Editas Medicine, Inc. — 2017 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2017; the filing was signed March 8, 2018. Editas is a preclinical genome-editing company developing CRISPR-based medicines. It had no product sales and had not begun clinical development of a product candidate.
Financial performance and liquidity
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Collaboration and research revenue | $13.7 million | $6.1 million |
| Research and development expense | $83.2 million | $57.0 million |
| General and administrative expense | $50.5 million | $46.3 million |
| Operating loss | $119.9 million | $97.2 million |
| Net loss | $120.3 million | $97.2 million |
| Net loss per share, basic and diluted | $2.98 | $3.02 |
| Cash used in operating activities | $9.4 million | $50.2 million |
Revenue rose chiefly because of the Allergan alliance and a Juno milestone. The $90 million Allergan upfront payment contributed $8.8 million of 2017 revenue; $81.2 million remained deferred at year-end. Juno-related revenue was $4.9 million. Revenue growth did not offset rising operating costs: R&D expense increased 46%, including $14.5 million of market-cap-triggered license success-payment expense. Net loss widened 24%.
FY 2017 operating cash use was substantially below net loss, primarily reflecting the $81.7 million increase in deferred revenue, largely from Allergan’s upfront payment; it should not be read as a comparable reduction in underlying spending. Investing activities used $183.8 million, mainly from purchases of marketable securities. Financing activities provided $154.5 million, principally from public offerings.
At December 31, 2017, cash and cash equivalents were $146.6 million and marketable securities were $182.5 million, totaling $329.1 million; working capital was $295.5 million. Total liabilities were $165.2 million, including $108.0 million of deferred revenue, $33.4 million of construction financing lease obligation, and $7.5 million of notes payable. The notes and a separate $2.0 million MGH success payment were settled with shares in January 2018. The company reported no off-balance-sheet arrangements. Management said available funds, anticipated interest, and Juno research support were expected to fund operations and capital needs for at least 24 months after the filing date.
Fourth-quarter 2017 revenue was $3.7 million and net loss was $36.2 million, compared with $0.9 million and $39.4 million, respectively, in fourth-quarter 2016. No meaningful product margin was reported because the company had no product sales.
Business developments and outlook
- EDIT-101, for CEP290-related Leber congenital amaurosis type 10 (LCA10), was the most advanced program. The company reported preclinical editing results in human retinal tissue and nonhuman primates and targeted filing an IND by mid-2018. No human efficacy or safety data were available.
- Under the March 2017 Allergan alliance, Allergan received options to license up to five ocular programs. Editas remained responsible for pre-option research and development costs; Allergan would generally take over development and commercialization after exercising an option. Editas could receive milestones and high-single-digit royalties, with a potential U.S. profit-sharing election for LCA10 and one other program. A $25 million LCA10 IND-acceptance payment was contingent on regulatory acceptance.
- The Juno collaboration covered engineered T-cell programs. Editas had received $5 million in technical milestones and recognized $12.2 million in cumulative research support and milestones by year-end. Potential future milestones and royalties were contingent on development and commercialization.
- Other research included approaches for sickle cell disease and beta thalassemia, engineered T cells, and early programs in ocular disease and other genetic conditions. The company’s stated long-term EM22 goal was at least three experimental medicines in early clinical trials and at least two additional medicines in or ready for late-stage trials by the end of 2022.
- Editas completed two 2017 follow-on offerings, receiving $154.1 million net in total. In January 2018, it received a further $48.5 million net from its at-the-market program. Management did not expect profitability in 2018 or the foreseeable future and said additional funding would likely be needed over time.
Risks, contingencies, and unusual items
- Development and financing risk: All programs were preclinical or research-stage, with no approved products or product revenue. Success depends on clinical evidence, regulatory approval, manufacturing, reimbursement, and further funding; additional financing could dilute shareholders or require licensing rights.
- Safety and regulatory uncertainty: Genome editing had limited clinical experience, and risks include off-target edits, delayed adverse effects, regulatory delays, and public acceptance concerns. Clinical and regulatory timing was uncertain.
- Intellectual property exposure: The PTAB’s no-interference-in-fact decision concerning Broad-licensed U.S. patents was under appeal. ToolGen interference suggestions and a suspended re-examination also remained unresolved. In January 2018, the EPO revoked one licensed European patent; Broad appealed, and opposition proceedings affected other licensed patents.
- Licensing costs and obligations: Editas reimbursed licensors $18.2 million for patent prosecution and maintenance expenses in 2017 and warned that these costs could remain substantial. Additional contingent milestones, royalties, and market-cap success payments were not fully reflected in contractual-obligation totals.
- Other unusual items: Market-cap-triggered license payments generated $14.5 million of 2017 R&D expense; certain obligations were paid with stock after year-end. The 2017 Tax Act reduced the federal corporate rate, but deferred tax assets remained fully offset by a valuation allowance. The auditor issued an unqualified opinion on the financial statements; the independent auditor did not attest to internal control, consistent with the company’s emerging-growth-company status.
Important facts for investors to verify
- Whether EDIT-101’s planned IND filing and subsequent clinical development occurred, and what human safety and efficacy evidence emerged.
- The company’s cash runway against actual operating cash use, future trial costs, patent expenses, and its stated expectation of at least 24 months’ funding.
- Revenue recognition, deferred revenue, and the timing and conditions of Allergan and Juno option, milestone, research-support, and royalty payments.
- Outcomes of the U.S. patent appeal, ToolGen matters, EPO appeal and oppositions, and any resulting changes to Editas’s licensed rights or costs.
- Share dilution from equity financing, stock-based compensation, and license-related payments settled in shares.