Intellia Therapeutics, Inc. — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017. Amounts are in U.S. dollars; financial statement figures are in millions unless otherwise noted. The interim statements are unaudited.
Business context
Intellia is a preclinical genome-editing company developing CRISPR/Cas9-based therapeutics. It reported no product sales; all revenue to date came from collaboration agreements with Novartis and Regeneron. Its programs included liver-focused in vivo research, including a transthyretin amyloidosis program co-developed with Regeneron, and ex vivo CAR-T and hematopoietic stem-cell programs with Novartis.
Financial performance and liquidity
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Collaboration revenue | $5.9 | $4.2 | $12.1 | $6.0 |
| Research and development expense | $15.6 | $7.4 | $29.0 | $12.6 |
| General and administrative expense | $6.4 | $3.7 | $12.1 | $7.0 |
| Operating loss | $16.0 | $6.9 | $29.0 | $13.6 |
| Net loss | $15.6 | $6.9 | $28.2 | $13.6 |
| Net loss per share | $0.45 | $0.36 | $0.81 | $1.37 |
- Collaboration revenue rose $1.7 million in Q2 and $6.1 million for the six-month period. Management attributed the increases mainly to collaboration timing and recognition of previously deferred revenue; Q2 2017 revenue included Regeneron research services. Revenue is not product revenue.
- Operating expenses increased substantially, primarily as the company expanded research and development staffing and advanced early-stage programs. R&D headcount was 110 at June 30, 2017, versus 56 a year earlier; G&A headcount was 33 versus 19.
- Cash and cash equivalents were $241.0 million at June 30, 2017, down from $273.1 million at December 31, 2016. Cash equivalents included $236.2 million of money-market accounts, commercial paper and U.S. Treasury securities.
- For the first six months, operating cash use was $27.1 million, investing cash use was $5.4 million, and financing provided $0.5 million. The comparable 2016 periods included $75.0 million of Regeneron upfront cash and $170.5 million of IPO and concurrent private-placement proceeds, respectively.
- Total assets were $265.0 million and stockholders’ equity was $187.6 million. Current liabilities were $26.4 million; deferred revenue was $69.6 million in total. The filing reports no material debt balance; deferred revenue is not debt. No gross margin is provided, and a product margin is not meaningful because there were no product sales.
Changes, outlook and notable items
- Cash used in operations shifted from $58.1 million provided in the first half of 2016 to $27.1 million used in the first half of 2017, largely because the prior period included Regeneron’s upfront payment. Capital spending increased to $5.4 million from $2.2 million.
- Management expected R&D expenses and laboratory-equipment investment to continue increasing. It estimated that June 30 cash, together with expected Novartis technology-access fees and research funding, would fund operating expenses and capital expenditures through mid-2019, excluding potential milestones or extension fees. Management cautioned that the estimate depended on assumptions that could prove incorrect.
- Milestone and royalty receipts under the collaborations are contingent on uncertain research and development outcomes. Management identified the Novartis payments as the only committed external funding source and said future capital needs could require equity financing or additional collaborations.
- The CRISPR/Cas9 approach was unclinically validated for human therapeutic use, and programs remained early-stage. Risks include delivery, efficacy and safety, regulatory uncertainty, manufacturing, reliance on collaborators, and the ability to finance development.
- Intellectual-property uncertainty is material: the PTAB dismissed the CRISPR patent interference without deciding priority or inventorship; UC/Vienna/Charpentier appealed, and filed its opening brief on July 25, 2017. The outcome and implications for Intellia’s licensed rights were uncertain.
- The company expected adoption of the new revenue standard not to have a significant financial-statement impact. It expected the new lease standard to result in recognition of a significant lease obligation. Disclosure controls were deemed effective, and no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether collaboration funding, revenue recognition and research progress support the stated mid-2019 cash runway, and how spending evolves.
- Progress and risks in preclinical programs, including delivery, safety, efficacy and any transition toward clinical development.
- Developments in CRISPR/Cas9 patent proceedings and the scope, enforceability and continuity of Intellia’s licensed intellectual-property rights.
- Collaborator performance, target selections, program funding and any changes to the Novartis or Regeneron agreements.
- Potential financing needs and dilution if collaboration receipts or future development milestones do not materialize.