CRISPR Therapeutics AG — Q2 2020 Form 10-Q
Business context and period: Unaudited results for the three and six months ended June 30, 2020, compared with the same 2019 periods. The company is a clinical-stage gene-editing biotechnology business with no product-sales revenue; its programs include CTX001, CTX110, CTX120 and CTX130.
Financial performance and liquidity
Amounts below are in U.S. dollars; financial statement amounts are rounded to millions.
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Collaboration revenue | $0.04M | $0.32M | $0.20M | $0.65M |
| Research and development expense | $59.4M | $39.5M | $113.6M | $73.4M |
| General and administrative expense | $21.4M | $15.8M | $40.9M | $30.7M |
| Net loss | $79.7M | $53.7M | $149.4M | $102.1M |
| Basic and diluted loss per share | $1.30 | $1.01 | $2.44 | $1.94 |
| Cash used in operating activities | — | $81.5M | $80.1M |
- At June 30, cash and cash equivalents were $945.1M; restricted cash was $6.3M. Total assets were $1,046.5M, total liabilities $135.9M, and shareholders’ equity $910.7M. Accumulated deficit was $374.1M.
- Operating expenses rose substantially year over year. Management attributed the six-month R&D increase mainly to higher headcount and compensation, variable research costs, and facility costs. G&A growth primarily reflected headcount and facility costs.
- Operating cash use was broadly similar to 2019. Investing used $6.6M, mainly for property and equipment; financing provided $90.6M, including $83.0M net proceeds from ATM share sales and $7.6M from option exercises. Cash, cash equivalents and restricted cash increased $2.6M in the first half.
- The balance sheet reports no conventional borrowings. Lease liabilities were $50.2M in total; additional lease commitments are described below.
- Operating margins are not meaningful for this pre-revenue company; collaboration revenue was immaterial relative to operating expenses.
Material changes and notable items
- Q2 net loss increased to $79.7M from $53.7M; first-half net loss increased to $149.4M from $102.1M. First-half revenue declined while R&D and G&A spending increased.
- Vertex paid a $25.0M research milestone in April 2020. The milestone had been included in the collaboration transaction price; recognized collaboration revenue remained immaterial. Vertex reimbursements reduced reported R&D expense by $11.0M for the first half.
- In July 2020, after quarter-end, the company raised $484.8M net from an underwritten offering of 7.4M shares at $70 per share. This increased liquidity but diluted shareholders.
- The company reported a $10.5M letter of credit related to its new Boston lease. The company also entered a Framingham manufacturing-facility lease with at least $40.2M of rent over 15 years, expected to commence in the second half of 2020. The July 2020 Boston office and laboratory lease covers approximately 263,500 square feet, with at least $292.5M of rent over 152 months; rent was expected to begin no earlier than late 2022. These commitments are not fully reflected as lease liabilities until commencement.
Outlook, commentary and risks
- Management expected June 30 cash to fund operating expenses and capital expenditures for at least 24 months, excluding future Vertex proceeds and additional financings. This estimate depends on assumptions and cash could be used sooner than expected. The company expects significant losses and rising expenses for the next several years.
- CTX001 patient dosing in the Phase 1/2 beta-thalassemia and sickle-cell trials had recently restarted after pandemic disruption. Management cautioned that renewed COVID-19 disruption could again delay or pause dosing, enrollment, site activity, supply, laboratory work or regulatory review. Immuno-oncology trials could also be affected by inpatient treatment concerns.
- June 2020 CTX001 updates included 15-month follow-up for the first beta-thalassemia patient and nine-month follow-up for the first severe sickle-cell patient, plus preliminary data for a second beta-thalassemia patient. The filing describes these as preliminary clinical observations, not proof of safety or efficacy.
- Key development risks include clinical safety and efficacy, trial execution, regulatory approvals, manufacturing scale-up, third-party supply and CRO dependence, intellectual-property protection, competition, and the need for future financing. Management warned that equity or collaboration financing may be dilutive or require concessions of valuable rights.
- The company committed to $3.7M in annual payments to a clinical manufacturing organization for five years after lease commencement, split equally with a partner. It disclosed no material pending litigation and no off-balance-sheet arrangements at June 30.
Most important facts for investors to verify
- Whether the reported CTX001 follow-up results are sustained as patient numbers and follow-up duration increase, and whether the trials progress without further COVID-19 disruption.
- Whether the 24-month cash-runway estimate remains applicable after the July share offering, ongoing spending growth, capital expenditures and new lease obligations.
- The timing and amount of future Vertex milestones, reimbursements and other collaboration cash flows; most remaining milestone consideration was constrained and contingent.
- The financial and operational impact of the Framingham manufacturing lease and Boston headquarters lease, including commencement dates, rent escalations and facility build-out costs.
- Future share dilution from equity compensation and financing, and the development, manufacturing and regulatory risks affecting the company’s clinical-stage programs.