Editas Medicine, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Unaudited consolidated financial statements. Unless otherwise noted, amounts below are in millions of U.S. dollars.
Business context
Editas is a clinical-stage genome-editing company with no product sales to date. Its lead clinical program is EDIT-101 for LCA10; the company completed dosing in the adult low-dose cohort and continued enrollment, which had slowed amid COVID-19. EDIT-301, for sickle cell disease and beta-thalassemia, was in IND-enabling studies; management aimed to submit an IND by year-end 2020.
Financial performance and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Collaboration and other R&D revenue | $62.8 | $3.8 | $79.3 | $8.2 |
| Research and development expense | $33.9 | $22.7 | $96.5 | $62.1 |
| General and administrative expense | $19.9 | $15.7 | $51.8 | $47.6 |
| Operating income (loss) | $9.0 | $(34.6) | $(69.0) | $(101.5) |
| Net income (loss) | $7.8 | $(32.9) | $(53.5) | $(96.0) |
| Net income (loss) per diluted share | $0.12 | $(0.66) | $(0.93) | $(1.95) |
- Revenue and earnings: The Q3 profit primarily reflected a one-time release of deferred Allergan collaboration revenue following termination of the agreement, not product sales. The filing reports $63.2 million of Q3 revenue related to Allergan, including termination accounting; it also states $62.1 million of previously deferred revenue was recognized on the termination date. No revenue was recognized under the Juno collaboration in the first nine months of 2020.
- Expenses and margins: Operating expenses rose 40% in Q3 and 35% for the nine-month period year over year, led by R&D. Gross margin is not meaningful because the company had no product revenue and reports collaboration revenue rather than product sales.
- Cash flow: For the first nine months, operating cash use was $139.7 million, investing cash use was $31.6 million, and financing provided $215.0 million. Cash, cash equivalents, and restricted cash increased $43.7 million to $283.5 million. Operating cash use included an $86.0 million decrease in deferred revenue.
- Liquidity and debt: At September 30, cash and cash equivalents were $279.6 million and marketable securities were $261.7 million, totaling $541.3 million. Total liabilities were $156.0 million, including $100.7 million of deferred revenue and operating lease liabilities; the filing reports no borrowings. Management expected available cash, equivalents, securities, and anticipated interest income to fund operations and capital requirements into 2023, while noting estimates may prove wrong.
- Financing and shares: A June public offering of 6.9 million shares generated approximately $203.7 million net proceeds. The company also had an unused at-the-market facility of up to $150 million. Shares outstanding were 62.2 million at September 30, versus 54.4 million at December 31, 2019.
Material changes and unusual items
- In August 2020, Editas terminated its Allergan alliance and regained full global rights to its ocular medicines, including EDIT-101. It assumed responsibility for the program’s development costs and expects R&D expense to increase significantly.
- Editas agreed to pay Allergan $20 million; $17.5 million had been paid by September 30. Further contingent obligations include clinical and regulatory milestones of up to $20 million per target program, aggregate sales milestones up to $90 million, and low-single-digit royalties on specified product sales.
- The termination led to recognition of previously deferred revenue and a one-time $5 million in-process R&D expense for the reacquired EDIT-101 rights. The remainder of the termination payment reduced the contract liability.
- Other income for the nine months included $16.8 million of unrealized gains on Beam Therapeutics shares, partly offset by Q3 unrealized losses of $1.4 million. Editas sold the investment in October 2020 and reported a subsequent realized gain of $16.3 million.
- The company raised $203.7 million net in the June offering. Nine-month R&D expense increased 55%, reflecting program development, staffing, facilities, and license-related costs.
Outlook, risks, and contingencies
- Management expected continued significant expenses and operating losses and did not expect profitability in 2020 or the foreseeable future. Revenue is expected mainly from collaborations, including Juno, and may fluctuate with timing of deliverables and milestones.
- COVID-19 had slowed EDIT-101 enrollment; the duration and business impact of the pandemic remained uncertain. The company also delayed development of its autosomal dominant retinitis pigmentosa 4 program and did not plan to declare a development candidate by the end of 2020.
- Key risks include clinical and regulatory uncertainty for genome-editing medicines, patient enrollment and safety, manufacturing scale-up, competition, dependence on external funding and collaborators, and the possibility that capital will not be available on acceptable terms.
- Intellectual property is a material contingency: licensed CRISPR patents faced U.S. interference and re-examination proceedings and European opposition proceedings. Four in-licensed European patents had been revoked, and one appeal had been dismissed; other appeals and oppositions remained pending. Editas also reported substantial, unquantifiable commitments to reimburse Broad and Harvard patent-related expenses, including $9.3 million incurred in the first nine months of 2020.
- Management stated disclosure controls were effective as of September 30, 2020 and reported no material change in internal control over financial reporting during the quarter. The company reported no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether EDIT-101 enrollment and the transfer of trial responsibilities from Allergan proceed as planned, and how COVID-19 affects timing and costs.
- Progress toward the stated year-end 2020 EDIT-301 IND submission and the funding and development timeline for other programs.
- The actual cash runway relative to management’s “into 2023” estimate, especially as Editas assumes full EDIT-101 costs and continues to incur operating cash burn.
- The outcome and potential business impact of CRISPR patent interference, re-examination, and European opposition proceedings, and ongoing patent reimbursement obligations.
- The effects of Allergan’s termination terms and any future milestone, sales-milestone, royalty, or transition-service payments.
- How much of future reported revenue is recurring collaboration activity versus nonrecurring deferred-revenue recognition, and whether Juno option packages or other partner payments are achieved.