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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ________

Commission File Number 001-37687

EDITAS MEDICINE, INC.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

46-4097528
(I.R.S. Employer
Identification No.)

11 Hurley Street
Cambridge, Massachusetts
(Address of principal executive offices)

02141
(Zip Code)

(617401-9000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

EDIT

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer 

Non-accelerated filer

  

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

The number of shares of Common Stock outstanding as of May 1, 2020 was 54,996,548.

Table of Contents

Editas Medicine, Inc.

TABLE OF CONTENTS

    

    

Page

PART I. FINANCIAL INFORMATION

3

Item 1.

Financial Statements (unaudited)

3

Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019

3

Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019

4

Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2020 and 2019

5

Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2020 and 2019

6

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019

7

Notes to Condensed Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

Item 4.

Controls and Procedures

25

PART II. OTHER INFORMATION

27

Item 1.

Legal Proceedings

27

Item 1A.

Risk Factors

27

Item 6.

Exhibits

81

Signatures

82

2

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements.

Editas Medicine, Inc.

Condensed Consolidated Balance Sheets

(unaudited)

(amounts in thousands, except share and per share data)

    

March 31, 

    

December 31, 

2020

2019

ASSETS

Current assets:

Cash and cash equivalents

$

232,850

$

238,183

Marketable securities

182,143

218,957

Accounts receivable

 

1,832

 

418

Prepaid expenses and other current assets

 

8,281

 

6,286

Total current assets

 

425,106

 

463,844

Property and equipment, net

 

12,218

 

10,887

Right-of-use assets

27,022

28,761

Restricted cash and other non-current assets

 

2,391

 

5,393

Total assets

$

466,737

$

508,885

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

10,394

$

5,843

Accrued expenses

 

8,669

 

22,120

Deferred revenue, current

40,642

23,514

Operating lease liabilities

5,649

5,804

Other current liabilities

 

3,515

 

2,682

Total current liabilities

 

68,869

 

59,963

Operating lease liabilities, net of current portion

21,530

23,277

Deferred revenue, net of current portion

141,770

163,207

Other non-current liabilities

 

1

 

1

Total liabilities

232,170

246,448

Stockholders’ equity

Preferred stock, $0.0001 par value per share: 5,000,000 shares authorized; no shares issued or outstanding

 

 

Common stock, $0.0001 par value per share: 195,000,000 shares authorized; 54,982,399 and 54,533,798 shares issued, and 54,802,399 and 54,355,798 shares outstanding at March 31, 2020 and December 31, 2019, respectively

 

5

 

5

Additional paid-in capital

 

820,813

 

811,546

Accumulated other comprehensive income

694

107

Accumulated deficit

 

(586,945)

 

(549,221)

Total stockholders’ equity

234,567

262,437

Total liabilities and stockholders’ equity

$

466,737

$

508,885

The accompanying notes are an integral part of the condensed consolidated financial statements.

3

Table of Contents

Editas Medicine, Inc.

Condensed Consolidated Statements of Operations

(unaudited)

(amounts in thousands, except per share and share data)

    

    

Three Months Ended

March 31, 

2020

2019

Collaboration and other research and development revenues

$

5,723

$

2,069

Operating expenses:

Research and development

 

34,570

 

15,842

General and administrative

 

17,769

 

17,489

Total operating expenses

 

52,339

 

33,331

Operating loss

 

(46,616)

 

(31,262)

Other income, net:

Other income (expense), net

 

7,333

 

(44)

Interest income, net

1,559

2,057

Total other income, net

 

8,892

 

2,013

Net loss

$

(37,724)

$

(29,249)

Net loss per share attributable to common stockholders, basic and diluted

$

(0.69)

$

(0.60)

Weighted-average common shares outstanding, basic and diluted

 

54,590,194

 

48,838,229

The accompanying notes are an integral part of the condensed consolidated financial statements.

4

Table of Contents

Editas Medicine, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(unaudited)

(amounts in thousands)

Three Months Ended

March 31, 

2020

2019

Net loss

$

(37,724)

$

(29,249)

Other comprehensive income:

Unrealized gain on marketable debt securities

 

587

 

58

Comprehensive loss

$

(37,137)

$

(29,191)

The accompanying notes are an integral part of the condensed consolidated financial statements.

5

Table of Contents

Editas Medicine, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited)

(amounts in thousands, except share data)

    

    

Accumulated

    

    

Additional

Other

Other

Total

Common Stock

Paid-In

Comprehensive

Accumulated

Stockholders’

Shares

    

Amount

Capital

Income

Deficit

Equity

Balance at December 31, 2019

54,355,798

$

5

$

811,546

$

107

$

(549,221)

$

262,437

Exercise of stock options

233,208

3,047

3,047

Vesting of restricted common stock awards

213,393

Stock-based compensation expense

6,220

6,220

Unrealized gain on marketable debt securities

587

587

Net loss

(37,724)

(37,724)

Balance at March 31, 2020

54,802,399

$

5

$

820,813

$

694

$

(586,945)

$

234,567

    

    

Accumulated

    

    

Additional

Other

Other

Total

Common Stock

Paid-In

Comprehensive

Accumulated

Stockholders’

Shares

    

Amount

Capital

(Loss) Income

Deficit

Equity

Balance at December 31, 2018

48,758,951

$

5

$

652,464

$

(29)

$

(416,278)

$

236,162

Cumulative effect adjustment for adoption of new accounting guidance

803

803

Exercise of stock options

146,171

1,533

1,533

Vesting of restricted common stock awards

18,000

Stock-based compensation expense

7,855

7,855

Unrealized gain on marketable debt securities

58

58

Net loss

(29,249)

(29,249)

Balance at March 31, 2019

48,923,122

$

5

$

661,852

$

29

$

(444,724)

$

217,162

The accompanying notes are an integral part of the condensed consolidated financial statements.

6

Table of Contents

Editas Medicine, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(amounts in thousands)

Three Months Ended

March 31, 

    

2020

    

2019

Cash flow from operating activities

Net loss

$

(37,724)

$

(29,249)

Adjustments to reconcile net loss to net cash used in operating activities:

Stock-based compensation expense

 

6,220

 

7,855

Depreciation

 

798

 

628

Unrealized gain on corporate equity securities

(7,333)

Other non-cash items, net

 

(215)

 

(1,181)

Changes in operating assets and liabilities:

 

 

Accounts receivable

(1,414)

30

Prepaid expenses and other current assets

(1,995)

789

Right-of-use assets

1,739

981

Other non-current assets

93

Accounts payable

4,767

626

Accrued expenses

(13,644)

(6,923)

Deferred revenue

 

(4,309)

 

(2,061)

Operating lease liabilities

 

(1,902)

 

(1,379)

Other current and non-current liabilities

833

881

Net cash used in operating activities

 

(54,086)

 

(29,003)

Cash flow from investing activities

Purchases of property and equipment

 

(2,152)

(718)

Proceeds from the sale of equipment

36

Purchases of marketable securities

(66,384)

(74,692)

Proceeds from maturities of marketable securities

115,000

126,000

Net cash provided by investing activities

 

46,464

 

50,626

Cash flow from financing activities

Proceeds from exercise of stock options

3,047

1,533

Net cash provided by financing activities

 

3,047

 

1,533

Net (decrease) increase in cash, cash equivalents, and restricted cash

 

(4,575)

23,156

Cash, cash equivalents, and restricted cash, beginning of period

 

239,802

136,395

Cash, cash equivalents, and restricted cash, end of period

$

235,227

$

159,551

Supplemental disclosure of cash and non-cash activities:

Fixed asset additions included in accounts payable and accrued expenses

$

705

$

356

Cash paid in connection with operating lease liabilities

2,538

1,724

Right-of-use assets obtained in exchange of operating lease obligations

19,461


The accompanying notes are an integral part of the condensed consolidated financial statements.

7

Table of Contents

Editas Medicine, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Nature of Business

Editas Medicine, Inc. (the “Company”) is a leading, clinical stage genome editing company dedicated to developing potentially transformative genomic medicines to treat a broad range of serious diseases. The Company was incorporated in the state of Delaware in September 2013. Its principal offices are in Cambridge, Massachusetts.

Since its inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, and raising capital. The Company has primarily financed its operations through various equity financings, payments received under a research collaboration with Juno Therapeutics, Inc., a wholly-owned subsidiary of the Bristol-Myers Squibb Company (“Juno Therapeutics”), and payments received under a strategic alliance with Allergan Pharmaceuticals International Limited (together with its affiliates, “Allergan”)

The Company is subject to risks common to companies in the biotechnology industry, including but not limited to, risks of failure of preclinical studies and clinical trials, the need to obtain marketing approval for any drug product candidate that it may identify and develop, the need to successfully commercialize and gain market acceptance of its product candidates, dependence on key personnel, protection of proprietary technology, compliance with government regulations, development by competitors of technological innovations and ability to transition from pilot-scale manufacturing to large-scale production of products.

Liquidity

As of March 31, 2020, the Company has raised an aggregate of $444.8 million in net proceeds through the sale of shares of its common stock in public offerings and at-the-market offerings. The Company has incurred annual net operating losses in every year since its inception. The Company expects that its existing cash, cash equivalents and marketable securities at March 31, 2020 and anticipated interest income will enable it to fund its operating expenses and capital expenditure requirements for at least 24 months following the date of this Quarterly Report on Form 10-Q. The Company had an accumulated deficit of $586.9 million at March 31, 2020, and will require substantial additional capital to fund its operations. The Company has never generated any product revenue. There can be no assurance that the Company will be able to obtain additional debt or equity financing or generate product revenue or revenues from collaborative partners, on terms acceptable to the Company, on a timely basis or at all. The failure of the Company to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on the Company’s business, results of operations, and financial condition.

2. Summary of Significant Accounting Policies

Unaudited Interim Financial Information

The condensed consolidated financial statements of the Company included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) have been condensed or omitted from this report, as is permitted by such rules and regulations. Accordingly, these condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (the “Annual Report”).

8

Table of Contents

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Editas Securities Corporation. All intercompany transactions and balances of the subsidiary have been eliminated in consolidation. In the opinion of management, the information furnished reflects all adjustments, all of which are of a normal and recurring nature, necessary for a fair presentation of the results for the reported interim periods. The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. The three months ended March 31, 2020 and 2019 are referred to as the first quarter of 2020 and 2019, respectively. The results of operations for interim periods are not necessarily indicative of results to be expected for the full year or any other interim period.

Summary of Significant Accounting Policies

The Company’s significant accounting policies are described in Note 2, “Summary of significant accounting policies,” to the consolidated financial statements included in the Annual Report. There have been no material changes to the significant accounting policies previously disclosed in the Annual Report, other than as noted below.

Corporate Equity Securities

The Company classifies investments in equity securities that have a readily determinable fair value as marketable securities in the Company’s condensed consolidated balance sheets. The Company’s marketable securities are stated at fair value. Typically, the fair value of these securities is based on a quoted price for an identical equity security. If the equity security has a restriction that is determined to be an attribute of the security that would transfer to a market participant, the fair value of the security is measured based on the quoted price for an otherwise identical unrestricted equity security, adjusted for the effect of the restriction. The adjustment reflects the discount that a market participant would demand for the risk relating to the inability to dispose of the security for a specified period of time. That adjustment is based on the nature and duration of the restriction and the limitations imposed by the restriction to a buyer. The Company records changes in the fair value of its equity securities in “Other Income (Expense), net” in the Company’s condensed consolidated statement of operations.

Recent Accounting Pronouncements – Recently Adopted

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Statement Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (“ASU 2016-13”) which was clarified and amended by the issuances of ASUs 2018-19, 2019-04, 2019-05 and 2019-11 in November 2018, April 2019, May 2019 and November 2019, respectively. The new standard requires that expected credit losses relating to financial assets measured on an amortized cost basis to be measured using an expected-loss model, replacing the current incurred-loss model, and recorded through an allowance for credit losses which is a valuation account that is deducted from the amortized cost basis of the financial asset. ASU 2016-13 requires evaluation of credit loss based on historical experience, current conditions and reasonable and supportable forecasts. The Company’s estimate of expected credit losses includes a measure of the expected risk of credit loss even if the risk is remote. When assessing financial assets for credit losses, the Company pools financial assets with similar risk characteristics and performs a collective evaluation. However, the Company is not required to measure expected credit losses in which historical credit loss information adjusted for current conditions and reasonable and supportable forecasts results in an expectation that nonpayment of the amortized cost basis is zero. At each reporting date, the Company will record an allowance for credit losses and reports it as credit loss expense which is included in “Other income (expense), net” in the Company’s condensed consolidated statement of operations. However subsequent increases or decreases in the fair value of available-for-sale securities that do not result in recognition or reversal of an allowance for credit loss or write-down will continue to be recorded in other comprehensive loss. The Company adopted the new standard and the related amendments on January 1, 2020 using a modified retrospective approach. The modified retrospective approach requires the Company to record a one-time adjustment to opening accumulated deficit as of the effective date. The Company concluded that there are no indicators of credit loss with respect to its available-for-sale debt securities which consist of U.S Treasury securities and government-agency bonds. The Company therefore did not record an allowance for credit losses or doubtful accounts upon adoption or during the first quarter of 2020. The adoption of ASU 2016-13 therefore had no impact on the Company’s condensed consolidated financial statements.

9

Table of Contents

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU 2018-15 was effective on January 1, 2020. The Company adopted ASU 2018-15 using the prospective transition approach, which allows the Company to change the accounting method without restating prior periods or recording cumulative adjustments. The adoption of ASU 2018-15 did not have a material impact on the Company’s condensed consolidated financial statements.

In 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which eliminates, adds, and modifies the disclosure requirements for fair value measurements. ASU 2018-13 was effective on January 1, 2020. The adoption of ASU 2018-13 results in additional disclosures related to the Company’s assets and liabilities that are valued based on Level 3 inputs and transfers between Level 1 and Level 2 fair value measurements. The adoption of ASU 2018-13 did not have a material impact on the Company’s financial statement footnote disclosures.

3. Cash Equivalents, Marketable Securities and Equity Securities

Cash equivalents and marketable securities consisted of the following at March 31, 2020 (in thousands):

Allowance

Gross

Gross

Amortized

for Credit

Unrealized

Unrealized

Fair

March 31, 2020

Cost

Losses

Gains

Losses

Value

Cash equivalents and marketable securities:

Money market funds

$

232,850

$

$

$

$

232,850

U.S. Treasuries

48,323

167

48,490

Government agency securities

122,126

527

122,653

Corporate equity securities

3,667

7,333

11,000

Total

$

406,966

$

$

8,027

$

$

414,993

Cash equivalents, marketable securities and equity securities consisted of the following at December 31, 2019 (in thousands):

Gross

Gross

Amortized

Unrealized

Unrealized

Fair

December 31, 2019

Cost

Gains

Losses

Value

Cash equivalents and marketable securities:

Money market funds

$

230,201

$

$

$

230,201

U.S. Treasuries

71,348

20

71,368

Government agency securities

155,484

87

155,571

Equity securities included in other non-current assets:

Corporate equity securities

3,667

3,667

Total

$

460,700

$

107

$

$

460,807

As of March 31, 2020, the Company did not hold any marketable securities in an unrealized loss position. Furthermore, the Company has determined that there were no material changes in the credit risk of the debt securities.

There were no realized gains or losses on available-for-sale securities during the three months ended March 31, 2020 or 2019.

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4. Fair Value Measurements

Assets measured at fair value on a recurring basis as of March 31, 2020 were as follows (in thousands):

    

    

Quoted Prices

    

Significant

    

in Active

Other

Significant

Markets for

Observable

Unobservable

March 31, 

Identical Assets

Inputs

Inputs

Financial Assets

2020

(Level 1)

(Level 2)

(Level 3)

Cash equivalents:

Money market funds

$

232,850

$

232,850

$

$

Marketable securities:

U.S. Treasuries

48,490

48,490

Government agency securities

122,653

122,653

Corporate equity securities

11,000

11,000

Restricted cash and other non-current assets:

Money market funds

2,377

2,377

Total financial assets

$

417,370

$

406,370

$

11,000

$

Assets measured at fair value on a recurring basis as of December 31, 2019 were as follows (in thousands):

    

    

Quoted Prices

    

Significant

    

in Active

Other

Significant

Markets for

Observable

Unobservable

December 31, 

Identical Assets

Inputs

Inputs

Financial Assets

2019

(Level 1)

(Level 2)

(Level 3)

Cash equivalents:

Money market funds

$

230,201

$

230,201

$

$

U.S. Treasuries

7,982

7,982

Marketable securities:

U.S. Treasuries

63,386

63,386

Government agency securities

155,571

155,571

Restricted cash and other non-current assets:

Corporate equity securities

3,667

3,667

Money market funds

1,619

1,619

Total financial assets

$

462,426

$

458,759

$

3,667

$

The Company holds an investment in Beam Therapeutics Inc. (“Beam Therapeutics”) consisting of shares of Beam Therapeutics’ common stock. Prior to Beam Therapeutics’ initial public offering in February 2020, the Company valued such investment based on the cost of the equity securities adjusted for any observable market transactions. Following the initial public offering, the equity securities have a readily determinable fair value, and are included in marketable securities on the condensed consolidated balance sheet with a fair value based on Level 2 inputs due to transfer restrictions associated with the securities. Upon the expiration of the transfer restrictions the Company expects to transfer the value of these equity securities from Level 2 to Level 1. During the three months ended March 31, 2020, the Company recorded unrealized gains of $7.3 million in other income (expense), net on the Consolidated Statements of Operations.

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5. Accrued Expenses

Accrued expenses consisted of the following (in thousands):

As of

March 31, 

December 31, 

    

2020

    

2019

Employee related expenses

$

3,727

$

4,971

Intellectual property and patent related fees

2,327

3,725

Process and platform development expenses

1,583

 

735

Other expenses

541

599

Professional service expenses

491

674

Sublicensing expenses

11,416

Total accrued expenses

$

8,669

$

22,120

6. Property and Equipment, net

Property and equipment, net consisted of the following (in thousands):

    

As of

March 31, 

December 31, 

    

2020

    

2019

Laboratory equipment

$

15,970

$

14,571

Construction-in-progress

 

2,005

 

1,336

Leasehold improvements

1,206

1,042

Computer equipment

756

858

Furniture and office equipment

166

166

Software

 

118

 

118

Total property and equipment

 

20,221

 

18,091

Less: accumulated depreciation

 

(8,003)

 

(7,204)

Property and equipment, net

$

12,218

$

10,887

7. Commitments and Contingencies

The Company is a party to a number of license agreements under which the Company licenses patents, patent applications and other intellectual property from third parties. As such, the Company is obligated to pay licensors for various costs including upfront licenses fees, annual license fees, certain licensor expense reimbursements, success payments, research funding payments, and milestones triggerable upon certain development, regulatory, and commercial events as well as royalties on future products. These contracts are generally cancellable, with notice, at the Company’s option and do not have significant cancellation penalties. The terms and conditions as well as the accounting analysis for the Company’s significant commitments and contingencies are described in Note 8, “Commitments and Contingencies” to the consolidated financial statements included in the Annual Report. There have been no material changes to the terms and conditions, or the accounting conclusions previously disclosed in the Annual Report.

Licensor Expense Reimbursement

The Company is obligated to reimburse The Broad Institute, Inc. (“Broad”) and the President and Fellows of Harvard College (“Harvard”) for expenses incurred by each of them associated with the prosecution and maintenance of the patent rights that the Company licenses from them pursuant to the license agreement by and among the Company, Broad and Harvard, including the interference and opposition proceedings involving patents licensed to the Company under the license agreement, and other license agreements between the Company and Broad. As such, the Company anticipates that it has a substantial commitment in connection with these proceedings until such time as these proceedings have been resolved, but the amount of such commitment is not determinable. The Company incurred an aggregate of $3.8 million and $3.4 million in expense during the three months ended March 31, 2020 and 2019,

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respectively, for such reimbursement.

8. Collaboration and Profit-Sharing Agreements

The Company has entered into multiple collaborations, out-licenses and strategic alliances with third parties that typically involve payments to or from the Company, including up-front payments, payments for research and development services, option payments, milestone payments and royalty payments to or from the Company. The terms and conditions as well as the accounting analysis for the Company’s significant collaborations, out-licenses and strategic alliances are described in Note 9, “Collaboration and Profit-Sharing Agreements” to the consolidated financial statements included in the Annual Report. There have been no material changes to the terms and conditions, or the accounting conclusions previously disclosed in the Annual Report.

Collaboration Revenue

As of March 31, 2020, the Company’s contract liabilities were primarily related to the Company’s collaboration with Juno Therapeutics and its strategic alliance with Allergan. The following table presents changes in the Company’s accounts receivable and contract liabilities for the three months ended March 31, 2020 (in thousands):

For the three months ended March 1, 2020

Balance at December 31, 2019

Additions

Deductions

Balance at March 31, 2020

Accounts receivable

$

418

$

1,414

$

$

1,832

Contract liabilities:

Deferred revenue

$

186,721

$

508

$

(4,817)

$

182,412

During the three months ended March 31, 2020, the Company recognized the following collaboration revenue (in thousands):

Three Months Ended

Revenue recognized in the period from:

March 31, 2020

Amounts included in deferred revenue at the beginning of the period

$

4,817

Performance obligations satisfied in previous periods

$

60

9. Stock-based Compensation

Total compensation cost recognized for all stock-based compensation awards in the condensed consolidated statements of operations was as follows (in thousands):

    

    

Three Months Ended

March 31, 

2020

2019

Research and development

$

3,057

$

3,382

General and administrative

 

3,163

 

4,473

Total stock-based compensation expense

$

6,220

$

7,855

Restricted Stock and Restricted Stock Unit Awards

The following is a summary of restricted stock and restricted stock unit awards activity for the three months ended March 31, 2020:

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Weighted

Average

Grant Date

Fair Value

Shares

Per Share

Unvested restricted stock and restricted stock unit awards as of December 31, 2019

 

581,408

$

24.03

Issued

 

251,497

$

28.15

Vested

 

(213,393)

$

22.16

Forfeited

(53,684)

$

24.35

Unvested restricted stock and restricted stock unit awards as of March 31, 2020

 

565,828

$

26.61

As of March 31, 2020, total unrecognized compensation expense related to unvested restricted stock and restricted stock unit awards was $13.3 million, which the Company expects to recognize over a remaining weighted-average period of 3.1 years.

Stock Options

The following is a summary of stock option activity for the three months ended March 31, 2020:

    

    

Weighted Average

    

Remaining

    

Aggregate Intrinsic

Shares

Exercise Price

Contractual Life (years)

Value (in thousands)

Outstanding at December 31, 2019

 

4,358,291

$

25.40

7.4

$

26,060

Granted

980,145

$

28.21

Exercised

(233,208)

$

13.06

Cancelled

(557,401)

$

30.64

Outstanding at March 31, 2020

 

4,547,827

$

26.00

7.4

$

4,400

Exercisable at March 31, 2020

 

1,724,574

$

24.79

5.1

$

4,187

As of March 31, 2020, total unrecognized compensation expense related to stock options was $43.9 million, which the Company expects to recognize over a remaining weighted-average period of 2.9 years.

10. Net Loss per Share

Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock and potentially dilutive securities outstanding for the period determined using the treasury stock and if converted methods. Contingently issuable shares are included in the calculation of basic loss per share as of the beginning of the period in which all the necessary conditions have been satisfied. Contingently issuable shares are included in diluted loss per share based on the number of shares, if any, that would be issuable under the terms of the arrangement if the end of the reporting period was the end of the contingency period, if the results are dilutive.

For purposes of the diluted net loss per share calculation, stock options are considered to be common stock equivalents, but they were excluded from the Company’s calculation of diluted net loss per share allocable to common stockholders because their inclusion would have been anti-dilutive. Therefore, basic and diluted net loss per share applicable to common stockholders was the same for all periods presented.

The following common stock equivalents were excluded from the calculation of diluted net loss per share allocable to common stockholders because their inclusion would have been anti-dilutive:

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As of March 31, 

    

2020

    

2019

Unvested restricted stock and restricted stock unit awards

 

565,828

 

638,054

Outstanding stock options

 

4,547,827

 

4,862,947

Total

 

5,113,655

 

5,501,001

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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the Securities and Exchange Commission (“SEC”) on February 26, 2020 (the “Annual Report”).

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. There are a number of important risks and uncertainties that could cause our actual results to differ materially from those indicated by forward-looking statements. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q, particularly in the section entitled “Risk Factors” in Part II, Item 1A that could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments that we may make.

 

You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained in this Quarterly Report on Form 10-Q are made as of the date of this Quarterly Report on Form 10-Q, and we do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

Overview

We are a leading, clinical stage genome editing company dedicated to developing potentially transformative genomic medicines to treat a broad range of serious diseases. We have developed a proprietary genome editing platform based on CRISPR technology and we continue to expand its capabilities. Our product development strategy is to target diseases of high unmet need where we aim to make differentiated, transformational medicines using our gene editing platform. We are advancing both in vivo CRISPR medicines, in which the medicine is injected or infused into the patient to edit the cells inside their body, and engineered cell medicines, in which cells are edited with our technology and then administered to the patient. While our discovery efforts have ranged across several diseases and therapeutic areas, the two areas where our programs are more mature are ocular diseases and engineered cell medicines to treat hemoglobinopathies and cancer.

In ocular diseases, our most advanced program is designed to address a specific genetic form of retinal degeneration called Leber congenital amaurosis 10 (“LCA10”), a disease for which we are not aware of any available therapies and only one other potential treatment in clinical trials in the United States and Europe. In mid-2019, we initiated a Phase 1/2 clinical trial for EDIT-101 (also known as AGN-151587), an experimental medicine to treat LCA10, pursuant to an investigational new drug application (“IND”) that we filed in October 2018 and which was accepted by the United States Food and Drug Administration (“FDA”) in November 2018. We and our partner Allergan Pharmaceuticals International Limited (together with its affiliates, “Allergan”) announced the first patient dosing during the first quarter of 2020. We plan to enroll approximately 18 patients in the United States and Europe in up to five cohorts. This trial remains active and open for enrollment. We aim to complete the dosing of the adult low-dose cohort and to dose at least one patient of the adult mid-dose cohort by the end of 2020, with the potential for data also by the end of 2020. For our engineered cell medicines, our lead program is EDIT-301, an experimental medicine to treat sickle cell disease and beta-thalassemia. We have initiated IND-enabling studies for EDIT-301 and aim to file an IND for EDIT-301 for sickle cell disease by the end of 2020.

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In May 2015, we entered into a collaboration with Juno Therapeutics, Inc., a wholly-owned subsidiary of Bristol-Myers Squibb Company (“Juno Therapeutics”), a leader in the emerging field of immuno-oncology, to develop novel engineered alpha-beta T cell therapies for cancer and autoimmune diseases, which was amended and restated in each of May 2018 and November 2019, at which time we also entered into a related license agreement with Juno Therapeutics, which we collectively refer to as our collaboration with them. In March 2017, we entered into a strategic alliance and option agreement with Allergan a leading global pharmaceutical company, to discover, develop, and commercialize new gene editing medicines for a range of ocular disorders. In July 2018, Allergan exercised its option to develop and commercialize EDIT-101 and we subsequently entered into a co-development and commercialization agreement with Allergan under which we will co-develop and equally split profits and losses for EDIT-101 in the United States.

Since our inception in September 2013, our operations have focused on organizing and staffing our company, business planning, raising capital, establishing our intellectual property portfolio, assembling our core capabilities in genome editing, seeking to identify potential product candidates, and undertaking preclinical and clinical studies. Except for EDIT-101, all of our research programs are still in the preclinical or research stage of development and the risk of failure of all of our research programs is high. We have not generated any revenue from product sales. We have primarily financed our operations through various equity financings and payments received under our research collaboration with Juno Therapeutics and our strategic alliance with Allergan.

Since inception, we have incurred significant operating losses. Our net losses were $37.7 million and $29.2 million for the three months ended March 31, 2020 and 2019, respectively. As of March 31, 2020, we had an accumulated deficit of $586.9 million. We expect to continue to incur significant expenses and operating losses for the foreseeable future. Our net losses may fluctuate significantly from quarter to quarter and from year to year. We anticipate that our expenses will increase substantially as we continue our current research programs and our preclinical development activities, including those related to EDIT-301; progress the clinical development of EDIT-101 with Allergan; seek to identify additional research programs and additional product candidates; initiate preclinical testing and clinical trials for other product candidates we identify and develop; maintain, expand, and protect our intellectual property portfolio, including reimbursing our licensors for such expenses related to the intellectual property that we in-license from such licensors; further develop our genome editing platform; hire additional clinical, quality control, and scientific personnel; and incur additional costs associated with operating as a public company. We do not expect to be profitable for the year ending December 31, 2020 or the foreseeable future.

Although we did not experience any significant impact on our financial condition, results of operations or liquidity due to the ongoing coronavirus disease of 2019 (“COVID-19”) pandemic during the three months ended March 31, 2020, the ultimate impact of the COVID-19 pandemic is highly uncertain and we do not yet know the full extent of potential delays or impacts on our business, raising capital, the EDIT-101 clinical trial, ongoing preclinical activities, including those related to EDIT-301, or the global economy as a whole. Additionally, we have implemented a work from home policy, and restricted on-site activities at our facilities in Massachusetts and Colorado to certain manufacturing, laboratory and related support activities in light of the COVID-19 pandemic. As such, it is uncertain as to the full magnitude that the pandemic will have directly or indirectly on our financial condition, liquidity and future results of operations.

Financial Operations Overview

Revenue

To date, we have not generated any revenue from product sales and we do not expect to generate any revenue from product sales for the foreseeable future. In connection with our collaboration with Juno Therapeutics, we have received an aggregate of $120.0 million in payments, which have primarily consisted of the initial upfront and amendment payments, development milestone payments and research funding support, which we no longer receive. As of March 31, 2020, we recorded $96.3 million of deferred revenue, of which $79.3 million is classified as long-term on our condensed consolidated balance sheet. There was no revenue recognized during the three months ended March 31, 2020. Under this collaboration, we will recognize revenue upon delivery of option packages to Juno Therapeutics. We

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expect that our revenue will fluctuate from quarter-to-quarter and year-to-year as a result of the timing of when we deliver such option packages.

In connection with our strategic alliance with Allergan, we have received an aggregate of $130.0 million in payments, which have primarily consisted of the initial upfront payment, an option exercise payment and a milestone payment. Certain of these payments were deferred and are being recognized over the remaining contract term based on a proportional performance metric. As of March 31, 2020, we recorded $81.3 million of deferred revenue, of which $60.6 million is classified as long-term on our condensed consolidated balance sheet. During the first quarter of 2020, we recognized $4.4 million in collaboration revenue under our strategic alliance with Allergan.

For additional information about our revenue recognition policy related to the Juno Therapeutics collaboration or the Allergan strategic alliance, see “—Critical Accounting Policies and Estimates—Revenue Recognition” included in our Annual Report.

For the foreseeable future, we expect substantially all of our revenue will be generated from our collaboration with Juno Therapeutics, our strategic alliance with Allergan, any other collaborations or agreements we may enter into and anticipated interest income.

Expenses

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for our research and development activities, which include:

drug discovery efforts and preclinical and clinical studies under our research programs;
employee-related expenses including salaries, benefits, and stock-based compensation expense;
costs of funding research performed by third parties that conduct research and development and preclinical and clinical activities on our behalf;
costs of purchasing lab supplies and non-capital equipment used in our preclinical activities and in manufacturing preclinical study materials;
consultant fees;
facility costs including rent, depreciation, and maintenance expenses; and
fees for acquiring and maintaining licenses under our third-party licensing agreements, including any sublicensing or success payments made to our licensors.

Research and development costs are expensed as incurred. At this time, we cannot reasonably estimate or know

the nature, timing, and estimated costs of the efforts that will be necessary to complete the development of any product candidates we may identify and develop. This is due to the numerous risks and uncertainties associated with developing such product candidates, including the uncertainty of:

successful completion of preclinical studies, IND-enabling studies and natural history studies;
successful enrollment in, and completion of, clinical trials;
receipt of marketing approvals from applicable regulatory authorities;
18
establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;
obtaining and maintaining patent and trade secret protection and non-patent exclusivity;
launching commercial sales of a product, if and when approved, whether alone or in collaboration with others;
acceptance of a product, if and when approved, by patients, the medical community, and third-party payors;
effectively competing with other therapies and treatment options;
a continued acceptable safety profile following approval;
enforcing and defending intellectual property and proprietary rights and claims; and
achieving desirable medicinal properties for the intended indications.

A change in the outcome of any of these variables with respect to the development of any product candidates we develop would significantly change the costs, timing, and viability associated with the development of that product candidate. As a result of our a profit-sharing arrangement with Allergan in the United States for EDIT-101, our obligations to fund such program in the United States will represent 50% of the total costs related to developing and commercializing the program in the United States.

We do not track research and development costs on a program-by-program basis except for reimbursable amounts that relate to third-party arrangements.

Research and development activities are central to our business model. We expect research and development costs to increase significantly for the foreseeable future as our development programs progress, including as we continue to progress the clinical development of EDIT-101 with Allergan as well as supporting preclinical studies for our other research programs, including EDIT-301.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation for personnel in executive, finance, investor relations, business development, legal, corporate affairs, information technology, facilities and human resource functions. Other significant costs include corporate facility costs not otherwise included in research and development expenses, legal fees related to intellectual property and corporate matters, and fees for accounting and consulting services.

We anticipate that our general and administrative expenses will increase in the future to support continued research and development activities and potential commercialization of any product candidates we identify and develop. These increases will include increased costs related to the hiring of additional personnel and fees to outside consultants. We also anticipate increased expenses related to reimbursement of third-party patent-related expenses and expenses associated with operating as a public company, including costs for audit, legal, regulatory, and tax-related services, director and officer insurance premiums, and investor relations costs. With respect to reimbursement of third-party intellectual property-related expenses specifically, given the ongoing nature of the opposition, interference and re-examination proceedings involving the patents licensed to us under our license agreements with The Broad Institute, Inc. (“Broad”) and the President and Fellows of Harvard College (“Harvard”), we anticipate general and administrative expenses will continue to be significant.

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Other Income, Net

For the three months ended March 31, 2020, other income, net consisted primarily of changes in the fair value of equity securities, interest income and accretion of discounts associated with other marketable securities.

For the three months ended March 31, 2019, other income, net consisted primarily of interest income and accretion of discounts associated with marketable securities, partially offset by loss on disposal of property and equipment.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of our condensed consolidated financial statements requires us to make judgments and estimates that affect the reported amounts of assets, liabilities, revenues, and expenses, and the disclosure of contingent assets and liabilities in our condensed consolidated financial statements. We base our estimates on historical experience, known trends and events, and various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. On an ongoing basis, we evaluate our judgments and estimates in light of changes in circumstances, facts, and experience. The effects of material revisions in estimates, if any, will be reflected in the condensed consolidated financial statements prospectively from the date of change in estimates.

There have been no material changes to our critical accounting policies from those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report.

Results of Operations

Comparison of the Three Months ended March 31, 2020 and 2019

The following table summarizes our results of operations for the three months ended March 31, 2020 and 2019, together with the changes in those items in dollars (in thousands) and the respective percentages of change:

Three Months Ended

March 31, 

    

2020

    

2019

    

Dollar Change

    

Percentage Change

Collaboration and other research and development revenues

$

5,723

$

2,069

$

3,654

n/m

Operating expenses:

Research and development

 

34,570

 

15,842

 

18,728

n/m

General and administrative

 

17,769

 

17,489

 

280

2

%

Total operating expenses

 

52,339

 

33,331

 

19,008

57

%

Other income, net:

Other income (expense), net

 

7,333

 

(44)

 

7,377

n/m

Interest income, net

 

1,559

 

2,057

 

(498)

(24)

%

Total other income, net

 

8,892

 

2,013

 

6,879

n/m

Net loss

$

(37,724)

$

(29,249)

$

(8,475)

29

%

For our results of operations, we have included the respective percentage of changes, unless greater than 100% or less than (100)%, in which case we have denoted such changes as not meaningful (n/m).

Collaboration and other research and development revenues

Collaboration and other research and development revenues increased by $3.7 million, to $5.7 million for the three months ended March 31, 2020 from $2.1 million for three months ended March 1, 2019. This increase was

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primarily attributable to a $2.4 million increase in revenue recognized related to our strategic alliance with Allergan and a $1.3 million increase in revenue recognized pursuant to other license and collaboration arrangements.

Research and development expenses

Research and development expenses increased by $18.7 million, to $34.6 million for the three months ended March 31, 2020 from $15.8 million for the three months ended March 31, 2019. The following table summarizes our research and development expenses for the three months ended March 31, 2020 and 2019, together with the changes in those items in dollars (in thousands) and the respective percentages of change:

Three Months Ended

March 31, 

    

2020

    

2019

    

Dollar Change

Percentage Change

Process and platform development expenses

$

18,882

$

4,394

$

14,488

n/m

Employee related expenses

8,597

5,184

3,413

66

%

Stock-based compensation expenses

3,057

3,382

(325)

(10)

%

Facility expenses

 

2,898

1,721

 

1,177

68

%

Other expenses

 

1,136

1,161

 

(25)

(2)

%

Total research and development expenses

$

34,570

$

15,842

$

18,728

n/m

The increase in research and development expenses for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 was primarily attributable to:

approximately $14.5 million in increased process and platform development expenses due to increased manufacturing and clinical related costs, including under our profit-sharing arrangement with Allergan, and expenses incurred related to an in-license arrangement entered into during the first quarter of 2020;

approximately $3.4 million in increased employee related expenses primarily due to an increase in the size of our workforce; and

approximately $1.2 million in increased facility related expenses.

These increases were partially offset by approximately $0.3 million in decreased stock-based compensation expenses.

General and administrative expenses

General and administrative expenses increased by $0.3 million, to $17.8 million for the three months ended March 31, 2020 from $17.5 million for the three months ended March 31, 2019. The following table summarizes our general and administrative expenses for the three months ended March 31, 2020 and 2019, together with the changes in those items in dollars (in thousands) and the respective percentages of change:

Three Months Ended

March 31, 

    

2020

    

2019

    

Dollar Change

Percentage Change

Intellectual property and patent related fees

$

5,372

$

4,991

$

381

8

%

Employee related expenses

4,685

3,500

1,185

34

%

Stock-based compensation expenses

 

3,163

 

4,473

 

(1,310)

(29)

%

Professional service expenses

 

2,508

 

3,394

 

(886)

(26)

%

Other expenses

 

2,041

 

1,131

 

910

80

%

Total general and administrative expenses

$

17,769

$

17,489

$

280

2

%