Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysi s of Financial Condition and Results of Operations .
The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K.
Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K contains forward-looking statements that involve substantial risks and uncertainties. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. There are a number of important risks and uncertainties that could cause our actual results to differ materially from those indicated by forward-looking statements. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Annual Report on Form 10-K, particularly in the section entitled “Risk Factors” in Part I, Item 1A that could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments that we may make.
You should read this Annual Report on Form 10-K and the documents that we have filed as exhibits to this Annual Report on Form 10-K completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained in this Annual Report on Form 10-K are made as of the date of this Annual Report on Form 10-K,and we do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
Overview
We are a leading, clinical stage gene editing company dedicated to developing potentially transformative gene-editing medicines to treat a broad range of serious diseases. We have developed a proprietary gene editing platform based on CRISPR technology and we continue to expand its capabilities. Our product development strategy is to target diseases of high unmet need where we aim to make differentiated, transformational medicines using our gene editing platform. We are advancing both in vivo gene editing medicines, in which the medicine is injected or infused into the patient to edit the cells inside their body, and ex vivo gene edited cell medicines, in which cells are edited with our technology and then administered to the patient. While our discovery efforts have ranged across several diseases and therapeutic areas, the two areas where our programs are more mature are our in vivo medicines to treat ocular diseases and ex vivo gene edited cell medicines to treat hemoglobinopathies and cancer.
In ocular diseases, our most advanced program is designed to address a specific genetic form of retinal degeneration called Leber congenital amaurosis 10 (“LCA10”), a disease for which we are not aware of any available therapies and only one other potential treatment is in clinical trials in the United States and Europe. In mid-2019, we initiated our Phase 1/2 BRILLIANCE clinical trial for EDIT-101, an experimental gene-editing medicine to treat LCA10 . We plan to enroll approximately 18 patients in the United States and Europe in up to five cohorts. We completed dosing of the first cohort, the adult low-dose cohort, in 2020. Due to an absence of severe adverse events and dose limited toxicity in adults treated in the first cohort, the inclusion criteria of the protocol was modified to allow inclusion of subjects with better than light perception vision only. Although we experienced slowed enrollment in 2020 for subsequent cohorts due to the ongoing impact of the COVID-19 pandemic, in the first quarter of 2021 we initiated dosing of the second cohort, the adult mid-dose cohort. We expect to announce initial clinical data in 2021.
In May 2015, we entered into a collaboration with Juno Therapeutics, Inc., a wholly-owned subsidiary of Bristol-Myers Squibb Company (“Juno Therapeutics”), a leader in the emerging field of immuno-oncology, to develop novel engineered alpha-beta T cell therapies for cancer and autoimmune diseases, which was amended and restated in each of May 2018 and November 2019, at which time we also entered into a related license agreement with Juno Therapeutics, which we collectively refer to as our collaboration with them.
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In March 2017, we entered into a strategic alliance and option agreement with Allergan Pharmaceuticals International Limited (together with its affiliates, “Allergan”) to discover, develop, and commercialize new gene editing medicines for a range of ocular disorders. In July 2018, Allergan exercised its option to develop and commercialize EDIT-101 and paid us $15.0 million in connection with such exercise (the “EDIT-101 Option Exercise Payment”). We and Allergan subsequently entered into a co-development and commercialization agreement under which we agreed to co-develop and equally split profits and losses for EDIT-101 in the United States. In December 2018, we also received a $25.0 million payment from Allergan in connection with the acceptance of the IND for EDIT-101 (the “EDIT-101 Milestone Payment”). In August 2020, we and Allergan terminated the strategic alliance and option agreement and the co-development and commercialization agreement, and we assumed full rights to EDIT-101 and responsibility for conducting the clinical trial. In connection with such termination, we and Allergan entered into a termination agreement, pursuant to which we made a one-time aggregate payment of $20.0 million to Allergan during the second half of 2020.
Since our inception in September 2013, our operations have focused on organizing and staffing our company, business planning, raising capital, establishing our intellectual property portfolio, assembling our core capabilities in gene editing, seeking to identify potential product candidates, and undertaking preclinical studies. Except for EDIT-101 and EDIT-301, all of our research programs are still in the preclinical or research stage of development and the risk of failure of all of our research programs is high. We have not generated any revenue from product sales. We have primarily financed our operations through various equity financings and payments received under our research collaboration with Juno Therapeutics and our strategic alliance with Allergan . From inception through December 31, 2020, we raised an aggregate of $1,104.2 million to fund our operations.
Since inception, we have incurred significant operating losses. Our net losses were $116.0 million, $133.7 million, and $110.0 million for the years ended December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020, we had an accumulated deficit of $665.2 million. We expect to continue to incur significant expenses and operating losses for the foreseeable future. Our net losses may fluctuate significantly from quarter to quarter and from year to year. We anticipate that our expenses will increase substantially as we continue our current research programs and our preclinical development activities; progress the clinical development of EDIT-101 and EDIT-301 for the treatment of sickle cell disease; seek to identify additional research programs and additional product candidates; initiate preclinical testing and clinical trials for other product candidates we identify and develop; maintain, expand, and protect our intellectual property portfolio, including reimbursing our licensors for such expenses related to the intellectual property that we in-license from such licensors; further develop our genome editing platform; hire additional clinical, quality control, and scientific personnel; and incur additional costs associated with operating as a public company. We do not expect to be profitable for the year ending December 31, 2021 or the foreseeable future.
Although we did not experience any significant impact on our financial condition, results of operations or liquidity due to the ongoing COVID-19 pandemic during the year ended December 31, 2020, we did experience slowed enrollment in the EDIT-101 clinical trial as a result of the COVID-19 pandemic. The ultimate impact of the COVID-19 pandemic is highly uncertain and we do not yet know the full extent of potential delays or impacts on our business, our ability to continue to raise additional capital, the EDIT-101 or EDIT-301 clinical trials, ongoing preclinical activities, or the global economy as a whole. In March 2020, we implemented a work from home policy, and restricted on-site activities at our facilities in Massachusetts and Colorado to certain manufacturing, laboratory and related support activities in light of the COVID-19 pandemic. Under our return to onsite work plans, we have resumed manufacturing, laboratory and related support activities at our facilities in Massachusetts and Colorado using shifts and other capacity-limiting measures to comply with social distancing guidelines. As such, it is uncertain as to the full magnitude that the pandemic will have directly or indirectly on our financial condition, liquidity and future results of operations.
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Financial Operations Overview
Revenue
To date, we have not generated any revenue from product sales and we do not expect to generate any revenue from product sales for the foreseeable future. In connection with our collaboration with Juno Therapeutics, we have received an aggregate of $120.5 million in payments, which have primarily consisted of the initial upfront and amendment payments, development milestone payments and research funding support. We no longer receive research funding support. As of December 31, 2020, we recorded $90.7 million of deferred revenue, of which $73.7 million is classified as long-term on our consolidated balance sheet. During the year ended December 31, 2020, we recognized $5.7 million of previously deferred revenue related to Juno Therapeutics. Under this collaboration, we will recognize revenue upon delivery of option packages to Juno Therapeutics. We expect that our revenue will fluctuate from quarter-to-quarter and year-to-year as a result of the timing of when we deliver such option packages.
In connection with our strategic alliance with Allergan, we received an aggregate of $130.0 million in payments, which consisted of the initial upfront payment, an option exercise payment and a milestone payment. Prior to the termination of our agreements with Allergan, certain of these payments were deferred and were being recognized over the remaining contract term using the proportional performance method. During the third quarter of 2020, as a result of the termination of our agreements with Allergan, we recognized $63.2 million of previously deferred revenue related to Allergan.
For additional information about our revenue recognition policy related to the Juno Therapeutics collaboration or the Allergan strategic alliance, see “—Critical Accounting Policies and Estimates—Revenue Recognition” included in our Annual Report.
For the foreseeable future we expect substantially all of our revenue will be generated from our collaboration with Juno Therapeutics, and any other collaborations or agreements we may enter into.
Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research and development activities, including our drug discovery efforts and preclinical studies under our research programs, which include:
● employee-related expenses including salaries, benefits, and stock-based compensation expense;
● costs of funding research performed by third parties that conduct research and development and preclinical activities on our behalf;
● costs of purchasing lab supplies and non-capital equipment used in our preclinical activities and in manufacturing preclinical study materials;
● consultant fees;
● facility costs including rent, depreciation, and maintenance expenses; and
● fees for acquiring and maintaining licenses under our third-party licensing agreements, including any sublicensing or success payments made to our licensors.
Research and development costs are expensed as incurred. At this time, we cannot reasonably estimate or know the nature, timing, and estimated costs of the efforts that will be necessary to complete the development of any product
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candidates we may identify and develop. This is due to the numerous risks and uncertainties associated with developing such product candidates, including the uncertainty of:
● successful completion of preclinical studies, IND-enabling studies and natural history studies;
● successful enrollment in, and completion of, clinical trials;
● receipt of marketing approvals from applicable regulatory authorities;
● establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;
● obtaining and maintaining patent and trade secret protection and non-patent exclusivity;
● launching commercial sales of a product, if and when approved, whether alone or in collaboration with others;
● acceptance of a product, if and when approved, by patients, the medical community, and third-party payors;
● effectively competing with other therapies and treatment options;
● a continued acceptable safety profile following approval;
● enforcing and defending intellectual property and proprietary rights and claims; and
● achieving desirable medicinal properties for the intended indications.
A change in the outcome of any of these variables with respect to the development of any product candidates we develop would significantly change the costs, timing, and viability associated with the development of that product candidate.
Research and development activities are central to our business model. We expect research and development costs to increase significantly for the foreseeable future as our development programs progress, including as we progress the clinical development of EDIT-101 and EDIT-301 as well as supporting preclinical studies for our other research programs.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation for personnel in executive, finance, investor relations, business development, legal, corporate affairs, information technology, facilities and human resource functions. Other significant costs include corporate facility costs not otherwise included in research and development expenses, legal fees related to intellectual property and corporate matters, and fees for accounting and consulting services.
We anticipate that our general and administrative expenses will increase in the future to support continued research and development activities and potential commercialization of any product candidates we identify and develop. These increases will include increased costs related to the hiring of additional personnel and fees to outside consultants. We also anticipate increased expenses related to reimbursement of third-party patent-related expenses and expenses associated with operating as a public company, including costs for audit, legal, regulatory, and tax-related services, director and officer insurance premiums, and investor relations costs. With respect to reimbursement of third-party intellectual property-related expenses specifically, given the ongoing nature of the opposition and interference proceedings involving the patents licensed to us under our license agreement with The Broad Institute, Inc. (“Broad”)
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and the President and Fellows of Harvard College (“Harvard”), we anticipate general and administrative expenses will continue to be significant.
Other Income (Expense), Net
For the year ended December 31, 2020, other income (expense), net consisted primarily of changes in the fair value of equity securities, interest income and accretion of discounts associated with other marketable securities.
For the year ended December 31, 2019, other income (expense), net consisted primarily of interest income and accretion of discounts associated with marketable securities.
For the year ended December 31, 2018, other income (expense), net consisted primarily of interest income, accretion of discounts associated with marketable securities, and rental income from our former subtenant, partially offset by interest expense on our construction financing lease obligation.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of our consolidated financial statements requires us to make judgments and estimates that affect the reported amounts of assets, liabilities, revenues, and expenses, and the disclosure of contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events, and various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. On an ongoing basis, we evaluate our judgments and estimates in light of changes in circumstances, facts, and experience. The effects of material revisions in estimates, if any, will be reflected in the consolidated financial statements prospectively from the date of change in estimates.
While our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following accounting policy used in the preparation of our consolidated financial statements requires the most significant judgments and estimates.
Revenue Recognition
We recognize revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), Topic 606, Revenue Recognition (“ASC 606”). Accordingly, we recognize revenue following the five step model prescribed under Accounting Standards Updates No. 2014-09, Revenue from Contracts with Customers : (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determine those that are performance obligations, and whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. As part of the accounting for these arrangements, we must develop assumptions that require judgment to determine the standalone selling price for each performance obligation identified in the contract. A significant portion of revenue recognized from our strategic alliance with Allergan, prior to termination, was related to research services performed for each clinical development program whereby revenue was recognized as the underlying services were performed using a proportional performance model. Prior to the termination of the arrangement with Allergan, we measured proportional performance based on full time employee hours incurred relative to projected full time employee hours to complete the research services for each clinical development program. We evaluated the measure of progress each reporting period and, if necessary, adjusted the measure of performance and related revenue recognition.
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Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue in our consolidated balance sheets.
Accrued research and development expenses
As part of the process of preparing our financial statements, we are required to estimate our accrued expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. Examples of estimated accrued research and development expenses include fees paid to:
● CROs in connection with clinical studies;
● vendors in connection with preclinical development activities; and
● vendors related to development, manufacturing and distribution of clinical trial materials.
We base our expenses related to clinical studies on our estimates of the services received and efforts expended pursuant to contracts with multiple CROs that conduct and manage clinical studies on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the clinical expense. Payments under some of these contracts depend on factors such as the successful enrollment of subjects and the completion of clinical study milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period and adjust accordingly.
Results of Operations
Comparison of Years ended December 31, 2020 and 2019
The following table summarizes our results of operations for the years ended December 31, 2020 and 2019, together with the changes in those items in dollars (in thousands) and the respective percentages of change:
Year Ended
December 31,
2020
2019
Dollar Change
Percentage Change
Collaboration and other research and development revenues
$
90,732
$
20,531
$
70,201
n/m
Operating expenses:
Research and development
157,996
96,898
61,098
63
%
General and administrative
67,576
64,555
3,021
5
%
Total operating expenses
225,572
161,453
64,119
40
%
Other income, net
Other income (expense), net
16,259
(137)
16,396
n/m
Interest income, net
2,605
7,313
(4,708)
(64)
%
Total other income, net
18,864
7,176
11,688
n/m
Net loss
$
(115,976)
$
(133,746)
$
17,770
(13)
%
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For our results of operations, we have included the respective percentage of changes, unless greater than 100% or less than (100)%, in which case we have denoted such changes as not meaningful (n/m).
Collaboration and Other Research and Development Revenues
Collaboration and other research and development revenues increased by $70.2 million, to $90.7 million for the year ended December 31, 2020 from $20.5 million for the year ended December 31, 2019. This increase was primarily attributable to a $57.1 million increase in the revenue recognized as a result of the termination of our strategic alliance with Allergan, a $5.1 million increase in revenue recognized pursuant to our collaboration with Juno Therapeutics, and a $8.0 million increase in revenue recognized in connection with other out-license agreements that are individually insignificant.
Research and Development Expenses
Research and development expenses increased by $61.1 million, to $158.0 million for the year ended December 31, 2020 from $96.9 million for the year ended December 31, 2019. The following table summarizes our research and development expenses for the years ended December 31, 2020 and December 31, 2019, together with the changes in those items in dollars (in thousands) and the respective percentages of change:
Year Ended
December 31,
2020
2019
Dollar Change
Percentage Change
External research and development expenses
$
63,807
$
33,242
$
30,565
92
%
Employee related expenses
32,349
24,249
8,100
33
%
Facility expenses
13,372
9,131
4,241
46
%
Stock-based compensation expenses
11,580
13,538
(1,958)
(14)
%
Sublicense and license fees
32,888
11,731
21,157
n/m
Other expenses
4,000
5,007
(1,007)
(20)
%
Total research and development expenses
$
157,996
$
96,898
$
61,098
63
%
The increase in research and development expenses for the year ended December 31, 2020 compared to the year ended December 31, 2019 was primarily attributable to:
● approximately $30.6 million in increased external research and development expenses due to increased research activity, mostly relating to external research and development costs that we expect will increase further as we progress the clinical development of EDIT-101 and EDIT-301 and further advance our current research programs and our preclinical development activities;
● approximately $27.5 million in increased sublicense and license fees resulting from success payments that were triggered during the fourth quarter of 2020 in connection to the Cpf1 license agreement and the sponsored research agreement with Broad;
● approximately $8.1 million in increased employee related expenses due to an increase in the size of our workforce; and
● approximately $4.2 million in increased facility and other related expenses due to increased office space and increased professional service expenses.
These increases were partially offset by the following decreases in research and development expenses:
● approximately $6.3 million in decreased sublicense and license expenses resulting from sublicense expense recorded during the fourth quarter of 2019 in connection with receiving $70.0 million related to our amended and restated collaboration agreement with Juno Therapeutics compared to sublicense expense
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recorded during 2020 in connection with receiving $13.0 million related to upfront and milestone payments for our collaboration agreement with Juno and our other individually insignificant out-license agreements;
● approximately $2.0 million in decreased stock-based compensation expenses resulting from forfeitures; and
● approximately $1.0 million in decreased other expenses.
General and Administrative Expenses
General and administrative expenses increased by approximately $3.0 million, to $67.6 million for the year ended December 31, 2020 from $64.6 million for the year ended December 31, 2019. The following table summarizes our general and administrative expenses for the years ended December 31, 2020 and December 31, 2019, together with the changes in those items in dollars (in thousands) and the respective percentages of change:
Year Ended
December 31,
2020
2019
Dollar Change
Percentage Change
Intellectual property and patent related fees
$
18,654
$
18,103
$
551
3
%
Employee related expenses
15,758
12,781
2,977
23
%
Professional service expenses
13,666
14,462
(796)
(6)
%
Stock-based compensation expenses
11,576
13,705
(2,129)
(16)
%
Facility and other expenses
7,922
5,504
2,418
44
%
Total general and administrative expenses
$
67,576
$
64,555
$
3,021
5
%
The increase in general and administrative expenses for the year ended December 31, 2020 compared to the year ended December 31, 2019 was primarily attributable to:
● approximately $3.0 million in increased employee related expenses primarily due to an increase in the size of our workforce and the timing of hiring key executives;
● approximately $2.4 million in increased facility and other expenses resulting from additional office space leased in 2020; and
● approximately $0.6 million in intellectual property and patent related fees.
These increases were partially offset by approximately $2.1 million in decreased stock-based compensation expenses resulting from a modification that occurred in 2019 with respect to which there was no similar activity in 2020 and approximately $0.8 million in decreased professional service expenses.
Total Other Income, Net
For the year ended December 31, 2020, total other income, net was $18.9 million, which was primarily attributable to the realized gains related to the sale of corporate equity securities, interest income and accretion of discounts associated with marketable securities.
For the year ended December 31, 2019, total other income, net was $7.2 million, which was primarily attributable to interest income and accretion of discounts associated with marketable securities.
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Comparison of Years Ended December 31, 2019 and 2018
The following table summarizes our results of operations for the years ended December 31, 2019 and 2018, together with the changes in those items in dollars (in thousands) and the respective percentages of change:
Year Ended
December 31,
2019
2018
Dollar Change
Percentage Change
Collaboration revenue
$
20,531
$
31,937
$
(11,406)
(36)
%
Operating expenses:
Research and development
96,898
90,654
6,244
7
%
General and administrative
64,555
55,010
9,545
17
%
Total operating expenses
161,453
145,664
15,789
11
%
Other expense, net:
Other expense, net
(137)
328
(465)
n/m
Interest expense
7,313
3,445
3,868
n/m
Total other expense, net
7,176
3,773
3,403
90
%
Net loss
$
(133,746)
$
(109,954)
$
(23,792)
22
%
For our results of operations, we have included the respective percentage of changes, unless greater than 100% or less than (100)%, in which case we have denoted such changes as not meaningful (n/m).
Collaboration and Other Research and Development Revenues
Collaboration and other research and development revenues decreased by $11.4 million, to $20.5 million for the year ended December 31, 2019 from $31.9 million for the year ended December 31, 2018. This decrease was primarily attributable to a $7.9 million decrease in revenue recognized pursuant to our strategic alliance with Allergan, $3.9 million in revenue recognized during the second quarter of 2018 related to a one time upfront payment in connection with an out-license arrangement and a $0.2 million decrease in revenue recognized pursuant to our collaboration with Juno Therapeutics.
Research and Development Expenses
Research and development expenses increased by $6.2 million, to $96.9 million for the year ended December 31, 2019 from $90.7 million for the year ended December 31, 2018. The following table summarizes our research and development expenses for the years ended December 31, 2019 and December 31, 2018, together with the changes in those items in dollars (in thousands) and the respective percentages of change:
Year Ended
December 31,
2019
2018
Dollar Change
Percentage Change
External research and development expenses
$
33,242
25,466
$
7,776
$
31
%
Employee and contractor related expenses
24,249
$
19,771
4,478
23
%
Stock-based compensation expenses
13,538
14,734
(1,196)
(8)
%
Sublicense and license fees
11,731
8,707
3,024
35
%
Facility expenses
9,131
6,058
3,073
51
%
Other expenses
5,007
3,418
1,589
46
%
Success payment expenses
—
12,500
(12,500)
n/m
Total research and development expenses
$
96,898
$
90,654
$
6,244
$
7
%
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The increase in research and development expenses for the year ended December 31, 2019 compared to the year ended December 31, 2018 was primarily attributable to:
● approximately $7.8 million in increased external research and development expenses due to increased research activity, mostly relating to external research and development costs that we expect will increase further as we continue to progress the clinical development of EDIT-101;
● approximately $4.5 million in increased employee related expenses due to an increase in the size of our workforce;
● approximately $4.7 million in increased facility and other related expenses due to increased office and professional service expenses; and
● approximately $3.0 million in increased licensing and sublicensing payment expenses, primarily due to sublicense expense recorded during the fourth quarter of 2019 in connection with receiving $70.0 million related to our amended and restated collaboration agreement with Juno Therapeutics, partially offset by sublicense fees owed to certain of our licensors in 2018 in connection with receiving milestone and other payments from our licensees.
These increases were partially offset by the following decreases in research and development expenses:
● approximately $12.5 million in decreased success payment expenses resulting from notes payable that were issued to Broad and settled during the second quarter of 2018 in connection with us entering into a sponsored research agreement with Broad; and
● approximately $1.2 million in decreased stock-based compensation expenses mostly due to a decrease in nonemployee stock option expense.
General and Administrative Expenses
General and administrative expenses increased by approximately $9.5 million, to $64.6 million for the year ended December 31, 2019 from $55.0 million for the year ended December 31, 2018. The following table summarizes our general and administrative expenses for the years ended December 31, 2019 and December 31, 2018, together with the changes in those items in dollars (in thousands) and the respective percentages of change:
Year Ended
December 31,
2019
2018
Dollar Change
Percentage Change
Intellectual property and patent related fees
$
18,103
$
20,442
$
(2,339)
(11)
%
Professional service expenses
14,462
6,875
7,587
n/m
Stock-based compensation expenses
13,705
11,864
1,841
16
%
Employee related expenses
12,781
11,502
1,279
11
%
Other expenses
5,504
4,327
1,177
27
%
Total general and administrative expenses
$
64,555
$
55,010
$
9,545
17
%
The increase in general and administrative expenses for the year ended December 31, 2019 compared to the year ended December 31, 2018 was primarily attributable to:
● approximately $7.6 million in increased professional services expenses primarily related to an increase in our use of consulting services;
● approximately $1.8 million in increased stock-based compensation expenses due to an increase in employee stock option expense and employee headcount;
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● approximately $1.3 million in increased employee related expenses due to an increase in the size of our workforce; and
● approximately $1.2 million in increased other expenses including facility-related expenses.
These increases were partially offset by an approximate $2.3 million in decreased intellectual property and patent related fees, including expenses associated with the prosecution and maintenance of patents and patent applications.
Other Income, Net
For the year ended December 31, 2019, other income, net was $7.2 million, which was primarily attributable to interest income and accretion of discounts associated with marketable securities.
For the year ended December 31, 2018, other income, net was $3.8 million, which was primarily attributable to interest income, accretion of discounts associated with marketable securities, and rental income from our former subtenant, partially offset by interest expense on our construction financing lease obligation.
Liquidity and Capital Resources
Sources of Liquidity
In May 2020, we entered into a sales agreement with Cowen and Company, LLC (“Cowen”) under which we are able from time to time to issue and sell shares of our common stock through Cowen for aggregate gross sales proceeds of up to $150.0 million (the “ATM Facility”). We have not sold any shares of our common stock under this ATM Facility as of the date of this Annual Report on Form 10-K. In June 2020, we completed a public offering in which we sold 6,900,000 shares of our common stock, inclusive of 900,000 shares of common stock sold by us pursuant to the full exercise of an option granted to the underwriters in connection with the offering and received net proceeds of approximately $203.7 million. As of December 31, 2020, we have raised an aggregate of $648.7 million in net proceeds through the sale of shares of our common stock in public offerings and at-the-market offerings. We also have funded our business from payments received under our research collaboration with Juno Therapeutics, our strategic alliance with Allergan, which was terminated in August 2020, and our license agreement with Beam Therapeutics, from which we received $20.0 million from the sale of our shares of common stock in October 2020. As of December 31, 2020, we had cash, cash equivalents and marketable securities of $511.8 million.
In January 2021, we completed a public offering in which we sold 3,500,000 shares of our common stock and received net proceeds of approximately $216.9 million. In February 2021, the underwriters in the public offering exercised their option to purchase an additional 525,000 shares, resulting in additional net proceeds to us of approximately $32.6 million.
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In addition to our existing cash, cash equivalents and marketable securities we are eligible to earn milestone and other payments under our collaboration agreement with Juno Therapeutics. Our ability to earn the milestone payments and the timing of earning these amounts are dependent upon the timing and outcome of our development, regulatory and commercial activities and, as such, are uncertain at this time. As of December 31, 2020, our right to contingent payments under our collaboration agreement with Juno Therapeutics is our only significant committed potential external source of funds.
Cash Flows
The following table provides information regarding our cash flows for the years ended December 31, 2020, 2019 and 2018, respectively (in thousands):
Year Ended
December 31,
2020
2019
2018
Net cash (used in) provided by:
Operating activities
$
(179,843)
$
(40,669)
$
(45,707)
Investing activities
(140,522)
12,252
(53,087)
Financing activities
224,122
131,824
86,940
Net (decrease) increase in cash and cash equivalents
$
(96,243)
$
103,407
$
(11,854)
Net Cash Used in Operating Activities
The use of cash in all periods resulted primarily from our net losses adjusted for non-cash charges and changes in components of working capital.
Net cash used in operating activities was approximately $179.8 million for the year ended December 31, 2020, which primarily consisted of operating expenses that relate to our on-going preclinical and clinical activities, patent costs and license fees, and increased costs as a result of staffing needs due to our expanding operations. These expenses were partially offset by the recognition of deferred revenue relating to the Allergan termination and Celgene milestone payment.
Net cash used in operating activities was approximately $40.7 million for the year ended December 31, 2019. During the year ended December 31, 2019, we received $70.0 million related to our amended and restated collaboration agreement with Juno Therapeutics, which was partially recognized in revenue during the fourth quarter of 2019, partially offset by revenue recognized related to our strategic alliance with Allergan. This amount was offset by operating expenses that related to our on-going preclinical and clinical activities, sublicense expense, intellectual property costs and increased employee related expenses due to an increase in the size of our workforce.
Net cash used in operating activities was approximately $45.7 million for the year ended December 31, 2018. During the year ended December 31, 2018, we received $25.0 million related to the EDIT-101 Milestone Payment which was partially recognized as revenue during the fourth quarter of 2018 and $15.0 million related to the EDIT-101 Option Exercise Payment which was fully recognized as revenue during the third quarter of 2018, both related to our strategic alliance with Allergan. We received $10.0 million related to our amended and restated collaboration agreement with Juno Therapeutics which was partially recognized during 2018. Additionally, we issued $12.5 million in notes payable to Broad and settled in shares of common stock during the second quarter of 2018 in connection with our entry into a sponsored research agreement with Broad. This amount was offset by operating expenses that related to our on-going preclinical activities, sublicensing and success payments, intellectual property costs and increased employee related expenses due to an increase in the size of our workforce.
Net Cash (Used in) Provided by Investing Activities
Net cash used in investing activities was approximately $140.5 million for the year ended December 31, 2020, primarily related to the costs to acquire marketable securities of $458.4 million and costs to acquire property, plant and
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equipment of $7.2 million, partially offset by proceeds from maturities of marketable securities of $305.0 million and proceeds from the sale of corporate equity securities of $20.0 million.
Net cash provided by investing activities was approximately $12.3 million for the year ended December 31, 2019, primarily related to proceeds from maturities of marketable securities of $360.5 million, partially offset by costs to acquire marketable securities of $342.2 million and costs to acquire property plant and equipment of $6.2 million.
Net cash used in investing activities was approximately $53.1 million for the year ended December 31, 2018, primarily related to costs to acquire marketable securities of $459.4 million and costs to acquire property plant and equipment of $4.8 million, partially offset by proceeds from maturities of marketable securities of $411.0 million.
Net Cash Provided by Financing Activities
Net cash provided by financing activities was approximately $224.1 million for the year ended December 31, 2020, primarily related to $203.7 million in net proceeds received from offering of common stock, and $19.5 million in proceeds received from exercises of options for our common stock.
Net cash provided by financing activities was approximately $131.8 million for the year ended December 31, 2019, primarily related to $116.3 million in proceeds received from at-the-market offerings of our common stock, net of issuance costs that were paid as of December 31, 2019, $14.9 million in proceeds from exercises of options for our common stock and $0.6 million from issuances of our common stock under equity benefit plans.
Net cash provided by financing activities was approximately $86.9 million for the year ended December 31, 2018, primarily related to $76.8 million in proceeds received from at-the-market offerings of our common stock, net of issuance costs that were paid as of December 31, 2018, $10.3 million in proceeds from exercises of options for our common stock and $0.7 million from issuances of our common stock under equity benefit plans, partially offset by payments on our construction financing lease obligation of $0.9 million.
Funding Requirements
We expect our expenses to increase in connection with our ongoing activities, particularly as we progress the clinical development of EDIT-101 and EDIT-301; further advance our current research programs and our preclinical development activities; seek to identify product candidates and additional research programs; initiate preclinical testing and clinical trials for other product candidates we identify and develop; maintain, expand, and protect our intellectual property portfolio, including reimbursing our licensors for expenses related to the intellectual property that we in-license from such licensors; hire additional clinical, quality control, and scientific personnel; and incur costs associated with operating as a public company. In addition, if we obtain marketing approval for any product candidate that we identify and develop, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing, and distribution to the extent that such sales, marketing, and distribution are not the responsibility of a collaborator. We do not expect to generate significant recurring revenue unless and until we obtain regulatory approval for and commercialize a product candidate. Furthermore, since 2016 we have incurred, and in future years we expect to continue to incur, significant costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce, or eliminate our research and development programs or future commercialization efforts.
We expect that our existing cash, cash equivalents and marketable securities at December 31, 2020 and anticipated interest income will enable us to fund our operating expenses and capital expenditure requirements into 2023. We have based our estimates on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Our future capital requirements will depend on many factors, including: the scope, progress, results, and costs of drug discovery, preclinical development, laboratory testing, and clinical or natural history study trials for the product candidates we develop;
● the scope, progress, results, and costs of drug discovery, preclinical development, laboratory testing, and
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clinical or natural history study trials for the product candidates we develop;
● the costs of progressing the clinical development of EDIT-101 to treat LCA10;
● the costs of progressing the clinical development of EDIT-301 to treat sickle cell disease;
● the costs of IND-enabling studies for EDIT-301 to treat beta-thalassemia;
● the costs of preparing, filing, and prosecuting patent applications, maintaining and enforcing our intellectual property and proprietary rights, and defending intellectual property-related claims;
● the costs, timing, and outcome of regulatory review of the product candidates we develop;
● the costs of future activities, including product sales, medical affairs, marketing, manufacturing, and distribution, for any product candidates for which we receive regulatory approval;
● the success of our collaboration with Juno Therapeutics;
● whether Juno Therapeutics exercises any of its options to extend the research program term and/or to certain of the research programs under our collaboration;
● our ability to establish and maintain additional collaborations on favorable terms, if at all;
● the extent to which we acquire or in-license other medicines and technologies;
● the costs of reimbursing our licensors for the prosecution and maintenance of the patent rights in-licensed by us; and
● the costs of operating as a public company.
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Identifying potential product candidates and conducting preclinical studies and clinical trials is a time-consuming, expensive, and uncertain process that takes many years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, any product candidate that we identify and develop, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of genomic medicines that we do not expect to be commercially available for many years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all. Further, our ability to continue to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our stockholders’ ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends.
If we raise funds through additional collaborations, strategic alliances, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt 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.
Contractual Obligations
The following table summarizes our significant contractual obligations as of payment due date by period at December 31, 2020 (in thousands):
Less Than
More than
Total
1 Year
1 to 3 Years
3 to 5 Years
5 Years
Operating lease obligations (1)
$
30,206
$
8,778
$
17,149
$
4,169
$
110
Total
$
30,206
$
8,778
$
17,149
$
4,169
$
110
(1) Represents future minimum lease payments under our non-cancelable operating leases. The minimum lease payments above exclude our share of the facility operating expenses and other costs that are reimbursable to the landlord under the leases.
The table above does not include potential milestone and success fees, sublicense fees, royalty fees, licensing maintenance fees, and reimbursement of patent maintenance costs that we may be required to pay under agreements we have entered into with certain institutions to license intellectual property. Our agreements to license intellectual property include potential milestone payments that are dependent upon the development of products using the intellectual property licensed under the agreements and contingent upon the achievement of development or regulatory approval milestones, as well as commercial milestones. We have not included such potential obligations in the table above because they are contingent upon the occurrence of future events and the timing and likelihood of such potential obligations are not known with certainty. For further information regarding these agreements, please see “Business—Our Collaborations and Licensing Strategy.”
We enter into contracts in the normal course of business with contract research organizations and other vendors to assist in the performance of our research and development activities and other services and products for operating purposes. These contracts generally provide for termination on notice, and therefore are cancelable contracts and not included in the table of contractual obligations and commitments.
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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 applicable Securities and Exchange Commission rules.