CRISPR Therapeutics AG — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. The unaudited consolidated statements are presented in U.S. dollars; financial statement figures below are in millions unless otherwise noted.
Business context and financial performance
CRISPR Therapeutics is a clinical-stage gene-editing company focused on developing CRISPR/Cas9-based medicines. It has no product sales; reported revenue to date has come from collaborations. The company expects continued operating losses as it advances research and development, including its hemoglobinopathy program for beta-thalassemia and sickle cell disease.
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Collaboration revenue | $1.36 | $2.70 |
| Research and development expense | $19.52 | $14.81 |
| General and administrative expense | $8.84 | $8.64 |
| Operating loss | $(27.00) | $(20.74) |
| Net loss | $(28.30) | $(21.48) |
| Basic and diluted net loss per share | $(0.62) | $(0.54) |
| Net cash used in operating activities | $(22.69) | $(23.41) |
| Capital expenditures | $(0.56) | $(3.29) |
No gross margin is reported, and an operating margin is not meaningful given the company’s development-stage, collaboration-revenue business. The filing reports no product revenue.
Liquidity, capital and balance sheet
- Cash was $341.8 million at March 31, 2018, versus $239.8 million at December 31, 2017. Cash and restricted cash totaled $344.9 million.
- Current assets were $351.5 million and current liabilities were $14.4 million. Total liabilities were $84.1 million, including $57.9 million of non-current deferred revenue. The filing does not report outstanding borrowings at quarter-end.
- January’s offering of 5.75 million common shares at $22.75 per share generated $122.6 million in net proceeds. Financing cash flow was $125.3 million, including option exercise proceeds.
- Management expects cash on hand to fund its current operating plan for at least 24 months, while cautioning that assumptions may prove incorrect. The company expects to need additional funding thereafter and has no other committed external liquidity source.
Changes versus the prior comparable period
- Revenue fell $1.35 million, principally because more Vertex work was accounted for as cost-sharing research under the December 2017 joint development agreement (JDA), rather than collaboration revenue.
- R&D expense rose $4.71 million, driven primarily by higher variable research costs, employee-related costs and stock-based compensation. G&A expense increased $0.19 million.
- Net loss widened by $6.83 million. Other expense increased, mainly reflecting a larger equity-method investment loss associated with Casebia employee stock compensation.
- Operating cash use declined modestly, while investing cash use was lower. The large year-over-year improvement in cash balance reflected the 2018 share offering.
Comparability is also affected by adoption of ASC 606 on January 1, 2018. The 2018 results use ASC 606, while 2017 results use prior revenue guidance. The company’s ASC 606 comparison table shows Q1 2018 revenue would have been $1.26 million under ASC 605, rather than the reported $1.36 million.
Outlook, agreements and risks
- Under the Vertex JDA, the company and Vertex share R&D costs and worldwide profits or losses for the hemoglobinopathy and beta-globin targets. Vertex paid a $7 million upfront fee and may owe a one-time low-seven-digit milestone upon dosing the second patient in a clinical trial; that milestone was fully constrained and had not been received. Further potential milestones and royalties depend on development and commercial outcomes.
- The company expects expenses and operating losses to increase as it advances programs, conducts preclinical and clinical work, builds capabilities, and supports its public-company operations. It cannot reliably estimate the costs or timing of completing development.
- Casebia is a 50%-owned joint venture with Bayer. The carrying value of CRISPR Therapeutics’ equity-method investment was zero at quarter-end; unrecognized equity-method losses were $26.8 million. Casebia reported Q1 operating expenses of $12.5 million and net loss of $12.3 million.
- Risks include clinical and preclinical failure, regulatory approval and manufacturing challenges, funding needs, competition, and intellectual-property protection. A patent interference-related appeal by the University of California was heard by the Federal Circuit on April 30, 2018; the filing expected a decision after the hearing and noted that final resolution could take years.
- The company reported foreign-exchange exposure, primarily to the Swiss franc and British pound, and said it does not hedge these exposures. Management stated that disclosure controls were effective and that there were no material changes in internal control over financial reporting.
Key facts for investors to verify
- Cash burn against management’s stated at-least-24-month runway, and the assumptions behind that estimate.
- Clinical, regulatory and safety progress for the hemoglobinopathy program and CTX001, including whether Vertex milestone conditions are met.
- How collaboration revenue and cost-sharing are reported under ASC 606 and the JDA, including the limited comparability with 2017.
- Future financing requirements, potential shareholder dilution and any changes to collaboration or partnership funding.
- Developments in the CRISPR patent appeal and any other challenges to the company’s licensed intellectual property.