ntla-10q_20180630.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended June 30, 2018

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: 001-37766

 

INTELLIA THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

36-4785571

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

 

 

40 Erie Street, Suite 130, Cambridge, Massachusetts

02139

(Address of principal executive offices)

(Zip code)

857-285-6200

(Registrant’s telephone number, including area code)  

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes       No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See 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

 

  (Do not check if a smaller reporting company)

  

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 outstanding of the registrant’s common stock as of July 27, 2018: 43,200,633 shares.

 

 

 


 

 

PART I - FINANCIAL INFORMATION

 

 

 

Item 1. Financial Statements.

 

 

 

Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017

3

 

 

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2018 and 2017

4

 

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017

5

 

 

Notes to Consolidated Financial Statements

6

 

 

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

18

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

28

 

 

Item 4. Controls and Procedures.

28

 

 

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

30

 

 

Item 1A. Risk Factors

30

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

70

 

 

Item 5. Other Information

70

 

Item 6. Exhibits

71

 

 

Signatures

72

 

 

 

2


 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

INTELLIA THERAPEUTICS, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Amounts in thousands except share and per share data)

 

 

 

June 30, 2018

 

 

December 31, 2017

 

ASSETS

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

305,538

 

 

$

340,678

 

Accounts receivable

 

 

8,609

 

 

 

10,471

 

Prepaid expenses and other current assets

 

 

3,482

 

 

 

3,681

 

Total current assets

 

 

317,629

 

 

 

354,830

 

Property and equipment, net

 

 

16,580

 

 

 

15,272

 

Other assets

 

 

5,569

 

 

 

6,133

 

Total Assets

 

$

339,778

 

 

$

376,235

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

335

 

 

$

2,172

 

Accrued expenses

 

 

9,156

 

 

 

7,999

 

Current portion of deferred revenue

 

 

15,678

 

 

 

21,188

 

Total current liabilities

 

 

25,169

 

 

 

31,359

 

Deferred revenue, net of current portion

 

 

35,181

 

 

 

44,111

 

Other long-term liabilities

 

 

92

 

 

 

168

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders' Equity:

 

 

 

 

 

 

 

 

Common stock, $0.0001 par value; 120,000,000 shares authorized,

   43,188,012 shares and 42,384,623 shares issued and outstanding,

   respectively

 

 

4

 

 

 

4

 

Additional paid-in capital

 

 

438,589

 

 

 

421,706

 

Accumulated deficit

 

 

(159,257

)

 

 

(121,113

)

Total stockholders' equity

 

 

279,336

 

 

 

300,597

 

Total Liabilities and Stockholders' Equity

 

$

339,778

 

 

$

376,235

 

 

See notes to consolidated financial statements.

 

3


 

INTELLIA THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(Amounts in thousands except per share data)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Collaboration revenue

 

$

7,677

 

 

$

5,917

 

 

$

15,146

 

 

$

12,132

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

23,467

 

 

 

15,565

 

 

 

45,960

 

 

 

28,996

 

General and administrative

 

 

7,805

 

 

 

6,369

 

 

 

15,211

 

 

 

12,101

 

Total operating expenses

 

 

31,272

 

 

 

21,934

 

 

 

61,171

 

 

 

41,097

 

Operating loss

 

 

(23,595

)

 

 

(16,017

)

 

 

(46,025

)

 

 

(28,965

)

Interest income

 

 

1,376

 

 

 

424

 

 

 

2,450

 

 

 

741

 

Net loss

 

$

(22,219

)

 

$

(15,593

)

 

$

(43,575

)

 

$

(28,224

)

Net loss per share, basic and diluted

 

$

(0.52

)

 

$

(0.45

)

 

$

(1.03

)

 

$

(0.81

)

Weighted average shares outstanding, basic

   and diluted

 

 

42,836

 

 

 

34,916

 

 

 

42,441

 

 

 

34,820

 

 

 

See notes to consolidated financial statements.

 

4


 

INTELLIA THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Amounts in thousands)

 

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(43,575

)

 

$

(28,224

)

Adjustments to reconcile net loss to net cash used in

   operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

2,085

 

 

 

1,371

 

(Gain) Loss on disposal of property and equipment

 

 

(29

)

 

 

62

 

Equity-based compensation

 

 

9,008

 

 

 

5,479

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

1,862

 

 

 

3,690

 

Prepaid expenses and other current assets

 

 

199

 

 

 

(320

)

Accounts payable

 

 

(1,599

)

 

 

(670

)

Accrued expenses

 

 

305

 

 

 

(252

)

Deferred revenue

 

 

(9,009

)

 

 

(8,710

)

Other assets

 

 

564

 

 

 

557

 

Other long-term liabilities

 

 

(76

)

 

 

(59

)

Net cash used in operating activities

 

 

(40,265

)

 

 

(27,076

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(2,750

)

 

 

(5,434

)

Net cash used in investing activities

 

 

(2,750

)

 

 

(5,434

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from options exercised

 

 

7,277

 

 

 

137

 

Issuance of shares through employee stock purchase plan

 

 

598

 

 

 

356

 

Net cash provided by financing activities

 

 

7,875

 

 

 

493

 

Net decrease in cash and cash equivalents

 

 

(35,140

)

 

 

(32,017

)

Cash and cash equivalents, beginning of period

 

 

340,678

 

 

 

273,064

 

Cash and cash equivalents, end of period

 

$

305,538

 

 

$

241,047

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Purchases of property and equipment unpaid at period end

 

$

1,417

 

 

$

1,040

 

 

See notes to consolidated financial statements.

 

5


 

INTELLIA THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.

Overview and Basis of Presentation

Intellia Therapeutics, Inc. (“Intellia” or the “Company”) is a genome editing company focused on developing curative therapeutics utilizing a biological tool known as CRISPR/Cas9.

The 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 (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted from this report, as is permitted by such rules and regulations. Accordingly, these 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 year ended December 31, 2017.

The unaudited consolidated financial statements include the accounts of Intellia Therapeutics, Inc. and its wholly owned, controlled subsidiary, Intellia Securities Corp. All intercompany balances and transactions have been eliminated in consolidation. The only item comprising comprehensive loss is net loss.

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 results of operations for interim periods are not necessarily indicative of results to be expected for the full year or any other interim period.  

2.

Summary of Significant Accounting Policies

Revenue Recognition

 

In May 2014, the Financing Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which superseded existing revenue recognition guidance. The Company adopted ASU 2014-09 and its related amendments (collectively known as “ASC 606”) on January 1, 2018 using the modified retrospective method. The reported results for 2018 reflect the application of ASC 606 guidance while the reported results for 2017 were prepared under the guidance of ASC 605, Revenue Recognition (“ASC 605” or “legacy GAAP”). The adoption of ASC 606 represents a change in accounting principle that will more closely align revenue recognition with the delivery of the Company’s goods and services and will provide financial statement readers with enhanced disclosures.

 

In accordance with ASC 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these goods and services. To achieve this core principle, the Company applies the following five steps:

 

1) Identify the contract with the customer

 

A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the related payment terms, (ii) the contract has commercial substance, and (iii) the Company determines that collection of substantially all consideration for goods and services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s intent and ability to pay, which is based on a variety of factors including the customer’s historical payment experience, or in the case of a new customer, published credit and financial information pertaining to the customer.

 

6


 

2) Identify the performance obligations in the contract

 

Performance obligations promised in a contract are identified based on the goods and services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the good or service either on its own or together with other available resources, and are distinct in the context of the contract, whereby the transfer of the good or service is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised goods and services, the Company must apply judgment to determine whether promised goods and services are both capable of being distinct and distinct in the context of the contract. If these criteria are not met, the promised goods and services are accounted for as a combined performance obligation.

 

3) Determine the transaction price

 

The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods and services to the customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method, depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Any estimates, including the effect of the constraint on variable consideration, are evaluated at each reporting period for any changes. Determining the transaction price requires significant judgment, which is discussed in further detail for each of the Company’s collaboration agreements in Note 5. In addition, neither of the Company’s contracts as of June 30, 2018 contained a significant financing component.

 

4) Allocate the transaction price to performance obligations in the contract

 

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. However, if a series of distinct services that are substantially the same qualifies as a single performance obligation in a contract with variable consideration, the Company must determine if the variable consideration is attributable to the entire contract or to a specific part of the contract. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation on a relative standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct service that forms part of a single performance obligation. The consideration to be received is allocated among the separate performance obligations based on relative standalone selling prices. The Company typically determines standalone selling prices using an adjusted market assessment approach model.

 

5) Recognize revenue when or as the Company satisfies a performance obligation

 

The Company satisfies performance obligations either over time or at a point in time. Revenue is recognized over time if either (i) the customer simultaneously receives and consumes the benefits provided by the entity’s performance, (ii) the entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced, or (iii) the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date. If the entity does not satisfy a performance obligation over time, the related performance obligation is satisfied at a point in time by transferring the control of a promised good or service to a customer. Examples of control are using the asset to produce goods or services, enhance the value of other assets, or settle liabilities, and holding or selling the asset.

 

As of June 30, 2018, the Company’s only revenue recognized is related to collaboration agreements with third parties. As discussed in further detail in Note 5, the Company enters into out-licensing agreements which are within the scope of ASC 606, under which it licenses certain rights to its product candidates to third parties. The terms of these arrangements typically include payment to the Company of one or more of the following: nonrefundable, upfront fees; development, regulatory, and commercial milestone payments; research and development funding payments; and royalties on the net sales of licensed products. Each of these payments results in collaboration revenues, except for revenues from royalties on the net sales of licensed products, which are classified as royalty revenues.

 

7


 

Licenses of intellectual property: If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from consideration allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the licenses. For licenses that are combined with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

 

Milestone payments: At the inception of each arrangement that includes development milestone payments, the Company evaluates the probability of reaching the milestones and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur in the future, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received and therefore revenue recognized is constrained as management is unable to assert that a reversal of revenue would not be possible. The transaction price is then allocated to each performance obligation on a relative standalone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect collaboration revenues and earnings in the period of adjustment.

 

Royalties: For arrangements that include sales-based royalties, including milestone payments based on levels of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any royalty revenue resulting from any of its collaboration agreements.

 

The Company receives payments from its customers based on billing schedules established in each contract. The Company’s contract liabilities consist of deferred revenue. Upfront payments and fees are recorded as deferred revenue upon receipt or when due, and may require deferral of revenue recognition to a future period until the Company performs its obligations under these arrangements.  

 

The following table presents changes in the Company’s contract liabilities during the six months ended June 30, 2018 (in thousands):

 

 

 

Balance at

Beginning of

Period

 

 

Additions

 

 

Deductions

 

 

Balance at End

of Period

 

Six Months Ended June 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contract liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred revenue

 

$

59,868

 

 

$

2,000

 

 

$

(11,009

)

 

$

50,859

 

 

During the six months ended June 30, 2018, the Company recognized the following revenues as a result of changes in the contract liability balance (in thousands):

 

Revenue recognized in the period from:

 

Six Months Ended June 30, 2018

 

Amounts included in the contract liability at the beginning of the period

 

$

11,009

 

 

8


 

The following tables show the impact of adoption to our consolidated statement of income and balance sheet (in thousands):

 

 

 

Three Months Ended June 30, 2018

 

 

 

Impact of changes in accounting policies

 

 

 

As Reported

 

 

Balances without

adoption of ASC

606

 

 

Effect of Change

Higher/(Lower)

 

Collaboration revenue

 

$

7,677

 

 

$

8,681

 

 

$

(1,004

)

Operating loss

 

 

(23,595

)

 

 

(22,591

)

 

 

(1,004

)

Net loss

 

$

(22,219

)

 

$

(21,215

)

 

$

(1,004

)

Net loss per share, basic and diluted

 

$

(0.52

)

 

$

(0.50

)

 

$

(0.02

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2018

 

 

 

Impact of changes in accounting policies

 

 

 

As Reported

 

 

Balances without

adoption of ASC

606

 

 

Effect of Change

Higher/(Lower)

 

Collaboration revenue

 

$

15,146

 

 

$

16,355

 

 

$

(1,209

)

Operating loss

 

 

(46,025

)

 

 

(44,816

)

 

 

(1,209

)

Net loss

 

$

(43,575

)

 

$

(42,366

)

 

$

(1,209

)

Net loss per share, basic and diluted

 

$

(1.03

)

 

$

(1.00

)

 

$

(0.03

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2018

 

 

 

Impact of changes in accounting policies

 

 

 

As Reported

 

 

Balances without

adoption of ASC

606

 

 

Effect of Change

Higher/(Lower)

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Deferred revenue - current

 

$

15,678

 

 

$

18,575

 

 

$

(2,897

)

Deferred revenue - noncurrent

 

 

35,181

 

 

 

36,506

 

 

 

(1,325

)

Stockholders' equity:

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated deficit

 

$

(159,257

)

 

$

(163,479

)

 

$

4,222

 

 

Costs to obtain and fulfill a contract

 

The Company did not incur any expenses to obtain collaboration agreements and costs to fulfill those contracts do not generate or enhance resources of the Company. As such, no costs to obtain or fulfill a contract have been capitalized in any period.

 

The Company has applied the new standard to all of its contracts.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASC 606, which superseded existing revenue recognition guidance. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The Company adopted ASC 606 effective on January 1, 2018 using the modified retrospective method. Please see the above “Revenue Recognition” section for a discussion of the Company’s updated policies related to revenue recognition and accounting for costs to obtain and fulfill a customer contract.

Impact of Adoption

The Company adopted ASC 606 using the modified retrospective method. The cumulative effect of applying the new guidance to all contracts with customers that were not completed as of January 1, 2018 was recorded as an adjustment to accumulated deficit as of the adoption date. As a result of applying the modified retrospective method to adopt the new guidance, the following adjustments were made to accounts on the consolidated balance sheet as of January 1, 2018:

 

9


 

Consolidated Balance Sheet

 

 

 

 

 

 

 

 

 

 

 

 

 

 

January 1, 2018 (in thousands)

 

 

 

Pre-Adoption

 

 

ASC 606

Adjustment

 

 

Post-Adoption

 

Current portion of deferred revenue

 

$

21,188

 

 

$

(2,769

)

 

$

18,419

 

Deferred revenue, net of current portion

 

 

44,111

 

 

 

(2,662

)

 

 

41,449

 

Accumulated deficit

 

 

(121,113

)

 

 

5,431

 

 

 

(115,682

)

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 amends ASC 840, Leases, by introducing a lessee model that requires balance sheet recognition of most leases. The Company is the lessee under certain leases that are accounted for as operating leases. The proposed changes would require that substantially all of the Company’s operating leases be recognized as assets and liabilities on the Company’s balance sheet. ASU 2016-02 will be effective for the Company for annual periods, and interim periods within those annual periods, beginning January 1, 2019. The Company is evaluating the impact that the adoption of ASU 2016-02 will have on its consolidated financial statements but expects that the Company will recognize a significant lease obligation upon adoption.

3.

Fair Value Measurements

The Company classifies fair value based measurements using a three-level hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows: Level 1, quoted market prices in active markets for identical assets or liabilities; Level 2, observable inputs other than quoted market prices included in Level 1, such as quoted market prices for markets that are not active or other inputs that are observable or can be corroborated by observable market data; and Level 3, unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities, including certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The Company’s financial instruments as of June 30, 2018 and December 31, 2017 consisted primarily of cash and cash equivalents, accounts receivable and accounts payable. As of June 30, 2018 and December 31, 2017, the Company’s financial assets recognized at fair value on a recurring basis consisted of the following:

 

 

 

Fair Value as of June 30, 2018

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(In thousands)

 

Cash equivalents

 

$

300,332

 

 

$

300,332

 

 

$

 

 

$

 

Total

 

$

300,332

 

 

$

300,332

 

 

$

 

 

$

 

 

 

 

Fair Value as of December 31, 2017

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(In thousands)

 

Cash equivalents

 

$

330,896

 

 

$

330,896

 

 

$

 

 

$

 

Total

 

$

330,896

 

 

$

330,896

 

 

$

 

 

$

 

 

The Company estimates the fair value of its cash equivalents using quoted market prices in active markets. Other financial instruments, including accounts receivable and accounts payable, are carried at cost, which approximate fair value due to the short duration and term to maturity.

 

10


 

4.

Accrued Expenses

Accrued expenses consisted of the following:  

 

 

 

June 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

(In thousands)

 

Research and development and professional expenses

 

$

5,215

 

 

$

3,226

 

Employee compensation and benefits

 

 

3,941

 

 

 

4,773

 

Accrued expenses

 

$

9,156

 

 

$

7,999

 

 

5.

Collaborations

Novartis Institutes for BioMedical Research

In December 2014, the Company entered into a strategic collaboration agreement (the “Novartis Agreement”) with Novartis Institutes for Biomedical Research, Inc. (“Novartis”), primarily focused on the development of new ex vivo CRISPR/Cas9-edited therapies using chimeric antigen receptor T cells (“CAR-T cells”) and hematopoietic stem cells (“HSCs”).

Agreement Structure

Under the terms of the collaboration, the Company and Novartis may research potential therapeutic, prophylactic and palliative ex vivo applications of the CRISPR/Cas9 technology in HSCs and CAR-T cells. The Company and Novartis agreed to conduct research of HSC targets under a research plan agreed upon by both parties. Within the HSC therapeutic space, Novartis may obtain exclusive rights to a limited number of these HSC targets, to be selected by Novartis in a series of selection windows, the last of which closes 90 days before the fifth anniversary of the effective date of the Novartis Agreement. The Company has the right to choose a limited number of HSC targets for its exclusive development and commercialization per the specified selection schedule. Following these selections by Novartis and the Company, Novartis may obtain rights to research an additional limited number of HSC targets on a non-exclusive basis. If Novartis does not exercise its selection rights within each selection window, any such rights will be deemed forfeited by Novartis. Novartis is required to use commercially reasonable efforts to research, develop and commercialize a specified number of HSC products directed to each of their selected HSC targets.

The Company also agreed to collaborate with Novartis on research activities for CAR-T cell targets pursuant to a CAR-T cell program research plan approved by the CAR-T cell subcommittee of the collaboration’s joint steering committee. After completion of the activities contemplated by the CAR-T cell program research plan, Novartis will assume sole responsibility for developing any products arising from that research plan and will be responsible for additional costs and expenses of developing, manufacturing and commercializing its selected research targets. Novartis is required to use commercially reasonable efforts to research, develop or commercialize at least one CAR-T cell product directed to each of its selected CAR-T cell targets. In the last two years of the five-year collaboration term, Novartis will have the option to select a limited number of targets for research, development and commercialization of in vivo therapies using the Company’s CRISPR/Cas9 platform, on a non-exclusive basis. Following Novartis’ selection of each in vivo target, Novartis may offer the Company the right to participate in the research and development of such targets, in which case an in vivo program research plan for such target will be entered into between the Company and Novartis. Novartis is required to use commercially reasonable efforts to research, develop or commercialize at least one in vivo product directed to each of its selected targets. Novartis’ in vivo target selections are subject to certain restrictions, including that the targets, or all targets within a limited number of organs: (i) have not already been reserved by the Company pursuant to our limited right to do so under the agreement; (ii) are not the subject of a collaboration or pending collaboration with a third party; and (iii) are not the subject of ongoing or planned research and development by the Company.

The Company received an upfront technology access payment from Novartis of $10.0 million in January 2015 and is entitled to additional technology access fees of $20.0 million and quarterly research payments of $1.0 million, or up to $20.0 million in the aggregate, during the five-year research term. For each product under the collaboration, subject to certain conditions, the Company may be eligible to receive (i) up to $30.3 million in development milestones, including for the filing of an investigational new drug (“IND”) application and for the dosing of the first patient in each of Phase IIa, Phase IIb and Phase III clinical trials, (ii) up to $50.0 million in regulatory milestones for the product’s first indication, including regulatory approvals

11


 

in the U.S. and European Union (“EU”), (iii) up to $50.0 million in regulatory milestones for the product’s second indication, if any, including U.S. and EU regulatory approvals, (iv) royalties on net sales in the mid-single digits, and (v) net sales milestone payments of up to $100.0 million. The Company may also be eligible to receive payments for: (i) each additional HSC target selected by Novartis beyond its initial defined allocation, (ii) each in vivo target that Novartis selects and (iii) any exercise by Novartis of certain license options under the Novartis Agreement. Additionally, at the inception of the arrangement, Novartis invested $9.0 million to purchase the Company’s Class A-1 and Class A-2 Preferred Units under a Unit Purchase Agreement (the “Unit Purchase Agreement”). The Company considered whether the Unit Purchase Agreement would be subject to combination with the Novartis Agreement and determined that they should be combined because the terms of these arrangements are closely interrelated and were negotiated contemporaneously. The Unit Purchase Agreement and the Novartis Agreement are collectively referred to herein as the Novartis Arrangement.

The Company assessed the Novartis Arrangement in accordance with ASC 606. The Company evaluated the promised goods and services under the Novartis Arrangement and determined that the Novartis Arrangement included two performance obligations: (1) a combined performance obligation representing a series of distinct goods and services including the licenses to research, develop and commercialize HSC products and their associated research activities and the licenses to research, develop and commercialize CAR-T cell products and their associated research activities; and (2) the preferred units.

Under the Novartis Arrangement, the Company determined that the transaction price was $59.0 million consisting of the following consideration: (1) the upfront technology access payment of $10.0 million; (2) the additional technology access fees of $20.0 million; (3) the Company’s estimate of variable consideration of $20.0 million related to the quarterly research payments; and (4) the payment for the preferred units of $9.0 million. None of the clinical or regulatory milestones were included in the transaction price, as all milestone amounts were fully constrained. As part of its evaluation of the constraint, the Company considered numerous factors, including that receipt of the milestones is outside the control of the Company and contingent upon future regulatory progress and the licensee’s efforts. Any consideration related to sales-based milestones and royalties will be recognized when the related sales occur as they were determined to relate predominantly to the licenses granted to Novartis and therefore have also been excluded from the transaction price. The Company will re-evaluate the transaction price in each reporting period and when events whose outcomes are resolved or other changes in circumstances occur.

The Company first allocated $11.6 million of the transaction price to the preferred units to record the preferred units purchased by Novartis at fair value. The Company then allocated the remaining $47.4 million of the transaction price to the remaining combined performance obligation of the licenses and associated research activities for HSC and CAR-T cell products. Revenue allocated to the combined performance obligation of the licenses and associated research activities for HSC and CAR-T cell products is being recognized on a straight-line basis over a period of five years, which, in management’s judgment, is the best measure of progress towards satisfying the performance obligation and represents the Company’s best estimate of the period of the obligation.

Collaboration Revenue

Through June 30, 2018, excluding amounts allocated to Novartis’ purchase of the Company’s Class A-1 and Class A-2 Preferred Units, the Company had recorded a total of $36.4 million in cash and accounts receivable under the Novartis Arrangement. Through June 30, 2018, the Company has recognized $33.3 million of collaboration revenue, including $2.4 million and $4.7 million during the three and six months ended June 30, 2018, respectively, and $2.3 million and $4.5 million during the three and six months ended June 30, 2017, respectively, in the consolidated statements of operations related to this agreement. As of June 30, 2018, there was approximately $14.0 million of the aggregate transaction price remaining to be recognized, which will be recognized through December 2019.

As of June 30, 2018 the Company did not have any accounts receivable related to this agreement.  As of December 31, 2017, the Company had accounts receivable of $6.0 million related to this agreement. As of June 30, 2018 and December 31, 2017, the Company had deferred revenue of $3.0 million and $11.2 million, respectively, related to this agreement. Amounts for 2018 are reflective of accounting under ASC 606 and amounts for 2017 are reflective of accounting under ASC 605 and therefore may not be comparable.

12


 

Regeneron Pharmaceuticals, Inc.

In April 2016, the Company entered into a license and collaboration agreement (the “Regeneron Agreement”) with Regeneron Pharmaceuticals, Inc. (“Regeneron”). The agreement includes a product component to research, develop and commercialize CRISPR/Cas-based therapeutic products primarily focused on genome editing in the liver as well as a technology collaboration component, pursuant to which the Company and Regeneron will engage in research and development activities aimed at discovering and developing novel technologies and improvements to CRISPR/Cas technology to enhance the Company’s genome editing platform. Under this agreement, the Company also may access the Regeneron Genetics Center and proprietary mouse models to be provided by Regeneron for a limited number of the Company’s liver programs.

Agreement Structure

Under the terms of the collaboration, the Company and Regeneron have agreed to a target selection process, whereby Regeneron may obtain exclusive rights for up to 10 targets to be chosen by Regeneron during the collaboration term, subject to various adjustments and limitations set forth in the agreement. Of these 10 total targets, Regeneron may select up to five non-liver targets, while the remaining targets must be focused in the liver. At the inception of the agreement, Regeneron selected the first of its 10 targets, which will be subject to a co-development and co-commercialization arrangement between the Company and Regeneron.

The Company retains the exclusive right to solely develop products for certain indications. During the target selection process, the Company has the right to choose additional liver targets for its own development using commercially reasonable efforts. Certain targets that either the Company or Regeneron select are subject to further co-development and co-commercialization arrangements at the Company’s or Regeneron’s option, as applicable, which either can exercise pursuant to defined conditions. In addition, subject to certain restrictions, Regeneron will be able to replace a limited number of targets with substitute targets upon the payment of a specified replacement fee, in which case exclusive rights to the replaced target revert to the Company. Regeneron’s target selections are subject to certain additional restrictions, including that non-liver targets are not the subject of ongoing or planned research and development by the Company or are not the subject of a collaboration or pending collaboration with a third party.

Research activities under the collaboration will be governed by evaluation and research and development plans that will outline the parties’ responsibilities under, anticipated timelines of and budgets for, the various programs. The Company will assist Regeneron with the preliminary evaluation of liver targets, and Regeneron will be responsible for preclinical research and the conduct of clinical development, manufacturing and commercialization of products directed to each of its exclusive targets under the oversight of a joint steering committee. The Company may assist, as requested by Regeneron, with the later discovery and research of product candidates directed to any selected target. For each selected target, Regeneron is required to use commercially reasonable efforts to submit regulatory filings necessary to achieve IND acceptance for at least one product directed to each applicable target, and following IND acceptance for at least one product, to develop and commercialize such product.

In connection with this collaboration, Regeneron agreed to purchase $50.0 million of the Company’s common stock in a private placement under a Stock Purchase Agreement (the “Stock Purchase Agreement”) concurrent with the Company’s initial public offering, and the Company received a nonrefundable upfront payment of $75.0 million. In addition, the Company is eligible to earn, on a per-licensed target basis, (i) up to $25.0 million in development milestones, including for the dosing of the first patient in each of Phase I, Phase II and Phase III clinical trials, (ii) up to $110.0 million in regulatory milestones, including for the acceptance of a regulatory filing in the U.S., and U.S. and ex-U.S. regulatory approvals, and (iii) up to $185.0 million in sales-based milestone payments. The Company is also eligible to earn royalties ranging from the high single digits to low teens, in each case, on a per-product basis, which royalties are potentially subject to various reductions and offsets and are further subject to the Company’s existing low- to mid-single-digit royalty obligations under a license agreement with Caribou Biosciences, Inc. (“Caribou”). In addition, Regeneron is obligated to fund 50.0 percent of the research and development costs for the transthyretin amyloidosis program, the first target selected by Regeneron, which will be subject to a co-development and co-commercialization arrangement between the Company and Regeneron.

The Company considered whether the Stock Purchase Agreement would be subject to combination with the Regeneron Agreement and determined that they should be combined because the terms of these arrangements are closely interrelated and were negotiated contemporaneously. The Stock Purchase Agreement and the Regeneron Agreement are collectively referred to herein as the “Regeneron Arrangement”.

13


 

The Company assessed the Regeneron Arrangement in accordance with ASC 606. The Company evaluated the promised goods and services under the Regeneron Arrangement and determined that the Regeneron Arrangement included three performance obligations: (1) a combined performance obligation including the licenses to targets and the associated research activities and evaluation plans; (2) a combined performance obligation including the technology collaboration and associated research activities; and (3) the common stock.

Under the Regeneron Arrangement, the Company determined that the transaction price was $125.0 million, consisting of the following consideration: (1) the nonrefundable upfront payment of $75.0 million; and (2) the payment for the common stock of $50.0 million. None of the clinical or regulatory milestones were included in the transaction price, as all milestone amounts were fully constrained. As part its evaluation of the constraint, the Company considered numerous factors, including that receipt of the milestones is outside the control of the Company and contingent upon success in future regulatory progress and the licensee’s efforts. Any consideration related to sales-based milestones and royalties will be recognized when the related sales occur as they were determined to relate predominantly to the licenses granted to Regeneron and therefore have also been excluded from the transaction price. The Company will re-evaluate the transaction price in each reporting period and when events whose outcome are resolved or other changes in circumstances occur.  

The Company first allocated $50.0 million of the transaction price to the common stock. The common stock was sold at its standalone selling price and the Company concluded that the total discount inherent in the arrangement is entirely attributable to the combined performance obligation including the licenses to targets and associated research activities and evaluation plans and the combined performance obligation including the technology collaboration and associated research activities. As such, the remaining $75.0 million of the transaction price was allocated to the combined performance obligation including the licenses to targets and associated research activities and evaluation plans and the combined performance obligation including the technology collaboration and associated research activities on a relative standalone selling price basis. The Company estimated the standalone selling price of each combined performance obligation by taking into consideration internal estimates of research and development personnel needed to perform the research and development services, estimates of expected cash outflows to third parties for services and supplies, selling prices of comparable transactions and typical gross profit margins. As a result of this evaluation, the Company allocated $63.8 million to the combined performance obligation including the licenses to targets and associated research activities and evaluation plans and $11.2 million to the combined performance obligation including the technology collaboration and associated research activities. The $63.8 million allocated to the combined performance obligation including the licenses to targets and associated research activities and evaluation plans is being recognized on a straight-line basis over the six-year performance period of the arrangement, which, in management’s judgment, is the best measure of progress towards satisfying the performance obligation and represents the Company’s best estimate of the period of the obligation. The $11.2 million allocated to the combined performance obligation including the technology collaboration and associated research activities is being recognized on a straight-line basis over a period beginning with the inception of the technology collaboration in September 2016 through the end of the arrangement, which, in management’s judgment, is the best measure of progress towards satisfying the performance obligation and represents the Company’s best estimate of the period of the obligation.

Collaboration Revenue

Through June 30, 2018, excluding the amounts allocated to Regeneron’s purchase of common stock, the Company recorded a $75.0 million upfront payment and $8.7 million for research and development services under the Regeneron Arrangement. Through June 30, 2018, the Company has recognized $35.9 million of collaboration revenue, including $5.3 million and $10.4 million during the three and six months ended June 30, 2018, respectively, and $3.6 million and $7.7 million in the three and six months ended June 30, 2017, respectively, in the consolidated statements of operations related to this arrangement. As of June 30, 2018, there was approximately $47.8 million of the aggregate transaction price remaining to be recognized, which will be recognized ratably through April 2022.

As of June 30, 2018 and December 31, 2017, the Company had deferred revenue of $47.8 million and $54.1 million, respectively, and accounts receivable of $8.6 million and $4.5 million, respectively, related to this arrangement.

14


 

Agreement Termination Rights

The collaboration term ends in April 2022, except that Regeneron may make a one-time payment of $25.0 million to extend the term for an additional two-year period. The agreement will continue until the date when no royalty or other payment obligations are due, unless earlier terminated in accordance with the terms of the agreement. Regeneron’s royalty payment obligations expire on a country-by-country and product-by-product basis upon the later of (i) the expiration of the last valid claim of the royalty-bearing patents covering such product in such country, (ii) 12 years from the first commercial sale of such product in such country, or (iii) the expiration of regulatory exclusivity for such product. The Company may terminate the agreement on a target-by-target basis if Regeneron or any of its affiliates institutes a patent challenge against the Company’s CRISPR/Cas or certain other background patent rights. The Company may also terminate the agreement on a target-by-target basis if Regeneron does not proceed with the development of a product directed to a selected target within specified periods of time. Regeneron may terminate the agreement, without cause, upon 180 days written notice to the Company, either in its entirety or on a target-by-target basis, in which event, certain rights in the terminated targets and associated intellectual property revert to the Company, as described in the agreement. Following such termination, the Company may owe Regeneron royalties, in certain circumstances, up to mid-single digits on any terminated targets that the Company subsequently commercializes on a product-by-product basis for a period of 12 years after the first commercial sale of any such products. Either party may terminate the agreement either in its entirety or with respect to the technology collaboration or one or more of the targets selected by Regeneron, in the event of the other party’s uncured material breach.

6.

Equity-Based Compensation

Equity-based compensation expense is classified in the consolidated statements of operations as follows:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(In thousands)

 

Research and development

 

$

2,633

 

 

$

1,558

 

 

$

5,026

 

 

$

3,061

 

General and administrative

 

 

2,268

 

 

 

1,291

 

 

 

3,982

 

 

 

2,418

 

Total

 

$

4,901

 

 

$

2,849

 

 

$

9,008

 

 

$

5,479

 

 

Restricted Stock

The following table summarizes the Company’s restricted stock activity for the six months ended June 30, 2018:

 

 

 

Number of

Shares

 

 

Weighted

Average Grant

Date Fair

Value per

Share

 

Unvested restricted stock as of January 1, 2018

 

 

479,822

 

 

$

0.90

 

Granted

 

 

86,250

 

 

 

22.98

 

Vested

 

 

(298,229

)

 

 

0.74

 

Cancelled

 

 

(6,802

)

 

 

1.34

 

Unvested restricted stock as of June 30, 2018

 

 

261,041

 

 

$

8.37

 

 

As of June 30, 2018, there was $3.3 million of unrecognized equity-based compensation expense related to restricted stock that is expected to vest. These costs are expected to be recognized over a weighted average remaining vesting period of 1.6 years.  

15


 

Stock Options

The weighted average grant date fair value of options, estimated as of the grant date using the Black-Scholes option pricing model, was $16.64 per option and $17.94 per option for those options granted during the three and six months ended June 30, 2018, respectively, and $11.47 and $10.51 per option for those options granted during the three and six months ended June 30, 2017, respectively. Key assumptions used to apply this pricing model were as follows:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Risk-free interest rate

 

2.8%

 

 

1.5%

 

 

2.6%

 

 

1.9%

 

Expected life of options

 

5.5-6.25 years

 

 

6.0 years

 

 

5.5-6.25 years

 

 

6.0 years

 

Expected volatility of underlying stock

 

87.7%

 

 

94.0%

 

 

89.0%

 

 

92.7%

 

Expected dividend yield

 

0.0%

 

 

0.0%

 

 

0.0%

 

 

0.0%

 

 

The following is a summary of stock option activity for the six months ended June 30, 2018:

 

 

 

Number of

Options

 

 

Weighted

Average

Exercise Price

per Share

 

 

Weighted

Average

Remaining

Contractual

Term

 

 

Aggregate

Intrinsic

Value

 

 

 

 

 

 

 

 

 

 

 

(In years)

 

 

(In thousands)

 

Outstanding at January 1, 2018

 

 

4,705,448

 

 

$

12.09

 

 

 

 

 

 

 

 

 

Granted

 

 

998,286

 

 

 

24.09

 

 

 

 

 

 

 

 

 

Exercised

 

 

(777,484

)

 

 

9.36

 

 

 

 

 

 

 

 

 

Forfeited

 

 

(45,256

)

 

 

15.79

 

 

 

 

 

 

 

 

 

Outstanding at June 30, 2018

 

 

4,880,994

 

 

$

14.94

 

 

 

8.53

 

 

$

60,640

 

Exercisable at June 30, 2018

 

 

1,545,489

 

 

$

10.06

 

 

 

7.84

 

 

$

26,749

 

 

As of June 30, 2018, there was $37.9 million of unrecognized compensation cost related to stock options that are expected to vest. These costs are expected to be recognized over a weighted average remaining vesting period of 2.9 years.

7.

Loss Per Share

The Company calculates basic (loss) earnings per share by dividing (loss) income by the weighted average number of common shares outstanding. The Company computes diluted (loss) earnings per share after giving consideration to the dilutive effect of stock options and unvested restricted stock that are outstanding during the period, except where such securities would be anti-dilutive.

Basic and diluted loss per share was calculated as follows:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(In thousands)

 

Net loss

 

$

(22,219

)

 

$

(15,593

)

 

$

(43,575

)

 

$

(28,224

)

Weighted average shares outstanding, basic

   and diluted

 

 

42,836

 

 

 

34,916

 

 

 

42,441

 

 

 

34,820

 

Net loss per share, basic and diluted

 

$

(0.52

)

 

$

(0.45

)

 

$

(1.03

)

 

$

(0.81

)

 

16


 

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

 

 

 

Periods Ended June 30,

 

 

 

2018

 

 

2017

 

 

 

(In thousands)

 

Unvested restricted stock

 

 

261

 

 

 

982

 

Stock options

 

 

4,881

 

 

 

4,499

 

Total

 

 

5,142

 

 

 

5,481

 

 

8.

Related Party Transactions

Caribou Therapeutics

In July 2014, the Company issued Caribou Therapeutics Holdco, LLC, a wholly-owned subsidiary of Caribou, 8,110,599 Junior Preferred Units. As a result of this and related transactions, Caribou owned 9.3 percent of the Company’s voting interests as of March 31, 2018.

The Company recognized general and administrative expense of $0.3 million and $0.5 million during the three and six months ended June 30, 2018, respectively, and $0.4 million during each of the three and six months ended June 30, 2017, related to the Company’s obligation to pay 30.0 percent of Caribou’s patent prosecution, filing and maintenance costs.

Novartis Institutes for BioMedical Research

In connection with its entry into the collaboration and license agreement and related equity transactions with Novartis, the Company issued Novartis 4,761,905 Class A-1 Preferred Units and 2,666,666 Class A-2 Preferred Units. In August 2015, Novartis acquired 761,905 shares of the Company’s Series B Preferred Stock, and in May 2016, Novartis acquired 277,777 shares of the Company’s common stock in a private placement transaction concurrent with the Company’s IPO. As a result of these and subsequent transactions, Novartis collectively owned 9.9% of the Company’s voting interests as of March 31, 2018.

The Company recognized collaboration revenue of $2.4 million and $4.7 million during the three and six months ended June 30, 2018 and $2.3 million and $4.5 million in the three and six months ended June 30, 2017, respectively, in the consolidated statements of operations related to this agreement. As of June 30, 2018 the Company had no accounts receivable recorded related to this agreement. As of December 31, 2017, the Company had recorded accounts receivable of $6.0 million related to this agreement. As of June 30, 2018 and December 31, 2017, the Company had recorded deferred revenue of $3.0 million and $11.2 million, respectively, related to this collaboration. Refer to Note 5, Collaborations, for additional information regarding this collaboration agreement.

17


 

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

Forward-looking Information

This Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements may be identified by such forward-looking terminology as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. Our forward-looking statements are based on a series of expectations, assumptions, estimates and projections about our company, are not guarantees of future results or performance and involve substantial risks and uncertainty. We may not actually achieve the plans, intentions or expectations disclosed in these forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in these forward-looking statements. Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including the risks and uncertainties inherent in our statements regarding:

 

the initiation, timing, progress and results of our research and development programs and future preclinical and clinical studies;

 

our ability to use a modular platform capability or other strategy to efficiently discover and develop product candidates, including by applying learnings from one program to other programs;

 

our ability to research, develop or maintain a pipeline of product candidates;

 

our ability to manufacture or obtain material for our product candidates;

 

our ability to advance any product candidates into, and successfully complete, clinical studies, including clinical studies necessary for regulatory approval and commercialization;

 

our ability to advance our genome editing and therapeutic delivery capabilities;

 

the scope of protection, including patents and license rights, we are able to establish and maintain for intellectual property rights covering our product candidates and technology;

 

our ability to operate, including commercializing products, without infringing or breaching the proprietary or contractual rights of others;

 

the issuance or enforcement of regulatory requirements and guidance regarding preclinical and clinical studies for genome editing products;

 

the timing or likelihood of regulatory filings and approvals;

 

the commercialization of our product candidates, if approved;

 

the pricing and reimbursement of our product candidates, if approved;

 

the implementation of our business model, strategic plans for our business, product candidates and technology;

 

estimates of our expenses, future revenues, capital requirements and our needs for additional financing;

 

the potential benefits of strategic collaboration agreements and our ability to enter into strategic arrangements;

 

our ability to maintain and establish collaborations and intellectual property licenses and rights;

 

our financial performance or ability to obtain additional funding;

 

developments relating to our licensors, licensees, collaborators, competitors and our industry; and

 

other risks and uncertainties, including those listed under the caption “Risk Factors.”

18


 

All of our forward-looking statements are as of the date of this Quarterly Report on Form 10-Q only. In each case, actual results may differ materially from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of or any material adverse change in one or more of the risk factors or risks and uncertainties referred to in this Quarterly Report on Form 10-Q or included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the Securities and Exchange Commission (the SEC) could materially and adversely affect our business, prospects, financial condition and results of operations. Except as required by law, we do not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections or other circumstances affecting such forward-looking statements occurring after the date of this Quarterly Report on Form 10-Q, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. Any public statements or disclosures by us following this Quarterly Report on Form 10-Q that modify or impact any of the forward-looking statements contained in this Quarterly Report on Form 10-Q will be deemed to modify or supersede such statements in this Quarterly Report on Form 10-Q.

Management Overview

Intellia Therapeutics, Inc. (“we,” “us,” “our,” “Intellia,” or the “Company”) was formed in 2014 and is a leading genome editing company focused on the development of proprietary, curative therapeutics utilizing a biological tool known as CRISPR/Cas9. We believe that the CRISPR/Cas9 technology has the potential to revolutionize treatment for genetic disease by permanently editing disease-associated genes or genetic material in the human body with a single treatment course, and via cell therapies that can replace a patient’s diseased cells or by using engineered immune cells to better treat cancer and immunological diseases. We intend to leverage our leading scientific expertise, clinical development experience and intellectual property (“IP”) position to unlock broad therapeutic applications of CRISPR/Cas9 genome editing and develop new therapeutic products.

Our management’s discussion and analysis of our financial condition and results of operations are based upon our unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q, which have been prepared by us in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), for interim periods and with Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended. This discussion and analysis should be read in conjunction with these unaudited consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q as well as in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

We commenced active operations in mid-2014, and our operations to date have been limited to organizing and staffing our company, business planning, raising capital, developing our technology, identifying potential product candidates, undertaking preclinical research and studies and evaluating a clinical path for our pipeline programs. To date, we have financed our operations primarily through our collaborations with Novartis Institutes for BioMedical Research, Inc., (“Novartis”), and Regeneron Pharmaceuticals, Inc., (“Regeneron”), our initial public offering and concurrent private placements of our common and preferred stock, and a follow-on public offering. All of our revenue to date has been collaboration revenue. Since our inception and through June 30, 2018, we have raised an aggregate of approximately $510.6 million to fund our operations, of which $114.1 million was through our collaboration agreements, $170.5 million was from our initial public offering and concurrent private placements, $141.0 million was from a follow-on offering and $85.0 million was from the sale of convertible preferred stock.

We are building a full-spectrum genome editing company and believe our product focus, therapeutic discovery and development strength, delivery expertise and intellectual property portfolio make us well-positioned to translate the potential of the CRISPR/Cas9 system into clinically meaningful genome editing-based therapeutics. To maximize our opportunity to rapidly develop clinically successful products, we are applying a balanced and synergistic approach with our in vivo and ex vivo initial indications. Our approach is defined by four primary criteria: (i) the type of edit—knockout, repair or insertion; (ii) the delivery modality for and modularity of in vivo and ex vivo applications; (iii) the presence of established therapeutic endpoints; and (iv) the potential for the CRISPR/Cas9 system to provide therapeutic benefits when compared to existing therapeutic modalities. Our initial indications include in vivo programs focused on diseases attributable to genes expressed in the liver that have significant unmet medical needs – transthyretin amyloidosis, which we are co-developing with Regeneron, alpha-1 antitrypsin deficiency, inborn errors of metabolism, including primary hyperoxaluria, and chronic hepatitis B infection. Establishing liver knockout in the transthyretin amyloidosis program becomes the basis for extension to other tissues and edit types. For ex vivo applications, our wholly owned programs focus on next-generation, engineered cell therapy solutions that we expect will ultimately be allogenic. Our additional ex vivo programs use CRISPR/Cas9 to potentially create improved chimeric antigen receptor T cell (“CAR-T cell”) therapy, as well as engineered hematopoietic stem cell (“HSC”) product candidates, which are partnered with our collaborator Novartis as described below.

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In September 2017, we presented data from our completed long-term, 52-week mouse study, to evaluate the durability of in vivo genome editing following a single, intravenous administration of CRISPR/Cas9. With a single dose, we achieved and maintained an approximately 97 percent reduction in serum transthyretin amyloidosis target gene (“TTR”) protein levels through 12 months. This sustained TTR reduction was caused by approximately 70 percent editing at the genomic target DNA site in livers (comprising the edited hepatocytes and other non-edited liver-associated cells). The treatment was well-tolerated at the time of administration and no adverse events were noted throughout the 52 weeks of follow-up study. These mouse durability results followed our presentation in August 2017 of initial data from rat studies demonstrating in vivo genome editing after a single, intravenous administration of CRISPR/Cas9. Across other studies we confirmed that our lipid nanoparticle (“LNP”) system is transiently present with 99 percent clearance of messenger RNA (“mRNA”) within 6 hours and of single guide RNA (“sgRNA”) within 24 hours in the liver. In our August 2017 presentation, we reported that, using our LNP system in rats, we had observed up to 91 percent reduction in serum TTR protein levels and up to 66 percent editing at the target DNA site in the subject animals.

 

In October 2017, we released interim top-line data regarding our in vivo non-human primate (“NHP”) exploratory pre-clinical studies. We reported liver genome editing rates ranging from 0.10 percent up to 32 percent after a single dose with various exploratory NHP guide RNAs (“gRNA”), LNP formulations and dosing regimens as well as with exploratory human cross-reactive gRNAs. In NHPs re-dosed with a subsequent application of our LNP formulations, we observed further editing that surpassed those levels achieved after a single dose, with multiple animals achieving a total of over 20 percent liver genome editing after a second dose.

 

These NHP results were similar to the results we observed in our initial rodent studies.  Upon further improvements to our delivery system, in May 2018, we presented data from ongoing NHP studies that demonstrated TTR genome editing and an associated reduction of transthyretin protein to what we estimate are therapeutically relevant levels (60 to 80 percent of baseline) after a single systemic administration of LNPs. Rates of editing were durable over the six-month period without re-dosing. We have begun investigational new drug (“IND”)-enabling activities for a human therapeutic and we anticipate submitting an IND application for our lead indication, transthyretin amyloidosis, by the end of 2019, subject to the results of these on-going activities and other studies. We continue to evaluate human guides and to optimize our proprietary LNP delivery system through single and repeat dose experiments in NHPs.  Further, we also continue to conduct studies in multiple animal models to maximize editing rates through repeat dosing and formulation optimization.

 

We have also demonstrated continued progression of our modular liver platform capability to knockout various liver targets of interest in mice, including SERPINA1 for liver dysfunction associated with alpha-1 antitrypsin deficiency (“AATD”) and HAO1 for primary hyperoxaluria type 1 (“PH1”). The most common genetic form of AATD exhibits deleterious gain-of-function effects in the liver earlier in life and significant negative loss-of-function effects in the lung later in life.  Because this AATD form generally is caused by mutations in the SERPINA1 gene, knocking out SERPINA1 could form the basis of a therapeutic for AATD-associated liver dysfunction.  To date, we have achieved 85% editing of SERPINA1 in the mouse leading to a ~95% reduction of the encoded AAT protein. In PH1, excess oxalate crystallizes and accumulates in various organs and eventually causes kidney failure. Our therapeutic approach is to knock out the HAO1 gene, thereby reducing the levels of glyoxylate and in turn urinary oxalate.  In a mouse model of disease, we achieved 74% editing of HAO1 leading to a ~90% protein reduction and a ~55% reduction in urinary oxalate after a single dose. These successful levels of editing reinforce the value and speed of our modular LNP delivery platform, including efficient and effective delivery to hepatocytes.

 

In October 2017, we presented data from an in vivo mouse study showing, after a single intracerebral injection, delivery to the brain of one of our proprietary LNP formulations as demonstrated by the expression of tdTomato protein. Additionally, we presented data from another in vivo mouse study showing genome editing in brain tissue following single intracerebral injections of several proprietary LNP formulations. Editing was assessed under various dosing regimens with six different proprietary LNP formulations following a single intracerebral injection targeting the striatum and cerebellum. Under these various conditions, editing levels from less than 1 percent up to 28 percent were achieved in the striatal and cerebellar tissue. The injections were well tolerated and the mice did not display any behavioral changes post dosing. We continue to advance our application of CRISPR/Cas9 technology to the central nervous system, including through our collaboration with Beverly Davidson, Ph.D., of the Children’s Hospital of Philadelphia, who shared promising LNP delivery to the striatum of NHP.

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In December 2017, we and our collaborator Novartis shared initial data from our research collaboration on genome-edited human HSCs. These data showed successful ex vivo editing of the erythroid specific enhancer region of BCL11A, a gene associated with ameliorating sickle cell disease, and the ability of these cells to steadily engraft in mice while maintaining their desired properties. Specifically, the data showed that greater than 80 percent target site modification in HSCs and progenitor CD34+ cells was achieved following electroporation of ribonucleoprotein (“RNP”) composed of Cas9 and a gRNA selected for efficacy and potency. In addition, we demonstrated an approximately 40 percent reduction in BCL11A mRNA with a corresponding two-fold increase in γ-globin transcript and 30-40 percent more fetal hemoglobin-positive cells above background. Editing of CD34+ cells from patient donors resulted in similar decreases in BCL11A mRNA and increases in γ-globin transcript. We also showed engraftment over 16 weeks following transplantation of edited human bone marrow CD34+ cells into immune compromised mice, while maintaining editing levels in engrafted cells. We did not observe any off-target events in CD34+ cells edited with the selected gRNA, as measured by targeted next generation sequencing of sites identified through in silico prediction and based on an unbiased, genome-wide, oligo-insertion detection method.

In May 2018, we and our collaborator Ospedale San Raffaele (“OSR”), presented the first update on our joint discovery and development efforts on Wilms’ Tumor 1 (“WT1”)-specific transgenic T cells. In conjunction with this presentation, we announced that our first cell therapy target is an epitope of the tumor-overexpressed protein WT1, for the treatment of acute myeloid leukemia and other potential hematological malignancies, as well as for solid tumors. We shared findings showing the generation, characterization and advancement of WT1-specific, transgenic T cells against multiple WT1 epitopes presented on HLA-A*02:01 and other Class I alleles. Initial data demonstrating both recognition and killing of acute myeloid leukemia cells also was presented.

Collaborations

Novartis

In December 2014, we entered into a strategic collaboration agreement with Novartis, primarily focused on the development of new ex vivo CRISPR/Cas9-edited therapies using CAR-T cells and HSCs.

Agreement Structure

Under the terms of the collaboration, we and Novartis may research potential therapeutic, prophylactic and palliative ex vivo applications of our CRISPR/Cas9 technology in HSCs and CAR-T cells. We and Novartis agreed to conduct research of HSC targets under a research plan agreed upon by both parties. Within the HSC therapeutic space, Novartis may obtain exclusive rights to a limited number of these HSC targets, to be selected by Novartis in a series of selection windows. We have the right to choose a limited number of HSC targets for our exclusive development and commercialization per the specified selection schedule. Following these selections by Novartis and us, Novartis may obtain rights to research an additional limited number of HSC targets on a non-exclusive basis. Novartis is required to use commercially reasonable efforts to research, develop, and commercialize a specified number of HSC products directed to each of their selected HSC targets.

We have also agreed to collaborate with Novartis on research activities for CAR-T cell targets pursuant to the CAR-T cell program research plan approved by the CAR-T cell subcommittee of the collaboration’s joint steering committee. After completion of the activities contemplated by the CAR-T cell program research plan, Novartis will assume sole responsibility for developing any products arising from that research plan and the costs and expenses of developing, manufacturing and commercializing its selected research targets. Novartis is required to use commercially reasonable efforts to research, develop or commercialize at least one CAR-T cell product directed to each of its selected CAR-T cell targets.

Starting in December 2017 and through the end of the collaboration in December 2019, Novartis has the option to select a limited number of targets for research, development and commercialization of in vivo therapies using our CRISPR/Cas9 platform, on a non-exclusive basis. Following Novartis’ selection of each in vivo target, Novartis may offer us the right to participate in the research and development of such targets, in which case an in vivo program research plan for such target will be entered into between us and Novartis. Novartis is required to use commercially reasonable efforts to research, develop and commercialize at least one in vivo product directed to each of its selected in vivo targets. Novartis’ in vivo target selections are subject to certain restrictions, including that the targets, or all targets within a limited number of organs: (i) have not already been reserved by us pursuant to our limited right to do so under the agreement; (ii) are not the subject of a collaboration or pending collaboration with a third party; and (iii) are not the subject of ongoing or planned research and development by us.

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Under the agreement, we received an upfront technology access payment of $10.0 million and are entitled to additional technology access fees of $20.0 million and quarterly research payments of $1.0 million, or up to $20.0 million in the aggregate, during the five-year research term. In addition, for each product under the collaboration, subject to certain conditions, we may be eligible to receive (i) up to $30.3 million in development milestones, including for the filing of an IND application and for the dosing of the first patient in each of Phase IIa, Phase IIb and Phase III clinical trials, (ii) up to $50.0 million in regulatory milestones for the product’s first indication, including regulatory approvals in the U.S., and the European Union (EU), (iii) up to $50.0 million in regulatory milestones for the product’s second indication, if any, including U.S. and EU regulatory approvals, (iv) royalties on net sales in the mid-single digits, and (v) net sales milestone payments of up to $100.0 million. We may also be eligible to receive payments for: (i) each additional HSC target selected by Novartis beyond its initial defined allocation, (ii) each in vivo target that Novartis selects and (iii) any exercise by Novartis of certain license options under the agreement. Additionally, at the inception of the arrangement, Novartis invested $9.0 million to purchase our Class A-1 and Class A-2 Preferred Units. The difference between the cash proceeds received from Novartis for the units and the $11.6 million estimated fair value of those units at the date of issuance was determined to be $2.6 million. Accordingly, $2.6 million of the upfront technology access payment was allocated to record the preferred units purchased by Novartis at fair value.

Collaboration Revenue

Through June 30, 2018, excluding amounts allocated to Novartis’ purchase of our Class A-1 and Class A-2 Preferred Units, we had recorded a total of $36.4 million in cash and accounts receivable under the Novartis agreement. Through June 30, 2018, we have recognized $33.3 million of collaboration revenue, including $2.4 million and $4.7 million during the three and six months ended June 30, 2018, respectively, and $2.3 million and $4.5 million in the three and six months ended June 30, 2017, respectively, in the consolidated statements of operations related to this agreement. As of June 30, 2018, we did not have any accounts receivable related to this agreement.  As of December 31, 2017, we had accounts receivable of $6.0 million related to this agreement. As of June 30, 2018 and December 31, 2017, we had deferred revenue of $3.0 million and $11.2 million, respectively, related to this agreement.

Regeneron

In April 2016, we entered into a license and collaboration agreement with Regeneron. The agreement includes a product component to research, develop and commercialize CRISPR/Cas-based therapeutic products primarily focused on genome editing in the liver as well as a technology collaboration component, pursuant to which we and Regeneron will engage in research and development activities aimed at discovering and developing novel technologies and improvements to CRISPR/Cas-based technology to enhance our genome editing platform. Under this agreement, we may access the Regeneron Genetics Center and proprietary mouse models to be provided by Regeneron for a limited number of our liver programs.

Agreement Structure

Under the terms of our collaboration, we and Regeneron have agreed to a target selection process, whereby Regeneron may obtain exclusive rights for up to 10 targets to be chosen by Regeneron during the collaboration term, subject to various adjustments and limitations set forth in the agreement. Of these 10 total targets, Regeneron may select up to five non-liver targets, while the remaining targets must be focused in the liver.

At the inception of the agreement, Regeneron selected the first of its 10 targets, which is subject to a co-development and co-commercialization arrangement between us and Regeneron. We retain the exclusive right to solely develop products for the treatment of certain indications, including the genetic diseases primary hyperoxaluria (“PH-1”) and alpha-1 antitrypsin deficiency (“AATD”). During the target selection process, we have the right to choose additional liver targets for our own development using commercially reasonable efforts. Certain targets that either we or Regeneron select may be subject to further co-development and co-commercialization arrangements at our or Regeneron’s option, as applicable, which either can exercise pursuant to defined conditions. In addition, subject to certain restrictions, Regeneron will be able to replace a limited number of targets with substitute targets upon the payment of a specified replacement fee, in which case exclusive rights to the replaced target revert to us. Regeneron’s target selections are subject to certain additional restrictions, including that non-liver targets are not the subject of ongoing or planned research and development by us or are not the subject of a collaboration or pending collaboration with a third party.

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Research activities under the collaboration will be governed by evaluation and research and development plans that will outline the parties’ responsibilities under, anticipated timelines of and budgets for, the various programs. We will assist Regeneron with the preliminary evaluation of liver targets, and Regeneron will be responsible for preclinical research and the conduct of clinical development, manufacturing and commercialization of products directed to each of its exclusive targets under the oversight of a joint steering committee. We may assist, as requested by Regeneron, with the later discovery and research of product candidates directed to any selected target. For each selected target, Regeneron is required to use commercially reasonable efforts to submit regulatory filings necessary to achieve initial IND acceptance for at least one product directed to each applicable target, and following IND acceptance for at least one product, to develop and commercialize such product.

In connection with this collaboration, Regeneron agreed to purchase $50.0 million of our common stock in a private placement concurrent with our initial public offering, and we received a nonrefundable upfront payment of $75.0 million. In addition, we are eligible to earn, on a per-licensed target basis, up to $25.0 million, $110.0 million and $185.0 million in development, regulatory and sales-based milestone payments, respectively. We are also eligible to earn royalties ranging from the high single digits to low teens, in each case, on a per-product basis, which royalties are potentially subject to various reductions and offsets and are further subject to our existing low- to mid-single-digit royalty obligations under a license agreement with Caribou Biosciences, Inc. (“Caribou”). In addition, Regeneron is obligated to fund 50.0 percent of certain research and development costs for the TTR program, the first target selected by Regeneron, which is subject to a co-development and co-commercialization arrangement between us and Regeneron.

Collaboration Revenue

Through June 30, 2018, we recorded a $75.0 million upfront payment and $8.7 million for research and development services under the Regeneron agreement. Through June 30, 2018, we have recognized $35.9 million of collaboration revenue, including $5.3 million and $10.4 million during the three and six months ended June 30, 2018, respectively, and $3.6 million and $7.7 million during the three and six months ended June 30, 2017, respectively, in the consolidated statements of operations related to this agreement. As of June 30, 2018 and December 31, 2017, we had deferred revenue of $47.8 million and $54.1 million, and accounts receivable of $8.6 million and $4.5 million, respectively, related to this agreement.

Results of Operations

Comparison of Three Months Ended June 30, 2018 and 2017

The following table summarizes our results of operations for the three months ended June 30, 2018 and 2017:

 

 

 

Three Months Ended June 30,

 

 

 

 

 

 

 

2018

 

 

2017

 

 

Increase / (decrease)

 

 

 

(In thousands)

 

Collaboration revenue

 

$

7,677

 

 

$

5,917

 

 

$

1,760

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

23,467

 

 

 

15,565

 

 

 

7,902

 

General and administrative

 

 

7,805

 

 

 

6,369

 

 

 

1,436

 

Total operating expenses

 

 

31,272

 

 

 

21,934

 

 

 

9,338

 

Operating loss

 

 

(23,595

)

 

 

(16,017

)

 

 

(7,578

)

Interest income

 

 

1,376

 

 

 

424

 

 

 

952

 

Net loss

 

$

(22,219

)

 

$

(15,593

)

 

$

(6,626

)

 

Collaboration Revenue

Our revenue consists of collaboration revenue, including amounts recognized related to upfront technology access payments for licenses, technology access fees, research funding and milestone payments earned under our collaboration and license agreements with Novartis and Regeneron.

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Collaboration revenue increased $1.8 million to $7.7 million during the three months ended June 30, 2018, as compared to $5.9 million during the three months ended June 30, 2017. The increase in collaboration revenue during the quarter ended June 30, 2018 is primarily related to the recognition of amounts under the Regeneron collaboration. The specific Regeneron related increase is driven by increased research and development services related to our TTR program, increasing to $2.1 million during the three months ended June 30, 2018 as compared to $0.5 million during the three months ended June 30, 2017.

Research and Development

 

Research and development expenses consist of expenses incurred in performing research and development activities, including compensation and benefits, which includes equity-based compensation, for full-time research and development employees, facility-related expenses, overhead expenses, lab supplies and contract research services.

 

Research and development expenses increased $7.9 million to $23.5 million during the three months ended June 30, 2018, as compared to $15.6 million during the three months ended June 30, 2017. This increase is primarily related to an increase in research and development expenses of $4.0 million related to laboratory supplies, research materials and services for the further advancement of our early-stage research programs; and an increase in personnel-related costs of $3.6 million, which includes equity-based compensation expense, driven by our growth to 160 research and development employees as of June 30, 2018 from 110 research and development employees as of June 30, 2017.

Through 2018, we expect research and development expenses to increase as we continue to grow our research and development team and advance our research plans.

General and Administrative

 

General and administrative expenses consist primarily of salaries and benefits, including equity-based compensation, for our executive, finance, legal, business development and support functions. Other general and administrative expenses include allocated facility-related costs not otherwise included in research and development expenses, travel expenses and professional fees for auditing, tax and legal services, including IP-related legal services, and other consulting fees and expenses.

 

General and administrative expenses increased $1.4 million to $7.8 million during the three months ended June 30, 2018, compared to $6.4 million during the three months ended June 30, 2017. This increase was primarily related to an increase of $1.9 million in personnel-related costs, which includes equity-based compensation expense, as we grew to 47 general and administrative employees as of June 30, 2018 from 33 general and administrative employees as of June 30, 2017.  This increase in costs was offset in part by a $0.4 million decrease in legal and other IP-related expense caused by the timing of these costs year over year.

 

Through 2018, we expect general and administrative expenses to increase as we continue to support the research and development team and advance our research plans.

Interest Income

Interest income increased by $1.0 million to $1.4 million during the three months ended June 30, 2018 as compared to $0.4 million during the three months ended June 30, 2017. This increase was caused by an increase in our average cash balance compared to the same period in the prior year, as well as a general increase in interest rates.

Interest income is income earned on our cash equivalents. The increase in interest income is due to the increase in interest-bearing money market accounts, commercial paper and U.S. treasury securities, as compared to the same period in the prior year.

 

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Comparison of Six Months Ended June 30, 2018 and 2017

The following table summarizes our results of operations for the six months ended June 30, 2018 and 2017:

 

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

2018

 

 

2017

 

 

Increase / (decrease)

 

 

 

(In thousands)

 

Collaboration revenue

 

$

15,146

 

 

$

12,132

 

 

$

3,014

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

45,960

 

 

 

28,996

 

 

 

16,964

 

General and administrative

 

 

15,211

 

 

 

12,101

 

 

 

3,110

 

Total operating expenses

 

 

61,171

 

 

 

41,097

 

 

 

20,074

 

Operating loss

 

 

(46,025

)

 

 

(28,965

)

 

 

(17,060

)

Interest income

 

 

2,450

 

 

 

741

 

 

 

1,709

 

Net loss

 

$

(43,575

)

 

$

(28,224

)

 

$

(15,351

)

 

Collaboration Revenue

Our revenue consists of collaboration revenue, including amounts recognized related to upfront technology access payments for licenses, technology access fees, research funding and milestone payments earned under our collaboration and license agreements with Novartis and Regeneron.

Collaboration revenue increased approximately $3.0 million to $15.1 million during the six months ended June 30, 2018, as compared to $12.1 million during the six months ended June 30, 2017. The increase in collaboration revenue during the six months ended June 30, 2018 is primarily related to the recognition of amounts under the Regeneron collaboration. The specific Regeneron related increase is driven by increased research and development services related to our TTR program, increasing to $4.1 million during the six months ended June 30, 2018 as compared to $1.4 million during the six months ended June 30, 2017.

Research and Development

 

Research and development expenses consist of expenses incurred in performing research and development activities, including compensation and benefits, which includes equity-based compensation, for full-time research and development employees, facility-related expenses, overhead expenses, lab supplies and contract research services.

 

Research and development expenses increased $17.0 million to $46.0 million during the six months ended June 30, 2018, as compared to $29.0 million during the six months ended June 30, 2017. This increase is primarily related to an increase in research and development expenses of $9.3 million related to laboratory supplies, research materials and services for the further advancement of our early-stage research programs; and an increase in personnel-related costs of $7.2 million, which includes equity-based compensation expense, driven by our growth to 160 research and development employees as of June 30, 2018 from 110 research and development employees as of June 30, 2017.

 

Through 2018, we expect research and development expenses to increase as we continue to grow our research and development team and advance our research plans.

General and Administrative

 

General and administrative expenses consist primarily of salaries and benefits, including equity-based compensation, for our executive, finance, legal, business development and support functions. Other general and administrative expenses include allocated facility-related costs not otherwise included in research and development expenses, travel expenses and professional fees for auditing, tax and legal services, including IP-related legal services, and other consulting fees and expenses.

 

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General and administrative expenses increased $3.1 million to $15.2 million during the six months ended June 30, 2018, compared to $12.1 million during the six months ended June 30, 2017. This increase was primarily related to an increase of $3.5 million in personnel-related costs, which includes equity-based compensation expense, as we grew to 47 general and administrative employees as of June 30, 2018 from 33 general and administrative employees as of June 30, 2017. This increase in costs was offset in part by a $0.4 million decrease in legal and other IP-related expense caused by the timing of these costs year over year.

Through 2018, we expect general and administrative expenses to increase as we continue to support the research and development team and advance our research plans.

Interest Income

Interest income increased by approximately $1.7 million to $2.5 million during the six months ended June 30, 2018 as compared to $0.7 million during the six months ended June 30, 2017. This increase was caused by an increase in our average cash balance compared to the same period in the prior year, as well as a general increase in interest rates.

Interest income is income earned on our cash equivalents. The increase in interest income is due to the increase in interest-bearing money market accounts, commercial paper and U.S. treasury securities, as compared to the same period in the prior year.

Liquidity and Capital Resources

Since our inception through June 30, 2018, we have raised an aggregate of $510.6 million to fund our operations, of which $114.1 million was through our collaboration agreements, $170.5 million was from our initial public offering and concurrent private placements, $141.0 million was from a follow-on public offering and $85.0 million was from the sale of convertible preferred stock. As of June 30, 2018, we had $305.5 million in cash and cash equivalents.

In addition, we are entitled to receive technology access fees and research payments under our collaboration with Novartis and are also eligible to earn a significant amount of milestone payments and royalties, in each case, on a per-product basis under our collaboration with Novartis and on a per-target basis under our collaboration with Regeneron. Our ability to earn these milestones and the timing of achieving these milestones is dependent upon the outcome of our research and development activities and is uncertain at this time. Our rights to payments under our collaboration agreements are our only committed external source of funds.

Funding Requirements

Our primary uses of capital are, and we expect will continue to be, research and development services, compensation and related expenses, laboratory and related supplies, legal and other regulatory expenses, patent prosecution filing and maintenance costs for our licensed IP and general overhead costs. During 2018, we expect our expenses to increase compared to prior periods in connection with our ongoing activities, particularly as we continue research and development and preclinical activities.

Because our research programs are still in preclinical development and the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of any future product candidates or whether, or when, we may achieve profitability. Until such time as we can generate substantial product revenues, if ever, we expect to finance our ongoing cash needs through equity financings and collaboration arrangements. We are entitled to technology access fees and research payments under our collaboration with Novartis. Additionally, we are eligible to earn milestone payments and royalties, in each case, on a per-product basis under our collaboration with Novartis and on a per-target basis under our collaboration with Regeneron. Except for these sources of funding, we will not have any committed external source of liquidity. To the extent that we raise additional capital through the future sale of equity, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing stockholders. If we raise additional funds through collaboration arrangements in the future, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

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Outlook

Based on our research and development plans and our expectations related to the progress of our programs, we expect that our cash and cash equivalents as of June 30, 2018, as well as technology access and research funding from Novartis and Regeneron, will enable us to fund our ongoing operating expenses and capital expenditures through mid-2020, excluding any potential milestone payments or extension fees that could be earned and distributed under the collaboration agreements with Novartis and Regeneron or any strategic use of capital not currently in the base case planning assumptions. We have based this estimate on current assumptions that may prove to be wrong, and we could use our capital resources sooner than we expect.

Our ability to generate revenue and achieve profitability depends significantly on our success in many areas, including: developing our delivery technologies and our CRISPR/Cas9 technology platform; selecting appropriate product candidates to develop; completing research and preclinical and clinical development of selected product candidates; obtaining regulatory approvals and marketing authorizations for product candidates for which we complete clinical trials; developing a sustainable and scalable manufacturing process for product candidates; launching and commercializing product candidates for which we obtain regulatory approvals and marketing authorizations, either directly or with a collaborator or distributor; obtaining market acceptance of our product candidates; addressing any competing technological and market developments; negotiating favorable terms in any collaboration, licensing, or other arrangements into which we may enter; maintaining good relationships with our collaborators and licensors; maintaining, protecting, and expanding our portfolio of IP rights, including patents, trade secrets, and know-how; and attracting, hiring, and retaining qualified personnel.

Cash Flows

The following is a summary of cash flows for the six months ended June 30, 2018 and 2017:

 

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

 

(In millions)

 

Net cash used in operating activities

 

$

(40.3

)

 

$

(27.1

)

Net cash used in investing activities

 

 

(2.8

)

 

 

(5.4

)

Net cash provided by financing activities

 

 

7.9

 

 

 

0.5

 

 

Net cash used in operating activities

 

During the six months ended June 30, 2018 and 2017, our operating activities used net cash of $40.3 million and $27.1 million, respectively. The use of net cash in both periods primarily resulted from our net losses and changes in our working capital accounts. The increase in net cash used in operations for the six months ended June 30, 2018 as compared to the six months ended June 30, 2017 was due primarily to higher operating expenses, driven by increased research and development activities and headcount, during the six months ended June 30, 2018 of $61.2 million as compared to $41.1 million for the six months ended June 30, 2017. These higher costs were offset in part by the receipt of cash from Novartis in both six-month periods.

Net cash used in investing activities

During the six months ended June 30, 2018 and 2017, our investing activities used net cash of $2.8 million and $5.4 million, respectively.  The use of cash in both periods related to purchases of property and equipment as we grow our operations and build out our office and laboratory facilities.

Net cash provided by financing activities

During the six months ended June 30, 2018 and 2017, our net cash provided by financing activities was $7.9 million and $0.5 million, respectively. Net cash provided by financing activities during the six months ended June 30, 2018 is made up of $7.3 million in cash received from the exercise of stock options and $0.6 million in cash received from the issuance of shares through our employee stock purchase plan. Net cash provided by financing activities during the six months ended June 30, 2017 is made up of $0.4 million in cash received from the issuance of shares through our employee stock purchase plan and $0.1 million in cash received from the exercise of stock options.

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Critical Accounting Policies

Our critical accounting policies require the most significant judgments and estimates in the preparation of our consolidated financial statements. Management has determined that our most critical accounting policies are those relating to revenue recognition and equity-based compensation. As discussed in Note 2 to our consolidated financial statements, we adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”) effective January 1, 2018. There have been no other significant changes to our critical accounting policies from those which were discussed in our Annual Report on Form 10-K for the year ended December 31, 2017. 

Recent Accounting Pronouncements

Please read Note 2 to our consolidated financial statements included in Part I, Item 1, “Notes to Consolidated Financial Statements,” of this quarterly report on Form 10-Q for a description of recent accounting pronouncements applicable to our business.

Contractual Obligations  

There were no material changes to our contractual obligations during the six months ended June 30, 2018. For a complete discussion of our contractual obligations, please refer to our Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2017.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements as defined under the rules and regulations of the Securities and Exchange Commission.

Item 3. Quantitative and Qualitative Disclosures About Market Risk  

The market risk inherent in our financial instruments and in our financial position represents the potential loss arising from adverse changes in interest rates. As of June 30, 2018, we had cash equivalents of $300.3 million consisting of interest-bearing money market accounts, commercial paper and U.S. treasury securities. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. Due to the short-term maturities of our cash equivalents and the low risk profile of these investments, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates. Declines in interest rates, however, would reduce future investment income.

We do not have any foreign currency or other derivative financial instruments, and we do not believe that inflation had a material effect on our results of operations during the six months ended June 30, 2018. Inflation generally affects us by increasing our cost of labor and clinical trial costs.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

The Company has established disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to management, including the principal executive officer (our “Chief Executive Officer”) and principal financial and accounting officer (our “Chief Financial Officer”), to allow timely decisions regarding required disclosure.

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Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives. Our disclosure controls and procedures have been designed to provide reasonable assurance of achieving their objectives. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2018.

Changes in Internal Control over Financial Reporting

No change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three months ended June 30, 2018 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.