Editas Medicine, Inc. — Q2 2016 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and six months ended June 30, 2016. Editas is a preclinical-stage genome-editing company developing CRISPR/Cas9-based therapies. Its most advanced program targets Leber Congenital Amaurosis type 10 (LCA10); management aimed to begin a clinical trial in 2017. The company reported no product-sales revenue.
Key financial metrics
Amounts below are in millions of dollars except per-share data. Balance-sheet comparisons are June 30, 2016 versus December 31, 2015.
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Collaboration and other R&D revenue | $3.4 | $0.2 | $4.2 | $0.2 |
| Research and development expense | $10.4 | $7.3 | $19.3 | $9.2 |
| General and administrative expense | $12.2 | $3.3 | $21.9 | $6.6 |
| Operating loss | $19.2 | $10.4 | $37.0 | $15.6 |
| Net loss | $19.0 | $47.6 | $36.8 | $52.9 |
| Net loss per share, basic and diluted | $(0.54) | $(21.45) | $(1.28) | $(25.38) |
- Liquidity: Cash and cash equivalents were $217.7 million, up from $143.2 million at year-end. Current assets were $221.2 million; current liabilities were $13.7 million. Management expected available cash, interest income, Juno research support and CFFT funding to cover operating and capital needs for at least 24 months, subject to assumptions.
- Cash flow: For the first half, operating activities used $19.5 million, investing activities used $3.7 million, and financing activities provided $97.7 million. The resulting increase in cash was $74.5 million.
- Liabilities and commitments: Total liabilities were $62.3 million, including $25.6 million of deferred revenue and a $22.7 million construction financing lease obligation. The filing does not show a material conventional borrowing balance at June 30.
- Margins: Product margins are not meaningful because the company had no product sales and remained research-stage; collaboration revenue did not cover operating expenses.
Material changes versus the prior comparable period
- First-half revenue increased to $4.2 million, primarily reflecting Juno collaboration revenue, including a $2.5 million technical-progress milestone achieved in May 2016, and $0.1 million recognized under the Cystic Fibrosis Foundation Therapeutics (CFFT) award.
- First-half R&D expense rose $10.1 million year over year, mainly from higher employee and contractor costs, platform development activity and facility costs. G&A expense rose $15.4 million, primarily due to patent-related legal costs and higher employee compensation.
- First-half net loss narrowed by $16.1 million, but the comparison is affected by $37.2 million of other expense in the 2015 period, principally fair-value remeasurement of preferred-stock tranche and anti-dilution liabilities. The IPO eliminated or reclassified relevant instruments, reducing comparability.
- The February 2016 IPO generated approximately $97.5 million in net proceeds. Preferred stock converted into common stock at the IPO; the resulting increase in weighted-average shares materially affects year-over-year loss-per-share comparisons. The company said it had not used IPO proceeds as of June 30.
Outlook, commentary, risks and unusual items
- Management expected significant expense growth and continuing losses, and did not expect profitability in 2016 or the foreseeable future. Additional capital may be needed beyond the stated 24-month runway if assumptions change; unavailable or unfavorable financing could force delays or reductions in development.
- The company was advancing more than a dozen research programs, all in research or preclinical stages. Clinical, regulatory and commercial success remained uncertain; management could not reliably estimate the timing or cost of completing development.
- Material intellectual-property uncertainty includes a U.S. Patent Trial and Appeal Board interference involving Broad/MIT/Harvard-licensed CRISPR patents and the University of California, the University of Vienna and Emmanuelle Charpentier, as well as related patent oppositions and a suspended re-examination. An adverse outcome could impair the company’s technology rights. Patent-prosecution and maintenance reimbursements to Broad and Harvard were substantial and expected to remain so while proceedings continue.
- Other key risks include the unproven safety and efficacy of CRISPR/Cas9 therapies, off-target edits, evolving regulation and public acceptance, manufacturing and delivery challenges, and dependence on collaborators and third parties.
- The Hurley Street laboratory and office lease was under construction; $22.7 million of construction-in-progress and a corresponding lease obligation were recorded, with rent commencement expected in fall 2016. Subsequent to quarter-end, the company entered an MGH license agreement with an upfront fee in the high six digits and an Adverum collaboration involving a $1.0 million upfront fee and potential additional payments.
- The CFFT award provides up to $5.0 million over three years for cystic-fibrosis work and requires matching company funding. It also carries conditional royalty and other payment obligations if qualifying technology is commercialized or transferred.
Important facts for investors to verify
- Whether LCA10 advances toward the stated 2017 clinical-trial target and what preclinical or regulatory milestones support that timeline.
- Actual cash burn, facility spending and collaboration/CFFT receipts against management’s 24-month funding estimate.
- Developments and potential financial or business effects of the CRISPR patent interference, re-examination and European opposition proceedings, including continuing licensor expense reimbursements.
- Juno program progress, potential milestone timing, and the risk that future milestone or royalty income may not materialize.
- The cost and terms of the new MGH and Adverum arrangements, and whether the CFFT matching and contingent payment obligations change as programs progress.
- Potential share-supply effects following expiration of IPO lock-ups on July 31, 2016, alongside ongoing stock-based compensation and future financing needs.