Editas Medicine, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Financial statements are unaudited. Editas is a clinical-stage genome-editing company with no product sales; collaboration and research revenue is its principal operating revenue.
Key financial metrics
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Collaboration and research revenue | $3.8 million | $14.5 million | $8.2 million | $25.8 million |
| Research and development expense | $22.7 million | $17.4 million | $62.1 million | $71.5 million |
| General and administrative expense | $15.7 million | $13.3 million | $47.6 million | $41.8 million |
| Operating loss | $34.6 million | $16.3 million | $101.5 million | $87.5 million |
| Net loss | $32.9 million | $15.2 million | $96.0 million | $84.9 million |
| Basic and diluted loss per share | $0.66 | $0.32 | $1.95 | $1.81 |
| Operating cash used | Not presented quarterly | Not presented quarterly | $81.7 million | $47.0 million |
Interest income, net was $1.7 million in Q3 and $5.7 million for the nine months, versus $1.0 million and $2.2 million in the comparable 2018 periods. The filing does not report a meaningful gross margin; Editas had no product revenue.
- Liquidity at September 30: Cash and cash equivalents of $104.8 million and marketable securities of $227.8 million, totaling $332.6 million. Current assets were $339.2 million and current liabilities $66.8 million.
- Cash flows, nine months: Investing activities provided $4.4 million, principally because security maturities exceeded purchases; financing activities provided $47.3 million, including $41.2 million net proceeds from stock offerings. Cash, cash equivalents and restricted cash decreased $30.0 million.
- Debt and leases: No construction financing lease obligation remained at quarter-end. Operating lease liabilities totaled $17.7 million, including $4.4 million current. Total liabilities were $162.4 million, including substantial deferred collaboration revenue; the filing does not identify material conventional borrowings.
- Capital and dilution: ATM sales during Q3 were 1.72 million shares for approximately $43.6 million gross proceeds; net proceeds received during the quarter were approximately $42.1 million. Approximately $106.4 million of gross ATM capacity remained as of the filing date. Shares outstanding were 51.08 million at quarter-end.
Changes versus prior comparable periods
- Q3 revenue declined 73% year over year, mainly because the $15.0 million EDIT-101 option exercise payment recognized in Q3 2018 did not recur; Juno revenue also fell. Nine-month revenue declined 68%, reflecting lower Allergan and Juno revenue and the absence of a 2018 out-license upfront payment.
- Q3 R&D expense increased 30%, primarily from manufacturing, clinical and platform-development costs, workforce growth and facilities. Nine-month R&D expense declined 13%, largely because 2018 included $12.5 million of Broad research funding and other sublicensing and success-payment expenses.
- G&A expense rose 18% in Q3 and 14% for the nine-month period, mainly due to professional services and workforce-related costs. Nine-month patent-related fees decreased from 2018.
- Net loss increased by $17.7 million in Q3 and $11.1 million for the nine-month period. Higher expenses relative to collaboration revenue drove the deterioration.
- Cash and marketable securities fell from $369.0 million at December 31, 2018 to $332.6 million at September 30, 2019. The balance-sheet comparison is affected by adoption of lease accounting, which removed the prior construction asset and financing liability and recorded operating lease assets and liabilities.
Outlook, developments and risks
- Management said existing cash, cash equivalents, marketable securities and anticipated interest income were expected to fund operating and capital requirements for at least 24 months after the filing date. The company nevertheless expects continued losses, rising expenses and a need for substantial additional capital; it did not expect profitability in 2019 or the foreseeable future.
- EDIT-101, partnered with Allergan for LCA10, entered a Phase 1/2 clinical trial in mid-2019. Patient screening had begun; management aimed to start dosing by early 2020 and expected to enroll approximately 18 patients in the United States and Europe. The company and Allergan share U.S. development costs and profits equally.
- In November 2019, after quarter-end, Editas entered a revised Juno collaboration and related license agreement. It became entitled to a one-time $70.0 million payment and may receive research-term extensions, program opt-in fees, development and commercial milestones, and royalties. The revised agreement also imposes restrictions on genome-editing work involving specified T-cell types.
- Key risks include clinical and safety uncertainty for novel genome-editing therapies, off-target effects, manufacturing and trial-enrollment challenges, dependence on partners, and the need for further financing. The company highlighted ongoing CRISPR patent disputes: a second U.S. interference, a re-examination proceeding, and European opposition proceedings; four in-licensed European patents had been revoked, with appeals pending.
- The company reported no litigation and no material changes in contractual obligations during the quarter. It did report substantial, not yet determinable, future reimbursement commitments to licensors for patent prosecution and dispute expenses; such expense was $10.1 million for the first nine months of 2019.
- Disclosure controls and procedures were assessed as effective at the reasonable-assurance level, with no material change in internal control over financial reporting reported.
Most important facts for investors to verify
- Whether EDIT-101 begins dosing on the stated timetable, enrolls successfully and produces acceptable safety and efficacy results.
- Receipt and terms of the $70.0 million Juno payment, along with the effects of the revised collaboration’s exclusivity, milestones and royalty provisions.
- Cash-burn trajectory and whether the stated 24-month runway remains supported as clinical, manufacturing and platform spending grows.
- Outcomes of the U.S. and European CRISPR patent proceedings, including possible effects on licensed rights, costs and program development.
- Future dilution from ATM or other equity issuance and the amount and timing of continued patent-related reimbursement expenses.