CRISPR Therapeutics AG — Q3 2018 Form 10-Q
Reporting period: Three and nine months ended September 30, 2018. The company develops CRISPR/Cas9 gene-editing therapeutics and has not generated product-sales revenue; reported revenue is from collaborations. Amounts below are USD millions unless stated otherwise.
Financial results and liquidity
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Collaboration revenue | $0.6 | $2.4 | $3.0 | $8.7 |
| Research and development expense | $39.8 | $17.8 | $85.0 | $49.8 |
| General and administrative expense | $10.2 | $8.1 | $31.8 | $24.5 |
| Net loss | $50.7 | $24.7 | $117.4 | $68.5 |
| Basic and diluted loss per share | $1.07 | $0.62 | $2.51 | $1.72 |
- Cash was $487.3 million at September 30, 2018; restricted cash was $3.2 million. Current assets were $496.7 million and current liabilities $32.3 million.
- Operating cash use was $67.9 million for the nine months, versus $55.3 million in 2017. Investing cash use was $1.8 million; financing provided $317.2 million, primarily from share offerings. Cash and restricted cash ended at $490.5 million.
- Equity offerings generated net proceeds of $122.6 million in January and $187.6 million in September. The company had no reported long-term borrowings; the filing does not identify material debt financing outstanding.
- Accumulated deficit was $244.0 million. Operating margins are not meaningful in this development-stage business, with collaboration revenue far below operating expenses.
Material changes versus the prior period
- Nine-month net loss widened by $48.9 million year over year as operating expenses rose $42.4 million and collaboration revenue fell $5.7 million. Management attributed lower collaboration revenue mainly to more Vertex research being accounted for through the cost-sharing JDA rather than collaboration revenue.
- R&D expense increased $35.2 million for the nine-month period. Drivers included $15.0 million of ViaCyte-related expense, higher research and license costs, and increased employee and stock-based compensation.
- G&A expense increased $7.2 million for nine months, mainly from stock-based compensation, intellectual-property costs, and employee-related costs.
- 2018 revenue uses ASC 606, while 2017 comparisons use ASC 605. The company disclosed that applying ASC 605 instead would reduce 2018 nine-month revenue by $0.3 million; therefore reported periods are not fully comparable.
Outlook, commentary, and risks
- Management expects cash on hand to fund its current operating plan for at least 24 months from September 30, 2018, excluding potential additional financing and certain collaboration proceeds. The estimate depends on assumptions that may prove incorrect; further funding will eventually be needed.
- The company may sell up to $125 million of shares under an at-the-market agreement; none had been sold under it by September 30. Future equity financing could dilute shareholders.
- CTX001 was being studied for beta-thalassemia and sickle cell disease. The FDA had placed the U.S. sickle-cell IND on clinical hold in May; the hold was lifted and the IND accepted on October 10, 2018, after the quarter-end. A Phase 1/2 beta-thalassemia trial was enrolling in Europe.
- A new ViaCyte collaboration for gene-edited stem-cell therapies for diabetes required a $15 million upfront payment, recorded as R&D expense. At quarter-end, $7.6 million was recorded as a liability; subsequent share sales led the company to report an $8.1 million remaining amount due and an additional $0.5 million subsequent-period loss.
- Key risks include clinical and regulatory uncertainty, future financing needs, manufacturing and commercialization challenges, and dependence on intellectual-property rights. The Federal Circuit affirmed termination of the U.S. patent interference on September 10, 2018, but European opposition proceedings and potential future patent challenges remain unresolved. Management could not estimate any loss range.
- Casebia, the 50%-owned joint venture, had a zero carrying value for the company’s equity-method investment; unrecognized equity-method losses were $38.8 million at September 30.
Important facts for investors to verify
- Whether clinical progress, enrollment, and regulatory milestones for CTX001 proceed as planned, including the status of U.S. sickle-cell development following the hold’s removal.
- Whether the stated 24-month cash runway remains supportable as R&D spending rises, and the timing and terms of any additional financing or ATM share sales.
- How collaboration accounting and cost-sharing affect reported revenue and expenses, particularly the comparability of ASC 606 results with 2017.
- The final settlement and accounting for the ViaCyte share-price protection, and the development and funding obligations under that collaboration.
- Developments in European patent opposition proceedings and any further challenges to the company’s CRISPR/Cas9 intellectual property.