CRISPR Therapeutics AG — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Amounts below are in U.S. dollars; financial statement figures are converted from thousands to millions where appropriate.
Business context
CRISPR Therapeutics is a gene-editing therapeutics company with clinical and preclinical programs in hemoglobinopathies, oncology, regenerative medicine and rare diseases. Its lead candidate, CTX001, is being co-developed with Vertex for transfusion-dependent beta thalassemia and severe sickle cell disease. The company had no product-sales revenue and expects continued operating losses as it advances research, clinical programs and manufacturing capacity.
Financial performance and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Collaboration revenue | $0.1m | $211.9m | $0.3m | $212.6m |
| Research and development expense | $71.0m | $57.2m | $184.6m | $130.6m |
| General and administrative expense | $21.5m | $15.5m | $62.4m | $46.2m |
| Net income (loss) | $(92.4)m | $138.4m | $(241.8)m | $36.3m |
| Operating cash flow | Not presented by quarter | $(157.2)m | $53.3m |
The sharp year-over-year revenue decline primarily reflects substantial Vertex collaboration revenue recognized in Q3 2019; it is not evidence of a comparable change in product sales. With revenue negligible in 2020, operating margins are not meaningful. Operating expenses increased as the company expanded staffing, research activity and facilities.
At September 30, 2020, cash and cash equivalents were $1.041bn and marketable securities were $324.6m, or approximately $1.366bn combined; restricted cash of $16.8m was additional. Total assets were $1.485bn, total liabilities $141.7m and shareholders’ equity $1.343bn. The filing does not disclose conventional borrowings; reported obligations include operating lease liabilities of $49.2m. Management estimated existing cash would fund operating expenses and capital expenditures for at least 24 months, excluding potential additional collaboration or financing proceeds. That estimate depends on assumptions that may prove incorrect.
Nine-month financing cash flow was $603.5m, including $484.8m net proceeds from a July share offering and $91.9m from the at-the-market program. Investing cash flow was $(336.9)m, primarily reflecting purchases of marketable securities. Cash, cash equivalents and restricted cash increased $109.5m over the nine months.
Material changes and notable items
- Compared with 2019, the company shifted from reported profit to significant losses as prior-period collaboration revenue did not recur; R&D expense rose $54.0m and G&A rose $16.2m over nine months.
- Cash and marketable securities increased substantially, supported by equity issuance. The share count also rose; 70,603,862 shares were outstanding at quarter-end, and 70,652,429 at October 23, 2020.
- New facility commitments include at least $40.2m in rent over 15 years for a Framingham manufacturing facility and at least $292.5m over 152 months for a Boston office and laboratory lease. A separate clinical manufacturing lease calls for $3.7m annual rent for five years, split equally with a partner.
- Vertex paid a $25m milestone in April 2020 after achievement of a research milestone. Other potential development, regulatory and commercial milestones and royalties remain contingent and, as of September 30, 2020, were generally constrained from revenue recognition.
Outlook, risks and contingencies
- Management expects significant increases in R&D and G&A spending and operating losses for the foreseeable future; it does not expect to sustain 2019 profitability.
- COVID-19 could disrupt trial enrollment or dosing, clinical sites, regulatory review, suppliers and manufacturing. Management said the ultimate business impact remained uncertain.
- Clinical success, regulatory approval, scalable manufacturing, market acceptance, intellectual property protection and continued access to capital are significant uncertainties. Further equity financing could dilute shareholders; collaboration financing could require relinquishing rights.
- The company reported no pending legal matter it believed likely to have a material adverse effect. In September 2020, the Patent Trial and Appeal Board affirmed denial of the CVC Group’s benefit claim to two early provisional applications in the disclosed ‘115 interference; the CVC Group remained the junior party for determining priority.
- Potential future payments under collaboration and license agreements depend on specified events; the filing does not present these contingent amounts as current liabilities. No off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Subsequent clinical updates and timelines for CTX001 and the CTX110, CTX120 and CTX130 programs; the filing notes initial CTX110 top-line data were released in October 2020, after quarter-end.
- Whether actual cash burn and capital expenditures remain consistent with management’s stated minimum 24-month runway, including the cost and timing of facility commitments.
- Future financing needs, equity dilution and remaining capacity under the at-the-market offering.
- Progress toward Vertex milestones, the terms and economics of collaborations, and the timing and variability of collaboration revenue.
- Developments in the ‘115 patent interference and any other intellectual-property matters, alongside potential COVID-19 effects on clinical and manufacturing operations.