CRISPR Therapeutics AG — Q3 2016 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2016. Amounts below are in U.S. dollars; financial statement amounts are presented in millions unless otherwise noted. The company is a preclinical gene-editing biotechnology business and had no product sales.
Financial performance and position
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Collaboration revenue | $1.5 | $0 | $2.8 | $0 |
| Research and development expense | $12.1 | $3.7 | $26.7 | $6.4 |
| General and administrative expense | $4.1 | $2.5 | $19.0 | $7.2 |
| Operating loss | $(14.6) | $(6.2) | $(42.8) | $(13.6) |
| Net loss | $(14.7) | $(6.4) | $(40.3) | $(13.5) |
| Net loss per common share | $(2.77) | $(1.15) | $(7.43) | $(2.72) |
| Cash used in operating activities | — | — | $(35.9) | $(9.6) |
- Nine-month collaboration revenue comprised approximately $2.4 million from Vertex and $0.4 million from Casebia, the Bayer joint venture. The company reported no milestone or royalty receipts from Vertex.
- At September 30, cash was $228.6 million, versus $156.0 million at December 31, 2015. Total current assets were $231.7 million and current liabilities $78.1 million. Restricted cash was $3.2 million.
- There was no convertible-loan balance at quarter-end: Vertex and Bayer loans had converted into Series B preferred shares in January 2016. Total liabilities were $155.6 million, including $63.6 million of current deferred gain and $76.9 million of deferred revenue. These balances are not conventional borrowings.
- Net cash provided by investing activities was $17.1 million, largely reflecting $20.0 million received for intellectual property contributed to Casebia, partly offset by $2.8 million of capital expenditures. Financing activities provided $91.5 million, primarily from preferred-share and loan-related financing proceeds.
- Shareholders’ deficit was $62.5 million; redeemable preferred shares were presented separately as temporary equity. The filing does not provide a meaningful operating margin for this pre-revenue company.
Changes, transactions and outlook
- Compared with the prior-year periods, nine-month R&D expense rose $20.3 million and G&A expense rose $11.8 million, reflecting hiring, research activity, facilities, intellectual-property costs and public-company preparation. Management expected expenses and operating losses to continue increasing.
- Reported nine-month other income included an $11.5 million gain on extinguishment of convertible loans, offset in part by $8.1 million of interest expense and a $0.7 million equity-method loss related to Casebia. These items materially affected the comparison of net loss with 2015.
- In October 2016, after the reporting date, the company completed its IPO, receiving $54.1 million in net proceeds, and issued shares to Bayer in a concurrent private placement for $35.0 million in net proceeds. Preferred shares converted to common shares; TRACR became wholly owned. The filing states 39,808,801 common shares were outstanding as of November 21, 2016.
- Management believed cash at September 30 plus subsequent IPO and private-placement proceeds would fund its current operating plan for at least 24 months, excluding potential additional collaboration proceeds. This is an estimate based on assumptions; management said additional funding would be required thereafter and was not assured.
- The company expected to begin occupying a new Cambridge office and laboratory facility in 2017. The ten-year lease carries approximately $56.2 million of contractual payments, with an option to extend for five years. Other disclosed commitments include up to $89.0 million in future Anagenesis milestones, contingent on development, regulatory and sales events.
Management commentary and material risks
- All product candidates remained in preclinical development; the company had no approved products or product revenue. It planned to file clinical trial applications for beta-thalassemia in late 2017 and sickle cell disease in early 2018, subject to research progress and regulatory acceptance. These are targets, not assurances.
- A central risk is the U.S. patent interference proceeding involving the company’s licensed Charpentier application and patents/applications owned by the Broad Institute and others. The filing also describes uncertainty over jointly owned foundational IP and the company’s lack of licenses from certain co-owners.
- Other key risks include unproven CRISPR/Cas9 safety and efficacy, off-target effects, regulatory uncertainty for gene-editing therapies, manufacturing and delivery challenges, competition, reliance on Vertex and Bayer, and the need for substantial future capital. The Vertex collaboration gives Vertex significant target and development control; Casebia is jointly controlled.
- The company recorded a $2.0 million PFIC/CFC-related shareholder settlement liability in the quarter; substantially all of the settlement, $1.8 million, was accepted and paid after quarter-end. A maximum $0.2 million remained associated with the unaccepted portion.
- The company disclosed foreign-exchange exposure, primarily to the Swiss franc and British pound, and said it did not hedge currency risk. Management concluded disclosure controls were effective as of September 30, 2016.
Important facts for investors to verify
- Progress and outcomes in the patent interference, patent ownership/consent issues, and any effect on freedom to operate.
- Whether preclinical work supports the stated clinical filing targets, and whether regulators require additional studies or delay trials.
- Cash burn, use of IPO proceeds, and whether the 24-month runway estimate remains valid as research, facility and public-company costs rise.
- Conditions and timing for Bayer’s remaining potential funding and technology-access payments, and the accounting and realization of Casebia-related deferred gain and revenue.
- Post-IPO share count, equity-plan awards and potential dilution, alongside the long-term facility commitment and contingent license milestones.