CRISPR Therapeutics AG — Q1 2017 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2017, compared with Q1 2016. The company is a preclinical gene-editing biotechnology business; it reported no product sales, and all revenue to date came from collaborations.
Financial results and liquidity
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Collaboration revenue | $2.7 million | $0.5 million |
| Research and development expense | $14.8 million | $6.0 million |
| General and administrative expense | $8.6 million | $6.1 million |
| Operating loss | $20.7 million | $11.7 million |
| Net loss | $21.5 million | $8.4 million |
| Net loss per share, basic and diluted | $0.54 | $1.53 |
| Cash used in operating activities | $23.4 million | $10.0 million |
At March 31, 2017, cash was $288.9 million, down from $315.5 million at December 31, 2016. Current assets were $296.5 million versus current liabilities of $16.9 million. The company reported total liabilities of $107.2 million, including $78.3 million of deferred revenue; no outstanding borrowings were shown on the balance sheet. Capital expenditures were $3.3 million. The filing gives no positive operating or net margin; the company remains loss-making.
Changes and management commentary
- Revenue rose $2.2 million year over year, reflecting increased Vertex collaboration services and $1.2 million of Casebia collaboration revenue.
- R&D expense increased $8.8 million, primarily due to platform and process development, expanded facilities, employee costs, and stock-based compensation. G&A expense increased $2.5 million, mainly from personnel, stock compensation, facilities, and professional costs.
- Net loss widened by $13.0 million. Q1 2016 included a $11.5 million gain on extinguishment of convertible loans and $8.1 million of interest expense; Q1 2017 included a $0.4 million equity-method investment loss.
- Management expects cash on hand, together with IPO and concurrent private-placement proceeds, to fund the current operating plan for at least 24 months. It expects operating expenses and capital expenditures to increase as programs advance, facilities are outfitted, and clinical-trial preparation begins. Profitability and product revenue remain uncertain.
- The company expects continued development of its hemoglobinopathy programs, including beta thalassemia and sickle cell disease, but gave no specific financial guidance.
Risks, contingencies, and unusual items
- The company requires substantial additional capital beyond its estimated runway; future financing may dilute shareholders or require granting rights to technology or candidates.
- A patent interference involving CRISPR/Cas9 intellectual property was dismissed by the PTAB in February 2017. The Regents of the University of California appealed in April 2017; the filing says a final determination may take years. The company shares certain patent prosecution and defense costs.
- Management cited typical biotechnology risks, including preclinical and clinical failure, regulatory approval, manufacturing scale-up, intellectual-property protection, competition, and commercialization. The filing reported no material changes to previously disclosed risk factors and no other pending legal matter management believed likely to have a material adverse effect.
- Cash-flow use increased year over year; 2016 cash flows included substantial financing and investing transactions that did not recur in Q1 2017. The company reported no off-balance-sheet arrangements and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether the stated 24-month cash runway remains valid as R&D spending, facility costs, and clinical preparation increase.
- Progress and spending obligations under Vertex and Casebia collaborations, including potential milestone or other payments; no Vertex milestone or royalty payments had been received by the filing date.
- Developments in the patent appeal and any resulting impact on licensed intellectual property, costs, or program rights.
- Timing, costs, and clinical readiness of the hemoglobinopathy programs, and the need and terms for future financing.