Editas Medicine, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. The interim financial statements are unaudited.
Business context and reporting period
Editas is a research-stage genome-editing biotechnology company developing CRISPR/Cas9-based medicines. All programs remained in research or preclinical development; the company had no product sales. Its most advanced program targets Leber congenital amaurosis type 10 (LCA10), and management aimed to initiate a clinical trial in 2017. The company completed its IPO in February 2016.
Key financial metrics
| Metric | Q1 2016 | Q1 2015 / comparison |
|---|---|---|
| Collaboration revenue | $0.8 million | $0 |
| Research and development expense | $8.9 million | $1.9 million |
| General and administrative expense | $9.8 million | $3.3 million |
| Total operating expenses | $18.6 million | $5.2 million |
| Net loss | $17.7 million | $5.3 million |
| Net loss per share, basic and diluted | $0.80 | $2.75 |
| Net cash used in operating activities | $9.6 million | $5.9 million |
| Cash and cash equivalents, March 31 | $229.2 million | $143.2 million at Dec. 31, 2015 |
| Total assets | $248.8 million | $149.4 million at Dec. 31, 2015 |
| Total liabilities | $47.4 million | $32.6 million at Dec. 31, 2015 |
Current assets were $232.2 million and current liabilities $10.2 million. The balance sheet included an $11.6 million construction financing lease obligation associated with the new facility. The filing does not report product gross margin; traditional profitability and margin measures are not meaningful for this pre-revenue research-stage business.
Material changes versus the prior comparable period
- Net loss increased $12.5 million year over year, while operating expenses rose $13.5 million. R&D expense increased primarily with workforce growth, greater process and platform development, and additional facilities. G&A growth included higher patent-related legal costs, compensation, corporate legal fees, and consulting costs.
- Operating cash use increased $3.7 million. Investing cash use was $2.6 million, including property and equipment purchases and restricted cash for the new facility.
- Financing provided $98.2 million, chiefly from the IPO. The company received approximately $97.7 million in net IPO proceeds according to the filing narrative.
- The February IPO and conversion of preferred stock substantially increased common shares outstanding. The weighted-average share count was 22.3 million versus 2.0 million a year earlier, affecting year-over-year loss-per-share comparisons.
- Stock-based compensation expense rose to $4.2 million from $0.1 million.
Outlook, commentary, risks and unusual items
- Management expected cash and cash equivalents, interest income, anticipated Juno research support, and anticipated Cystic Fibrosis Foundation Therapeutics (CFFT) payments to fund operating and capital needs for at least 24 months from the filing date. Management cautioned that actual cash needs could be higher. It expected continued losses and rising expenses, and did not expect profitability in 2016 or the foreseeable future.
- On May 2, 2016, after quarter-end, Editas achieved a $2.5 million Juno collaboration milestone, payable within 30 days. In May, CFFT agreed to provide up to $5.0 million over three years for cystic fibrosis research, with Editas required to contribute matching funds and make certain event-based payments.
- The Juno collaboration provided a $25.0 million upfront payment and up to $22.0 million in research and development funding over its initial five-year term. Further milestone and royalty payments are contingent; the filing cautions that they may never be received. Q1 collaboration revenue was $0.8 million, and deferred revenue was $25.5 million.
- Patent proceedings present a material uncertainty: the USPTO declared an interference involving Broad/MIT/Harvard CRISPR/Cas9 patents licensed by Editas and a University of California/University of Vienna/Emmanuelle Charpentier application. Separate European oppositions and a re-examination of a licensed U.S. patent were also disclosed. The filing warns an adverse outcome could materially harm the business. Broad and Harvard patent prosecution and proceedings reimbursement cost $4.5 million in Q1; future costs were expected to increase, with the total commitment not determinable.
- Editas signed a lease for approximately 59,783 square feet of Cambridge office and laboratory space. The facility was expected to be completed in fall 2016; reported lease obligations totaled $31.3 million, excluding certain operating costs. Construction-in-progress and a matching financing obligation were each $11.6 million at quarter-end.
- Key risks include preclinical and clinical failure, uncertain safety and regulatory pathways for novel genome editing, off-target effects, manufacturing challenges, dependence on collaborators and third parties, additional financing needs, and potential dilution. The filing also identifies potential dilution from IPO lock-up expirations: about 29.8 million shares were subject to restrictions scheduled to expire July 31, 2016.
- Management reported disclosure controls and procedures were effective at the reasonable-assurance level as of March 31, 2016, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Clinical and preclinical progress toward the stated LCA10 trial objective, including whether the 2017 target remains achievable.
- Cash use and runway against management’s 24-month estimate, including facility spending, patent-related expenses, and the required CFFT matching contribution.
- Status and potential consequences of the CRISPR/Cas9 interference, U.S. re-examination, and European patent oppositions.
- Juno collaboration execution, milestone conditions, research funding, and any future license or royalty revenue; separately, the terms and payment obligations under the CFFT award.
- Timing and effect of the July/August 2016 lock-up expiration and the potential market supply of eligible shares.