Business context and reporting period
CRISPR Therapeutics AG filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2017. The company is developing CRISPR/Cas9-based gene-editing medicines and remains focused on research and preclinical development; it reported no product sales. Its most advanced programs target beta thalassemia and sickle cell disease.
Financial results and liquidity
Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions.
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Collaboration revenue | $3.6 million | $0.8 million | $6.3 million | $1.3 million |
| Research and development expense | $17.1 million | $8.6 million | $31.9 million | $14.6 million |
| General and administrative expense | $7.8 million | $8.8 million | $16.4 million | $14.9 million |
| Operating loss | $21.3 million | $16.6 million | $42.1 million | $28.2 million |
| Net loss | $22.3 million | $17.2 million | $43.8 million | $25.6 million |
| Net loss per share | $0.56 | $3.15 | $1.10 | $4.66 |
For the first half of 2017, operating cash used was $39.4 million, investing cash used was $4.6 million, and financing cash provided was $0.7 million. Cash declined by $43.3 million to $272.3 million from December 31, 2016. At quarter-end, current assets were $281.3 million and current liabilities were $15.8 million; total liabilities were $107.2 million, including $79.2 million of deferred revenue. The balance sheet reports no outstanding borrowings. Management said cash was expected to fund the current operating plan for at least 24 months; approximately $269.0 million of cash was held outside the United States.
Material changes versus the prior comparable period
- First-half collaboration revenue rose $5.0 million, reflecting higher research and development service revenue from Vertex ($2.4 million increase) and Casebia ($2.6 million increase).
- First-half research and development expense increased $17.3 million, mainly due to facility costs, toxicology and other program costs, employee-related costs, and stock-based compensation.
- First-half net loss widened by $18.2 million. Besides higher operating costs, other income in the 2016 period included an $11.5 million gain on extinguishment of convertible loans; 2016 also included $8.0 million of loan interest expense.
- First-half operating cash use increased $15.8 million year over year. Financing cash inflow was much lower than in 2016, when preferred-share and convertible-loan proceeds were received.
Outlook, commentary, risks and unusual items
- Management expects operating and research and development expenses to increase as programs advance, preclinical work continues, clinical trials are initiated, and public-company costs grow. The filing gives no revenue or earnings guidance and says profitability depends on successful development, approvals, manufacturing, commercialization, and other factors.
- The company expects to need additional capital after its stated cash runway. Further financing may dilute shareholders or require concessions in collaborations; no committed external liquidity source beyond collaboration-related arrangements was identified.
- Vertex and Bayer HealthCare’s 50%-owned Casebia are key collaborators. Bayer committed to provide up to $300 million in Casebia research and development investment over five years, subject to specified conditions. The company’s Casebia equity-method investment had a zero carrying value; unrecognized losses beyond the investment were $10.8 million at June 30, 2017.
- A University of California appeal challenges the PTAB’s dismissal of a patent interference involving CRISPR/Cas9 intellectual property. The filing says a final determination could take years and further proceedings or patent challenges are possible.
- The April 2017 StrideBio agreement included a $0.5 million upfront payment, a $0.3 million milestone already achieved, and up to $3.0 million in additional research milestone payments. A contingent $0.5 million convertible note was signed August 1, 2017, after quarter-end.
- Foreign-exchange exposure, primarily to the Swiss franc and British pound, is not hedged. The company reported no material change to previously disclosed risk factors and no material pending claims likely, in management’s view, to adversely affect the business.
- Disclosure controls were assessed as effective at a reasonable-assurance level. The company implemented a new ERP accounting system during the quarter and incorporated related controls.
Important facts for investors to verify
- Whether cash use and spending growth remain consistent with management’s stated at-least-24-month runway and planned clinical development pace.
- Progress and costs of the hemoglobinopathy programs, including preclinical work and the timing of clinical-trial initiation.
- Future collaboration revenue, payment conditions, and the scope of Bayer’s conditional Casebia funding commitment.
- Potential dilution from outstanding options and other conditional share capital; 5.6 million options were outstanding at June 30, 2017.
- Developments in the patent appeal and any resulting effects on intellectual-property rights, costs, or licenses.
- The eventual accounting impact of adopting the new revenue-recognition standard, which the company planned to adopt in 2018 and was still assessing.