Editas Medicine, Inc. quarterly report, Q2 FY2020

Editas Medicine, Inc. — Q2 2020 Form 10-Q

Reporting period: Quarter and six months ended June 30, 2020. Financial statements are unaudited. Editas is a clinical-stage genome-editing company and has not generated product revenue.

Financial performance and liquidity

Metric	Q2 2020	Q2 2019	Six months 2020	Six months 2019
Collaboration and other R&D revenue	$10.7 million	$2.3 million	$16.5 million	$4.4 million
Research and development expense	$28.0 million	$23.6 million	$62.6 million	$39.4 million
General and administrative expense	$14.1 million	$14.4 million	$31.9 million	$31.9 million
Operating loss	$31.3 million	$35.6 million	$78.0 million	$66.9 million
Net loss	$23.6 million	$33.8 million	$61.3 million	$63.0 million
Net loss per share, diluted	$0.43	$0.69	$1.12	$1.29

Q2 revenue included $7.6 million from an out-license agreement entered into during the quarter, plus increased Allergan collaboration revenue. The filing does not identify the out-licensee in the supplied text.
Higher R&D spending reflected increased process and platform development, staffing, facility costs, and license fees. G&A was broadly unchanged year over year.
Other income included unrealized gains on Beam Therapeutics shares of $7.2 million in Q2 and $14.5 million for the half year. These noncash gains helped reduce reported net loss; interest income was lower year over year.
At June 30, cash and cash equivalents were $485.8 million, marketable securities were $112.9 million, and total assets were $655.5 million. The company reported no debt in the presented balance sheet; liabilities were $228.7 million, including deferred revenue and lease liabilities.
For the first half, operating cash use was $84.9 million versus $54.8 million in 2019; investing activities provided $120.6 million, and financing activities provided $214.2 million, chiefly from the June stock offering. Cash, cash equivalents, and restricted cash increased by $249.9 million.
In June, Editas sold 6.9 million shares in a public offering and received approximately $203.7 million net. A separate at-the-market facility allows up to $150 million of gross sales; no shares had been sold under it as of the filing.
Accumulated deficit was $610.5 million. Management expected cash, cash equivalents, marketable securities, and anticipated interest income to fund operations and capital needs into 2023.

Material changes and business developments

R&D expense rose 19% in Q2 and 59% for the first half. Six-month increases were led by process and platform development ($12.9 million), employee expenses ($5.8 million), license fees ($3.1 million), and facilities ($2.4 million).
On August 5, 2020, after quarter-end, Editas and Allergan agreed to terminate their strategic alliance and EDIT-101 profit-sharing arrangement. Editas regained full global rights to its ocular medicines, including EDIT-101, and will assume full development costs for the program. The agreements provide for a payment to Allergan, potential clinical, regulatory and sales milestones, royalties on specified product sales, and transition-service costs.
As of June 30, deferred revenue was $179.3 million, primarily related to Juno Therapeutics and Allergan. The company recognized $3.1 million of Allergan collaboration revenue in Q2.

Outlook, risks, and contingencies

Management targeted completion of dosing in the EDIT-101 adult low-dose cohort and dosing of at least one adult mid-dose patient by year-end 2020, with potential data by year-end. The Phase 1/2 trial remained open to enrollment.
Editas aimed to submit an IND for EDIT-301 in sickle cell disease by year-end 2020 and an IND for EDIT-201 in solid tumors in the second half of 2021. These were forward-looking targets, not assured outcomes.
The company expected significant expenses and operating losses for the foreseeable future and did not expect to be profitable in 2020. It will require substantial additional capital; funding needs and runway depend on development costs, trial progress, collaboration receipts, and access to financing.
COVID-19 had not materially affected results or liquidity in the first half, but its future impact was uncertain. Editas had resumed certain on-site laboratory and manufacturing work under social-distancing measures and delayed development of its autosomal dominant retinitis pigmentosa 4 program.
Key risks include clinical and safety uncertainty for novel genome-editing therapies, trial enrollment and transition of EDIT-101 from Allergan, manufacturing and supply constraints, need for future financing, and extensive CRISPR patent disputes. Patent proceedings had resulted in revocation of certain in-licensed European patents, with additional disputes ongoing.
Editas reimbursed Broad and Harvard $6.6 million for patent-related expenses in the first half; the total future commitment for ongoing proceedings was not determinable. Management reported no material change in contractual obligations and no off-balance-sheet arrangements.
Disclosure controls and procedures were concluded effective as of June 30, 2020; no material change in internal control over financial reporting was reported.

Important facts for investors to verify

Whether EDIT-101 trial transfer, enrollment, dosing, and any anticipated data meet the stated timelines, and the full development-cost impact of the Allergan termination.
The terms and accounting treatment of the second-quarter out-license agreement, including whether revenue or related sublicense costs recur.
How much of reported earnings reflects noncash Beam share-price gains, and the future volatility of those gains.
Whether the projected runway into 2023 remains supportable as spending increases and whether additional financing or dilution becomes necessary.
Developments in CRISPR patent interference, opposition, and validity proceedings, and any effects on Editas’s ability to develop or commercialize its programs.
The status of COVID-19-related operational or clinical delays and progress against the EDIT-301 and EDIT-201 development targets.