CRISPR Therapeutics AG — FY 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016; the filing also reports unaudited fourth-quarter results. The Swiss gene-editing company was early-stage, with no approved products and no product sales. Its programs were in discovery or preclinical development.
Business context and strategy
The company is developing CRISPR/Cas9 medicines using both ex vivo cell editing and in vivo delivery. Its lead programs target beta-thalassemia and sickle cell disease, with additional work in Hurler syndrome, RAG1-related SCID, liver disorders, cancer immunotherapy, Duchenne muscular dystrophy and cystic fibrosis. Strategic partners include Vertex and Bayer, through the 50%-owned Casebia joint venture.
Financial highlights
| Metric | FY 2016 | FY 2015 |
|---|---|---|
| Collaboration revenue | $5.2 million | $0.2 million |
| Research and development expense | $42.2 million | $12.6 million |
| General and administrative expense | $31.1 million | $13.4 million |
| Operating loss | $68.1 million | $25.7 million |
| Net loss | $23.2 million | $25.8 million |
| Net loss per common share, basic and diluted | $1.89 | $5.06 |
- FY 2016 revenue came entirely from collaborations; the company reported no product revenue and no Vertex milestone or royalty receipts.
- Despite a substantially wider operating loss, the annual net loss narrowed by $2.6 million, mainly because of $45.4 million of net other income. This included a $78.6 million Casebia-related gain and an $11.5 million gain on extinguishment of Vertex convertible debt, partly offset by $36.5 million of equity-method losses and $8.1 million of interest expense.
- Fourth-quarter revenue was $2.3 million and operating loss was $25.3 million. The quarter reported net income of $17.1 million, or $0.43 basic and $0.40 diluted per share, principally reflecting unusual non-operating items; FY 2016 remained loss-making.
- Cash and cash equivalents were $315.5 million at year-end, versus $156.0 million in 2015; working capital was $298.2 million. Restricted cash was an additional $3.2 million. Total assets were $345.0 million and total liabilities $112.1 million; shareholders’ equity was $232.8 million.
- Operating cash flow was negative $55.3 million, compared with positive $59.4 million in 2015. The prior-year inflow included substantial deferred collaboration funding. Investing activities provided $31.9 million, primarily from the Casebia IP contribution, while financing provided $183.2 million, including IPO and Bayer private-placement proceeds.
- No convertible loan remained outstanding at year-end: the Vertex and Bayer loans converted into preferred shares in January 2016, and the preferred shares converted to common shares at the IPO. The filing reports no year-end funded debt. Operating lease commitments totaled $63.9 million.
Material changes and unusual items
- R&D expense increased $29.7 million year over year, driven by facility costs, research/platform development and employee compensation. G&A increased $17.7 million, including higher employee and IP costs and a $2.0 million shareholder PFIC settlement.
- The October 2016 IPO generated $53.7 million net proceeds; a concurrent Bayer private placement generated $35.0 million. The IPO also converted preferred shares into common shares.
- Casebia was formed as a jointly controlled venture and accounted for under the equity method, not consolidated. Bayer committed up to $300 million of funding over five years, subject to conditions; CRISPR has no obligation to fund Casebia and its 50% interest is not diluted by Bayer’s committed contributions.
- Annual rent expense rose to $4.2 million from $1.3 million, and the company’s facilities and lease commitments expanded substantially as it built out Cambridge laboratory and office space.
Outlook, commentary and risks
- Management estimated that year-end cash and IPO/private-placement proceeds would fund operating expenses and capital expenditures for at least 24 months, without assuming additional proceeds from Vertex or Casebia. Spending was expected to rise as research, preclinical work, facilities and public-company costs expanded.
- The company planned to file a clinical trial application for beta-thalassemia in late 2017 and for sickle cell disease in early 2018, contingent on guide-RNA selection and regulatory review. These were plans, not assured milestones; all product candidates were still preclinical.
- Key risks include uncertain clinical translation and long-term safety of genome editing, off-target effects, delivery and manufacturing challenges, regulatory uncertainty, competition, and dependence on collaborators. CRISPR reported guide-editing efficiency above 90% in preclinical work, but these results do not establish human safety or efficacy.
- Core CRISPR/Cas9 patent rights are jointly owned and licensed from only one co-owner; the company disclosed potential limits on exclusivity and enforcement. In February 2017, the PTAB dismissed the interference involving Broad because the claim sets were not directed to the same patentable invention under its test. Appeals, new proceedings and other patent challenges remained possible.
- Other disclosed exposures include foreign-exchange risk (the company did not hedge), potential expiration of Swiss tax-loss carryforwards, reimbursement uncertainty, and possible future capital needs. Management said it expected continued operating losses for the foreseeable future.
Important facts for investors to verify
- Whether the stated 24-month cash runway remains supported by current spending, facility build-out and updated development plans.
- Progress against the proposed beta-thalassemia and sickle cell clinical filing timelines, including guide selection, preclinical safety, engraftment and regulatory requirements.
- The composition and repeatability of non-operating gains and losses, particularly Casebia accounting, equity-method losses and debt-conversion effects.
- Casebia’s funding conditions, cash needs and governance, and the scope of Vertex’s options, cost-sharing and termination rights.
- Developments in CRISPR/Cas9 patent ownership, licensing consent, freedom to operate and any appeals or new interference or opposition proceedings.
- Future cash burn, lease commitments, collaboration revenue recognition and potential dilution from additional financing or equity awards.