Editas Medicine, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. The unaudited financial statements are consolidated. Editas is a research-stage genome-editing biotechnology company; all programs remained in research or preclinical development, and it had no product sales.
Financial performance and position
| Metric | Q1 2017 | Q1 2016 / comparison |
|---|---|---|
| Collaboration and other R&D revenue | $0.682 million | $0.805 million |
| Research and development expense | $19.021 million | $8.882 million |
| General and administrative expense | $12.288 million | $9.762 million |
| Operating loss | $30.627 million | $17.839 million |
| Net loss | $31.097 million | $17.745 million |
| Basic and diluted loss per share | $0.85 | $0.80 |
| Net cash from (used in) operating activities | $69.791 million | $(9.629) million |
- Revenue consisted principally of Juno collaboration revenue; Q1 2017 also included $14,000 from the Cystic Fibrosis Foundation Therapeutics (CFFT) agreement. The filing reports no Q1 revenue from Allergan.
- Cash and cash equivalents were $351.552 million at March 31, 2017, versus $185.323 million at December 31, 2016. Total current assets were $353.786 million and current liabilities were $50.287 million. Accumulated deficit was $216.623 million.
- Operating cash flow was positive chiefly because deferred revenue increased $90.214 million, primarily following Allergan’s upfront payment; it does not indicate operating profitability. Investing cash outflow was $0.656 million and financing cash inflow was $97.094 million, mainly from the March stock offering.
- Debt included $15.0 million principal of notes payable bearing 4.8% interest: $10.0 million due in December 2017 and $5.0 million due in August 2017. The filing estimates total scheduled note payments, including interest, at $15.6 million, all due within one year. It also reports a $33.929 million non-current construction financing lease obligation.
- No product gross margin was reported. The business had no product revenue, and the filing describes continued operating losses rather than a path to near-term profitability.
Material changes and agreements
- Compared with Q1 2016, net loss increased $13.352 million. R&D expense rose $10.139 million, primarily reflecting a $5.0 million non-cash success-payment note issued under the Cpf1 license, $2.3 million paid to licensors in connection with the Allergan upfront, higher employee costs, and increased platform development activity. G&A increased $2.526 million.
- In March, Editas completed a follow-on offering of 4.6 million shares at $22.50 per share, receiving approximately $96.7 million net. The increase in shares outstanding affects year-over-year loss-per-share comparisons.
- Editas entered a seven-year ocular-disorder alliance with Allergan and received a non-refundable, non-creditable $90.0 million upfront payment. The entire amount was deferred at quarter-end; $77.9 million was classified as long-term. Allergan has options to license up to five programs, including LCA10, with further option fees, milestones, and potential royalties if applicable.
- Management reported $26.1 million of long-term deferred revenue related to Juno at March 31, 2017. Juno’s agreement includes research funding and potential development, regulatory, and commercial milestones and royalties; future payments are contingent on performance and development outcomes.
- The CFFT agreement may provide up to $5.0 million over three years, subject to matching-funding and other terms. Editas had recognized $0.3 million of CFFT revenue since inception through March 31, 2017.
Outlook, risks, and contingencies
- Management expected cash and cash equivalents at March 31, 2017, anticipated interest income, Juno research support, and anticipated CFFT payments to fund operating and capital needs for at least 24 months. This estimate is based on assumptions that may prove incorrect. Editas said it would require substantial additional capital and did not expect profitability in 2017 or the foreseeable future.
- Management expected expenses and losses to rise as research and preclinical programs advance, staffing expands, and patent and public-company costs continue. It targeted a natural-history study for LCA10 in mid-2017 and an IND filing by mid-2018; these are plans, not assured outcomes.
- Key risks include high preclinical and clinical failure risk; uncertain safety, efficacy, delivery, manufacturing, and regulatory requirements for genome editing; reliance on collaborators and third-party manufacturers; and the possibility of dilution or reduced programs if additional financing is unavailable.
- Intellectual-property proceedings remain material: the PTAB found no interference-in-fact in the Broad/UC-related U.S. patent dispute, but UC, the University of Vienna, and Emmanuelle Charpentier appealed in April 2017. ToolGen interference suggestions remained pending; a re-examination was suspended; and opposition proceedings affected several licensed European patents. Editas reported $4.0 million of licensor patent-expense reimbursement in Q1 and said future costs could remain substantial.
- The company reported no litigation contingency reserves and no current litigation as of March 31, 2017. The filing identifies no off-balance-sheet arrangements. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Investor verification points
- Confirm the composition, investment liquidity, and expected burn of the $351.6 million cash balance; distinguish financing and deferred-collaboration receipts from recurring operating cash generation.
- Track actual spending, milestones, and timing against the LCA10 natural-history-study and IND objectives, and assess the assumptions behind the stated 24-month runway.
- Review Allergan and Juno performance obligations, deferred-revenue recognition, option decisions, and any contingent milestone or royalty payments.
- Monitor note maturities and potential additional licensor success payments, as well as the effect of further equity issuance on dilution.
- Follow appeals and other U.S. and European patent challenges, their potential impact on licensed rights, and the associated reimbursement costs.