CRISPR Therapeutics AG — 2017 Form 10-K Summary
Business context and reporting period
This Form 10-K reports the fiscal year ended December 31, 2017; it is an annual report, not a standalone fourth-quarter filing. CRISPR Therapeutics is a pre-commercial gene-editing company developing CRISPR/Cas9-based therapies. Its lead candidate, CTX001, is an ex vivo treatment being developed for beta-thalassemia and sickle cell disease with Vertex. The company reported no product-sales revenue; collaboration arrangements were its sole revenue source.
Financial performance and liquidity
| Metric | 2017 | 2016 |
|---|---|---|
| Collaboration revenue | $41.0 million | $5.2 million |
| Research and development expense | $69.8 million | $42.2 million |
| General and administrative expense | $35.8 million | $31.1 million |
| Total operating expenses | $105.6 million | $73.3 million |
| Loss from operations | $(64.6) million | $(68.1) million |
| Net loss | $(68.4) million | $(23.2) million |
| Operating cash flow | $(70.1) million | $(55.3) million |
| Cash at year-end | $239.8 million | $315.5 million |
| Working capital | $233.9 million | $298.2 million |
- 2017 revenue included $30.3 million recognized when co-exclusive hemoglobinopathy development and commercialization licenses were delivered under the Vertex agreement. Revenue also included research and development services for Vertex and Casebia.
- R&D expense rose $27.6 million, mainly due to higher platform and process-development spending, employee compensation, facilities costs, and stock compensation. G&A expense rose $4.8 million, largely reflecting employee and facilities costs.
- The net loss increased despite a smaller operating loss: 2016 included substantial non-recurring other income, including a $78.5 million gain related to Casebia formation and an $11.5 million gain on extinguishment of Vertex convertible loans. 2017 had $2.0 million of net other expense.
- Fourth-quarter 2017 collaboration revenue was $32.3 million; the company reported $0.1 million net income for the quarter, versus a full-year net loss. The filing attributes the quarter’s revenue largely to the license recognition under the Vertex agreement.
- Cash decreased by $75.8 million during 2017. There was no material borrowing balance reported at year-end; earlier Vertex and Bayer convertible loans had converted into preferred shares in 2016. Operating lease commitments totaled $55.5 million, including $4.9 million due in 2018.
- In January 2018, the company sold 5.75 million common shares at $22.75 per share, receiving $122.6 million net. Management expected year-end cash plus offering proceeds to fund the then-current operating plan for at least 24 months, excluding potential additional collaboration or joint-venture proceeds. This is management’s estimate and depends on assumptions about spending and program progress.
Material developments and outlook
- In December 2017, CRISPR Therapeutics and Vertex entered a joint development and commercialization agreement for CTX001. They share net profits and losses equally; CRISPR is responsible for U.S. commercialization and Vertex for commercialization outside the United States. Either party may opt out at specified development points, and Vertex may terminate for convenience.
- The company submitted European clinical trial applications for CTX001 in beta-thalassemia in December 2017. The filing, dated March 8, 2018, reports subsequent approval of one CTA in March 2018 and anticipated trial initiation in Europe during 2018. It also anticipated filing a U.S. IND for CTX001 in sickle cell disease in the first half of 2018.
- Management planned to file an IND for CTX101, an allogeneic CD19 CAR-T candidate, by the end of 2018, subject to preclinical and regulatory progress. Other programs, including BCMA- and CD70-directed cell therapies and in vivo liver, muscle, and lung programs, remained earlier stage.
- CRISPR Therapeutics held a 50% interest in Casebia, its joint venture with Bayer. Bayer had committed up to $300 million in funding to Casebia, subject to contractual conditions; CRISPR stated it had no obligation to provide additional funding and would not be diluted by Bayer’s committed contributions.
- The filing describes substantial development uncertainty: no gene-editing product had been approved in the United States or European Union, human safety and durability were unproven, and off-target edits, immune reactions, manufacturing challenges, regulatory delays, patient recruitment, reimbursement, and competition could impede development.
- Intellectual-property rights are a significant contingency. The PTAB dismissed a U.S. interference involving the Charpentier-licensed patent application in February 2017; the Senior Party appealed. Patent challenges and oppositions remained ongoing. The foundational rights are jointly owned, and the company’s license from one co-owner may limit exclusivity and enforcement rights.
- The company expected to adopt the new revenue standard (ASC 606) on January 1, 2018 using the modified retrospective method. It was still finalizing the impact and said allocation of collaboration consideration could change, potentially materially affecting financial statements.
- The company reported effective disclosure controls and internal control over financial reporting as of year-end; the auditor did not attest to internal-control effectiveness because of the company’s emerging-growth-company exemption.
Key facts investors should verify
- Whether CTX001 clinical studies began on schedule and what human safety, efficacy, durability, and cell-editing data show.
- Actual cash burn and runway against management’s 24-month estimate, including the effect of clinical-trial spending and the January 2018 equity issuance.
- How much of reported collaboration revenue is nonrecurring license recognition versus continuing research-service revenue, and the subsequent ASC 606 accounting impact.
- Vertex and Casebia funding, governance, termination, opt-out, and commercialization terms, including any changes in partners’ commitments or program responsibilities.
- Developments in the U.S. patent appeal and other CRISPR patent challenges, and their potential effect on freedom to operate, patent protection, and licensing costs.
- Lease and other contractual commitments, future financing needs, and whether additional equity or collaboration funding could dilute shareholders or require concessions.