Editas Medicine(EDIT) - 2020 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The unaudited condensed consolidated financial statements for Editas Medicine, Inc. as of June 30, 2020, show a significant increase in cash and total assets, primarily due to a public stock offering, with the company continuing to operate at a net loss, generating revenues from collaborations and incurring significant expenses in research and development, reflecting the financial position of a clinical-stage company investing heavily in its pipeline Condensed Consolidated Balance Sheets As of June 30, 2020, the company's total assets increased to $655.5 million from $508.9 million at year-end 2019, driven by a substantial rise in cash and cash equivalents to $485.8 million largely due to proceeds from a public offering, while total liabilities decreased slightly to $228.7 million, and total stockholders' equity grew significantly to $426.8 million from $262.4 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $485,819 | $238,183 | | Total current assets | $610,126 | $463,844 | | Total assets | $655,481 | $508,885 | | Liabilities & Equity | | | | Total current liabilities | $68,150 | $59,963 | | Total liabilities | $228,709 | $246,448 | | Total stockholders' equity | $426,772 | $262,437 | Condensed Consolidated Statements of Operations For the three months ended June 30, 2020, collaboration revenue increased significantly to $10.7 million compared to $2.3 million in the same period of 2019, with the net loss for the quarter narrowing to $23.6 million from $33.8 million year-over-year, and for the six-month period, revenue was $16.5 million, up from $4.4 million, while the net loss remained relatively stable at $61.3 million compared to $63.0 million in the prior year Statements of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Collaboration and other R&D revenues | $10,749 | $2,330 | $16,472 | $4,399 | | Research and development expense | $28,007 | $23,565 | $62,576 | $39,408 | | General and administrative expense | $14,081 | $14,414 | $31,852 | $31,903 | | Operating loss | $(31,339) | $(35,649) | $(77,956) | $(66,912) | | Net loss | $(23,572) | $(33,786) | $(61,296) | $(63,035) | | Net loss per share | $(0.43) | $(0.69) | $(1.12) | $(1.29) | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2020, net cash used in operating activities was $84.9 million, net cash provided by investing activities was $120.6 million mainly from maturities of marketable securities, and net cash provided by financing activities was a significant $214.2 million primarily from a common stock offering that yielded $204.0 million in net proceeds, resulting in a net increase in cash of $249.9 million for the period Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(84,942) | $(54,809) | | Net cash provided by investing activities | $120,637 | $126,736 | | Net cash provided by financing activities | $214,200 | $3,902 | | Net increase in cash | $249,895 | $75,829 | - The company raised approximately $204.0 million in net proceeds from an offering of common stock during the first six months of 2020[22] Notes to Condensed Consolidated Financial Statements The notes detail the company's business as a clinical-stage genome editing company and its financial condition, including its reliance on equity financing and collaboration payments for funding, with existing cash expected to fund operations into 2023, and a significant subsequent event being the termination of the strategic alliance with Allergan in August 2020, which resulted in Editas regaining full global rights to its ocular medicines, including EDIT-101 - In June 2020, the company completed a public offering of 6,900,000 shares of common stock, receiving net proceeds of approximately $203.7 million[27] - Existing cash, cash equivalents, and marketable securities as of June 30, 2020, are expected to fund operating expenses and capital expenditure requirements into 2023[28] - Subsequent to the quarter end, on August 5, 2020, the company terminated its strategic alliance with Allergan. Editas regained full global rights to its ocular medicines, including EDIT-101, and will now be responsible for its development and commercialization[63][64] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's position as a clinical-stage genome editing company focused on ocular diseases and engineered cell medicines, with the lead program EDIT-101 having its first patient dosed in Q1 2020, and a key strategic change being the termination of the Allergan collaboration, giving Editas full rights to its ocular programs but also full financial responsibility, which is expected to significantly increase R&D expenses, while financially, revenue increased due to an out-license agreement and the Allergan alliance, and net loss narrowed in Q2 2020, with the company strengthening its balance sheet with a $203.7 million public offering, extending its cash runway into 2023 - The company's lead program, EDIT-101 for Leber congenital amaurosis 10 (LCA10), initiated a Phase 1/2 clinical trial in mid-2019, with the first patient dosed in Q1 2020[71] - The strategic alliance with Allergan was terminated on August 5, 2020. Editas regained full global rights to its ocular medicines, including EDIT-101, and will now bear the full cost of development, expecting a significant increase in R&D expenses[74][75] - The company aims to submit an Investigational New Drug (IND) application for EDIT-301 for sickle cell disease by the end of 2020[71] - As of June 30, 2020, the company had an accumulated deficit of $610.5 million and expects to continue incurring significant operating losses for the foreseeable future[77] Results of Operations For the three months ended June 30, 2020, revenues increased to $10.7 million from $2.3 million in 2019, primarily due to a $7.6 million recognition from a new out-license agreement, while R&D expenses rose 19% to $28.0 million, driven by increased sublicense fees and employee costs, and general and administrative expenses remained flat, and for the six-month period, revenues grew to $16.4 million from $4.3 million, and R&D expenses increased 59% to $62.6 million, mainly due to higher process and platform development costs related to manufacturing and clinical activities Comparison of Results for the Three Months Ended June 30 (in thousands) | Item | 2020 | 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues | $10,749 | $2,330 | $8,419 | n/m | | R&D Expenses | $28,007 | $23,565 | $4,442 | 19% | | G&A Expenses | $14,081 | $14,414 | $(333) | (2)% | | Net Loss | $(23,572) | $(33,786) | $10,214 | (30)% | Comparison of Results for the Six Months Ended June 30 (in thousands) | Item | 2020 | 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues | $16,472 | $4,339 | $12,133 | n/m | | R&D Expenses | $62,576 | $39,408 | $23,168 | 59% | | G&A Expenses | $31,852 | $31,903 | $(51) | (0)% | | Net Loss | $(61,296) | $(63,095) | $1,799 | (3)% | Liquidity and Capital Resources As of June 30, 2020, the company had $598.7 million in cash, cash equivalents, and marketable securities, with liquidity significantly bolstered by a June 2020 public offering that raised net proceeds of $203.7 million, and the company also established a $150.0 million at-the-market (ATM) facility in May 2020, though no shares have been sold under it, and management expects current capital to fund operations and capital expenditures into 2023, with future funding needs depending on the progress of clinical programs like EDIT-101 and preclinical activities for EDIT-301 and EDIT-201 - In June 2020, a public offering of common stock yielded net proceeds of approximately $203.7 million[122] - The company established a $150.0 million at-the-market (ATM) offering facility in May 2020, but has not yet sold any shares under it[122] - Existing cash and marketable securities of $598.7 million as of June 30, 2020, are expected to fund operations into 2023[122][134] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposure is to interest rate sensitivity due to its holdings of cash, cash equivalents, and marketable securities in U.S. government-backed securities, but due to the short-term maturities and low-risk profile of these investments, management believes a 100 basis point change in interest rates would not have a material effect on their fair market value, and the company has no material exposure to foreign currency exchange rate risk as liabilities are denominated in U.S. dollars - The company's primary market risk is interest rate sensitivity on its $485.8 million in cash and cash equivalents and $112.9 million in marketable securities[144] - Due to the short-term and low-risk nature of its investments, a 1% change in interest rates is not expected to have a material impact on the portfolio's fair value[144] - The company does not have material exposure to foreign currency exchange rate risk[145] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures as of June 30, 2020, concluding that these controls were effective at a reasonable assurance level, with no material changes in the company's internal control over financial reporting during the quarter - The CEO and CFO concluded that as of June 30, 2020, the company's disclosure controls and procedures were effective at the reasonable assurance level[146] - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[147] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company states that it may become involved in legal proceedings arising from the ordinary course of business, specifically noting that certain of its licensed intellectual property rights are subject to priority and validity disputes, and refers to the Risk Factors section for more details on these matters - The company acknowledges potential involvement in litigation from the ordinary course of business[150] - Certain intellectual property rights licensed by the company are subject to priority and validity disputes, which are further detailed in the Risk Factors section[150] Item 1A. Risk Factors This section outlines the numerous and substantial risks facing the company, including a history of significant financial losses and the need for substantial additional capital, risks inherent in developing novel genome editing therapies with an unproven regulatory and commercial track record, dependence on the success of its lead candidate EDIT-101, reliance on third parties for collaborations, clinical trials, and manufacturing, and significant, complex intellectual property disputes, particularly interference and opposition proceedings related to its licensed CRISPR patents, with other risks involving regulatory hurdles, public perception of gene editing, competition, and market volatility Risks Related to Our Financial Position and Need for Additional Capital The company has a history of significant operating losses, with an accumulated deficit of $610.5 million as of June 30, 2020, and expects to incur losses for the foreseeable future, requiring substantial additional funding to advance its clinical programs, particularly as it now bears the full cost for the EDIT-101 program after the Allergan termination, with failure to raise capital potentially forcing delays or elimination of R&D programs - The company has incurred significant operating losses since inception, with an accumulated deficit of $610.5 million as of June 30, 2020[153] - Substantial additional funding will be needed to advance clinical trials and R&D programs. Failure to raise capital could force the company to delay, reduce, or eliminate programs[157][158] Risks Related to Discovery, Development, and Commercialization The company's focus on novel genome editing technology presents significant risk, as no such therapeutic has been approved in the U.S. or Europe, with the regulatory landscape being uncertain and evolving, and risks of adverse events such as "off-target" edits potentially halting development, and the company being heavily dependent on the success of EDIT-101, now managing and funding the clinical trial itself after the Allergan termination despite limited experience, with failure or delays in this or other programs materially harming the business - The company's success depends on a novel genome editing technology, and no therapeutic product utilizing this technology has been approved in the U.S. or Europe[175][176] - A significant risk in genome editing is "off-target" cuts, which could lead to serious adverse events and potentially halt clinical development[203] - Following the termination of the Allergan collaboration, Editas is now fully responsible for funding and conducting the Phase 1/2 clinical trial for EDIT-101, despite having limited experience in conducting such trials[196] Risks Related to Our Dependence on Third Parties Editas relies heavily on third parties, including collaborators for R&D, Contract Research Organizations (CROs) for clinical trials, and Contract Manufacturing Organizations (CMOs) for materials supply, with the termination of the Allergan collaboration highlighting the risks of such partnerships, and reliance on third parties reducing control over these activities and introducing risks related to performance, regulatory compliance, and supply chain continuity, which could delay or impair development and commercialization efforts - The company depends on collaborations for R&D and commercialization, and the termination of the Allergan agreement for the LCA10 program will significantly increase expenses[290][301] - The company relies on third-party CROs to conduct clinical trials and preclinical testing, which reduces control over these activities and introduces risks of delays and non-performance[311][312] - Manufacturing of materials for research, preclinical studies, and clinical trials is contracted to third-party CMOs, creating risks related to supply sufficiency, quality, cost, and regulatory compliance[318][319] Risks Related to Our Intellectual Property The company's success is highly dependent on a complex and contested intellectual property landscape for CRISPR technology, with many of its core patents in-licensed and subject to ongoing, costly, and uncertain legal challenges, including interference proceedings in the U.S. and opposition proceedings in Europe, and an adverse outcome in these disputes could result in the loss or narrowing of patent rights, requiring the company to obtain licenses from competitors or cease development, with the dynamic and litigious nature of the genome editing field posing a significant threat to the company's competitive position - The company heavily relies on in-licensed patents from institutions like The Broad Institute and Harvard, which are subject to complex priority and validity disputes[335][337][343] - Key in-licensed U.S. patents are involved in a second interference proceeding with the University of California/Vienna/Charpentier to determine priority of invention for CRISPR/Cas9 use in eukaryotic cells[347] - Several in-licensed European patents have been revoked or are under opposition, which could lead to the loss of patent protection in Europe and have a material adverse effect on the business[356] Risks Related to Regulatory Approval and Other Legal Compliance Matters The company faces a long, expensive, and uncertain regulatory approval process for its novel product candidates, with failure to obtain, or delays in obtaining, approval from the FDA and other global authorities preventing commercialization, and even if approved, products will be subject to ongoing regulation, potential marketing restrictions, and pricing pressures from healthcare reform and payors, and the company must also comply with complex anti-kickback and fraud laws, with changes in the political landscape, such as Brexit or U.S. healthcare policy shifts, potentially further complicating the path to market - The marketing approval process for novel genome editing therapies is expensive, time-consuming, and uncertain, with no guarantee of success[401] - Even if approved, products may face unfavorable pricing regulations, limited reimbursement from third-party payors, and challenges due to the high potential cost of single-administration therapies[258][262] - The company's relationships with healthcare providers and payors are subject to strict anti-kickback, fraud, and abuse laws, violations of which can lead to significant penalties[419] Risks Related to Employee Matters, Managing Growth, Public Health and Information Technology The company's success depends on attracting and retaining key management and scientific personnel in a competitive market, and it also faces operational risks from public health crises like the COVID-19 pandemic, which could disrupt R&D, clinical trials, and manufacturing, and as the company grows, it may encounter difficulties managing its expansion, furthermore, its information technology systems are vulnerable to security breaches, which could compromise sensitive data and disrupt business - The company is highly dependent on its ability to attract and retain key executives and qualified scientific personnel in a competitive environment[467][471] - The COVID-19 pandemic poses risks of disruption to operations, including delays in preclinical studies, clinical trials, and manufacturing activities[472][474] - Security breaches of the company's IT infrastructure could compromise intellectual property and other sensitive data, leading to liability and reputational damage[480][481] Risks Related to Our Common Stock The market price of the company's common stock is likely to be volatile due to factors such as clinical trial results, regulatory developments, and competition, with a significant number of shares potentially being sold into the market, depressing the stock price, and as a public company, Editas incurs significant compliance costs, with provisions in its corporate governance documents and Delaware law potentially discouraging or preventing a change in control, limiting shareholder value - The market price of the company's common stock is subject to high volatility due to industry-specific and company-specific factors[484] - Sales of a significant number of shares in the public market, or the perception of such sales, could cause the stock price to decline[490] - Provisions in the company's certificate of incorporation and bylaws, as well as Delaware law, could discourage, delay, or prevent a change in control[501][502] Item 6. Exhibits This section provides an index of the exhibits filed with the Quarterly Report on Form 10-Q, including a Common Stock Sales Agreement, a Separation Agreement, an Advisory Services Agreement, and certifications by the Principal Executive Officer and Principal Financial Officer - The report includes several exhibits, such as the Common Stock Sales Agreement with Cowen and Company, LLC, and certifications required by the SEC[510][511]