CRISPR Therapeutics AG — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Amounts are in U.S. dollars; financial statement figures below are in millions unless noted. The company is a clinical-stage gene-editing business and reported no product sales.
Business context and pipeline
CRISPR Therapeutics is developing CRISPR/Cas9-based therapies across hemoglobinopathies, oncology, regenerative medicine and rare diseases. Its lead program, CTX001 for transfusion-dependent beta thalassemia and severe sickle cell disease, is co-developed with Vertex. CTX110 and CTX120 were in Phase 1 trials; CTX130 was also in development. The company reported that its CTX001 trials remained open for enrollment, but no additional patients were then scheduled for dosing because healthcare resources were constrained by COVID-19.
Financial results and liquidity
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Collaboration revenue | $0.157 | $0.328 |
| Research and development expense | $54.2 | $33.8 |
| General and administrative expense | $19.6 | $14.9 |
| Total operating expenses | $73.7 | $48.8 |
| Loss from operations | $(73.6) | $(48.4) |
| Other income, net | $4.2 | $0.1 |
| Net loss | $(69.7) | $(48.4) |
| Basic and diluted loss per share | $(1.15) | $(0.93) |
| Net cash used in operating activities | $(52.2) | $(43.7) |
Revenue was immaterial and entirely collaboration-based; there were no product sales, so a product gross margin is not applicable. Operating expenses rose 51% year over year, with R&D increasing 60% and G&A increasing 31%. Management attributed the R&D increase mainly to compensation and headcount, facility costs, variable R&D costs and license fees. The company said higher other income primarily reflected interest earned on cash.
At March 31, cash and cash equivalents were $889.7, versus $943.8 at December 31, 2019; restricted cash was $5.0. Current assets were $929.3 and current liabilities $55.1. Total liabilities were $121.2, including operating lease liabilities; the filing presents no borrowings or other debt balance. Cash, cash equivalents and restricted cash decreased $54.1 during the quarter. Investing activities used $3.0, primarily for property and equipment; financing provided $1.1, mainly from option exercises. The company had an accumulated deficit of $294.4.
Management estimated that existing cash would fund operating expenses and capital expenditures for at least 24 months, excluding potential additional Vertex payments and future capital raises. This estimate depends on assumptions and cash could be used sooner than expected. A $25.0 Vertex milestone was earned in Q1, recorded as a receivable at March 31 and received in April 2020.
Material changes, outlook and risks
- Net loss increased $21.3 year over year, while operating cash use rose $8.4. Expense growth reflected expanded clinical and preclinical activity and increased staffing.
- COVID-19 disrupted clinical operations and supply chains. In addition to the CTX001 dosing constraints, investigators could be reluctant to dose oncology patients in inpatient settings. Suppliers and manufacturers had paused or delayed some services; trial enrollment, monitoring, manufacturing and regulatory timelines could also be affected. The ultimate impact was uncertain.
- The company expected significant operating losses and rising R&D and G&A costs for the foreseeable future. It may need additional financing; equity issuance could dilute shareholders, while collaboration financing could require relinquishing valuable rights. Management noted volatile markets could make fundraising difficult or unfavorable.
- Vertex collaboration consideration includes potential development, regulatory and commercial milestones and royalties, most of which remained constrained from revenue recognition as of quarter-end. The $25.0 milestone received in April was the first milestone under the 2019 collaboration agreement.
- Under the Bayer option agreement, Bayer could elect to co-develop and co-commercialize certain products. CRISPR reported a $1.9 benefit to R&D expense in Q1 for qualifying costs under the agreement.
- Commitments include a planned clinical manufacturing lease expected to commence in the second half of 2020, with a $2.6 upfront payment and approximately $3.7 in annual rent for five years, shared equally with a partner. The company reported no material pending legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether COVID-19-related limits on CTX001 dosing, oncology trial activity, manufacturing and supply availability continued or affected development timelines.
- Progress and safety/efficacy data from CTX001, CTX110, CTX120 and CTX130, and any changes to trial enrollment or plans.
- Cash burn relative to the stated 24-month runway, including the timing and amount of future Vertex payments and any financing needs.
- Recognition and collection of collaboration milestones, and the conditions, timing and economics of remaining Vertex and Bayer options, milestones and royalties.
- Changes in operating costs, lease commitments and share dilution, including use of the $200 million 2019 at-the-market offering, under which no shares had been sold as of March 31, 2020.