606, Revenue from Contracts with Customers, or ASC 606. ASC 606 applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases and collaboration arrangements. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs the following five steps:

1. Identify the contract with the customer

A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the related payment terms, (ii) the contract has commercial substance and (iii) the Company determines 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.

2. Identify the performance obligations in the contract

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, whereby the customer can benefit from the good or service either on its own or together with other available resources, and are distinct in the context of the contract, whereby the transfer of the good or service is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised goods and services, the Company must apply judgment to determine whether promised goods and services are capable of being distinct and 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.

3. Determine the transaction price

The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods and services to the customer. To the extent the transaction price includes variable consideration such as research, development, regulatory and commercial milestones, the Company determines if it is probable that it will receive such amounts and there is no risk of a significant revenue reversal. When the Company cannot conclude that receipt of such amounts is probable, the Company constrains the related variable consideration resulting in its exclusion from transaction consideration. In determining the portion of the transaction consideration to be constrained, the Company considers the probability and uncertainty that the related research, developmental, regulatory and commercial milestones will be achieved given the nature of research and clinical development and the stage of the underlying programs. This assessment is performed at each reporting period. In making this evaluation, the Company considers both internal and external information available, including information from industry publications and other relevant factors. Changes to the constraint of variable consideration can have a material effect on the amount of revenue recognized in the period.

4. Allocate the transaction consideration to performance obligations in the contract

If the contract contains a single performance obligation, the entire transaction consideration is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction consideration to each performance obligation on a relative standalone selling price basis unless the transaction consideration 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. In determining these estimated standalone selling prices, the Company makes a number of significant judgments including, for licenses, management’s assumptions regarding probability weighted projected discounted cash flows for each of the collaboration development programs. The estimated standalone selling prices are sensitive to changes in assumptions, such as probabilities of scientific success, discount rate and certain assumptions that form the basis of forecasted cash flows. In developing these assumptions, management considers both internal and external information available, including information from other guideline companies within the same industry and other relevant factors. Changes to these assumptions can have a material effect on the allocation of the transaction consideration to performance obligations, as well as the amount and timing of revenue recognized.

5. Recognize revenue when or as the Company satisfies a performance obligation

The Company satisfies performance obligations over time or at a point in time, depending on the nature of the performance obligation. Revenue is recognized over time if the customer simultaneously receives and consumes the benefits provided by the entity’s performance, the entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced, or 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.

Accounts Receivable

The Company's accounts receivable consist primarily of milestones due under its licensing agreements accounted for under ASC 606. Accounts receivable consisted of $200.0 million as of December 31, 2023 and is due from Vertex as a result achievement of a $200.0 million milestone upon regulatory approval of CASGEVY (formerly exagamglogene autotemcel, or exa-cel, or CTX001), as described further in Note 8. Accounts receivable was $0.0 million as of December 31, 2022. Vertex is a creditworthy entity that maintains an ongoing relationship with the Company and as such, the Company does not have an allowance for estimated credit losses recorded related to these other receivables.

Contract Balances

The Company recognizes a contract asset when the Company transfers goods or services to a customer before the customer pays consideration or before payment is due, excluding any amounts presented as an accounts receivable. A contract asset is an entity’s right to consideration in exchange for goods or services that the entity has transferred to a customer. Contract liabilities, or deferred revenue, primarily relate to contracts where we have received payment, but we have not yet satisfied the related performance obligations. Contract assets are not significant as of December 31, 2023 and 2022. Contract liabilities recorded as deferred revenue as of December 31, 2023 are $12.3 million, which was unchanged from December 31, 2022. The contract liability recorded as deferred revenue is related to the Vertex Agreements described in Note 8.

Collaboration Arrangements

The Company records the elements of its collaboration agreements that represent joint operating activities in accordance with ASC 808. Accordingly, the elements of the collaboration agreements that represent activities in which both parties are active participants and to which both parties are exposed to the significant risks and rewards that are dependent on the commercial success of the activities, are recorded as collaborative arrangements.

The Company evaluates the proper presentation of the commercial activities and the profit and loss sharing associated with the collaboration agreements. ASC 808 states that when payments between parties in a collaborative arrangement are not within the scope of other authoritative accounting literature, the income statement classification should be based on the nature of the arrangement, the nature of its business operations and the contractual terms of the arrangement. To the extent that these payments are not within the scope of other authoritative accounting literature, the income statement classification for the payments shall be based on an analogy to authoritative accounting literature or if there is no appropriate analogy, a reasonable, rational and consistently applied accounting policy election.

Collaboration costs under the Vertex Agreements accounted for under ASC 808 are presented within “collaboration expense, net” in the consolidated statements of operations and comprehensive (loss) income. Refer to Note 8 to these consolidated financial statements for further discussion on the Vertex Agreements.

Other Receivables

Amounts due from collaboration partners where an arrangement is accounted for under ASC 808 are considered other receivables and are included within prepaid and other current assets in the consolidated balance sheets. Other receivables consisted of $6.5 million and $11.2 million as of December 31, 2023 and 2022, respectively and are due from Vertex. Other receivables are recorded at invoiced amounts due under the Vertex collaboration agreement, as described further in Note 8.

Vertex is a creditworthy entity that maintains an ongoing relationship with the Company and as such, the Company does not have an allowance for estimated credit losses recorded related to these other receivables.

Research and Development Expenses

Research and development costs are charged to expense as costs are incurred in performing research and development activities, including salaries and benefits, facilities costs, overhead costs, clinical study and related clinical manufacturing costs, license and milestone fees, contract services and other related costs. Research and development costs, including up-front fees and milestones paid to collaborators, are also expensed as incurred. In circumstances where amounts have been paid in excess of costs incurred, the Company records a prepaid expense. The Company accrues costs for clinical trial activities based upon estimates of the services received and related expenses incurred that have yet to be invoiced by the contract research organizations, clinical study sites, laboratories, consultants or other clinical trial vendors that perform the activities. The Company recognizes the reimbursement associated with collaborative activities to its collaborative partners, excluding collaboration costs under the Vertex Agreements accounted for under ASC 808, as a reduction to research and development expense in the period the services are provided. Costs associated with collaborative activities to collaborative partners accounted for under ASC 808 and included in research and development expense was not significant for the years ended December 31, 2023, 2022 and 2021.

Leases

The Company accounts for its leases in accordance with ASC 842, Leases, or ASC 842. At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and short-term and long-term lease liabilities, as applicable. The Company does not have any material financing leases.

Operating lease liabilities and their corresponding right-of-use assets are initially recorded based on the present value of lease payments over the expected remaining lease term. Certain adjustments to the right-of-use asset may be required for items such as incentives received. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rate to discount lease payments, which reflects the fixed rate at which the Company could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment. Prospectively, the Company will adjust the right-of-use assets for straight-line rent expense or any incentives received and remeasure the lease liability at the net present value using the same incremental borrowing rate that was in effect as of the lease commencement or transition date.

The Company has elected not to recognize leases with an original term of one year or less on the balance sheet. The Company typically only includes an initial lease term in its assessment of a lease arrangement. Options to renew a lease are not included in the Company’s assessment unless there is reasonable certainty of renewal.

Assumptions made by the Company at the commencement date are re-evaluated upon occurrence of certain events, including a lease modification. A lease modification results in a separate contract when the modification grants the lessee an additional right of use not included in the original lease and when lease payments increase commensurate with the standalone price for the additional right of use. When a lease modification results in a separate contract, it is accounted for in the same manner as a new lease.

Equity Based Compensation Expense

The Company’s share-based compensation programs grant awards that have included stock options, restricted stock units and restricted stock awards. Grants are awarded to employees and non-employees, including directors.

The Company accounts for its stock-based compensation awards in accordance with ASC Topic 718, Compensation—Stock Compensation, or ASC 718. ASC 718 requires all stock-based payments to employees and non-employee directors, including grants of employee stock options and restricted stock units and modifications to existing stock options, to be recognized in the consolidated statements of operations and comprehensive (loss) income based on their fair values. The Company uses the Black-Scholes option pricing model to determine the fair value of options granted.

The Company accounts for forfeitures as they occur instead of estimating forfeitures at the time of grant and revising those estimates in subsequent periods if actual forfeitures differ from its estimates. Stock-based compensation expense recognized in the financial statements is based on awards for which performance or service conditions are expected to be satisfied.

The Company’s stock-based awards are subject to service or performance-based vesting conditions. Compensation expense related to awards to employees, directors and non-employees with service-based vesting conditions is recognized on a straight-line basis based on the grant date fair value over the associated service period of the award, which is generally the vesting term. Compensation expense related to awards to employees with performance-based vesting conditions is recognized based on the grant date fair value over the requisite service period using the accelerated attribution method to the extent achievement of the performance condition is probable.

The Company expenses restricted stock unit awards to employees based on the fair value of the award on a straight-line basis over the associated service period of the award.

The Company estimates the fair value of its option awards to employees, directors and non-employees using the Black-Scholes option pricing model, which requires the input of subjective assumptions, including (i) the expected stock price volatility, (ii) the calculation of expected term of the award, (iii) the risk-free interest rate and (iv) expected dividends. In 2023, we changed our calculation for our volatility estimate from using a blend of the Company's data as well as peer company data to using the historical volatility of the Company's publicly traded stock for awards granted during the year. In prior periods, expected volatility was calculated based on a blend of the Company’s reported volatility data for the length of time that market data is available for the Company’s stock and the historical data for a representative group of publicly traded companies, for which historical information is available. For these analyses, the Company selected companies with comparable characteristics to itself including enterprise value, risk profiles, position within the industry, and with historical share price information sufficient to meet the expected life of the stock-based awards. The Company computed the historical volatility data using the daily closing prices during the equivalent period of the calculated expected term of its stock-based awards. The Company has estimated the expected term of its employee stock options using the “simplified” method, whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the option, due to its lack of sufficient historical data. The risk-free interest rates for periods within the expected term of the option are based on the U.S. Treasury securities with a maturity date commensurate with the expected term of the associated award. The Company has never paid, and does not expect to pay, dividends in the foreseeable future.

Patent Costs

Costs to secure and prosecute patent applications and other legal costs related to the protection of the Company’s intellectual property are expensed as incurred and are classified as general and administrative expenses in the Company’s consolidated statements of operations.

Income Taxes

Income taxes are recorded in accordance with ASC Topic 740, Income Taxes, or ASC 740, which provides for deferred taxes using an asset and liability approach. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax reporting basis of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company has evaluated available evidence and concluded that the Company may not realize all the benefit of its deferred tax assets; therefore, a valuation allowance has been established for the amount of the deferred tax assets that the Company does not believe is more likely than not to be realized.

The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. As of December 31, 2023 and 2022, the Company doesnot have any significant uncertain tax positions. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. See Note 14 for further details.

Comprehensive (Loss) Income

Comprehensive (loss) income consists of net income or loss and other comprehensive (loss) income. Other comprehensive (loss) income consists of foreign currency translation adjustments and unrealized losses on marketable securities.

Net (Loss) Income Per Share Attributable to Common Shareholders

Basic net (loss) income per share is calculated by dividing net (loss) income attributable to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted net (loss) income per share is calculated by dividing the net (loss) income attributable to common shareholders by the weighted-average number of common equivalent shares outstanding for the period, including any dilutive effect from outstanding stock options and restricted stock units using the treasury stock method. See Note 12 for further details.

New Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that the Company adopts as of the specified effective date. The Company does not believe that the adoption of recently issued standards have or may have a material impact on its consolidated financial statements and disclosures.

3. Marketable Securities

A summary of the Company’s cash equivalents and marketable securities as of December 31, 2023 and 2022, which are recorded at fair value (and excludes $197.8 million and $159.3 million of cash at December 31, 2023 and 2022, respectively) is shown below (in thousands):

As of December 31, 2023 marketable securities were in a net unrealized gain position of $1.9 million. As of December 31, 2022, marketable securities were in a net unrealized loss position of $15.6 million. The Company has recorded a net unrealized gain of $17.5 million for the year ended December 31, 2023, related to its debt securities. The Company has recorded a net unrealized loss of $10.5 million during the year ended December 31, 2022, related to its debt securities. These amounts are included in comprehensive loss on the condensed consolidated statements of operations and comprehensive loss.

As of December 31, 2023 and 2022, the aggregate fair value of marketable securities that were in an unrealized loss position for less than twelve months was $463.5 million and $628.4 million, respectively. As of December 31, 2023 and 2022, the aggregate fair value of marketable securities that were in an unrealized loss position for more than twelve months was $138.4 million and $619.2 million, respectively. Of this amount, securities totaling $2.0 million and $53.1 million as of December 31, 2023 and December 31, 2022, respectively, will mature beyond one year.

The Company determined that there was no material credit risk of the above investments as of December 31, 2023 and 2022. The Company has the intent and ability to hold such securities until recovery. As a result, the Company did not record any charges for credit-related impairments for its marketable securities for the years ended December 31, 2023 and 2022. No available-for-sale debt securities held as of December 31, 2023 had remaining maturities greater than thirty months.

4. Fair Value Measurement

The following tables present information about the Company’s financial assets measured at fair value on a recurring basis and indicate the fair value hierarchy classification of such fair values as of December 31, 2023 and 2022 (in thousands):

Marketable securities classified as Level 2 within the valuation hierarchy generally consist of U.S. Treasury securities and government agency securities, corporate bonds, and commercial paper. The Company estimates the fair values of these marketable securities by taking into consideration valuations obtained from third-party pricing sources.

5. Property and Equipment, net

Property and equipment, net, consists of the following (in thousands):

Depreciation expense for the year ended December 31, 2023, 2022 and 2021 was $19.8 million, $24.1 million, and $17.9 million, respectively.

6. Accrued Expenses

Accrued expenses consist of the following (in thousands):

7. Leases

In May 2020, the Company entered into a lease agreement for a cell therapy manufacturing facility in Framingham, Massachusetts, or the Framingham Lease, for clinical and commercial production of the Company’s investigational cell therapy product candidates. The Framingham Lease expires in March 2036 and the Company has an option to extend the term of the lease fortwo additional seven-year periods. The right-of-use asset and corresponding lease liability does not include the additional seven-year periods under therenewal option as the Company is not reasonably certain to exercise that option.

In July 2020, the Company entered into a lease agreement for an office and laboratory facility in Boston, Massachusetts, with a commencement date of June 1, 2021, or the 2020 Lease. At lease commencement, the Company recorded a right-of-use asset of $149.8 million and a corresponding operating lease liability of $147.9 million. Tenant incentives of $49.2 million were recorded as a reduction to the operating lease asset and liability at lease commencement. The lease expires in March 2034 and the Company has anoption to extend the term of the lease fortwo additional five-year periods. The right-of-use asset and corresponding lease liability does not include the additional five-year periods under the renewal option as the Company is not reasonably certain to exercise that option. Subsequent to signing the 2020 Lease, the Company amended its leases for its primary office and research facility in Cambridge, Massachusetts in 2021, which resulted in a termination in 2022.

The Company also rents certain office space in Zug, Switzerland, on a short-term basis for which a right-of-use asset and liability are not recorded, in accordance with the practical expedient elected.

The Company has embedded leases in certain research and license agreements for which the Company has recorded a right of use asset and liability. These arrangements are not significant in comparison to the Company’s total operating lease assets and liabilities. In addition, the Company has identified certain short-term leases embedded within its manufacturing contracts which are not recorded on the Company’s balance sheet in accordance with the practical expedient elected.

The Company identified and assessed the following estimates in recognizing the right-of-use asset and corresponding liability:

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Expected lease term: The expected lease term includes noncancelable lease periods and, when applicable, periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option, as well as periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise that option.

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Incremental borrowing rate: As the discount rates in the Company’s leases are not implicit, the Company estimated the incremental borrowing rate based on the rate of interest the Company would have to pay to borrow a similar amount on a collateralized basis over a similar term.

The following table summarizes the lease assets and liabilities as of December 31, 2023 and 2022 (in thousands):

The following table summarizes operating lease costs included in research and development and general and administrative expense, as well as sublease income for the years ended December 31, 2023, 2022 and 2021 (in thousands):

The following table summarizes the maturity of undiscounted payments due under lease liabilities and the present value of those liabilities as of December 31, 2023 (in thousands):

The following table summarizes the lease term (in years) and discount rate for operating leases as of December 31, 2023 and 2022:

The following table summarizes the cash paid for amounts included in the measurement of lease liabilities for the years ended December 31, 2023, 2022 and 2021 (in thousands):

8. Significant Contracts

Agreements with Vertex

For purposes of this Note 8 and Note 9, CASGEVY (exagamglogene autotemcel [exa-cel]), formerly CTX001, is referred to as “CASGEVY”.

2015 collaboration

In 2015, the Company entered into a strategic collaboration, option and license agreement, or the 2015 Collaboration Agreement, with Vertex. The 2015 Collaboration Agreement is focused on the use of the Company’s CRISPR/Cas9 gene editing technology to discover and develop potential new treatments aimed at the underlying genetic causes of human disease. The Company and Vertex amended the 2015 Collaboration Agreement in 2017 and 2019 with Amendment No. 1 and Amendment No. 2, respectively, namely to clarify Vertex’s option rights under the 2015 Collaboration Agreement and to modify certain definitions and provisions of the 2015 Collaboration Agreement to make them consistent with the JDA (as defined below) and the 2019 Collaboration Agreement (as defined below). In 2017, Vertex exercised an option granted to it under the 2015 Collaboration Agreement to obtain a co-exclusive license to develop and commercialize hemoglobinopathy and beta-globin targets, and in 2019, Vertex exercised the remaining options granted to it under the 2015 Collaboration Agreement to exclusively license certain collaboration targets developed under the 2015 Collaboration Agreement.

Hemoglobinopathies collaboration

In 2017, following Vertex's exercise of its option to obtain a co-exclusive license to develop and commercialize hemoglobinopathy and beta-globin targets, the Company and Vertex entered into a joint development and commercialization agreement, or the JDA, and agreed for potential hemoglobinopathy treatments, including CASGEVY, the Company and Vertex would share equally all research and development costs and worldwide revenues. In 2021, the Company and Vertex amended and restated the JDA, or the A&R Vertex JDCA, pursuant to which the parties agreed to, among other things, (a) adjust the governance structure for the collaboration and adjust the responsibilities of each party thereunder, whereby Vertex leads and has all decision making (i.e., control) in relation to the CASGEVY program prospectively; (b) adjust the allocation of net profits and net losses between the parties with respect to CASGEVY only, which will be allocated 40% to the Company and 60% to Vertex, prospectively; and (c) exclusively license (subject to the Company’s reserved rights to conduct certain activities) certain intellectual property rights to Vertex relating to the specified product candidates and products (including CASGEVY) that may be researched, developed, manufactured and commercialized on a worldwide basis under the A&R Vertex JDCA. Additionally, the A&R Vertex JDCA allows the Company to defer a portion of its share of costs under the arrangement if spending on the CASGEVY program exceeds specified amounts through 2024. In December 2023, the Company entered into an amendment to the A&R Vertex JDCA, or Amendment No. 1 to the A&R Vertex JDCA, with Vertex related to the global development, manufacturing, and commercialization of CASGEVY. Pursuant to Amendment No. 1 to the A&R Vertex JDCA, among other things, the Company and Vertex agreed to (a) allocate certain costs arising from a license agreement with a third party, resulting in a current payment due to Vertex by the Company of $20.0 million upon an event specified in Amendment No. 1 to the A&R Vertex JDCA, and (b) adjust, under certain specified circumstances, the timing of and portion of the Company’s share of costs it is permitted to defer under the agreement. Any deferred amounts under the A&R Vertex JDCA, as amended, are only payable to Vertex as an offset against future profitability of the CASGEVY program and the amounts payable are capped at a specified maximum amount per year.

In connection with the closing of the transaction contemplated by the A&R Vertex JDCA, the Company received a $900.0 million up-front payment from Vertex. Additionally, in December 2023, the Company and Vertex received approval of CASGEVY by the U.S. Food and Drug Administration, or the FDA. The FDA’s approval of CASGEVY triggered Vertex’s obligation to make a $200.0 million milestone payment to the Company, which is included in accounts receivable in the accompanying consolidated balance sheets as of December 31, 2023.

DMD and DM1 exclusive license

In 2019, the Company and Vertex entered into a series of agreements, including a strategic collaboration and license agreement, or the 2019 Collaboration Agreement, for the development and commercialization of products for the treatment of Duchenne muscular dystrophy, or DMD, and myotonic dystrophy Type 1, or DM1. For the DMD and DM1 programs, Vertex is responsible for all research, development, manufacturing and commercialization activities and all related costs. Upon IND filing, the Company has the option to forego the DM1 milestones and royalties, and instead, co-develop and co-commercialize all DM1 products globally in exchange for payment of 50% of research and development costs incurred by Vertex from the effective date of the agreement through IND filing.

Collaboration in the field of diabetes

In 2021, the Company and ViaCyte, Inc., or ViaCyte, entered into a joint development and commercialization agreement, or the ViaCyte JDCA, to jointly develop and commercialize product candidates and shared products for the diagnosis, treatment or prevention of diabetes type 1, diabetes type 2 or insulin dependent / requiring diabetes throughout the world. In the third quarter of 2022, Vertex acquired ViaCyte, and ViaCyte became a wholly-owned subsidiary of Vertex. In March 2023, (1) the Company and ViaCyte entered into an amendment to the ViaCyte JDCA, or the ViaCyte JDCA Amendment, and adjusted certain rights and obligations of the Company and ViaCyte under the ViaCyte JDCA, and (2) the Company and Vertex entered into a non-exclusive license agreement, or the Non-Ex License Agreement, pursuant to which the Company agreed to license to Vertex, on a non-exclusive basis, certain of its gene editing intellectual property to exploit certain products for the diagnosis, treatment or prevention of diabetes type 1, diabetes type 2 or insulin dependent / requiring diabetes throughout the world. Subsequently, ViaCyte elected to opt-out of the ViaCyte JDCA. Per the opt-out terms, the on-going collaboration assets will now be wholly owned by the Company, subject to a royalty on future sales owed to ViaCyte. The opt-out will become effective in early February 2024.

In connection with entering into the Non-Ex License Agreement, the Company received a $100.0 million up front payment from Vertex. Under the Non-Ex License Agreement, the Company is eligible to receive milestone payments from Vertex of up to $230.0 million, in the aggregate and inclusive of a $70.0 million research milestone achieved in the second quarter of 2023. The milestones are dependent on the achievement of pre-determined research, development and commercial milestones for certain products utilizing the licensed intellectual property. Additionally, the Company is eligible to receive tiered royalties on the sales of certain products in the low to mid-single digits.

Accounting Analysis

For purposes of this Note 8, the 2015 Collaboration Agreement, Amendment No. 1, Amendment No. 2, A&R Vertex JDCA, Amendment No. 1 to the A&R Vertex JDCA and 2019 Collaboration Agreement are collectively referred to as the “Vertex Agreements” and the Non-Ex License Agreement and ViaCyte JDCA Amendment are collectively referred to as the “March 2023 Agreements.”

The Vertex Agreements and the March 2023 Agreements include components of a customer-vendor relationship as defined under ASC 606, collaborative arrangements as defined under ASC 808, Collaborative Agreements, or ASC 808, and research and development costs as defined under ASC 730, Research and Development, or ASC 730. Specifically, with regards to the March 2023 Agreements, the Company concluded that the non-exclusive license is a performance obligation under ASC 606 and the ongoing research and development services under the ViaCyte JDCA Amendment are a unit of account under ASC 808.

Accounting Analysis Under ASC 606

March 2023 Agreements

Identification of the Contract

The March 2023 Agreements were negotiated as a package with a single commercial objective and, as such, the March 2023 Agreements were combined for accounting purposes and treated as a single arrangement. The Company determined for accounting purposes that the combined contract terminates the original ViaCyte JDCA and created a new contract.

Identification of Performance Obligations

The Company concluded the transfer of the non-exclusive license, including certain modified rights and obligations provided as part of the ViaCyte JDCA Amendment to support the delivery of the license, was both capable of being distinct and distinct within the context of the contract.

Determination of Transaction Price

The initial transaction price was comprised of the upfront payment of $100.0 million.

In the second quarter of 2023, the Company adjusted the transaction price to include $70.0 million in previously constrained variable consideration related to a research milestone which was achieved in the second quarter of 2023. The Company determined that all other possible variable consideration resulting from milestones and royalties discussed below was fully constrained as of December 31, 2023. The Company will re-evaluate the transaction price in each reporting period.

Allocation of Transaction Price to Performance Obligations

The Company identified one performance obligation for the March 2023 Agreements and, as a result, no allocation of the transaction price was required.

Recognition of Revenue

The Company determined the non-exclusive license, including certain modified rights and obligations provided as part of the ViaCyte JDCA Amendment to support the delivery of the license, represented functional intellectual property, as the intellectual property provides Vertex with the ability to perform a function or task in the form of research and development in the field of diabetes. In 2023, the Company recognized revenue of $100.0 million for the non-exclusive license at the onset of the arrangement, as this was the point in time in which the non-exclusive license was delivered.

In 2023, revenue from variable consideration of $70.0 million was recognized related to a research milestone that was achieved during the second quarter of 2023. Revenue recognized under the March 2023 Agreements for year ended December 31, 2023 was $170.0 million in aggregate.

Milestones under the Non-Ex License Agreement

As of December 31, 2023, the Company is eligible to receive potential future milestone payments from Vertex of up to $160.0 million in the aggregate under the Non-Ex License Agreement depending on the achievement of pre-determined research, development and commercial milestones for certain products utilizing the licensed intellectual property. Additionally, the Company is eligible to receive tiered royalties on the sales of certain products in the low to mid-single digits.

Each of the remaining milestones under the Non-Ex License Agreement are fully constrained as of December 31, 2023. There is uncertainty as to whether the events to obtain the research and developmental milestones will be achieved given the nature of clinical development and the stage of the CRISPR/Cas9 technology. The remaining research, development and regulatory milestones will be constrained until it is probable that a significant revenue reversal will not occur. Commercial milestones and royalties relate predominantly to a license of intellectual property and are determined by sales or usage-based thresholds. The commercial milestones and royalties are accounted for under the royalty recognition constraint and will be accounted for as constrained variable consideration. The Company applies the royalty recognition constraint for each commercial milestone and will not recognize revenue for each until the subsequent sale of a licensed product (achievement of each) occurs.

Accounting for the A&R Vertex JDCA

Identification of the Contract

The A&R Vertex JDCA represented a contractual modification to the JDA. For accounting purposes, the A&R Vertex JDCA was treated as a separate contract.

Identification of Performance Obligations

The Company concluded the A&R Vertex JDCA contained a single material promise, an exclusive worldwide license granting Vertex an additional 10% economic interest in the CASGEVY program and the right to control development and commercialization of CASGEVY, or the “CASGEVY Exclusive License.” The Company concluded the CASGEVY Exclusive License was both capable of being distinct and distinct within the context of the A&R Vertex JDCA, and the CASGEVY Exclusive License was sold at its estimated standalone selling price, or “ESSP.” As such, the CASGEVY Exclusive License represented a separate performance obligation.

Determination of Transaction Price

The transaction price was comprised of the upfront payment of $900.0 million. The Company determined that all other possible variable consideration resulting from milestones and royalties discussed above was fully constrained at the time of the transaction. The Company re-evaluates the transaction price in each reporting period.

In the fourth quarter of 2023, the Company adjusted the transaction price to include $200.0 million in previously constrained variable consideration related to a milestone which was achieved upon approval of CASGEVY by the FDA in December 2023. The Company determined that all other possible variable consideration resulting from milestones and royalties under the A&R Vertex JDCA was fully constrained as of December 31, 2023.

Allocation of Transaction Price to Performance Obligations

The selling price of the performance obligation was determined based on the Company’s ESSP. The Company developed the ESSP for the CASGEVY Exclusive License with the objective of determining the price at which it would sell such an item if it were to be sold regularly on a standalone basis.

The ESSP for the CASGEVY Exclusive License was determined to be approximately $900.0 million. The ESSP was determined based on 10% of the probability and present value adjusted cash flows from projected worldwide net profit for CASGEVY based on probability assessments, projections based on internal forecasts, industry data, and information from other guideline companies within the same industry and other relevant factors. As the Company determined the CASGEVY Exclusive License was the only performance obligation, the entire transaction price was allocated to the CASGEVY Exclusive License. The aforementioned ESSP reflects the level of risk and expected probability of success inherent in the nature of the associated research area.

Recognition of Revenue

The Company determined that the CASGEVY Exclusive License represented functional intellectual property, as the intellectual property provides Vertex with the ability to perform a function or task in the form of research and development, manufacturing and commercialization. As such, the revenue related to the CASGEVY Exclusive License was recognized at the point in time, which was upon transfer in the second quarter of 2021.

In 2023, revenue from variable consideration of $200.0 million was recognized related to a milestone that was achieved during the fourth quarter of 2023. Revenue recognized under the A&R Vertex JDCA, as amended, for year ended December 31, 2023 was $200.0 million.

Accounting for the 2019 Collaboration Agreements

The 2019 Agreements represented a contract modification to the 2015 Agreements. As a result, the 2019 Agreements and the 2015 Agreements are combined for accounting purposes and treated as a single arrangement. Transactions under the 2019 Agreements were not material for the twelve months ended December 31, 2023 and 2022. For the twelve months ended December 31, 2021, the Company recognized $12.0 million in revenue related to a milestone under the 2019 Agreements.

The Company determined that all other possible variable consideration remaining under the 2019 Agreements resulting from milestones and royalties discussed above was fully constrained as of December 31, 2023. The Company will re-evaluate the transaction price in each reporting period.

Revenue recognized in connection with the Vertex Agreements and March 2023 Agreements

Revenue recognized under the Vertex Agreements and March 2023 Agreements for the year ended December 31, 2023 was $370.0 million and was comprised of (i) revenue related to the $200.0 million milestone under the A&R Vertex JDCA, (ii) revenue related to the $100.0 million upfront payment received in connection with the March 2023 Agreements, and (iii) revenue related to the $70.0 million milestone achieved in 2023 under the March 2023 Agreements.

Revenue recognized under the Vertex Agreements for the year ended December 31, 2022 was not material.

Revenue recognized under the Vertex Agreements for the year ended December 31, 2021 was $913.1 million and was comprised of (i) revenue related to the exclusive worldwide license for CASGEVY of $900.0 million, (ii) revenue related to the second DM1 milestone under the 2019 Agreements of $12.0 million, and (iii) revenue recognized in connection with research and development services.

As of December 31, 2023 and 2022 there wasno current deferred revenue related to the collaboration with Vertex, respectively. As of December 31, 2023 and 2022, there was $12.3 million of non-current deferred revenue, respectively, related to the collaboration with Vertex. The transaction price allocated to the remaining performance obligations was $12.3 million.

Milestones under the Vertex Agreements

The Company has evaluated the milestones that may be received in connection with the Vertex Agreements.

Under the 2015 Collaboration Agreement and subsequent amendments, the Company is eligible to receive up to $410.0 million in additional development, regulatory and commercial milestones and royalties on net product sales for each of the three collaboration targets that Vertex licensed in 2019. Each milestone is payable only once per collaboration target, regardless of the number of products directed to such collaboration target that achieve the relevant milestone event.

The Company is eligible to receive potential future payments of up to $775.0 million under the 2019 Collaboration Agreement based upon the successful achievement of specified development, regulatory and commercial milestones for the DMD and DM1 programs. The Company is also eligible to receive tiered royalties on future net sales on any products that may result from this collaboration; however, the Company has the option to forego the DM1 milestones and royalties to co-develop and co-commercialize all DM1 products globally.

The Company has the option to conduct research at their own cost in certain defined areas that, if beneficial to the CASGEVY program and CASGEVY ultimately achieves regulatory approval in such areas, then the Company could be entitled to certain milestone payments aggregating to high eight digits from Vertex.

Each of the remaining milestones described above are fully constrained as of December 31, 2023. There is uncertainty that the events to obtain the research and developmental milestones will be achieved given the nature of clinical development and the stage of the CRISPR/Cas9 technology. The remaining research, development and regulatory milestones will be constrained until it is probable that a significant revenue reversal will not occur. Commercial milestones and royalties relate predominantly to a license of intellectual property and are determined by sales or usage-based thresholds. The commercial milestones and royalties are accounted for under the royalty recognition constraint and will be accounted for as constrained variable consideration. The Company applies the royalty recognition constraint for each commercial milestone and will not recognize revenue for each until the subsequent sale of a licensed product (achievement of each) occurs.

Accounting Analysis under ASC 808

Vertex Agreements

In connection with the Vertex Agreements, the Company identified the following collaborative elements, which are accounted for under ASC 808: (i) development and commercialization services for shared products, including any transition services related to CASGEVY under the A&R Vertex JDCA; (ii) R&D Services for follow-on products; and (iii) committee participation. The related impact of the cost sharing is included within collaboration expense, net, in the consolidated statements of operations and comprehensive (loss) income.

During the years ended December 31, 2023, 2022 and 2021, the Company recognized $130.3 million, $110.3 million and $101.2 million of collaboration expense, net, related to the CASGEVY program, respectively. Collaboration expense, net, during the years ended December 31, 2023, 2022 and 2021 was net of $18.0 million, $37.8 million and $47.4 million of reimbursements from Vertex related to the CASGEVY program, respectively.

Under the A&R Vertex JDCA, the Company has an option to defer its portion of specified costs on the CASGEVY program in excess of $110.3 million for the years ended December 31, 2022, 2023 and 2024. The $110.3 million does not include a $20.0 million payment to Vertex recognized in the fourth quarter of 2023 and paid in the first quarter of 2024 in connection with Amendment No. 1 to the A&R Vertex JDCA. For the years ended December 31, 2023 and 2022, the Company exercised its option to defer specified costs on the CASGEVY program in excess of $110.3 million, which is further discussed in Note 9.

9. Commitments and Contingencies

Intellectual Property Agreements

Charpentier License Agreements

In April 2014, the Company entered into certain technology license agreements with Dr. Emmanuelle Charpentier pursuant to which the Company licensed certain intellectual property rights under joint ownership from Dr. Charpentier to develop and commercialize products for the treatment or prevention of human diseases. In connection therewith, Dr. Charpentier is entitled to receive nominal clinical milestone payments, low single digit percentage of sublicensing payments received under any sublicense agreement with a third party, and low single-digit percentage royalties based on annual net sales of licensed products and services by the Company and its affiliates and sublicensees. The Company paid an immaterial amount of fees to Dr. Charpentier under the Charpentier License Agreements.

Research, Manufacturing and License Agreements

The Company has engaged several research institutions and companies to identify new delivery strategies and applications of the Company’s gene editing technology. The Company is also a party to a number of license agreements which require significant upfront payments and may be required to make future royalty payments and potential milestone payments from time to time. In addition, the Company is also a party to intellectual property agreements, which require maintenance and milestone payments from time to time. Further, the Company is a party to a number of manufacturing agreements that require upfront payments for the future performance of services.

In association with these agreements, on a product-by-product basis, the counterparties are eligible to receive up to low eight-digit potential payments upon specified research, development and regulatory milestones. In addition, on a product-by-product basis, the counterparties are eligible to receive potential commercial milestone payments based on specified annual sales thresholds. The potential payments are low-single digit percentages of the specified annual sales thresholds. The counterparties are also eligible to receive low single-digit royalties on future net sales.

Under certain circumstances and if certain contingent future events occur, Vertex is eligible to receive up to $395.0 million in potential specified research, development, regulatory and commercial milestones and tiered single-digit percentage royalties on future net sales related to a specified target under an amendment to the 2015 Collaboration Agreement. Vertex also has the option to conduct research at their own cost in certain defined areas that, if beneficial to the CASGEVY program and ultimately achieves regulatory approval, then the Company could owe Vertex certain milestone payments aggregating to high eight digits, subject to certain limitations on the profitability of the CASGEVY program.

Under the A&R Vertex JDCA, the Company has an option to defer specified costs on the CASGEVY program in excess of $110.3 million for the years ended December 31, 2022, 2023 and 2024. The $110.3 million for 2023 does not include amounts attributable to our share of certain costs arising from a license agreement between Vertex and a third party, which we agreed to pay to Vertex upon the occurrence of an event specified in Amendment No. 1 to the A&R Vertex JDCA. In 2023 and 2022, the Company exercised its option to defer specified costs on the CASGEVY program in excess of the deferral limit under A&R Vertex JDCA. The Company deferred $80.9 million and $36.1 million of its share of costs incurred under the arrangement for the years ended December 31, 2023 and 2022, respectively, as spending on the CASGEVY program exceeded a specified amount. Any deferred amounts are only payable to Vertex as an offset against future profitability of the CASGEVY program and the amounts payable are capped at a specified maximum amount per year. These deferred costs on the CASGEVY program will be recognized by us when recoverability of such deferred amounts by Vertex is probable and the amount can be reasonably estimated. As of December 31, 2023 and 2022, no such deferred amounts have been recognized . Refer to Note 8 for further discussion on the Company’s arrangements with Vertex.

Litigation

In the ordinary course of business, the Company is from time to time involved in lawsuits, investigations, proceedings and threats of litigation related to, among other things, the Company’s intellectual property estate (including certain in-licensed intellectual property), commercial arrangements and other matters. Such proceedings may include quasi-litigation, inter partes administrative proceedings in the U.S. Patent and Trademark Office, the European Patent Office and patent offices in other countries involving the Company’s intellectual property estate including certain in-licensed intellectual property. The outcome of any of the foregoing, is inherently uncertain. In addition, litigation and related matters are costly and may divert the attention of Company’s management and other resources that would otherwise be engaged in other activities. If the Company is unable to prevail in any such proceedings, the Company’s business, results of operations, liquidity and financial condition could be adversely affected.

10. Share Capital

All of the Company's common shares are authorized under Swiss corporate law with a nominal value of 0.03 CHF per share. Though the nominal value of common shares is stated in Swiss francs, the Company continues to use U.S. dollars as its reporting currency for preparing the condensed consolidated financial statements.

As of December 31, 2023, the Company's share capital consists of 83,538,347 registered common shares with a nominal value of CHF 0.03 per share,8,202,832 registered common shares reserved for potential issuance of bonds or similar instruments, and 20,989,313 registered common shares reserved for the Company's employee equity incentive plans. In addition, the Board of Directors is authorized to conduct one or more increases of the share capital at any time until June 8, 2028, or the expiry of the capital band if earlier, within a lower limit of CHF 2,506,150.41 and an upper limit of CHF 2,920,321.14, corresponding to 13,805,691 registered common shares with a nominal value of CHF 0.03 each to be fully paid in.

Common Share Issuances

At-the-Market Offerings

In August 2019, the Company entered into an Open Market Sale Agreement SM with Jefferies LLC, or Jefferies, under which the Company was able to offer and sell, from time to time at its sole discretion through Jefferies, as its sales agent, its common shares, or the August 2019 Sales Agreement. In connection with the August 2019 Sales Agreement, as amended, the Company has filed several prospectus supplements with the SEC to offer and sell, from time to time, common shares.

In 2021, the Company issued and sold 1.4 million common shares at an average price of $168.23 per share for aggregate proceeds of $224.5 million, which were net of equity issuance costs of $3.1 million. An additional $2.3 million of stamp taxes related to this amount was paid in 2021.

In 2022, the sale of common shares pursuant to the 2019 Sales Agreement and the current prospectus supplement was not significant.

In 2023, the Company issued and sold 0.5 million common shares at an average price of $72.32 per share for aggregate proceeds of $32.7 million, which were net of equity issuance costs of $0.4 million. An additional $0.3 million of stamp taxes related to this amount was paid in 2023.

As of December 31, 2023, the Company has $385.6 million remaining under its current prospectus supplement and has issued and sold an aggregate of 1.5 million common shares at an average price of $139.91 per share for aggregate proceeds of $211.5 million, which were net of equity issuance costs of $2.9 million.

Common Share Characteristics

The Common Shares have the following characteristics:

Voting Rights

The holders of common shares are entitled toone vote for each common share held at all meetings of shareholders.

Dividends

The holders of common shares are entitled to receive dividends, if and when resolved upon by the general meeting of shareholders based on a respective proposal by the Board of Directors and provided that the Company disposes of sufficient freely distributable reserves. As of December 31, 2023, no dividends have been declared or paid since the Company’s inception.

Liquidation

The holders of the common shares are entitled to share ratably in the Company’s assets available for distribution to shareholders in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or upon the occurrence of a deemed liquidation event.

11. Equity-based Compensation

Option and Grant Plans

In April 2015, the Company’s shareholders approved the 2015 Stock Option and Grant Plan, or the 2015 Plan, and in July 2016, the Company’s shareholders approved the 2016 Stock Option and Incentive Plan, or the 2016 Plan. In May 2018, the Company’s shareholders approved the 2018 Stock Option and Incentive Plan, or the 2018 Plan (collectively, the “Plans”). Subsequent to the IPO, no further options were granted under the 2015 Plan. The Plans provide for the issuance of equity awards in the form of restricted shares, options to purchase common shares which may constitute incentive stock options, or ISOs, or non-statutory stock options, or NSOs, unrestricted stock unit grants, and qualified performance and market-based awards to eligible employees, officers, directors, non-employee consultants and other key personnel. Terms of the equity awards, including vesting requirements, are determined by the Company’s board of directors, subject to the provisions of the Plans. Options granted by the Company typically vest over four years and have a contractual life often years. Restricted stock unit grants typically vest overtwo tofour years. At December 31, 2023, the Company had 28,405,365 common shares authorized for issuance under the 2018 Plan and 10,588,249 common shares available for future grant under the 2018 Plan.

Equity-Based Compensation Expense

The Company recognized stock-based compensation expense totaling $81.0 million, $97.9 million, and $102.4 million during the years ended December 31, 2023, 2022 and 2021, respectively. Stock‑based compensation expense by classification within the consolidated statements of operations and comprehensive(loss) income is as follows (in thousands):

As of December 31, 2023, there was $80.3 million and $72.0 million of unrecognized compensation expense related to unvested stock options and restricted stock units, respectively, that is expected to be recognized over a weighted-average period of 2.3 and 2.4 years, respectively.

Stock Options

The fair value of each option issued to employees was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

The following table summarizes stock option activity under the Company’s equity award plans (intrinsic value in thousands):

The total intrinsic value (the amount by which the fair market value exceeded the exercise price) of stock options exercised during the year ended December 31, 2023, 2022 and 2021 was $13.9 million, $40.8 million, and $119.5 million, respectively.

As of December 31, 2023, options to purchase 1,085,467 common shares subject to performance-based vesting conditions were vested, as performance conditions were satisfied in prior years, and there were 202,208 options to purchase common shares subject to performance-based vesting conditions outstanding. Activity related to stock options subject to performance-based vesting conditions is included in the table above.

As of December 31, 2023, options to purchase 150,000 common shares subject to market-based vesting conditions were vested, as market conditions were satisfied in prior years.150,000 options to purchase common shares subject to market-based vesting conditions were outstanding as of December 31, 2023.

The Company didnot grant stock options subject to performance-based or market-based vesting conditions during 2023, 2022, and 2021.

Restricted Stock Units

The following table summarizes the restricted stock unit activity under the Company’s equity award plans:

During the years ended December 31, 2023, 2022 and 2021, the total fair value of restricted stock units vested was $14.1 million, $14.3 million, and $45.3 million, respectively.

During 2022, the Company granted 150,000 performance stock units with market-based vesting conditions in which the recipient is eligible to receive between zero and 150,000 common shares at the end of athree-year service period based upon achieving a specified average stock price. Expense for these awards is being recognized over the requisite service period. As of December 31, 2023,150,000 of the performance stock units were unvested. Activity related to stock units subject to market-based vesting conditions is included in the table above.

The Company didnot grant restricted stock units subject to performance-based or market-based vesting conditions during 2023 and 2021.

Award modifications

Equity award modifications for certain equity awards held by departing employees for the years ended December 31, 2023, 2022 and 2021 were not material to the Company's stock-based compensation expense.

Employee Stock Purchase Plan

On July 19, 2016, the Company’s board of directors adopted its 2016 Employee Stock Purchase Plan, or the ESPP Plan, which was subsequently approved by its shareholders and became effective on October 19, 2016. The ESPP Plan authorizes the initial issuance of up to a total of 0.4 million shares of the Company’s common stock to participating employees. The Company activated its ESPP Plan on January 1, 2020. The Company issued 53,282,36,559 and 21,590 shares under the ESPP Plan during the years ended December 31, 2023, 2022 and 2021, respectively.

12. Net (Loss) Income Per Share Attributable to Common Shareholders

Basic net (loss) income per share is calculated by dividing net (loss) income attributable to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted net (loss) income per share is calculated by dividing the net (loss) income attributable to common shareholders by the weighted-average number of common share equivalents outstanding for the period, including any dilutive effect from outstanding stock options and warrants using the treasury stock method. The Company’s net (loss) income is net (loss) income attributable to common shareholders for all periods presented.

The following table sets forth the computation of basic and diluted net(loss) income per share for the periods ended (in thousands, except share and per share amounts):

The Company did not include the securities in the following table in the computation of the net (loss) income per share calculations because the effect would have been anti-dilutive during each period:

13. 401(k) Savings Plan

The Company established a defined‑contribution savings plan under Section 401(k) of the Internal Revenue Code (the “401(k) Plan”) in November 2016. The 401(k) Plan covers all employees who meet defined minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pretax basis. The Company contributed $3.0 million, $3.2 million, and $3.4 million to the 401(k) Plan for the years ended December 31, 2023, 2022 and 2021, respectively.

14. Income Taxes

The Company is subject to U.S. federal and various state corporate income taxes as well as taxes in foreign jurisdictions for the foreign parent and where foreign subsidiaries have been established.

Net (loss) income before taxes

For the years ended December 31, 2023, 2022 and 2021, the (loss) income before provision for income taxes consist of the following (in thousands):

The benefit from (provision for) income taxes consist of the following (in thousands):

A reconciliation of income tax expense computed at the statutory corporate income tax rate to the effective income tax rate for the years ended December 31, 2023, 2022 and 2021 is as follows:

The federal statutory rate reflects the Switzerland mixed company service rate.

Deferred taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes. The significant components of the Company’s deferred tax assets are comprised of the following (in thousands):

The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Based on the Company’s history of worldwide operating losses, the Company has concluded that it is more-likely-than-not that the benefit of its U.S. and non-U.S. deferred tax assets will not be realized. Accordingly, as of December 31, 2023 and 2022, the Company has provided a full valuation allowance against its net deferred tax assets in Switzerland and the United Kingdom. The Company has also provided a valuation allowance against the U.S. deferred tax assets that cannot be realized by existing deferred tax liabilities based upon when they are scheduled to reverse. The valuation allowance increased by $29.3 million during 2023, which is primarily attributable to increase in net operating loss carryforwards as a result of current year net loss.

As of December 31, 2023, the Company hadno available U.S. federal net operating loss carryforwards. As of December 31, 2023, the Company had available non-U.S. net operating loss carryforwards of $2,223.3 million of which $1,115.6 million relate to Switzerland, $1,115.6 million relate to the Canton of Zug, and $2.1 million relate to the Company’s wholly-owned subsidiary in the United Kingdom. The net operating losses generated in Switzerland and the Canton of Zug begin to expire in 2027 and the net operating losses generated in the United Kingdom can be carried forward indefinitely.

As of December 31, 2023, the Company had U.S. domestic federal research and development credit carryforwards of $28.2 million that begin to expire in 2040 for federal purposes, which are net of uncertain tax positions of $18.1 million. As of December 31, 2023, the Company had U.S. domestic federal orphan drug credit carryforwards of $27.0 million which begin to expire in 2040 for federal purposes, which are net of uncertain tax positions of $11.5 million. As of December 31, 2023, the Company had U.S. domestic state research and development credit carryforwards of $19.3 million which begin to expire in 2035, which are net of uncertain tax positions of $12.8 million.

ASC 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statement by prescribing the minimum recognition threshold and measurement of a tax position taken or expected to be taken in a tax return.

As of December 31, 2023, the Company had gross unrecognized tax benefits of $44.1 million of which $40.1 million would favorably impact the effective tax rate if recognized. The Company will recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2023, 2022 and 2021, the Company hadno accrued interest or penalties related to uncertain tax positions andno amounts have been recognized in the Company’s consolidated statements of operations and comprehensive loss.

The aggregate changes in gross unrecognized tax benefits were as follows (in thousands):

The Company files income tax returns in the U.S. federal jurisdiction, Massachusetts, California and certain non-U.S. jurisdictions. The Company is subject to U.S. federal, Massachusetts, California and non-U.S. income tax examinations by authorities for tax years ending after December 31, 2019. Research credits generated in prior tax years that are closed for examination may still be adjusted upon future examination if they have or will be used in a future period. The Company is subject to income tax examinations by authorities in its non-U.S. jurisdictions for all years.

15. Subsequent Events

On February 13, 2024, the Company entered into an investment agreement for the sale of approximately $280.0 million of its common shares to a group of institutional investors in a registered direct offering, at a price per share of $71.50. The financing is subject to customary closing conditions.