Intellia Therapeutics, Inc. - Quarter Report: 2020 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended June 30, 2020

OR

For the transition period from            to           

Commission File Number: 001-37766

INTELLIA THERAPEUTICS, INC.

(Exact Name of Registrant as Specified in its Charter)

857-285-6200

(Registrant’s Telephone Number, Including Area Code)  

Securities Registered Pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   ☒    No   ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   ☒    No   ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes   ☐    No   ☒

The number of shares outstanding of the registrant’s common stock as of July 31, 2020: 58,740,613 shares.

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

INTELLIA THERAPEUTICS, INC.

Condensed Consolidated Balance Sheets (unaudited)

(Amounts in thousands except share and per share data)

See notes to condensed consolidated financial statements.

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INTELLIA THERAPEUTICS, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited)

(Amounts in thousands except per share data)

See notes to condensed consolidated financial statements.

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INTELLIA THERAPEUTICS, INC.

Condensed Consolidated Statements of Cash Flows (unaudited)

(Amounts in thousands)

See notes to condensed consolidated financial statements.

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INTELLIA THERAPEUTICS, INC.

Notes to Condensed Consolidated Financial Statements (unaudited)

Intellia Therapeutics, Inc. (“Intellia” or the “Company”) is a leading genome editing company focused on developing curative therapeutics utilizing a biological tool known as CRISPR/Cas9, which stands for Clustered, Regularly Interspaced Short Palindromic Repeats (“CRISPR”)/CRISPR associated 9 (“Cas9”). This is a technology for genome editing, the process of altering selected sequences of genomic deoxyribonucleic acid (“DNA”). The Company believes that CRISPR/Cas9 technology has the potential to transform medicine by editing disease-associated genes with a single treatment course, and that it can also be used to create novel engineered cell therapies that can replace a patient’s diseased cells or effectively target various cancers and autoimmune diseases. The Company is leveraging its leading scientific expertise, clinical development experience and intellectual property (“IP”) position to unlock a broad set of therapeutic applications for CRISPR/Cas9 genome editing and to develop a potential new class of therapeutic products.

The condensed consolidated financial statements of the Company included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted from this report, as is permitted by such rules and regulations. Accordingly, these condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K (“Annual Report”) for the year ended December 31, 2019.

The unaudited condensed consolidated financial statements include the accounts of Intellia Therapeutics, Inc. and its wholly owned, controlled subsidiary, Intellia Securities Corp. All intercompany balances and transactions have been eliminated in consolidation. Comprehensive loss is comprised of net loss and gain/loss on marketable securities.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant estimates in these condensed consolidated financial statements have been made in connection with the calculation of revenues, research and development expenses and equity-based compensation expense. The Company bases its estimates on historical experience and various other assumptions that management believes to be reasonable under the circumstances at the time such estimates are made. Actual results could differ from those estimates. The Company periodically reviews its estimates in light of changes in circumstances, facts and experience. The extent of the impact of the coronavirus disease 19 (“COVID-19”) pandemic on the Company’s operational and financial performance will depend on certain developments, including the length and severity of this pandemic, as well as its effect on our employees, collaborators and vendors, all of which are uncertain and cannot be predicted. The Company cannot reasonably estimate the extent to which the disruption may materially impact its consolidated results of operations or financial position.

The effects of material revisions in estimates are reflected in the condensed consolidated financial statements prospectively from the date of the change in estimate. Certain prior year amounts have been reclassified in order to conform to the current year presentation.

In the opinion of management, the information furnished reflects all adjustments, all of which are of a normal and recurring nature, necessary for a fair presentation of the results for the reported interim periods. The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. The results of operations for interim periods are not necessarily indicative of results to be expected for the full year or any other interim period.

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Liquidity

Since its inception through June 30, 2020, the Company has raised an aggregate of $889.8 million to fund its operations, of which $268.8 million was through its collaboration agreements, $170.5 million was from its initial public offering (“IPO”) and concurrent private placements, $249.1 million was from follow-on public offerings, $116.4 million was from at-the-market offerings and $85.0 million was from the sale of convertible preferred stock. The Company expects that its cash, cash equivalents and marketable securities as of June 30, 2020, as well as research and cost reimbursement funding from its collaboration agreement with Regeneron, will enable the Company to fund its ongoing operating expenses and capital expenditure requirements for at least the twelve-month period following the issuance of these condensed consolidated financial statements.

The Company’s significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies” to the consolidated financial statements included in the Annual Report for the year ended December 31, 2019. There have been no material changes during the six months ended June 30, 2020, other than as noted below.

Restricted Cash Equivalents

Restricted cash equivalents are money market funds held in collateral accounts that are restricted to secure a letter of credit in accordance with the lease for 281 Albany Street that the Company entered into in March of 2020 (see Note 8). The letter of credit is required to be maintained throughout the term of the lease, which is ten years. These restricted cash equivalents amount to $1.9 million and are reported in “Other Assets” in the Company’s condensed consolidated balance sheet.

Recent Accounting Pronouncements – Adopted

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The new standard modifies disclosure requirements related to fair value measurement. The Company adopted ASU 2018-13 on January 1, 2020. The adoption did not have a material impact on the Company’s condensed consolidated financial statements as of and for the three or six months ended June 30, 2020.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The standard changes how credit losses are measured for most financial assets and certain other instruments. For trade and other receivables, the standard requires the use of a new forward-looking “expected credit loss” model that generally will result in the earlier recognition of allowances for losses. For available-for-sale debt securities with unrealized losses, the standard now requires allowances to be recorded instead of reducing the amortized cost of the investment. With certain exceptions, the guidance is applied using a modified retrospective approach by reflecting adjustments through a cumulative-effect impact to retained earnings as of the beginning of the fiscal year of adoption. The Company adopted ASU 2016-13 on January 1, 2020. The adoption did not have a material effect on the Company’s condensed consolidated financial statements as of and for the three or six months ended June 30, 2020.

Recent Accounting Pronouncements – Issued but not yet adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify the accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The amendments in ASU 2019-12 are effective for fiscal years beginning after December 15, 2020, including interim periods therein. Early adoption of the standard is permitted. The Company does not anticipate that the adoption of ASU 2019-12 will have a material effect on the Company’s condensed consolidated financial statements.

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The following table summarizes the Company’s available-for-sale marketable securities as of June 30, 2020 and December 31, 2019 at net book value:

The amortized cost of available-for-sale securities is adjusted for amortization of premiums and accretion of discounts to maturity. At June 30, 2020 and December 31, 2019, the balance in the Company’s accumulated other comprehensive income was composed of activity related to the Company’s available-for-sale marketable securities. There were no material realized gains or losses in the six months ended June 30, 2020 or for the year ended December 31, 2019 and, as a result, the Company did not reclassify any amounts out of accumulated other comprehensive income during the period. The Company did not have any securities in a material unrealized loss position at June 30, 2020.

The Company's available-for-sale securities that are classified as short-term marketable securities in the condensed consolidated balance sheet mature within one year or less as of the balance sheet date. Available-for-sale securities that are classified as noncurrent in the condensed consolidated balance sheet are those that mature after one year but within five years from the balance sheet date and that the Company does not intend to dispose of within the next twelve months. At June 30, 2020 and December 31, 2019, the Company did not hold any investments that matured beyond five years of the balance sheet date.

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

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As of June 30, 2020 and December 31, 2019, the Company’s financial assets recognized at fair value on a recurring basis consisted of the following:

The Company’s financial assets, which include cash equivalents and marketable securities, have been initially valued at the transaction price, and subsequently revalued at the end of each reporting period, utilizing third-party pricing services or other observable market data. The pricing services utilize industry standard valuation models and observable market inputs to determine value. After completing our validation procedures, the Company did not adjust or override any fair value measurements provided by the pricing services as of June 30, 2020 or December 31, 2019.

Other financial instruments, including accounts receivable, accounts payable and accrued expense, are carried at cost, which approximate fair value due to the short duration and term to maturity.

Accrued expenses consisted of the following:

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Litigation

There have been no material changes to any of the outstanding litigation, nor is the Company a party to any new litigation, since December 31, 2019. For further information please see the notes to the consolidated financial statements included in the Company’s Annual Report for the year ended December 31, 2019.

License Agreements

The Company is party to license agreements, which include contingent payments. These payments will become payable if and when certain development, regulatory and commercial milestones are achieved. As of June 30, 2020, the satisfaction and timing of the contingent payments is uncertain and not reasonably estimable.

To accelerate the development and commercialization of CRISPR/Cas9-based products in multiple therapeutic areas, the Company has formed, and intends to seek other opportunities to form, strategic alliances with collaborators who can augment its leadership in CRISPR/Cas9 therapeutic development. As of June 30, 2020, the Company’s accounts receivable and contract liabilities were primarily related to the Company’s collaboration with Regeneron Pharmaceuticals, Inc. (“Regeneron”). As of June 30, 2019, the Company’s accounts receivable and contract liabilities were primarily related to the Company’s collaborations with Regeneron and Novartis Institutes for BioMedical Research (“Novartis”).

The following table presents changes in the Company’s accounts receivable and contract liabilities during the six months ended June 30, 2020 and 2019 (in thousands):

During the six months ended June 30, 2020 and 2019, the Company recognized the following revenues as a result of changes in the contract liability balance (in thousands):

Costs to obtain and fulfill a contract

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

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Regeneron Pharmaceuticals, Inc.

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

On May 30, 2020, the Company entered into (i) amendment no. 1 (the “2020 Regeneron Amendment”) to the 2016 Regeneron Agreement, (ii) co-development and co-funding agreements for the treatment of hemophilia A and hemophilia B (the “Hemophilia Co/Co”) agreements and (iii) a stock purchase agreement (the “2020 Stock Purchase Agreement”).

2016 Regeneron Agreement: Scope. Under the initial six-year term of the 2016 Regeneron Agreement, Regeneron obtained exclusive rights for up to ten targets (the “Regeneron Target Cap”) to be chosen by Regeneron during the Technology Collaboration Term, as defined in the 2016 Regeneron Agreement, subject to a target selection process and various adjustments and limitations set forth in the 2016 Regeneron Agreement. Of these ten total targets, Regeneron may select up to five non-liver targets, while the remaining targets must be focused in the liver. The Company retains the exclusive right to solely develop certain in vivo products directed against specified genetic targets as well as certain non-liver targets from the Company’s ongoing and planned research activities. During the collaboration term, and subject to a target selection process, the Company has the right to choose additional liver targets for its own development using commercially reasonable efforts. Certain targets that either the Company or Regeneron select during the collaboration term may be subject to co-development and co-promotion (“Co/Co”) agreements at the Company or Regeneron’s option. Regeneron has the option to enter into Co/Co agreements for up to five liver targets (other than the Company’s reserved liver targets) and the Company has the option to enter into one Intellia Independent Co/Co Option (as defined in the 2016 Regeneron Agreement). At the inception of the 2016 Regeneron Agreement, Regeneron selected the first of its ten targets, transthyretin amyloidosis (“ATTR”), which is subject to a Co/Co agreement between the Company and Regeneron (the “ATTR Co/Co”). The general terms and conditions for the ATTR Co/Co were outlined within the 2016 Regeneron Agreement.

In addition, the Company granted Regeneron a non-exclusive, worldwide license, pursuant to which the Company and Regeneron will engage in research related activities aimed at discovering and developing novel technologies and improvements to CRISPR/Cas technology to enhance the Company’s genome editing platform.  

2016 Regeneron Agreement: Financial Terms. In connection with the 2016 Regeneron Agreement, the Company received a nonrefundable upfront payment of $75.0 million. In addition, on Regeneron programs that are not subject to Co/Co agreements, the Company may be eligible to earn, on a per-licensed target basis, (i) up to $25.0 million in development milestones, including for the dosing of the first patient in each of Phase I, Phase II and Phase III clinical trials, (ii) up to $110.0 million in regulatory milestones, including for the acceptance of a regulatory filing in the U.S., and for obtaining regulatory approval in the U.S. and in certain other identified countries and (iii) up to $185.0 million in sales-based milestone payments. The Company is also eligible to earn royalties ranging from the high-single digits to low teens, in each case, on a per-product basis, which royalties are potentially subject to various reductions and offsets and incorporate the Company’s existing low- to mid-single-digit royalty obligations under a license agreement with Caribou Biosciences, Inc. (“Caribou”). In connection with the 2016 Regeneron Agreement, Regeneron purchased $50.0 million of the Company’s common stock in a private placement under a stock purchase agreement concurrent with the Company’s IPO.

2020 Regeneron Amendment: Scope. The 2020 Regeneron Amendment, among other things, (i) extends the Technology Collaboration Term until April 11, 2024, with a further option to extend an additional twenty-four months upon notice and a $30.0 million nonrefundable payment to the Company, (ii) increases the Regeneron Target Cap from ten to fifteen (with the additional five targets focused only in the liver) and (iii) allows for a second Intellia Independent Co/Co Option. The Company also granted a non-exclusive license to Regeneron under certain CRISPR/Cas platform IP for the commercialization of up to ten ex vivo edited CRISPR Products (as defined in the 2020 Regeneron Amendment) made using certain cell types, subject to certain limitations on Regeneron’s activities in T cells. The ex vivo license does not include access to the Company’s IP directed to its ex vivo targets, programs, or cell engineering processes. This non-exclusive license is subject to royalty obligations such that the Company is eligible to earn royalties on ex vivo edited CRISPR Products ranging from the high-single

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digits to low teens, in each case, on a per-product basis, subject to various reductions and offsets and the Company’s existing royalty obligations to Caribou. The Company transferred the license to develop the Factor VIII target for the treatment of hemophilia A to Regeneron. In addition, a target that was previously a Regeneron evaluation target was transferred back to the Company as an Intellia reserved liver target.

In connection with the 2020 Regeneron Amendment, the Company and Regeneron also entered into the Hemophilia Co/Co agreements, which are directed to Factor VIII and Factor IX for the treatment of hemophilia A and hemophilia B. Factor VIII and Factor IX do not count toward the Regeneron Target Cap. Under the Hemophilia Co/Co agreements, which are substantially based upon the terms and conditions as outlined under the 2016 Regeneron Agreement, the Company and Regeneron will collaborate to research, develop, manufacture, and commercialize CRISPR Products for the treatment of hemophilia A and hemophilia B, for which Regeneron will be the Lead Party (as discussed below). Further, worldwide development costs and profits of any future products will be split between the Company and Regeneron, 35% and 65%, respectively, subject to certain deductions.  

2020 Regeneron Amendment: Financial Terms. As part of the consideration for the 2020 Regeneron Amendment, Regeneron paid the Company an upfront payment of $70.0 million, which included the $25.0 million fee to extend the Technology Collaboration Term to April 2024. The potential future milestones and royalties remain unchanged from the 2016 Regeneron Agreement. In addition, on May 30, 2020, the Company and Regeneron entered into the 2020 Stock Purchase Agreement. Under the 2020 Stock Purchase Agreement, the Company sold to Regeneron 925,218 shares of its common stock, par value $0.0001 per share, for aggregate cash consideration of $30.0 million, or $32.42 per share (the “Equity Transaction”), representing a 100% premium over the volume-weighted average trading price of the Company’s common stock during the 30-day period prior to the closing of the Equity Transaction. Under the 2020 Stock Purchase Agreement, Regeneron will not dispose of any shares of common stock it beneficially owns in the Company until the termination of the Technology Collaboration Term.

Research Collaboration. Research activities under the 2016 Regeneron Agreement and the 2020 Regeneron Amendment (collectively the “Amended Agreements”) will be governed by evaluation and research and development plans that will outline the parties’ responsibilities under, anticipated timelines of and budgets for, the various programs. The Company will assist Regeneron with the preliminary evaluation of its selected in vivo targets, and Regeneron will be responsible for preclinical research, conducting clinical development and manufacturing and commercialization of CRISPR Products directed to each of its exclusive selected targets. The Company may assist, as requested by Regeneron, with the later discovery and research of product candidates directed to any selected target. For each selected target, Regeneron is required to use commercially reasonable efforts to submit regulatory filings necessary to achieve investigational new drug (“IND”), or other regulatory acceptance for at least one product directed to each applicable target and, following IND acceptance, to develop and commercialize at least one such product.

Governance. Pursuant to the 2016 Regeneron Agreement, the parties formed a joint steering committee, which is responsible for setting research objectives and overseeing the general strategies and research and development activities undertaken by the parties.

Term and Termination. Under the Amended Agreements, the Technology Collaboration Term ends in April 2024, except that Regeneron may make a one-time payment of $30.0 million to extend the Technology Collaboration Term for an additional two-year period. The Amended Agreements will continue until the date when no royalty or other payment obligations are due, unless earlier terminated in accordance with the terms of the Amended Agreements. Regeneron’s royalty payment obligations expire on a country-by-country and product-by-product basis upon the later of (i) the expiration of the last valid claim of the royalty-bearing patents covering such product in such country, (ii) twelve years from the first commercial sale of such product in such country, or (iii) the expiration of regulatory exclusivity for such product. The Company may terminate the Amended Agreements on a target-by-target basis if Regeneron or any of its affiliates institutes a patent challenge against the Company’s CRISPR/Cas or certain other background patent rights or does not proceed with the development of a product directed to a selected target within specified periods of time. Regeneron may terminate the Amended Agreements, without cause, upon 180 days written notice to the Company, either in its entirety or on a target-by-target basis, in which event, certain rights in the terminated targets and associated IP revert to the Company, as described in the Amended Agreements. Following such termination, the Company may owe Regeneron royalties, in certain circumstances, up to mid-single digits on any terminated targets that the Company subsequently commercializes on a product-by-product basis for a period of twelve years after the first commercial sale of any such products. Either party may terminate the Amended Agreements, either in their entirety or with

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respect to the research collaboration or one or more of the targets selected by Regeneron, in the event of the other party’s uncured material breach.

Co-Development and Co-Promotion Agreements. In July 2018, the Company and Regeneron finalized the form of the Co/Co agreement that will be used as the basis for each Co/Co agreement directed to a target. Simultaneously, the Company and Regeneron executed the ATTR Co/Co agreement, for which the Company is the clinical and commercial Lead Party and Regeneron is the Participating Party (each, as defined in the Co/Co agreements, as applicable, and described below). In May 2020, the Company and Regeneron executed the Hemophilia Co/Co agreements, for which Regeneron is the clinical and commercial Lead Party and the Company is the Participating Party.

Co-Development and Co-Promotion: Agreement Structure. Under the 2016 Regeneron Agreement, Regeneron had the right to exercise at least four options, after TTR, to enter into a Co/Co agreement for the Company’s liver targets (other than the Company’s reserved liver targets), while the Company had the opportunity to exercise at least one option to enter into a Co/Co agreement for Regeneron’s liver targets, the exact number of options being subject to certain conditions of the target selection process. In connection with the 2020 Regeneron Amendment, the Company received one additional option to enter into a Co/Co agreement, while Regeneron’s number of Co/Co options remained the same. Each option to enter into a Co/Co agreement must be exercised (or forfeited) once a target reaches a defined preclinical stage. One party will be the “Lead Party” and the other party the “Participating Party.” The Lead Party will have control and primary responsibility for the development, manufacturing, regulatory, and commercial activities. The Participating Party will have the right to consult on these activities through its participation on the joint development and commercialization committees and will have the right to co-fund development and commercialization activities in exchange for a share of profits. In general, under each Co/Co agreement, the parties will share equally in worldwide development costs and profits of any future products. Prior to reaching a specific development milestone, the Participating Party may elect to reduce its share of worldwide development costs and profits by 50%. Pursuant to the ATTR Co/Co, on December 13, 2019, Regeneron informed the Company that it would exercise its rights under the ATTR Co/Co agreement to modify its share of worldwide development costs and profits from 50% to 25%, effective in mid-June 2020.

As noted above, in connection with the 2020 Regeneron Amendment, the Company and Regeneron entered into two Hemophilia Co/Co agreements. Under the Hemophilia Co/Co agreements, which are substantially based upon the Company and Regeneron’s previously agreed-upon form of Co/Co agreement, but do not count toward Regeneron’s total number of Co/Co options, the Company and Regeneron will collaborate to research, develop, manufacture, and commercialize CRISPR Products for the treatment of hemophilia A and hemophilia B. Regeneron will be the clinical and commercial lead for such activities.

Co-Development and Co-Promotion: Governance. The parties formed joint development and commercialization committees to oversee all profit share products under the Co/Co agreements as discussed below. The committees are responsible for overseeing the development, manufacture, regulatory matters, and commercialization (including pricing and reimbursement) efforts under the ATTR Co/Co and the Hemophilia Co/Co agreements.

Co-Development and Co-Promotion: Termination. Either party may terminate a particular Co/Co agreement by providing 180 days written notice. If the Company terminates, the product subject to the Co/Co agreement becomes a Regeneron product, and is subject to all future milestone and royalty payment obligations under the 2016 Regeneron Agreement. If Regeneron terminates and has contributed at least $5.0 million in development costs under the particular Co/Co agreement, the Company will pay low- to mid-single-digit royalties on the net sales of the product, depending on co-funding percentage, stage at termination and, if any, Regeneron IP incorporated into the relevant product.

2016 Regeneron Agreement: Accounting Analysis. The Company determined that the 2016 Regeneron Agreement is within the scope of ASU 2014-09, Revenue from Contracts with Customers (Topic 606), and its related amendments (collectively known as “ASC 606”). The Company evaluated the promised goods and services under the 2016 Regeneron Agreement and determined that it included three performance obligations: (i) a combined performance obligation including the licenses to targets and the associated research activities and evaluation plans; (ii) a combined performance obligation including the technology collaboration and associated research activities; and (iii) the common stock.

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Under the 2016 Regeneron Agreement, the Company determined that the transaction price was $125.0 million, consisting of the following consideration: (i) the nonrefundable upfront payment of $75.0 million; and (ii) the payment of the common stock of $50.0 million. None of the clinical or regulatory milestones were included in the transaction price, as all milestone amounts were fully constrained. As part of its evaluation of the constraint, the Company considered numerous factors, including that receipt of the milestones is outside the control of the Company and contingent upon success in future regulatory progress and the licensee’s efforts. Any consideration related to sales-based milestones and royalties will be recognized when the related sales occur as they were determined to relate predominantly to the licenses granted to Regeneron and therefore have also been excluded from the transaction price.

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

2020 Regeneron Amendment: Accounting Analysis. The Company concluded that the accounting for the 2020 Regeneron Amendment is within the scope of ASC 606. The Company evaluated the promised goods and services under the 2020 Regeneron Amendment and determined that it included three performance obligations: (i) a combined performance obligation including the licenses to targets and the associated research activities and evaluation plans; (ii) a combined performance obligation including the technology collaboration and associated research activities; and (iii) the transfer of the license to develop the Factor VIII target for hemophilia A. The 2020 Regeneron Amendment represents a contract modification. The modification of the license to targets and the associated research activities and evaluation plans and the license to the technology collaboration and associated research activities are accounted for as if they were part of the original agreement and therefore form part of a performance obligation that was partially satisfied at the date of modification. The Company therefore recorded a cumulative catch-up adjustment of $8.4 million on the modification date. The Company accounted for the distinct performance obligation – specifically the obligation to transfer the license to develop the Factor VIII target for hemophilia A - as if it were a separate component of the modified contract.

The transaction price of the 2020 Regeneron Amendment was determined to be $110.9 million, which is comprised of the $23.5 million remaining consideration from the 2016 Regeneron Agreement transferred at the inception of the arrangement, the $70.0 million upfront payment received upon the execution of the 2020 Regeneron Amendment and $17.4 million on the sale of shares under the 2020 Stock Purchase Agreement. The Company applied equity accounting guidance to measure the $12.6 million fair value recorded in the condensed consolidated statement of stockholders’ equity upon issuance of the shares. All variable consideration will be fully constrained, until such point where the constraints can be lifted, at which point the Company will allocate the consideration to the performance obligations in the arrangement accordingly.  

The $110.9 million transaction price was allocated to the performance obligations including the licenses to targets and associated research activities and evaluation plans, the combined performance obligation including the technology

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collaboration and associated research activities and the transfer of the license to develop the Factor VIII target for hemophilia A, on a relative standalone selling price basis. The Company estimated the standalone selling price of the transfer of the license to develop the Factor VIII target for hemophilia A using the adjusted market assessment approach, whereby the Company estimated the market in which it sells goods or services and estimated the price that a customer in that market would be willing to pay for those goods or services. The Company estimated the standalone selling price of the combined performance obligation of the technology collaboration and associated research activities by taking into consideration internal estimates of research and development personnel needed to perform the research and development services. The estimated standalone selling price of the combined performance obligation, including the licenses to targets and the associated research activities and evaluation plans, was determined using selling prices of comparable transactions.

As a result of this evaluation, the Company allocated $91.9 million to the combined performance obligation including the licenses to targets and associated research activities and evaluation plans, $3.7 million to the combined performance obligation including the technology collaboration and associated research activities, and $15.3 million to the transfer of the license to develop the Factor VIII target for hemophilia A.

The $91.9 million allocated to the combined performance obligation, including the licenses to targets and associated research activities and evaluation plans, as well as the $3.7 million allocated to the combined performance obligation, including the technology collaboration and associated research activities, are being recognized using a time elapsed inputs method over the remaining period of the collaboration which, in management’s judgment, is the best measure of progress towards satisfying the performance obligation as this method provides the most faithful depiction of the entity’s performance in transferring control of the goods and services promised to Regeneron and represents the Company’s best estimate of the period of the obligation. The Company will re-evaluate the transaction price in each reporting period and when events whose outcome are resolved or other changes in circumstances occur. The $15.3 million allocated to the transfer of the license to develop the Factor VIII target for hemophilia A will be recognized at a point in time when the Company transfers control of the hemophilia A target, which is expected to be in 2020.

Co/Co Agreements: Accounting Analysis. The Company concluded that the ATTR Co/Co and Hemophilia Co/Co agreements meet the definition of a collaborative arrangement per Accounting Standards Codification 808, Collaborative Arrangements (“ASC 808”), which is outside of the scope of ASC 606. Since ASC 808 does not provide recognition and measurement guidance for collaborative arrangements, the Company has analogized to ASC 606. As such, the Company classifies cumulative amounts paid or received under the cost sharing provisions of the ATTR Co/Co and the Hemophilia Co/Co agreements as a component of revenues in the condensed consolidated statements of operations and comprehensive loss, to the extent that this does not result in a cumulative “negative revenue” amount, in which case the cumulative shortfall would be reclassified as an expense.

Revenue Recognition – Collaboration Revenue. Through June 30, 2020, excluding amounts allocated to Regeneron’s purchase of the Company’s common stock, the Company recorded $145.0 million in upfront payments under the Amended Agreements and $32.6 million primarily for research and development services under the ATTR Co/Co agreement. Through June 30, 2020, the Company has recognized $94.4 million of collaboration revenue under all arrangements, including $16.3 million and $24.2 million during the three and six months ended June 30, 2020, respectively, and $6.3 million and $12.0 million during the three and six months ended June 30, 2019, respectively, in the condensed consolidated statements of operations and comprehensive loss. This includes $3.8 million and $8.6 million during the three and six months ended June 30, 2020, respectively, and $3.2 million and $5.8 million during the three and six months ended June 30, 2019, respectively, primarily representing payments due from Regeneron pursuant to the ATTR Co/Co agreement.

As of June 30, 2020, there was approximately $85.3 million of the aggregate transaction price of the Amended Agreements remaining to be recognized, which the Company expects to be recognized ratably through April 2024. In addition, $15.3 million of the aggregate transaction price, related to the transfer of the license to develop the Factor VIII target for hemophilia A, remains to be recognized, which the Company expects to be recognized when control is transferred.

As of June 30, 2020 and December 31, 2019, the Company had accounts receivable of $3.9 million and $3.6 million, respectively, and deferred revenue of $100.7 million and $28.8 million, respectively, related to the Amended Agreements.

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Novartis Institutes for BioMedical Research, Inc.

In December 2014, the Company entered into a strategic collaboration agreement with Novartis (the “2014 Novartis Agreement”), primarily focused on the research of new ex vivo CRISPR/Cas9-edited therapies using chimeric antigen receptor T (“CAR-T”) cells and hematopoietic stem cells (“HSCs”). The agreement was amended in December 2018 (the “Novartis Amendment”) to also include research on ocular stem cells (“OSCs”). In December 2019, per the terms of the 2014 Novartis Agreement, the research term ended, although the 2014 Novartis Agreement remains in effect, for which the Company will be eligible to receive milestone and royalty payments in the future. Since December 31, 2019, there have been no material changes to the key terms of the 2014 Novartis Agreement and the Novartis Amendment. For further information on the terms and conditions of these agreements, please see the notes to the consolidated financial statements included in the Company’s Annual Report for the year ended December 31, 2019.

Revenue Recognition – Collaboration Revenue. Through June 30, 2020, excluding amounts allocated to Novartis’ purchase of the Company’s Class A-1 and Class A-2 Preferred Units, the Company had recorded a total of $62.4 million in cash under the 2014 Novartis Agreement and the Novartis Amendment. Through June 30, 2020, the Company recognized $62.4 million of collaboration revenue. No revenue was recognized during the three months ended June 30, 2020 related to the 2014 Novartis Agreement and the Novartis Amendment. The Company recognized $4.8 million and $9.5 million during the three and six months ended June 30, 2019, in the condensed consolidated statements of operations and comprehensive loss related to the 2014 Novartis Agreement and the Novartis Amendment. As of December 31, 2019, the aggregate transaction price had been recognized in full.

Revenue Recognition – Milestone. During the six months ended June 30, 2020, the U.S. Food and Drug Administration (“FDA”) accepted the IND application submitted by Novartis for a CRISPR/Cas9-based engineered cell therapy for the treatment of sickle cell disease. As a result of meeting this milestone, the Company recognized $5.0 million as collaboration revenue within the condensed consolidated statement of operations and comprehensive loss. No other milestones under the 2014 Novartis Agreement and the Novartis Amendment were achieved during the three or six months ended June 30, 2020 or 2019. The Company is eligible to receive additional downstream success-based milestones and royalties.

As of June 30, 2020, the Company had no accounts receivable related to the 2014 Novartis Agreement and the Novartis Amendment. As of December 31, 2019, the Company had accounts receivable of $1.0 million related to the 2014 Novartis Agreement and the Novartis Amendment. As of June 30, 2020 and December 31, 2019, the Company had no deferred revenue related to the 2014 Novartis Agreement and the Novartis Amendment.

In October 2014, the Company entered into an agreement to lease office and laboratory space at 130 Brookline Street (the “130 Brookline Lease”) in Cambridge, Massachusetts under an operating lease agreement with a term through January 2020, with an option to extend the term of the lease for an additional five-year period. In April 2019, the Company executed an amendment to the lease to extend the term of the lease for the additional five-year period, through January 2025. Upon the execution of the original lease, the Company provided a $0.3 million security deposit. The Company has recorded this security deposit in other assets on the condensed consolidated balance sheets. In March 2020, the Company entered into a second amendment to the 130 Brookline Lease (the “Second Amendment”). The Second Amendment amends certain terms of the Company’s existing lease, dated October 21, 2014, as amended on April 5, 2019. The Second Amendment extends the term of the 130 Brookline Lease by approximately six years through January 31, 2031. This extended term is included as part of the lease liability and right-of-use asset at June 30, 2020. The Second Amendment also provides an option to extend the lease for two consecutive five-year terms. The Company recognized a right-of-use asset and lease liability of approximately $7.3 million related to the Second Amendment.

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In March 2020, the Company entered into an agreement to lease approximately 39,000 square feet of office and laboratory space at 281 Albany Street in Cambridge, Massachusetts under an operating lease agreement (the “281 Albany Lease”). The 281 Albany Lease is expected to commence on October 1, 2020, and the Company’s obligation to pay rent will start on the date that is six months after the commencement date or the date on which the Company occupies the premises, whichever occurs earlier (the “Rent Commencement Date”). The initial term of the 281 Albany Lease is ten years following the Rent Commencement Date. The base rent under the 281 Albany Lease is $99.00 per square foot per year during the first year of the term, which is subject to scheduled annual increases up to $128.87 per square foot per year during the last year of the initial term, plus certain operating expenses and taxes. In addition, the landlord will contribute an aggregate of $4.4 million toward the cost of construction and tenant improvements for the premises. In accordance with the 281 Albany Lease, the Company is required to maintain a letter of credit in the amount of $1.9 million that is restricted for the term of the lease. These restricted cash equivalents are reported in “Other Assets” in the Company’s condensed consolidated balance sheet. The Company has the option to extend the 281 Albany Lease for two successive five-year terms.

In April 2016, the Company adopted the Amended and Restated 2015 Stock Option and Incentive Plan (the “2015 Plan”). The 2015 Plan provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock awards, restricted stock units (“RSUs”) and other stock-based awards. Recipients of incentive stock options and non-qualified stock options are eligible to purchase shares of the Company’s common stock at an exercise price equal to the fair value of such stock on the grant date. Stock options granted under the 2015 Plan generally vest 25% on the first anniversary of the original vesting date, with the balance vesting monthly over the remaining three years, unless they contain specific performance-based vesting provisions. The maximum term of stock options granted under the 2015 Plan is ten years.  

As of June 30, 2020, there were 2,104,706 shares available for future issuance. The number of shares reserved for issuance under the 2015 Plan shall be cumulatively increased by four percent of the number of shares of stock issued and outstanding on the immediately preceding December 31 or such lesser number of shares of stock as determined by the board of directors.

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

Restricted Stock

Restricted stock is measured at fair value based on the quoted price of the Company’s common stock.

The following table summarizes the Company’s restricted stock activity for the six months ended June 30, 2020:

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As of June 30, 2020, there was $2.3 million of unrecognized equity-based compensation expense related to restricted stock that is expected to vest. These costs are expected to be recognized over a weighted average remaining vesting period of 2.3 years. As of June 30, 2020, 71,875 of the unvested restricted stock outstanding are performance-based RSUs that vest upon obtaining certain scientific, financial and regulatory milestones through 2020. These performance-based RSUs are not included in computing the diluted loss per share because the performance criteria had not been met as of the end of the reporting period.

In January 2020, the Company granted 181,020 RSUs to certain employees that include a performance condition in addition to a service condition. The RSUs vest over a period of three years and are subject to accelerated vesting based on the Company’s programs achieving certain development milestones before December 1, 2022. To date, the Company has not accelerated the vesting of the RSUs. The grant date fair value of the RSUs is $15.05.

Stock Options

The weighted average grant date fair value of options, estimated as of the grant date using the Black-Scholes option pricing model, was $9.04 and $8.16 per option for those options granted during the three and six months ended June 30, 2020 and $9.22 and $9.07 per option for those options granted during the three and six months ended June 30, 2019, respectively. The total intrinsic value (the amount by which the fair market value exceeded the exercise price) of stock options exercised during the three and six months ended June 30, 2020 was $0.5 million and $0.8 million, respectively, and during the three and six months ended June 30, 2019 was $1.3 million and $1.5 million, respectively. Key assumptions used to apply this pricing model were as follows:

Risk-free Interest Rate.  The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant with maturities approximately equal to the option’s expected term.

Expected Dividend Yield.  The expected dividend yield assumption is based on the fact that the Company has never paid cash dividends and has no present intention to pay cash dividends.

Expected Volatility.  The expected volatility was derived from a blend of average historical stock volatilities of several peer companies within the Company’s industry and the Company’s historical volatility, both over a period equivalent to the expected term of the stock option grants.

Expected Term.  The expected term represents the period that stock option awards are expected to be outstanding. For option grants that are considered to be “plain vanilla,” the Company determines the expected term using the simplified method. The simplified method deems the term to be the average of the time-to-vesting and the contractual life of the options. The Company uses the simplified method because it does not have sufficient historical option exercise data to provide a reasonable basis upon which to estimate the expected term.

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The Company uses the market closing price of its common stock as reported on the Nasdaq Global Select Market to determine the fair value of the shares of common stock underlying stock options. The following is a summary of stock option activity for the six months ended June 30, 2020:

As of June 30, 2020, there was $39.1 million of unrecognized compensation cost related to stock options that have not yet vested. These costs are expected to be recognized over a weighted average remaining vesting period of 2.7 years.

Of the unvested stock options outstanding as of June 30, 2020, 183,750 are performance-based stock options that vest upon obtaining certain scientific, financial and regulatory milestones through 2020. At June 30, 2020, 143,750 performance-based options are not included in computing the diluted loss per share because the performance criteria had not been met as of the end of the reporting period.

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

Basic and diluted loss per share was calculated as follows:

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

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The following tables present changes in stockholders’ equity for the six-month periods ended June 30, 2020 and 2019 (in thousands, except share data):

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Follow-on Offering

On June 1, 2020, the Company entered into an underwriting agreement related to a public offering of 6,301,370 shares of its common stock, par value $0.0001 per share, including the exercise in full by the underwriters of their option to purchase an additional 821,917 shares, at the public offering price of $18.25 per share. The offering closed on June 5, 2020 and the Company received net proceeds of $107.7 million, after deducting the underwriting discount, commissions and approximately $0.4 million in offering expenses.

Shares Issued In Private Placement to Regeneron

As described in Note 7 above, in May 2020 the Company entered into an amendment to its collaboration agreement with Regeneron that was entered into in April 2016. Simultaneously, the Company and Regeneron entered into the 2020 Stock Purchase Agreement, under which the Company sold to Regeneron 925,218 shares of its common stock, par value $0.0001 per share, for aggregate cash consideration of $30.0 million, or $32.42 per share, representing a 100% premium over the volume-weighted average trading price of the Company’s common stock during the 30-day period prior to the closing. Under the 2020 Stock Purchase Agreement, Regeneron will not dispose of any shares of common stock it beneficially owns in the Company until the termination of the Technology Collaboration Term (see Note 7). After applying equity accounting guidance to measure the issuance of the shares, $12.6 million was recorded as fair value in the condensed consolidated statement of stockholders’ equity for the shares.

At-the-Market Offering Programs

In October 2018, the Company entered into an Open Market Sale Agreement (the “2018 Sales Agreement”) with Jefferies LLC (“Jefferies”), under which Jefferies was able to offer and sell, from time to time in “at-the-market” offerings, shares of its common stock having aggregate gross proceeds of up to $100.0 million. The Company paid to Jefferies cash commissions of 3.0% of the gross proceeds of sales of common stock under the 2018 Sales Agreement. The Company issued 5,890,648 shares of its common stock at an average price of $16.98 per share in accordance with the 2018 Sales Agreement for aggregate net proceeds of $96.4 million, after payment of cash commissions to Jefferies and approximately $0.6 million related to legal, accounting and other fees in connection with the sales. All shares related to the 2018 Sales Agreement had been sold as of December 31, 2019.

In August 2019, the Company entered into an Open Market Sale Agreement (the “2019 Sales Agreement”) with Jefferies, under which Jefferies was able to offer and sell, from time to time in “at-the-market” offerings, common stock having aggregate gross proceeds of up to $150.0 million. The Company agreed to pay Jefferies cash commissions of 3.0% of the gross proceeds of sales of common stock under the 2019 Sales Agreement. During the year ended December 31, 2019, the Company issued 287,231 shares of its common stock, in a series of sales, at an average price of $16.48 per share, in accordance with the 2019 Sales Agreement for aggregate net proceeds of $4.4 million, after payment of cash commissions to Jefferies and approximately $0.2 million related to legal, accounting and other fees in connection with the sales. During the six months ended June 30, 2020, the Company issued 1,107,100 shares of its common stock in a series of sales at an average price of $13.78 per share in accordance with the 2019 Sales Agreement, for aggregate net proceeds of $14.7 million after payment of cash commissions to Jefferies and approximately $0.1 million related to legal, accounting and other fees in connection with the sales.

As of June 30, 2020, $130.0 million in shares of common stock remain eligible for sale under the 2019 Sales Agreement.

Research Material Supplier

In the ordinary course of business, the Company may purchase materials or supplies from entities that are associated with a party that meets the criteria of a related party of the Company. These transactions are reviewed quarterly and to date have not been material to the Company’s condensed consolidated financial statements.

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

Forward-looking Information

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

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

Management Overview

Intellia Therapeutics, Inc. (“we,” “us,” “our,” “Intellia,” or the “Company”) is a leading genome editing company focused on developing curative therapeutics utilizing a biological tool known as CRISPR/Cas9, which stands for Clustered, Regularly Interspaced Short Palindromic Repeats (“CRISPR”)/CRISPR associated 9 (“Cas9”). This is a technology for genome editing, the process of altering selected sequences of genomic deoxyribonucleic acid (“DNA”). We believe that CRISPR/Cas9 technology has the potential to transform medicine by editing disease-associated genes with a single treatment course, and that it also can be used to create novel engineered cell therapies that can replace a patient’s diseased cells or effectively target various cancers and autoimmune diseases. We are leveraging our leading scientific expertise, clinical development experience and intellectual property (“IP”) position to unlock a broad set of therapeutic applications for CRISPR/Cas9 genome editing and to develop a potential new class of therapeutic products.

Our management’s discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, which have been prepared by us in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim periods and with Regulation S-X, promulgated under the Securities Exchange Act of 1934, as amended. This discussion and analysis should be read in conjunction with these unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q as well as in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K (“Annual Report”) for the year ended December 31, 2019.

Our mission is to build a company to develop curative genome editing treatments that can positively transform the lives of people living with severe and life-threatening disease. We believe we can deliver on our mission and provide long-term benefits for all of our stakeholders by focusing on four key elements:

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Our strategy is to build a full-spectrum genome editing company, by leveraging our CRISPR/Cas9 platform across two areas: in vivo applications, in which CRISPR/Cas9 is the therapy, delivered to target cells within the body; and ex vivo applications, in which CRISPR/Cas9 creates the therapy of engineered human cells. All of our revenue to date has been collaboration revenue. Since our inception and through June 30, 2020, we have raised an aggregate of approximately $889.8 million to fund our operations, of which $268.8 million was through our collaboration agreements, $170.5 million was from our initial public offering and concurrent private placements, $249.1 million was from follow-on offerings, $116.4 million was from at-the-market offerings and $85.0 million was from the sale of convertible preferred stock.

The breadth of our CRISPR/Cas9 platform and delivery technology allows us to pursue a multitude of therapeutic targets/clinical indications. Specifically, we can target diseases that have the potential to be addressed by directly editing specific genes (i.e., gene knockout, repair, or insertion) as well as diseases that may be targeted by genetically engineered cell therapies. The successful treatment of these disorders may require various types of genome edits, CRISPR/Cas9 elements and DNA templates. We have assembled multiple in vivo and engineered cell therapy capabilities into a pipeline that reflects our full-spectrum approach and leverages the modularity inherent in our platform.

Our diversified pipeline includes in vivo development programs targeting genetic diseases, including transthyretin amyloidosis (“ATTR”), which we are co-developing with Regeneron Pharmaceuticals, Inc. (“Regeneron”), and hereditary angioedema (“HAE”). Our pipeline also includes ex vivo programs consisting of two separate efforts: (i) a set of proprietary programs focused on engineered cell therapies to treat various cancers and autoimmune diseases including our lead ex vivo program to target Wilms’ Tumor 1 (“WT1”) for acute myeloid leukemia (“AML”); and (ii) partnered programs developed in collaboration with Novartis Institutes for BioMedical Research, Inc. (“Novartis”), focused on chimeric antigen receptor (“CAR”) T (“CAR-T”) cells, hematopoietic stem cells (“HSCs”), the stem cells from which all of the various types of blood cells originate, and stem cells in the eye, or ocular stem cells (“OSCs”).

Our Pipeline

Our diversified pipeline includes in vivo and ex vivo programs. Our in vivo programs focus on treating patients that have significant unmet medical needs due to diseases attributable to genes expressed in the liver – ATTR (which we are co-developing with Regeneron) and HAE. Delivery plays a key role in our in vivo therapeutic approach. We have shown in animal models that our proprietary lipid nanoparticle (“LNP”) delivery technology, which encapsulates the therapeutic Cas9 messenger RNA (“mRNA”) and guide RNA (“gRNA”) into LNPs, can systemically deliver these therapeutic components to the liver.

For ex vivo applications, our wholly owned programs focus on next-generation, engineered cell therapy solutions that utilize antigen-specific T cell receptors (“TCRs”). The cells to be modified ex vivo can come from the individual patient (autologous source) or from another individual (allogeneic source). Our goal for the ex vivo pipeline is to move from autologous to allogeneic therapies, and from liquid to solid tumors.

We believe our full spectrum approach to in vivo and ex vivo programs positions us to build a pipeline across a wide range of indications.

In Vivo Programs

Our selection criteria include identifying diseases that originate in the liver; have well-defined mutations that can be addressed by a single knockout, repair or insertion approach; have readily measurable therapeutic endpoints with observable clinical responses; and for which effective treatments are absent, limited or unduly burdensome. Our initial in vivo indications target genetic liver diseases, including ATTR and HAE, using a knockout approach. Our current efforts on in vivo delivery focus on the use of LNPs for delivery of the CRISPR/Cas9 complex to the liver.

Transthyretin Amyloidosis – (“ATTR”)

ATTR is a progressive and fatal disorder resulting from deposition of insoluble amyloid fibrils into multiple organs and tissues leading to systemic failure. Blood-borne transthyretin (“TTR”) protein is produced by hepatocytes and normally circulates as a soluble homotetramer that facilitates transport of vitamin A, via retinol binding protein, as well as the thyroid hormone, thyroxine. Mutations in the TTR gene lead to the production of TTR proteins that are destabilized in their tetramer form. These tetramers more readily dissociate into the monomeric form, and thence to an aggregative form that results in amyloid deposits in tissues. These deposits cause damage in those tissues, resulting in a disorder known as hereditary TTR amyloidosis (“hATTR”). Over 120 different genetic mutations are currently known to cause hATTR.

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Deposits of TTR amyloid in the heart, nerves and/or other tissues can lead to diverse disease manifestations, including two main hereditary forms – hATTR with polyneuropathy (“hATTR-PN”), and hATTR with cardiomyopathy (“hATTR-CM”). Typical onset of disease symptoms is during adulthood and can be fatal within 2 to 15 years. Estimates suggest that approximately 50,000 patients suffer from hATTR worldwide.

In addition to the hereditary forms described above, ATTR can also develop spontaneously in the absence of any TTR gene mutation. This wild-type ATTR (“wtATTR”) is increasingly being recognized as a significant and often undiagnosed cause of heart failure in the elderly and is the subject of active investigation. Recent estimates suggest that, globally, between 200,000 and 500,000 people may suffer from wtATTR with cardiomyopathy (“wtATTR-CM”).

In non-human primate (“NHP”) studies, we have demonstrated our ability to reduce circulating TTR protein to estimated therapeutically relevant levels after a single systemic administration of LNPs containing our CRISPR/Cas9 complex. In December 2019, we completed a year-long durability study of our lead LNP formulation, maintaining an average reduction of more than 95% of serum TTR protein after a single dose in NHPs. The data from our various NHP studies has also demonstrated the transient nature of our proprietary modular LNP delivery system, which was rapidly cleared from circulation, with all CRISPR/Cas9 complex undetectable in blood and liver within ten days of administration. Our lead candidate, NTLA-2001, applies an in vivo liver knockout approach for the treatment of ATTR. We have manufactured clinical-scale materials for a Phase 1 study of NTLA-2001 and announced that we have submitted our first Clinical Trial Application (“CTA”) to the United Kingdom’s Medicines and Healthcare products Regulatory Agency (“MHRA”) and are executing on our clinical plans to initiate a global Phase 1 study of NTLA-2001. Pending approval of our CTA and subject to the impact of COVID-19, we plan to dose the first patient by the end of 2020. In addition, we are submitting additional regulatory applications to enable enrollment in other countries as part of our global clinical development plans. NTLA-2001 is part of a co-development and co-promotion (“Co/Co”) agreement directed to our first collaboration target with Regeneron, ATTR (the “ATTR Co/Co”), for which we are the clinical and commercial Lead Party and Regeneron is the Participating Party (see Note 7 to the condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for further detail). Pursuant to the ATTR Co/Co agreement, Regeneron funded approximately 50% of the program’s development costs through 2019. On December 13, 2019, Regeneron informed us that it would exercise its right under the ATTR Co/Co agreement to modify its share of worldwide development costs and profits from 50% to 25%, effective in mid-June 2020.

Hereditary Angioedema – (“HAE”)

HAE is a rare genetic disorder characterized by recurrent, painful and unpredictable episodes of severe swelling. The most common areas of the body to develop swelling are the limbs, face, intestinal tract and airway. Minor trauma or stress may trigger an attack but swelling often occurs without a known trigger. Episodes involving the intestinal tract cause severe abdominal pain, nausea and vomiting. Swelling in the airway can restrict breathing and lead to life-threatening obstruction of the airway. The disease is caused by increased levels of bradykinin, a protein which leads to swelling. Most patients with HAE have a deficiency of C1 esterase inhibitor (“C1-INH”) protein, which normally prevents the unregulated release and buildup of bradykinin. HAE is estimated to affect 1 in 50,000 people, with an estimated 11,000 to 21,500 diagnosed HAE patients in the U.S. and Europe.

Currently there are multiple therapies approved to treat HAE, including acute and prophylactic approaches. Acute treatments are used to treat patients who are experiencing an attack. Prophylactic treatments are used to reduce the number of attacks that a patient may experience. Prophylactic treatments have proven to be effective in reducing the number of attacks for most patients, though some patients still experience breakthrough attacks and such treatment options require regular injections which can be associated with significant treatment burden and impact on quality of life.

Using our modular LNP delivery system, we aim to knock out the prekallikrein B1 (“KLKB1”) gene with a single course of treatment to reduce plasma kallikrein activity to prevent excess bradykinin production leading to HAE attacks. We believe KLKB1 knockout to be safe, as humans with prekallikrein deficiency appear to have no known health effects. In addition, inhibition of kallikrein activity has proven to be a clinically effective approach as a prophylactic treatment for HAE.

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On May 7, 2020, we announced a development candidate for the treatment of HAE, NTLA-2002, a wholly-owned program. As part of an ongoing durability study of our lead LNP formulation in support of NTLA-2002, we have now demonstrated ten months of sustained therapeutically relevant reduction of serum kallikrein levels and activity following a single dose in NHPs. We expect to submit an IND or IND-equivalent for NTLA-2002 in the second half of 2021.

Ex Vivo Programs

We are independently researching and developing proprietary engineered cell therapies to treat various oncological and autoimmune diseases, for example TCR-engineered T cells for immuno-oncology applications and engineered regulatory T cells for autoimmune disorders. Our diverse product strategy includes multiple elements. In particular:

In addition, based on our collaboration and technology, Novartis is developing therapies using CAR-T cells for oncology indications, as well as HSC and OSC-based therapies for a variety of diseases.

Acute Myeloid Leukemia – (“AML”)

AML includes a heterogenous group of blood cancers arising from the malignant expansion of hematopoietic cells of the myeloid lineage. AML is associated with weakness, fatigue and bleeding resulting from the depletion of healthy myeloid cells, and is typically rapidly progressive and fatal without immediate treatment. AML is an aggressive and hard-to-treat cancer, resulting in less than 30% of patients living more than five years after diagnosis. AML is the most common acute leukemia in adults and is associated with the largest number of annual deaths from leukemia in the U.S. It is estimated that there have been nearly 11,000 deaths due to AML, as well as over 21,000 new AML cases in the U.S. in 2019. While AML can occur at any age, the prevalence of the disease increases with age, resulting in a median age at diagnosis of 67 years.

Over the past several years, new treatments have emerged for AML with different mechanisms of action. While these treatments have led to improvements in response rates and in some cases increased overall survival, the outcomes demonstrated thus far have been incremental in nature and long-term outcomes in AML continue to be extremely poor.

We have nominated NTLA-5001 as our first engineered T cell therapy development candidate for the treatment of AML, utilizing our TCR-directed approach to target the WT1 intracellular antigen. Our WT1-directed TCR T-cell therapy aims to develop a broadly applicable treatment for AML, regardless of mutational subtypes of a patient’s leukemia. This approach employs CRISPR/Cas9 complexes to knock out and replace the endogenous TCR with a natural, high affinity therapeutic TCR. The resulting cells are engineered to be capable of specific and potent killing of AML blasts without bone marrow cell toxicity. In February 2020, we presented data demonstrating that the selection of a natural, high-affinity TCR, in combination with our CRISPR-enabled engineering and targeted insertion, results in an engineered T cell capable of specific and potent killing of primary AML blasts. Importantly, our studies showed that CRISPR-enabled engineering overcomes key challenges of traditional TCR approaches, such as mispairing between therapeutic and endogenous TCR, therefore creating a more homogenous T cell product. The cells engineered with our lead WT1 TCR also exhibited no detectable reactivity to bone marrow cells, which express WT1 at low levels. In May 2020, we presented data on our proprietary T cell engineering process in support of NTLA-5001. The data presented showed that our proprietary process enables multiple, highly efficient, sequential edits in T cells, whether knocking out or inserting genes. This technology yields engineered cells with high anti-tumor activity and favorable attributes, including a desired memory phenotype, which is associated with longer lasting treatment effects. Importantly, chromosomal translocations (i.e., undesired chromosomal rearrangements) were similar to background levels in untreated cells. We continue to advance IND-enabling activities, including process development to support clinical T cell manufacturing. We are on track to submit an IND or IND-equivalent for NTLA-5001 in the first half of 2021.

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Research Collaboration with Novartis

In December 2019, the research term under our collaboration agreement with Novartis ended, although the 2014 Novartis Agreement remains in effect. Accordingly, Novartis has selected various CAR-T cell, HSC and OSC targets for continued development, for which we will be eligible to receive milestone and royalty payments in the future. Further, we are eligible to earn up to $230.3 million in development, regulatory and sales-based milestone payments and mid-single-digit royalties, in each case, on a per-product basis for the products developed by Novartis, subject to certain target-based limitations. During the first quarter of 2020, the U.S. Food and Drug Administration (“FDA”) accepted the IND application submitted by Novartis, for a CRISPR/Cas9-based engineered cell therapy for the treatment of sickle cell disease. As a result of meeting this milestone, we recognized a $5.0 million milestone payment that was previously constrained as collaboration revenue within the condensed consolidated statement of operations and comprehensive loss. For more information regarding our collaboration with Novartis, see the section below entitled “Collaborations - Novartis.”

Other Research Programs

We are pursuing a number of in vivo and ex vivo genome editing programs. Within our in vivo research efforts, we continue to work on programs such as primary hyperoxaluria Type 1, alpha-1 antitrypsin deficiency, hemophilia A and hemophilia B which leverage our capabilities to knockout, insert and make consecutive edits to the genome. We are also investigating delivery strategies that target tissues outside of the liver.

Within our ex vivo research efforts, we are developing engineered cell therapies to treat a range of hematological and solid tumors. We are pursuing modalities, such as TCR, with broad potential in multiple indications. Further, we continue to advance efforts to move from autologous to allogeneic and from liquid to solid tumors. Our researchers are developing and improving cell-engineering manufacturing and delivery processes that, we believe, are designed to allow us to deliver T cell therapies with high levels of editing, achieve robust levels of expansion, ensure desirable memory phenotypes, improve function and reduce translocations. These platform advances will support NTLA-5001 and other ongoing research programs.

Collaborations

To accelerate the development and commercialization of CRISPR/Cas9-based products in multiple therapeutic areas, we have formed, and may seek other opportunities to form, strategic alliances with collaborators who can augment our leadership in CRISPR/Cas9 therapeutic development.

Regeneron

As described in Note 7, “Collaborations—Regeneron Pharmaceuticals, Inc.,” to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q, in April 2016 we entered into a license and collaboration agreement with Regeneron (the “2016 Regeneron Agreement”). The 2016 Regeneron Agreement has two principal components: (i) a product development component under which the parties will research, develop and commercialize CRISPR/Cas-based therapeutic products primarily focused on genome editing in the liver; and (ii) a technology collaboration component, pursuant to which the parties will engage in research and development activities aimed at discovering and developing novel technologies and improvements to CRISPR/Cas technology to enhance our genome editing platform. Under the 2016 Regeneron Agreement, we also may access the Regeneron Genetics Center and proprietary mouse models to be provided by Regeneron for a limited number of our liver programs.

On May 30, 2020, we entered into amendment no. 1 (the “2020 Regeneron Amendment”) to the 2016 Regeneron Agreement, pursuant to which we expanded the existing collaboration to co-develop potential products for the treatment of hemophilia A and hemophilia B. The collaboration expansion builds upon the jointly developed targeted transgene insertion capabilities designed to durably restore a missing therapeutic protein, and to overcome the limitations of traditional gene therapy. The collaboration has been extended until April 2024, at which point Regeneron has an option to renew for an additional two years. The 2020 Regeneron Amendment also grants Regeneron rights to develop products for five additional in vivo CRISPR/Cas-based therapeutic liver targets and non-exclusive rights to independently develop and commercialize up to 10 ex vivo gene edited products made using certain defined cell types.

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Through June 30, 2020, excluding amounts allocated to Regeneron’s purchase of our common stock, we have recorded $145.0 million in upfront payments under the 2016 Regeneron Agreement and the 2020 Regeneron Amendment and $32.6 million for research and development services primarily under the ATTR Co/Co agreement, as described in Note 7 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. Through June 30, 2020, we have recognized $94.4 million of collaboration revenue under all arrangements, including $16.3 million and $24.2 million during the three and six months ended June 30, 2020 and $6.3 million and $12.0 million during the three and six months ended June 30, 2019, respectively, in the condensed consolidated statements of operations and comprehensive loss. This includes $3.8 million and $8.6 million during the three and six months ended June 30, 2020, respectively, and $3.2 million and $5.8 million during the three and six months ended June 30, 2019, respectively, primarily representing payments due from Regeneron pursuant to the ATTR Co/Co agreement, which is accounted for under Accounting Standards Codification 808, Collaborative Arrangements. As of June 30, 2020 and December 31, 2019, we had accounts receivable of $3.9 million and $3.6 million, respectively, and deferred revenue of $100.7 million and $28.8 million, respectively, related to these arrangements.

Novartis

As described in Note 7, “Collaborations—Novartis Institutes for BioMedical Research, Inc.,” to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q, in December 2014, we entered into a strategic collaboration agreement with Novartis (the “2014 Novartis Agreement”), primarily focused on the development of new ex vivo CRISPR/Cas9-edited therapies using CAR-T cells and HSCs. The agreement was amended in December 2018 (the “Novartis Amendment”) to also include research on OSCs.

Through June 30, 2020, excluding amounts allocated to Novartis’ purchase of the Company’s Class A-1 and Class A-2 Preferred Units, we had recorded a total of $62.4 million in cash under the 2014 Novartis Agreement and the Novartis Amendment. Through June 30, 2020, we have recognized $62.4 million of collaboration revenue, including $5.0 million related to a development milestone that was recognized in the first quarter of 2020 and $4.8 million and $9.5 million in the three and six months ended June 30, 2019, respectively. No collaboration revenue was recorded during the three months ended June 30, 2020, related to the 2014 Novartis Agreement and the Novartis Amendment. As of June 30, 2020, we had no accounts receivable related to the 2014 Novartis Agreement and the Novartis Amendment. As of December 31, 2019, we had accounts receivable of $1.0 million related to the 2014 Novartis Agreement and the Novartis Amendment. As of June 30, 2020 and December 31, 2019, we had no deferred revenue related to the 2014 Novartis Agreement and the Novartis Amendment.

Financial Overview

Collaboration Revenue

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

Research and Development

Research and development expenses consist of expenses incurred in performing research and development activities, including compensation and benefits, which includes equity-based compensation, for full-time research and development employees, allocated facility-related expenses, overhead expenses, clinical manufacturing costs, license and milestone fees, contract research services and other related costs.

General and Administrative

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

Interest Income

Interest income is income earned on our cash, cash equivalents and marketable securities.

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Results of Operations