Editas Medicine, Inc. — FY 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016. This is an annual filing; fourth-quarter figures are included where available. Editas is a preclinical genome-editing company developing CRISPR-based therapies. It had no product sales and no programs in clinical development at year-end.
Key financial metrics
| Metric | FY 2016 | FY 2015 |
|---|---|---|
| Collaboration and research revenue | $6.1 million | $1.6 million |
| Research and development expense | $57.0 million | $18.8 million |
| General and administrative expense | $46.3 million | $18.1 million |
| Operating loss | $97.2 million | $35.3 million |
| Net loss | $97.2 million | $72.9 million |
| Net loss per share, basic and diluted | $3.02 | $28.55 |
| Net cash used in operating activities | $49.9 million | $5.4 million |
| Cash and cash equivalents at year-end | $185.3 million | $143.2 million |
Revenue comprised $5.7 million from Juno Therapeutics, including a $2.5 million milestone, and $0.3 million from the Cystic Fibrosis Foundation Therapeutics award. No gross margin is reported; with no product sales, product margins are not meaningful.
Liquidity and obligations: Year-end working capital was $154.1 million; total assets were $229.2 million, total liabilities $94.6 million, and stockholders’ equity $134.6 million. The company had $10.0 million of notes payable to Broad and Wageningen, bearing 4.8% interest and due in December 2017, with certain change-of-control repayment provisions. A $35.1 million construction financing lease obligation was recorded for its new facility; this is separate from $29.1 million of disclosed future operating lease payments. Management estimated cash and expected receipts would fund operating and capital needs for at least 18 months after the March 3, 2017 filing date, subject to assumptions. Additional funding will be needed beyond that period.
Material changes and unusual items
- Revenue rose $4.4 million year over year, but operating expenses increased $66.3 million. The larger net loss primarily reflects expanded research, staffing, facilities and licensing activity.
- Operating cash use increased to $49.9 million. The prior year benefited from the $25.0 million Juno upfront payment and noncash fair-value expenses related to preferred-stock tranche rights and an anti-dilution liability; those liabilities were settled in 2015.
- FY 2016 included $16.9 million of stock-based compensation, versus $3.5 million in 2015, and substantial patent-license and prosecution costs. Patent-expense reimbursements to licensors were $23.1 million in 2016.
- The February 2016 IPO generated $97.5 million of net proceeds. Financing cash flow was $97.2 million; the company also recorded $35.9 million of building construction costs as an asset and a related financing obligation.
- In Q4 2016, revenue was $0.9 million, operating expenses $39.9 million, and net loss $39.4 million. Q4 loss was higher than in the preceding quarters, with no comparable quarterly explanation stated in the filing.
Outlook, commentary and risks
Management expected losses and expenses to continue rising and did not expect profitability in 2017 or the foreseeable future. Its lead LCA10 program was preclinical: the company aimed to begin a natural-history study in mid-2017 and file an IND by year-end 2017. These were targets, not assured milestones. Management reported preclinical editing evidence, including in patient-derived cells and nonhuman-primate retina, but no human safety or efficacy data.
Principal risks include technical and safety uncertainty in genome editing, off-target effects, uncertain regulatory pathways and clinical timelines, reliance on external manufacturing and collaborators, and the need for future capital. The company’s CRISPR patent position is material: the PTAB found no interference-in-fact in February 2017, ending that proceeding, but ToolGen interference suggestions, a suspended patent re-examination, and European patent oppositions remained disclosed risks. The Juno collaboration offered up to $22 million of research support and substantial contingent milestones and royalties, but future receipts depend on development and commercial success. CFFT funding of up to $5 million requires matching company funding and carries contingent payment obligations.
Most important facts for investors to verify
- Cash runway assumptions, actual cash burn, and funding needs relative to the stated 18-month runway.
- Timing and progress of the LCA10 natural-history study, IND filing, and supporting safety and specificity work.
- Quarterly expense and cash-use trends, especially patent costs, stock compensation, and facility-related obligations.
- Status and potential impact of patent challenges and license terms, including contingent milestone, royalty, and success-payment obligations.
- Juno and CFFT program progress, future research-support receipts, and any conditions requiring Editas to contribute or repay funds.
Audit and controls: Ernst & Young issued an unqualified opinion on the consolidated financial statements. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not provide an internal-control attestation.