Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the Securities and Exchange Commission (“SEC”) on February 26, 2021 (the “Annual Report”).
This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. All statements addressing our future operating performance and clinical development and regulatory timelines that we expect or anticipate will occur in the future, are forward-looking statements. 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, including uncertainties inherent in the initiation and completion of pre-clinical studies and clinical trials and clinical development of our product candidates; availability and timing of results from pre-clinical studies and clinical trials; whether interim results from a clinical trial will be predictive of the final results of the trial or the results of future trials; expectations for regulatory approvals to conduct trials or to market products and availability of funding sufficient for our foreseeable and unforeseeable operating expenses and capital expenditure requirements. These and other risks are described in greater detail in our Annual Report under the captions “Risk Factor Summary” and “Risk Factors,” as updated by our subsequent filings with the SEC. 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. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments that we may make.
You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained in this Quarterly Report on Form 10-Q are made as of the date of this Quarterly Report on Form 10-Q, and we do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
Overview
We are a leading, clinical stage genome editing company dedicated to developing potentially transformative 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 in vivo gene-editing medicines, in which the medicine is injected or infused into the patient to edit the cells inside their body, ex vivo gene-edited cell medicines, in which cells collected from a patient are edited with our technology and then administered back to that same patient, and cellular therapy medicines, in which we use our technology to edit induced human pluripotent stem cells that are subsequently differentiated into effector cells, such as natural killer cells, to develop medicines that can be administered to a patient. While our discovery efforts have ranged across several diseases and therapeutic areas, the areas where our programs are more mature are in our in vivo gene-editing medicines to treat ocular diseases, our ex vivo gene-edited cell medicines to treat hemoglobinopathies, and our cellular therapy medicines to treat 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 CEP290-related retinal degenerative disorder 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 of EDIT-101, an experimental gene-editing medicine to treat LCA10. The BRILLIANCE trial is designed to assess the safety, tolerability, and efficacy of EDIT-101. We plan to enroll approximately 18 patients in the United States and Europe in up to five cohorts. We
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have completed dosing of the first two cohorts, the adult low-dose and mid-dose cohorts, and in the third quarter of 2021 began dosing in the adult high-dose cohort. We also are currently enrolling patients in the first of two planned pediatric cohorts . We remain on track to complete dosing of both the adult high-dose cohort and the pediatric mid-dose cohort in the first half of 2022.
In September 2021, we announced initial clinical data, consisting of preliminary patient safety and efficacy assessments, from the ongoing BRILLIANCE trial. The initial data related to the first six patients dosed in the trial: two in the adult low-dose cohort and four in the adult mid-dose cohort. Patients received a single administration of EDIT-101 via subretinal injection in one eye and are monitored every three months for the first year after dosing, and less frequently in the following two years. No dose-limiting toxicities, which are defined as vision-threatening toxicities or severe non-ocular adverse events that occur before or at the week four visit and assessed by the investigator as being related to EDIT-101 and not the administration procedure, or serious adverse events were reported in the first six adult patients treated. Efficacy was assessed based on available data from five subjects treated in the low-dose and mid-dose cohorts who had at least three months of post-treatment follow-up, focusing on those measures demonstrated to be consistent and reproducible in subjects with CEP290-related retinal degeneration, including best corrected visual acuity (“BCVA”), full-field light sensitivity threshold (“FST”) testing and ability to navigate standardized navigation courses, or Visual Function Navigation (“VNC”). Two of three subjects in the mid-dose cohort followed for up to six months showed early efficacy signals providing clinical evidence of gene editing and suggesting potential clinical benefits, including improvements in BCVA, FST, and/or mobility navigation.
For our ex vivo gene-edited cell medicines, our lead program is EDIT-301, an experimental medicine to treat sickle cell disease, a severe inherited blood disease that causes premature death, and beta-thalassemia, another inherited blood disorder characterized by severe anemia. In December 2020, we submitted an investigational new drug application (“IND”) to the U.S. Food and Drug Administration (“FDA”) for the initiation of a Phase 1/2 clinical trial of EDIT-301, which we refer to as our RUBY trial, for the treatment of sickle cell disease. In January 2021, the FDA cleared the start of enrollment and dosing of patients in the first phase of the trial (which is designed to validate the safety and beneficial effects of the cell editing process). The RUBY trial is currently enrolling study participants, and we expect to begin dosing in the trial in the first half of 2022. Prior to initiating a registrational trial, we will be required to develop a potency assay to ensure that the characteristics of the product released are as expected and confirmed by clinical data collected in the first patients treated, in response to an FDA partial clinical hold. We remain on track to submit an IND for EDIT-301 for the treatment of transfusion-dependent beta-thalassemia by the end of 2021.
In cellular therapy medicines, we continue to develop our capabilities to generate cells from induced human pluripotent stem cells to develop engineered cell medicines to treat cancer. We are also advancing alpha-beta T cell experimental medicines in collaboration with Bristol-Myers Squibb Company (“BMS”). In May 2015, we entered into a collaboration with Juno Therapeutics, Inc., a wholly-owned subsidiary of BMS (“Juno Therapeutics”), to develop novel engineered alpha-beta T cell therapies for cancer and autoimmune diseases, which was amended and restated in each of May 2018 and November 2019, at which time we also entered into a related license agreement with Juno Therapeutics, which we collectively refer to as our collaboration with them.
In March 2017, we entered into a strategic alliance and option agreement with Allergan Pharmaceuticals International Limited (together with its affiliates, “Allergan”) to discover, develop, and commercialize new gene editing medicines for a range of ocular disorders. We received an aggregate of $130.0 million in payments under this agreement, which consisted of the initial upfront payment, an option exercise payment, and a milestone 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 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.
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
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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.
Since inception, we have incurred significant operating losses. Our net losses were $151.1 million and $53.5 million for the nine months ended September 30, 2021 and 2020, respectively. As of September 30, 2021, we had an accumulated deficit of $816.3 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 for the treatment of LCA10 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, including EDIT-301 for the treatment of transfusion-dependent beta-thalassemia; 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 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 nine months ended September 30, 2021, the pandemic continues to be dynamic and near-term risks to our business remain. Vaccines are being distributed and administered, but utilization of the vaccines has been varied and new variants of the virus have emerged, and may continue to emerge, that are more contagious, which can result in increased infection rates and re-imposed governmental restrictions to reduce the spread of COVID-19. As a result, the ultimate impact of the COVID-19 pandemic continues to be 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 gradually resumed manufacturing, laboratory and related support activities at our facilities in Massachusetts and Colorado, and fully reopened our facilities in the third quarter of 2021 using a hybrid work model. We will continue to monitor and respond to the changing conditions created by the pandemic, with focus on prioritizing the health and safety of our employees and maintaining safe and reliable operations of our facilities.
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 $126.5 million in payments, which have primarily consisted of the initial upfront and amendment payments, development milestone payments, research funding support and certain opt-in fees. We no longer receive research funding support. As of September 30, 2021, we recorded $79.3 million of deferred revenue in relation to our collaboration with Juno Therapeutics, of which $56.7 million is classified as long-term on our condensed consolidated balance sheet. During the nine months ended September 30, 2021, we recognized $11.3 million of previously deferred revenue related to our collaboration with Juno Therapeutics. Under this collaboration, we will recognize revenue upon delivery of option packages to Juno Therapeutics or upon receipt of development milestone payments. 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 or receive such milestone payments.
For additional information about our revenue recognition policy related to the Juno Therapeutics collaboration, see “—Critical Accounting Policies and Estimates—Revenue Recognition” included in our Annual Report.
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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 and clinical trials 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 and clinical activities on our behalf;
● costs of purchasing lab supplies and non-capital equipment used in our preclinical activities and in manufacturing preclinical study materials;
● consultant fees;
● facility costs, including rent, depreciation, and maintenance expenses; and
● fees for acquiring and maintaining licenses under our third-party licensing agreements, including any sublicensing or success payments made to our licensors.
Research and development costs are expensed as incurred. At this time, we cannot reasonably estimate or know
the nature, timing, and estimated costs of the efforts that will be necessary to complete the development of any product candidates we may identify and develop. This is due to the numerous risks and uncertainties associated with developing such product candidates, including the uncertainty of:
● successful completion of preclinical studies, IND-enabling studies and natural history studies;
● successful enrollment in, and completion of, clinical trials;
● receipt of marketing approvals from applicable regulatory authorities;
● establishing clinical, 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
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● 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 continue to 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 agreements with The Broad Institute, Inc. (“Broad”) and the President and Fellows of Harvard College (“Harvard”), we anticipate general and administrative expenses will continue to be significant.
Other Income (Expense), Net
For the nine months ended September 30, 2021, other income (expense), net consisted primarily of interest income and accretion of discounts associated with other marketable securities.
For the nine months ended September 30, 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.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of our condensed consolidated financial statements requires us to make judgments and estimates that affect the reported amounts of assets, liabilities, revenues, and expenses, and the disclosure of contingent assets and liabilities in our condensed consolidated financial statements. We base our estimates on historical experience, known trends and events, and various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. On an ongoing basis, we evaluate our judgments and estimates in light of changes in circumstances, facts, and experience. The effects of material revisions in estimates, if any, will be reflected in the condensed consolidated financial statements prospectively from the date of change in estimates.
There have been no material changes to our critical accounting policies from those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report.
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Results of Operations
Comparison of the Three Months ended September 30, 2021 and 2020
The following table summarizes our results of operations for the three months ended September 30, 2021 and 2020, together with the changes in those items in dollars (in thousands) and the respective percentages of change:
Three Months Ended
September 30,
2021
2020
Dollar Change
Percentage Change
Collaboration and other research and development revenues
$
6,197
$
62,841
$
(56,644)
(90)
%
Operating expenses:
Research and development
29,265
33,916
(4,651)
(14)
%
General and administrative
16,185
19,936
(3,751)
(19)
%
Total operating expenses
45,450
53,852
(8,402)
(16)
%
Other income, net:
Other income (expense), net
19
(1,396)
1,415
n/m
Interest income, net
152
226
(74)
(33)
%
Total other income (expense), net
171
(1,170)
1,341
n/m
Net (loss) income
$
(39,082)
$
7,819
$
(46,901)
n/m
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 $56.6 million, to $6.2 million for the three months ended September 30, 2021, compared to $62.8 million for three months ended September 30, 2020. This decrease was primarily attributable to the termination of our strategic alliance with Allergan during the third quarter of 2020 in which we recognized $59.9 million of previously deferred revenue, for which there was no similar revenue recognized during the third quarter of 2021.
Research and development expenses
Research and development expenses decreased by $4.7 million, to $29.2 million for the three months ended September 30, 2021, compared to $33.9 million for the three months ended September 30, 2020. The following table summarizes our research and development expenses for the three months ended September 30, 2021 and 2020, together with the changes in those items in dollars (in thousands) and the respective percentages of change:
Three Months Ended
September 30,
2021
2020
Dollar Change
Percentage Change
External research and development expenses
$
10,777
$
18,204
$
(7,427)
(41)
%
Employee related expenses
10,177
8,072
2,105
26
%
Stock-based compensation expenses
4,552
2,938
1,614
55
%
Facility expenses
4,085
3,617
468
13
%
Sublicense and license fees
1,045
192
853
n/m
Other expenses
(1,371)
893
(2,264)
n/m
Total research and development expenses
$
29,265
$
33,916
$
(4,651)
(14)
%
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The decrease in research and development expenses for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 was primarily attributable to:
● approximately $7.4 million in decreased external research and development expenses related primarily to a one-time in-process research and development expense of $5.0 million for re-acquiring the rights to EDIT-101 from Allergan in the third quarter of 2020 for which there was no similar expense in the third quarter of 2021; and
● approximately $2.3 million in decreased expenses related to a COVID-19 employee retention tax credit recognized in the third quarter 2021 which is included in other expenses in the table above.
These decreases were partially offset by:
● approximately $2.1 million in increased employee related expenses primarily due to an increase in the size of our workforce, including the expansion of our research and development organization;
● approximately $1.6 million in increased stock-based compensation expenses primarily due to an increase in restricted stock units granted to employees;
● approximately $0.9 million in increased sublicense and license fees; and
● approximately $0.5 million in increased facility related expenses.
General and administrative expenses
General and administrative expenses decreased by $3.7 million, to $16.2 million for the three months ended September 30, 2021, compared to $19.9 million for the three months ended September 30, 2020. The following table summarizes our general and administrative expenses for the three months ended September 30, 2021 and 2020, together with the changes in those items in dollars (in thousands) and the respective percentages of change:
Three Months Ended
September 30,
2021
2020
Dollar Change
Percentage Change
Stock-based compensation expenses
$
5,460
$
2,908
$
2,552
88
%
Employee related expenses
4,163
4,164
(1)
(0)
%
Intellectual property and patent related fees
3,378
4,446
(1,068)
(24)
%
Other expenses
1,641
2,104
(463)
(22)
%
Professional service expenses
1,543
6,314
(4,771)
(76)
%
Total general and administrative expenses
$
16,185
$
19,936
$
(3,751)
(19)
%
The decrease in general and administrative expenses for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 was primarily attributable to:
● $4.8 million in decreased professional service expenses primarily due to additional professional service expenses incurred in the third quarter of 2020 in connection with the termination of the Allergan agreement for which there were no similar activities in the third quarter of 2021;
● approximately $1.1 million in decreased intellectual property and patent related fees; and
● approximately $0.5 million in decreased other expenses related to a COVID-19 employee retention tax credit recognized in the third quarter of 2021.
These decreases were partially offset by approximately $2.6 million in increased stock-based compensation
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expenses which were primarily a result of market-based and performance-based awards that were granted to our Chief Executive Officer and certain other employees in 2021.
Other income (expense), net
For the three months ended September 30, 2021, other income, net was $0.2 million, which was primarily attributable to interest income, partially offset by accretion of discounts associated with other marketable securities.
For the three months ended September 30, 2020, other expense, net was $1.2 million, which was primarily attributable to the unrealized losses related to corporate equity securities, partially offset by interest income.
Comparison of the Nine Months ended September 30, 2021 and 2020
The following table summarizes our results of operations for the nine months ended September 30, 2021 and 2020, together with the changes in those items in dollars (in thousands) and the respective percentages of change:
Nine Months Ended
September 30,
2021
2020
Dollar Change
Percentage Change
Collaboration and other research and development revenues
$
13,075
$
79,313
$
(66,238)
(84)
%
Operating expenses:
Research and development
104,954
96,492
8,462
9
%
General and administrative
59,657
51,789
7,868
15
%
Total operating expenses
164,611
148,281
16,330
11
%
Other income, net
Other income, net
38
13,114
(13,076)
(100)
%
Interest income, net
432
2,377
(1,945)
(82)
%
Total other income, net
470
15,491
(15,021)
(97)
%
Net loss
$
(151,066)
$
(53,477)
$
(97,589)
n/m
Collaboration and other research and development revenues
Collaboration and other research and development revenues decreased by $66.2 million, to $13.1 million for the nine months ended September 30, 2021, compared to $79.3 million for the nine months ended September 30, 2020. This decrease was primarily attributable to the recognition of $63.2 million of previously deferred revenue as a result of the termination of our strategic alliance with Allergan in 2020 as well as to $7.6 million in revenue recognized pursuant to an out-license agreement we entered into during the second quarter 2020, for which there was no similar revenue recognized during 2021. This decrease was partially offset by $12.3 million in revenue recognized pursuant to our research collaboration with Juno Therapeutics during the nine months ended September 30, 2021, for which there was no similar revenue recognized in 2020.
Research and development expenses
Research and development expenses increased by $8.5 million, to $105.0 million for the nine months ended September 30, 2021, compared to $96.5 million for the nine months ended September 30, 2020. The following table summarizes our research and development expenses for the nine months ended September 30, 2021 and 2020, together with the changes in those items in dollars (in thousands) and the respective percentages of change:
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Nine Months Ended
September 30,
2021
2020
Dollar Change
Percentage Change
External research and development expenses
$
38,290
$
46,162
$
(7,872)
(17)
%
Employee related expenses
29,926
24,589
5,337
22
%
Stock-based compensation expenses
12,689
8,668
4,021
46
%
Facility expenses
12,042
9,909
2,133
22
%
Sublicense and license fees
10,673
4,132
6,541
n/m
Other expenses
1,334
3,032
(1,698)
(56)
%
Total research and development expenses
$
104,954
$
96,492
$
8,462
9
%
The increase in research and development expenses for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 was primarily attributable to:
● approximately $6.5 million in increased sublicense and license fees primarily related to the triggering of success payments under certain of our license agreements upon the achievement of market capitalization-based milestones in the first quarter of 2021 ;
● approximately $5.4 million in increased employee related expenses primarily due to an increase in the size of our workforce, including the expansion of our research and development organization;
● approximately $4.0 million in increased stock-based compensation expenses primarily due to expense recognized in relation an increase in restricted stock units granted to employees; and
● approximately $2.1 million in increased facility related expenses primarily related to increased lab and manufacturing space;
These increases were partially offset by:
● approximately $7.9 million in decreased external research and development expenses related to expenses incurred in the nine months ended September 30, 2020 under our profit-sharing arrangement with Allergan, including a one-time in-process research and development expense of $5.0 million for re-acquiring the rights to EDIT-101 from Allergan in the third quarter of 2020, as well as a decrease in expenses incurred related to an in-license arrangement that we entered into during the first quarter 2020 for which there was no similar expense in 2021; and
● approximately $1.7 million in decreased expenses related to a COVID-19 employee retention tax credit recognized in the nine months ended September 30, 2021, which is included in other expenses in the table above, offset by increased research and development related information technology expenses incurred during the nine months ended September 30, 2021.
General and administrative expenses
General and administrative expenses increased by $7.9 million, to $59.7 million for the nine months ended September 30, 2021, compared to $51.8 million for the nine months ended September 30, 2020. The following table summarizes our general and administrative expenses for the nine months ended September 30, 2021 and 2020, together with the changes in those items in dollars (in thousands) and the respective percentages of change:
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Nine Months Ended
September 30,
2021
2020
Dollar Change
Percentage Change
Stock-based compensation expenses
$
23,053
$
8,815
$
14,238
n/m
Intellectual property and patent related fees
13,247
13,457
(210)
(2)
%
Employee related expenses
13,228
12,616
612
5
%
Other expenses
5,894
6,098
(204)
(3)
%
Professional service expenses
4,235
10,803
(6,568)
(61)
%
Total general and administrative expenses
$
59,657
$
51,789
$
7,868
15
%
The increase in general and administrative expenses for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 was primarily attributable to:
● approximately $14.2 million in increased stock-based compensation expenses related to the acceleration of vesting of certain equity awards held by our former Chief Executive Officer in connection with her separation from our company in February 2021, as well as stock-based compensation expenses as a result of market-based and performance-based awards that were granted to our new Chief Executive Officer and certain other employees in 2021; and
● approximately $0.6 million in increased employee related expenses.
These increases were partially offset by:
● approximately $6.6 million in decreased professional service expenses primarily due to additional professional service expenses incurred in the third quarter of 2020 in connection with the termination of the Allergan agreement for which there were no similar activities in 2021;
● approximately $0.2 million in decreased intellectual property and patent related fees; and
● approximately $0.2 million in decreased other expenses.
Other income, net
For the nine months ended September 30, 2021, other income, net was $0.5 million, which was primarily attributable to interest income, partially offset by accretion of discounts associated with other marketable securities.
For the nine months ended September 30, 2020, other income, net was income of $15.5 million, which was primarily attributable to the unrealized gains related to corporate equity securities, interest income and accretion of discounts associated with marketable securities.
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Liquidity and Capital Resources
Sources of Liquidity
In May 2021, we entered into a common stock sales agreement with Cowen and Company, LLC (“Cowen”), under which we from time to time can issue and sell shares of our common stock through Cowen in at-the-market offerings for aggregate gross sale proceeds of up to $300.0 million (the “ATM Facility”). As of September 30, 2021, we have not sold any shares of our common stock under the ATM Facility.
In January 2021, we completed a public offering whereby 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. As of September 30, 2021, we have raised an aggregate of $898.0 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 and our strategic alliance with Allergan, which was terminated in August 2020. As of September 30, 2021, we had cash, cash equivalents and marketable securities of $657.0 million.
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 September 30, 2021, 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 nine months ended September 30, 2021 and 2020 (in thousands):
Nine Months Ended
September 30,
2021
2020
Net cash (used in) provided by:
Operating activities
$
(129,221)
$
(139,743)
Investing activities
(31,626)
(31,628)
Financing activities
281,049
215,022
Net increase in cash, cash equivalents, and restricted cash
$
120,202
$
43,651
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 $129.2 million for the nine months ended September 30, 2021, 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 cash inflows from license fees received in the period.
Net cash used in operating activities was approximately $139.7 million for the nine months ended September 30, 2020, which primarily consisted of operating expenses that relate to our on-going preclinical and clinical activities, including a $17.5 million termination fee related to the termination of our agreements with Allergan, 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 cash inflows from license fees received in the period.
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Net Cash Used in Investing Activities
Net cash used in investing activities was approximately $31.6 million for the nine months ended September 30, 2021, primarily related to costs to acquire marketable securities of $304.6 million and purchases of property and equipment of $5.1 million, partially offset by proceeds from maturities of marketable securities of $278.1 million.
Net cash used in investing activities was approximately $31.6 million for the nine months ended September 30, 2020, primarily related to costs used to acquire marketable securities of $300.4 million and costs to acquire property and equipment of $5.8 million, partially offset by proceeds from maturities of marketable securities of $274.5 million.
Net Cash Provided by Financing Activities
Net cash provided by financing activities was approximately $281.0 million for the nine months ended September 30, 2021 and consisted of $249.5 million in net proceeds received from the offering of our common stock and $31.1 million in proceeds received from exercises of options for our common stock.
Net cash provided by financing activities was approximately $215.0 million for the nine months ended September 30, 2020, and consisted of $203.8 million in net proceeds received from offering of common stock, of which $0.2 million of expenses related to the offering were unpaid at September 30, 2020, and $10.8 million in proceeds received from exercises of options for our common stock.
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, including EDIT-301 for the treatment of transfusion-dependent beta-thalassemia; 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 as of September 30, 2021 and anticipated interest income will enable us to fund our operating expenses and capital expenditure requirements well 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 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 and initiating any clinical trial for EDIT-301 to treat beta-thalassemia;
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● 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 additional 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.
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 potential 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 September 30, 2021 (in thousands):
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Less Than
More than
Total
1 Year
1 to 3 Years
3 to 5 Years
5 Years
Operating lease obligations (1)
$
32,654
$
12,929
$
18,186
$
1,539
$
—
Total
$
32,654
$
12,929
$
18,186
$
1,539
$
—
(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” in our Annual Report.
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.
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 SEC rules.
Effects of Inflation
Inflation would generally affect our business by increasing our cost of labor and clinical trial costs. We do not believe that inflation had a material effect on our business, financial condition or results of operations during the nine months ended September 30, 2021 or 2020.