Editas Medicine, Inc. — Q3 2017 Form 10-Q
Business context and period. This unaudited quarterly filing covers the three and nine months ended September 30, 2017. Editas is a preclinical-stage genome-editing company developing CRISPR-based medicines. It has no product sales and reports collaboration and research revenue. Its most advanced program targets Leber congenital amaurosis type 10 (LCA10).
Financial results and liquidity
Amounts below are in millions of dollars, except per-share data.
| Metric | Q3 2017 | Q3 2016 | 9M 2017 | 9M 2016 |
|---|---|---|---|---|
| Collaboration and research revenue | $6.3 | $1.0 | $10.1 | $5.2 |
| Research and development expense | $20.4 | $10.8 | $56.7 | $30.1 |
| General and administrative expense | $12.6 | $11.3 | $36.8 | $33.2 |
| Operating loss | $(26.7) | $(21.2) | $(83.5) | $(58.2) |
| Net loss | $(26.6) | $(21.0) | $(84.1) | $(57.8) |
| Net loss per share, basic and diluted | $(0.64) | $(0.59) | $(2.13) | $(1.86) |
Balance sheet and cash flow. At September 30, cash and cash equivalents were $86.5 million and marketable securities were $209.1 million, totaling approximately $295.7 million in cash, cash equivalents and securities. Current assets were $298.4 million and current liabilities $29.5 million. Total liabilities were $161.3 million, including $111.1 million of deferred revenue and a $33.7 million non-current construction financing lease obligation. Notes payable were zero at quarter-end; the notes issued to Broad and Wageningen were settled during Q3 using cash and shares.
For the first nine months, operating activities provided $15.7 million, primarily because deferred revenue increased $84.8 million following Allergan’s upfront payment; this cash-flow figure should not be read as evidence of operating profitability. Investing activities used $210.5 million, largely reflecting purchases of marketable securities, while financing activities provided $96.1 million, mainly from the March 2017 stock offering. Cash and cash equivalents declined $98.8 million to $86.5 million.
Material changes versus comparable periods
- Nine-month revenue rose 95% to $10.1 million, principally reflecting $5.6 million recognized under the Allergan alliance; Q3 revenue also included a $2.5 million Juno milestone.
- Nine-month R&D expense increased 88% to $56.7 million. Drivers included $14.1 million of additional sublicensing expenses, higher employee costs and increased process and platform development spending.
- Nine-month G&A expense rose 11% to $36.8 million. Higher stock compensation and employee costs were partly offset by lower intellectual-property and patent-related fees.
- Nine-month net loss widened to $84.1 million from $57.8 million. The March 2017 offering raised $96.7 million net and increased weighted-average shares, affecting year-over-year per-share comparisons.
- Marketable securities increased from none reported at December 31, 2016 to $209.1 million at September 30, 2017, reflecting the investment of available funds.
Outlook, management commentary and key risks
- Management estimated that September 30 cash, cash equivalents and marketable securities, anticipated interest income and expected Juno research support would fund operating and capital requirements for at least 24 months. The estimate depends on assumptions that may prove inaccurate.
- The company expects significant expenses and losses to continue and does not expect profitability in 2017 or the foreseeable future. It expects R&D spending to increase as programs advance and anticipates needing substantial additional capital over time.
- Editas aimed to file an IND for LCA10 by mid-2018. All programs remained in research or preclinical development; no product candidates had entered clinical development.
- Allergan paid a $90 million nonrefundable upfront amount in March 2017 for research and option rights covering ocular-disease programs. The company recognized $5.6 million of related revenue in the first nine months and reported $84.4 million of Allergan deferred revenue at quarter-end. Allergan’s options, future milestones and any resulting royalties are uncertain.
- Juno revenue included a $2.5 million milestone recognized in July 2017. Further milestone and royalty receipts depend on development and commercial outcomes and are not assured.
- Significant risks include preclinical or clinical failure, unknown safety risks such as off-target genome edits, evolving regulation and public acceptance of genome editing, competition, manufacturing and financing needs, and reliance on collaborators and third-party manufacturers.
- Broad- and Harvard-licensed CRISPR patents face ongoing priority and validity disputes. The PTAB’s February 2017 finding of no interference-in-fact was appealed; ToolGen suggestions of interference remained pending, as did European patent opposition proceedings and a suspended U.S. re-examination. Patent outcomes could affect the company’s technology rights and costs. The filing reports no other litigation and no litigation contingency reserves.
- The company recorded $13.0 million of expense in the first nine months for reimbursement of Broad and Harvard patent-prosecution and related costs, and said these costs could remain substantial while proceedings continue.
Investor verification checklist
- Confirm the cash runway assumptions, including the expected Juno research support, planned spending and the timing of future financing needs.
- Track LCA10 preclinical and IND-enabling progress against the stated mid-2018 IND target, and verify any subsequent clinical, regulatory or safety updates.
- Review revenue recognition and deferred revenue balances under the Juno and Allergan agreements, including the expected service periods and conditions for option, milestone and royalty payments.
- Monitor CRISPR patent appeals, ToolGen proceedings, European oppositions and related legal expense, and assess potential effects on Editas’s licensed intellectual property.
- Reconcile operating cash flow with the large deferred-revenue increase, and distinguish collaboration cash receipts from recurring product revenue, which the company had not generated.