CRISPR Therapeutics AG — Q2 2018 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2018. Unaudited consolidated financial statements; amounts below are USD millions except per-share data. The company is a gene-editing biotechnology developer with no product sales; all reported revenue was from collaborations.
Financial performance and position
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Collaboration revenue | $1.1 | $3.6 | $2.4 | $6.3 |
| Research and development expense | $25.6 | $17.1 | $45.2 | $31.9 |
| General and administrative expense | $12.7 | $7.8 | $21.6 | $16.4 |
| Operating loss | $(37.3) | $(21.3) | $(64.3) | $(42.1) |
| Net loss | $(38.4) | $(22.3) | $(66.7) | $(43.8) |
| Basic and diluted loss per share | $(0.82) | $(0.56) | $(1.44) | $(1.10) |
- Liquidity: Cash was $319.7 million at June 30, 2018, up from $239.8 million at December 31, 2017. Cash and restricted cash totaled $322.9 million. Current assets were $330.5 million and current liabilities $18.5 million. The company reported no borrowings in the presented balance sheet.
- Cash flow, six months: Operating activities used $47.9 million versus $39.4 million in 2017; investing activities used $1.1 million versus $4.6 million; financing activities provided $129.0 million versus $0.7 million. Financing included $122.6 million net proceeds from the January share offering.
- Other balance-sheet items: Total liabilities were $88.0 million, including $57.8 million of non-current deferred revenue. Accumulated deficit was $193.3 million. The Casebia equity-method investment had a zero carrying value.
- Margins: Product gross margin is not applicable because the company had no product sales. The filing reports substantial operating losses relative to collaboration revenue.
Material changes versus prior period
- Q2 collaboration revenue fell $2.5 million year over year, and first-half revenue fell $3.8 million. Management attributed the decline primarily to more Vertex research being conducted through the cost-sharing Joint Development Agreement (JDA), rather than recorded as collaboration revenue.
- Q2 operating expenses increased $13.5 million year over year; first-half expenses increased $18.4 million. Management cited higher research-program costs, employee-related costs and stock-based compensation, along with higher intellectual-property and public-company-related costs.
- First-half net loss widened by $22.9 million. Equity-based compensation was $16.2 million for the six months, compared with $8.0 million in 2017.
- The company adopted ASC 606 on January 1, 2018 using the modified retrospective method, reducing opening equity by $1.1 million. 2018 and 2017 collaboration revenue are not fully comparable because of the accounting change; under prior guidance, first-half 2018 revenue would have been $0.2 million lower.
Outlook, commentary and risks
- Management expects existing cash to fund its current operating plan for at least 24 months from June 30, 2018, but cautions that assumptions may prove wrong and cash could be used sooner. The company expects expenses and operating losses to increase and will need additional funding for long-term development.
- CTX001 is being developed with Vertex for beta-thalassemia and sickle cell disease. The FDA placed the U.S. sickle-cell IND on clinical hold in May 2018 pending resolution of questions. Management said it was working with Vertex to address the hold and expected to initiate a Phase 1/2 beta-thalassemia trial later in 2018.
- Vertex and CRISPR share equally in costs and worldwide profits or losses for the hemoglobinopathy and beta-globin programs. The company had received no Vertex milestone or royalty payments by June 30, 2018.
- Key risks include clinical and regulatory uncertainty, the need for future financing, manufacturing and commercialization challenges, and patent disputes. The Charpentier-licensed U.S. patent matter was on appeal, with a Federal Circuit hearing held in April 2018; third parties also opposed the company’s in-licensed European patent. Management could not estimate potential losses from these matters.
- The company reported no material change to previously disclosed risk factors, no material change in internal control over financial reporting, and effective disclosure controls. It does not hedge its foreign-currency exposure.
Important facts for investors to verify
- Current status and timing implications of the FDA clinical hold on CTX001 for sickle cell disease, and progress toward the planned beta-thalassemia trial.
- Whether the stated 24-month cash runway remains valid as research and clinical costs rise, and whether additional capital will be required.
- How collaboration accounting and Vertex cost sharing affect reported revenue, expenses and future milestone or royalty receipts.
- Developments in the U.S. and European patent proceedings and their potential impact on CRISPR/Cas9 intellectual-property rights.
- Casebia’s continuing operating losses and the company’s unrecognized equity-method losses, which reached $33.0 million at June 30, 2018.