Editas Medicine, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Unaudited results; balance-sheet comparisons are with December 31, 2018. Editas is a clinical-stage genome-editing company and has not generated product revenue.
Financial results and position
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Collaboration and other R&D revenue | $2.3 million | $7.4 million | $4.4 million | $11.3 million |
| Research and development expense | $23.6 million | $32.7 million | $39.4 million | $54.0 million |
| General and administrative expense | $14.4 million | $14.3 million | $31.9 million | $28.5 million |
| Operating loss | $(35.6) million | $(39.7) million | $(66.9) million | $(71.2) million |
| Net loss | $(33.8) million | $(38.7) million | $(63.0) million | $(69.7) million |
| Net loss per share, basic and diluted | $(0.69) | $(0.82) | $(1.29) | $(1.50) |
- Q2 revenue declined 68%; first-half revenue declined 61%. The company attributed the decreases mainly to lower Juno revenue and a prior-year out-license upfront payment, partly offset by Allergan revenue.
- Q2 R&D expense fell 28%, primarily reflecting lower sublicensing and success-payment expense, partly offset by increased process and platform development and facility costs. First-half G&A expense rose 12%, mainly due to professional services and stock-based compensation.
- Interest income helped reduce losses: total other income was $1.9 million in Q2 and $3.9 million in the first half, versus $0.9 million and $1.6 million, respectively, in 2018.
- Cash and cash equivalents were $210.6 million and marketable securities were $107.3 million at June 30; together, $317.9 million. The company reported total current assets of $324.2 million and total assets of $355.6 million.
- First-half operating cash use was $54.8 million, compared with $39.2 million in 2018. Investing activities provided $126.7 million, mainly as marketable-security maturities exceeded purchases; financing activities provided $3.9 million. Cash, cash equivalents and restricted cash increased $75.8 million to $212.2 million.
- Total liabilities were $162.6 million, including $131.9 million of deferred revenue and $17.4 million of operating lease liabilities. The construction financing lease obligation shown at year-end 2018 was eliminated upon lease-accounting adoption; the filing does not report conventional borrowings at June 30.
- Accumulated deficit was $478.5 million. Stockholders’ equity was $193.1 million, down from $236.2 million at December 31, 2018.
Business developments, outlook and risks
- EDIT-101, developed with Allergan for LCA10, was the company’s most advanced program. Patient screening had begun; management aimed to begin dosing in the second half of 2019 and enroll approximately 18 patients in the United States and Europe. The company and Allergan share U.S. development costs and profits or losses equally.
- Management expected existing cash, cash equivalents, marketable securities and anticipated interest income to fund operating and capital needs for at least 24 months after the filing date. It expected expenses and losses to continue increasing over the foreseeable future, did not expect profitability in 2019 or the foreseeable future, and anticipated needing substantial additional capital.
- Potential future funding from Juno and Allergan milestones, reimbursements and options is contingent and uncertain. Additional equity financing could dilute shareholders; debt or collaboration financing could impose restrictions or require surrendering valuable rights.
- Patent-related expense reimbursements to Broad and Harvard were $6.9 million in the first half. The company said future commitments tied to patent interference and opposition proceedings could be substantial, but their amount was not determinable. A second U.S. patent interference was declared in June 2019; three in-licensed European patents had been revoked, with appeals pending. The company reported no litigation and no litigation contingency reserves at June 30.
- Key risks include clinical and regulatory uncertainty, potential off-target editing or other safety issues, limited patient populations and enrollment challenges, manufacturing and scaling risks, dependence on collaborators and third-party manufacturers, and significant CRISPR patent priority and validity disputes.
- Adoption of the new lease standard in January 2019 resulted in a $0.8 million opening accumulated-deficit adjustment and recognition of right-of-use assets and lease liabilities. Management concluded disclosure controls were effective; it reported no other material internal-control changes beyond lease-accounting implementation.
- After quarter-end, the board appointed Cynthia Collins CEO effective August 19, 2019. Her offer included a $625,000 annual base salary, a target bonus of 60%, and equity awards.
Investor verification points
- Verify EDIT-101 trial dosing, enrollment progress, clinical safety and efficacy, and the allocation of costs and decision rights with Allergan.
- Review the timing and terms of collaboration milestones, deferred-revenue recognition, and any future partner funding.
- Assess cash burn against the stated 24-month runway, including patent reimbursements, clinical development spending and potential financing needs.
- Track the U.S. interference and European patent appeals/oppositions, and their possible impact on licensed CRISPR rights and costs.
- Reconcile reported cash, cash equivalents and marketable securities with restricted cash and the cash-flow statement; assess the impact of lease obligations and future commitments.