Editas Medicine, Inc. (EDIT) Q1 2018 Earnings Report, Transcript and Summary

Good afternoon and welcome to the Editas Medicine’s First Quarter 2018 Conference Call. [Operator Instructions] Please be advised that this call is being recorded at Editas’s request. I would now like to turn the call over to Editas team. Please go ahead.

Good afternoon. This is Mark Mullikin, Senior Director of Finance and Investor Relations at Editas Medicine. Welcome to our first quarter 2018 conference call. We issued a press release earlier this afternoon reviewing our first quarter 2018 results and company updates, which will be covered on this call. A replay of today’s call will be available on the Investors & Media section of our website approximately two hours after its completion. After our prepared remarks, we will open the call for Q&A. As a reminder, various remarks that we make during this call about the company’s future expectations, plans and prospects constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our most recent annual report on Form 10-K, which is on file with the SEC. In addition, any forward-looking statements represent our views only as of today, and should not be relied upon as representing our views as of any subsequent date. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our views change. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to today. Now, I will turn the call over to our Chief Executive Officer, Katrine Bosley.

Thanks, Mark. Good afternoon, everyone, and thank you for joining us for our first quarter 2018 corporate update call. I am joined today by several members of our executive team, including Charlie Albright, our Chief Scientific Officer; Vic Myer, our Chief Technology Officer; Gerry Cox, our Chief Medical Officer; Andrew Hack, our Chief Financial Officer; and Tim Hunt, our Senior Vice President of Corporate Affairs. We've had a strong start to the year and we're excited to update you on our progress. First, Charlie will start with an update on how we're advancing our pipeline across multiple programs, each of which is aimed at creating a transformative medicine. Then Andrew will discuss how we're working to build a sustainable and valued business, including an expansion of our oncology collaboration with Celgene. Andrew will review our financial results for the quarter. Lastly, I’ll wrap up talking about how we're working to strengthen the organization. With that, let me turn the call over to our Chief Scientific Officer, Charlie Albright, to discuss our pipeline advancements.

Thanks, Katrine. It has indeed been a productive start to the year for our pipeline, both in ocular and engineered cell medicines. Starting with our portfolio of ocular medicines, EDIT-101, our candidate medicine to treat LCA10 continues to track towards a mid-2018 IND filing. We continue to build the translational package that is required to advance EDIT-101. In particular, we’ve further expanded our pharmacology, specificity and immunogenicity studies. With respect to pharmacology, we presented additional data earlier this week at the Annual Meeting of the Association for Research in Vision and Ophthalmology. In these studies, we showed in transgenic mice that EDIT-101 caused predicted therapeutic levels of editing at doses that were safe and well tolerated in ocular gene therapy trials from other sponsors. These results support our belief that we would be able to deliver therapeutic amounts of our gene editing machinery in a safe and tolerable manner in humans. We also presented data at ARVO regarding specificity. These studies showed the lack of off target editing by EDIT-101 using multiple biased and unbiased methods. While we're on the topic of specificity, I'd like to briefly comment on the recent retraction by the Journal of Nature Methods, the manuscript regarding CRISPR specificity. In that publication from a year ago, the authors claimed widespread off target editing from CRISPR/Cas9 in mice. Since specificity is a fundamental piece of developing safe and effective medicines, we conducted our own analysis of the author's controversial claims. We are pleased our results were published by Nature Methods concurrently with the retraction of the original publication. In our study, we showed that the original experiment lacked adequate controls to conclude that the purported off targets were caused by CRISPR/Cas9 and instead the results were likely explained by natural genetic variation. Furthermore, we have continued to advance our studies on Cas9 immunogenicity. In our last call, we discussed our research collaboration agreement with the FDA on this topic. In that work, we found a low prevalence, particularly 10% or less of preexisting antibodies if Cas9 in a sample of 200 human donors. In a couple of weeks at the annual meeting of the American Society of Gene and Cell Therapy or ASGCT, we will present tolerability and immunogenicity data for EDIT-101 from a pilot study in non-human primates. In this study, we administered either EDIT-101 or a non-human primate surrogate molecule using the procedure that we planned to use in the phase 1/2 study. In these NHP studies, we found that EDIT-101 well tolerated of the duration of the study based on a panel of clinical tests. Importantly, neither the presence of preexisting nor induced immunity to either AAV5 or staph aureus cas9 in non-human primates impacted productive editing. Taken together, our comprehensive set of pharmacology, specificity, tolerability and immunogenicity data give us substantial confidence in EDIT-101 for LCA10 patients. Moving on to our next program in inherited retinal diseases, we're developing a gene editing approach to treat Usher Syndrome type 2A, a single base pair deletion on exon 13 of the USH2A gene is the most common cause of this disease. We and our collaborators at Massachusetts Eye and Ear will present in vitro data at ASGCT showing that the human USH2A protein lacking exon 13 partially restores [indiscernible]. These data provide a in vitro proof of biology for our approach to develop a transformative medicine for these patients. Using these data and our learnings from EDIT-101, we expect to accelerate the discovery in the experimental medicine for USH2A. In addition to our momentum in developing medicines for inherited retinal diseases, I'm encouraged by the early data for our first infectious disease target. Recurrent herpes simplex virus type 1 is the leading cause of infectious blindness and we presented in vivo proof of concept data earlier this week for our CRISPR based approach at the ARVO meeting. In a gold standard rabbit model for ocular HSV, we reduced viral load by up to 75% and cornea lesions by up to 91%. We are encouraged by these results and continue to optimize an experimental medicine for these patients. Our other therapeutic focus is in engineered cell medicines. Following its acquisition of our partner Juno therapeutics, we are excited to collaborate with Celgene on next generation engineered T cell medicines for cancer. The lead experimental medicine in this collaboration targets solid tumors in cervical plus head and neck cancers associated with human papillomavirus or HPV. According to the Centers for Disease Control and Prevention, there are over 40,000 newly diagnosed cases each year of HPV associated cancers in the United States. Celgene plans to conduct IND-enabling studies this year of an engineered T cell medicine carrying its optimized engineered T cell receptor or ETCR, targeting HPV as well as the disruption of the endogenous T cell receptor using our gene editing platform. More broadly, we believe this lead program is a model for a range of engineered T cell receptor programs designed to treat solid tumors which traditional CAR T therapies have been unable to address. We're also working diligently to discover a superior engineered cell medicine for sickle cell disease in beta thalassemia. In contrast to others that are targeting the BCL11A erythroid enhancer to increase fetal hemoglobin, we are interrogating novel genomic sites to durable induce high levels of hemoglobin expression. We will present results from in vitro studies at ASGCT. In these studies, we conducted a comprehensive screen of a region of the beta-globin locus and identified multiple sites that increase fetal hemoglobin. Based on these findings, we've identified potently molecules that up regulate fetal hemoglobin in human mobilized peripheral blood stem cells. All in all, I believe we’re making a good progress on our pipeline programs that aim to translate the exciting science of CRISPR gene editing into transformative medicine. And with that, I will turn the call over to our Chief Financial Officer, Andrew Hack to discuss the progress in building the business and to review our financial results.

Thanks, Charlie. It's my pleasure to update you on how we've been building the business over the past quarter and to summarize the financial results we reported earlier today. As Charlie discussed, Celgene is advancing an exciting candidate medicine for HPV associated solid tumors, which carries a critical disruption of the endogenous T Cell receptor using our gene editing platform. We established our alliance with Juno roughly three years ago and together we've developed what we believe is the industry's leading ability to edit and characterize next generation engineered T cell medicines for cancer. Since acquiring Juno, Celgene has engaged quickly with us and is taking an active role on advancing his program and the broader partnership overall. As a result of our progress together, we and Celgene have decided to expand our agreement in the engineered T Cell receptor arena and we have received an additional $10 million from Celgene in a combination of new upfront and milestone payments for this program. This amendment to our 2015 agreement has the potential to also result in approximately $230 million in additional milestone payments and a new stream of tiered royalty payments in addition to the milestone of royalty streams related to our existing three programs with Celgene. We are truly excited about the direction and speed of this program and we look forward to being able to share on more progress on these candidate medicines over the balance of the year. Turning to our first quarter 2018 financials, we have summarized our results in the press release issued an hour ago and full details will be available in our Form 10-Q to be filed shortly. We remain very well capitalized with $359 million of cash, cash equivalents and marketable securities as of March 31, 2018, an increase of $30 million from December 31, 2017. Net cash used in operations in the quarter was $22 million and capital expenditures totaled $1 million. Net cash provided by financing activities of $53 million includes $48.5 million in net proceeds from the issuance in January of 1.4 million through our at the market facility. Moving to the income statement, we recognized $3.9 million of revenue, consisting of $2.9 million related to our alliance with Allergan and $1 million related to our collaboration with Celgene. We anticipate that the adoption of new revenue recognition policies based on the ASC 606 standards, will make our reported revenue significantly lumpier going forward. The adoption of this new accounting standard has affected our technical accounting approach to recognizing revenue from both our Juno and Allergan alliances, but it should be noted that it has no impact on the actual cash revenues we receive. In addition, we will continue to report how revenue would have been recognized under the previous standard in order to provide visibility into the impact of this shift. Despite these changes in technical accounting, the specific impact of our adoption of this new revenue recognition standard this quarter happened to be negligible. We anticipate that in future quarters, there may be more substantial shift in our reported numbers. Moving down the income statement, research and development expenses of $21.3 million include a non-recurring in process research and development charge of $3.9 million associated with the I2 Pharmaceuticals asset acquisition. Key non-cash items recorded in our income statement include $6.5 million of stock-based compensation, $1.9 million of the in-process research and development charge for I2 and $0.8 million of depreciation. We are excited about the value drivers that lie ahead of us for our pipeline and platform and believe that our current cash position will provide us with at least 24 months of funding to advance our business. And so with that, I’ll hand it back to Katrine.

Thank you, Andrew. We kicked off this year by setting out our EM22 five year goals. A pillar of these goals is to build the best in class organization and we made signify good headway in the first quarter with key additions to our board of directors and the completion of our first acquisition. We took important steps in further shaping our board with the appointment of Jessica Hopfield and Jim Mullen. Importantly, Jim has joined us as Chairman of our board of directors. He's a seasoned biotech executive having been CEO of both Biogen and Patheon. His experience in ushering transformative medicines from early research through commercialization and building exceptional companies will be invaluable as we build the preeminent genomic medicines company. The first quarter also saw us complete our first acquisition when we brought on board the assets and the talented team from i2 Pharmaceuticals. The acquisition both furthers our goal to build the best in class organization and meaningfully advances our goal to develop transformative medicines for patients. As always, we thank all of you for your interest and support. And with that, we will open it up to question-and-answer period. Operator?

[Operator Instructions] Our first question comes from the line of Cory Kasimov with JPMorgan.

I guess first one I have for you is wondering if there's any more detail you can provide on the expanded Celgene collaboration, maybe in terms of what it relates to, is it another target, is it more technology for an existing target or can you provide a little bit more detail there? And then the second question I had was regarding your beta thalassemia sickle cell program, how far from the clinic do you think this is and what do you consider an ideal level of upregulated fetal hemoglobin?

Sure. So I’ll ask Andrew to speak to the Celgene collaboration question first.

Yeah. Cory, thanks for the question. We're not going to go into a lot of detail about the intricacies of the program, but what I can say is that the program's gone extremely well and we wanted to be sure that it was fully enabled and fully resourced and we're really excited to help expand our collaboration to do that with Celgene. We think this is our important product and they can move quickly and we want to be able to make sure that they and we had all the right elements in our agreement to make that a reality.

And with regard to the beta thalassemia question, I’ll ask Charlie to talk about the biology. With regard to the timing, we haven't yet disclosed what our intended IND timing is on that, we’ll do that in due course. But Charlie, do you want to talk a little bit about the biology?

Yeah. We're really excited about our program to address the beta and feel like we’re on the path to a differentiated medicine. We are basing our targets on the human biology of which there's a lot to tell us with how much up regulation you need to be. But I wouldn't want to disclose the details of our program in our criteria.

And our next question comes from the line of Gena Wang with Barclays.

This is actually [indiscernible] dialing in for Gena. Maybe a couple from me. One is, regarding your like ASGCT report, you mentioned that in the present pre-existing immunity to AVO Cas9, it doesn’t seem to impact the gene editing efficiency. Do you think this is specific, what’s your view regarding the organs outside the eyes and the second question is about the IP situation in the Europe, I think is there any update on that?

Sure. This is Katrine. I’ll touch on the IP question and then I’ll ask Charlie to talk about the immunogenicity data at ASGCT. Intellectual property, as you know, we have a very broad based multi-faceted portfolio, the recent specific steps in Europe were that there was, for some of the earliest issued patents, they have been working our way through the normal European procedure which includes the opportunity for third parties to oppose them. Then, there is a hearing process. Then there is an appeal process. So earlier this year, with the – it was a hearing and an outcome that has now been appealed, it’s sort of -- the European process, as we all know, is quite different from the US process. And so all parties who have patents that will kind of go through that same process of oppositions and it will take some time before that all plays out. As a reminder, our portfolio is quite multi-dimensional and we really do have a great deal of confidence in the portfolio as a whole. It doesn't rest on any one turn of the cards so to speak. Charlie, do you want to talk a little bit about the immunogenicity work?

Sure. We're really encouraged by the things we're finding on the immunogenicity front. And as we mentioned, we find a low prevalence for example of the preexisting antibodies to Cas9 in humans. And as part of translating this medicine into people, we're obviously looking at what happens in non-human primates and other species. And so as we said, we don't see an effect of either preexisting or induced immunity on the editing by Cas9 in the eye. So it would be premature to speculate on what one might or might not see in other tissues, but choosing the eye is part of the reason we went out of there was because we felt like that would be a good compartment in terms of limited expression to the rest of the body and that’s all part of our strategic choice on programs.

And our next question comes from the line of Matthew Harrison with Morgan Stanley.

This is Vikram on for Matthew. So we had a question about the EDIT-101 preclinical data to be presented at ASGCT. So could you give us some specifics as to what's going to be presented and also if you could let us know if the package of data that's going to be presented, if that is the entire preclinical data package, that would be helpful.

So I’ll ask Charlie to talk a little bit more about this. Of course, the data itself will have to be presented at the meeting. I'm sure you’ve probably seen abstracts and such, but of course the data itself will have to be at the meeting. And any pre-clinical package for any IND of course includes more elements than beyond what will be presented at this particular meeting, but we are presenting quite a fulsome set of data, not just here, but we've presented a lot of other meetings as well, because we do want to help people understand the work that we've done and how that pharmacology knits together into the story of that drug. Do you want to talk a little bit more about what we're presenting there?

Sure. And we are going to present additional data on tolerability and immunogenicity on a platform talk and so we're really encouraged by that and we can’t give the details of that due to the embargo of the meeting, but suffice it to say, we're encouraged by the data. And as Katrine said, it’s not the entire data package for the program and there's much data what lies behind all of this that just is beyond the scope of any oral presentation.

And our next question comes from the line of Phil Nadeau with Cowen and Company.

Hi. This is actually Mark on for Phil. Can you talk to that last question, a little bit of follow up? Can talk about the relative titers that you have – antibodies against Cas9 that you are seeing in the non-human primate studies versus what you have been able to observe in humans. And then are you still expecting a public RAC [ph] meeting to ultimately occur and should we expect that maybe at the June meeting?

So I’ll touch on the question of the RAC meeting. We do anticipate RAC being part of this process. I think we’ve said that all along and continue to expect that to be the case. The RAC runs roughly in parallel with an IND process. They're not explicitly connected to one another, but both gates have to be passed if you will before you can initiate trials in humans and when a specific RAC date has been set, that is a public process and we'll certainly make sure folks are aware when that date has been set. And with regard to the antibodies, I’ll ask Charlie to speak to that. I just want to need to remind all of us that we're talking about very low levels. With that, Charlie.

Yes, exactly. And so again, I don't want to go into all the details because they are going to be presented at the ASGCT and it wouldn't be appropriate to disclose the details here. Suffice to say, we are encouraged by them. The prevalence of pre-existing antibodies is very low -- much lower than was in one publication, less than 10% and the titers that we're seeing are not that high either. So we're encouraged by those, we’re equally encouraged by the fact that in non-human primate studies, they don’t seem like that they can make any difference, even if they do have preexisting immunity.

[Operator Instructions] Our next question comes from the line of Peter Lawson with SunTrust.

Just a question really around the data at ASGCT and kind of how that points to your or adds to your approach in sickle cell and beta cell, how we should be thinking about post ASGCT?

I definitely think everybody should be going to ASGCT. Yeah. We have -- it's an important meeting for us and that's why we have a lot of data coming out there. With regards to our sickle cell and beta cell approach, we have talked a little bit about this in the past and certainly we have shared a fair amount of data at prior meetings about the work we've been doing in this area. I think that there are certain aspects we haven't yet disclosed. With regards to what we can say today and in advance of the ASGCT meeting, we are working to essentially take a novel editing approach as compared to what others are in the field -- in the field are doing, not just for the sake of novelty, but because we hope to be able to deliver a superior product profile. So that's our goal, that's what we're working towards. Stay tuned and we will share the data at the meeting. It’s been an evolving story as you can probably imagine.

And then just on the -- back to the RAC committee question, do you have all the data needed for a RAC committee or are you kind of still in the process of gathering that data?

The RAC is a bit of a different process from IND itself and the IND is – it intersects the more comprehensive data set, but the data that one pulls together for an IND, it's essentially that also feeds the RAC process. So while the process is somewhat different and there is a slightly different cut of the data, it's not inherently different. So, as one thinks – look, we often get the question of, what’s the critical part of the IND, totally understandable question and so the critical part of the IND for us is sort of a boring answer because it's what it is for any other medicine, completing pre-clinical task, completing making the clinical trial material, those tend to promote new drug candidates, those tend to kind of run in parallel as being critical path and that's the case for us too. So we're finishing the work and file the IND yet, but the work that we do to support the IND really does also support the RAC process.

And just finally tied 2018, so anything coming out there, I guess all the attention really should be at ASGCT?

Yes. I’m actually going to ask Vic Myer, our Chief Technology Officer to speak to that.

Yes. So we're going to be talking about our work that we do with our site in Boulder around [indiscernible] analytics.

Thank you. And I'm showing no further questions and I'd like to turn the conference back over to Editas Medicine for closing remarks.

Great. So with that, we thank all of you for participating in the call today and for your support as we work to bring transformative medicines to patients. Thanks again and have a great evening.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.