Intellia Therapeutics, Inc. — Q3 2016 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2016. Intellia is a preclinical CRISPR/Cas9 genome-editing company; all revenue to date was from collaborations, and it had no approved products or product-sale revenue. Financial amounts below are in millions of dollars unless stated otherwise.
Financial performance and position
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Collaboration revenue | $4.9 | $1.7 | $10.9 | $4.4 |
| Research and development expense | $7.9 | $3.5 | $20.5 | $6.8 |
| General and administrative expense | $4.7 | $1.5 | $11.7 | $5.5 |
| Operating loss | $(7.7) | $(3.3) | $(21.3) | $(7.9) |
| Net loss | $(7.5) | $(3.0) | $(21.1) | $(7.2) |
| Net loss per share | $(0.22) | $(10.27) | $(1.16) | $(48.65) |
- Liquidity: Cash and cash equivalents were $290.6 at September 30, 2016, versus $75.8 at December 31, 2015; cash equivalents included $270.3 in money-market accounts and U.S. Treasury securities. Current assets were $292.7 and current liabilities $22.6.
- Cash flows, nine months: Operating activities provided $50.5, investing activities used $2.8, and financing activities provided $167.0. Operating cash flow was substantially driven by the $75.0 Regeneron upfront payment and should not be viewed as a recurring operating run rate.
- Debt and obligations: The filing reports no debt balance. The Cambridge office and laboratory lease carries $33.0 in future minimum payments; the ten-year lease includes an option to terminate after year six and extend for three years.
- Margins: The filing does not provide a meaningful product gross margin; revenue is collaboration-based and the company is preclinical.
Material changes and significant transactions
- Revenue rose year over year, primarily because of recognition of deferred revenue under the Regeneron collaboration entered into in April 2016. Regeneron revenue was $2.9 in Q3 and $5.2 for the nine-month period; $69.9 remained deferred at quarter-end. Novartis revenue was $2.0 in Q3 and $5.7 for the nine-month period, with $7.7 deferred.
- Expenses increased as Intellia expanded research and development and corporate staffing. R&D headcount rose from 26 to 66 year over year; general and administrative headcount rose from 15 to 23. Management expected both expense categories to continue increasing.
- In May 2016, Intellia completed its IPO and concurrent private placements, raising $170.5 in common-stock proceeds before related offering costs as reflected in the cash-flow statement. Preferred stock automatically converted to common stock. The resulting share-count increase materially affects year-over-year per-share comparisons.
- Accumulated deficit was $43.0 at September 30, 2016. The company reported no income-tax benefit for 2016, citing expected losses and a full valuation allowance against deferred tax assets.
Outlook, risks and unusual items
- Management estimated that quarter-end cash plus expected Novartis technology-access fees and research funding would fund operating expenses and capital expenditures until at least mid-2019. This estimate excludes potential collaboration milestones and extension fees and depends on assumptions that may prove incorrect.
- Intellia expected R&D spending to increase as it advanced research and preclinical work, grew its team and occupied its new facility; it also expected higher public-company and organizational costs. The filing provides no revenue or earnings guidance.
- Programs were still in discovery, and management said profitability depended on uncertain research, preclinical and clinical success, delivery technology, regulatory approval, manufacturing, commercialization and market acceptance. Additional financing may be needed; equity financing could dilute shareholders, while collaborations could require licensing valuable rights.
- Key risks include the unproven nature of CRISPR/Cas9 therapeutics, delivery and off-target or other safety concerns, unclear regulatory pathways and potentially long-term patient monitoring. The company also highlighted competition, collaborator termination or underperformance, manufacturing and clinical-trial execution risks, and reimbursement uncertainty.
- Intellectual-property rights are a material contingency: a USPTO interference proceeding involves the Broad Institute patent family and UC/Vienna/Dr. Charpentier patent applications licensed through Caribou. The outcome could affect freedom to operate; Intellia also noted that it lacked a license from one co-owner.
- Potential near-term share supply: 29.1 million shares were subject to 180-day IPO lockups scheduled to expire November 1, 2016, with public sale eligibility beginning November 2, subject to applicable registration or exemptions. Insiders, directors and principal stockholders held approximately 71.2% after the IPO and concurrent placements.
Important facts for investors to verify
- Whether cash use and collaboration funding continue to support management’s estimated runway to at least mid-2019, especially given rising operating expenses.
- Progress and funding terms under the Novartis and Regeneron collaborations, including target selections, research-cost sharing, deferred-revenue recognition and termination provisions.
- Updates on preclinical programs and delivery, safety and regulatory milestones; the filing reports no clinically validated CRISPR/Cas9 product or approved product.
- Developments in the CRISPR/Cas9 patent interference and other licensing or intellectual-property matters.
- Post-lockup share sales and the effect of the IPO-related share-count change when assessing per-share comparisons and potential dilution.