CRISPR Therapeutics AG — 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. The filing also reports fourth-quarter results. Amounts below are in U.S. dollars unless noted.
Business context
CRISPR Therapeutics is a clinical-stage gene-editing company with no approved products and no product-sales revenue. Its lead candidate, CTX001, is being developed with Vertex for transfusion-dependent beta thalassemia (TDT) and severe sickle cell disease (SCD). Other programs include allogeneic CAR-T candidates CTX110, CTX120 and CTX130, plus regenerative-medicine and in-vivo gene-editing research.
Financial performance and liquidity
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Collaboration revenue | $3.1 million | $41.0 million |
| Research and development expense | $113.8 million | $69.8 million |
| General and administrative expense | $48.3 million | $35.8 million |
| Operating loss | $158.9 million | $64.6 million |
| Net loss | $165.0 million | $68.4 million |
| Net loss per share, basic and diluted | $3.44 | $1.71 |
| Cash and cash equivalents at year-end | $456.6 million | $239.8 million |
| Working capital at year-end | $438.6 million | $233.9 million |
| Net cash used in operating activities | $96.2 million | $70.1 million |
Fourth-quarter 2018 collaboration revenue was $0.1 million, operating expenses were $45.3 million and net loss was $47.6 million. The company reported $2.8 million of investing cash outflow, primarily for property and equipment, and $315.9 million of financing cash inflow in 2018, mainly from share issuances and option exercises. No debt balance was reported at year-end; prior convertible loans had converted in 2016. With $3.2 million of restricted cash, cash, cash equivalents and restricted cash totaled $459.8 million.
The company has no product-sales margins to assess; collaboration revenue is its only reported revenue source. Management said year-end cash was expected to fund its current operating plan for at least 24 months, excluding potential additional collaboration proceeds or future financings. It also cautioned that the estimate depends on assumptions and cash could be used sooner than expected.
Material changes versus the prior period
- Revenue fell $37.9 million year over year. The main factor was $30.3 million of license revenue recognized in 2017 under the Vertex collaboration, along with lower Vertex research-service revenue.
- R&D expense increased $44.0 million, reflecting the ViaCyte collaboration, higher research and licensing costs, compensation, stock-based compensation and facilities costs.
- G&A expense increased $12.4 million, primarily from stock-based compensation, intellectual-property costs and employee costs.
- Net loss widened by $96.6 million. The 2018 result also included higher equity-method investment losses and a ViaCyte-related fair-value expense.
- The company raised $122.6 million net in a January share offering and $187.6 million net in a September offering. It also established a $125 million at-the-market facility but had made no sales under it by year-end.
Outlook, developments and risks
- CTX001: The first TDT patient had been treated in a Phase 1/2 trial. The first SCD patient had been enrolled; the FDA lifted its clinical hold and accepted the IND in October 2018, and CTX001 received Fast Track designation for SCD.
- Partnerships: CTX001 development and commercialization costs and net profits or losses are shared equally with Vertex. CRISPR and Bayer each own 50% of Casebia; Bayer committed up to $300 million to fund the venture, subject to agreement terms. In September 2018, CRISPR entered a diabetes-focused research collaboration with ViaCyte and issued shares and cash totaling $16.2 million in consideration.
- Pipeline evidence: The company reported promising preclinical findings for CTX001 and its CAR-T candidates, but these are not clinical efficacy results and may not predict later outcomes.
- Key risks: Clinical, regulatory, manufacturing and long-term safety uncertainties for a new gene-editing platform; potential off-target effects; dependence on third-party manufacturers and collaborators; need for additional capital after the stated runway; competition; reimbursement and pricing uncertainty; and material patent ownership, validity and freedom-to-operate disputes.
- IP proceedings: In September 2018, the Federal Circuit affirmed termination of the U.S. interference proceeding without determining priority of invention. European oppositions to in-licensed patents remained pending; outcomes could affect patent scope or enforceability.
- Accounting and controls: CRISPR adopted ASC 606 in 2018, making reported 2018 and 2017 collaboration revenue not directly comparable. Management and the auditor concluded internal control over financial reporting was effective; the financial-statement audit opinion was unqualified.
Important facts for investors to verify
- Current CTX001 enrollment, safety findings, clinical outcomes and trial timelines in both TDT and SCD.
- Cash consumption against the stated 24-month runway, and the timing and terms of any further financing.
- How collaboration funding, shared CTX001 costs and any future milestones affect reported revenue, expenses and cash flows.
- Developments in CRISPR patent oppositions, licensing rights and potential third-party claims.
- Whether 2018 revenue comparisons are evaluated on a consistent accounting basis following adoption of ASC 606.