Editas Medicine, Inc. — Q3 2016 Form 10-Q
Reporting period: Three and nine months ended September 30, 2016; balance sheet compared with December 31, 2015. Amounts are in U.S. dollars unless stated otherwise.
Business context
Editas is a research-stage genome-editing company developing CRISPR/Cas9-based medicines. Its programs remained in research or preclinical development, with LCA10 its most advanced program. Management aimed to initiate an LCA10 clinical trial in 2017. The company had no product sales revenue.
Financial performance and position
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Collaboration and research revenue | $1.0 million | $0.7 million | $5.2 million | $0.8 million |
| Research and development expense | $10.8 million | $3.9 million | $30.1 million | $13.0 million |
| General and administrative expense | $11.3 million | $4.2 million | $33.2 million | $10.8 million |
| Operating loss | $(21.2) million | $(7.4) million | $(58.2) million | $(22.9) million |
| Net loss | $(21.0) million | $(7.4) million | $(57.8) million | $(60.3) million |
| Loss per share, basic and diluted | $(0.59) | $(2.57) | $(1.86) | $(25.53) |
At September 30, 2016, cash and cash equivalents were $199.9 million, total assets $242.2 million, total liabilities $72.0 million, and stockholders’ equity $170.2 million. The balance sheet included a $32.0 million construction financing lease obligation related to the new headquarters. No separate current equipment-loan balance is reported in the supplied filing text. Accumulated deficit was $146.2 million.
For the first nine months, operating cash use was $36.6 million, investing cash use was $4.4 million, and financing cash provided was $97.7 million, mainly from $97.5 million of net IPO proceeds. Cash increased $56.7 million from year-end 2015. The filing does not present a meaningful product margin; the company had no product sales and reported operating losses.
Changes versus the prior comparable period
- Q3 operating expenses rose $14.1 million year over year, reflecting higher research activity, headcount and stock-based compensation, patent-related legal costs, and facility expenses. G&A included a $4.3 million increase in patent-related legal fees.
- Nine-month revenue increased $4.3 million, primarily from the Juno collaboration, including a $2.5 million milestone recognized in May 2016, and $0.2 million from the Cystic Fibrosis Foundation Therapeutics (CFFT) award.
- Nine-month net loss was lower than in 2015 despite substantially higher operating expenses. The 2015 period included $37.2 million of net other expense, principally non-cash fair-value remeasurement losses on preferred-stock-related liabilities.
- The February 2016 IPO raised $97.5 million net, and preferred stock converted into common stock. The resulting increase in weighted-average shares materially affects year-over-year loss-per-share comparisons.
- Property and equipment increased to $37.1 million, including $32.6 million of construction in progress for the new Hurley Street facility. The company determined the building arrangement did not qualify for sale-leaseback accounting.
Outlook, risks, and unusual items
- Management expected existing cash, interest income, anticipated Juno research support, and anticipated CFFT payments to fund operating and capital needs for at least 24 months from September 30, 2016. This estimate depends on assumptions and could prove incorrect.
- The company expected significant future losses and rising research, development, patent, facility, staffing, and public-company costs; it did not expect profitability in 2016 or the foreseeable future and anticipated needing substantial additional capital.
- The Juno agreement provides for up to $22.0 million in research and development funding over the initial five-year term, plus potential milestones and royalties. Juno may terminate for convenience on six months’ notice. Future milestone and royalty proceeds are uncertain.
- The CFFT award offers up to $5.0 million over three years, with Editas required to contribute matching funds. It also carries contingent payment obligations if related technology is commercialized or transferred.
- Broad and Harvard patent-prosecution and maintenance reimbursements were $16.0 million for the first nine months of 2016; management expected substantial future costs from ongoing patent interference and opposition proceedings, but the amount was not determinable. CRISPR/Cas9 patent priority and validity disputes could affect key licensed rights.
- The new Hurley Street lease runs through October 2023. Minimum annual lease payments are $3.9 million, $4.0 million, $4.1 million, $4.2 million, and $4.3 million for the first five years, plus operating costs. Construction was completed in October 2016; rent payments began in November.
- In August 2016, Editas paid Adverum $1.0 million under a delivery-vector collaboration; $0.5 million was expensed and $0.5 million capitalized as an advance for future research services. Additional option, milestone, and royalty payments may arise.
- Key business risks include preclinical and clinical failure, potential off-target genome editing and safety effects, evolving regulation and public acceptance, manufacturing challenges, reliance on collaborators and third parties, and patent disputes. The filing reports no material developments in legal proceedings during the quarter and states the company was not party to litigation as of September 30, 2016.
Important facts for investors to verify
- Whether LCA10 preclinical work supports the stated 2017 clinical-trial objective, and what regulatory or technical milestones remain.
- Cash runway assumptions, actual spending trends, and the expected timing and cost of the Hurley Street facility and ongoing patent proceedings.
- Developments in the Broad/MIT/Harvard CRISPR patent interference and related U.S. and European proceedings, including any effect on Editas’s licensed intellectual property.
- Progress and funding under the Juno and CFFT agreements, including milestone conditions, matching-fund requirements, and termination or contingent-payment terms.
- Share-count and dilution effects: 35.6 million common shares were outstanding at September 30, 2016; 36.7 million were outstanding as of November 1, 2016.