Intellia Therapeutics, Inc. — Q2 2016 Form 10-Q
Reporting period: Three and six months ended June 30, 2016. Financial amounts below are in millions of dollars unless stated otherwise. The company is an early-stage CRISPR/Cas9 genome-editing therapeutics developer; it had no products approved for sale, and all revenue to date was collaboration revenue.
Financial results and liquidity
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Collaboration revenue | $4.206 | $1.377 | $5.983 | $2.663 |
| Research and development expense | $7.423 | $1.966 | $12.648 | $3.337 |
| General and administrative expense | $3.729 | $2.833 | $6.975 | $3.943 |
| Operating loss | $(6.946) | $(3.422) | $(13.640) | $(4.617) |
| Net loss | $(6.900) | $(3.040) | $(13.589) | $(4.133) |
| Loss per share | $(0.36) | Not applicable | $(1.37) | Not applicable |
- At June 30, cash and cash equivalents were $300.687; total current assets were $302.904 and total assets were $310.624. Accumulated deficit was $35.525.
- Deferred revenue totaled $81.329, including $72.7 related to Regeneron and $8.7 related to Novartis. These balances represent consideration to be recognized as collaboration obligations are performed.
- Six-month operating cash flow was positive $58.129, primarily reflecting Regeneron’s $75.0 upfront payment, partly offset by operating spending and a $2.2 lease security deposit. Investing cash flow was $(2.155), and financing cash flow was $168.897, principally from the IPO and concurrent private placements. Cash increased by $224.871.
- No borrowings are listed on the balance sheet; the filing does not provide a separate debt balance. No gross margin is reported, and a product margin is not meaningful given the collaboration-revenue business model and continuing losses.
Changes versus the prior comparable periods
- Q2 collaboration revenue rose $2.829 year over year; six-month revenue increased $3.320. The increase reflected revenue recognized under the new Regeneron agreement and Novartis research funding.
- R&D expense increased $5.457 in Q2 and $9.311 for the first six months, reflecting growth in research staff, laboratory supplies and internal research activity. R&D headcount rose from 18 to 56 year over year as of June 30.
- G&A expense increased $0.896 in Q2 and $3.032 for the first six months, mainly from higher staffing and equity-based compensation. The company expected further public-company and organizational costs.
- The May 2016 IPO and concurrent private placements materially changed the capital and share structure. Preferred stock converted into common stock; 35,995,074 common shares were outstanding at June 30. The share-count change makes per-share comparisons with 2015 limited.
Business, outlook and notable items
- In April 2016, Intellia entered a Regeneron collaboration, received a nonrefundable $75.0 upfront payment and received $50.0 from Regeneron’s concurrent common-stock purchase. The agreement covers CRISPR/Cas programs, primarily liver-focused, and allows Regeneron to select up to 10 targets. Intellia recognized $2.3 of collaboration revenue through June 30; most of the upfront payment remained deferred.
- The Novartis collaboration focuses on ex vivo CAR T-cell and hematopoietic stem-cell programs, with potential additional fees, milestones and royalties. Both collaborations may provide significant future payments, but milestones and royalties are contingent and uncertain.
- Management estimated cash and expected Novartis technology-access and research funding would fund operating expenses and capital expenditures until at least mid-2019, excluding potential milestones and extension fees. Management cautioned that this estimate depends on assumptions that may prove incorrect. It expected R&D spending to rise as programs advance and the new facility is occupied.
- The company signed a ten-year Cambridge office and laboratory lease, with an option to terminate after year six and an option to extend three years. Future minimum payments were $31.864; a $2.2 security deposit was recorded in other assets.
- Key risks include the unproven nature of CRISPR/Cas9 therapeutics, delivery and safety challenges, uncertain regulatory pathways, preclinical-stage programs, need for future financing, reliance on collaborators, manufacturing and clinical-development risks, and intellectual-property disputes. In particular, the filing describes a USPTO interference concerning CRISPR/Cas9 patent rights licensed through Caribou and the Broad Institute patent family.
- Management reported disclosure controls were effective at the reasonable-assurance level as of June 30, 2016, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether research and preclinical progress supports the stated mid-2019 cash runway, given rising expenses and reliance on Novartis funding.
- Regeneron and Novartis performance, target selections, termination rights, and the timing and conditions for any additional collaboration payments.
- Revenue-recognition assumptions and the pace at which deferred revenue converts to reported collaboration revenue; reported revenue is not product sales.
- Developments in the CRISPR/Cas9 patent interference and the company’s ability to secure and maintain required intellectual-property rights.
- Potential share-supply and governance effects: the filing stated that 29,095,074 shares were subject to 180-day IPO lockups expected to expire November 1, 2016, and that insiders and principal holders owned approximately 71.2% after the IPO and concurrent placements.