Editas Medicine, Inc. — 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018; the filing also reports fourth-quarter results. Figures are in U.S. dollars unless stated otherwise.
Business context and reporting period
Editas is a clinical-stage genome-editing company developing CRISPR-based medicines. Its lead program, EDIT-101, targets Leber congenital amaurosis type 10 (LCA10). The company had no product sales; reported revenue came from collaborations, licensing, and research arrangements. Most programs remained in research or preclinical development.
Financial performance and liquidity
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Collaboration and research revenue | $31.9 million | $13.7 million |
| Research and development expense | $90.7 million | $83.2 million |
| General and administrative expense | $55.0 million | $50.5 million |
| Operating loss | $113.7 million | $119.9 million |
| Net loss | $110.0 million | $120.3 million |
| Net loss per share | $2.33 | $2.98 |
| Net cash used in operating activities | $45.7 million | $9.4 million |
Fourth-quarter 2018 revenue was $6.1 million and net loss was $25.1 million, versus revenue of $3.7 million and net loss of $36.2 million in fourth-quarter 2017. Gross margin on product sales is not applicable because Editas had no product sales. Collaboration revenue is not directly comparable to commercial revenue.
At year-end, cash, cash equivalents, and marketable securities totaled $369.0 million, up from $329.1 million. Working capital was $338.9 million; current liabilities were $35.9 million. The company reported a $32.4 million long-term construction financing lease obligation and no notes payable. Deferred revenue was $131.3 million and represents unearned collaboration consideration, not conventional debt. Minimum operating lease payments totaled $24.1 million.
Investing activities used $53.1 million, largely reflecting purchases of marketable securities offset by maturities. Financing activities provided $86.9 million, principally from equity offerings and option exercises. The company raised $76.8 million net through at-the-market offerings during 2018. Management expected year-end liquid resources and anticipated interest income to fund operating and capital needs for at least 24 months from the February 2019 filing date.
Material changes versus the prior comparable period
- Revenue rose $18.2 million, primarily from Allergan-related recognition, the Beam license agreement, and increased Juno collaboration revenue.
- Operating expenses increased 9% to $145.7 million. Higher platform-development and employee costs were partly offset by lower licensing, sublicensing, and success-payment expenses.
- Net loss narrowed by $10.4 million, although operating cash use rose substantially from 2017, when large collaboration advances increased deferred revenue and supported operating cash flow.
- Cash and marketable securities increased by $39.8 million, supported by equity financing and collaboration payments; common shares outstanding also increased.
Outlook, commentary, risks, and unusual items
- The FDA accepted the EDIT-101 Phase 1/2 IND in November 2018. Editas and Allergan planned patient screening in mid-2019 and dosing in the second half of 2019, targeting approximately 10–20 patients in the United States and Europe. These were plans, not achieved milestones.
- Editas’ end-2022 EM22 goals included at least three experimental medicines in early-stage trials and at least two additional medicines in or ready for late-stage trials. Management expected continued losses and higher research, clinical-development, and intellectual-property costs; it did not expect profitability in 2019 or the foreseeable future.
- Allergan exercised its EDIT-101 option, paying $15 million, and paid a further $25 million upon IND acceptance. The parties’ U.S. profit-and-loss sharing arrangement was formalized in February 2019; Editas bears half of applicable U.S. development costs and Allergan retains control of development and commercialization.
- 2018 revenue recognition adopted ASC 606. Compared with the prior accounting basis, the change reduced FY 2018 revenue by $2.1 million and increased the reported annual net loss by the same amount; it increased fourth-quarter revenue by $1.1 million.
- Unusual or non-cash items included $26.6 million of stock-based compensation, $12.5 million of Broad sponsored-research funding expense settled with shares, and $3.7 million of non-cash Beam equity investment value. Patent and licensing obligations may also generate significant future costs.
- Key risks include clinical and safety uncertainty for genome editing, off-target effects, manufacturing and trial-enrollment delays, reliance on Allergan and Juno, the need for additional capital, and extensive dependence on licensed intellectual property. Patent challenges remain material: the filing reports ongoing U.S. and European proceedings, including a European patent revocation disclosed in February 2019. Editas stated it had no other litigation contingency reserves at year-end.
- The company reported audited financial statements with an unqualified opinion and effective disclosure controls and internal control over financial reporting. Management also identified executive recruitment and leadership transitions as risks.
Most important facts for investors to verify
- Whether EDIT-101 patient dosing began on schedule and what safety, tolerability, and efficacy data show.
- Whether cash burn, collaboration receipts, and clinical spending support the stated runway; the 24-month estimate depends on assumptions and was made as of the filing date.
- How ASC 606 revenue recognition and deferred revenue affect period-to-period comparisons and the timing of future collaboration revenue.
- The terms, cost sharing, decision rights, and potential economics under the Allergan EDIT-101 arrangement, plus progress and funding under the Juno collaboration.
- Developments in CRISPR patent proceedings and related license costs, including any effect on Editas’ ability to use or protect its platform.
- Potential dilution from future equity financing, stock compensation, and share-based settlement of certain obligations.