CRISPR Therapeutics AG — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Unaudited consolidated results; amounts below are in U.S. dollars unless stated otherwise. The company develops CRISPR/Cas9 gene-editing therapies and had no product-sales revenue.
Financial results and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Collaboration revenue | $211.9m | $0.6m | $212.6m | $3.0m |
| Research and development expense | $57.2m | $39.8m | $130.6m | $85.0m |
| General and administrative expense | $15.5m | $10.2m | $46.2m | $31.8m |
| Net income (loss) | $138.4m | $(50.7)m | $36.3m | $(117.4)m |
| Basic EPS | $2.52 | $(1.07) | $0.68 | $(2.51) |
- Q3 operating income was $139.2m, versus an operating loss of $49.4m in Q3 2018. The sharp improvement primarily reflects recognition of Vertex collaboration revenue, not product sales. Q3 operating margin was approximately 65.7%, elevated by this collaboration revenue.
- Cash and cash equivalents were $629.7m at September 30, 2019, up from $456.6m at December 31, 2018; restricted cash was another $3.9m. Total assets were $720.6m and shareholders’ equity was $591.9m.
- Nine-month operating cash flow was positive $53.3m, compared with negative $67.9m in 2018. Investing cash outflow was $5.7m; financing cash inflow was $126.3m, including $121.9m net proceeds from the 2018 at-the-market offering. Cash, cash equivalents and restricted cash increased $173.8m.
- No conventional debt balance is reported. Operating lease liabilities totaled $41.6m, of which $4.8m was current. Current assets were $664.1m and current liabilities $79.8m.
Material changes and business developments
- Vertex-related collaboration revenue drove the period’s reported profit: the company recognized $211.9m under Vertex agreements in Q3. The 2019 agreement included a $175m nonrefundable upfront payment and a $25m research milestone included in the transaction price. The filing states that most other potential milestone and royalty consideration remained constrained.
- Operating expenses increased year over year. Nine-month R&D rose $45.6m, primarily from higher personnel, variable development, professional and facility costs; G&A rose $14.5m, including personnel, legal and intellectual-property costs.
- Vertex exercised options in October 2019 for three additional targets, including CFTR and two undisclosed targets. CRISPR Therapeutics expected $30m in option payments in Q4 and reported potential milestone payments of up to $410m per target, plus royalties. The filing separately describes the agreement’s potential payments and terms; these are contingent, not assured revenue.
- The company and Bayer announced proposed plans for Casebia to operate under CRISPR Therapeutics’ direct management, subject to definitive agreements and closing conditions. Management anticipated closing in Q4 2019.
- Development programs included CTX001 trials in transfusion-dependent beta thalassemia and severe sickle cell disease, and a Phase 1/2 trial of CTX110 for CD19-positive malignancies. CTX001 had FDA Fast Track designation for both indications; the EMA committee issued a positive opinion for orphan designation for TDT.
Outlook, risks and contingencies
- Management said existing cash was expected to fund operating expenses and capital expenditures for at least 24 months, excluding additional Vertex or Bayer proceeds and future capital raising. The estimate depends on assumptions and cash could be used sooner.
- The company expected R&D and operating losses to increase as programs advance; it had an accumulated deficit of $255.3m and no product revenue. It may need future equity, debt or collaboration funding, with potential dilution or concessions of rights.
- Key risks include clinical safety and efficacy, trial enrollment and outcomes, regulatory approvals, manufacturing, intellectual-property protection, competition, and acceptance and commercialization of any approved therapies.
- A PTAB patent interference proceeding involves CVC Group and Broad patents and applications covering CRISPR/Cas9 editing in eukaryotic cells. The company licenses Dr. Charpentier’s rights in the CVC portfolio; the outcome is uncertain.
- Research-agreement commitments included $1.4m for Q4 2019 and $2.3m for 2020. The company reported no legal proceedings expected to have significant effects on its financial position. It had $2.2m of prepaid manufacturing-service payments.
Important facts for investors to verify
- How much of reported revenue and earnings reflects the one-time recognition of Vertex collaboration licenses and other nonrecurring items, versus ongoing services or future performance obligations.
- Whether the October 2019 Vertex option payments were received and how the three target licenses affect future milestones, royalties and development responsibilities.
- Whether the proposed Casebia transaction closed, and its final governance, funding and Bayer opt-in terms.
- Updated clinical data, enrollment, safety and regulatory milestones for CTX001 and CTX110, and any changes to development timelines or cash runway.
- Developments in the CRISPR patent interference and any resulting effect on the company’s licensed intellectual-property position.