Editas Medicine Inc (EDIT) 2017 Q1 法說會逐字稿

Good afternoon and welcome to Editas Medicine's first-quarter 2017 conference call. (Operator Instructions). Please be advised that this call is being recorded at Editas Medicine's request.

I would now like to turn the call over to the Editas Medicine team. Please proceed.

Good afternoon. This is Mark Mullikin, Senior Director of Finance and Investor Relations at Editas Medicine. Welcome to our first-quarter 2017 corporate update conference call. We issued a press release earlier this afternoon reviewing our first-quarter 2017 results and updates regarding the Company which will be covered on this call. A replay of today's call will be available on the investors and media section of our website approximately 2 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 quarterly report on Form 10-Q, 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, everybody, and thank you for joining us for our corporate update call for the first quarter of 2017. I'm joined today by a number of members of our executive team, including Andrew Hack, our Chief Financial Officer; Vic Myer, Chief Technology Officer; Charlie Albright, Chief Scientific Officer; Gerry Cox, our Chief Medical Officer; and Tim Hunt, our Senior Vice President of Corporate Affairs.

The first quarter of 2017 was a big quarter for Editas. We established a major strategic alliance with Allergan. We had a very significant positive decision from the US Patent Office. We raised substantial capital in a follow-on offering. And we meaningfully advanced both our pipeline and our platform. With all of these achievements, we are well positioned to advance our product pipeline while continuing to extend our platform leadership.

I'd like to start first by taking you through building business with the Allergan alliance as well as the progress in our LCA10 program. We entered this strategic alliance with Allergan to develop and commercialize genomic medicines for patients suffering from serious eye diseases. As part of this option and alliance agreement, we received a $90 million upfront cash payment. And for each program optioned by Allergan, we have the potential to receive over $200 million in milestones, with more than $100 million of that in milestones for development, approval, and launch events.

We are also eligible to receive royalties on net sales of optioned products, with Editas retaining the option to co-develop and co-commercialize the LCA10 program, plus one other program in the United States, with equal profit sharing for these programs.

Over the initial seven-year research term of the agreement, we'll pursue the development of a wide range of ocular medicines in collaboration with Allergan. And Allergan has an exclusive option to license up to five of these programs, including our program to treat LCA10.

It's an exciting alliance and it's very much in line with our articulated business development strategy. And we expect it will create substantial value for patients as well as for shareholders by bringing together our unparalleled CRISPR platform with Allergan's ophthalmology development and commercial expertise.

The program itself continues to advance well, and Charlie will tell you more about the data for the program in a moment.

Importantly, we have decided to make an adjustment to the timeline on this program and there are two primary reasons. The first is to accommodate certain delays in third-party manufacturing, and the other is to take full advantage of our newly formed collaboration with alliance -- with Allergan. Based on this, we've decided to move the target IND filing date for this program to mid-2018.

Now, we realize this is a shift; but we do think it's the right decision for the program. The manufacturing delay related to production of input materials for AAV manufacturing -- this caused us to have to shift to a later slot at our AAV contract manufacturing site. And, collectively, this pushed out the timeline as I've described.

Importantly, there were no CRISPR-specific issues that caused this delay. And although no delay is ever a good thing, and we understand that this is an important event, it does create a window of opportunity to incorporate elements of Allergan's ophthalmology preclinical development and manufacturing expertise into the program.

Despite this manufacturing delay, we do remain on track to start our clinical natural history study of the LCA10 patients in the middle of this year. And in addition, we presented data from our non-human primate study at the ASGCT scientific conference last week, demonstrating up to 50% editing in the alleles in photoreceptors in non-human primates. And overall, our confidence in the program does remain high.

A second key aspect in the first quarter this year was advances in our intellectual property foundation. In addition to the Allergan alliance, in the first quarter we strengthened our unmatched intellectual property position around CRISPR/Cas9 with the US Patent Trial and Appeal Board's highly favorable ruling upholding the Broad Institute's foundational patent claims.

In addition, the CRISPR Cpf1 patent portfolio is also advancing. The European Patent Office recently issued a notice of intent to grant to the Broad Institute very broad coverage of CRISPR Cpf1 system for human gene editing. And this has been exclusively licensed to Editas Medicine. We're the only company with access to foundational patents covering both Cas9 and Cpf1 as well as advanced forms of each CRISPR system. Taken together, our platform has the potential to deliver the best and widest range of CRISPR medicines.

And third, deepening our capital foundation. In the first quarter, we executed a follow-on offering of primary shares of common stock, expanding our investor base, and raising $104 million, including the full exercise of the underwriters' overallotment. Collectively, the combination of the upfront payment from Allergan and the proceeds from the follow-on stock offering roughly doubled our cash runway, and Andrew will talk more about that later in the call.

All in all, it was a very productive quarter for building the Company.

And now to take you through progress on the pipeline and platform, I'll hand the call over to Charlie Albright, our Chief Scientific Officer.

Thanks, Katrine. The first quarter of 2017 was a very productive one in terms of advancing our pipeline and extending our technology leadership. We just completed a successful meeting -- the American Society of Gene & Cell Therapy, or ASGCT, where our scientists delivered six presentations which showed our progress in translating the promise of CRISPR medicine into the best and broadest class of genomic medicines.

In our LCA10 program, we demonstrated efficient editing of the CEP290 gene in the retina of non-human primates. While others have shown editing of photoreceptors in mice, it was very important to show efficient editing in non-human primate photoreceptors, since non-human primate eyes are much more similar to human eyes than are the eyes of mice.

In this non-human primate study, we injected into the sub-retinal space an adeno-associated virus that express the two guide RNAs in Cas9 using a photoreceptor-specific promoter. Six and 13 weeks after this injection, we removed a piece of the retinal tissue that was exposed to the virus and quantified editing. This analysis showed that we had productively edited 15% of the CEP290 alleles in these samples.

Now, we know that 15% is an underestimate of editing in these photoreceptors since the editing machinery was only expressed in photoreceptors, and they only comprised about a quarter of the DNA in these samples. Consequently, we estimate that we productively edited 50% of the CEP290 alleles in these non-human primate photoreceptors, which significantly exceeds our therapeutic target of 10%.

Taken together, these results are really a big deal, and support our continued development of our experimental medicine for this devastating disease.

Turning to blood diseases, we presented preclinical data for our program to treat sickle cell disease in beta thalassemia. We showed that we can induce therapeutically relevant levels of fetal hemoglobin protein using an editing strategy that targets novel sites in the globin locus. We believe this editing strategy has the potential to be more potent than what has been previously described by others.

In these experiments, we also successfully and durably repopulated the blood system in mice with these edited cells, a critical achievement towards establishing a robust experimental medicine.

Taken together, these data give us additional confidence that we are on track to develop what we believe will be a differentiated and superior genomic medicine for patients suffering from hemoglobinopathies.

Our team also continues to extend our CRISPR technology leadership in a range of unique dimensions. At the ASGCT meeting, we presented the progress we made on self-inactivating CRISPR systems. We believe these systems will enable us to tightly control Cas9 levels while maintaining efficacy when using viral delivery methods. This is important, since viral delivery methods are currently the best option for some important diseases.

Finally, at both the ASGCT and Keystone Genome Editing meetings, we showed data from our research program to develop synthetic, covalently coupled, dual guide RNAs for Cas9. Guide RNAs for Cas9 are typically more than 100 nucleotides long. This length presents challenges for current synthetic methods to produce guides that are pure.

In particular, the sequences to [5 primer the] guide RNAs are more prone to synthesis errors. But this is the region of the guide RNA that binds the target site in the genomic DNA. Hence, impurities in the guide RNAs due to synthesis errors could lead to undesired off-target cutting.

To overcome this limitation, we synthesized two shorter RNAs and covalently coupled these molecules to form a novel kind of guide RNA. And importantly, we showed that these covalently coupled, dual guide RNAs have greater sequence fidelity than the current synthetic guide RNAs. For these reasons, we believe these covalently coupled dual guides have the potential to set a new standard for manufacturing purity, accuracy, and scalability.

All of these advances in self-inactivating nucleases, novel guide RNA designs, and other core components of our platform are differentiated and proprietary to Editas, and they move us well beyond the initial technologies that emerged in the early days of this field. We will continue to invest in our platform to solve these kinds of translational medicine challenges and thereby support the rapid and successful advancement of our pipeline.

And so with that, I would like to reiterate what a strong quarter this was for Editas Medicine from a scientific perspective, and how excited we are to share our progress with you.

Now I will hand it over to Andrew to review the financials that we reported today, as well as the impact our Allergan alliance will have on our numbers going forward.

Great. Thanks, Charlie. We filed our Form 10-Q after the close today, and have summarized our financial statements in the press release that we made available roughly an hour ago.

In the first quarter of 2017, our cash and cash equivalents increased by approximately $166 million. Net cash provided by operations was approximately $70 million, and our spending on capital equipment was less than $1 million. Cash flow from operations includes the $90 million upfront payment from Allergan related to our strategic alliance and option agreement, which was accrued as deferred revenue. This revenue will be recognized approximately linearally over the seven-year term of the research agreement.

Key non-cash items recorded in our income statement include roughly $6 million of stock-based compensation and roughly $11 million of accrued expenses. Net cash provided by financing activities includes approximately $97 million of net proceeds from our follow-on stock offering of 4.6 million shares. As a result of this offering, we had a total of approximately 41.3 million common shares outstanding as of March 31. We ended the quarter with approximately $352 million of cash and cash equivalents on the balance sheet.

Based on our current cash position as well as research support under our collaborations, but excluding any assumption for future business development transaction or milestones, we believe we have at least 24 months of capital to fund the advancement of multiple therapeutic programs in parallel, and to further extend our technology leadership.

And with that, I'll hand it back to Katrine.

Thanks, Andrew. And finally, before we wrap up, we also wanted to mention a new initiative just announced a few hours ago. Today we are very pleased to share the news that Editas has joined the Duke University Margolis Center Value-Based Payments consortium.

This initiative is led by Dr. Mark McClellan of Duke University. He's the former administrator of CMS, the Centers for Medicare and Medicaid Services, as well as the former commissioner of the FDA. And he's a widely acknowledged and respected leader in healthcare innovation, public policy, and economics.

The distinguished advisory group brings together experts in regulatory affairs and policy with leaders from payers, healthcare providers, patient advocacy, and the biopharmaceutical and medical device industry. The group will work to create practical solutions to address common legal and regulatory issues, and to develop and pilot novel payment models.

This initiative is an important new pillar of our long-term strategy to build Editas Medicine. And we look forward to pioneering in this arena just as we're pioneering CRISPR technology.

So thank you for all of your interest, your support. And with that, we will open it up to Q&A. Operator?

(Operator Instructions). Cory Kasimov, JPMorgan.

This is Whitney on for Cory. First question, just wanted to follow up on the timeline delay. And I think you mentioned, in addition to the manufacturing AAV-related things, that you also wanted to take advantage of Allergan's preclinical expertise. So just wondering if you can give us any more information on what that means; and if anything that might come out of that additional work could lead to potentially changes in the program or any additional delays.

One of the key reasons we wanted to work with Allegan is their deep expertise in ophthalmology. And as with any partner, you want to bring them into the same speed the program is moving. And so they want to see this move quickly, as we do; being science-driven in that progress. So certainly the manufacturing delay affected the timeline as we described. That gives us the opportunity to take full advantage of any further inputs that Allergan may have in addition to the plan we already have in place.

But really that's just bringing our partner fully on board, and building from the starting point, which was a fully [surro] diligence when we launched the alliance.

Okay. And then just on the interference proceeding, I think the UC parties collective have announced they intend to appeal. So can you talk us through the next steps and timelines of that?

The appeal by UC was not surprising. We were anticipating that that might well happen. I think certainly the PTAB decision was a very strong decision.

I'll ask Andrew to touch on, at a high level, the timeline going forward.

So the timeline, going forward, is that over the next series of years we'll have this play out, then, on the appeal. At this point it's too early to speculate on exactly what the detailed timeline will be. But we remain really confident in the investment we've made in the intellectual property here. We think the decision was extremely well reasoned. It was brought forth by a three-judge panel, a very substantial decision: 50-plus pages of articulation of their views. So we look forward to what comes ahead. We feel good about our position, and it will play out over a series of years.

Got it. Thanks for taking the question.

Matthew Harrison, Morgan Stanley.

This is Cyrus on for Matt. Thanks for taking my questions. The first one is there was a lot of data at ASGCT. What pieces of data do you guys see as most important when thinking about your next clinical candidate?

I'll ask Charlie to speak to the data that was presented at the conference. Overall, though, we have a number of programs we're working on. And while we haven't articulated what specific program we think will come next, we do plan to continue to share data at meetings, just as we have at ASGCT, so that you can have a window into the progress that we're making.

Do you want to talk about some of the highlights from the meeting?

Sure. We touched on several things at the meeting that I thought were important. At the top of the list was the non-human primate data that we disclosed, that we talked about; our program for hemoglobinopathies. I reviewed some of that here.

What I didn't talk about was advances we've made in Alpha-1 antitrypsin, a liver disease, and our ability to deliver it in a AAV, both the knockdown of Alpha-1 antitrypsin and a rate of homologous recombination of potential repair of that deficit as well.

And then I went through some of the platform initiatives that we had, which where the self-inactivating Cas, the synthetic guide RNAs; UDITAS, which I didn't touch on today, a very instrumental part of us understanding the nature of the edits that are made, and proprietary to Editas Medicine. And so we thought there were several significant things at the meeting.

Great, thank you. And then one more, for the IND delay, I was under the impression that clinical supply was not necessary to file an IND.

So, the material that caused the delay was actually to supply the preclinical toxicology study, so it was on a critical path.

Got it, thank you.

Phil Nadeau, Cowen and Company.

First just to follow up on the manufacturing delay, can you talk a little bit more about exactly what happened with the material? Was there any scientific questions that caused it to be delayed in getting to manufacturing? Or was it simply somebody's manufacturing process was slower than anticipated?

Sure. So I will actually ask Vic Myer, our Chief Technology Officer, to talk about this.

Vic?

Yes. So I'm sure as you know, AAV manufacturing requires several steps to happen in perfect sequence for things to all come together. And we're using several external contractors to perform these steps. To paint in really broad strokes, you can think of it as a two-part problem where we have to produce the input material that all comes together to then create the AAV in a cell culture system.

In our case, one of the input materials failed a quality specification and we needed to go back and remake that material. That delay in remaking the material caused us to miss a manufacturing slot with the AAV CMO. And that, combined with the remaking the material, pushed out the timeline.

Just so we're clear, there's really no risk that the contract manufacturer can't hit those quality specifications. This was just a one-time slip-up.

The materials have actually been remade and it has passed quality control, and it's ready to be manufactured.

Perfect. That's helpful, thanks. And second, on the non-human primate data, just two follow-up questions. One, how precise is the estimate that photoreceptors are 25% of the genetic material; and, therefore, how precise is the estimate that you are editing 50% of alleles? And then secondary to that, you mentioned a 10% therapeutic target. Where does that 10% number come from?

Charlie?

Sure. Let me take the first half of that, and then I'll pass it to Gerry to take the therapeutic relevance question. So, what we did was take a number of slices through a non-human primate photoreceptor and counted the number of photoreceptors in that retinal punch, and that's where that number came from.

And obviously there will be some inaccuracy in that number depending on exactly where the slice is, but it's a reasonably accurate number and totally consistent with what's in the literature as well. So, we feel reasonable about that value. There's not a lot of inaccuracy there.

And Gerry, you want to comment on the therapeutic relevance?

Sure. Yes, the 10% number that comes from studies done in the early 1990s, both in healthy volunteers who had increasingly areas of their vision obscured by a grid; and it was found that about -- it took about 90% of the obscuring of the visual field for patients to really lose recognition of objects.

And the other study took place in patients with a macular dystrophy, in which approximately 90% of their photoreceptors were lost in the region of the fovea, which is our daytime high-acuity vision. And yet the patients had near normal vision. So those studies combined give us comfort that, if we were to hit at least 10% of the photoreceptors and correct their phenotypes, that that would provide a meaningful benefit to patients.

Good, that's helpful. And then, Andrew, one last question for you. On the R&D expense for this year, would we be correct at using the Q1 level as the base for the next several quarters? Or was there anything lumpy in Q1?

So, no. The Q was filed a little bit after our press release. And so you can see in there the values ascribed to the issuance of notes associated with one-time events. You should also assume that stock comp and other non-cash items can be lumpy quarter to quarter. So I would encourage you to reference the Q for the carveouts from 1Q.

Got it, thank you.

Mike King, JMP Securities.

Just wanted to see -- a lot of my questions have been answered, but maybe to follow up on the thought process from ASGCT. Can you talk about whether you might be reprioritizing or emphasizing your R&D spend on stem cells and hemoglobinopathy and perhaps putting more of a focus on antitrypsin as well?

With regard to the portfolio and priorities there, the data that we presented essentially affirm all of the priorities that we've had, so you're not going to see a shift in priorities. The results that we presented -- we'll continue to present results at future meetings. And as we have -- as we get to the point of designating a program to move towards the clinical, certainly we'll share that. But I think what you're really seeing with the ASGCT results is that the investments we've been making in our priority programs have made good progress.

Right. Thank you.

(Operator Instructions). Madhu Kumar, Chardan.

So, the first one is -- relates to the manufacturing of AAV for LCA10 and, more generally, for your programs. Can you provide some detail of what level of information you've given about upstream and downstream process that you guys have used for AAV manufacturing? And I'll have a second question after that.

The manufacturing of AAV is something that many have done in many different settings, and what we're doing is not dramatically different from standard AAV manufacturing. So there's not really unique differences in what we're doing from a standard manufacturing process for AAV.

All right. And then in terms of thinking about LCA10, what kind of guides and experiences -- what similarities and differences are there for LCA10 versus the kind of -- the latest-stage AAV gene therapies of voretigene neparvovec from Spark? So how do we think about the LCA10 program relative to voretigene neparvovec?

So I'll ask Charlie, our CSO, to speak to this question.

Well, they're similar in that they are delivered by AAVs. And, therefore, the AAV delivery that's happened in humans already gives us a level of confidence that they can be used as delivery vectors to get to photoreceptors and other cells in the eye.

But aside from that, they're really quite different, where we're delivering editing machinery to cause a permanent change in a correction in an LCA10 gene expression, in this case, as opposed to introducing a transgene.

And it may be worth remembering -- you may know this -- that the gene in particular involved in LCA10, the name of the gene is CEP290, that's actually too large to fit into AAV. So you wouldn't be able to deliver the CEP290 gene in a transgene format. And so that approach, a gene therapy approach using AAV wouldn't be applicable in LCA10, which is the one that we're focused on. A gene editing approach -- a gene editing strategy, however, is feasible with AAV delivery, because we're delivering those editing components rather than a transgene.

I guess I mean less in terms of vectorology and more in terms of the disease, how fulminant is it? How is visual acuity assessed, [that kind of thing]? How are they similar and different between LCA2 and LCA10?

I see, okay. Sure.

Gerry, do you want to speak to that?

I'd say in general the LCA2, which was the RPE65 mutation -- that tends to be a more slowly progressive disease than, say, LCA10. It starts off more with night blindness and then later in childhood, it's a decline in daytime acuity. The patients with LCA10 tend to be more severely affected from birth and much more impaired visual acuity during the day.

Okay, great. Thanks very much.

Thank you. And ladies and gentlemen, this concludes the Q&A session for today. I would like to turn the call to Katrine Bosley for any final remarks.

Great. Thank you. And so, with that, we do thank all of you for participating in today's call, and for your support as we continue to work to bring forward new medicines and build Editas Medicine. Have a great evening.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program and you may all disconnect. Have a wonderful day.