CRISPR Therapeutics AG — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017. Unaudited U.S. GAAP financial statements; amounts below are in U.S. dollars. The company is a clinical-stage gene-editing business focused on CRISPR/Cas9 therapeutics and had no product-sale revenue.
Financial performance and position
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Collaboration revenue | $2.4 million | $1.5 million | $8.7 million | $2.8 million |
| Research and development expense | $17.8 million | $12.1 million | $49.8 million | $26.7 million |
| General and administrative expense | $8.1 million | $4.1 million | $24.5 million | $19.0 million |
| Net loss | $24.7 million | $14.7 million | $68.5 million | $40.3 million |
| Net loss per share, basic and diluted | $0.62 | $2.77 | $1.72 | $7.43 |
- Cash and liquidity: Cash was $253.5 million at September 30, 2017, down $62.0 million from $315.5 million at year-end 2016. Current assets were $258.6 million and current liabilities $12.1 million. The company reported $3.2 million in restricted cash separately.
- Cash flow: For the first nine months, operating activities used $55.3 million; investing activities used $8.1 million, primarily for property and equipment; financing activities provided $1.3 million, mainly from option exercises. Cash used in operations increased from $35.9 million in the comparable 2016 period.
- Debt and liabilities: No outstanding borrowings are reported at September 30, 2017. Total liabilities were $103.4 million, including $79.7 million of deferred revenue, principally related to Vertex collaboration payments; deferred revenue is not debt.
- Margins: The company remains loss-making and reports no product revenue; conventional product gross-margin comparisons are not meaningful from the filing data.
Material changes versus prior periods
- Nine-month collaboration revenue rose $5.9 million, reflecting increased research and development service revenue from Vertex and Casebia. Revenue remains entirely collaboration-based.
- Nine-month operating expenses increased $28.7 million. Management attributed R&D growth chiefly to toxicology and other program costs, employee costs, stock-based compensation, and the new research facility. G&A growth reflected staffing, facility, and stock-compensation costs.
- Nine-month net loss widened by $28.2 million. Other income of $2.6 million in 2016 became net other expense of $1.5 million in 2017; the prior period included an $11.5 million gain on extinguishment of a convertible loan and $8.1 million of interest expense.
- Loss per share is not directly comparable without considering the share-count change: nine-month weighted-average shares increased to 39.9 million from 5.4 million, following the company’s 2016 IPO and related share issuances.
Outlook, commentary, and risks
- Management expected existing cash and IPO proceeds to fund the current operating plan for at least 24 months from the reporting date, excluding potential additional collaboration or joint-venture proceeds. The estimate depends on assumptions and cash could be used sooner.
- Management expects operating expenses and losses to increase as research and preclinical programs advance, including preparation to initiate clinical trials for the hemoglobinopathy program targeting beta thalassemia and sickle cell disease. Timing and cost of development are uncertain.
- Vertex and Casebia provide collaboration-related funding opportunities, but the company had received no Vertex milestone or royalty payments as of September 30, 2017. Bayer’s commitment to invest up to $300 million in Casebia over five years is subject to specified conditions.
- Key risks include clinical and regulatory uncertainty, financing needs, commercialization and manufacturing execution, and protection of intellectual property. The company disclosed no material change to the risk factors in its 2016 Form 10-K.
- A California appeal of the PTAB’s dismissal of a CRISPR patent interference was pending before the Federal Circuit. The proceeding did not determine inventorship or priority, and the company noted that further patent proceedings or challenges may occur. Shared patent-related costs were $1.1 million for the first nine months of 2017.
- The company has foreign-exchange exposure, primarily to the Swiss franc and British pound, and does not hedge currency risk. Management reported disclosure controls and procedures were effective at the reasonable-assurance level; no material change in internal control was reported.
Important facts for investors to verify
- Whether cash burn and planned R&D spending remain consistent with management’s stated minimum 24-month runway.
- Progress, timelines, and costs for the hemoglobinopathy program and other preclinical-to-clinical transitions.
- Collaboration revenue, deferred revenue, and the conditions and timing of potential Vertex or Casebia payments.
- Developments in the CRISPR patent appeal and any associated costs or effects on licensed intellectual property rights.
- Share-based compensation and potential dilution: 5.8 million options were outstanding at September 30, 2017, in addition to other conditional share capital.