Editas Medicine, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. Unaudited consolidated financial statements. Editas is a clinical-stage-by-aspiration, research-stage genome-editing biotechnology company; all programs remained in research or preclinical development, and it had generated no product sales.
Financial performance and position
| Metric | Q1 2018 | Q1 2017 / prior date |
|---|---|---|
| Collaboration and research revenue | $3.9 million | $0.7 million |
| Research and development expense | $21.3 million | $19.0 million |
| General and administrative expense | $14.2 million | $12.3 million |
| Operating loss | $31.6 million | $30.6 million |
| Net loss | $30.9 million | $31.1 million |
| Net loss per share, basic and diluted | $0.67 | $0.85 |
| Operating cash flow | $(22.5) million | $69.8 million provided |
Revenue increased by $3.2 million, primarily reflecting $2.9 million recognized under the Allergan alliance and higher reimbursable research costs. R&D rose 12%, led by $7.1 million of additional process and platform development expense; G&A rose 15%, including higher patent-related fees. The prior-year quarter included $7.3 million of sublicensing and success-payment expenses, which did not recur. Net loss improved slightly; lower loss per share also reflects a larger weighted-average share count following the January 2018 stock offering.
At March 31, cash and cash equivalents were $217.7 million and marketable securities were $141.2 million, or $358.8 million combined, versus $329.1 million at December 31, 2017. Total assets were $404.0 million; current assets were $362.8 million and current liabilities $31.0 million. Total liabilities were $156.5 million, including $105.3 million of deferred revenue and a $33.2 million non-current construction financing lease obligation. Notes payable were zero at quarter-end. Accumulated deficit was $337.3 million and stockholders’ equity $247.5 million.
Cash increased by $71.0 million during the quarter, principally from $52.7 million of financing cash flow, including $48.5 million net proceeds from the January at-the-market offering, and $40.8 million of investing cash flow, largely net marketable-security maturities and purchases. Operating cash use was $22.5 million. The $69.8 million of operating cash provided in Q1 2017 was largely driven by the $90.2 million increase in deferred revenue, primarily from Allergan’s upfront payment; it is not a recurring operating-cash comparison.
Business developments, outlook and risks
- Pipeline and outlook: LCA10 was the company’s most advanced program, and management aimed to file an IND by mid-2018. The company’s stated EM22 goals included at least three medicines in early-stage clinical trials and two additional medicines in or ready for late-stage trials by the end of 2022. These are objectives, not assured outcomes.
- Funding: Management expected cash, cash equivalents, marketable securities, anticipated interest income and anticipated Juno research support to fund operating and capital needs for at least 24 months from the filing date. It also stated it would require substantial additional capital, expected continuing losses, and did not expect profitability in 2018 or the foreseeable future. A new $150 million ATM sales agreement was available; no shares had been sold under it by the filing date.
- Collaborations: Allergan’s $90 million upfront payment was being recognized over research services; $77.8 million remained deferred at March 31, including $64.9 million long-term. Juno revenue was $1.0 million for the quarter, with $27.1 million of related deferred revenue. Future milestones, option exercises and royalties are uncertain.
- Subsequent Juno amendment: On May 3, 2018, the parties amended and restated their agreement, adding a fourth research program. Editas became eligible for a $5.0 million amendment fee, two $2.5 million technical milestones, research support and additional milestone and royalty opportunities. These amounts should not be treated as Q1 revenue or cash received unless and until applicable recognition and payment conditions are met.
- Accounting change: Editas adopted ASC 606 on January 1, 2018 using the modified retrospective method. Adoption increased opening deferred revenue and accumulated deficit by approximately $0.5 million; Q1 revenue increased by $0.1 million, with no material EPS effect.
- Key risks and contingencies: The company highlighted high preclinical and clinical failure risk, uncertain genome-editing safety and off-target effects, regulatory uncertainty, dependence on collaborators and third-party manufacturing, and a need for further financing. Patent-related proceedings are material: the EPO revoked one licensed European patent, under appeal, and other licensed European patents faced oppositions; a U.S. patent decision was under appeal and ToolGen suggestions of interference remained pending. Patent and prosecution reimbursement expense was $4.6 million in Q1 2018. The filing reported no litigation contingency reserve, but that does not eliminate the risks from these patent proceedings.
Investor facts to verify
- Whether the LCA10 IND filing target was met and how the program advanced into clinical development.
- Actual cash burn and runway versus management’s 24-month estimate, including future capital needs and ATM issuance or dilution.
- Progress, funding, option exercise and milestone terms under the Juno and Allergan arrangements, including the May 2018 Juno amendment.
- Outcomes of U.S. and European patent appeals, oppositions and other challenges, and their effect on licensed intellectual property and related costs.
- Revenue recognition and remaining deferred revenue under ASC 606, and the extent to which reported collaboration revenue translates into future cash receipts.