Editas Medicine, Inc. — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018. Editas is a research-stage genome-editing company; it had no product sales, and its programs remained in research or preclinical development. Financial statements are unaudited.
Financial performance and liquidity
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Collaboration and research revenue | $7.4M | $3.1M | $11.3M | $3.8M |
| Research and development expense | $32.7M | $17.3M | $54.0M | $36.3M |
| General and administrative expense | $14.3M | $11.9M | $28.5M | $24.2M |
| Operating loss | $39.7M | $26.1M | $71.2M | $56.7M |
| Net loss | $38.7M | $26.4M | $69.7M | $57.5M |
| Basic and diluted loss per share | $0.82 | $0.65 | $1.50 | $1.49 |
- Revenue increased mainly from $3.9M recognized under the Beam license and higher Juno collaboration revenue. Q2 revenue also included a $3.0M cumulative catch-up adjustment related to Juno; Beam consideration included preferred shares valued at approximately $3.6M, so revenue growth was not wholly cash revenue.
- At June 30, cash and cash equivalents were $131.9M and marketable securities were $212.2M, or $344.1M combined. Current assets were $348.2M versus current liabilities of $24.0M; working capital was approximately $324.2M.
- Six-month operating cash use was $39.2M, compared with $43.6M provided in 2017, when the $90.0M Allergan upfront payment materially increased deferred revenue. Investing cash use was $30.9M; financing provided $55.3M, including $48.5M net proceeds from the January ATM offering. Cash, cash equivalents and restricted cash declined $14.7M.
- Total liabilities were $162.2M. Notes payable were zero at quarter-end; the $12.5M Broad notes were settled in June by issuing 330,617 common shares. The non-current construction financing lease obligation was $32.9M.
- Accumulated deficit was $376.0M. Shares outstanding were 47.35M at June 30; 47.68M were reported outstanding as of August 3, 2018.
Material changes and business developments
- Compared with the first half of 2017, revenue rose $7.5M, but operating expenses increased $22.0M and net loss widened $12.1M. R&D growth reflected increased platform and external research, staffing, and $12.5M of Broad research funding expense; G&A also rose, including patent-related and stock-based compensation costs.
- In May, Editas amended its Juno collaboration, adding a fourth research area. It received a $5.0M upfront payment and achieved two $2.5M technical milestones. The company reported up to $22.0M in research funding over the initial collaboration term, subject to agreement terms; future milestones and royalties remain contingent.
- In June, Editas entered a sponsored research agreement with Broad and recorded $12.5M of research funding expense, settled through shares. Additional Broad funding may be due upon specified market-capitalization or sale conditions, up to an aggregate $125.0M, subject to contractual provisions and exemptions.
- In May, Editas licensed technology to Beam. It recognized approximately $3.9M revenue in Q2, substantially associated with the Beam preferred-share consideration. Beam options and potential royalties could provide further value but are uncertain.
- After quarter-end, in July, Allergan exercised its LCA10 option and paid $15.0M. Editas elected U.S. profit sharing, under which the parties intend to share U.S. profits and losses equally and co-develop the program; Editas expects to bear 50% of U.S. development and commercialization costs.
Outlook, risks and unusual items
- Management expected June 30 cash, cash equivalents and marketable securities, anticipated interest income, and anticipated Juno research support to fund operating expenses and capital needs for at least 24 months after the filing date. The company nevertheless expects significant losses and expenses, does not expect profitability in 2018 or the foreseeable future, and expects to need substantial additional capital.
- Editas planned to file an IND for LCA10 in October 2018. Its stated EM22 goals included at least three experimental medicines in early-stage clinical trials and two additional medicines in or ready for late-stage trials by the end of 2022. These are objectives, not assurances.
- Key risks include clinical and preclinical failure, uncertain safety and off-target effects of genome editing, regulatory uncertainty, manufacturing and funding needs, reliance on collaborators, and potentially dilutive future financing.
- Intellectual-property proceedings remain material: the Federal Circuit appeal concerning the Broad/UC interference decision had been argued, one in-licensed European patent had been revoked and was under appeal, and multiple other European patents faced opposition. A U.S. post-grant review petition against an in-licensed Cpf1 patent was filed in July 2018. Patent outcomes could affect the company’s technology rights and costs.
- ASC 606 adoption increased first-half 2018 revenue by $1.34M versus the prior accounting basis and changed deferred-revenue presentation. Management stated disclosure controls were effective and there were no material changes to internal control over financial reporting.
Important facts for investors to verify
- Whether the LCA10 IND was filed on the stated schedule and the subsequent clinical, safety and regulatory milestones.
- How the Allergan U.S. profit-sharing and co-development terms affect Editas’s future costs, decision rights and potential returns.
- The sustainability and cash content of collaboration revenue, including Juno catch-up revenue, Beam non-cash consideration and deferred-revenue recognition.
- Cash burn, collaboration funding, contingent Broad obligations, and the adequacy of liquidity as programs advance.
- Updates and financial consequences from U.S. and European patent disputes, oppositions and re-examination proceedings.