Editas Medicine, Inc. — Q2 2017 Form 10-Q
Business context and period: Unaudited results for the three and six months ended June 30, 2017, compared with the corresponding 2016 periods. Editas is a clinical-stage? No: the company describes itself as a research-stage genome-editing biotechnology company; all programs remained in research or preclinical development. It had no product sales.
Financial performance and position
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Collaboration and research revenue | $3.1m | $3.4m | $3.8m | $4.2m |
| Research and development expense | $17.3m | $10.4m | $36.3m | $19.3m |
| General and administrative expense | $11.9m | $12.2m | $24.2m | $21.9m |
| Operating loss | $(26.1)m | $(19.2)m | $(56.7)m | $(37.0)m |
| Net loss | $(26.4)m | $(19.0)m | $(57.5)m | $(36.8)m |
| Basic and diluted loss per share | $(0.65) | $(0.54) | $(1.49) | $(1.28) |
Revenue primarily reflected recognition of the $90.0m Allergan upfront payment and Juno collaboration revenue. The company reported no product revenue and expects ongoing losses; conventional operating margins are not meaningful for this pre-revenue business.
At June 30, cash and cash equivalents were $144.1m and marketable securities were $180.7m, totaling $324.8m. Current assets were $327.9m and current liabilities $48.7m. Total liabilities were $183.8m; these included $15.0m of current notes payable and a $33.9m non-current construction financing lease obligation. Stockholders’ equity was $185.0m. Accumulated deficit was $243.1m.
For the six months, operating activities provided $43.6m, investing activities used $181.6m, and financing activities provided $96.8m; cash and cash equivalents declined $41.2m. Operating cash flow was boosted principally by an $87.9m increase in deferred revenue, largely from Allergan’s upfront payment, and should not be read as cash generation from profitable operations. The March 2017 stock offering generated $96.7m net proceeds. No material off-balance-sheet arrangements were reported.
Changes versus prior comparable periods
- Q2 net loss widened by $7.4m year over year; six-month net loss widened by $20.7m.
- Six-month R&D expense rose $17.0m, primarily due to $7.4m in licensor payments connected with Allergan funding, $5.0m of notes issued as a success payment under the Cpf1 license, higher staffing, and increased platform-development activity. The Q2 expense increase also included $5.1m of additional sublicense fees.
- Six-month revenue fell $0.4m. Q2 2016 revenue included a $2.5m Juno milestone, while Q2 2017 revenue included $2.4m recognized under the Allergan alliance and $0.7m under Juno.
- The company held $180.7m of marketable securities at June 30, versus none at year-end 2016, reflecting purchases during the period. The $67,000 unrealized loss was recorded in other comprehensive loss.
- Shares outstanding increased following the March offering; the company cautioned that this affects year-over-year loss-per-share comparability.
Outlook, commentary, and risks
- Management expected cash, cash equivalents, marketable securities, anticipated interest income, Juno research support, and anticipated CFFT payments to fund operating and capital needs for at least 24 months from June 30, 2017. It cautioned that assumptions may prove wrong and substantial additional capital will be needed over time.
- The company expected expenses and operating losses to increase and did not expect profitability in 2017 or the foreseeable future. It aimed to initiate an LCA10 natural-history study in mid-2017 and file an IND by mid-2018; these were plans, not assurances.
- In July 2017, Editas achieved a $2.5m Juno milestone. In August, it settled the $5.0m Cpf1 Success Payment Notes, issuing 271,347 common shares to Broad and paying $0.4m to Wageningen for outstanding principal and interest.
- Potentially significant additional licensor payments remained uncertain: the company estimated it could owe up to $6.8m more in sublicense income, while discussions continued. It had accrued $5.1m at June 30 and paid that amount in July.
- Key risks include the early, preclinical status of programs; uncertain safety, efficacy, regulation, manufacturing, funding, and partner decisions; and extensive CRISPR intellectual-property disputes. The PTAB had found no interference-in-fact in a Broad-related proceeding, but an appeal was filed in July 2017; ToolGen suggestions and European patent oppositions also remained matters of uncertainty.
- The company reported disclosure controls effective at the reasonable-assurance level and no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Confirm the stated 24-month runway assumptions against cash burn, future R&D commitments, and reliance on collaboration and CFFT receipts.
- Track the timing and accounting of deferred revenue recognition, particularly the remaining Allergan and Juno balances, and the potential impact of adopting the new revenue standard in 2018.
- Verify the final amount and timing of sublicense-related payments and any other contingent obligations to licensors.
- Follow the Federal Circuit appeal, ToolGen proceedings, European oppositions, and their potential effects on the company’s licensed patent rights and costs.
- Monitor LCA10 study and IND milestones, preclinical progress, partner option decisions, and whether development plans or timelines change.