Transformative Gene-Based Medicines
For Serious Human Diseases
(cid:179)
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ring last OOctotober. In parallel, wwe continue
We also succesessffuullllyy clcloosesedd ouourr innitial public
offeff
toto mamakke strong progress in establblishing and
addvavannncicicinnnggg ououo rr foounundadatitioonalal ininttelllece tual
property poosisittioionn inin ththe U.S., Europe annd the
restt of the world.d
Our lead program, which aims to provide a
functional curere for β-thalasssemia and sickle
cell disease, is on track and we plan to file for
a clinical trial authorization in Europe by the
end of 2017. The program plan, including the
manufacturing process and the design of the
initial clinical trial, has been vetttted and
accepted by the Paul-Ehrlich Inststiitutuutetete inin
Germany, andd byyyy ththee United Kinnnngdodo ’m’s
MeMedicines annd HeH althcare reguuulattooory auauthhororiitytyy
(MMHRH A). CRISPPRR’sss gene dediitiing apprproaoaachhhch iisiis
dedesis ggned to ree-c-creerereate the gegenen tic varianntsts ththaatt
arree aassociateddd wiwith heherereddititararyy pepersrsissttenencece ofof
fefettalal hemomooggglololobbbbin (HHPPFHFH)), whwhich has been
shown toto siggnnin ficacanttlyy reduce morbidity in
patienntts wwiitthh bothh ββ-thalassemiiaa anaandd sisickckllee
cell diseaasee.. IIn twoo presentationnonss ataaatat thththt ee 5858ththh
AmA eriican SSSociciciciettyyy of HeHemmatolologggygy ((AAA(AASSHSHSH)) Annuuaall
Meeting in Deeceemmmbere , 20016, weew shhhowowoowed thatat
CRC ISSPRPR/C/CCasasas999 gggeg
the genetics oof nanatuturrallyy ococcucuurring HHPH FFFH in
human hemattoopopoieietic ststemem ceellllss,, lell aadadinnggggg ttooto
high exxpresesessisisioooon lelelelevevevevevelslsls ofofofofo prpprprprrprp ototototototottotececececececece titit vveeee fefefeef tttaaal
heh moglobin.
ene edediting cacannn safeeeeely ree-creeattee
InIn adaddid tion, wee aare mam king usee of ououo r
significantnt exexexpepep rrtrtrtise in editing cceceelllssss ex vivivvo to
expand intoo imimmmummmum nono-ooncologyy ananandd otherrr
indications susuchhc as Hurler Synddrdrome andd
Severe Combini ede Immuno-Deffficiency
Syndrome. We hah vevevv plplacaceded aa sspecial focus on
immuno-oncologgy,yyyy, whwhhwheeeererrere wewewe hahhah vee established
aa sesepapararatete bubusiness unit with ittts oown
dedicaated scieentntiifificc leleadaderershshipipp.. WeW have
established thhe abababilililititityyy toto bobothth ddidid srs upuptttt ananddd
insertrt multiplee gegennes inin T-cells,,, enennababablililingngng thththeeeee
geneneraratititionon fofoff allologegenneiic prododucctsts targeted too
varirioouus tummooror tytypep s,s, includingg soliddd tumomorss.
ToToggettherr with Caaaaasesesesebibibibia Ta Ta Ta Theheheherarararapeepepeuticsscs (ourr jojoinntt
veventntnttururureee wiwiwiththth BaBBB yyyey r), we are connntinuing to
Rodger Novak, M.D.
Founder, CEO and Director
TTo Our Shareholders
CRISPR/Cas9 is aa revololuutionaryy teechhnooloogy
whichhh alalloloows us toto editt gegennon mimic DNA in aa
precise aannd coontrrolllede mammm nnnerr.r Thhiss genne
editingg plpllaatatfforrmm has tremmeendndoousus prommisisee in
medicciinneene, sincce it can be used too addresesss
diseaseesss att aa funndamental genetic level, ana d
consttititutututtes ththe bab sis for the devev lolopmp eentnt ofof
highlyy efeffefff ctiive and potentially cuurar titiveve
treatmmenentss foforr patients with seriouss
diseassseees.s ThT e discovery and rapid addoptit onn
of the CRRIISSPR/Cas9 platform comes at a tit me
when sisiggnificant advances have been made
in persoonalizedd medicine and delivery
technonologiess. This confluence of forces
repreessentss aa ununniiquququee oppportunity to establish
an ennttirreeelyy nen w clclasass of ththhere apeutics. Today,
CRISPSPRR ThTherraapeutics findddds ititseself at the
foreffroor nntt oof ththisis trtranansformative opoppop rtunity.
20166 wwaass a yeearr of significant progreesss foff r
CRISSPSPRRR ThTherapepeutticss.. We have acachievvveedd
imppop rrtaat ntnt mileeststononees inn susuppport of our lead
proggraamm,m and matureedd ouourr Researrchchc and
DeDevveelolololopment organization.
strategy. In the lonngg run, we are cconfident that
we will be able to establish aand reeini force our
clear leadership on the IP frfront.
Most importantly, we have cocontinued to build
a high caliber team with multi--disciplinary
experience. At the enend of 2010 66, wewee hah d nearly
100 employees ssppreaead acrosss Caambrridge, MA,
Basel, Switzerland annd Londdon,n, U.K. The skill
and dedication of ourr employeees is
remarkabblele anand conststiti utes a kkey basis for
deliveringng onon thhe pe roomim se off CRISI PRR/CCas9
gene edditing to creeaate te ransfof rrmativeve ggene-
babasesed medicines fs foro serious humannn diseases.
Overall, it haas been a very reewarding yg year and
I aI am humbbled by the siggnifficcant
acaccoompmpllishsshmments thatat ouo r Cr Company hah s
aca hhieveved since its foundding jg ust threee shshort
yeyearars aagogo A. AAs always, I wwouuld like to thhaankk our
ded ddicac tedd employeese fofof r their tireless ds rive,
deddicacationn,, and commmm iitmmennt to buildining aag pre-
eminnenent ccoompapanynyny, a, aandnn totot ouour shah rehoh lddeers
for thheeir cr onontit nuuuedede ssus ppporortt. WWe look ffoorward
to tthe coommingng yeyeaars andd ddelivevering upopon on ur
mission to brinng tg trannsfofoormativve ge ene---bbasses d
medicines bbaasededd on ouourr Cr RIR SPPR/CCasa 9 gegene
editinng pg platforrm tm o ppatatients with serioooous
did seseasasee.
Rodger Novak, M.D.
Founder, CEO and Direcrr
tor
April 2017
make substanntiaal inveestments in dedelilivery
technologies, both viral and nonn-vviral, to
enable in vivoo apapplications of CRRISSPRPR/C/Cas99
technology. To do datate,, wee hahavee opoptiimimizezezeddd lililipipip dd
nanopartrticle delivery to ththe le liviverer whwheere we
have demonstrated high levelss off ggene
disruptioon and elimination of protein
expression in animal models at therapeutically
relevant doses.
One of our major achievements in 2016 was
the successful completion of our initial public
offering (IPO) in October where we raised
appproximately UUSD 97 million. The proceeds
fromm ththe Ie IPOPOO, t, togogether with the closings of our
SeSeririeses BBB fB fininanancic nnnng in 2016, tototatalel dd
apapprproxo imatellllyy UUSUU D 208 millionn. Thih s providess
usus a sa sa sttrttronnong cg caash ph osititiion to advdvd anance our leadd
prrogograram im n hemogoglolobib nopathhieieies,s expand ouourr
pipipepelilinee, a, attttraractct totop tp tala enent,, andd fuunu d
opoperations.
We have madee strong progreress inin aadvvana cic ng
ouur foundadatitiooononnalala intellectuall prp oopeerrrttyt
poportrtrtfolio iin tn tn thhehehe UU.UU S.SSS., EuEurororopppe aaee andnnd ototo hheeer
juririsdictionsnss. In thee paasst siixx moontths, we have
bebeenen grg annttetedddd twowowowo fofofooununuu dadadatititionononaala paaatents with
brbrrroaoao d cd cd clalalaaimmimmsss ttts o thehehe CRCRISPSPR/R/CaCass9 gggenome
eededdededititttinininng tg tgggg eeechhnh ology iinin anany cy elllulullaarr setting,
inninnclcclccluuuddid nngngng ininin eeueukakkarryooteses. In DDececemmmmbbberer 200116,
CRCRRIIISPSPSPRR TTRR Theheheeerraapepeeeuututtututiiicsss, IIntellia Thhhherrrapeutics,
CaCarribibboou BBiBiB ooooscieienncecececes as ass a dndndnd ERERERERERSSSSS GGeeG nomics and
theirir lilicecensororrs es nnnntnn ered into a gga gloobbab l cross-
consennt at and iiinveveev ntion manageeemmementntn
agreememm nt foooorr ththhhhhe founddattioonnaalal ininntetellece tual
proppererty ccooveriinnng CRISPR / Cass99 gegenen editing
technology. Theee agreement reffleccts the
Company’s commimitmtmenent tt to mo mmaia ntain and
coordinate thhe prrprp ososececutututiionono , ddd, d, efense, and
enforcement of tthe CRISPR / Cas999
ffoundda ition lal papatttent poppp rtfolio tto po protect theh
ononongoog ining dg dg ddeevee eloppoppmemem ntnt efefe fofoofff
CRCRCRRRIIISPSPSPSS R’R’R s ps ps prororoddducuct candidaattees aas wwell thossee
bebeing developpedded bybyy ttthhe CoCoC mpmpaany’y’y’y s ps ps pararartntntneeersrsrs
anand ld ldd liccenseeses. Whih le we exxpep ctct thththeee IPI
laandnddscs ape to bo e dynamic aand cd ontiinunue to
evevolo eve in thhe nee eaaar term, it will nnnon t have anan
impacct on our R&&D& programs oooro bbubub ssininese s
rtrtrts as as assoociated with
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
⌧ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
(cid:3) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2016
OR
FOR THE TRANSITION PERIOD FROM
TO
Commission File Number 001-37923
CRISPR THERAPEUTICS AG
(Exact name of Registrant as specified in its Charter)
Switzerland
(State or other jurisdiction of
incorporation or organization)
Aeschenvorstadt 36
4051 Basel, Switzerland
(Address of principal executive offices)
Not Applicable
(I.R.S. Employer
Identification No.)
Not Applicable
(Zip Code)
Registrant’s telephone number, including area code: +41 61 228 7800
Securities registered pursuant to Section 12(b) of the Act:
Common shares, nominal value CHF 0.03 per share
Title of each class
The NASDAQ Global Market
Name of each exchange on which registered
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES (cid:2) NO (cid:3)
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES (cid:3) NO (cid:2)
in Rule 405 of the Securities Act. YES (cid:2) NO (cid:3)
ff
Indicate by check mark whether the Registrant has submitted electronically and posted on its corpora
te Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the Registrant was required to submit and post such files). YES (cid:3) NO (cid:2)
rr
Indicate by check mark if disclosure of delinquent
qq
filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be
contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Partaa III of this Form 10-K or any
amendment to this Form 10-K. (cid:2)
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filff er, a non-accelerated filer, or a smaller reporting company.
See the definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in RulRR e 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
(cid:2)
Non-accelerated filff er
(cid:3) (Do not check if a small reporting company)
Accelerated filer
ff
Small reporting company
(cid:2)
(cid:2)
Indicate by check mark whether the Registrant is a shell company (as defined
ff
As of June 30, 2016, the last day of the registrant’s most recently completed second fiscal quarter, there was no public market for the registrant’s
in Rule 12b-2 of the Exchange Act). YES (cid:2) NO (cid:3)
Common Stock. The registrant’s Common Stock began trading on the NASDAQ Global Select Market on October 19, 2016. As of March 1, 2017, the
aggregate market value of the Common Stock held by non-affiliates
registrant’s common stock on March 1, 2017.
of the registrant was approximately $605.6 million, based on the closing price of the
ff
As of March 1, 2017, 39,810,051 common shares were outstanding.
The Registrant was not a public company as of the last business day of its most recently completed second fiscal quarter and, therefore, cannot
calculate the aggregate market value of the voting and non-voting common equity held by non-affiliaff
tes of such date.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Definitive Proxy Statement relating to the Annual General Meeting of Shareholders for the year ended December 31, 2016,
which the registrant intends to file with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the registrant’s
fiscal year ended December 31, 2016, are incorporated by reference into Part III of this Report.
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
g
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Table of Contents
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine
Safety Disclosures
y
Market forff Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Scheduldd es
Form 10-K Summary
i
Throughu
out this Annual Repoe
rt on Form 10-K, the “Company,”yy “CRISPR,” “CRISPRII
Therapeutics,” “we,” “us,” and “our,”
excepte where the context requires otherwise,
directors” refers to the board of directors orr
refer to CRISPR Therapeua
Therapeutics AG.
CC
f Co RISPR
ii
tics AG and its consolidated subsidiaries, and “our board of
Special Note Regarding Forward-Looking Statements and Industry Data
rr
This Annual Report on Form 10-K contains forward-looking statements regarding, among other things, our future discovery and
development efforts, our future operating results and financial position, our business strategy, and other objectives for our operations.
The words “anticipate,” “believe,” “intend,” “expect,” “may,” “estimate,” “predict,” “project,” “potential” and similar expressions are
rd-looking statements, although not all forward-looking statements contain these identifying words. We
intended to identify forwarr
re events and financial
-looking statements largely on our current expectations and projections about futuff
have based these forward
trends that we believe may affect our business, financial condition and results of operations. There are a number of important risks and
uncertainties that could cause our actual results to differ materially from those indicated by forwar
actual
tt
reliance on our forwarr
disclosed in the forward-looking statements we make. We have included important fact
this Annual Report on Form 10-K, particularly in the section entitled “Risk Factors” in Part I that could cause actuatt
to differff materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential
impact of any future acquisitions, mergers, dispositions, joint venturtt es or investments that we may make.
ly achieve the plans, intentions or expectations disclosed in our forwar
rd-looking statements. Actual results or events could diffeff
r materially froff m the plans, intentions and expectations
d-looking statements, and you should not place undue
ors in the cautionary statements included in
d-looking statements. We may not
l results or events
ff
rr
rr
You should read this Annual Report on Form 10-K and the documents that we have filed as exhibits to this Annual Report on
Form 10-K completely and with the understanding that our actual future results may be materially differeff
nt from what we expect. The
forward-looking statements contained in this Annual Report on Form 10-K are made as of the date of this Annual Report on Form 10-
K, and we do not assume any obligation to update any forward-looki gng statements, whether as a result of new informff
events or otherwis
e, except as required by applicablea
ation, future
law.
rr
This Annual Report on Form 10-K includes statistical and other indusdd try and market data, which we obtained from our own
internal estimates and research, as well as from industdd
parties. Industry publications, studies, and surveys generally state that they have been obtained fromff
although they do not guarantee the accuracy or completeness of such informff
publications is reliable, we have not independently verifieff d market and indusdd try data fromff
internarr
verified by any independent source.
l company research is reliable and the market definff
itions are appa
ation. While we believe that each of these studies and
ropriate, neither such research nor these definff
third-party sources. While we believe our
itions have been
ry and general publications and research, surveys, and studies conducted by third
sources believed to be reliable,
ii
Item 1. Business.
Overview
PART I
BUSINESS
We are a leading gene editing company focused on the development of CRISPR/CRR as9-based therapeaa utics. CRISPR/CRR as9 stands
for Clustered, Regularly Interspaced Short Palindromic Repeats (CRISPR) Associated protein-9 and is a revolutionary technology for
gene editing, the process of precisely altering specific sequences of genomic DNA. We are applying this technology to potentially
treat a broad set of both rare and common diseases by disruptuu ing, correcting or regulating disease-related genes. We believe that our
scientificff
curative treatments for patients for whom current biopharmaceutical appro
programs target beta-thalassemia and sickle cell disease, two hemoglobinopathies that have high unmet medical need.
expertise, together with our gene editing approach, may enable an entirely new class of highly effective and potentially
aa
aches have had limited success. Our most advanced
ls as a breakthrough technology. The appl
gene editing was derived from a naturtt ally occurring viral defense mechanism in bacteria and has
ication of CRISPR/Cas9 for gene editing was co-
founders, Dr. Emmanuelle Charperr ntier, a director of the Max- Planck Institute for Infection Biology
The use of CRISPR/Cas9 forff
been described by leading scientific journarr
invented by one of our scientificff
ators published work elucidating the mechanism by which the Cas9 endonuclease, a key
in Berlin. Dr. Charpentier and her collabor
component of CRISPR/Cas9, can be programmed to cut double-stranded DNA at specific locations. We have acquired rights to the
foundational intellectuatt
strengthen our intellectual property estate through our own research and additional in-licensing effor
development of CRISPR/Cas9-based therapeaa utics.
l property encompassing CRISPR/Cas9 and related technologies fromff
Dr. Charpentier, and continue to
ering our leadership in the
ff
ts, furth
a
a
ff
Our producdd t development and partnership strategies are designed to exploit the full
ff
potential of the CRISPR/CRR as9 platforff m
while maximizing the probabia lity of successfully developing our productdd
development strategy utilizing both ex vivo and in vivo approaches. Our most advanced programs use an ex vivo approach, whereby
cells are harvested from a patient, treated with a CRISPR/Cas9-based therapeuaa
approach is less technically challenging than an in vivo approach. We have chosen to conduct our lead programs in
hemoglobinopathies given the relative ease of editing genes ex vivo, the significant
thalassemia and sickle cell disease and the well-understood genetics of these diseases. Beyond these lead programs, we are pursuing a
number of additional ex vivo applications, as well as select in vivo applications, whereby the CRISPR/CRR as9 product candidate is
delivered directly to target cells within the human body. Our initial in vivo applications will leverage well-established delivery
technologies forff
candidates. We are pursuing a two-pronged producdd t
unmet medical need associated with beta-
d. We believe that an ex vivo
gene-based therapeutics.
tic and reintroducedd
ff
Given the numerous potential therapeaa utic applications for CRISPR/CRR as9, we have partnered strategically to broaden the
indications we can pursue and accelerate development of programs by accessing specific disease-area expertise. In particular, we
established a joint venture with Bayer AG and its subsidiaries, or Bayer, in which we have a 50% interest, and a collaboration
agreement with Vertex Pharmaceuticals Incorporated, or Vertex, in order to pursue specific indications where these companies have
outstanding and distinctive capabilities. The significant resource commitments by our partners underscore the potential of our
platform, as well as their dedication to developing transformative CRISPR/CaRR
s9-based treatments.
Our mission is to create transformative gene-based medicines for serious human diseases. We believe that our highly
experienced team, together with our scientificff
us as a leader in the development of CRISPR/Cas9-based therapeuaa
expertise, productdd
tics.
development strategy, partnerships and intellectual property position
Gene Editing Background
There are thousands of diseases caused by aber
a
rant DNA sequences. Traditional small molecule and biologic therapieaa
s have had
to address the underlying genetic causes. Newer approaches such
ff
limited success in treating many of these diseases because they fail
as RNA therapeutics and viral gene therapy more directly target the genes related to disease, but each has clear limitations. RNA-
based therapies, such as mRNA and siRNA, facff e challenges with repeat dosing and related toxicities. Non-integrating viral gene
therapy platforms, such as adeno-associated virusrr
genome and have limited effiff cacy upon
such as lentivirusrr
Additionally, cells may recognize the transduced genes as foreign and respond by reducing their expression, limiting their effiff cacy.
Thus, while our understanding of genetic diseases has increased tremendously since the mapping of the human genome, our ability to
treat them effeff ctively has been limited.
re-administration due to resulting immune responses. Integrating viral gene therapya
, permanently alter the genome but do so randomly, which leads to the potential for undesirabla e mutations.
, or AAV, may have limited durability because they do not permanently change the
platformff
uu
s,
1
We believe gene editing has the potential to enabla e a next generation of therapeaa utics and provide curative solutions to many
genetic diseases through precise gene modificati
on. The process of gene editing involves precisely altering DNA sequences within the
genomes of cells using enzymes to cut the DNA at specific locations. After a cut is made, natural cellular processes repair the DNA to
either silence or correct undesirablea
modified in this process, the change is permanent in the patient.
sequences, potentially reversing their negative effects. Importantly, because the genome itself is
ff
Earlier generation gene-editing technologies, such as zinc finger nucleases (ZFNs), transcription-activator like effector
nucleases (TALENs) and meganucleases, rely on engineered protein-DNA interactions. While these systems were an important first
step to demonstrate the potential of gene editing, their development has been challenging in practice duedd
engineering protein-DNA interactions. In contrast, CRISPR/Cas9 is guided by RNA-
and straightforward to engineer and apply.
DNA interactions, which are more predictable
to the complexity of
RR
The CRISPR/Cas9 Technology
CRISPR/Cas9 evolved as a naturally occurring defense mechanism that protects bacteria against viral infections.
Dr. Emmanuelle Charperr ntier and her collaboa
gene editing. The CRISPR/CRR as9 technology they described consists of three basic components: CRISPR-Associated protein 9, or
Cas9, CRISPR RNA, or crRNA, and trans-activating CRISPR RNA, or tracrRNA. Cas9, in combination with these two RNA
molecules, is described as “molecular scissors” that can make specificff
rators elucidated this mechanism and developed ways to adapt and simplify it for use in
cuts and edits in selected doublu e-stranded DNA.
and tracrRNA into a single RNA molecule called a guide RNA.
Dr. Emmanuelle Charpentier and her collaborators further simplified the system for use in gene editing by combining the
RR
crRNARR
direct the Cas9 enzyme to a specificff DNA sequence based on Watson-Crick base pairing rules
used to make cuts in DNA at specific sites of targeted genes, providing a powerful tool for developing gene editing based therapeuaa
The guide RNA binds to Cas9 and can be programmed to
. The CRISPR/Cas9 technology can be
rr
tics.
Once the DNA is cut, the cell uses naturally occurring DNA repair mechanisms to rejoin the cut ends. If a new DNA template
with the correct sequence has been delivered to the cell prior to the time the DNA is cut, it will be incorporated, leading to a correction
n the two cut
of the targeted gene, which we refer to as gene correction. Alternarr
ends in a way that will likely lead to the disruption and inactivation of the gene, which we refer to as gene disruption.
tively, if no DNA template is present, the cell will rejoie
CRISPR/CRR as9 can also be adapted to regulate the activity of an existing gene without modifyiff ng the actual DNA sequence,
which we refer to as gene regulation. This is accomplished using a catalytically inactive form of the Cas9 enzyme that can be directed
to bind specific DNA sequences without cutting. By linking this inactive Cas9 to proteins that regulate gene function, the activity of
specificff genes can be either up ouu
r downregulated.
CRISPR/Cas9 gene editing
Cas9
DNA
Guide RNA (gRNA)
RR
Disruption
Correction
Gene Regulation
2
We believe that CRISPR/Cas9 is a versatile technology that can be used to either disrupt,uu
correct or regulate genes. We intend to
take advantage of the versatility and modularity of the CRISPR/Cas9 system to adapt and rapidly customize individual components forff
RR
specific disease appl
potential to treat a large number of both rare and common diseases.
may form the basis of a new class of therapeutics with the
ications. Consequently, we believe that CRISPR/Cas9
aa
Our Approach to CRISPR/Cas9 Portfolio Development
We have established a portfolio of programs by selecting disease targets based on a number of criteria, including high unmet
medical need, advantages of CRISPR/Cas9 relative to alternative approaches, technical feaff
product candidate into and through clinical trials. For CRISPR/Cas9-based therapeutics, technical feasibility is primarily determined
by the delivery modality and by the editing strategy required to treat the disease. The diagram below illustrates this spectrum of
therapeaa utic applications, beginning with ex vivo delivery arr
sophisticated gene regulation strategies.
nd gene disruption, progressing to in vivo organ systems and more
sibility and the time required to advance the
Strategic Progression of Our CRISPR/CaRR
s9-Based Therapeutic Applications
MEDIUM TERM
OPPORTUNITIES
Ex viivovo—
immunmuno-oncology
In vivo—
musculoskeletal,
pulmonary,rr
and
ophthalmology
NEAR TERM
OPPORTUNITIES
Ex vivo
In vivovo—liver
MEDIUM-TO-LONG TERM
OPPORTUNITIES
In vivo—
central nervous
system, cardiology,yy
other organ systems
Ex vivo—
regenerative
medicine
I
T
E
C
H
N
O
L
O
G
C
A
L
C
O
M
P
L
E
X
I
T
Y
Gene disruption
Disruption and correction
Disruption, correction and regulation
TIME TO CLINICAL PoC
We have initiated programs in three primary arr
reas: (i) ex vivo programs involving gene editing of hematopoietic cells, (ii) in
vivo programs targeting the liver and (iii) additional in vivo programs targeting other organ systems such as muscle and lung. By
focusing our most advanced programs in ex vivo applications we believe we can mitigate technical and clinical risk, while also
developing in vivo programs in parallel to fully realize the potential of our platform.
Strategic Partnerships and Collaborations
We intend to develop CRISPR/Cas9-based therapeutics both independently and in collaboration with current and potential
corporate partners. We have establia
shed collaborations with Bayer and Vertex which will provide over $400 million, subject to
ed programs, which will be used to advance the programs included in these
futurett
certain conditions, inclusive of estimated spending on fund
partnerships. These significant commitments will allow us to broaden our development portfolio, as well as invest in technology
enhancements and delivery technologies. As part of these collaboa
and $30 million, respectively, which we believe strengthen their commitments to the growth of our company. Bayer made an
additional equity investment of $35 million as a private placement concurrent with our initial public offerff
resources committed by Bayer and Vertex illustrate the potential of our CRISPR/Cas9 gene editing technology.
rations, Bayer and Vertex made equity investments of $35 million
ing. We believe that the
ff
3
Under our agreement with Bayer HealthCare, we establia
shed Casebia Therapeutics LLP, or Casebia, a joint venture in which we
and Bayer HealthCare are equal owners. We and Bayer intend forff Casebia to largely focuff
areas in larger patient populations, and to invest resources in optimizing the platformff
Through our agreement, we will have access to technology enhancements developed or obtained by Casebia for the benefit of our
other wholly owned programs.
s on more challenging in vivo therapeutic
in vivo delivery.
and delivery technologies forff
Our agreement with Vertex is a two-part collabora
a
tion. We have retained co-development and co-commercialization rights for
the hemoglobinopathies program. We have also granted Vertex an option to license certain programs, with the potential to receive
milestone payments and royalties.
Our Pipeline
The following table summarizes the current status of our product development pipeline:
Program
Ex vivo : Hematopoietic
Beta-thalassemia
Sickle cell disease (SCD)
Hurler syndrome
Editing
approach
Disruption
Disruption
Correction
Severe combined immunodeficiency (SCID)
Severe immunodeficiency (SCID)
Correction
Immuno-oncology
In vivo : Liver
Various
Glycogen storage disease Ia (GSDIa)
Correction
Hemophilia
Correction
In vivo : Other Organs
Duchenne muscular dystrophy (DMD)
Disruption
Cystic fibrosis (CF)
Correction
Ex Vivo Hematoptt oietictt Progragg m
Backgrok
und
Research
IND enabling Ph I/II
Partner
Structure
Collaboration
Collaboration
Wholly-oyy wned
Joint venture
Wholly-oyy wned
Wholly-oyy wned
Joint venture
Wholly-oyy wned
License option
ing allo-HSCT, physicians replace a patient’s blood-formff
We are primarily utilizing ex vivo approaches to treat diseases related to the hematopoietic system, which is the system of
organs and tissues, such as bone marrow, the spleen and lymph nodes, involved in the production of blood. Today, many of the
hematopoietic system diseases we are targeting are treated with allogeneic hematopoietic stem cell transplants, or allo-HSCT. In
performff
differeff
do undergo allo-HSCT facff e a high risk of complications such as infect
ff
graft-versus-host disease, where immune cells in the transplanted tissue (the graft) recognize the recipient (the host) as “foreign” and
begin to attack the host’s cells.
nt person that contain the normal gene. Unfortunately, not all patients are able to be matched with suitable donors. Patients who
ing cells that contain the defective gene with cells obtained from a
ession, transplant rejection and
ions related to immunosuppruu
In contrast to allo-HSCT, our approach harvests stem cells directly from the patient, edits the defective gene ex vivo, and
reintroduces those same cells back into the patient. We believe this ex vivo gene editing approach, which uses the patient’s own cells,
will provide better safetyff
cy than allo-HSCT.
and efficaff
4
Our Lead Programgg
s—HemoHH
glob
o
tt
inopato
hies
Our lead programs aim to develop a single, potentially transformative CRISPR/Cas
RR
9-based therapy to treat both beta-
thalassemia and sickle cell disease, or SCD. These diseases are caused by specific mutations of the beta globin gene. Beta globin is an
essential component of hemoglobin, a protein in red blood cells that delivers oxygen and removes carbon dioxide throughout the body.
A number of facto
(iii) well-understood genetics and (iv) the ability to employ an ex vivo gene disrupt
rs make these attractive lead indications, including: (i) high unmet medical need, (ii) compelling market potential,
ion strategy.
ff
rr
Beta-tt
thalasll
semiaii
Overview
Beta-thalassemia is a blood disorder that is associated with a reducdd tion in the production of hemoglobin. This disease is caused
by mutations that give rise to the insufficient expression of the beta globin protein, which can lead to symptoms related to not only the
lack of hemoglobin, but also as result of the buildup of unpaired alpha globin proteins in red blood cells. The severity of symptmm oms
associated with beta-thalassemia varies depending on the levels of functional beta globin present in the blood cells. In the most severe
cases, described as beta-thalassemia major, func
While chronic blood transfusions can be effective at addressing symptoms, they often lead to iron overload, progressive heart and liver
failure, and eventually death. Patients with mild forms of beta-thalassemia may experience some mild anemia or even be
asymptomatic.
tional beta globin is either completely abse
d, resulting in severe anemia.
nt or reducedd
a
ff
The total worldwide incidence of beta-thalassemia is estimated to be 60,000 births annually, the total prevalence in the United
States and the European Union is estimated to be approximately 19,000 and there are over 200,000 people worldwide who are alive
and registered as receiving treatment for the disease.
Limitations of current treatment optio
ons
The most common treatment for beta-thalassemia is chronic blood transfusions. Patients typically receive transfusff
ions every two
to four weeks and chronic administration of blood often leads to elevated levels of iron in the body and can cause organ damage over a
relatively short period of time. Patients are often given iron chelators, or medicines to reduce iron levels in the blood, which are
associated with their own significant toxicities. Low adherence to this burdensome regime often results in death by 30 years of age for
patients with transfusion-dependent beta-thalassemia. The only potentially curative therapyaa
patients elect to have this procedure given its associated morbidr
are not available, most patients die in early childhood. We believe that our therapeaa utic appr
safe treatment forff
for this disease is allo-HSCT, but fewff
ity and mortality. In developing countries, where chronic transfusff
ions
a potentially curative and
this devastating disease.
oach could offerff
aa
Sickle Cell Dll
isease
Overview
Sickle cell disease is an inherited disorder of red blood cells resulting from a mutation in the beta globin gene that causes
ction. Under conditions of low oxygen concentration, the abnormal hemoglobin proteins aggregate within
abnormal red blood cell funff
the red blood cells causing them to become sickled in shapeaa
flow to organs, ultimately resulting in anemia, severe pain, infect
and inflexff
ff
ible. These sickled cells obstrucrr
ions, stroke, overall poor quality of life aff
nd early death.
t blood vessels, restricting blood
The worldwide incidence of SCD is estimated to be 300,000 births annually and there are 20 million to 25 million people
worldwide with the disease. In the United States, the total prevalence is estimated to be 100,000 individuadd ls.
Limitations of current treatment optio
o
ns
As with beta-thalassemia, in regions where access to modern medical care is available, standard treatment for SCD involves
chronic blood transfusi
HSCT is a second potential treatment option. While allo-HSCT provides the only potentially curative therapeutic path for SCD, it is
often avoided given the significff ant risk of transplant-related morbidity and mortality in these patients.
ons, which has the same associated risks of iron overload and toxicities associated with chelation therapy. Allo-
ff
5
Our Gene Editingtt
Approach
aa
Our therapeut
ic approach to treating beta-thalassemia and SCD employs gene editing to upregulate the expression of the gamma
rr
globin protein, a hemoglobin subunit that is commonly present only in newborn i
nfants. Hemoglobin that contains gamma globin
instead of beta globin protein is referred to as fetal hemoglobin, or HbF. In most individuals HbF disappears in infancy as gamma
globin is replaced by beta globin through naturatt
thalassemia and SCD typically do not manifest until several months after birth, when the levels of HbF have declined considerably.
Some patients with beta-thalassemia or SCD have elevated levels of HbF that persist into adulthood, a condition known as hereditary
persistence of fetal hemoglobin, or HPFH. Patients with HPFH are often asymptomatic, or experience much milder forms of disease.
This protective HPFH condition has been shown to result from specific changes to the DNA in the cell, either in the region of the
globin genes or in certain genetic regulatory elements that control the expression levels of the globin genes.
lly occurring suppression of the gamma globin gene. The symptoms of beta-
Relationship between level of HbF and morbidity in beta-thalassemia
R2=0.933
e
r
o
c
s
y
t
i
d
i
b
r
o
M
8
7
6
5
4
3
2
1
0
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
Log fetaff
l hemoglobin level (%)
We are using our CRISPR/CRR as9 platforff m to mimic the same DNA sequence changes that occur naturally in HPFH patients. We
plan to isolate patients’ hematopoietic stem cells, which differentiate into red blood cells, treat these cells ex vivo with a CRISPR/Cas9
producdd t candidate to edit their DNA to upreuu
into the patients. We believe that the genetically modified stem cells will give rise to red blood cells that contain HbF and significantly
reduce the severity of the symptoms associated with these two diseases.
gulate the expression of the gamma globin protein and reintroducdd e the edited cells back
RR
An alternative CRISPR/Cas9 appr
a
oach to treating hemoglobinopathies would be to correct the mutated beta globin gene. We
have chosen the HbF upregulation strategy as our initial approach given the relative technical simplicity of the gene deletion strategy
involved, abili
patients with high HbF levels.
ty of this strategy to counteract a wide variety of different beta globin mutations, and the absen
ce of symptoms in
a
a
We believe our CRISPR/Cas9 gene editing strategy may have significant advantages over other gene therapiaa es in development
for the treatment of hemoglobinopathies. For example, lentivirus-based treatments involve a random integration of one or more copies
of the globin gene throughout the genome. The expression levels of the newly introducedd
location of the DNA in the genome, leading to inconsistent and variable levels of expression. In addition, with each random
integration, a mutation may be created, which may have an associated safetyff
concern, including the potential to cause cancer.
epending on the exact
d gene can vary drr
6
Preclinical Datatt
We are progressing toward initiating clinical trials forff
our hemoglobinopathy programs. The first step in this process involves
selecting the specific gene editing strategy and RNA guides we will use in our product candidates. We are applying our high-
throughput target evaluation process to test a number of these approaches, and ultimately select RNARR
rate of the globin genes and the greatest effect on HbF expression. Using our high-throughput guide screening platform, we have been
able to identify gff
iency.
efficff
that allow editing of hematopoietic stem cells at specific locations in the genome with greater than 90%
guides with the highest editing
RR
uide RNAs
In addition to selecting guide RNAs with the highest cutting activity, we also screen our guide RNAs for off-tff arget effecff
the introduction of cuts in DNA at locations other than the target sequence. To do this, we use bioinformatics to predict the most likely
sites of off-target cuts, then test for cuts at these locations. The example guide RNA analysis shown below illustrates that we are abla e
to identify guide RNAs that cut very effici
where off-taff
sequencing beforff e advancing them forff
ently at the target sites but show no off-target activity above control levels, even at sites
rget activity is most likely to occur. We also test our lead candidates for any unlikely off-target effects using genome
use as therapeutics.
ts, or
ff
Example guide RNA analysis
CRISPR/CRR as9
Control
g
n
i
t
i
d
E
%
100.0
95.0
90.0
85.0
80.0
0.5
0.4
0.3
0.2
0.1
0
Target
1
2
3
4
5
6
7
8
9
10
11
Most likely off-target
ff
sites
7
There are multiple naturally occurring genetic variants that lead to HPFH and which could form the basis of our product
candidate. We have used CRISPR/Cas9 to recreate a number of these variants and tested their abia lity to upregulate HbF. The figure
below shows the level of HbF upregulation, resulting from the recreation of five diffeff
from sickle cell and beta thalassemia patients using CRISPR/CaRR
produced in these variants, to confirmff
E”, may result in potentially curative levels of HbF if successfully introduced
rent genetic variants in hematopoietic stem cells
s9. Additionally, we have measured the level of gamma globin protein
gulation of HbF. We believe that at least two of these, named “Target D” and “Target
into patients with beta-thalassemia and SCD.
the upreuu
dd
Ability of different gene targets to drive HbF production
To date, we have identified guide RNAs that perform the desired gene edits with very high efficiency, result in high levels of
HbF production in cells and show no detectable evidence of off-target effects. As we continue to advance our hemoglobinopathies
programs to the clinic, we are in the process of evaluating the ability of edited hematopoietic stem cells to engraft and persist in mice.
Our initial engraftment studtt
ies show that the edited cells retain their ability to engraft and repopulate in immuno-compromised mice.
Additionally, a subset analysis of the edited hematopoietic stem cells shows that all subsets of stem cells including the long-term
repopulating stem cells are edited at high rates. These studies will also assess the ability of the edited cells to home the marrow and
differ
entiate. Before entering clinical trials, we will also perform longer-term studies in mice to ensure there are no undesirablea
ff
consequences caused by the gene edited cells.
8
We have also made significant progress in developing a GMP-compliant process for editing these cells in a GMP-compliant
facility. We have completed multiple clinical-scale runs and analyzed the cells to show that we can achieve high editing efficiency at
t change in viability of the edited cells (figure below). We have also begun toxicology studies in mice,
clinical scale with no significan
which will utilize the edited cells manufactured in this GMP-compliant facility.
ff
Comparison of editing efficff
iency at lab and clinical scales
Hurlerll Syndrome
Hurler syndrome is a type of mucopolysaccharide disease caused by a defective IDUA gene. The IDUA gene is responsible for
encoding alpha-L-iduronidase, an enzyme that breaks down large molecules called glycosaminoglycans, or GAGs, in the lysosomes of
cells. A defective IDUA gene results in a lack of alpha-L-iduroindase which leads to an accumulation of GAGs and results in cellular
dysfunction and severe clinical abnormalities. Patients with Hurler syndrome have a broad spectrum of clinical problems including
to a lack of this enzyme in the brain. Most
skeletal abnormalities, enlarged livers and spleens, and severe intellectuatt
patients experience a decline in intellectual development and often lose both vision and hearing as the disease progresses. Without
t
treatment, the average age at death is fivff e years, and nearly all patients die by the age of ten. The worldwide incidence of Hurler
syndrome is appr
oximately one in 100,000 births.
l disability duedd
a
aa
There are two common approaches to treating mucopolysaccharide diseases: enzyme replacement therapyaa
and allo-HSCT.
Enzyme replacement therapy,
or ERT, does not adequately address the symptoms of Hurler syndrome because it cannot cross the
blood-brain barrier to address the severe neurologic symptoms associated with this disease. While allo-HSCT can be effective in
treating the disease, it is associated with significff ant morbir dity and mortality, and not all patients are able to find suitable donors. Even
nt irreversible disease progression. Our
when a match is found
ff
approach is to introduce a funct
ional copy of the IDUA gene into a patient’s own hematopoietic cells using ex vivo CRISPR/Cas9
ing them to the patient. We believe that using a patient’s own cells rather than those from a donor will
gene editing, before returntt
eliminate a potentially lengthy search for an appropriate donor, allowing us to intervene at an earlier point and avoid the significff ant
risks associated with allo-HSCT.
, the delay between diagnosis and treatment often results in significaff
ff
9
Severe Combinedii
Immunodefidd
cienc
ii
yc Diseii ase
Severe combined immunodeficiency disease, or SCID, is a disease in which the patient’s immune system is compromised and
tions, which can be life-threatening in the absence of a funct
cannot fight off infections. These patients are identified early in life because they often suffer fromff
infecff
SCID, and in one particularly severe form, a gene called RAG1 is mutated. Mutations in RAG1, a gene that plays a critical role in the
process of antibody generation, prevent normal development of the patient’s immune system, resulting in an absence of B-cells, a type
of white blood cell. The worldwide incidence of SCID is estimated to be one in 58,000 births, with the RAG1 mutation associated
form accounting forff
ioning immune system. There are multiple underlying causes of
approximately 15% of patients.
recurrent severe respiratoryrr
ff
Currently, the only curative therapy forff
this potentially fatal disorder is allo-HSCT, which carries a high risk of complications.
Gene therapies for SCID insert copies of a replacement gene randomly into the genome, potentially resulting in unwanted mutations.
The risks associated with this type of gene therapy were underscored in a clinical trial for another variant of SCID in which five out of
twenty patients developed leukemia. We believe that the precise correction of the RAG1 gene with CRISPR/CRR as9 will bring benefit to
these patients while minimizing the risk of leukemia associated with gene therapy. Considering corrected cells proliferff ate fasff
ter than
non-corrected cells, we believe that a small number of corrected cells reintroducdd ed into the patient could provide a therapeutic benefit
and in time, compensate forff
the defective cells. With our ex vivo approach, we believe we can attain sufficient levels of correction to
generate the desired therapeaa utic benefit. Our Casebia joint venturtt e with Bayer HealthCare will lead development of our SCID
program, and leverage Bayer HealthCare’s expertise in hematologic disorders.
Future Development Opportunities
Engineered CelCC l Tll
heTT rapia es For CanCC cer ImmII
unothett
rapya
Over the past several years, interest in the oncology community has centered on immunotherapyaa
, or treatments that harness a
patient’s own immune system to attack cancer cells. Engineered cell therapy is one such immunotherapy approach, in which immune
system cells such as T-cells and natural killer, or NK, cells are genetically modifieff d to enabla e them to recognize and attack tumo
cells.
r
tt
Engineered cell therapy has demonstrated encouraging clinical results and shown the potential to become an entirely new class
in development require unique products to be created forff
of oncology therapeutics; however, realizing this full potential will require overcoming some key challenges. Most engineered cell
therapies
roach
a
to drug development is both ineffiff cient and cost-prohibitive. Additionally, these versions of engineered cell therapiaa es appear limited in
ors. These producdd ts have also demonstrated sub-u optimal safetff y profiles, including overstimulation of the
their ability to treat solid tumtt
immune system, occasionally resulting in death.
each patient treated, using conventional techniques. This appaa
We are utilizing CRISPR/Cas9 to create an “off-ff the-shelf” cell therapyaa
producdd t candidate, overcoming the ineffiff ciency and cost
for each patient. In addition to delivering a gene for an engineered receptor to target the tumor, creating
of creating a unique productdd
such a product would require simultaneous disruption of several genes in order to prevent off-target immune responses. We have
initial results demonstrating that this type of “multiplexed” editing can be achieved with high efficff
also using our platform to make other improvements such as disruption checkpoint inhibitor genes to overcome solid tumor
suppression, and disruptin
g other genes to improve the safety profilff e.
iency using CRISPR/CRR as9. We are
uu
10
We expect that the cellular engineering strategies that are ultimately successful in cancer immunotherapyaa will involve multiple
will play a central role. While other gene editing platforms
genetic modifications, an application forff which we believe CRISPR/Cas9
could potentially be used for these purporr
modification of multiple genes within a single cell. Current gene editing techniques that require diffeff
genetic modificat
ion may be limited in the number of edits they can make concurrently. In contrast, CRISPR/Cas
make multiple edits using a single Cas9 protein and multiple small guide RNA molecules. The example below demonstrates the abila
of CRISPR/CaRR
one gene.
ity
-cells with an efficiency rate similar to that of editing just
s9 is particularly well-suited for multiplexed editing, which is the
rent protein enzymes for each
ently
s9 technology to edit two differff ent genes in human primary Trr
ses, CRISPR/CaRR
9 can effici
RR
RR
ff
ff
9
Multiplexed editing of human primary T-cells using CRISPR/Cas
RR
g
n
i
t
i
d
E
%
100
90
80
70
60
50
40
30
20
10
0
Target 1
TarTT get 2
Target 1 & 2
Single gene
Single gene
Two genes
Vertical lines in each bar show the mean ± standard error from multiple experiments.
Given the potential for CRISPR/Cas9 in immunotherapy,
rts. This group wuu
accelerate our effoff
aa
ill have dedicated leadership, resources and capabilities to rapidly advance these programs.
we have established a separate unit focff used on immunotherapy to
In Vivo Programs
In parallel with our ex vivo programs, we are pursuing a number of in vivo indications which will involve delivery of
CRISPR/Cas9 productdd
leveraging well-established delivery technologies. We have also begun optimizing delivery systems to target other organ systems,
including musculoskeletal and pulmonary.rr
candidates directly to tissues within the human body. Our initial in vivo applications will target the liver,
Liver Diseases
We have selected liver diseases as our initial in vivo targets because delivery of nucleic acid therapies into the liver has been
clinically established and validated delivery technologies are now available, including, but not limited to, lipid nanoparticle based
delivery vehicles, or LNPs, and AAVs. We believe this proof of concept reducedd
CRISPR/Cas9-based therapeutics in vivo to the liver.
s the challenges associated with delivering
11
Within the liver we are pursuing diseases that have well understood genetic linkages, and have begun preclinical development
for multiple indications including glycogen storage disease Ia, or GSDIa, and hemophilia. In both of these indications, evidence
suggests that correction of the mutant gene in only a small percentage of liver cells may have a significant therapeutic effect, which
makes the gene correction strategy feas
ible in these indications.
ff
Glycogen Storagea Disease IaII
Overview
GSDIa, also known as Von Gierke disease, is an autosomal recessive inborn err
sm caused by a mutation
in the G6PC gene, which encodes the glucose-6-phosphatase protein, or G6Pase. In patients with GSDIa, the lack of G6Pase prevents
the release of glucose from the liver, resulting in accumulation of a large chain form of glucose known as glycogen. The inability of
patients with GSDIa to regulate glucose levels leads to hypoglycemia, or low blood glucose, and high levels of lactic acid when
patients are not eating, requiring patients to adhere to burdensome dietaryrr
regimes. GSDIa patients also face long-term risks such as
growth delay, neuropathy and kidney stones. Additionally, due to the accumulation of glycogen in the liver, 70% to 80% of patients
over 25 years of age will develop hepatocellular adenomas, a type of non-cancerous growth in the liver, of which approximately 10%
will progress to hepatocellular carcinoma, a potentially fatal liver cancer. There are approximately 1,000 new cases of GSDIa per year
worldwide.
rror of glucose metaboli
a
Limitations of Current Treatment Options
There are currently no disease-modifying treatment options forff
n in carbohydrate delivery
may lead to low blood sugar levels, which can cause life-threatening consequences including seizure, coma and death. To minimize
the risk of acute complications, patients are required to adhere to highly burdensome, lifeloff
administration of uncooked cornst
non-compliance, leading to increased risk of serious long-term complications.
rate product such as Glycosade. These regimens have a high rate of
ng dietary regimens such as overnight
patients with GSDIa. Any disruptio
arch or a slow-release carbohyd
uu
rr
r
Our Gene EditEE ing ApprA
oach
We are developing a CRISPR/Cas9 product candidate to correct the mutation in GSDIa patients. Animal model experiments
have demonstrated that the addition of functional copies of the G6PC gene is capable of correcting the defici
ency of G6Pase protein in
GSDIa and that as little as 3% of normal levels of G6Pase can restore the equilibrium of glucose and glycogen in the bloodstream and
liver. Our approach is to correct the G6PC gene directly in its native location. We believe this direct gene correction will result in
appropriate expression of the G6Pase protein. Other methods rely on adding copies of the gene through viral delivery methods, which
we believe may lead to overexpression of the G6Pase protein and ineffecff
tive control of glucose levels.
ff
Hemophilia
Overview
Hemophilia is an X-linked recessive genetic disease primarily present in male children. Our initial hemophilia program targets
hemophilia B, which results from a deficff
system, which enablea
bleeding, either spontaneously or in response to injury.rr
s blood to formff
iency in factor IX, an enzyme produced in the liver. Factor IX is part of the blood coagulation
clots in response to injury arr
nd bleeding. A lack of factor IX leads to an increased risk of
Patients with severe forms of the disease are firsff
cy, as witnessed through prolonged bleeding from simple
medical procedures or through excessive bruising from simple fall
muscles, which can lead to edema, inflammation and debilitating pain. Patients with mild forms of the disease typically present as
normal, and diagnosis usually follows surgery orr
28,000, including over 4,000 in the United States. About half of hemophilia B cases are classifiedff
IX activity that are less than 1% of normal.
r trauma. The worldwide prevalence of hemophilia B patients is estimated to be
s. These patients have frequent spontaneous bleeding into joints and
as severe based on levels of factor
t diagnosed at infanff
ff
Limitations of Current Treatment OptO ions
ff
The standard of care forff
symptomatic patients with hemophilia B involves enzyme replacement with recombinant factor IX.
r IX protein is administered both as a prophylaxis and during acute bleeding episodes. While considered effective,
required weekly
Exogenous facto
factor IX replacement therapies are invasive, inconvenient and non-curative. Until recently, hemophilia B therapyaa
intravenous injections or infusions. While administration freqff
including fluctuations in factor IX levels, remain a significant pitfall of enzyme replacement therapiaa es.
uency has improved in recent years, key drawbacks of protein therapy,
aa
12
Our Gene Editing Approach
We believe that hemophilia B symptoms can be dramatically reduced with only a moderate restoration in facto
ff
r IX activity. It
has been shown that patients with more than 5% of normal factor IX activity have milder forms of the disease and may not present
symptoms in the absence
factor IX activity to a level of 5% or more of normal may be clinically meaningful.
of trauma or surgery. This observation implies that in patients with severe forms of the disease, restoration of
a
The correction of a mutant facto
ff
r IX gene with CRISPR/Cas9 leverages endogenous regulation via correction of the gene at its
native location within the genome. As a result, we believe it may represent a superior way to treat hemophilia B patients, relative to
other gene therapyaa
developed within the Casebia joint venturtt e, leveraging Bayer’s expertise in this disease area together with our gene editing expertise.
approaches that insert the correct gene at a random location in the genome. Our hemophilia program will be
Other Organs
We intend to pursue select in vivo programs targeting diseases of other organ systems such as Duchenne muscular dystrophy, or
DMD, and cystic fibrosis, which have significant
for a CRISPR/Cas9 gene editing system. For cystic fibrosi
area expertise. We are working internally as well as through third-party collaborations to optimize viral and non-viral delivery
technologies to overcome the delivery crr
patient populations with high unmet medical needs, and we believe are well suited
s, or CF, we are working with Vertex, a global leader with extensive disease
hallenges to these organ systems.
ff
ff
Duchenne Muscular Dystrophy
Overview
Duchenne muscular dystrophy is an X-linked recessive genetic disease caused by a mutation in the dystrophin gene, which
tion. The absence of dystrophin
results in a lack of the dystrophin protein, a protein that plays a key structural role in muscle fibeff
in muscle cells leads to significant cell damage and ultimately causes muscle cell death and fibff
rosis. DMD is characterized by muscle
degeneration, loss of mobility and premature death, and is among the most prevalent severe genetic diseases, occurring in one in 3,300
male births worldwide. There is also a related formff
caused by mutations in the dystrophin gene. However, unlike DMD, the mutations in BMD result in the loss of certain exons or
regions of the gene, and can lead to an abnoa
milder symptoms than DMD patients.
rmal version of dystrophin that retains some function. As a result, BMD patients have
of muscular dystrophy called Becker muscular dystrophy, or BMD, which is also
ff
r func
There is currently one appr
a
oved disease-modifying therapyaa
in the United States for the treatment of DMD in patients who have a
confirmed mutation of the dystrophin gene amenable to exon 51 skipping, which affects about 13% of the population with DMD.
There is currently no approved disease-modifying therapies in the United States for the treatment of BMD. Our gene-based therapeutic
approach in development to treat DMD involves the use of oligonucleotides to promote exon skipping over the mutations that
,
otherwise would result in truncated dystrophin synthesis. While exon skipping has demonstrated promising results in limited settings
larger clinical trials of this approach have suggested only modest efficacy
t levels of oligonucleotides
requires repeated administration and presents challenges to treating DMD.
. In addition, delivering sufficien
ff
ff
tt
Our Gene EditEE ing Appro
A
ach
We are pursuing multiple approaches to developing therapiaa es for DMD. Our first appr
to muscle cells in patients to delete the defective exons in the dystrophin gene. The goal of this appa
some funct
ff
milder form of the disease known as BMD. We believe that currently available technology is capablea
into muscle cells, and together with the relatively high efficff
move this program into clinical testing.
aa
of delivering the CRISPR/Cas9
iency of exon deletion using the CRISPR/CRR as9 system, we will be abla e to
ional capacity and produce enough dystrophin protein to diminish the more severe symptoms of DMD to resemble the
oach is to deliver CRISPR/CaRR
s9 directly
roach is to allow the gene to regain
We also plan to develop an ex vivo cell therapy product candidate for DMD. We will derive stem cells from patient tissues and
modify them ex vivo using our CRISPR/Cas9 technology to correct the disease causing mutations. These corrected stem cells will then
be differen
ff
the cells will divide and provide the patient with properly funct
tiated into muscle precursor cells and reintroduced into patient tissues. Once administered to the patients, we believe that
ioning muscle fibers with corrected copies of the dystrophin gene.
ff
In parallel, we are performing in vitro experiments to test the principle of dystrophin gene correction which could potentially be
curative. Prior studies in mice and humans have indicated that dystrophin levels as low as 4 to 15% of normal are sufficient to
ameliorate symptoms, suggesting that even a partial restoration of dystrophin levels would be therapeutically beneficial.
13
Cystictt Fibrosis
Cystic fibrosis is a progressive disease caused by mutations in the cystic fibr
ff
resulting in the loss or reduced function of the CFTR protein. Although there are several diffeff
approximately 70% of CF patients have the same mutation at codon 508 of the CFTR gene. Patients with CF develop thick mucus in
vital organs, particularly in the lungs, pancreas and gastrointestinal tract. As a result, CF patients experience chronic severe respiratory
ff
infect
rption of nutrients, progressive respiratory failure and early mortality.
ions, chronic lung inflammation, poor absoa
osis transmembrane regulator, or CFTR, gene
rent mutations associated with CF,
rr
CF is an orpha
n disease that affecff
Europe. The median age of death fromff
failure. CF patients require lifeloff
hospitalizations and sometimes even lung transplantation, which can prolong survival but is not curative.
ts an estimated 70,000 to 100,000 patients worldwide, with a majority in the United States and
CF in the United States in 2014 was 29 years, with most deaths resulting from respiratory
require frequent
ng treatment with multiple daily medications and hours of self-cff are. They oftenff
qq
Studies have shown that as little as 10% of normal CFTR function can ameliorate disease symptoms. Our approach is focused
on using our CRISPR/CRR as9 technology to correct the mutation at codon 508. Together with our collabor
believe that we will be able to deliver CRISPR/Cas9 to the lung and correct this mutation sufficiently to improve symptoms in patients
with CF.
ation partner Vertex, we
a
Further Unlocking the Potential of Our CRISPR/Cas9 Platform
We are working to optimize our CRISPR/Cas9 platformff
. Our key areas of focus are described below.
OPTIMIZATION
Enhance function of the
CRISPR/Cas9 system through
protein and nucleic acid
engineering
GUIDEDE RNARNA SELSELECECTION
Identify optimal
RNA sequences to guide
genomic editing
PLATFORM
ENHANCEMENT
CELLULAR ENGINEERING
Improve power of
gene-edited stem cells as
a therapeutic strategy
DELIVERY
Enhance ability to specifically
introduce editing machinery into
target tissues
CORRECTION
Increase efficiency
of gene correction approaches
Optimtt
izatiott n of to hett Cas9 Proteitt nii
The Cas9 nucleases found in nature are highly efficient and specific. We believe that for many gene-editing applications, the
naturally occurring Cas9 variants have all the properties required to suppouu
certain disease areas and organ systems where modifiedff
through our external
collaborations to develop these.
rr
versions of Cas9 may be more effective, and we are working internarr
lly and
rt an effect
ff
ive therapeutic. However, we also see potential in
14
Our research and development effort
ff
s seek to enhance a number of characteristics of Cas9, including size, specificff
ity,
immunogenicity and ability to support different types of editing strategies. We believe that the process of optimizing these different
parameters may yield a number of effective Cas9 versions with different properties, each of which may be best suited to a certain
disease area or type of genetic editing.
Guide Rdd NARR
Selection
Selecting the sequence for guide RNAs is a critical step in the process of designing our product candidates. Once we have
chosen a gene editing strategy, we seek to identify guide RNAs that will perform the desired edit with high efficiency and with
extremely low off-tff arget cutting. While computational models can predict effiff ciency and off-tff arget effecff
we believe that a combination of computation and experimental appr
RNAs.
oaches is necessary to reliably select the best possible guide
ts with reasonable accuracy,
a
We are building a guide RNA selection process that combines bioinformatics and experimental assays to enabla e the screening of
atics algorithms that select a large pool of
over 10,000 guide RNAs in each experiment. This process starts with proprietary brr
guide RNAs that are predicted to have desired properties. These guides are then tested for target site cutting efficiency using a high-
throughput screening platform in a model cell line. The most efficient guides are then put through two screening processes for possible
off-taff
s. First, bioinformatics algorithms are used to identify the 10 to 20 sites in the genome that are most likely to show off-
target effects, and these sites are examined through high-throughput assays for empirical off-target cutting. Second, whole genome
rget cutting, even at unpredicted locations. Finally, a small subset of guides
sequencing is performed to identify any potential off-ta
with the highest efficff
or guides forff
iency and lowest off-target potential are tested in the cell type of therapeut
ic interest before choosing a lead guide
our program.
rget effect
ioinformff
a
ff
ff
Delivery
Delivery of CRISPR/CRR as9 into cells is a critical step to ensure that the therapeutic will be effecff
tive. We can deliver our Cas9 in
the form of protein, DNA or RNA, allowing us to tailor the delivery format to the target tissue. For our ex vivo programs, we are using
both protein and mRNA forff ms of Cas9 delivered via electroporation, which is the process of using a pulse of electricity to briefly open
the pores of the cell membrane. For in vivo delivery t
technologies that include LNPs and AAVs, as well as other delivery methods, beforff e selecting the specific versions forff
product candidates. In addition, we are collaborating external
access organ systems that are less accessible today. Some of this activity may be done through our Casebia joint venture with Bayer
HealthCare which provides us access to supporting technologies such as delivery vehicles.
o cells and organs in the patient we are evaluating and testing a variety of
ly to develop next-generation delivery technologies that will allow us to
use in our
rr
rr
Correctiott n
While gene correction is achievable today using CRISPR/CRR as9, it is more difficff ult and has lower efficaff
cy than the more
rd gene disruption strategy. Our initial gene correction programs target diseases in which therapeutic efficacy can be
straightforwarr
achieved through correction of only a small percentage of cells, while other potential indications may require correction of a
significantly higher percentage of cells. We are working with our collaborators to increase the efficiency of gene correction in order to
facilitate the potential treatment of these additional indications.
A central focus of our development efforts
ff
is to optimize the correction rates in cell types where rates of correction are typically
low. Some of this optimization is being done internally, to test the influence of differ
correction efficiency. In addition, we are advised by Dr. Stephen Elledge, Professor of Genetics at Harvard Medical School, who is an
expert in DNA damage and repair, to explore ways to optimize the cellular processes involved in the correction process. We are also
collaborating more broadly with leaders in the DNA repair field, to explore other approaches to optimize correction rates.
ent parameters of the CRISPR/Cas
9 system on
RR
ff
Cellull
lar Engineeringii
uu
Many ex vivo applications of our technology use a strategy of editing stem cells ex vivo which, when returned to the patient,
rentiate into a variety of differff ent cell types. For certain stem cell types, especially hematopoietic cells, there are well-established
for
y, efficiency and safety of the ex vivo cell collection, manipulation and administration process for a variety
diffeff
procedures to suppor
us is to improve the efficac
of stem cell types. We are evaluating technologies to improve mobilization of a patient’s stem cells, to maintain viability of the
harvested cells, and to improve the ability of these cells to engraft into a patient’s body. Both in our own laboratories and through our
academic partnerships, we intend to perform additional research to optimize these parameters forff
t this strategy. For others, these procedures are more nascent and require further development. A critical focus
each organ system.
ff
ff
15
Intellectual Property
We strive to protect and enhance the proprietary t
rr
echnologies that we believe are important to our business by seeking patents to
technology, which consists of the in-licensed intellectual property of Dr. Emmanuelle Charpentier described
cover our platformff
below, including compositions of matter and their therapeuaa
are not amenablea
to obtain and maintain patent and other proprietary protection for our technology, our ability to defend and enforce our intellectual
property rights and our ability to operate without infringing any valid and enforceable patents and proprietary rights of third parties.
ropriate for, patent protection. Our success will depend significantly on our ability
tic uses. We also rely on trade secrets to protect aspects of our business that
to, or that we do not consider appa
tt
In-Li- censed Intellecll
tual Property
In April 2014, pursuant to an exclusive license with Dr. Emmanuelle Charpentier, or the Charpenrr
tier License, we licensed from
ff
Dr. Charpentier certain rights to a fami
CRISPR/TRR RACR/Cas9 complexes, and methods of use, including their use in targeting or cutting DNA. The Charpentier License is
limited to therapeutic products such as pharmaceuticals and biologics and any associated companion diagnostics, forff
the treatment or
t the Charpentier License, please see “Business –
prevention of human diseases, disorders, or conditions. For further information abou
CRISPR License with Dr. Emmanuelle Charpentier.”
ly of patent applications relating to compositions of matter, including additional
a
This famff
ily of patent appli
lications in the
United States, Europe, Canada, Mexico, Australia and other selected countries in Central America, South America, Asia and Africa.
The granted patents in the United Kingdom and any other patents that may ultimately issue in this patent family are expected to expire
in 2033, not including any applicable extensions.
cations includes two granted patents in the United Kingdom and pending patent appaa
aa
In addition to Dr. Emmanuelle Charpentier, this family of patent applications has named inventors who assigned their rights
either to the Regents of the University of California, or Californff
subju ect to certain overriding obligations to the sponsors of its research, including the Howard Hughes Medical Institutett
Government. Caribou Biosciences, or Caribou, had reported that it had an exclusive license to patent rights froff m California and
Vienna, subject to a retained right to allow non-profit entities to use the inventions for research and educational purposes. Intellia
Therapeutics, Inc., or Intellia, had reported that it had an exclusive license to such rights from Caribou in certain fields.
ia, or the University of Vienna, or Vienna. California’s rights are
and the U.S.
In January 2rr
l matters, the PTAB concluded in February 2017 that the declared interferen
ily and twelve issued U.S. patents owned jointly by the Broad Institute and Massachusetts Institutett
016, the U.S. Patent and Trademark Office, or USPTO, declared an interference between one of the pending U.S.
of
to individually and collectively as
patent applications in this famff
Technology and, in some instances, the President and Fellows of Harvard College, which we referff
Broad. The interference was redeclared in March 2016 to add a U.S. patent application owned by Broad. An interference is a
proceeding conducted at the USPTO by the Patent Trial and Appeal Board, or PTAB, to determine which party was the first to invent
subject matter claimed by at least two parties. There are currently two parties to this interference. The USPTO designated
Dr. Emmanuelle Charpentier, Califorff nia and Vienna collectively as “Senior Party” and designated Broad as “Junior Party.” Following
motions by the parties and other proceduradd
dismissed because the claim sets of the two parties were not directed to the same patentable invention in accordance with the PTAB’s
two-way test for patent interferff ences. In particular, the Junior Party’s claims in the interference were all limited to uses in eukaryorr
tic
cells, while the Senior Party’s claims in the interference were not limited to uses in eukaryorr
tic cells but included uses in all settings.
Either party can appeal an adverse decision to the U.S. Court of Appeals forff
pursue existing or new patent appaa
new interferenc
patents could be the subjeu
again appeal an adverse decision to the U.S. Court of Appeals for the Federal Circuit. In any case, it may be years before there is a
final determination on priority. Pursuant to the terms of the license agreement with Dr. Charpenrr
reimbursing Dr. Charpentier’s patent prosecution, defense and related costs associated with our in-licensed technology. For further
information regarding risks regarding the interfereff
to Our Intellectuatt
e related to the uses of the technology in eukaryotic cells or other aspects of the technology, and any existing or new
ct of other challenges to their validity of enforceability. If there is a second interference, either party could
nce and patent rights held by third parties, please see “Risk Factors—Risks Related
the Federal Circuit. In parallel, either party can also
d, either party as well as other parties could seek a
lications in the U.S. and elsewhere. Going forff war
tier, we are responsible for covering or
ce should be
l Property.”
ff
rr
ff
16
On December 15, 2016, we entered into a Consent to Assignments, Licensing and Common Ownership and Invention
rr
Vienna, Dr. Charpentier, Intellia, Caribou, ERS Genomics Ltd., or ERS, and
Management Agreement, or the IMA, with California,
TRACR. Under the IMA, California and Vienna retroactively consent to Dr. Charpentier’s licensing of her rights to the CRISPR/Cas9
intellectual property, pursuant to the Charpentier License, to us, our wholly-owned subsidiary Trr
RACR, and ERS, in the United States
and globally. The IMA also provides retroactive consent of co-owners to sublicenses granted by us, TRACR and other licensees,
prospective consent to sublu icenses they may grant in futuff
for, among other things, (i) good faiff
sharing arrangements, and (iii) notice of and coordination in the event of third-party infrinff
respect to certain adverse claimants of the CRISPR/Cas
continue in effect until the later of the last expiration date of the patents underlying the CRISPR/Cas9 technology, or the date on
s of joint ownership in the
which the last underlying patent application is abandoned. For further information regarding the effect
United States and in other jurisdictions worldwide, please see “Risk Factors – The IntII ellectual Propeo rty Ttt
Editing Technology Is Jointly Owned, Add
The United States And In Other JurJJ
re, retroactive approval of prior assignments by certain parties, and provides
th cooperation among the parties regarding patent maintenance, defense and prosecution, (ii) cost-
nd Our License Is From Only One Of The Joint Owners,rr Materially Limiting Our Rights In
9 intellectual property. Unless earlier terminated by the parties, the IMA will
gement of the subject patents and with
haTT t Protects Ott
ur Core Gene
isdictions.”
RR
ff
CRISPII R-PP Owned IntII eltt
lell ctual ProPP peo rtytt
We also own over 80 families of patent applications relating to our platforff m technology or its therapeuaa
a
tic appl
ications. These
patent applications are currently pending in the United States and in some cases in other countries, and we may elect to pursue
additional related applications internationally. Any patents that ultimately issue from these patent appa
2034.
lications may begin to expire in
Patent Assignment Agreement
In November 2014, we entered into a patent assignment agreement with Dr. Emmanuelle Charpentier, Dr. Ines Fonfara and
Vienna, or the Patent Assignment Agreement. Under the Patent Assignment Agreement, Dr. Charpentier, Dr. Fonfara and Vienna
assigned to us all rights to a famff
CRISPR/TRACR/Cas9 complexes, and methods of use, including their use in targeting or cutting DNA.
cations relating to certain compositions of matter, including additional
ily of patent appli
aa
As consideration forff
the patent rights assigned to us, we agreed to pay an upfronff
t payment, milestone payments beginning with
lication or its equivalent in another country, a minimum annual royalty, a low single-
ff
re, use, sale, or importation is covered by the assigned patent rights, and a low
the filing of a U.S. Investigational New Drug appa
digit royalty on net sales of products whose manufactu
single-digit percentage of licensing revenues.
We are obliged to use commercially reasonable effor
ts to obtain regulatory approval to market a producdd t whose manufacff
use, sale, or importation is covered by the assigned patent rights, including but not limited to an obligation to use commercially
reasonable effort
2021.
application (or its equivalent in a major market country) by November
s to file a U.S. Investigational New Drugrr
ff
ff
ture,
License Agreements
CRISPII R LPP
icense Withii Dr. Err mmEE
anuelle Cll
haCC rpentier
aa
RR
9 complexes and their use in targeting or cutting DNA, which we refer to as the
In April 2014, we entered into a license agreement, or the Charpentier License Agreement, with Dr. Emmanuelle Charpentier,
one of our co-founders, pursuant to which we received an exclusive license under Dr. Charpentier’s joint ownership interest a family
of patent applications relating to CRISPR/TRACR/Cas
Patent Rights, to research, develop and commercialize therapeut
any associated companion diagnostics, for the treatment or prevention of human diseases, disorders, or conditions, other than
hemoglobinopathies, which we refer to as the CRISPR Field. The license is exclusive, even as to Dr. Charpentier, except that she
retains a non-transferablea
non-profit partners. The exclusive license is granted only under Dr. Charpenrr
is not granted under any other joint owner’s interest. Additionally, the Charpentier License granted us an exclusive, worldwide,
royalty-freff e sublicense, including the right to sublicense, to research, develop, produce, commercialize and sell therapeutic products
relating to the CRISPR Field which incorporate any intellectual property that TRACR Hematology Ltd., our majority-owned
subsidiary, or TRACR, develops under its license with Dr. Charperr ntier. In turntt
with the obligation to sublicense to TRACR
and prevention of hemoglobinopathy in humans, including, without limitation, sickle cell disease and thalassemia.
her own research purposes and in research collaborations with academic and
l property we develop under the license with Dr. Charperr ntier for treatment
ic products such as pharmaceuticals or biological preparations, and
, we granted to Dr. Charpentier an exclusive license
tier’s interest in the patent appli
right to use the technology forff
cations and the exclusivity
any intellectuatt
RR
a
ff
17
Under the terms of the Charpentier License Agreement, as consideration forff
the license, Dr. Emmanuelle Charpentier received a
, an immaterial annual maintenance fee, immaterial milestone payments that will be due after the initiation of
technology transfer feeff
clinical trials, a low single digit percentage royalty on net sales of licensed producdd ts, and a low single digit percentage royalties of
sublicensing revenue. We are obligated to use commercially reasonable effoff
roval to market a licensed
therapeutic product. CRISPR must use commercially reasonabla e effort
a U.S. Investigational New Drug application (or its
equivalent in a major market country for a therapeutic product in the CRISPR field) by April 2021. In addition, CRISPR must file a
U.S. Investigational New Drug application (or its equivalent in a major market country) forff
by April 2024.
a therapeutic product in the CRISPR field
rts to obtain regulatory arr
s to fileff
ppa
ff
Unless terminated earlier, the term of the Charpentier License Agreement will expire on a country-by-country brr
asis, upon the
expiration of the last to expire valid claim of the Patent Rights in such country. We have the right to terminate the agreement at will
upon 60 days’ written notice to Dr. Emmanuelle Charpentier. We and Dr. Charperr ntier may terminate the agreement upon 90 days’
notice in the event of a material breach by the other party, which is not cured during the 90 day notice period. Dr. Charpentier may
terminate the license agreement immediately if we challenge the enforce
ability, validity, or scope of any Patent Rights.
ff
TRACRR R LCC
icense WithWW Dr. Err mmEE
anuelle Charpentier
In April 2014, concurrently with our license agreement with Dr. Emmanuelle Charpenrr
RR
tier, TRACR
Hematology Ltd., our
RR
majority owned subsidiary, entered into a license agreement, or the TRACR
RR
shareholder of TRACR, under the Patent Rights. Pursuant to the TRACR
worldwide, royalty-bearing license, including the right to sublicense, to research, develop, producdd e, commercialize and sell therapeutic
and diagnostic producdd ts for the treatment and prevention of hemoglobinopathy in humans, including sickle cell disease and
thalassemia, or the TRACR
Field. TRACR also received a non-exclusive, worldwide, royalty-freff e license, including the right to
sublicense, to carryrr out internal pharmaceutical research for therapeaa utic producdd ts outside of the TRACR Field and an exclusive,
worldwide, royalty-freff e sublicense, including the right to sublicense, to research, develop, producdd e, commercialize and sell therapeutic
products relating to the TRACR Field which incorporate any intellectual property that CRISPR develops under its license with
Dr. Charpentier. In turn, TRACR granted to Dr. Charpentier an exclusive license to sublicense to CRISPR any intellectual property
that TRACR develops under the license with Dr. Charpentier forff
License Agreement, with Dr. Charpentier, a minority
License Agreement, TRACR was granted an exclusive,
use in the CRISPR Field.
RR
TRACRR
R is obligated to use commercially reasonable efforts
c
to research, develop, and commercialize at least one therapeuti
for the prevention or treatment of human disease under the license agreement. TRACR must use commercially reasonable
a
ff
s to fileff
a U.S. Investigational New Drug appl
productdd
effort
ff
TRACR field by April 2021. In addition, TRACR
market country) forff
a
a therapeut
development costs.
RR
ic producdd t in the TRACRR
aa
ication (or its equivalent in a major market country)rr
must file a U.S. Investigational New Drugrr
for a therapeutic product in the
application (or its equivalent in a major
R fieff
ld by April 2024. Tracr is solely responsible forff
all clinical, regulatory and
Under the TRACR License Agreement, Dr. Emmanuelle Charpentier is entitled to receive immaterial clinical and regulatory
milestone payments per productdd
percentage royalties on the net sales of any approved therapeutic or diagnostic products, made by it, its affiliates, or its sublic
and low single-digit percentage royalties on sublicensing revenue.
that TRACR commercializes. TRACR is also required to pay Dr. Charpentier low single digit
u
ensees
Unless terminated earlier, the term of the license agreement will expire on a country-rr by-country basis, uponuu
the expiration of the
last to expire valid claim of the Patent Rights in such country. TRACR has the right to terminate the agreement at will upon 60 days’
written notice to Dr. Emmanuelle Charperr ntier. TRACRR
R and Dr. Charpentier may terminate the agreement upon 90 days’ notice in the
event of a material breach by the other party, which is not cured during the 90 day notice period. Dr. Charperr ntier may terminate the
license agreement immediately if TRACR challenges the enforceability, validity, or scope of any Patent Right.
Bayer JoinJJ
t VentVV ure
In December 2015, we entered into a Joint Venture Agreement, or the JV Agreement, with Bayer HealthCare LLC, or Bayer
HealthCare, to create Casebia Therapeaa utics LLP, or Casebia, to discover, develop and commercialize new therapeaa utics forff
linked diseases, including blood disorders, blindness and heart disease. At the closing of the transactions contemplated by the JV
Agreement in March, 2016, or the Closing, we contributed $0.1 million to Casebia and we and certain of our affiliates entered into an
l property contribution agreement with Casebia, or the CRISPR IP Contribution Agreement, as discussed below, exclusively
intellectuatt
licensing our CRISPR/Cas technology to Casebia forff
in certain
specified fields, or the Casebia Fields. Bayer HealthCare contributed an initial amount of $45 million at the Closing to Casebia and is
committed to contribute up to an additional $255 million in additional funds over time to fundff
conditions and procedurdd es discussed below. We and Bayer HealthCare each hold a 50%, non-transferablea
u
sublea
the operations of Casebia, subjeb ct to the
interest in Casebia. Casebia
e of developing and commercializing therapeut
ses a portion of our Cambridge officeff
its initial operations.
dd
ic products
genetically
the purpos
forff
aa
rr
18
Casebia’s initial focus will be within the areas of hematology, ophthalmology and cardiology, in addition to select indications
related to other sensory organs, metabolic diseases and autoimmune diseases. Within these areas of focus, we and Bayer HealthCare
each have exclusive rights to specified disease indications, the CRISPR Field and Bayer Field, respectively, as discussed below.
Governance
In November of 2016, Casebia appointed James Burnsrr
as chief executive officer, or CEO, of Casebia, replacing Axel Bouchon,
the head of LifeScience Center of Bayer AG, who was serving as interim CEO. Dr. Burnsrr
also joined the Casebia Board as a non-
voting member. Casebia is generally governed by a management board, or the Management Board, which is initially comprised of
four voting members, two of which are designated by us and two of which are designated by Bayer. We have initially designated Drs.
Novak and Lundberg to serve as our designees to the Management Board. Decisions of the Management Board are generally made by
majority vote, with each member having one vote. Certain matters require the consent of Bayer HealthCare and us.
Budgetdd
And Fundingdd
ff
The JV Agreement sets forth the initial 24-month budget forff Casebia, which will be revised by the Management Board on a
owing 24 months. Bayer HealthCare, subject to certain conditions, is solely responsible forff
yearly basis for the foll
with the necessary additional funding as determined by the Management Board until the earlier of (i) its aggregate additional
commitment amount of $255 million is full
Board or (ii) the termination of the JV Agreement in accordance with its terms. Any additional fund
committed by Bayer HealthCare in the JV Agreement up tuu
an acquisition or otherwise, will not affect or dilute our 50% interest in Casebia.
aa
ing beyond the amounts initially
ff
o the $300 million aggregate commitment amount, whether for purposes of
ed, at which point all additional financing must be appr
oved by the Management
providing Casebia
y fundff
ff
Non-Competim
tion
During the term of the JV Agreement, neither we nor Bayer HealthCare, nor any of our respective affiliates, may develop,
commercialize or otherwise exploit any competing product utilizing the CRISPR/Cas technology in any of the Casebia Fields unless,
t of a pre-existing license or an approved third party agreement, or
in the case of CRISPR or one of our affiliates, a target is the subjec
certain other excluded targets. In addition, in the event either we, Bayer HealthCare or a third party license a product candidate from
Casebia pursuant to the Option Agreement discussed below, the non-licensing party or parties to the JV Agreement will be prohibited
from developing, commercializing or otherwise exploiting any product utilizing CRISPR/CRR as technology to target the same target as
that of the licensed productdd
clinically developing, commercializing or otherwise exploiting such licensed product candidate.
candidate in any of the fields covered by such Option Agreement, so long as the licensing party is
u
Furthermore, upouu n a termination by either party forff
specifiedff
breaches of the other party, the defaulting party will be prohibited
from utilizing the CRISPR/Cas technology to develop, commercialize or otherwise exploit product candidates in the fieff
terminating party which would be competitive with the terminating party, for a period of two years foll
ld of the
owing such termination.
ff
Termination
The JV Agreement can be terminated by Bayer HealthCare and us upon mutual written consent. Either party may terminate the
JV Agreement in the event of specified breaches by the other party or in the event the other party becomes subjecb
bankruptcy, winding up or similar circumstances. Either party may also terminate uponuu
defined in the JV Agreement. Bayer HealthCare also has the right to terminate in the event (i) we are not able to maintain the
intellectual property rights licensed to Casebia pursuant to the CRISPR IP Contribution Agreement or (ii) we have not achieved
preclinical proof of concept with a CRISPR/Cas9 product candidate in a specifieff d period of time. The JV Agreement may also be
terminated by either party if, sff ubsequent to the time that Bayer HealthCare has funded its entire $300 million commitment, the
Management Board is unable to approve and obtain sufficient funding, within the time specified in the JV Agreement, to continue
Casebia’s operations forff
a change of control of the other party, as
the next 18 months.
t to specifiedff
Subject to certain exceptions, in the event of a termination, all Casebia owned patents, know-how and technology will be jointly
owned by us and Bayer HealthCare, with the right to subliu
will receive an exclusive license to Casebia CRISPR/Cas
human therapeutic uses. Upon such termination, we will receive an exclusive license to Casebia CRISPR/CRR as
exclusive license forff
technology in human therapeutic areas, other than in the Bayer Field, and a non-exclusive license for human therapeutic uses in the
Bayer Field. Upon any termination, all rights licensed to Casebia pursuant to the CRISPR IP Contribution Agreement will terminate,
except for any rights licensed to third parties or to a party who has exercised an option pursuant to the Option Agreement described
below.
cense. Upon termination, subjeu
technology for all non-human therapeaa utic uses in the Bayer Field and a non-
ct to certain exceptions, Bayer HealthCareaa
RR
19
IP Contritt but
iott n Agreement Withii Casebiaii
ii
As part of our contribution to Casebia, in March 2016, we and certain of our affiliates entered into the CRISPR IP Contribution
ff
y paid-up,uu royalty-free license, including the right to sublicense, to the use of our CRISPR/Cas
, commercialize and sell products in the Casebia Fields. As partial consideration forff
Agreement with Casebia. Pursuant to the CRISPR IP Contribution Agreement, we and certain of our affiliated entities granted Casebia
an exclusive, worldwide, full
technology to research, develop, producedd
license, Casebia is required to pay us an aggregate amount of $35 million for a technology access fee, consisting of an upfront
payment of $20 million, which was paid at the closing of the JV Agreement in March 2016, and another payment of $15 million when
we obtain specifiedff
intellectual property rights relating to our CRISPR/Cas9 technology outside of the United States, which was paid
in December 2016 upon
uu
us to various forms of intellectual property developed or in-licensed by Casebia. The CRISPR IP Contribution Agreement will
terminate simultaneously with the termination of the JV Agreement, subject to survival of certain licenses granted during the term,
including licenses granted pursuant to an exercise of an option pursuant to the Option Agreement.
the signing of the IMA. The CRISPR IP Contribution Agreement also contains license grants from Casebia to
the
Option Agreement With Bayer
In connection with the Closing, in March 2016, we, Bayer HealthCare and Casebia entered into an Option Agreement. Pursuant
candidate it is developing, both
to the Option Agreement, in the event the FDA accepts an IND submitted by Casebia for any productdd
we and Bayer HealthCare have the right to submit an offer to enter into a license with Casebia for the exclusive right to develop,
manufacture and commercialize the producdd t candidate in certain Casebia Fields. In addition, Casebia is allowed to receive and
consider unsolicited third-party offer
the
applicable product candidate. The Option Agreement sets forth the procedures the Management Board will follow when considering
.
and voting on any offers as well as the considerations on how to value any offerff
s, and both we and Bayer HealthCare can require Casebia to seek third-party offerff s forff
ff
Collall boration Agregg ement WitWW h Vtt
erteVV
xee
On October 26, 2015, we entered into a Strategic Collabor
a
ation, Option and License Agreement, or the Collaboration
a
Agreement, with Vertex Pharmaceuticals, Incorporated and Vertex Pharmaceuticals (Europe) Limited, together, Vertex. Pursuant to
the Collabor
to Vertex in exchange for a $75 million upfruu
million equity investment in us.
ation Agreement, we agreed to provide technology and options to obtain licenses relating to our CRISPR/Cas technology
ont payment. In connection with the Collaboration Agreement, Vertex also made a $30
, commercialize, sell and use therapeaa utics directed to each such collaboa
Under the Collaboration Agreement, Vertex has the option to exclusively license treatments forff
up to six collaboration targets
that emerge from the four-year research collaboration under certain of our platforff m and background intellectual property to develop,
manufacturett
ration target. For any non-hemoglobinopathies
targets in-licensed for development, Vertex will pay future development, regulatory and sales milestones of up to $420 million per
target, as well as royalty payments in the single digits to low teens on futuff
milestone and royalty payments are each subject to reduction under certain specified conditions set forth in the Collaboa
Agreement. For these therapiaa es, Vertex is solely responsible for all research, development, manufact
commercialization activities.
re sales of a commercialized product candidate. The
ration
ing and global
urtt
ff
However, specifically for hemoglobinopathies targets, if Vertex exercises one or more of its six options on a hemoglobinopathy
target, including targets for sickle cell disease, we and Vertex will equally share all development costs and sales expenses. If a
hemoglobinopathy target is successfully developed, we would be the lead party responsible forff
States and Vertex would be the lead party responsible for commercialization efforts outside the United States. The profits fromff
sales of any hemoglobinopathies products will be equally shared by Vertex and us.
commercialization effort
ff
the
s in the United
RR
The initial focus of the collaboration will be to use CRISPR/Cas
ff
fforts focus
9 technology to discover and develop gene-based treatments for
ed on a specified number of other genetic targets will also be
ration Agreement. We will be responsible for discovery activities, and the related expenses will be fully
osis. Further discovery err
ff
ation Agreement, we and Vertex have each agreed to certain exclusivity obligations with respect
hemoglobinopathies and cystic fibr
conducted under the Collaboa
funded by Vertex. Under the Collabor
to targets subject to the Collaboration Agreement.
a
Either party can terminate the Collaboration Agreement upon the other party’s material breach, subjeb ct to specifieff d notice and
cure provisions. Vertex also has the right to terminate the Collaboa
notice prior to any product receiving marketing approval and upouu n 270 days’ notice after a product has received marketing approval.
In the event we and Vertex make a filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, forff
collabor
a
with respect to that target. We may also terminate the Collaboration Agreement in the event Vertex challenges any of our patent
rights.
ation target and such filing is not cleared within a specifiedff
time after such filff ing, the Collaboration Agreement will terminate
convenience at any time upon 90 days’ written
ration Agreement forff
a
20
Absent early termination, the Collaboa
ration Agreement will continue until the expiration of the Vertex’s payment obligations
under the Collabor
a
ation Agreement. Upon termination, the targets that are not licensed by Vertex will be returned
tt
to us.
License Agregg ement with Anagenes
a
is
On June 7, 2016, we entered into a license agreement with Anagenesis Biotechnologies SAS, or Anagenesis, pursuant to which
we received an exclusive worldwide license to Anagenesis’ proprietary technology for all human based muscle diseases. We plan to
initially use these rights to advance our research and productdd
Pursuant to the license agreement, we made a one-time upfront payment of $0.5 million to Anagenesis and are required to pay
Anagenesis up to $89.0 million upon the achievement of futuff
e
and autologous licensed products developed pursuant to the license agreement, as well as low single digit royalty payments on futur
sales of commercialized producdd t candidates.
re clinical, regulatory and sales milestones for each of the first allogeneic
our Duchenne muscular dystrophy program.
development efforts forff
ff
We can terminate the license agreement at any time upon 30 days’ written notice. Either party may also terminate the license
uu
the other party’s material breach, subjecb
agreement upon
license agreement in the event the other party becomes subject to specified bankruptcy, winding up ouu
early termination, the license agreement will continue until the expiration of our payment obligations on a country-by-country brr
t to specified notice and cure provisions. Either party may terminate the
r similar circumstances. Absent
asis.
Manufacturing
We currently have no commercial manufacff
turing or cell processing capaaa bia lities. We are working to establish manufacturing
ff
ities to manufact
urtt e the necessary human cells, Cas9 and guide RNAs
processes for both in vivo and ex vivo CRISPR/Cas9-based therapies and have establa ished relationships with third-party manufacturers
with capabila
tt
Practices, or cGMP. We plan to continue to rely on qualified third-party organizations to produce or process bulk compounds,
formulated compounds, viral vectors or engineered cells forff
commercial quantities of any compound, vector, or engineered cells that we may seek to develop will be manufacff
by processes that comply with FDA and other regulations. At the appropriate time in the product development process, we will
determine whether to establish manufacturtt
any products that we may successfull
futurett
instances, we may consider building our own commercial infrastructure.
to utilize strategic partners, distributors or contract sales forces to assist in the commercialization of our products. In certain
y develop. Outside of the United States and Europe, where appropriate, we may elect in the
IND-supporting activities and early stage clinical trials. We expect that
ilities or continue to rely on third parties to manufacff
in accordance with current Good Manufacturi
ture commercial quantities of
tured in facilities and
ing facff
ng
RR
ff
As producdd t candidates advance through our pipeline, our commercial plans may change. In particular, some of our research
programs target potentially larger indications. Data, the size of the development programs, the size of the target market, the size of a
commercial infraff structurtt e and manufacturtt
world.
ing needs may all influence our strategies in the United States, Europe and the rest of the
Competition
The biotechnology and pharmaceutical industries, including in the gene therapyaa
rapidly advancing technologies, intense competition, and a strong emphasis on intellectuatt
we believe that our technology, development experience, and scientific knowledge provide us with competitive advantages, we
currently face, and will continue to face, competition froff m many diffeff
pharmaceutical, and biotechnology companies, academic instituttt
instituttt
therapies currently in development, we will have to compete with new therapies that may become availablea
rent sources, including major pharmaceutical, specialty
ions and governmental agencies, and public and private research
ions. For any producdd ts that we may ultimately commercialize, not only will we compete with any existing therapies and those
l property and proprietary prr
lds, are characterized by
and gene editing fieff
roducts. While
in the future.
We compete in the segments of the pharmaceutical, biotechnology, and other related markets that utilize technologies
encompassing genomic medicines to create therapieaa
are working to develop therapies in areas related to our research programs.
s, including gene editing and gene therapy.
aa
There are additional companies that
Our platform and product focus is on the development of therapies
developing CRISPR/Cas9 technology include Intellia and Editas Medicine, Inc.
aa
using CRISPR/Cas9 technology. Other companies
21
There are additional companies developing therapiaa es using additional gene-editing technologies, including TALENs,
meganucleases, and zinc finger nucleases. The companies developing these additional gene-editing technologies include bluebird bio,
Cellectis, Poseida Therapeutics, Precision Biosciences, and Sangamo Biosciences. Additional companies developing gene therapy
products include Abeona Therapeaa utics, Avalanche Biotechnologies, Dimension Therapeaa utics, REGENXBIO, Spark Therapeutics and
uniQure. In addition to competition from other gene-editing therapies or gene therapies, any producdd ts that we develop may also face
competition from other types of therapies, such as small molecule, antibody, or protein therapiaa es.
We may also face future competition fromff
newly discovered gene editing technologies or new CRISPR-associated nucleases.
While we believe that CRISPR/Cas9 will be highly effeff ctive forff many therapeutic appa
enhance the technology, more efficient gene editing technologies may emerge. For example, recent publu ications by Feng Zhang,
Ph.D., one of the founders of Editas Medicine, Inc. and others have elucidated a differ
can also edit human DNA. Some have argued that Cpf1 is supeuu rior to Cas9 for certain applications. Gene editing is a highly active
field of research and new technologies, related or unrelated to CRISPR, may be discovered and create new competition.
lications and are actively working to further
ent CRISPR-associated nuclease, Cpf1, which
ff
In addition, many of our current or potential competitors, either alone or with their collabor
a
ation partners, have significantly
turing, preclinical testing, conducdd ting clinical trials,
aa
nt competitors, particularly through collaboa
oved products than we do. Mergers and acquisitions in the pharmaceutical, biotechnology, and gene therapy
greater financial resources and expertise in research and development, manufacff
and marketing appr
industdd
ries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage
companies may also prove to be significaff
rative arrangements with large and established
ting and retaining qualifieff d scientific and management personnel and
companies. These competitors also compete with us in recruirr
establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or
necessary f
ff
commercialize producdd ts that are saferff
oval for their products more
than any products
rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position beforff e we
are able to enter the market. The key competitive factors affect
safetff y, convenience, and availability of reimbursement.
a
that we may develop. Our competitors also may obtain FDA or other regulatory arr
ing the success of all of our programs are likely to be their efficacy,
y could be reduced or eliminated if our competitors develop and
our programs. Our commercial opportunit
tive, have fewer or less severe side effecff
, more effecff
ts, are more convenient or are less expensive
ppr
or,
dd
rr
ff
tt
If our current programs are approved forff
with other products currently under development, including gene editing and gene therapyaa
products currently under development may include competition forff
clinical trial sites, patient recruitment, and product sales.
the indications for which we are currently planning clinical trials, they may compete
s. Competition with other related
productdd
In addition, due to the intense research and development that is taking place by several companies, including us and our
competitors, in the gene editing field, the intellectual property landscape is in flux and highly competitive. There may be significant
intellectual property related litigation and proceedings, in addition to the ongoing interfereff
.
in-licensed, and other third party, intellectual property and proprietary rights in the futff urett
nce proceedings, relating to our owned and
For example, in January 2016, at our request, the USPTO declared an interference between one of the pending U.S. patent
rr
y 2rr
applications we licensed from Dr. Emmanuelle Charpentier and twelve issued U.S. patents, and subsequently added one U.S. patent
application, owned jointly by Broad. Because our application was filed first, the USPTO designated Dr. Charpentier, Californff
ia and
Vienna, or Vienna, collectively as “Senior Party” and designated Broad as “Junior Party.” Following motions by the parties and other
017 that the declared interference should be dismissed because the claim sets of
procedural matters, the PTAB concluded in Februar
patent
the two parties were not directed to the same patentable invention in accordance with the PTAB’s two-way test forff
interferences. In particular, the Junior Party’s claims in the interference were all limited to uses in eukaryorr
tic cells, while the Senior
Party’s claims in the interference were not limited to uses in eukaryotic cells but included uses in all settings. Either party can appeal
an adverse decision to the U.S. Court of Appeals for the Federal Circuit. In parallel, either party can also pursue existing or new patent
applications in the U.S. and elsewhere. Going forward, either party as well as other parties could seek a new interference related to the
uses of the technology in eukaryotic cells or other aspects of the technology, and any existing or new patents could be the subjb ect of
other challenges to their validity of enforcff
ity. In the context of a second interfereff
could be reached regarding that the Senior Party was not the firff st to invent, or it could be concluded that the contested subjeb ct matter is
not patentable to the Senior Party and is patentablea
from issuing as patents, in which case the proceedings would result in our losing the right to protect core innovations and our freedom
to practice our core gene editing technology. If there is a second interference, either party could again appeal an adverse decision to
the U.S. Court of Appeals for the Federal Circuit. In any case, it may be years before there is a final determination on priority. For
example, Toolgen Inc., or Toolgen, filed Suggestions of Interference in the USPTO on April 13, 2015 and December 3, 2015,
suggesting that they believe some of the claims in pending U.S. applications owned by Toolgen (U.S. Serial No. 14/685,568 and U.S.
Serial No. 14/685,510, respectively) interferff e with certain claims in five of the Broad patents currently involved in the interference
with Dr. Emmanuelle Charpentier, Califorff niarr
applications relating to CRISPR technologies, which similarly may lead to furff
and Vienna. We are also aware of additional third parties that have pending patent
to the Junior Party, which in this case could preclude our U.S. patent applications
ther interferff ence proceedings. For example, Rockefeller
nce or in other proceedings, a determination
eabila
22
ff
as co-inventor of CRISPR/Cas9
University has filed a continuation application (U.S. Serial No. 14/324,960) of an application filed by the Broad that Rockefeller’s
employee Luciano Marraffini
technology; Vilnius University has filed applications in the United
States and in other jurisdictions (published internationally as WO2013/141680 and WO2013/142578), Harvard University has filed
applications in the United States and in other jurisdictions (published internationally as WO2014/099744), and Sigma-Aldrich has
filed appa
of CRISPR/Cas9 technology based on applications claiming priority to provisional filings in 2012. Numerous other filings are based
on provisional applications filed after 2012.
lications in the United States and in other jurisdictions (published internarr
tionally as WO2014/089290), each claiming aspects
RR
rr
onal counterpar
Both Broad and Toolgen have filed internati
ts of their U.S. applications, some of which were granted in Europe
and/or other jurisdictions. We and third parties have initiated opposition proceedings against some of these grants, and we may in the
future oppose other grants to these or other applicants. Similarly, if we should obtain patent grants in the U.S., Europe and other
jurisdictions, these could also be the subjecb
s sought by third parties in order to revoke the
grants or narrow the scope of granted claims. Going forward, with existing and new challenges being filed against CRISPR/Cas9 cases
in the U.S., Europe and elsewhere, and considering the number of interested parties, it is reasonable to expect that patents directed to
the underlying technology will continue to be the subject
beyond as decisions in favoff
of ongoing disputes over at least the next several years, and potentially
r or against particular parties may be the subject of appeals.
t of oppositions or other post-grant proceduredd
b
rr
Government Regulation
Government authorities in the United States, at the federal, state and local level, and in other countries and jurisdictions,
including the European Union, extensively regulate, among other things, the research, development, testing, manufactu
control, approval, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, post-approval
monitoring and reporting, and import and export of pharmaceutical products, including biological products. Some jurisdictions outside
of the United States also regulate the pricing of such products. The processes for obtaining marketing approvals in the United States
and in other countries and jurisdictions, along with subsequent compliance with applicable statutes and regulations and other
regulatory authorities, require the expenditure of substantial time and financial resources.
re, qualitytt
ff
Licensure and Regul
e
atll
iontt
of Biologico
s in t
ii hett Unitedtt
States
In the United States, our candidate products would be regulated as biological productdd
s, or biologics, under the Public Health
Service Act, or PHSA, and the Federal Food, Drug, and Cosmetic Act, or FDCA, and their implementing regulations. The failure to
comply with the applicable U.S. requirements at any time duridd
clinical testing, the approval process or post-appro
review and approval, and/or administrative or judicial sanctions. These sanctions may include, but are not limited to, the U.S. Food
and Drug Administration’s, or FDA’s, refusal to allow an applicant to proceed with clinical testing, refusal to approve pending
applications, license suspension or revocation, withdrawal of an approval, untitled or warninrr
g letters, adverse publicity, product
recalls, product seizures, total or partial suspension of production or distribution, injunctions, fineff
and penalties brought by the FDA or the Department of Justice, or DOJ, or other governme
ng the product development process, including non-clinical testing,
ct an applicant to delays in the conduct of a study, regulatory
s, and civil or criminal investigations
val process, may subjeu
ntal entities.
aa
rr
An applicant seeking approval to market and distribute a new biologic in the United States generally must satisfactorily
complete each of the following steps:
•
•
•
•
•
•
preclinical labor
Laboratory Practice, or GLP, regulations;
a
atory tests, animal studies and formulation studi
tt
es all performed in accordance with the FDA’s Good
submission to the FDA of an investigational new drug, or IND, application for human clinical testing, which must become
effecff
tive before human clinical trials may begin;
approval by an independent instituttt
may be initiated, or by a central IRB if appropriate;
ional review board, or IRB, representing each clinical site before each clinical trial
performance of adequate and well-controlled human clinical trials to establish the safety, potency, and purity of the product
candidate for each proposed indication, in accordance with the FDA’s Good Clinical Practice, or GCP, regulations;
preparation and submission to the FDA of a Biologics License Application, or BLA, forff
marketing forff
one or more proposed indications, including submission of detailed informff
composition of the product and proposed labeling;
a biologic productdd
ation on the manufacff
requesting
ture and
review of the product by an FDA advisory committee, where appropriate or if appli
a
cable;
23
•
•
•
•
satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities, including those of third
parties, at which the product, or components thereof, are produced to assess compliance with cGMP requirements and to
assure that the facilities, methods, and controls are adequate to preserve the product’s identity, strength, quality, and purity,tt
and, if applicable, the FDA’s current good tissue practice, or CGTP, for the use of human cellular and tissue products;
tory crr
satisfacff
and GCPs, respectively, and the integrity of clinical data in support of the BLA;
ompletion of any FDA audits of the non-clinical study and clinical trial sites to assure compliance with GLPs
payment of user fees and securing FDA approval of the BLA; and
compliance with any post-approval requirements, including thett
Mitigation Strategy, or REMS, adverse event reporting, and compliance with any post-approval studies required by the FDA.
potential requirement to implement a Risk Evaluation and
Preclinical Studies and Investigational New Drug Application
tt
es to evaluate the potential for efficaff
Before testing any biologic product candidate in humans, including a gene therapy producdd t candidate, the producdd t candidate
must undergo preclinical testing. Preclinical tests include laboratory evaluations of product chemistry, formulation and stability, as
well as studi
compounds forff
manufacturi
The IND automatically becomes effecff
based on concernsrr
subjects would be exposed to unreasonable and significant health risks. In that case, the IND sponsor and the FDA must resolve any
outstanding FDA concerns before the clinical trials can begin.
testing must comply with federal regulations and requirements. The results of the preclinical tests, together witht
or IND, appl
ng inforff mation and analytical data, are submitted to the FDA as part of an Investigational New Drug,
tive 30 days after receipt by the FDA, unless before that time the FDA imposes a clinical hold
or questions about the product or conducdd t of the proposed clinical trial, including concernsrr
cy and toxicity in animals. The conductdd
of the preclinical tests and formulation of the
that human research
ication.
a
rr
tt
As a result, submission of the IND may result in the FDA not allowing the trials to commence or allowing the trial to commence
by the sponsor in the IND. If the FDA raises concernsrr
on the terms originally specifiedff
period, or at any time durdd ing the conductdd
impose a partial or complete clinical hold. This order issued by the FDA would delay either a proposed clinical study or cause
suspension of an ongoing study, until all outstanding concerns have been adequately addressed and the FDA has notified the company
that investigations may proceed or recommence but only under terms authorized by the FDA. This could cause significant delays or
ff
difficul
of the IND study, including safety concerns or concerns due to non-compliance, it may
ties in completing planned clinical studies in a timely manner.
or questions either during this initial 30-day
With gene therapy protocols, if the FDA allows the IND to proceed, but the Recombinant DNA Advisory Committee, or RAC,
of the National Institute of Health, or NIH, decides that full public review of the protocol is warranted, the FDA will request at the
completion of its IND review that sponsors delay initiation of the protocol until after completion of the RACRR
review process.
Human Clinical Trials i
ll n SupSS port
pp
of a BLABB
Clinical trials involve the administration of the investigational productdd
candidate to healthy volunteers or patients with the
disease to be treated under the supervision of a qualified principal investigator in accordance with GCP requirements. Clinical trials
are conducdd ted under studtt y protocols detailing, among other things, the objb ectives of the stutt dy, inclusion and exclusion criteria, the
parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. A protocol for each clinical trial and
subsequent protocol amendments must be submitted to the FDA as part of the IND.
A sponsor who wishes to conduct a clinical trial outside the United States may, but need not, obtain FDA authorization to
the clinical trial under an IND. If a non-U.S. clinical trial is not conducted under an IND, the sponsor may submit data fromff
conductdd
well-designed and well-conducted clinical trial to the FDA in support of the BLA so long as the clinical trial is conducted in
compliance with internarr
FDA is able to validate the data fromff
the ethical conduct of clinical research known as good clinical practice, or GCP, and the
the study through an onsite inspection if the FDA deems it necessary.
tional guidelines forff
a
a
oved by an independent instituti
ct informed consent, ethical factors, and the safetyff
Further, each clinical trial must be reviewed and appr
onal review board, or IRB, either centrally
or individuadd lly at each institution at which the clinical trial will be conducted. The IRB will consider, among other things, clinical trial
design, subjeu
regulations. The FDA or the clinical trial sponsor may suspend or terminate a clinical trial at any time for various reasons, including a
ts or patients are being exposed
finding that the clinical trial is not being conductdd
to an unacceptabla e health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical
trial is not being conducdd ted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious
harm to patients. Clinical testing also must satisfy eff
clinical trials are overseen by an independent group of qualifiedff
informed consent. Additionally, some
experts organized by the clinical trial sponsor, known as a data safety
of human subjects. An IRB must operate in compliance with FDA
ed in accordance with FDA requirements or the subjec
xtensive GCP rules and the requirements forff
u
tt
24
monitoring board or committee. This group may recommend continuation of the study as planned, changes in study conduct, or
cessation of the study at designated check points based on access to certain data from the study. Finally, research activities involving
infectious agents, hazardous chemicals, recombinant DNA, and genetically altered organisms and agents may be subject to review and
approval of an Institutio
Synthetic Nucleic Acid Molecules.
nal Biosafety Committee in accordance with NIH Guidelines forff Research Involving Recombinant or
tt
Clinical trials typically are conducted in three sequential phases, but the phases may overlap or be combined. Additional studies
may be required after appa
roval.
•
•
•
Phase 1 clinical trials are initially conducted in a limited population to test the product candidate for safety, including
adverse effecff
ts, dose tolerance, absorptrr
or, on occasion, in patients, such as cancer patients.
ion, metabolism, distribution, excretion, and pharmacodynamics in healthy humans
risks, evaluate the efficaff
Phase 2 clinical trials are generally conducdd ted in a limited patient population to identify possible adverse effecff
safetyff
and optimal dosage. Multiple Phase 2 clinical trials may be conducted by the sponsor to obtain informff
beginning larger and more costly Phase 3 clinical trials.
cy of the product candidate forff
specific targeted indications and determine dose tolerance
ation prior to
ts and
Phase 3 clinical trials proceed if the Phase 2 clinical trials demonstrate that a dose range of the producdd t candidate is
potentially effeff ctive and has an acceptabla e safetff y profile. Phase 3 clinical trials are undertaken within an expanded patient
iveness and safetff y that is needed
population to further evaluate dosage, and gather the additional information about effect
to evaluate the overall benefit-risk relationship of the drug and to provide an adequate basis forff
physician label
ing.
a
ff
Progress reports detailing the results, if known, of the clinical trials must be submitted at least annually to the FDA. Written IND
for reporting. IND safety reports are required for serious and unexpected suspected adverse events, findings fromff
safety reports must be submitted to the FDA and the investigators within 15 calendar days after determining that the informa
qualifiesff
studies or animal or in vitrott
testing that suggest a significant risk to humans exposed to the drug, and any clinically important increase
in the rate of a serious suspected adverse reaction over that listed in the protocol or investigator brochure. Additionally, a sponsor must
notify FDA within 7 calendar days after receiving information concerning any unexpected fatal or life-threatening suspected adverse
reaction.
tion
other
ff
In some cases, the FDA may approve a BLA for a producdd t candidate but require the sponsor to conductdd
additional clinical trials
to further assess the product candidate’s safety and effect
iveness after approval. Such post-approval trials are typically referred to as
Phase 4 clinical trials. These studies are used to gain additional experience from the treatment of patients in the intended therapeutic
indication and to document a clinical benefitff
exhibit due diligence with regard to conducting Phase 4 clinical trials could result in withdrawal of approval for productdd
in the case of biologics approved under accelerated approval regulations. Failure to
s.
ff
Special Regulations and Guidance Governing Gene TherTT
apy Ppp
roducts
It is possible that the proceduredd
s and standards applied to gene therapy products and cell therapy products may be applied to any
CRISPR/Cas9 producdd t candidates we may develop, but that remains uncertain at this point. The FDA has defined a gene therapy
product as one that mediates its effeff cts by transcription and/or translation of transferred genetic material and/odd r by integrating into the
host genome and which are administered as nucleic acids, viruses, or genetically engineered microorganisms. The products may be
used to modify cells in vivo or transferr
ed to cells ex vivo prior to administration to the recipient. Within the FDA, the Center forff
Biologics Evaluation and Research, or CBER, regulates gene therapy products. Within the CBER, the review of gene therapy and
related products
and Gene Therapies Advisory Crr
makes recommendations to the NIH on gene therapy issues and engages in a public discussion of scientific, safety, ethical, and
societal issues related to proposed and ongoing gene therapy protocols. The FDA and the NIH have published guidance documents
with respect to the development and submission of gene therapy protocols.
and the FDA has establa ished the Cellular, Tissue
ommittee to advise CBER on its reviews. The CBER works closely with the NIH and the RAC, which
is consolidated in the Office of Cellular, Tissue and Gene Therapies,
dd
aa
ff
ff
rr
aa
o gain appro
ors that the FDA will consider at each of the above stages of development and relate to, among other things, the
Although the FDA has indicated that its guidance documents regarding gene therapies are not legally binding, we believe that
any product candidate we may develop. The guidance documents
our compliance with them is likely necessary t
provide additional fact
proper preclinical assessment of gene therapies; the chemistry,rr manufacturing, and control information that should be included in an
IND application; the proper design of tests to measure product potency in support of an IND or BLA appli
observe delayed adverse effect
high. Further, the FDA usually recommends that sponsors observe subjecb
for a 15-year period, including a minimum of five years of annual examinations folff
person or by questionnaire.
a
when the risk of such effects is
elated delayed adverse events
s in subjeb cts who have been exposed to investigational gene therapies
lowed by 10 years of annual queries, either in
ts for potential gene therapy-r
cation; and measures to
val forff
a
aa
ff
25
If a gene therapy trial is conductdd
ed at, or sponsored by, instituttt
ions receiving NIH funding for recombinant DNA research, a
protocol and related documentation must submitted to, and the study registered with, the NIH Office of Biotechnology Activities, or
OBA, pursuant to the NIH Guidelines for Research Involving Recombinant or Synthetic Nucleic Acid Molecules prior to the
submission of an IND to the FDA. In addition, many companies and other instituttt
voluntarily follow them. The NIH will convene the Recombinant DNA Advisory Committee, or RAC, a feder
to discuss protocols that raise novel or particularly important scientific,
meetings. The OBA will notify the FDA of the RACRR
protocol. RAC proceedings and reports are posted to the OBA web site and may be accessed by the public.
al advisory committee,
safety or ethical considerations at one of its quarterly public
ions not otherwise subject to the NIH Guidelines
ff
’s decision regarding the necessity forff
full public review of a gene therapy
ff
Finally, to faci
ff
litate adverse event reporting and dissemination of additional information about gene therapy trials, the FDA and
the NIH established the Genetic Modification Clinical Research Inforff mation System, or GeMCRIS. Investigators and sponsors of a
human gene transfer trials can utilize this web-based system to report serious adverse events and annual reports. GeMCRIS also
allows members of the public to access basic reports about human gene transferff
trials registered with the NIH and to search for
informff
ation such as trial location, the names of investigators conductdd
ing trials, and the names of gene transfer products being studied.
Complim ance with ctt GMP and CGTP Requirementstt
Beforeff
approving a BLA, the FDA typically will inspect the facil
urtt
ff
ity or facilities where the product is manufact
ured. The FDA
ing processes and facilities are in full compliance with cGMP
ff
will not approve an application unless it determines that the manufact
ff
requirements and adequate to assure consistent production of the producdd t within required specifications. The PHSA emphasizes the
importance of manufacff
s like biologics whose attributes cannot be precisely defineff
turing control for productdd
d.
For a gene therapyaa
product, the FDA also will not approve the product if the manufact
ff
urtt er is not in compliance with CGTP.
of human cells, tissues, and cellular and tissue based products, or HCT/Ps, which are human cells or tissue intended for
into a human recipient. The primary intent of the CGTP requirements is to ensure that
These requirements are found in FDA regulations that govern the methods used in, and the facilities and controls used for, the
manufacturett
implantation, transplant, infusion, or transferff
cell and tissue based products are manufact
tt
ured
communicable disease. FDA regulations also require tissue establishments to register and list their HCT/Ps with the FDA and, when
applicable, to evaluate donors through screening and testing.
in a manner designed to prevent the introduction, transmission, and spread of
ff
Manufacturett
rs and others involved in the manufacff
ture and distribution of products must also register their establishments with
ation to the FDA and/or other health regulatory agencies upon their initial participation in the manufacturing process.
producdd ts intended for the U.S. market, and with analogous health regulatory arr
the FDA and certain state agencies forff
products intended for other markets globally. Both U.S. and non-U.S. manufacturing establishments must register and provide
additional informff
Any productdd manufactured by or imported from a facff
under the FDCA, and could be affecff
be subject to periodic unannounced inspections by governme
Manufacturett
limiting, or refusing inspection by the FDA or other governing health regulatory agency may lead to a productdd
adulterated.
nt authorities to ensure compliance with cGMPs and other laws.
rs may also have to provide, on request, electronic or physical records regarding their establa ishments. Delaying, denying,
ted by similar as well as additional compliance issues in other jurisdictions. Establishments may
ility that has not registered, whether U.S. or non-U.S., is deemed misbranded
being deemed to be
gencies for
rr
Review and Approval of a BLABB
The results of productdd
candidate development, preclinical testing, and clinical trials, including negative or ambiguous results as
well as positive findings, are submitted to the FDA as part of a BLA requesting a license to market the product. The BLA must contain
extensive manufacff
payment of a user fee.
turing information and detailed information on the composition of the product and proposed labeling as well as
The FDA has 60 days after submission of the appaa
lication to conduct an initial review to determine whether it is sufficff
ient to
iently complete to permit substantive review. Once the
accept for filing based on the agency’s threshold determination that it is sufficff
submission has been accepted forff
filing, the FDA begins an in-depth review of the application. Under the goals and policies agreed to
by the FDA under the Prescription Drug User Fee Act, or the PDUFA, the FDA has ten months in which to complete its initial review
of a standard application and respond to the applicant, and six months forff
always meet its PDUFA goal dates for standard and priority BLAs. The review process may often be significantly extended by FDA
requests for additional information or clarification. The review process and the PDUFA goal date may be extended by three months if
the FDA requests or if the applicant otherwise provides through the submission of a majora
amendment additional information or
clarification regarding information already provided in the submission within the last three months before the PDUFA goal date.
a priority review of the application. The FDA does not
26
Under the PHSA, the FDA may approve a BLA if it determines that the product is safe, pure, and potent and the facility where
the productdd
will be manufactured meets standards designed to ensure that it continues to be safe, pure, and potent.
On the basis of the FDA’s evaluation of the application and accompanying information, including the results of the inspection of
ff
urtt
ing facilities and any FDA audits of non-clinical study and clinical trial sites to assure compliance with GLPs and
roval letter or a complete response letter. An approval letter authorizes commercial
the manufact
GCPs, respectively, the FDA may issue an appaa
marketing of the product with specific prescribing inforff mation for specific indications. If the appl
issue a complete response letter, which will contain the conditions that must be met in order to secure final appr
and when possible will outline recommended actions the sponsor might take to obtain approval of the application. Sponsors that
receive a complete response letter may submit to the FDA information that represents a complete response to the issues identified by
under PDUFA as either Class 1 or Class 2. The classification of a resubmission is based
the FDA. Such resubmissions are classifiedff
on the information submitted by an appli
cant in response to an action letter. Under the goals and policies agreed to by the FDA under
PDUFA, the FDA has two months to review a Class 1 resubmission and six months to review a Class 2 resubmission. The FDA will
not approve an appaa
lication until issues identified in the complete response letter have been addressed.
ication is not approved, the FDA will
oval of the application,
a
a
a
The FDA may also referff
the application to an advisory committee forff
a
oved. In particular, the FDA may refer appl
application should be appr
present difficff ult questions of safety or efficacy to an advisory crr
experts, including clinicians and other scientificff
application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee,
but it considers such recommendations carefull
experts, that reviews, evaluates, and provides a recommendation as to whether the
ommittee. Typically, an advisory committee is a panel of independent
y when making decisions.
ications forff
a
ff
review, evaluation, and recommendation as to whether the
novel biologic products or biologic products that
If the FDA approves a new product, it may limit the approved indications forff
use of the product. It may also require that
labeling. In addition, the FDA may call for post-approval
ff
contraindications, warnirr ngs or precautions be included in the productdd
her assess the producdd t’s safety after appr
studies, including Phase 4 clinical trials, to furt
surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or
other risk management mechanisms, including REMS, to help ensure that the benefits of the producdd t outweigh the potential risks.
REMS can include medication guides, communication plans for healthcare profesff
ETASU can include, but are not limited to, specific or special training or certificaff
under certain circumstances, special monitoring, and the use of patent registries. The FDA may prevent or limit furth
product based on the results of post-market studies
product,
dd
requirements and FDA review and approval.
such as adding new indications, certain manufacturing changes and additional labeling claims, are subjecb
oval, many types of changes to the approved
her testing
sionals, and elements to assure safe uff
tion forff
oval. The agency may also require testing and
prescribing or dispensing, dispensing only
or surveillance programs. After appr
er marketing of a
se, or ETASU.
ff
t to furt
a
aa
ff
tt
Fast Track, Breakthrough Tgg
herTT
apy app
nd Priority Review Designai
tions
The FDA is authorized to designate certain products for expedited review if they are intended to address an unmet medical need
in the treatment of a serious or life-threatening disease or condition. These programs are referred to as fast
breakthrough therapy designation, and priority review designation.
ff
track designation,
Specifically, the FDA may designate a product for fast track review if it is intended, whether alone or in combination with one
or more other products, for the treatment of a serious or life-threatening disease or condition, and it demonstrates the potential to
address unmet medical needs forff
FDA and the FDA may initiate review of sections of a fast
review may be availabla e if the FDA determines, after
product may be effective. The sponsor must also provide, and the FDA must appro
information and the sponsor must pay applicablea
does not begin until the last section of the application is submitted. In addition, the fast track designation may be withdrawn by the
FDA if the FDA believes that the designation is no longer supported by data emerging in the clinical trial process, or if the designated
drugrr
such a disease or condition. For fast track products, sponsors may have greater interactions with the
ication is complete. This rolling
t track
ve, a schedule for the submission of the remaining
aa
the appl
valuation of clinical data submitted by the sponsor, that a fasff
user fees. However, the FDA’s time period goal for reviewing a fast
development program is no longer being pursued.
ff
preliminary err
track product’s appl
ication beforeff
aa
track appli
cation
a
aa
ff
ff
Second, in 2012, Congress enacted the Food and Drug Administration Safety and Innovation Act, or FDASIA. This law
hed a new regulatory scheme allowing for expedited review of products designated as “breakthrough therapies.” A producdd t
establis
a
may be designated as a breakthrough therapy if it is intended, either alone or in combination with one or more other products, to treat a
serious or life-threatening disease or condition and preliminary clinical evidence indicates that the producdd t may demonstrate
substantial improvement over existing therapiaa es on one or more clinically significant endpoints, such as substantial treatment effects
observed early in clinical development. The FDA may take certain actions with respect to breakthrough therapieaa
s, including holding
meetings with the sponsor throughout the development process; providing timely advice to the product sponsor regarding development
and approval; involving more senior staff in the review process; assigning a cross-disciplinary project lead for the review team; and
taking other steps to design the clinical trials in an efficff
ient manner.
ff
27
Third, the FDA may designate a product for priority review if it is a product that treats a serious condition and, if approved,
represents a significff ant improvement when compared with other available therapiaa es. Significant improvement may
would provide a significant improvement in safety or effectiveness. The FDA determines, on a case-by-case basis, whether the
proposed productdd
be illustrated by evidence of increased effeff ctiveness in the treatment of a condition, elimination or subsu tantial reducdd tion of a treatment-
limiting adverse reaction, documented enhancement of patient compliance that may lead to improvement in serious outcomes, and
evidence of safetyff
to the evaluation of such applications, and to shorten the FDA’s goal for taking action on a marketing appl
six months.
pulation. A priority designation is intended to direct overall attention and resources
and effeff ctiveness in a new subpou
ication from ten months to
aa
Accelerated Approval Pathway
The FDA may grant accelerated approval to a productdd
for a serious or life-threatening condition that provides meaningful
therapeutic advantage to patients over existing treatments based upon a determination that the producdd t has an effect on a surrogate
endpoidd
the producdd t has an effecff
mortality, or IMM, and that is reasonabla y likely to predict an effect on IMM or other clinical benefit,ff
rarity, or prevalence of the condition and the availabia lity or lack of alternarr
meet the same statutory standards forff
nt that is reasonabla y likely to predict clinical benefit. The FDA may also grant accelerated approval for such a condition when
t on an intermediate clinical endpodd int that can be measured earlier than an effeff ct on irreversible morbidity or
taking into account the severity,
roval must
safetff y and effectiveness as those granted traditional appr
tive treatments. Products granted accelerated appa
oval.
aa
For the purposes of accelerated approval, a surrogate endpodd int is a marker, such as a laboratory measurement, radiographa
ic
image, physical sign, or other measure that is thought to predict clinical benefit, but is not itself a measure of clinical benefit.
Surrogate endpoints can ofteff n be measured more easily or more rapiaa dly than clinical endpodd ints. An intermediate clinical endpoint is a
measurement of a therapeut
that is considered reasonably likely to predict the clinical benefit of a product, such as an effect on
IMM. The FDA has limited experience with accelerated approvals based on intermediate clinical endpodd ints, but has indicated that
such endpoints generally could support accelerated approval where a study demonstrates a relatively short-term clinical benefitff
chronic disease setting in which assessing duradd
benefit is considered reasonably likely to predict long-term benefit.ff
bia lity of the clinical benefit is essential forff
traditional approval, but the short-term
ff
ic effect
in a
a
The accelerated approval pathway is most often used in settings in which the course of a disease is long and an extended period
of time is required to measure the intended clinical benefitff of a product, even if the effeff ct on the surrogate or intermediate clinical
endpoint occurs rapidly. Thus, accelerated appr
treatment of a variety of cancers in which the goal of therapyaa
of the typical disease course requires lengthy and sometimes large trials to demonstrate a clinical or survival benefit.
oval has been used extensively in the development and approval of products for
is generally to improve survival or decrease morbidity and the duration
aa
The accelerated appaa
roval confirmatory studies to verify and describe the productdd
roval pathway is usually contingent on a sponsor’s agreement to conduct, in a diligent manner, additional
candidate approved on
post-appaa
this basis is subject
trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or confirm a clinical benefit
during post-marketing studies, would allow the FDA to withdraw the product from the market on an expedited basis. All promotional
materials for product candidates approved under accelerated regulations are subject
to rigorous post-marketing compliance requirements, including the completion of Phase 4 or post-approval clinical
’s clinical benefit. As a result, a productdd
to prior review by the FDA.
b
u
Post-Approval Regulation
If regulatory approval forff marketing of a productdd
or new indication for an existing product is obtained, the sponsor will be
uu
roval regulatory requirements as well as any post-appaa
ted safety and effiff cacy information and comply with requirements concerning advertising and promotional
required to comply with all regular post-appaa
imposed as part of the approval process. The sponsor will be required to report certain adverse reactions and production problems to
the FDA, provide upda
labeling requirements. Manufacturers and certain of their subcontractors are required to register their establia
shments with the FDA and
certain state agencies, and are subjeb ct to periodic unannounced inspections by the FDA and certain state agencies for compliance with
ongoing regulatory requirements, including cGMP regulations, which impose certain procedural and documentation requirements
upon manufact
the areas of production and quality control to maintain compliance with cGMP regulations and other regulatory requirements.
urers. Accordingly, the sponsor and its third-party manufacturett
rs must continue to expend time, money, and effoff
roval requirements that the FDA has
rt in
ff
A productdd may also be subject to officff
ial lot release, meaning that the manufacturer is required to perform certain tests on each
it is released for distribution. If the product is subjeb ct to officff
lot of the product beforeff
samples of each lot, together with a release protocol showing a summary of the history of manufact
of the manufacturett
some productdd
potency, and effecti
ed on the lot, to the FDA. The FDA may in addition perform certain confirmff
s before releasing the lots for distribution. Finally, the FDA will conduct laboratory research related to the safety, purity,
urtt e of the lot and the results of all
atory tests on lots of
.
veness of pharmaceutical products
ial lot release, the manufact
urtt er must submit
r’s tests performff
dd
ff
ff
ff
28
Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements is not maintained
reaches the market. Later discovery of previously unknown problems with a product, including
or if problems occur after the productdd
adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatoryrr
requirements, may result in revisions to the approved labeling to add new safetyff
information; imposition of post-market studies or
clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential
consequences include, among other things:
•
•
•
•
•
restrictions on the marketing or manufact
producdd t recalls;
ff
urtt
ing of the product, complete withdrawal of the producdd t fromff
the market or
fines, untitled or warning letters or holds on post-appr
aa
oval clinical trials;
refusal of the FDA to approve pending applications or supplements to approved appli
of product license approvals;
a
cations, or suspension or revocation
productdd
seizure or detention, or refusal to permit the import or export of products; or
injunctions or the imposition of civil or criminal penalties.
The FDA strictly regulates marketing, labeling, advertising and promotion of licensed and approved products that are placed on
the market. Pharmaceutical productdd
roved indications and in accordance with the provisions of the
the appa
approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and
a company that is found to have improperly promoted off-laff
l uses may be subject to significant liability.
s may be promoted only forff
bea
Orphan Drug Designation
Orphan drug designation in the United States is designed to encourage sponsors to develop products intended for rare diseases
or conditions. In the United States, a rare disease or condition is statutott
individuals
dd
expectation that the cost of developing and making availablea
the producdd t in the United States.
in the United States or that affects more than 200,000 individuals in the United States and forff which there is no reasonable
the biologic forff
the disease or condition will be recovered from sales of
rily defineff
d as a condition that affecff
ts fewer than 200,000
Orphan drug designation qualifiesff
a company forff
oval if granted by the FDA. An application forff
a
’s marketing appr
productdd
to the filing of an application for approval to market the product. A product becomes an orphan when it receives orphan drug
designation from the Office of Orphan Products Development, or OOPD, at the FDA based on acceptable confidential requests made
under the regulatory provisions. The product must then go through the review and approval process forff
commercial distribution like
any other product.
designation as an orphan productdd
can be made any time prior
tax credits and market exclusivity for seven years following the date of the
A sponsor may request orphan drug designation of a previously unapproved product or new orphan indication for an already
marketed product. In addition, a sponsor of a product that is otherwis
rr
and obtain orphan drug designation for the subsequent product for the same rare disease or condition if it can present a plausible
hypothesis that its product may be clinically superior to the first drug. More than one sponsor may receive orphan drug designation for
the same producdd t forff
request forff
the same rare disease or condition, but each sponsor seeking orphan drug designation must file a complete
e the same product as an already approved orphan drug may seek
designation.
The period of exclusivity begins on the date that the marketing application is approved by the FDA and appa
lies only to the
indication for which the productdd
use or a second appl
ication for a clinically superior version of the product for the same use. The FDA cannot, however, approve the
aa
same productdd made by another manufacturer for the same indication during the market exclusivity period unless it has the consent of
the sponsor or the sponsor is unablea
has been designated. The FDA may approve a second appl
to provide sufficient quantities.
the same product for a differff ent
ication forff
a
Pediatrictt
Studies and Exclusivitytt
Under the Pediatric Research Equity Act of 2003, a BLA or suppluu
and effectiveness of the product for the claimed indications in all relevant pediatric subpou
pulations, and to support dosing and
safetyff
administration for each pediatric subpopulation for which the product is safe aff
it pediatric study
plans prior to the assessment data. Those plans must contain an outline of the proposed pediatric study or studies the applicant plans to
conduct, including study objeb ctives and design, any deferral or waiver requests, and other informff
applicant, the FDA, and the FDA’s internal
and agree upon a finff al plan. The FDA or the applicant may request an amendment to the plan at any time.
review committee must then review the information submitted, consult with each other,
ement thereto must contain data that are adequate to assess the
ation required by regulation. The
ive. Sponsors must also submu
ff
nd effect
rr
29
The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submi
ff
approval of the product for use in adults, or full or partial waivers from the pediatric data requirements. Additional
until after
requirements and procedures
otherwise required by regulation, the pediatric data requirements do not apply to products with orphan designation.
relating to deferral requests and requests for extension of deferrals
are contained in FDASIA. Unless
ssion of some or all pediatric data
u
dd
rr
Pediatric exclusivity is another type of non-patent marketing exclusivity in the United States and, if granted, provides for the
attachment of an additional six months of marketing protection to the term of any existing regulatory exclusivity, including the non-
patent and orphan exclusivity. This six-month exclusivity may be granted if a BLA sponsor submits pediatric data that fairly respond
to a written request from the FDA for such data. The data do not need to show the product to be effective in the pediatric population
studied; rather, if the clinical trial is deemed to fairly respond to the FDA’s request, the additional protection is granted. If reports of
requested pediatric studies are submitted to and accepted by the FDA within the statutory time limits, whatever statutory or regulatory
periods of exclusivity or patent protection cover the producdd t are extended by six months. This is not a patent term extension, but it
effecff
tively extends the regulatory period durin
g which the FDA cannot appr
ove another application.
dd
a
Biosimilars and ExcEE lusivity
The Patient Protection and Affff off rdaba le Care Act, which was signed into law in March 2010, included a subtitle called the
Biologics Price Competition and Innovation Act of 2009 or BPCIA. The BPCIA established a regulatory scheme authorizing the FDA
to approve biosimilars and interchangeable biosimilars. To date, four
the United States. No interchangeable biosimilars, however, have been appr
outlining an appr
term.
biosimilar products have been approved by the FDA for use in
oved. The FDA has issued several guidance documents
oach to review and approval of biosimilars. Additional guidances are expected to be finalized by the FDA in the near
a
aa
ff
Under the BPCIA, a manufacturtt er may submit an appaa
lication for licensure of a biologic producdd t that is “biosimilar to” or
with” a previously approved biological producdd t or “reference product.” In order for the FDA to approve a biosimilar
ences between the reference product and proposed biosimilar product
“interchangeablea
product, it must finff d that there are no clinically meaningful differ
in terms of safetyff
agency must find that the biosimilar product can be expected to producedd
products administered multiple times) that the biologic and the referff ence biologic may be switched after one has been previously
administered without increasing safetyff
, purity, and potency. For the FDA to approve a biosimilar product as interchangeablea
the same clinical results as the reference product, and (for
cy relative to exclusive use of the reference biologic.
risks or risks of diminished efficaff
with a reference product, the
ff
lication forff
nce productdd
Under the BPCIA, an appaa
was approved. Even if a product is considered to be a reference product eligible for exclusivity, another company
a biosimilar product may not be submi
of approval of the reference product. The FDA may not approve a biosimilar product until 12 years from the date on which the
refereff
could market a competing version of that product if the FDA appr
preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity, and potency of their
product. The BPCIA also created certain exclusivity periods forff
is unclear whether products deemed “interchangeable” by the FDA will, in fact,
governed by state pharmacy law.
be readily substituted by pharmacies, which are
such product containing the sponsor’s own
biosimilars approved as interchangeablea
tted to the FDA until four years foll
ff BLA forff
producdd ts. At this juncture, it
owing the date
oves a full
u
aa
ff
ff
Patent Term Restoration and Extension
o five years forff
A patent claiming a new biologic productdd may be eligible for a limited patent term extension under the Hatch-Waxman Act,
patent term lost duridd
which permits a patent restoration of up tuu
restoration period granted on a patent covering a product is typically one-half the time between the effective date of an IND and the
ication and the ultimate
submission date of a marketing appl
approval date, less any time the applicant failed to act with due diligence. Patent term restoration cannot be used to extend the
remaining term of a patent past a total of 14 years from the product’s approval date. Only one patent applicablea
is eligible for the extension, and the appaa
lication forff
patent that covers multiple products forff which appr
USPTO reviews and appr
to an approved product
the extension must be submitted prior to the expiration of the patent in question. A
oval is sought can only be extended in connection with one of the approvals. The
oves the application for any patent term extension or restoration in consultation with the FDA.
ng product development and FDA regulatory r
ication, plus the time between the submu
ission date of the marketing appl
eview. The
aa
a
aa
aa
rr
Regulation And Procedurdd es Governing An
pprA
oval Of MO
ediMM cinal Products In The European Union
In order to market any product outside of the United States, a company must also comply with numerous and varying regulatory
requirements of other countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical
trials, marketing authorization, commercial sales and distribution of products. Whether or not it obtains FDA approval forff
an applicant will need to obtain the necessary arr
a
clinical trials or marketing of the productdd
vals by the comparabla e health regulatory authorities before it can commence
in those countries or jurisdictions. Specifically, the process governing
approval of medicinal
a product,
ppro
rr
30
products in the European Union, or EU, generally follows the same lines as in the United States. It entails satisfacff
preclinical studies and adequate and well-controlled clinical trials to establish the safety and efficacy of the product for each proposed
indication. It also requires the submission to the European Medicines Agency, or EMA, or the relevant competent authorities of a
marketing authorization appaa
product can be marketed and sold in the EU.
lication, or MAA, and granting of a marketing authorization by the EMA or these authorities before the
toryrr completion of
Clinical TriTT al Approval
aa
the appaa
Pursuant to the currently appli
cable Clinical Trials Directive 2001/20/EC and the Commission Directive 2005/28/EC on GCP, a
roval of clinical trials in the EU has been implemented through national legislation of the member states. Under this
roval froff m the competent national authority of an EU member state in which the clinical trial is to
system forff
system, an applicant must obtain appaa
be conducted, or in multiple member states if the clinical trial is to be conducted in a number of member states. Furthermore, the
applicant may only start a clinical trial at a specificff
studtt y site after the ethics committee has issued a favorabla e opinion. The CTA must
be accompanied by an investigational medicinal product dossier with supporting information prescribed by Directive 2001/20/EC and
Commission Directive 2005/28/EC and corresponding national laws of the member states and further detailed in appa
licabla e guidance
documents.
In April 2014, the EU adopted a new Clinical Trials Regulation (EU) No 536/2014, which is set to replace the current Clinical
licabla e no earlier than May 28,
Trials Directive 2001/20/EC. The new Clinical Trials Regulation (EU) No 536/2014 will become appa
2016. It will overhaul the current system of appr
directly appaa
new Clinical Trials Regulation provides forff
for the assessment of clinical trial appli
lly, the new legislation, which will be
val of clinical trials in the EU. For instance, the
a streamlined application procedurdd e via a single entry point and strictly definff ed deadlines
licabla e in all member states, aims at simplifying and streamlining the appro
clinical trials in the EU. Specificaff
ovals forff
cations.
a
a
aa
Marketikk ng Authorization
To obtain a marketing authorization for a product under the EU regulatory srr
an MAA, either
under a centralized procedure administered by the European Medicines Agency, or EMA, or one of the procedurdd es administered by
competent authorities in EU Member States (decentralized procedure, national procedure, or mutuatt
marketing authorization may be granted only to an applicant established in the EU. Regulation (EC) No 1901/2006 provides that prior
to obtaining a marketing authorization in the EU, an appa
licant must demonstrate compliance with all measures included in an EMA-
approved Pediatric Investigation Plan, or PIP, covering all subsu ets of the pediatric population, unless the EMA has granted a product-
specificff waiver, class waiver, or a deferral forff
one or more of the measures included in the PIP.
l recognition procedurdd e). A
licant must submit
ystem, an appa
u
The centralized procedure provides forff
for all EU member states. Pursuant to Regulation (EC) No. 726/2004, the centralized proceduredd
including for medicines produced
therapy producdd ts and products with a new active substu
treatment of cancer. For products that are highly innovative or for which a centralized process is in the interest of patients, the
centralized procedure may be optional.
by certain biotechnological processes, products designated as orphan medicinal products, advanced
ance indicated for the treatment of certain diseases, including products for the
the grant of a single marketing authorization by the European Commission that is valid
is compulsory for specific producdd ts,
dd
Specifically, the grant of marketing authorization in the European Union for products containing viable human tissues or cells
such as gene therapy medicinal products is governed by Regulation (EC) No 1394/2007 on advanced therapy medicinal products, read
in combination with Directive 2001/83/EC of the European Parliament and of the Council, commonly known as the Community code
on medicinal products. Regulation (EC) No 1394/2007 lays down specificff
pharmacovigilance of gene therapy medicinal producdd ts, somatic cell therapy medicinal producdd ts, and tissue engineered producdd ts.
Manufact
which provides an opinion regarding the application for marketing authorization. The European Commission grants or refuses
marketing authorization in light of the opinion delivered by EMA.
rs of advanced therapyaa medicinal producdd ts must demonstrate the quality, safetyff
rules concerning the authorization, superv
, and efficacy of their producdd ts to EMA
ision, and
urett
u
ff
e forff
Under the centralized procedure, the Committee for Medicinal Producdd ts for Human Use, or the CHMP, established at the EMA
in the European Union, the maximum
the evaluation of an MAA is 210 days, excluding clock stops when additional information or written or oral explanation
is responsible for conducting an initial assessment of a product. Under the centralized proceduredd
timeframff
is to be provided by the applicant in response to questions of the CHMP. Accelerated evaluation may be granted by the CHMP in
exceptional cases, when a medicinal product is of major interest from the point of view of public health and, in particular, from the
viewpoint of therapeuaa
is possible that the CHMP may revert to the standard time limit forff
appropriate to conducdd t an accelerated assessment.
tic innovation. If the CHMP accepts such a request, the time limit of 210 days will be reduced to 150 days, but it
the centralized procedure if it determines that it is no longer
31
Regulatory Data Protection in the European Union
In the European Union, new chemical entities approved on the basis of a complete independent data package qualify for eight
referencing the innovator’s data to assess a generic (abbreviated) application for a period of eight years. During thet
years of data exclusivity upon marketing authorization and an additional two years of market exclusivity pursuant to Regulation (EC)
No 726/2004, as amended, and Directive 2001/83/EC, as amended. Data exclusivity prevents regulatory authorities in the European
Union fromff
additional two-year period of market exclusivity, a generic marketing authorization application can be submitted, and the innovator’s
data may be referenced, but no generic medicinal product can be marketed until the expiration of the market exclusivity. The overall
ten-year period will be extended to a maximum of eleven years if, during the firsff
authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior
to authorization, is held to bring a significaff
in comparison with existing therapies. Even if a compound is considered
to be a new chemical entity so that the innovator gains the prescribed period of data exclusivity, another company may market another
version of the product if such company obtained marketing authorization based on an MAA with a complete independent data package
of pharmaceutical tests, preclinical tests and clinical trials.
t eight years of those ten years, the marketing
nt clinical benefitff
Periods odd
f Ao
uthorization and Renewals
A marketing authorization is valid for five years, in principle, and it may be renewed after fiveff
years on the basis of a
the marketing authorization ceases to be valid. Once renewed, the marketing authorization is valid forff
and efficff acy, including all variations introduced since the marketing authorization was granted, at least nine months
an unlimited period,
reevaluation of the risk-benefit balance by the EMA or by the competent authority of the authorizing member state. To that end, the
marketing authorization holder must provide the EMA or the competent authority with a consolidated version of the fileff
quality, safetyff
beforeff
unless the European Commission or the competent authority decides, on justified grounds relating to pharmacovigilance, to proceed
with one additional five-year renewal period. Any authorization that is not followed by the placement of the drug on the EU markerr
t (in
the case of the centralized procedure) or on the market of the authorizing member state within three years after authorization ceases to
be valid.
in respect of
Regulatory Requirements att
ftea r MarkMM etkk ing Authorizat
ii
ion
Following appr
urtt
aa
ff
oval, the holder of the marketing authorization is required to comply with a range of requirements appli
a
cabla e to
ing, marketing, promotion and sale of the medicinal productdd
the manufact
pharmacovigilance or safety reporting rules
imposed. In addition, the manufacturing of authorized producdd ts, for which a separate manufacturer’s license is mandatory,rr must also
be conductdd
odies in the
ed in strict compliance with the EMA’s GMP requirements and comparabla e requirements of other regulatory brr
EU, which mandate the methods, facilities, and controls used in manufacturing, processing and packing of drugs to assure their safetff y
and identity. Finally, the marketing and promotion of authorized products
drugs and/ordd
c, are strictly regulated in the European Union under Directive 2001/83/EC, as amended.
, pursuant to which post-authorization studies and additional monitoring obligations can be
, including advertising directed toward the prescribers of
. These include compliance with the EU’s stringent
the general publiu
dd
rr
Orphan Drug Designation and Exclusivity
Regulation (EC) No 141/2000 and Regulation (EC) No 847/2000 provide that a productdd
can be designated as an orphan drug by
the European Commission if its sponsor can establish: that the producdd t is intended for the diagnosis, prevention or treatment of (i) a
life-threatening or chronically debilitating condition affecting not more than five in ten thousand persons in the EU when the
application is made, or (ii) a life-th
incentives it is unlikely that the marketing of the drug in the EU would generate sufficient return t
rr
ethod of diagnosis, prevention, or
For either of these conditions, the applicant must demonstrate that there exists no satisfactory mrr
treatment of the condition in question that has been authorized in the EU or, if such method exists, the drug will be of significff ant
benefit to those affect
reatening, seriously debilitating or serious and chronic condition in the EU and that without
o justify the necessary investment.
ed by that condition.
ff
ff
t
An orphan drug designation provides a number of benefits, including feeff
apply for a centralized EU marketing authorization. Marketing authorization forff
exclusivity. During this market exclusivity period, neither the European Commission nor the member states can accept an appli
cation
or grant a marketing authorization for a “similar medicinal product.” A “similar medicinal product” is defined as a medicinal product
containing a similar active substance or substances as contained in an authorized orphan medicinal product,
and which is intended for
tic indication may, however, be reducdd ed to
the same therapeutic indication. The market exclusivity period for the authorized therapeuaa
six years if, at the end of the fifth year, it is established that the product no longer meets the criteria for orphan drug designation
because, forff
reductdd
ions, regulatory assistance, and the abili
an orphan drug leads to a ten-year period of market
iently profitabla e not to justify mff
example, the product is sufficff
arket exclusivity.
ty to
dd
a
a
32
For other markets in which we might in future seek to obtain marketing approval for the commercialization of producdd ts, there
are other health regulatory r
regulatory procedures and standards, as well as other governing laws and regulations for each applicable jurisdiction.
egimes for seeking approval, and we would need to ensure ongoing compliance with applicablea
rr
health
Coverage, Pricing an
nd Reimbursement
Significff ant uncertainty exists as to the coverage and reimbursement statustt
of any product candidates forff which we may seek
rr
nt authorities. In the United States and markets in other countries, patients who are
regulatory approval by the FDA or other governme
prescribed treatments for their conditions and providers performing the prescribed services generally rely on third-party payors to
reimburse all or part of the associated healthcare costs. Patients are unlikely to use any producdd t candidates we may develop unless
candidates. Even if any
coverage is provided and reimbursement is adequate to cover a significaff
product candidates we may develop are approved, sales of such product candidates will depend, in part, on the extent to which third-
party payors, including government health programs in the United States such as Medicare and Medicaid, commercial health insurers,
and managed care organizations, provide coverage, and establa ish adequate reimbursement levels for, such product candidates. The
process for determining whether a payor will provide coverage forff
the process for setting the price or
reimbursement rate that the payor will pay for the product once coverage is approved. Third-party payors are increasingly challenging
the prices charged, examining the medical necessity, and reviewing the cost-effecff
imposing controls to manage costs. Third-party payors may limit coverage to specific productdd
formulary, which might not include all of the appa
tiveness of medical products and services and
roved products for a particular indication.
nt portion of the cost of such productdd
a product may be separate fromff
roved list, also known as a
s on an appa
In order to secure coverage and reimbursement for any product that might be approved for sale, a company may need to conduct
ies in order to demonstrate the medical necessity and cost-effecff
physician utilization of such product candidates once approved and have a material adverse effecff
expensive pharmacoeconomic studtt
to the costs required to obtain FDA or other comparablea marketing appr
medically necessary or cost effeff ctive. A decision by a third-party payor not to cover any producdd t candidates we may develop could
reducedd
operations and financial condition. Additionally, a payor’s decision to provide coverage for a productdd
reimbursement rate will be appr
payors will also provide coverage and reimbursement for the product, and the level of coverage and reimbursement can differ
significantly from payor to payor. Third-party reimbursement and coverage may not be available to enablea
suffiff cient to realize an appropriate returtt n orr
tiveness of the product, in addition
ovals. Nonetheless, product candidates may not be considered
does not imply that an adequate
a product does not assure that other
oved. Further, one payor’s determination to provide coverage forff
n our investment in producdd t development.
us to maintain price levels
t on our sales, results of
aa
a
The containment of healthcare costs also has become a priority of various federal, state and/or local governments, as well as
ts.
other payors, within the U.S. and in other countries globally, and the prices of pharmaceuticals have been a focus in these efforff
Governments and other payors have shown significant interest in implementing cost-containment programs, including price controls,
restrictions on reimbursement, and requirements for substu
on of generic products. Adoption of price controls and cost-containment
measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit a
company’s revenue generated from the sale of any approved productdd
change at any time. Even if favorablea
its collabor
aa
future.
coverage and reimbursement status is attained for one or more products forff which a company or
oval, less favorabla e coverage policies and reimbursement rates may be implemented in the
s. Coverage policies and third-party reimbursement rates may
ators receive marketing appr
ituti
tt
a
Outside the United States, ensuring adequate coverage and payment forff
any producdd t candidates we may develop will facff e
challenges. Pricing of prescription pharmaceuticals is subject to governmental control in many countries. Pricing negotiations with
and may require us to
governmental authorities can extend well beyond the receipt of regulatory marketing appr
candidates we may develop to other availabla e therapies
conductdd
.
ff
The conduct of such a clinical trial could be expensive and result in delays in our commercialization effort
a clinical trial that compares the cost effectiveness of any productdd
oval for a productdd
s.
a
aa
33
In the European Union, pricing and reimbursement schemes vary widely from country to country.rr Some countries provide that
candidate to currently available therapies (so called health
s may be marketed only after a reimbursement price has been agreed. Some countries may require the completion of additional
productdd
studies that compare the cost-effectiveness of a particular productdd
technology assessments, or HTAs) in order to obtain reimbursement or pricing approval. For example, the European Union provides
options forff
its member states to restrict the range of products for which their national health insurance systems provide reimbursement
and to control the prices of medicinal products for human use. E.U. member states may approve a specific price for a product or it may
instead adopt a system of direct or indirect controls on the profitff ability of the company placing the product on the market. Other
member states allow companies to fixff
to physicians to limit prescriptions. Recently, many countries in the European Union have increased the amount of discounts requirqq
on pharmaceuticals and these efforff
severe fiscal and debt crises experienced by many countries in the European Union. The downward pressure on health care costs in
general, particularly prescription producdd ts, has become intense. As a result, increasingly high barriers are being erected to the entry of
new producdd ts. Political, economic, and regulatory drr
evelopments may further complicate pricing negotiations, and pricing negotiations
may continue after reimbursement has been obtained. Reference pricing used by various European Union Member States, and parallel
trade (arbit
ther reduce prices. There can be no assurance that any
country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and
pricing arrangements for any of our products, if approved in those countries.
products, but monitor and control prescription volumes and issue guidance
ed
ts could continue as countries attempt to manage healthcare expenditures, especially in light of the
rage between low-priced and high-priced member states), can furff
their own prices forff
r
Healthctt are Law and Regulatll
iott n
Healthcare providers and third-party payors play a primary role in the recommendation and prescription of pharmaceutical
producdd ts that are granted marketing approval. Arrangements with providers, consultants, third-party payors, and customers are subject
u
to broadly appaa
and patient privacy laws and regulations and other healthcare laws and regulations that may constrain our business and/or finan
arrangements. Restrictions under appa
licable fraff ud and abuse, anti-kickback, false claims laws, reporting of payments to physicians and teaching physicians
al and state healthcare laws and regulations, include the following:
licabla e feder
cial
ff
ff
•
•
•
•
•
•
the U.S. federal Anti-Kickback Statutett
willfully soliciting, offering, paying, or receiving remuneration, directly or indirectly, in cash or in kind, to induce or
reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, forff which
payment may be made, in whole or in part, under a fede
, which prohibits, among other things, persons and entities froff m knowingly and
ral healthcare program such as Medicare and Medicaid;
ff
eral civil and criminal false claims laws, including the civil U.S. False Claims Act, and civil monetary penalties
the fedff
laws, which prohibit individuals or entities fromff
ff
the federal government, claims forff
to be made or used a false record or statement to avoid, decrease, or conceal an obligation to pay money to the federal
government. In addition, the government may assert that a claim including items and services resulting fromff
the U.S. federal Anti-Kickbakk ck Statuttt e constituttt es a falff se or fraudulent claim forff
, among other things, knowingly presenting, or causing to be presented, to
nt or knowingly making, using, or causing
purposes of the U.S. False Claims Act;
payment that are false, fict
itious, or frauduledd
a violation of
the federal false statements statute prohibits knowingly and willfulff
or making any materially false statement in connection with the delivery of or payment for healthcare benefitff s, items, or
services; similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual
statuttt e or specific intent to violate it in order to have committed a violation;
ly falsifying, concealing, or covering up a material fact
knowledge of the
tt
ation Technology for Economic and Clinical Health Act, and their respective implementing regulations, including
the U.S. federal Health Insurance Portability and Accountability Act, or HIPAA, as amended by the U.S. Health
Informff
the Final Omnibus Rule published in January 2rr
security, and transmission of individually identifiable informff
mandatory crr
authorization;
terms and restrictions on the use and/odd r disclosure of such information without proper
ation that constitutes protected health information, including
013, which impose obligations with respect to safeguff
arding the privacy,
ontractual
tt
ff
dablea
the federal transparency requirements known as the federal Physician Payments Sunshine Act, under the U.S. Patient
Care Act, as amended by the U.S. Health Care and Education Reconciliation Act, collectively
Protection and Affor
the Afforff dable Care Act or ACA, which requires certain manufacturers of drugs, devices, biologics and medical suppluu
ies
to report annually to the Centers for Medicare & Medicaid Services, or CMS, within the U.S. Department of Health and
Human Services, information related to payments and other transferff s of value made by that entity to physicians and
teaching hospitals, and requires certain manufact
and investment interests held by physicians or their immediate famff
acble group purchasing organizations to report ownership
ily members; and
urtt ers and appli
aa
ff
analogous laws and regulations in other national jurisdictions and states, such as state anti-kickback and false claims laws,
which may apply to healthcare items or services that are reimbursed by non-governmen
private insurers.
tal third-party payors, including
rr
34
Some state and other laws require pharmaceutical companies to comply with the pharmaceutical indusdd try’rr
s voluntary
compliance guidelines and the relevant compliance guidance promulgated by the fedff
pharmaceutical manufacturers to report informff
expenditures. State and other laws also govern the privacy and security of health information in some circumstances, many of which
ff
differ
from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance effort
ation related to payments to physicians and other health care providers or marketing
eral government in addition to requiring
s.
ff
Healthctt are Reforff mrr
rr
A primary t
rend in the U.S. healthcare industry and elsewhere is cost containment. There have been a number of federal and
state proposals during the last few years regarding the pricing of pharmaceutical and biopharmaceutical producdd ts, limiting coverage
and reimbursement for drugs and other medical productdd
States.
nt control and other changes to the healthcare system in the United
s, governme
rr
By way of example, the United States and state governme
rr
nts continue to propose and pass legislation designed to reduce the
cost of healthcare. In March 2010, the United States Congress enacted the ACA, which, among other things, includes changes to the
products under government health care programs. Among the provisions of the ACA of importance to our
coverage and payment forff
potential product candidates are:
•
•
•
•
•
•
•
•
•
an annual, nondeductible feeff
products, apportioned among these entities according to their market share in certain government healthcare programs,
although this fee would not apply to sales of certain products appr
oved exclusively for orphan indications;
branded prescription drugs and biologic
on any entity that manufacff
tures or imports specifiedff
aa
expansion of eligibility criteria forff Medicaid programs by, among other things, allowing states to offer Medicaid coverage
to certain individuals with income at or below 133% of the federal poverty level, thereby potentially increasing a
ff
manufactur
er’s Medicaid rebate liability;
expanded manufacturers’ rebate liability under the Medicaid Drug Rebate Program by increasing the minimum rebate for
both branded and generic drugs
calculating and
reporting Medicaid drug rebates on outpat
ient prescription drug prices and extending rebate liability to prescriptions for
individuadd ls enrolled in Medicare Advantage plans;
and revising the definition of “average manufacturer price,” or AMP, forff
rr
tt
addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are
calculated forff
producdd ts that are inhaled, infusff ed, instilled, implanted or injen cted;
expanded the types of entities eligible for the 340B drug discount program;
shed the Medicare Part D coverage gap discount program by requiring manufacturers to provide a 50% point-of-
establia
sale-discount off tff he negotiated price of applicable producdd ts to eligible beneficiaries durdd ing their coverage gap paa
condition for the manufacturers’ outpatient products to be covered under Medicare Part D;
eriod as a
a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conducdd t comparative clinical
ff
effect
iveness research, along with funding for such research;
the Independent Payment Advisory Board, or IPAB, which has authority to recommend certain changes to the Medicare
program to reduce expenditures by the program that could result in reduced payments for prescription products.
the IPAB implementation has been not been clearly defineff
d. The ACA provided that under certain circumstances
IPAB recommendations will become law unless Congress enacts legislation that will achieve the same or greater
Medicare cost savings; and
dd
However,
hed the Center for Medicare and Medicaid Innovation within CMS to test innovative payment and service delivery
a
establis
models to lower Medicare and Medicaid spending, potentially including prescription product spending. Funding has been
allocated to support the mission of the Center forff Medicare and Medicaid Innovation from 2011 to 2019.
Other legislative changes have been proposed and adopted in the United States since the ACA was enacted. For example, in
August 2011, the Budget Control Act of 2011, among other things, created measures forff
spending reductions by Congress. A Joint
Select Committee on Deficit Reducdd tion, tasked with recommending a targeted deficit reducdd tion of at least $1.2 trillion for the years
nt
2012 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reducdd tion to several governme
in
programs. This includes aggregate reductions of Medicare payments to providers of up to 2% per fiscal year, which went into effect
April 2013 and will remain in effect through 2024 unless additional Congressional action is taken. In January 2013, President Obama
signed into law the American Taxpayer Relief Act of 2012, which, among other things, furt
her reduced Medicare payments to several
providers, including hospitals, imaging centers, and cancer treatment centers, and increased the statute of limitations period forff
government to recover overpayments to providers fromff
three to fiveff
years.
the
ff
rr
ff
35
There have been, and likely will continue to be, legislative and regulatory proposals at the national level in the U.S. and other
jurisdictions globally, as well as at some regional, state and/or local levels within the U.S. or other jurisdictions, directed at broadening
the availability of healthcare and containing or lowering the cost of healthcare. Such reforms could have an adverse effecff
anticipated revenues fromff
t our overall finaff
may affecff
productdd
ncial condition and ability to develop product candidates.
y develop and for which we may obtain marketing approval and
candidates that we may successfull
t on
ff
Additdd iott nal Regulatll
iott n
In addition to the foregoing, state, and fede
ff
onal Safety and Health Act, the Resource Conservation and Recovery Arr
Occupati
u
business. These and other laws govern t
in, and wastes generated by, operations. If our operations result in contamination of the environment or expose individuals to
hazardous substances, we could be liable for damages and governme
that impose similar obligations.
ances, including the
ct, and the Toxic Substances Control Act, affect our
he use, handling, and disposal of various biologic, chemical, and radioactive substances used
ral laws regarding environmental protection and hazardous substu
ntal fines. Equivalent laws have been adopted in third countries
rr
rr
Employees
As of December 31, 2016 we had 93 full-time employees, 48 of whom held Ph.D. or M.D. degrees, 75 of whom were engaged
nce, information systems, facilities, human
in research and development, and 18 of whom were engaged in business development, finaff
u
resources, legal functions, or administrative suppor
employees has entered into a collective bargaining agreement with us. We consider our employee relations to be good.
t. None of our employees is represented by a labor union, and none of our
36
Item 1A. Risk Factors.
This rii
eport contains forward-looking statements that involve risks akk
eport. Factors that could cll
discussed in this rii
from those
ause or contribute to these differeff
tt
discussed below and elsewhere in this report and in any documents incorporated in this rii
nd uncertainties. Our actual results ctt
ould dll
iffdd erff materiallyll
nces include, but are not limited to, those
eport by reference.
You should carefully considerdd
the following risk factors, together
tt
financial statements and notes thereto, and in our other filff ings wgg
t, develop io
risks, or other risks not presently known to us or that we currently believe to not be significan
business, financial condition, results of operations or prospects could be materially adversely all
a
ffected.
tt
price of our common shares could decline, and shareholder
ay lose all or part of their investment.
s mrr
ll
i
with all other information in this report, it ncludingdd
SS
ith the Securi
ties and Exchange Commission. If any of the following
our
nto actual events, then our
If that happens, the market
Risks Related to Our Financial Position and Need for Additional Capital
We Have Incurred Signifi
gg
cant Operating Losses Since Our Inceptio
e
n And Anticipat
i
e That We Will Incur Continued Losses For
The Foreseeable Future.
We have funded our operations to date through proceeds from our initial public offering, or the IPO, and concurrent private
placement of our common shares, private placements of our preferredrr
Casebia Therapeutics, LLC pursuant to our joint venture with Bayer HealthCare LLC, or Bayer Healthcare, and our collabor
Vertex Pharmaceuticals, Incorporated, or Vertex. Since inception, we have incurred significant operating losses. Our net loss was
$23.2 million, $25.8 million, and $6.8 million for the years ended December 31, 2016, 2015 and 2014, respectively. As of
December 31, 2016 and 2015, we had an accumulated defici
to incur significant expenses and operating losses over the next several years and for the foreseeable futur
combined with expected futuff
capiaa tal. We anticipate that our expenses will increase substantially if and as we:
re losses, have had and will continue to have an adverse effect on our shareholders’ deficit and working
t of $57.1 million and $33.9 million, respectively. We expect to continue
shares and convertible securities and payments received from
e. Our prior losses,
a
rr
ff
ff
ation with
•
•
•
•
•
•
•
•
•
•
•
•
continue our current research programs and our preclinical development of productdd
programs;
candidates from our current research
seek to identify additional research programs and additional product candidates;
conduct IND supporting preclinical studtt
from our hemoglobinopathy program targeting beta thaleassemia and sickle cell disease;
ies and initiate clinical trials for our most advanced producdd t candidates which are
initiate preclinical studi
tt
es and clinical trials for any other productdd
candidates we identify and choose to develop;
maintain, expand and protect our intellectuatt
l property portfolff
io;
seek marketing approvals for any of our productdd
candidates that successfully complete clinical trials;
further develop our gene editing technology;
hire additional clinical, quality control and scientific personnel;
add operational, finaff
candidate development;
ncial and management information systems and personnel, including personnel to support our product
acquire or in-license other technologies;
ultimately establish a sales, marketing, and distribution infrastructure to commercialize any products for which we may
obtain marketing approval; and
operate as a public company.
As a result, we expect to continue to incur significant and increasing operating losses for the foreseeable futuff
re. Because of the
numerous risks and uncertainties associated with developing gene editing product candidates, we are unable to predict the extent of
any future losses or when we will become profitabff
increase our profitabila
le, if at all. Even if we do become profitabff
le, we may not be able to sustain or
ity on a quarterly or annual basis.
37
We Will Need To Raise Substantial Additdd ional Funding, Which Will Dilute Our Shareholdell
Capital When Needed, We Would Be Forced To DTT
Commercializaii
tion EffoE rts.tt
elay,a Reduce Or Eliminate Some
SS
Of Our Product Developme
o
rs. If We Are Unable To Raiseii
nt Programs Or
The development of gene editing productdd
candidates is capital intensive. We expect our expenses to increase in connection with
candidates. In addition, if we obtain marketing approval forff
our ongoing activities, particularly as we continue the research and development of, initiate preclinical studies and clinical trials for
and seek marketing approval for our productdd
candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturtt
distribution to the extent that such sales, marketing, manufacff
turing and distribution are not the responsibility of Bayer Healthcare or
Vertex, or other future collaborators. We may also need to raise additional funds sooner if we choose to pursue additional indications
or geographie
our producdd t candidates or otherwise expand more rapidly than we presently anticipate. In addition, relative to prior
years when we were a private company, we expect to incur signififf cant additional costs associated with operating as a public company.
Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to
raise capital when needed or on attractive terms, we would be force
development programs or futff urett
d to delay, reducdd e or eliminate certain of our research and
commercialization efforff
any of our productdd
ing and
s forff
ts.
aa
ff
As of December 31, 2016 and 2015, we had cash of approximately $315.5 million and $156.0 million, respectively. We expect
that our existing cash, including the net proceeds from our IPO and the concurrent private placement, together with anticipated
research support under our joint venture with Bayer Healthcare and collaboration agreement with Vertex, will enable us to fund our
operating expenses and capita
l expenditure requirements forff
at least the next 24 months.
aa
Our future capital requirements will depend on, and could increase significantly as a result of, many factors, including:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the scope, progress, results and costs of drug discovery, preclinical development, laboratory t
our product candidates;
rr
esting and clinical trials for
the scope, prioritization and number of our research and development programs;
the costs, timing and outcome of regulatory review of our product candidates;
the costs of establishing and maintaining a supply chain forff
the development and manufacturett
of our product candidates;
the success of our current joint venturtt e with Bayer Healthcare and our collaboa
ration with Vertex;
our ability to establish and maintain additional collaborations on favor
ff
able terms, if at all;
the achievement of milestones or occurrence of other developments that trigger payments under any additional
collaboration agreements we obtain;
the extent to which we are obligated to reimburse, or entitled to reimbursement of, clinical trial costs under futur
collaboration agreements, if any;
ff
e
the costs of preparing, filff ing and prosecuting patent applications, maintaining and enforcff
rights and defending intellectual property-related claims;
ing our intellectual property
the costs of fulfilling our obligations under the IMA to reimburse other parties for costs incurred in connection with the
prosecution and maintenance of associated patent rights;
the extent to which we acquire or in-license other producdd t candidates and technologies;
the costs of establishing or contracting forff manufacff
producdd t candidates;
turing capabilities if we obtain regulatory approvals to manufact
ff
urtt e our
the costs of establishing or contracting forff
product candidates; and
aa
sales and marketing capabilities if we obtain regulatory arr
ppr
ovals to market our
our ability to establish and maintain healthcare coverage and adequate reimbursement.
our
Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect
ability to develop and commercialize our product candidates. We cannot guarantee that future financing will be available in sufficient
amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing may adversely affect the holdings or the rights of
our shareholders and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause
the market price of our shares to decline. The sale of additional equity or convertible securities would dilute all of our shareholders
and the terms of these securities may include liquidation or other preferences that adversely affecff
t your rights as a shareholder. The
incurrence of indebtedness would result in increased fixeff
d payment obligations and we may be required to agree to certain restrictive
ff
ff
38
covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual
property rights and other operating restrictions that could adversely impact our ability to conductdd
required to seek funds through arrangements with collabora
we may be required to relinquish rights to some of our technologies or productdd
us, any of which may have a material adverse effect on our business, operating results and prospects.
tors or otherwise at an earlier stage than otherwise would be desirabla e and
candidates or otherwise agree to terms unfavorable to
our business. We could also be
a
If we are unable to obtain funding on a timely basis, we may be required to significant
ff
ly curtail, delay or discontinue one or
more of our research or development programs or the commercialization of any producdd t candidate, or be unabla e to expand our
operations or otherwise capitaa
condition and results of operations.
alize on our business opportunities, as desired, which could materially affect
our business, financial
ff
We Have A Limited OpO erating HisHH tory, Which May Ma
akeMM It Difficff ult To Evaluate Our Technology And Product Development
Capabilities And Predicdd t Our Future Perfor rmance.
We are early in our development effor
ff
formed in October 2013, have no products
ability to generate product revenue or profitff s, which we do not expect will occur forff many years, if ever, will depend heavily on the
successful development and eventuatt
develop or commercialize a marketable product.
l commercialization of our product candidates, which may never occur. We may never be abla e to
ts and all of our lead programs are still in preclinical or the discovery stage. We were
commercial sale and have not generated any revenue fromff
product sales. Our
approved forff
dd
The lead producdd t candidates froff m our hemoglobinopathy program targeting beta-thalassemia and sickle cell disease require
among other things, completion of IND supporting preclinical studies. Each of our other programs require additional discoveryrr
research and then preclinical development. All of our programs, including our hemoglobinopathy program, require clinical
oval in multiple jurisdictions, obtaining manufacff
aa
development, regulatory arr
commercial organization, subsu tantial investment and significff ant marketing effoff
In addition, our product candidates must be appr
.
the EMA, before we may commercialize any productdd
turing supply, capacity and expertise, building of a
rts before we generate any revenue from product sales.
oved forff marketing by the FDA or certain other health regulatory agencies, including
ppr
aa
Our limited operating history,rr particularly in light of the rapidl
a
y evolving gene editing field, may make it difficff ult to evaluate
success or viabila
our technology and indusdd try and predict our futff urtt e performan
our futurett
early stage companies in rapidly evolving fieff
expect that our financial condition and operating results will fluff ctuatt
variety of factors, many of which are beyond our control. As a result, our shareholders should not rely upon the results of any
operating performance.
quarterly or annual period as an indicator of futurett
ity subject to significant uncertainty. We will encounter risks and difficff ulties freqff
lds. If we do not address these risks successfull
te significantly from quarter to quarter and year to year due to a
ce. Our short history as an operating company makes any assessment of
y, our business will suffer.
uently experienced by
Similarily, we
ff
ff
ff
In addition, as an early stage company, we have encounter unforeff
seen expenses, difficuff
lties, complications, delays and other
known and unknowkk
research focff us to a company capabl
successfulff
aa
in such a transition.
n circumstances. As we advance our product candidates, we will need to transition from a company with a
e of supporting clinical development and if successful, commercial activities. We may not be
Our Ability To Use Tax Loss CarrCC yfrr orwff
ards In Switzerlanll d MayMM Be Limited.
Under Swiss law, we are entitled to carry forward losses we incur for a period of seven years and we can offset future profits, if
any, against such losses. As of December 31, 2016, we reported tax loss carry forwards from inception through 2015 for purposes of
g
Swiss federal direct taxes in the aggregate amount of CHF 22.0 million. Due to the accepted mixed company status (the tax rulin
with respect to the mixed company status was accepted in Februar
017 with retroactive effect as from 2013/2014) the tax losses
available to offset
the year in which they occurred. Due to our limited income, there is a high risk that the tax loss carry f
ff
entirely. For 2016, the tax returntt
rr
forwar
future income at cantonal level amount to CHF 4.1 million. If not used, these tax losses will expire seven years after
has – in accordance with Swiss tax law – not yet been filed. Therefore, for 2016 the loss carried
d will only be claimed with filiff ng of the tax returntt
rds will expire partly or
for the tax year 2016.
orwa
y 2rr
rr
ff
rr
rr
39
Risks Related to Our Business, Technology and Industry
We Are Early In Our Development Efforts. All Of Our Productdd
Candidates Are Still In Preclinical Development And It Will Be
Many Years Before We Or Our Collaborators Commercialize A Product Candidate, If Ever. If We Are Unable To Advance Our
Product Candiddd atdd es To Clinical Development, Ot
ppA roval And Ultimately Commercialize Our Producdd t Candi
Or Experience Significai
In Doing So, Our Business Will Be Materially Harmed.dd
btain Regulatll ory Arr
nt Delaysa
CC
dates,
We are early in our development efforts and have focused our research and development efforts to date CRISPR/Cas9, gene
candidates. Our futurett
s9 gene editing productdd
candidates including our most advanced productdd
editing technology, identifying our initial targeted disease indications and our initial productdd
heavily on the successful development of our CRISPR/CaRR
candidates which target beta-thalassemia and sickle cell disease. We have invested substantially all of our effort
resources in the identification and preclinical development of our current product candidates. Currently, all of our product candidates
including our most advanced producdd t candidates which target beta-thalassemia and sickle cell disease are in preclinical development.
Our ability to generate product revenue, which we do not expect will occur for many years, if ever, will depend heavily on the
successfulff
programs, including those subject to our joint venturtt e with Bayer Healthcare and collaboration agreement with Vertex, may fail to
identify potential producdd t candidates for clinical development forff
unsuccessful in identifyiff ng potential product candidates, or our potential product candidates may be shown to have harmfulff
effects or may have other characteristics that may make the products impractical to manufacture, unmarketabla e, or unlikely to receive
marketing approval. We currently generate no revenue from sales of any product and we may never be able to develop or
.
commercialize a marketable productdd
development and eventual commercialization of our product candidates, which may never occur. For example, our research
a number of reasons. Our research methodology may be
success depends
s and financial
side
ff
We plan to file our clinical trial applications, or CTAs, to begin our first clinical trial for our hemoglobinopathy program
targeting beta-thalassemia in late 2017 and for our hemoglobinopathy program targeting sickle cell disease in early 2018. In each case,
the filing is subject to the identification and selection of guide RNARR
any other clinical trials we may initiate, is also subjecb
t to acceptance by the FDA of our Investigational New Drug application, or IND,
and finalizing the trial design based on discussions with the FDA and other regulatory authorities, including the NIH. In the event that
the FDA requires us to complete additional preclinical studies or we are required to satisfy other FDA requests, the start of our first
clinical trial for our hemoglobinopathy programs or any of our other programs may be delayed. Even after we receive and incorporate
guidance from these regulatory authorities, the FDA or other regulatory authorities could disagree that we have satisfied their
requirements to commence our clinical trial or change their position on the acceptability of our trial design or the clinical endpoints
selected, which may require us to complete additional preclinical studtt
ies or clinical trials or impose stricter approval conditions than
we currently expect.
ency. Commencing this clinical trial, and
with acceptable effici
ff
ff
Our producdd t candidates will require additional preclinical and clinical development, regulatory and marketing approval in
multiple jurisdictions, obtaining manufacff
investment and significant
ff
a
programs must be appr
commercialize our product candidates.
ff
turing supply, capacity and expertise, building of a commercial organization, substantial
marketing effort
we generate any revenue from productdd
oved forff marketing by the FDA, EMA or certain other health regulatory agencies, before we may
sales. In addition, our product development
s beforeff
The success of our producdd t candidates will depend on several factors, including the foll
ff
owing:
•
•
•
•
•
•
•
•
•
•
successful completion of preclinical studie
tt
s;
suffiff ciency of our finff ancial and other resources to complete the necessary prr
reclinical studtt
ies and clinical trials;
ability to develop safe and effective delivery mechanisms for our in vivo therapeaa utic programs;
ability to identify optimal RNA sequences to guide genomic editing;
entry into collaborations to further the development of our product candidates;
a positive recommendation of the Recombinant DNA Advisory Committee of the U.S. National Institutett
NIH;
s of Health, or
approval of CTAs or INDs for our product candidates to commence clinical trials;
successfulff
enrollment in, and completion of, pff
reclinical studies and clinical trials;
successful data froff m our clinical program that supports an acceptabla e risk-benefit profile of our product candidates for the
intended patient populations;
receipt of regulatory arr
nd marketing approvals from applicablea
regulatory authorities;
40
•
•
•
•
•
•
•
•
•
•
establishment of arrangements with third-party manufactur
commercial manufacturing capabilities;
where appli
a
cable,
aa
ff
ers for clinical supply and commercial manufacturing and,
successful development of our internal manufacturtt
contract manufact
ing organization, or CMO, or by us;
urtt
ff
ing processes and transfer to larger-scale facil
ff
ities operated by either a
establishment and maintenance of patent and trade secret protection or regulatory err
xclusivity for our product candidates;
commercial launch of our productdd
candidates, if and when approved, whether alone or in collaboration with others;
acceptance of the product candidates, if and when approved, by patients, the medical community and third-party payors;
effeff ctive competition with other therapies
aa
and treatment options;
establishment and maintenance of healthcare coverage and adequate reimbursement;
enforcement and defense of intellectual property rights and claims;
maintenance of a continued acceptable safety profile of the product candidates following appro
aa
val; and
achieving desirable medicinal properties forff
the intended indications.
Additionally, because our technology involves gene editing across multiple cell and tissue types, we are subju ect to many of the
challenges and risks that gene therapiaa es face, including:
•
•
•
regulatory requirements governing
gene and cell therapy products have changed freqff
the future; to date, no products that involve the genetic modification of patient cells have been approved in the United
States and only one gene therapy productdd
has been approved in the European Union;
uently and may continue to change in
rr
improper insertion of a gene sequence into a patient’s chromosome could lead to lymphoma, leukemia or other cancers, or
other aberrantly functioning cells; and
the FDA recommends a folff
gene therapies, and we may need to adopt and support such an observation period for our product candidates.
low-up observation period of 15 years or longer for all patients who receive treatment using
If we do not succeed in one or more of these factors in a timely manner or at all, we could experience significant delays or an
ity to successfull
candidates, which would materially harm our business. If we do not receive
inabila
regulatory approvals for our product candidates, we may not be able to continue our operations.
y commercialize our productdd
ff
Our CRISPRSS
/CR asCC 9 Gene EdiEE ting Producdd t CanCC didates Are Baseaa d On A New Gene Editdd ing TecTT hnology,gg Which MakMM eskk
A
nt And Of Subsequently Obtaining Regulatory Arr
It Diffi icff ult
es Based On Gene EdiEE ting TechTT
ppro
nology Agg
val, If At All. There HaveHH
Only Been
nd No Gene Editing Products Have
To Predict The Time And Cost Of Developme
A Limited NumNN ber Of Clinical Trials Of Product Candidat
Been Approved In TII
heTT United States Or In The European Union.
dd
o
CRISPR/Cas9 gene editing technology is relatively new and no products based on CRISPR/Cas9 or other similar gene editing
technologies have been approved in the United States or the European Union and only a limited number of clinical trials of products
based on gene editing technologies have been commenced. As such it is difficult to accurately predict the developmental challenges
we may incur for our product candidates as they proceed through productdd
discovery or identification, preclinical studies and clinical
trials. In addition, because our programs are all in the research or preclinical stage, we have not yet been abla e to assess safetyff
humans, and there may be long-term effects from treatment with any product candidates that we develop that we cannot predict at this
time. Any product candidates we may develop will act at the level of DNA, and, because animal DNA differs from human DNA,
testing of our producdd t candidates in animal models may not be predictive of the results we observe in human clinical trials of our
productdd
programs. As a result of these facff
cannot predict whether the application of our gene editing technology, or any similar or competitive gene editing technologies, will
result in the identificaff
. There can be no assurance that any development
problems we experience in the future
delays or unanticipated costs, or that such development problems can be solved. Any of these facff
our preclinical studies or any clinical trials that we may initiate or commercializing any producdd t candidates we may develop on a
timely or profitabff
candidates for either safety or efficacy. Also, animal models may not exist for some of the diseases we choose to pursue in our
us to predict the time and cost of product candidate development, and we
related to our gene editing technology or any of our research programs will not cause significff ant
tors may prevent us froff m completing
tion, development, and regulatory approval of any products
tors, it is more difficult forff
le basis, if at all.
in
dd
ff
The clinical trial requirements of the FDA, the EMA and other regulatory authorities and the criteria these regulators use to
determine the safety and efficacy of a product candidate vary substantially according to the type, complexity, novelty and intended use
and market of the productdd
candidate. No products based on gene editing technologies have been appr
oved by regulators. As a result,
aa
41
product candidates based on other, better known or more extensively studied technologies. It is difficult to
the regulatory approval process for product candidates such as ours is uncertain and may be more expensive and take longer than the
approval process forff
determine how long it will take or how much it will cost to obtain regulatory arr
States or the European Union or how long it will take to commercialize our product candidates. Delay or failure to obtain, or
unexpected costs in obtaining, the regulatory approval necessary to bring a potential product candidate to market could decrease our
ability to generate sufficient product revenue, and our business, financial condition, results of operations and prospects may be
harmed.
rovals for our productdd
candidates in either the United
ppaa
TT
The FDA, The NIH And The EMA Have Demonstrated Caution In TII
heir
ll
Regulation
TT
Of Gene Therapy Tpp
reatm
ents, And Ethical
And Legal Concerns About Gene Therapy And Genetic Testing
Development And Commercialization Of Our Product Candidat
TT
dd
May Result In Additional Regulations Or Restrictions On The
es, Which May Ba
e Diffiff cult To Predicdd t.
The FDA, NIH and the EMA have each expressed interest in further regulating biotechnology, including gene therapyaa
and
genetic testing. For example, the EMA advocates a risk-based appaa
both the federal and state level in the United States, as well as the U.S. congressional committees and other governments or governinrr
g
agencies, have also expressed interest in further regulating the biotechnology industry. Such action may delay or prevent
commercialization of some or all of our product candidates. Within the broader genome product field, uniQure N.V.’s Glybera has
received marketing authorization from the European Commission, and to date no gene therapyaa
approval in the United States.
roach to the development of a gene therapyaa
products have received marketing
producdd t. Agencies at
Regulatory requirements in the United States and in other jurisdictions governing gene therapy productdd
s have changed
u
RR
and related producdd ts, and established the
, safetff y,
s quarterly meetings. Even though the FDA decides
frequently and may continue to change in the future. The FDA established the Officff e of Cellular, Tissue and Gene Therapiaa es within its
Center for Biologics Evaluation and Research to consolidate the review of gene therapyaa
tting an IND, our human clinical trials
Cellular, Tissue and Gene Therapies Advisory Committee to advise this review. Prior to submi
are subju ect to review by the NIH Officff e of Biotechnology Activities, or OBA, Recombinant DNA Advisory Committee, or the RAC.
Following an initial review, RAC members make a recommendation as to whether the protocol raises important scientificff
medical, ethical or social issues that warrant in-depth discussion at the RAC’
whether individualdd
gene therapy protocols may proceed under an IND, the RAC’s recommendations are shared with the FDA and the
RAC public review process, if undertaken, can delay the initiation of a clinical trial, even if the FDA has reviewed the trial design and
details and has not objected to its initiation or has notified the sponsor that the study may begin. Conversely, the FDA can put an IND
on a clinical hold even if the RAC has provided a favoff
rable review or has recommended against an in-depth, public review. Moreover,
under guidelines published by the NIH, patient enrollment in our futurtt e gene editing clinical trials cannot begin until the investigator
for such clinical trial has received a letter froff m the OBA indicating that the RAC review process has been completed; and Institutional
Biosafetff y Committee, or IBC, approval as well as all other applicabla e regulatoryrr authorizations have been obtained. In addition to the
governmrr
product candidates, or a central IRB if appropriate, would need to review the proposed clinical trial to assess the safetff y of the trial. In
ed by others may cause the FDA or other oversight
addition, adverse developments in clinical trials of gene therapy products conductdd
bodies to change the requirements forff
therapies in the European Union and may issue new guidelines concerninrr
therapyaa
eview agencies and committees and the new
requirements or guidelines they promulgate may lengthen the regulatory review process, require us to perform additional studies or trials,
increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and
commercialization of our product candidates or lead to significant post-approval limitations or restrictions. As we advance our product
candidates, we will be required to consult with these regulatory agencies and committees and comply with applicable requirements andaa
guidelines. If we fail to do so, we may be required to delay or discontinue development of such product candidates. These additional
processes may result in a review and approval process that is longer than we otherwise would have expected. Delays as a result of an
increased or lengthier regulatory approval process or further restrictions on the development of our product candidates can be costly and
could negatively impact our or our collaborators’ ability to complete clinical trials and commercialize our current and future product
candidates in a timely manner, if at all.
ent regulators, the IBC and institutional review board, or IRB, of each institution at which we conduct clinical trials of our
producdd ts and require that we comply with these new guidelines.These regulatory r
g the development and marketing authorization for gene
candidates. Similarly, the EMA governsrr
approval of any of our productdd
the development of gene
rr
tt
If Any On
f TO heTT Productdd
Candidadd
tes We May Develop Oo
r TheTT Delivery Mrr
odeMM s We RWW ely On Cause Undesirable Side Edd
ff
ffE ect
s,tt
It
Could Dll
Following Any Pn
elayll Or Prevent TheTT ir Regulatory Approval, Ll
otential Marketkk ing AppA roval.
imit The Commercial Potential Or Result In Significi ant Negative Consequences
Product candidates we may develop may be associated with undesirable side effects, unexpected characteristics or other serious
ion of cuts in DNA at locations other than the target sequence. These
adverse events, including off-target cuts of DNA, or the introductdd
off-target cuts could lead to disruptiuu
instances where we also provide a segment of DNA to serve as a repair template, it is possible that folff
DNA from such repair template could be integrated into the genome at an unintended site, potentially disruprr
on of a gene or a genetic regulatory sequence at an unintended site in the DNA, or, in those
lowing off-target cut events,
ting another important
42
ts that could occur with treatment with gene editing producdd ts include an immunologic reaction after administration which
gene or genomic element. There also is the potential risk of delayed adverse events following exposure to gene editing therapyaa
due to
persistent biologic activity of the genetic material or other components of producdd ts used to carry the genetic material. Possible adverse
side effecff
could substantially limit the effectiveness of the treatment. If our CRISPR/CRR as9 gene editing technology demonstrates a similar effect,
we may decide or be required to halt or delay preclinical development or clinical development of our producdd t candidates. In addition
to serious adverse events or side effecff
ts caused by any product candidate we may develop, the administration process or related
procedurdd es also can cause undesirable side effects. If any such events occur, our clinical trials could be suspended or terminated.
health regulatory arr
If in the futurtt e we are unable to demonstrate that such adverse events were caused by factors other than our product candidate,
the FDA, EMA or other comparablea
oval
of, any product candidates we are able to develop for any or all targeted indications. Even if we are able to demonstrate that all future
serious adverse events are not product-related, such occurrences could affect patient recruirr
tment or the ability of enrolled patients to
complete the trial. Moreover, if we elect, or are required, to delay, suspend or terminate any clinical trial of any product candidate we
may develop, the commercial prospects of such product candidates may be harmed and our ability to generate product revenues from
any of these productdd
nd develop
product candidates, and may harm our business, financial condition, result of operations and prospects significff antly.
candidates may be delayed or eliminated. Any of these occurrences may harm our ability to identify aff
uthorities could order us to cease further clinical studies of, or deny appr
a
Additionally, if we successfull
ff
y develop a producdd t candidate and it receives marketing approval, the FDA could require us to
adopt a Risk Evaluation and Mitigation Strategy, or REMS, to ensure that the benefits of treatment with such product candidate
outweighs the risks for each potential patient, which may include, among other things, a medication guide outlining the risks of the
productdd
for distribution to patients, a communication plan to health care practitioners, extensive patient monitoring, or distribution
systems and processes that are highly controlled, restrictive, and more costly than what is typical for the industry. Furthermore, if we
or others later identify undesirablea
side effect
negative consequences could result, including:
s caused by any product candidate that we to develop, several potentially significant
ff
•
•
•
•
•
regulatory authorities may revoke licenses or suspend, vary or withdraw appr
aa
ovals of such product candidate;
regulatory authorities may require additional warnings on the label;
we may be required to change the way a product candidate is administered or conduct additional clinical trials;
we could be sued and held liable for harm caused to patients; and
our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of our CRISPR/Cas
9 technology and
any producdd t candidates we may identify and develop and could have a material adverse effeff ct on our business, financial condition,
results of operations and prospects.
RR
If We Experience Delayll
Be Delayeda
ouldCC
syy Or Diffi icff ulties In The Enrollment Of Patientstt In Clinical Trials, Our Receipt Of Necessary Regue
Or Prevented.
Approvals Cll
latory
We or our collaborators may not be able to initiate or continue clinical trials for any productdd
candidates we identify or develop if
ff
nt number of eligible patients to participate in these trials as required by the FDA or
a given trial.
. In addition, if
we are unable to locate and enroll a sufficie
analogous regulatory authorities outside the United States, or as needed to provide appropriate statistical power forff
Enrollment may be particularly challenging for any rare genetically defined diseases we may target in the futurett
patients are unwilling to participate in our gene editing trials because of negative publu icity from adverse events related to thet
or gene editing fields, competitive clinical trials for similar patient populations, clinical trials in
biotechnology, gene therapya
competing producdd ts, or for other reasons, the timeline for recruiting patients, conducdd ting studies and obtaining regulatory approval of
any product candidates we may develop may be delayed. Moreover, some of our competitors may have ongoing clinical trials for
product candidates that would treat the same indications as any product candidates we may develop, and patients who would otherwi
be eligible forff
our clinical trials may instead enroll in clinical trials of our competitors’ productdd
candidates.
rr
se
Patient enrollment is also affected by other factors, including:
•
•
•
•
severity of the disease under investigation;
size of the patient population and process for identifyinff
g subjects;
design of the trial protocol;
availabila
ity and efficaff
cy of approved medications forff
the disease under investigation;
43
•
•
•
•
•
•
•
•
•
•
availability of genetic testing for potential patients;
ability to obtain and maintain subject consent;
risk that enrolled subjects will drop out before completion of the trial;
eligibility and exclusion criteria for the trial in question;
perceived risks and benefits of the product candidate under trial;
perceived risks and benefits of gene editing and cellular therapies as therapeut
aa
ic approaches;
efforts to facilitate timely enrollment in clinical trials;
patient referral practices of physicians;
ability to monitor patients adequately during and after treatment; and
proximity and availability of clinical trial sites for prospective patients.
Enrollment delays in our clinical trials may result in increased development costs forff
any product candidates we may develop,
ff
which would cause the value of our Company to decline and limit our ability to obtain additional finaff
have difficu
terminate ongoing or planned clinical trials, any of which would have an adverse effect on our business, finaff
operations, and prospects.
lty enrolling a sufficient
number of patients to conduct our clinical trials as planned, we may need to delay, limit, or
ncing. If we or our collaborators
ncial condition, results of
ff
Positive Results From Early Pll
reclinical Studies Of Our Product Candiddd atdd es Are NotNN Necessarily Predicdd tive Of The Results Of
Later Preclinical StuSS dies And Any Future Clinical TriTT als Oll
From Our Earlier Preclinical Studies Of OO ur Product CandCC
May Be Unable To Successfully Dll
f OO ur Producdd t CanCC didates. If We Cannot Replicate The Positive Results
ur Later Preclinical Studiedd s And Future Clinical TriTT als, WeWW
iddd atedd
s In OII
evelop, Obtain Regulatory Approval For And Commercialize Our Product Candidates.
Any positive results from our preclinical studies of our producdd t candidates may not necessarily be predictive of the results fromff
required later preclinical studi
future clinical trials of our product candidates according to our current development timeline, the positive results from such preclinical
studies and clinical trials of our producdd t candidates may not be replicated in subsequent preclinical studtt
es and clinical trials. Similarly, even if we are able to complete our planned preclinical studies or any
ies or clinical trial results.
tt
Many companies in the pharmaceutical and biotechnology indusdd tries have suffered significant setbacks in late-stage clinical
cks. These
y
ks have been caused by, among other things, preclinical and other nonclinical findings made while clinical trials were underwarr
trials after achieving positive results in early-stage development and we cannot be certain that we will not face similar setbat
setbac
t
or safety or efficaff
Moreover, preclinical, non-clinical and clinical data are oftenff
that believed their producdd t candidates performed satisfactorily in preclinical studtt
or EMA approval.
susceptible to varying interpretations and analyses and many companies
ies and clinical trials nonetheless failed to obtain FDA
cy observations made in preclinical studies and clinical trials, including previously unreported adverse events.
e CWW omCC plm ete TheTT Necessary Prr
Even If WII
Time-Consuming, Agg
Candidat
dd
We Will Not Be Able ToTT Commercialize,
ii Or Will Be Delaye
Ability To Generate Revenue Will Be Materially Impaired.dd
es We May Da
nd Uncertain And May Prevent Us From Obtaining Approvals For The Commercializati
evelop.o If We Are Not Able To Obtain, Or If There Are Delays Iyy n OII
ll
ommCC
ercializing, Product CanCC didatedd
d In CII
ii
btaining, Required Regulator
on Of Any Pn
ll
roduct
A
y Arr
ppro
vals,
s We MWW ayMM Develop, And Our
reclinical Studiedd s And Clinical Trials, TheTT Marketing Approval Process Is Expensive,
Any product candidates we may develop and the activities associated with their development and commercialization, including
, safety, efficff
candidates we may seek to develop in the future will ever obtain regulatory arr
roval, advertising, promotion, sale, and
uthorities in the United States, by EMA in the
their design, testing, manufacturett
acy, recordkeeping, labeling, storage, appa
distribution, are subject to comprehensive regulation by the FDA and other regulatory arr
European Union and by comparable authorities in other countries. Failure to obtain marketing appro
prevent us from commercializing the product candidate in a given jurisdiction. We have not received approval or clearance to market
any product candidates from regulatory authorities in any jurisdiction and it is possible that none of our product candidates or any
productdd
roval or clearance. We have only limited
experience in filing and suppouu
research organizations, or CROs, or regulatory consultants to assist us in this process. Securing regulatory approval requires the
submission of extensive preclinical and clinical data and supporting informff
therapeutic indication to establish the biologic productdd
also requires the submi
the relevant regulatory authority. Any productdd
prove to have undesirable or unintended side effect
approval or prevent or limit commercial use.
ng process to, and inspection of manufacturing facilities by,
ve, or may
ive, may be only moderately effecti
candidates we develop may not be effect
ff
s, toxicities or other characteristics that may preclude our obtaining marketing
candidate’s safety, purity, efficacy and potency. Securing regulatory approval
o gain marketing approvals and expect to rely on third-party contract
ssion of information about the product manufacturi
ation to the various regulatory authorities for each
ications necessary t
candidate will
rting the appl
a productdd
val forff
ppa
u
aa
aa
ff
rr
ff
tt
44
The process of obtaining marketing approvals, both in the United States and in other jurisdictions, is expensive, may take many
ubstantially based upouu n a variety of factors,
years if additional clinical trials are required, if approval is obtained at all, and can vary srr
including the type, complexity, and novelty of the product candidates involved. Changes in marketing approval policies durin
development period, changes in or the enactment of additional statuttt es or regulations, or changes in regulatory review for each
submitted producdd t appli
other countries have substantial discretion in the approval process and may refuse
data are insufficient for approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of the
data obtained fromff
marketing appro
approved product not commercially viable.
preclinical and clinical testing could delay, limit, or prevent marketing approval of a producdd t candidate. Any
val we ultimately obtain may be limited or subjeb ct to restrictions or post-approval commitments that render the
cation, may cause delays in the approval or rejection of an application. The FDA and comparable authorities in
to accept any application or may decide that our
g thet
dd
aa
aa
ff
If we experience delays in obtaining approval or if we fail to obtain approval of any productdd
candidates we may develop, the
commercial prospects for those producdd t candidates may be harmed, and our ability to generate revenues will be materially impaired.
We May Never Obtain FDA Approval For Any Of Our Product Candidates
In The United State
Never Obtain Approval For Or Commercialize Any Of Our Product Candidates In Any Other Jurisdi
Ability Ttt
ealizeii Their Full MarkeMM
t Potential.
o RTT
SS
ii
dd
s, And Even If We Do, We May
imit Our
ction, Which WoulWW d Lll
aa
aa
oes not guarantee regulatory arr
oval by regulatory authorities in other countries or jurisdictions. In
In order to eventually market any of our producdd t candidates in any particular jurisdiction, we must establish and comply with
and efficacy. Approval by the
numerous and varying regulatory requirements on a jurisdiction-by-jurisdiction basis regarding safetyff
FDA in the United States, if obtained, does not ensure appr
addition, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory
approval in one country drr
can involve additional producdd t testing and validation and additional administrative review periods. Seeking regulatoryrr approval in
multiple jurisdictions could result in difficulties and costs for us and require additional preclinical studies or clinical trials which could
be costly and time-consuming. Regulatory requirements can vary widely fromff
country to country and could delay or prevent the
introducdd tion of our producdd ts in certain countries. Regulatory approval processes outside the United States involve all of the risks
associated with FDA approval. We do not have any product candidates appr
markets, and we do not have experience in obtaining regulatory approval in international markets. If we fail to comply with regulatory
requirements in international markets or to obtain and maintain required appaa
ovals in international markets
are delayed, our target market will be reducdd ed and our ability to realize the full
rovals, or if regulatory arr
aa
ppr
ff market potential of our products will be unrealized.
val in any other country. Approval processes vary arr mong countries and
oved for sale in any jurisdiction, including international
ppro
aa
Gene editing Products Are Novel And May Be Complex And Difficult To Manufactu
ff
heTT Developmo
dd
ent Or Commercialization Of OO ur Product CandCC
idat
re. We Could Experience Manufact
es Or Other
uring
u
tt wise Harm Our
Problems That Result In Delays Iyy n TII
Business.
ff
g process used to producedd
tt
The manufact
urin
have not been validated forff
equipment malfunctions, faci
ff
services, human error or disruptions in the operations of our suppliers.
clinical and commercial production. Several factors could cause production interrupt
rr
lity contamination, raw material shortages or contamination, naturatt
l disasters, disruptiuu
ions, including
on in utility
CRISPR/Cas9-based productdd
candidates may be complex, as they are novel and
Our product candidates will require processing steps that are more complex than those required for most small molecule drugs.
Moreover, unlike small molecules, the physical and chemical properties of biologics generally cannot be full
result, assays of the finished product may not be sufficff
Accordingly, we will employ multiple steps to control the manufacturing process to assure that the process works and the producdd t
ring process, even minor
candidate is made strictly and consistently in compliance with the process. Problems with the manufactu
deviations froff m the normal process, could result in producdd t defect
productdd
grade materials that meet FDA, the EMA or other applicable standards or specifications with consistent and acceptable producti
yields and costs.
ent inventory. We may encounter problems achieving adequate quantities and quality of clinical
on
ient to ensure that the product will perform in the intended manner.
ff
lures that result in lot faiff
liability claims or insuffici
y characterized. As a
s or manufact
ing faiff
urtt
dd
ff
ff
ff
ff
lures, product recalls,
In addition, the FDA, the EMA and other health regulatory authorities may require us to submit
u
samples of any lot of any
approved product together with the protocols showing the results of applicablea
tests at any time. Under some circumstances, the FDA,
the EMA or other health regulatory authorities may require that we not distribute a lot until the relevant agency authorizes its release.
Slight deviations in the manufacff
changes in the producdd t that could result in lot failures or productdd
launches or clinical trials, which could be costly to us and otherwi
rr
tt
prospects. Problems in our manufact
uri
ff
recalls. Lot failures or producdd t recalls could cause us to delay product
se harm our business, financial condition, results of operations and
turing process, including those affecting quality attributes and stabia lity, may result in unacceptable
ng process could restrict our ability to meet market demand for our products.
45
We also may encounter problems hiring and retaining directly or through contract manufacturing organizations the experienced
quality-control and manufacturing personnel needed to operate our manufacturing processes, which could result in delays in
ff
scientific,
production or difficulties in maintaining compliance with applicable regulatory requirements. Any problems in our manufacff
process or facil
academic research institutions, which could limit our access to additional attractive development programs.
ities could make us a less attractive collaborator for potential partners, including larger pharmaceutical companies and
turing
ff
Adverse Public Perceptie
on Of Gene EditEE ing And CellCC ularll
Therapy Ppp
roducdd ts May Negatively Impact Demand For, Or
r
Regulatory Approval Of, Our Product Candidatdd es.
Our product candidates involve editing the human genome. The clinical and commercial success of our product candidates will
depend in part on public acceptance of the use of gene editing therapies for the prevention or treatment of human diseases. Publu ic
attitudes may be influenced by claims that gene editing is unsafe, unethical, or immoral, and, consequently, our products may not gain
the acceptance of the public or the medical community. Negative public reaction to gene therapyaa
government regulation and stricter labeling requirements of gene editing products, including any of our producdd t candidates, and could
cause a decrease in the demand forff
any products we may develop. Adverse public attitudes may adversely impact our ability to enroll
clinical trials. Moreover, our success will depend upon physicians prescribing, and their patients being willing to receive, treatments
that involve the use of product candidates we may develop in lieu of, or in addition to, existing treatments with which they are already
familiar and for which greater clinical data may be availabla e.
in general could result in greater
In particular, gene editing technology is subjeb ct to publu ic debate and heightened regulatory srr
crutrr
iny duedd
to ethical concerns
rr
ed in embryos
that were not viable, the work prompted calls for a moratorium or other types of restrictions on gene editing of
relating to the application of gene editing technology to human embryos or the human germline. For example, in April 2015, Chinese
scientists reported on their attempts to edit the genome of human embryos to modify t
he gene for hemoglobin beta. This is the gene in
which a mutation occurs in patients with the inherited blood disorder beta-thalassemia. Although this research was purposefully
conductdd
human eggs, sperm, and embryos. The Alliance forff Regenerative Medicine in Washington, D.C. has called for a voluntary moratorium
on the use of gene editing technologies, including CRISPR/Cas9, in research that involves altering human embryos
or human germline
cells. Similarly, the NIH has announced that it would not fund any use of gene editing technologies in human embryos, noting that
there are multiple existing legislative and regulatory prr
prohibits the use of appropriated funds for the creation of human embryos forff
embryos
rr
embryos
rr
is more tightly controlled in many other European countries.
are destroyed. Laws in the United Kingdom prohibit genetically modified embryos
can be altered in research labs under license fromff
rohibitions against such work, including the Dickey-Wicker Amendment, which
the Human Fertilisation and Embryology Authority. Research on embryos
from being implanted into women, but
research in which human
research purpose
s or forff
rr
rr
ff
rr
Although we do not use our technologies to edit human embryos or the human germline, such public debate about the use of
ny could prevent or delay our development of producdd t
gene editing technologies in human embryos and heightened regulatory scruti
candidates. More restrictive government regulations or negative public opinion would have a negative effect on our business or
financial condition and may delay or impair our development and commercialization of product candidates or demand for any
products we may develop. Adverse events in our preclinical studies or clinical trials or those of our competitors or of academic
researchers utilizing gene editing technologies, even if not ultimately attributable to productdd
and the resulting publicity could result in increased governmental regulation, unfavorable public perception, potential regulatory
delays in the testing or approval of potential product candidates we may identify aff
nd develop, stricter labeling requirements forff
product candidates that are appaa
roved, and a decrease in demand forff
any such product candidates.
candidates we may identify and develop,
those
rr
If, In The Future, We Are Unable To Establish SaleSS
s And Marketikk ng Capabilities Or Enter IntoII
To Sell And Market Productdd
Any Products Candidates Are ApprA
s Btt
ased On Our Technologies, We MWW ayMM Not Be Successfus l In CII
oved And We May Not Be Able To GTT
enerate Any Rn
evenue.
Agreegg ments With Third Parties
omCC mercializing Our Products If And When
We do not currently have a sales or marketing infrastructurett
and, as a company, have no experience in the sale, marketing or
distribution of therapeutic products. To achieve commercial success for any approved product candidate forff which we retain sales and
marketing responsibilities, we must build our sales, marketing, managerial and other non-technical capabilities or make arrangements
with third parties to perform these services. In the future,
tructure to sell,
tt
ators for,
or participate in sales activities with our collabor
we may choose to build a focuff
some of our product candidates if any are approved.
sed sales and marketing infrasff
a
ff
There are risks involved with both establishing our own sales and marketing capabilities and entering into arrangements with
e is expensive and time consuming and could
a sales force and establish marketing
third parties to perform these services. For example, recruiting and training a sales forcff
delay any product launch. If the commercial launch of a product candidate forff which we recruit
capabilities is delayed or does not occur forff
expenses. This may be costly and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.
ly or unnecessarily incurred these commercialization
any reason, we would have prematurett
rr
46
Factors that may inhibit our efforff
ts to commercialize our product candidates on our own include:
•
•
•
•
a
our inabilit
y to recruit, train and retain adequate numbers of effective sales and marketing personnel;
the inability of sales personnel to obtain access to physicians or persuade adequate numbers of physicians to prescribe any
future product that we may develop;
the lack of complementary treatments to be offered by sales personnel, which may put us at a competitive disadvantage
relative to companies with more extensive producdd t lines; and
unforeseen costs and expenses associated with creating an independent sales and marketing organization.
If we enter into arrangements with third parties to perform sales, marketing and distribution services, our product revenue or the
profitability to us from these revenue streams is likely to be lower than if we were to market and sell any productdd
develop ourselves. In addition, we may not be successful in entering into arrangements with third parties to sell and market our
product candidates or may be unable to do so on terms that are favorabla e to us. We likely will have little control over such third parties
and any of them may fail to devote the necessary resources and attention to sell and market our product candidates effect
do not establish sales and marketing capabila
successfulff
will be materially adversely affected.
ively. If we
ities successfully, either on our own or in collaboration with third parties, we mayaa not be
in commercializing our product candidates. Further, our business, results of operations, financial condition and prospects
candidates that we
ff
Even If We, Or Any Cn
ollCC abll
Terms Of Approvals And Ongoing Regulation
Limit HowHH We, Or TheyTT
, Myy
ll
orators We May Have, Obtain MarkMM etinkk
orFF Any Product CandCC
Of Our Products Could Require The Substantial Expenditure
g AppA rovals Fll
iddd atedd
s We DWW evelop, The
Of Resources And May
dd
anMM ufacture And Market Our Products, Which Could Materially Impair Our Ability To Generate Revenue.
Any productdd
, will be subject
candidate for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical
to continual requirements of and review by the
data, labeling, advertising, and promotional activities for such productdd
FDA and other regulatory authorities. These requirements include submissions of safety and other post-marketing informff
reports, registration and listing requirements, current Good Manufacff
quality assurance and corresponding maintenance of records and documents and requirements regarding recordkeeping. Even if
marketing appr
oval may be subject to limitations on the indicated uses for which the
productdd may be marketed or to the conditions of approval, or contain requirements for costly post-marketing testing and surveillance
to monitor the safety or efficacy of the product. The FDA also may place other conditions on approvals including the requirement forff
a REMS to assure the safe use of the product. If the FDA concludes a REMS is needed, the sponsor of the Biologics License
Application, or BLA, must submit a proposed REMS before it can obtain approval. A REMS could include medication guides,
physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk
minimization tools.
turing Practice, or cGMP, requirements relating to quality control,
oval of a product candidate is granted, the appr
ation and
b
a
a
Accordingly, assuming we, or any collaboa
rators we may have, receive marketing appro
aa
val forff
rators, and our and their contract manufacff
we develop, we, and such collaboa
all areas of regulatory compliance, including manufacff
collaborators are not able to comply with post-approval regulatory r
approvals for our products withdrawn by regulatory authorities and our, or such collaborat
could be limited, which could adversely affect our ability to achieve or sustain profitabff
approval regulations may have a negative effect on our business, operating results, financial condition, and prospects.
equirements, we and such collaborators could have the marketing
ors’, ability to market any future products
ility. Further, the cost of compliance with post-
turing, production, product surveillance, and quality control. If we and such
turers will continue to expend time, money, and effoff
a
rr
one or more product candidates
rt in
Any Productdd
Candidadd
te For Which We Obtain MarkMM etkk ing Approval CoulCC d Bll
SS
e Subj
Market,kk And We May Be Subject To Substantial Penalties If We Fail To Complym With Regulatoll
Unanticipated Problems With Our Products, WhenWW
And If Any Of Them Are Approved.dd
ect To Restrict
tt
ions Or Withdrawal From The
ry Requirements Or If We Experience
The FDA and other regulatory agencies closely regulate the post-approval marketing and promotion of biologics to ensure that
the approved indications and in accordance with the provisions of the approved labeling. The FDA and
rs’ communications regarding off-label use, and if we do not
t to enforcement action for off-label marketing by the FDA and
eral and state enforcement agencies, including the United States Department of Justice. Violation of the Federal Food, Drug,
they are marketed only forff
other regulatory arr
gencies impose stringent restrictions on manufacturett
market our products for their approved indications, we may be subjec
other fedff
and Cosmetic Act and other statutes, including the False Claims Act, relating to the promotion and advertising of prescription products
may also lead to investigations or allegations of violations of federal and state health care fraud and abus
protection laws.
e laws and state consumer
u
a
47
In addition, later discoveryrr of previously unknown
kk
problems with a product candidate, including adverse events of unanticipated
severity or frequ
ff
other things:
ency, or with our manufacturing processes, or failure to comply with regulatory requirements, may result in, among
•
•
•
•
•
•
•
•
•
•
•
•
•
restrictions on such products, manufacturers, or manufacturing processes;
restrictions on the labeling or marketing of a product;
restrictions on the distribution or use of a product;
requirements to conduct post-marketing clinical trials;
receipt of warning or untitled letters;
restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or
mandatory brr
iologic recalls;
refusal to approve pending applications or supplements to approved applications that we submit;
fines, restituttt
ion, or disgorgement of profits or revenue;
suspension or withdrawal of marketing approvals or revocation of biologics licenses;
suspension of any ongoing clinical trials;
refusal to permit the import or export of our products;
product seizure or detention; and
injunctions or the imposition of civil or criminal penalties.
The FDA’s policies may change and additional government
rr
regulations may be enacted that could prevent, limit or delay
regulatory approval of our product candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of
new requirements or policies, or if we are not able to maintain regulatory crr
may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability.
ompliance, we may lose any marketing approval that we
Any government investigation of alleged violations of law could require us to expend significant time and resources in response
and could generate negative publicity. The occurrence of any event or penalty described above may also inhibit our ability to
commercialize any product candidates we may develop and adversely affect our business, financial condition, results of operations,
and prospects.
The Commercial Success Of Any Of Our Product Candidat
dd
es Will Depend UponUU
Its Degree Of Marketkk Acceptan
e
ce By
Physicians, Patients, Third-party Payors And Others In The Medical Community.
Ethical, social and legal concerns about gene therapyaa
could result in additional regulations restricting or prohibiting our
products. Even with the requisite approvals from FDA in the United States, the EMA in the European Union and other regulatoryrr
authorities internationally, the commercial success of our product candidates will depend, in significant part, on the acceptance of
physicians, patients and health care payors of gene therapyaa
necessary, cost-effecti
payors and others in the medical community. The degree of market acceptance of gene therapy products and, in particular, our product
candidates, if approved for commercial sale, will depend on several facto
ve and safe.ff Any product that we commercialize may not gain acceptance by physicians, patients, health care
products in general, and our product candidates in particular, as medically
rs, including:
ff
ff
•
•
•
•
•
•
•
•
the effiff cacy, durdd ability and safety of such producdd t candidates as demonstrated in any future clinical trials;
the potential and perceived advantages of productdd
candidates over alternative treatments;
the cost of treatment relative to alternative treatments;
the clinical indications forff which the product candidate is approved by FDA or the EMA;
patient awareness of, and willingness to seek, genotyping;
the willingness of physicians to prescribe new therapieaa
s;
the willingness of the target patient population to try new therapies;
the prevalence and severity of any side effect
ff
s;
48
•
•
•
•
•
•
product labeling or product insert requirements of FDA, the EMA or other regulatory arr
or warnings contained in a product’s approved labeling;
uthorities, including any limitations
relative convenience and ease of administration;
the strength of marketing and distribution support;
;
the timing of market introduction of competitive products
dd
publicity concerning our products or competing products and treatments; and
sufficient third-party payor coverage and reimbursement.
Even if a potential product displays a favora
es and future clinical trials, market
acceptance of the product will not be fully known until after it is launched. If our product candidates do not achieve an adequate level
owing regulatory approval, if ever, we may not generate significant product revenue and may not become profitable.
of acceptance foll
efficacy and safety profile in preclinical studi
blea
ff
ff
tt
We May Expend
x
Our Limited Resources To Pursue
tes Or Indications That MayMM Be More Profitaff
Candidadd
rr
Productdd
A Particular Product Candi
CC
ble Or For Which There Is AII
date Or Indication And Fail To Capitalize On
Greater Likelikk hood Of Success.
We have limited financial and managerial resources. As a result, we may forego or delay pursuit of opportunities with other
product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions
may cause us to fail to timely capitalize on viable commercial producdd ts or profitff able market opportunities. Our spending on currerr nt
and future research and development programs and product candidates for specific indications may not yield any commercially viablea
products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may
relinquish valuable rights to that producdd t candidate through collaboration, licensing or other royalty arrangements in cases in which it
would have been more advantageous forff
us to retain sole development and commercialization rights to such product candidate.
i
fii cant CompCC
We Face Signi
chieve Regul
Competm itors May Aa
Which May Harm Our Business And Financial CondCC
Candidatdd es.
atll ory Approval Before
e
ff
etition In An Environment Of Rapid TechTT
herTT
Us Or Develop To
itidd on, And Our Ability Ttt
nological ChanCC
ge And The Possibility Ttt
hatTT
ff
apies That Are More Advanced Or EffE ect
o STT
Ours,
ly Marketkk Or Commercialize Our Product
Our
ive ThanTT
ucSS cessfulff
The biotechnology and pharmaceutical industries, including the gene therapyaa
field, are characterized by rapidly changing
technologies, significff ant competition and a strong emphasis on intellectual property. We facff e substantial competition froff m many
t sources, including large and specialty pharmaceutical and biotechnology companies, academic research instituttt
differen
ff
governmrr
ent agencies and public and private research institutions, some or all of which may have greater access to capital or resources
than we do.
ions,
We are aware of several companies focused on developing gene editing in various indications using CRISPR/CaRR
s9 gene editing
technology, including Intellia Therapeutics, Inc. and Editas Medicine, Inc., or Editas. There can be no certainty that other gene editing
technologies will not be considered better or more attractive than our technology for the development of productdd
s. For example, Editas
has recently exclusively licensed a CRISPR system involving a differeff
advanced forms of CAS9. Editas and certain of its scientificff
cases. Cas9 may be determined to be less attractive than Cpf1 or other CRISPR proteins that have yet to be discovered.
nt protein, Cpf1, which can also edit human DNA as well as
founders have asserted that Cpf1 may work better than Cas9 in some
There are additional companies developing therapiaa es using additional gene editing technologies, including transcription
activator-like effector nucleases (TALENs), meganucleases and zinc finger nucleases (ZFNs). These companies include bluebird bio,
Cellectis, Poseida Therapeut
products include Abeona Therapeaa utics, Avalanche Biotechnologies, Dimension Therapeuaa
uniQure.
ics, Precision Biosciences, and Sangamo Biosciences. Additional companies developing gene therapyaa
tics, REGENXBIO, Spark Therapeaa utics and
aa
In addition to competition from other gene editing therapia es or gene therapieaa
s, any productdd
we may develop may also face
competition from other types of therapies, such as small molecule, antibody or protein therapies. In addition, new scientificff
discoveries may cause CRISPR/Cas9 technology, or gene editing as a whole, to be considered an inferior form of therapy.
aa
Many of our current or potential competitors, either alone or with their collaboration partners, have significantly greater
financial resources and expertise in research and development, manufacff
regulatory approvals and marketing approved productdd
and gene therapy industries may result in even more resources being concentrated among a smaller number of our competitors.
Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with
s than we do. Mergers and acquisitions in the pharmaceutical, biotechnology,
ies, conducdd ting clinical trials, obtaining
turing, preclinical studtt
49
rr
o, or necessary for, our programs. Our commercial opportunity could be reduced or eliminated if our
large and established companies. These competitors also compete with us in recruirr
management personnel and establishing clinical trial sites and patient registration forff
technologies complementary t
competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effect
convenient, have broader acceptance and higher rates of reimbursement by third party payors or are less expensive than any products
that we may develop obsolete or non-competitive. Our competitors also may
that we may develop or that would render any products
oval for ours, which could result in
a
obtain FDA or other regulatory approval for their products more rapidly than we may obtain appr
our competitors establia
we are able to enter the market. Additionally, technologies developed by
our competitors may render our potential product candidates uneconomical or obsolete, and we may not be successful in marketing
any product candidates we may develop against competitors.
ting and retaining qualifieff d scientific and
clinical trials, as well as in acquiring
shing a strong market position beforeff
s, are more
dd
ff
In addition, as a result of the expiration or successful challenge of our patent rights, we could face more litigation with respect to
the validity and/or scope of patents relating to our competitors’ products and our patents may not be suffici
competitors from commercializing competing producdd ts. The availability of our competitors’ products could limit the demand, and the
price we are able to charge, for any products that we may develop and commercialize.
ent to prevent our
ff
To become and remain profitff able, we must develop and eventuatt
lly commercialize producdd t candidates with significant market
tt
candidates, obtaining marketing and reimbursement approval for these productdd
ng, marketing and selling those products that are approved and satisfying any post marketing requirements. We may never
potential, which will require us to be successful in a range of challenging activities. These activities can include completing preclinical
studies and clinical trials of our productdd
manufacturi
succeed in any or all of these activities and, even if we do, we may never generate revenues that are significant or large enough to
achieve profitff ability. If we do achieve profitabia lity, we may not be able to sustain or increase profitff ability on a quarterly or annual
basis. Our failure to become and remain profitable would decrease the value of our Company and could impair our ability to raise
capital, maintain our research and development effor
Company also could cause shareholders to lose all or part of their investment.
ts, expand our business or continue our operations. A decline in the value of our
candidates,
ff
Even If WII
e AWW re Able To Commercializeii Any Productdd
Candidates, SuchSS
Producdd ts May Become Subj
SS
ect To Unfavorable Pricing
Regulations, ThirTT
-
d-par
ty Reimburserr ment Practices, Or HealHH thcare Reform Initiatives, Which Would Harm Our Business.
The regulations that govern mrr
arketing appa
rovals, pricing, and reimbursement forff
new biologic products vary widely fromff
In the United States, recently enacted legislation may significantly change the appro
aa
country to country.rr
could involve additional costs and cause delays in obtaining appro
before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is
granted. In some non-U.S. markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after
initial approval is granted. As a result, we might obtain marketing approval for a producdd t in a particular country, but then be subject to
price regulations that delay our commercial launch of the product, possibly for lengthy time periods, and negatively impact the
revenues we are able to generate from the sale of the producdd t in that country. Adverse pricing limitations may hinder our ability to
candidates we may develop obtain marketing appro
recoup ouu
val requirements in ways that
a
vals. Some countries require approval of the sale price of a product
ur investment in one or more product candidates, even if any productdd
val.
aa
Our ability to commercialize any products successfully also will depend in part on the extent to which reimbursement for these
products and related treatments will be available from government health administration authorities, private health insurers, and other
organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations,
decide which medications they will pay for and establish reimbursement levels. A primary t
nd
elsewhere is cost containment. Government authorities and third-party payors have attempted to control costs by limiting coverage and
the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that drug companies provide
them with predetermined discounts from list prices and are challenging the prices charged forff medical products. We cannot be sure
that reimbursement will be available for any producdd t that we commercialize and, if reimbursement is available, the level of
reimbursement. Reimbursement may impact the demand for,
or the price of, any product candidate forff which we obtain marketing
approval. If reimbursement is not availabla e or is available only to limited levels, we may not be able to successfully commercialize
any producdd t candidate for which we obtain marketing approval.
rend in the U.S. healthcare industry arr
rr
ff
There may be significant delays in obtaining reimbursement forff
newly appaa
roved productdd
s, and reimbursement coverage may be
more limited than the purposes for which the product is approved by the FDA or similar regulatory authorities outside the United
States. Moreover, eligibility forff
reimbursement does not imply that any product will be paid forff
costs, including research, development, manufacturett
applicable, may also not be suffici
the use of the product and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost
products and may be incorporated into existing payments for other services. Net prices forff
products may be reduced by mandatory
discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently
ent to cover our costs and may not be made permanent. Reimbursement rates may vary according to
, sale, and distribution. Interim reimbursement levels for new products, if
in all cases or at a rate that covers our
ff
50
s from countries where they may be sold at lower prices than in the United States. Third-party payors often
restrict imports of productdd
rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our inability to promptly
obtain coverage and profitable payment rates from both government-funded and private payors for any approved products we may
develop could have a material adverse effecff
t on our operating results, our ability to raise capital needed to commercialize products,
and our overall financial condition.
Risks Related to Our Relationships with Third Parties
If Conflicts Ariseii Between Us And Our Collaborators Orr
r StrSS ategic Partners
tt
TT
, These
Parties May Act In A MannMM er Adverserr To Us
And Could Limit Our Ability To Implement Our Strategies.
If confliff cts arise between our corporate or academic collaboa
rators or strategic partners and us, the other party may act in a
manner adverse to us and could limit our ability to implement our strategies. Some of our academic collaborators and strategic
partners are conducdd ting multiple producdd t development effoff
collaborators or strategic partners, however, may develop, either alone or with others, products in related fields that are compemm titive
s or potential products that are the subject of these collaborations. Competing producdd ts, either developed by the
with the productdd
collaborators or strategic partners or to which the collaborators or strategic partners have rights, may result in the withdrawal of
partner support for our product candidates.
rts within each area that is the subju ect of the collaboration with us. Our
Some of our collaborators or strategic partners could also become our competitors in the future. Our collaborators or strategic
partners could develop competing productdd
regulatory approvals, terminate their agreements with us prematurett
commercialization of productdd
s, preclude us from entering into collaborations with their competitors, fail to obtain timely
ly, or fail
ff
to devote suffici
ff
ent resources to the development and
s. Any of these developments could harm our producdd t development effort
ff
s.
Our Collaborators Or Strategic Partners Mrr
ayMM Decide To Adopto Alternative Techn
TT
ologies Or May Be Unable To DTT
evelop
Commerciallyll Viable Producdd ts Withtt Our Technology,gg Which Would Negatively Impact Our Revenues And Our Strategy To Develop
These Products.
Our collaborators or strategic partners may adopt alternative technologies, which could decrease the marketability of our
ators or
CRISPR/CRR as9 gene editing technology. Additionally, because our current are and we anticipate that any future collabor
strategic partners will be working on more than one development project, they could choose to shift tff heir resources to projeco
than those they are working on with us. If they do so, this would delay our ability to test our technology and would delay or terminate
the development of potential products based on our CRISPR/Cas9
partners may elect not to develop products arising out of our collabor
a
sufficff
a product candidate pursuant to our agreements with our current or futff urtt e collaborators would prevent us from receiving futur
e
milestone and royalty payments which would negatively impact our revenues.
ient resources to the development, manufacturing, marketing or sale of these products. The failure to develop and commercialize
ative and strategic partnering arrangements or to devote
gene editing technology. Further, our collaboa
rators and strategic
ts other
RR
a
ff
Our Collaborators And StraSS
Other Obstacles In TII
heTT Commercializati
ii
tegic Partners May Ca
s
Aspec
on Of Our Proposed Productdd
tt
ontCC rol
ts Of Our Clinical Trials,ll Which Could Result In Delays
s Att
nd Materially Harm Our Results Ott
ll
f OO perO ations.
And
For some programs, we will depend on third party collaborators and strategic partners to design and conduct our clinical trials.
these programs in the manner or on the time schedule we currently contemplate, which may
As a result, we may not be abla e to conductdd
negatively impact our business operations. In addition, if any of these collaborators or strategic partners withdraw support for our
programs or proposed products or otherwise impair their development, our business could be negatively affected. In October 2015, we
entered into a fouff
underlying genetic causes of human diseases, including beta-thalassemia and sickle cell. In addition, in December 2015, we entered
into an agreement with Bayer Healthcare to create a joint venture to discover and commercialize therapeutics for the treatment of
blood disorders, blindness and heart disease in addition to select indications related to other sensory orr
autoimmune diseases based on our CRISPR/Cas
r-year collaboration agreement with Vertex to research, develop and commercialize new treatments aimed at the
rgans, metabolic diseases and
9 gene editing technology.
RR
We and Bayer Healthcare each hold a 50% interest in the joint venture and each have two designees on the management board.
As such, we cannot control all aspects of the clinical development and commercialization of any product candidate developed by the
joint venture. Similarly, under our collaboration agreement with Vertex, Vertex has sole authority to select genetic targets to pursue
and we will not have control over the development of any product candidates for the selected genetic targets. Our lack of control over
the clinical development in our agreements with Bayer Healthcare and Vertex could cause delays or other diffiff culties in the
development and commercialization of producdd t candidates, which may prevent among other things, completion of intended IND
filings for the first clinical trial for our hemoglobinopathy program targeting beta-thalassemia in a timely fasff hion, if at all.
51
In addition, the termination of our agreement with Vertex would prevent us froff m receiving any milestone, royalty payments and
under that agreement. The termination of our joint venture with Bayer Healthcare would prevent us froff m participating in
other benefitsff
the profits of the joint venture. Either occurrence would have a materially adverse effect on our results of operations.
We May Seek To Establish Additional Collaborations And, If We Are Not Able To Establish Them On Commercially Rll
easonable
Terms, We May Have To Alter Our Development And Commercializatio
ii
n Plans.
Our producdd t candidate development programs and the potential commercialization of our producdd t candidates will require
substantial additional cash to fund expenses. For some of our producdd t candidates, we may decide to collaborate with additional
the development and potential commercialization of those product candidates.
pharmaceutical and biotechnology companies forff
We face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for any
a
ation and the proposed collaborator’s evaluation of a number of factors. Those fact
additional collaborations will depend, among other things, upon our assessment of the collaboa
and conditions of the proposed collabor
include the design or results of clinical trials, the likelihood of approval by FDA or similar regulatory arr
States, the potential market for the subju ect product candidate, the costs and complexities of manufacff
candidate to patients, the potential of competing drugs, the existence of uncertainty with respect to our ownership of technology,
which can exist if there is a challenge to such ownership without regard to the merits of the challenge and industdd
conditions generally. The collaborator may also consider alternative product candidates or technologies for similar indications that
may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our producdd t
candidate. The terms of any additional collaborations or other arrangements that we may establish may not be favorable to us.
ors may
uthorities outside thet United
turing and delivering such productdd
rator’s resources and expertise, the terms
ry and market
ff
We may also be restricted under existing collaboration agreements from entering into futff urett
agreements on certain terms with
potential collaborators. For example, we have granted exclusive rights to Vertex forff
collaboration agreement, we will be restricted from granting rights to other parties to use our CRISPR/Cas9 technology to pursue
therapies that address these genetic targets. Similarly, pursuant to our joint venture agreement with Bayer Healthcare, during the term
of the joint venturett
products that use our CRISPR/Cas9 technology in specifieff d fieldff
The non-competition provisions in each of these agreements could limit our abia lity to enter into strategic collaboa
collaborators.
, and for a specified period after the termination of the joint venture, we will be prohibited froff m developing
s that would compete with the joint venture and Bayer, respectively.
certain genetic targets, and durdd ing the term of the
rations with future
ff
We may not be abla e to negotiate additional collaboa
rations on a timely basis, on acceptabla e terms, or at all. Collaboa
rations are
complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business
combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collabor
ators. If we
are unable to negotiate and enter into new collaborations, we may have to curtail the development of the product candidate forff which
we are seeking to collaborate, reduce or delay its development program or one or more of our other development programs, delay its
potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditurtt es and undertake
development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or
commercialization activities on our own, we may need to obtain additional capital, which may not be availabla e to us on acceptabla e
terms or at all. If we do not have suffiff cient funff ds, we may not be able to furff
market and generate product revenue.
ther develop our product candidates or bring them to
a
We Expect To Rely On Third Parties To Conduct Our Clinical TriTT als All
nd Certain Aspec
s
ts Of Our Preclinical Studies ForFF Our
tes. If These Third Parties Do Not Successfull
r MeetMM Expected Deadlines, We May Not Be Able To OTT
y Cll
ff
arCC ry Out Their Contractual Duties, Comply With Regulatory
btain Regul
e
atoll
ry Approval For Or Commercialize Our Product
Productdd
Candidadd
Requirements Ott
dd
Candidat
es And Our Business Could Bll
e SubSS stantially Harmed.
We expect to rely on medical institutions, clinical investigators, contract laboratories and other third parties, such as CROs, to
our product
conduct future clinical trials and we currently rely on third parties to conducdd t certain aspects of our preclinical studtt
ensuring that each of our preclinical studies and any future clinical trials we sponsor
candidates. Nevertheless, we are responsible forff
standards and our reliance
protocol, legal and regulatory requirements and scientificff
are conducted in accordance with the applicablea
on CROs will not relieve us of our regulatory responsibilities. For example, we will remain responsible forff
ensuring that each of our
clinical trials is conducted in accordance with the general investigational plan and protocols forff
the trial. Moreover, the FDA requires
us to comply with regulations, commonly referred to as Good Clinical Practices, or GCPs, for conducting, recording, and reporting the
results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity, and
confidentiality of trial participants are protected. We also are required to register ongoing clinical trials and post the results of
completed clinical trials on a governmrr
result in fines, adverse publicity, and civil and criminal sanctions. For any violations of laws and regulations during the conducdd t of our
preclinical studies and clinical trials, we could be subjeb ct to warning letters or enforff cement action that may include civil penalties upuu
to and including criminal prosecution.
ent-sponsored database, ClinicalTrials.gov, within certain timeframes. Failure to do so can
ies forff
52
We and our CROs will be required to comply with regulations, including GCPs, for conducdd ting, monitoring, recording and
tt
es and clinical trials to ensure that the data and results are scientificaff
reporting the results of preclinical studi
lly credible and accurate
and that the trial patients are adequately informed, among other things, of the potential risks of participating in clinical trials and their
rights are protected. These regulations are enforced by FDA, the Competent Authorities of the Member States of the European
Economic Area and comparablea
health regulatory authorities for any drugs in clinical development. The FDA enforces GCP
regulations through periodic inspections of clinical trial sponsors, principal investigators and trial sites. If we or our CROs faiff
comply with appa
health regulatory arr
cannot assure you that, upon inspection, the FDA will determine that any of our future clinical trials will comply with GCPs. In
addition, our futff ure clinical trials must be conducted with product candidates producdd ed in accordance with the requirements in cGMP
regulations. Our failure or the failure of our CROs to comply with these regulations may require us to repeat clinical trials, which
would delay the regulatory approval process and could also subject us to enforcement action.
l to
licabla e GCPs, the clinical data generated in our clinical trials may be deemed unreliabla e and FDA or comparable
uthorities may require us to perform additional clinical trials before approving our marketing applications. We
Although we intend to design the clinical trials for our product candidates, CROs will conduct all of the clinical trials. As a
result, many important aspects of our development programs, including their conduct and timing, will be outside of our direct control.
Our reliance on third parties to conducdd t futff urtt e preclinical studtt
management of data developed through preclinical studi
our own staff. Cff
coordinating activities. Outside parties may:
ies and clinical trials will also result in less direct control over the
es and clinical trials than would be the case if we were relying entirely upon
ommunicating with outside parties can also be challenging, potentially leading to mistakes as well as difficff ulties in
tt
•
•
•
•
•
have staffinff g diffiff culties;
fail to comply with contractual obligations;
experience regulatory compliance issues;
undergo changes in priorities or become financially distressed; or
form relationships with other entities, some of which may be our competitors.
These factors may materially adversely affeff ct the willingness or ability of third parties to conduct our preclinical studtt
ies and
t us to unexpected cost increases that are beyond our control. If the CROs do not perform preclinical
clinical trials and may subjecb
studies and future clinical trials in a satisfactory manner, breach their obligations to us or faiff
the development, regulatory appro
regulatory approval and commercialize our product candidates, or our development programs may be materially and irreversibly
harmed. If we are unable to rely on preclinical and clinical data collected by our CROs, we could be required to repeat, extend the
duration of, or increase the size of any clinical trials we conductdd
and this could significantly delay commercialization and require
significantly greater expenditures.
equirements,
candidates may be delayed, we may not be able to obtain
val and commercialization of our productdd
l to comply with regulatory r
aa
rr
We Expect To Rely Oll
n Third Parties To Manufacu
uring Process Of Our Product Candidatdd es, If Approved. Odd
ture Our Clinical Product Supplpp ies, And We Intend To Rely Oll
ur Business CouldCC
n ThirTT
d Parties
Be Harmed If
ithWW Suffu icff
ient Quantities Of Producdd t InpII uts Ott
r FaiFF l To DTT
o So ASS
t Acceptable Quality Levels Or
For At Leastaa A Portion Of The ManMM ufact
ff
The Third Parties Fail To Provide Udd
s WUU
Prices.
We do not currently own any facff
ility that may be used as our clinical-scale manufacff
turing and processing facff
ility and must rely
on outside vendors to manufacture supplies and process our product candidates in connection with any clinical trial we undertake of
such productdd
d or processed on a commercial scale and
any of our product candidates. We will make changes as we work to optimize the manufacturing process,
may not be able to do so forff
and we cannot be sure that even minor changes in the process will result in therapiaa es that are safe and effecff
candidates. We have not yet caused any product candidates to be manufact
tive.
urett
ff
The facilities used by our contract manufacturett
rs to manufacturett
our product candidates must be approved by the FDA, or other
tt
health regulatory agencies in other jurisdictions, pursuant to inspections that will be conductdd
g process of, and will be completely dependent on, our
FDA or other health regulatory agencies. We will not control the manufact
tt
urin
ng partners for compliance with regulatory r
equirements, known as cGMP requirements, forff manufacture of our
contract manufacturi
producdd t candidates. If our contract manufacturers cannot successfull
ff
strict regulatory requirements of the FDA or other regulatory authorities, they will not be able to secure and/odd r maintain regulatory
approval for their manufacturing faci
maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable health regulatory authority
does not approve these faci
we
may need to find alternative manufacff
approval forff
lities for the manufacture of our product candidates or if it withdraws any such approval in the future,
turing facilities, which would significantly impact our abia lity to develop, obtain regulatory
lities. In addition, we have no direct control over the ability of our contract manufacturers to
ed after we submit an application to the
urtt e material that conformff
or market our productdd
candidates, if appro
s to our specificaff
y manufact
ved.
aa
ff
ff
rr
ff
ff
tt
tions and the
53
Our Relatll
kickback, Fkk
rauFF
Penalties, Exclusion FromFF
Future Earnings.
ionships With Healthcare Providersdd
d And Abuse And Other Healthcare Laws Aww nd Regulations, WhicWW h CoulCC d Ell
, Physicians, And Third-pdd artytt Payors Will Be Subjeb ct To Applicable Anti-
xpoEE
se Us To Criminal Sanct
SS
ions, Civil
Government Healthctt are Programs, Contractual Damages, Reputational Harm And Diminished Profits And
Although we do not currently have any drugs on the market, once we begin commercializing our product candidates, if ever, we
will be subjeb ct to additional healthcare statuttt ory and regulatory requirements and enforcement by the U.S. fede
states as well as other national, regional or local governments in other jurisdictions in which we conduct our business.
ff
ral governme
rr
nt and
Healthcare providers, physicians and third-party payors play a primary role in the recommendation and prescription of any
product candidates that we may develop for which we obtain marketing approval. Our future arrangements with third-party payors and
customers may expose us to broadly applicablea
business or financial arrangements and relationships through which we market, sell, and distribute our producdd t candidates for which
we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations include the following:
fraud and abuse and other healthcare laws and regulations that may constrain the
•
•
•
•
•
•
ng, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the
the federal Anti-Kickback Statute prohibits, among other things, persons fromff
offeri
ff
referral of an individual for,
be made under a state or Federal healthcare program, such as Medicare and Medicaid. A person or entity does not need to
have actual knowledge of the statuttt e or specific intent to violate it in order to have committed a violation. Violation of the
statuttt e may give rise to criminal and/or civil penalties;
or the purchase, order, or recommendation of, any good or service, forff which payment may
knowingly and willfully soliciting,
ff
the federal civil and criminal false claims laws, including the civil False Claims Act, impose criminal and civil penalties,
including through civil whistleblower or qui tam actions, against individuals or entities for, among other things,
knowingly presenting, or causing to be presented, to the federal government, claims for payment or appro
Medicare, Medicaid, or other government payors that are false, fict
causing to be made or used a falsff
federal government, with potential liability including mandatory treble damages and significan
currently set at $5,500 to $11,000 per false claim. In addition, the government may assert that a claim including items and
e of fraudulent claim for purposes
services resulting from a violation of the federal Anti-Kickback Statute constitutes a falsff
of the False Claims Act;
dulent or knowingly making, using or
e record or statement to avoid, decrease or conceal an obligation to pay money to the
t per-claim penalties,
itious or frauff
val fromff
aa
ff
ff
the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as furth
Inforff mation Technology for Economic and Clinical Health Act, or HITECH, and their implementing regulations which
impose certain requirements on covered entities, including healthcare providers, health plans and healthcare clearing
houses, as well as their business associates that performff
and transmission of individually identifiable health information that constituttt es protected health information, including
mandatory crr
authorization;
terms and restrictions on the use and/odd r disclosure of such information without appropriate
certain services with respect to safeguff
er amended by the Health
ontractual
arding the privacy, security
ff
tt
the federal falff se statements statute prohibits knowingly and willfully falff sifyiff ng, concealing, or covering up a material fact
or making any materially false statement in connection with the delivery of or payment for healthcare benefitsff
services; similar to the federal Anti-Kickbakk ck Statuttt e, a person or entity does not need to have actual knowledge of the
statuttt e or specificff
intent to violate it in order to have committed a violation;
, items, or
able Care Act, require manufact
the federal physician payment transparency requirements, sometimes referre
Affordff
Medicare, Medicaid, or the Children’s Health Insurance Program to report to the Department of Health and Human
Services information related to physician payments and other transfers of value to physicians and teaching hospitals, and
ownership and investment interests held by physicians and other healthcare providers and their immediate family
members and applicable group purchasing organizations; and
s, devices, biologics and medical supplies that are reimbursabla e under
d to as the “Sunshine Act” under the
urtt ers of drugrr
ff
ff
analogous laws and regulations in U.S. states, and in other countries, regions or localities in which we may do business,
such as state anti-kickback and false claims laws, which may apply to healthcare items or services that are reimbursed by
non-governmental third-party payors, including private insurers.
Because of the breadth of these laws and the narrowness of the statutott
ry exceptions and safe harbors available, it is possible that
some of our business activities could be subject to challenge under one or more of such laws. If our operations are found to be in
violation of any of the laws described abova
e or any other government regulations that apply to us, we may be subject to penalties,
including civil and criminal penalties, damages, finff es, exclusion from participation in government health care programs, such as
Medicare and Medicaid, imprisonment, and the curtailment or restructuring of our operations, any of which could adversely affecff
business, financial condition, results of operations, and prospects.
t our
54
The provision of benefits or advantages to physicians to inducedd
or encourage the prescription, recommendation, endorsement,
purchase, supply, order, or use of medicinal products is prohibited in the European Union. The provision of benefits or advantages to
physicians is also governed by the national anti-bribery laws of European Union Member States, such as the UK Bribery Arr
Infringement of these laws could result in substantial fineff
s and imprisonment.
ct 2010.
Payments made to physicians in certain European Union Member States must be publicly disclosed. Moreover, agreements with
nal
uthorities of the individual European Union Member States. These requirements are provided in
physicians often must be the subjeb ct of prior notification and approval by the physician’s employer, his or her competent professio
organization, and/odd r the regulatory arr
the national laws, industry crr
comply with these requirements could result in reputational risk, publu ic reprimands, administrative penalties, finff es, or imprisonment.
applicable in the European Union Member States. Failure to
sional codes of conductdd
odes, or profesff
ff
ff
Effort
s to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations
s, regulations, or case law involving appl
will involve subsu tantial costs. It is possible that governmental authorities will conclude that our business practices may not comply
with current or futurtt e statutett
d and abuse or other healthcare laws and regulations.
a
If our operations, including activities that may be conducted by sales and marketing team we establish, are found to be in violation of
any of these laws or any other governmental regulations that may apply to us, we may be subjeb ct to significaff
administrative penalties, damages, fines, exclusion fromff
and the curtailment or restruct
tt
urin
do business are found to be not in compliance with applicable laws, they may be subjeb ct to criminal, civil, or administrative sanctions,
including exclusions fromff
significff ant costs or an interruptiuu
results of operations, and prospects.
nt civil, criminal, and
d healthcare programs, such as Medicare and Medicaid,
g of our operations. If any of the physicians or other providers or entities with whom we expect to
on in operations, which could have a material adverse effecff
ities they incur pursuant to these laws could result in
government funded healthcare programs. Liabila
t on our business, finaff
government funde
ncial condition,
icabla e frauff
rr
ff
Risks Related to Employee Matters, Managing Growth and Other Risks Related to Our Business
Our Future Success Depends On Our Ability To Retain Key Ee
nel.
Personrr
xeEE cutives And To Attract, Retain And MotMM ivate Qualifii ed
We are highly dependent on the research and development, clinical, commercial and business development expertise of
ff
ff
, Dr. Sven Ante (Bill) Lundberg, our Chief Scientific Officeff
, as well as the other principal members of our management, scientific and clinical
Dr. Rodger Novak, our President and Chief Executive Officer
Dr. Samarth Kulkarni, our Chief Business Officer
team. Although we have entered into employment agreements with our executive officers, each of them may terminate their
employment with us at any time. We do not maintain “key person” insurance forff
addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and
development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may
have commitments under consulting or advisory contracts with other entities that may limit their availabia lity to us. The loss of the
services of our executive officers or other key employees or consultants could impede the achievement of our research, development
and commercialization objectives and seriously harm our ability to successfully implement our business strategy. If we are unabla e to
retain high quality personnel, our abia lity to pursue our growth strategy will be limited.
any of our executives or other employees. In
r,
We will also need to recruit
rr
and retain qualified scientific, clinical and commercial personnel as we advance the development of
our product candidates and product pipeline. We may be unable to hire, train, retain or motivate these key personnel on acceptablea
terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience
competition for the hiring of scientificff
succeed in clinical trials may make it more challenging to recruit and retain qualified scientificff personnel.
, clinical and commercial personnel froff m universities and research instituttt
ions. Failure to
In addition, being domiciled and organized in Switzerland may restrict our ability to attract, motivate and retain the required
level of qualified personnel. In Switzerland, in 2013 legislation was adopted affecff
members of its board of directors and executive team. Among other things, such legislation (i) imposes an annual binding
shareholders’ “say on pay” vote with respect to the compensation of executive management, including executive offiff cers and the
ers and directors;
board of directors; (ii) prohibits severance, advances, transaction premiums and similar payments to executive officff
and (iii) requires companies to specify various compensation-related matters in their articles of association, thus requiring them to be
approved by a shareholders’ vote.
ting compensation payabla e by public companies to
55
We Will Need To Develop And Expand Our Companm
y,n And We May Encounter Difficff ulties In Managing This Development And
Expansion, Which CoulCC d Dll
isrupt Our Operations.
•
As of December 31, 2016, we had 93 full-time employees and we expect to increase our number of employees and the
scope of our operations in 2017 and beyond as we conduct activities as a public company and seek to advance
development and if successful, commercialization, of our product candidates. To manage our anticipated development and
expansion, we must continue to implement and improve our managerial, operational and financial systems, expand our
facilities and continue to recruit and train additional qualified personnel. Also, our management may need to divert a
disproportionate amount of its attention away from its day-to-day activities and devote a substantial amount of time to
managing these expansion activities. Due to our limited resources, we may not be able to effeff ctively manage the
expansion of our operations or recruit
infrasff
among remaining employees. The physical expansion of our operations may lead to significff ant costs and may divert
financial resources from other projects, such as the development of our product candidates. If our management is unablea
to effectively manage our expected expansion, our expenses may increase more than expected, our ability to generate or
increase our revenue could be reduced and we may not be able to implement our business strategy. Our future financial
performance and our ability to commercialize our product candidates, if appro
part, on our ability to effectively manage the futurett
a
development and expansion of our company.
and train additional qualified personnel. This may result in weaknekk sses in our
urtt e, give rise to operational mistakes, loss of business opportuni
ties, loss of employees and reduced productivity
ved, and compete effecff
tively will depend, in
rr
truct
rr
tt
Our Employees, Principal Inves
II
tigators, Consultants And Commercial Partners
tt
May Engage In Misconduct Or Other Improper
Activities, Including Non-compliance With Regulatoll
ry Standards And Requirementstt And Insider Tradingdd
.
We are exposed to the risk of fraud or other misconductdd
by our employees, consultants, and commercial partners, and, if we
by these parties could include intentional failures to comply with
ff
ff
a
and abuse laws and regulations in the
ation or data accurately or disclose unauthorized activities to us. In
also could involve the improper use of information obtained in the course of clinical trials or
cable in the European Union and other jurisdictions, provide accurate information to the FDA,
commence clinical trials, our principal investigators. Misconductdd
FDA regulations or the regulations appli
the European Commission, and other regulatory authorities, comply with healthcare fraud
United States and in other jurisdications, report financial informff
particular, sales, marketing and business arrangements in the healthcare industry are subjeb ct to extensive laws and regulations intended
, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations restrict or prohibit a
to prevent fraud
wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs, and other business
arrangements. Such misconductdd
interactions with the FDA or other regulatory authorities, which could result in regulatory sanctions and cause serious harm to our
reputation. We have adopted a code of conduct applicable to all of our employees, but it is not always possible to identify aff
employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknowkk
unmanaged risks or losses or in protecting us from government investigations or other actions or lawsuits stemming from a fail
comply with these laws or regulations. Additionally, we are subject to the risk that a person could allege such fraud or other
misconduct, even if none occurred. If any such actions are instituted against us, and we are not successfulff
asserting our rights, those actions could have a significant impact on our business, finaff
prospects, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, possible exclusion fromff
participation in Medicare, Medicaid and other federal healthcare programs, contractuatt
and futff urtt e earnings and curtailment of our operations, any of which could adversely affect our ability to operate our business and our
results of operations.
l damages, reputational harm, diminished profits
ncial condition, results of operations, and
nd deter
n or
ff ure to
in defending ourselves or
If We Fail To Comply With Environmental, Health And Safety Ltt
Penalties Or IncII ur Costs That CouCC ld Harm Our Business.
aws And Regulatio
ll
ns, We Could Bll
ecome Subjecb
t To FTT
ineFF s Or
We are subject to numerous environmental, health and safetyff
laws and regulations, including those governinrr
g laboratory
. We contract with third parties for the disposal of these materials and wastes. We will not be able to eliminate the risk of
procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of
hazardous and flaff mmable materials, including chemicals and biological materials. Our operations also producdd e hazardous waste
products
dd
esulting froff m any use by us of hazardous
contamination or injury from these materials. In the event of contamination or injury r
materials, we could be held liable for any resulting damages, and any liabia lity could exceed our resources. We also could incur
significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations.
rr
Although we anticipate obtaining producdd t liabia lity insurance coverage in advance of the commencement of any clinical trial of
our producdd t candidates, it may not be adequate to cover all liabia lities that we may incur. Further, we anticipate that we will need to
increase our insurance coverage if we successfully commercialize any productdd
expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy aff
that may arise.
candidate. Insurance coverage is increasingly
ny liabia lity
56
In addition, we may incur substantial costs in order to comply with current or future environmental, health and safetyff
laws and
e laws and regulations may impair our research, development or production efforts. Our failure to
regulations. These current or futur
comply with these laws and regulations also may result in substantial fines,
ff
ff
penalties or other sanctions.
Product Liability Lawsuits Against Us Could Cause Us To Incur Substantial Liabilities And Could Limit Commercialization Of
Any Product Candidates
dd
That We May Develop.
We will face an inherent risk of product liability exposure related to the testing of our product candidates in human clinical trials
and will face an even greater risk if we commercially sell any product candidates that we may develop. If we cannot successfully
defend ourselves against claims that our product candidates caused injuries, we could incur substantial liabila
or eventual outcome, liability claims may result in:
ities. Regardless of merit
•
•
•
•
•
•
•
decreased demand for any product candidates that we may develop;
injury to our reputation and significant negative media attention;
withdrawal of clinical trial participants;
significant costs to defend the related litigation;
substantial monetary awards to trial participants or patients;
loss of revenue; and
the inability to commercialize any product candidates that we may develop.
Although we anticipate obtaining productdd
liability insurance coverage in advance of the commencement of any clinical trial of
our producdd t candidates, it may not be adequate to cover all liabia lities that we may incur. Further, we anticipate that we will need to
increase our insurance coverage if we successfully commercialize any product candidate. Insurance coverage is increasingly
expensive. We may not be abla e to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy aff
that may arise.
ny liabia lity
If We Fail To ETT
stEE ablish And Maintain Proper And Effect
And Our Ability To Operate Our Business Could Be Harmed.dd
ff
ive Internal ConCC trol Over FinaFF
ncial Reporting, Our Operating Results
Ensuring that we have adequate internarr
l finaff
ncial and accounting controls and procedurdd es in place so that we can producdd e
ently. Our
ncial reporting is a process designed to provide reasonabla e assurance regarding the reliability of financial
accurate finff ancial statements on a timely basis is a costly and time-consuming effoff
internal control over finaff
reporting and the preparation of finan
process of documenting, reviewing and improving our internal controls and procedures for compliance with Section 404 of the
Sarbanes-Oxley Act of 2002, or SOX, which will require annual management assessment of the effectiveness of our internal
over financial reporting.
cial statements in accordance with generally accepted accounting principles. We have begun the
rt that needs to be re-evaluated frequ
control
rr
ff
ff
Implementing any appropriate changes to our internal
controls may distract our officff ers and employees, entail substantial costs
ur existing processes and take significant time to complete. These changes may not, however, be effective in maintaining
to modify off
the adequacy of our internal controls, and any failure to maintain that adequacy, or consequent inability to producdd e accurate financial
statements on a timely basis, could increase our operating costs and harm our business. In addition, investors’ perceptions that our
internarr
cial statements on a timely basis may harm our
common share price and make it more diffiff cult for us to effectively market and sell our service to new and existing customers.
l controls are inadequate or that we are unable to producedd
accurate finan
rr
ff
Our Internal Computem
SS
r Syste
Security Breaches, Which CouCC ld Result InII A MatMM erial Disruptiu
ms, Or Those OfO Our Collaboll
rators Or Other
on Of Our Productdd
tt
tors Or Consultants, MayMM Fail Or Sufferff
Contrac
tt
Development Programs.
Our internal
rr
computer systems and those of our current and any future collaborators and other contractors or consultants are
vulnerabla e to damage froff m computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and
electrical failures. While we have not experienced any such material system failure, accident or security breach to date, if such an
event were to occur and cause interruptio
ns in our operations, it could result in a disruption of our development programs and our
business operations, whether due to a loss of our trade secrets or other proprietary informff
example, the loss of clinical trial data froff m futur
ff
significantly increase our costs to recover or reproduce the data. To the extent that any disruptiuu
loss of, or damage to, our data or applications, or inappropriate disclosure of confideff
liability, our competitive position could be harmed and the further development and commercialization of our product candidates
could be delayed.
ation or other similar disruptio
ppaa
e clinical trials could result in delays in our regulatory arr
ntial or proprietary information, we could incur
on or security breach were to result in a
roval efforff
ns. For
ts and
uu
uu
57
Our Business Is Subject To Economic, Political, Regulatory And Other Risks Associated With International Operations.
Our business is subject to risks associated with conducting business internationally. We and a number of our suppliers and
collaborative and clinical study relationships are located outside the United States. Accordingly, our future results could be harmed by
a variety of factors, including:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
economic weakness, including inflation, or political instabili
a
ty in particular non-U.S. economies and markets;
ff
differi
ng regulatory requirements for drug approvals in non-U.S. countries;
potentially reduced protection forff
intellectual property rights;
difficff
ulties in compliance with non-U.S. laws and regulations;
changes in non-U.S. regulations and customs, tariffsff
and trade barriers;
changes in non-U.S. currency exchange rates and currency controls;
changes in a specific country’s
rr
or region’s political or economic environment;
trade protection measures, import or export licensing requirements or other restrictive actions by U.S. or non-U.S.
governmrr
ents;
negative consequences from changes in tax laws;
compliance with tax, employment, immigration and labor laws for employees living or traveling outside the United States;
workforce uncertainty in countries where labor unrest is more common than in the United States;
difficff
ulties associated with staffinff g and managing international operations, including differing labor relations;
production shortages resulting from any events affecting raw material suppluu
United States; and
y or manufacturing capabia lities outside the
business interruptions resulting from geo-political actions, including war and terrorism, or natural disasters including
floods and fires.
Our Business Operations Have a Substantia
a
anaMM ging
tt
Our Business OperaOO
haCC llenges In MII
l Internat
tt
ional
tions.
II
Presents Ctt
tt
Footprint
and We May Further Expand In The Future, Which
We are headquartered in Basel, Switzerland and have officeff
s in the U.S. and the United Kingdom. In addition, we may expand
our international operations into other countries in the future. While we have acquired significant management and other personnel
with substantial experience, conducting our business in multiple countries subjects us to a variety of risks and complexities that may
materially and adversely affect our business, results of operations, financial condition and growth prospects, including, among other
things:
•
•
•
•
•
•
•
the increased complexity and costs inherent in managing internarr
tional operations;
diverse regulatory,rr
countries where we are located or do business;
financial and legal requirements, and any future changes to such requirements, in one or more
country-rr
specific tax, labor and employment laws and regulations;
ff
challenges inherent in efficie
policies, benefits and compliance programs to differff
a
ing labor
and other regulations;
ntly managing employees in diverse geographaa
ies, including the need to adapt systems,
liabia lities for activities of, off
r related to, our international operations or product candidates;
changes in currency rates; and
regulations relating to data security and the unauthorized use of, or access to, commercial and personal information.
As we continue to expand our operations, our corporate structure and tax structure has become substantially more complex. In
potential partnerships, we are actively engaged in developing and applying technologies and
connection with our current and futurett
intellectual property with a view toward commercialization of products globally, often with commercialization partners. In connection
with those activities, we already have and will likely continue to engage in complex cross-border and global transactions involving our
technology, intellectual property and other assets, between CRISPR and other entities such as partners and licensees, and between
companies within the CRISPR group.uu Such cross-border and global arrangements are both difficul
t to manage and can potentially give
ff
58
raise to complexities in areas such as tax treatment, particularly since we are subjeb ct to multiple tax regimes and differff ent tax
authorities can also take differe
be no assurance that we will effectively manage this increased complexity without experiencing operating inefficff
deficiencies or tax liabilities. Significant management time and effort
our company, and our failure to successfully
operations and growth prospects.
ff
do so could have a material adverse effect
each other, even as regards the same cross-border transaction or arrangement. There can
ively manage the increased complexity of
ncial condition, results of
on our business, finaff
is required to effect
iencies, control
nt views fromff
ff
ff
ff
ff
Risks Related to Intellectual Property
If We Are Unable To Adequately Pll
TT
rotect Our Proprietary Trr
iently Bll
Products We Develop Ao
Sufficff
Our Ability To Successfullyll Commercialize Any Product Candiddd atedd
Affeff cted.dd
nd For Our Technology And Product Candidates,
evelop Ao
road, Our Competitors Crr
oulCC d Dll
echn
dd
ology Ogg
r Obtain And Maintain Patent Protection For The
Or If The Scopeo Of The Patent Protection Obtained Is NII
nd Commercialize Products And Technology Similarll Or Identical To OTT
serr
s We Maya Develop,o And Our Technology Maya Be Adverdd
otNN
urs, And
ly
Our success depends in large part on our ability to obtain and maintain proprietary or intellectual property protection in the
a
ications we have licensed that may cover our platform is the subject of an interference
United States and other countries with respect to our CRISPR/Cas9 platforff m technology and any proprietary product candidates and
technology we develop. Currently, no patents covering our CRISPR/Cas9 platformff
United States and one of the patent appl
proceeding at the United States Patent and Trademark Office, or USPTO, which is discussed below. We seek to protect our
proprietary position by in-licensing intellectual property to cover our platform technology and filing patent appl
ications in thett United
States and in other jurisdictions related to our technologies and product candidates that are important to our business. We also rely on
trade secrets, know-how and continuing technological innovation to develop and maintain our proprietary and intellectual property
position. If we or our licensors are unable to obtain or maintain patent protection with respect to our CRISPR/CRR as9 platforff m
technology and any proprietary prr
prospects could be materially harmed.
and technology we develop, our business, financial condition, results of operations and
or product candidates have been issued to us in the
dd
roducts
a
The scope of patent protection that will be available to us in the United States and in other countries is uncertain. Changes in
either the patent laws or their interpretation in the United States and other countries may diminish our ability to protect our inventions,
obtain, maintain and enforff ce our intellectual property rights and, more generally, could affect the value of our intellectual property or
narrow the scope of our owned and licensed patents. With respect to both in-licensed and owned intellectual
predict whether the patent appl
whether the claims of any issued patents will provide sufficie
invalid, unenforceable or not infriff nged if challenged by our competitors.
ications we and our licensors are currently pursuing will issue as patents in any particular jurisdiction or
nt protection from competitors, or if any such patents will be found
property, we cannot
aa
ff
tt
ff
patent appaa
r desirablea
The patent prosecution process is expensive, time-consuming, and complex, and we may not be able to file, prosecute, maintain,
e, or license all necessary orr
lications at a reasonable cost or in a timely manner. It is also possible that we
to identify patentable aspects of our research and development output in time to obtain patent protection. Although we enter
iality agreements with parties who have access to confidential or patentable aspects of our research
enforcff
ff
will fail
into non-disclosure and confident
and development output, such as our employees, corporate collaborators, outside scientificff
manufact
urett
before a patent appl
the scientificff
typically not publu ished until 18 months after filiff ng, or in some cases not at all. Thereforff e, we cannot know with any degree of certainty
whether the inventors of our licensed patents and appl
licensed patents or pending patent applications, or that we were the first to file for patent protection of such inventions.
rs, consultants advisors, and other third parties, any of these parties may breach the agreements and disclose such output
ication is filed, thereby jeopardizing our ability to seek patent protection. In addition, publications of discoveries in
ications were the first to make the inventions claimed in our owned or any
lications in the United States and other jurisdictions are
literature ofteff n lag behind the actuatt
l discoveries and patent appaa
ators, CROs, contract
a
collabor
aa
a
ff
tt
The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and
eabia lity,
factual questions, and has been the subject of much litigation in recent years. As a result, the issuance, scope, validity, enforcff
and commercial value of our patent rights are highly uncertain. Our pending and future patent appli
being issued which protect our technology or product candidates or which effectively prevent others fromff
competitive technologies and product candidates.
cations may not result in patents
commercializing
aa
Moreover, the coverage claimed in a patent appli
a
cation can be significantly reduced before the patent is issued, and its scope can
be reinterprrr eted after issuance. Even if patent applications we license or own currently or in the future issue as patents, they may not
issue in a forff m that will provide us with any meaningfulff
or otherwise provide us with any competitive advantage. Any patents that we hold or in-license may be challenged, narrowed,
circumvented, or invalidated by third parties. Consequently, we do not know whether any of our platform advances and productdd
candidates will be protectable or remain protected by valid and enforceabla e patents. Our competitors or other third parties may be ablea
protection, prevent competitors or other third parties from competing with us,
59
to circumvent our patents by developing similar or alternative technologies or products in a non-infring
are aware that third parties have suggested the use of the CRISPR technology in conjunction with a protein other than Cas9. Our
owned and in-licensed patents may not cover such technology. If our competitors commercialize the CRISPR technology in
conjunn
adversely affeff cted.
ction with a protein other than Cas9, our business, financial condition, results of operations, and prospects could be materially
ing manner. For example, we
ff
The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability and our patents may be
ct to third party
t to a third party preissuance
in another jurisdiction, or become involved in opposition, derivation,
challenged in the courts or patent offices in the United States and in other jurisdictions. We may be subjecb
submission of prior art to the USPTO, or a patent officeff
revocation, reexamination, post-grant review and inter partes review, or interference proceedings, or litigation challenging our patent
rights or the patent rights of others. Indeed, certain of our fundamental intellectual property has been subjeu
observations outside the United States and interference proceedings within the United States. Competitors may claim that they
invented the inventions claimed in such issued patents or patent applications prior to our inventors, or may have fileff d patent
applications before our inventors did. A competitor may also claim that our products and services infrinff
thereforff e cannot practice our technology as claimed under our patent appl
ging third-party patent rights. Competitors
claim may result in our inability to manufact
may also contest our patents, if issued, by showing that the invention was not patent-eligible, was not novel, was obvious or that the
patent claims faile
could reduce the scope of, or invalidate, our patent rights or allow third parties to commercialize our technology or productdd
compete directly with us, without payment to us. Moreover, we, or one of our licensors, may have to participate in additional
interference proceedings declared by the USPTO to determine priority of invention or in post-grant challenge proceedings, such as
oppositions in a non-U.S. patent officff e, that challenge priority of invention or other featurett
s of patentabia lity. Such challenges may
result in loss of patent rights, loss of exclusivity or freedom to operate, or in patent claims being narrowed, invalidated or held
unenforceable, in whole or in part, which could limit our abila
of the patent protection of our technology and product candidates. Such proceedings
technology and products, or limit the duration
also may result in subsu tantial cost and require significant time from our scientists and management, even if the eventuatt
l outcome is
favorable to us. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, it
could dissuade companies from collaborating with us to license, develop or commercialize current or future productdd
aa
or commercialize products without infrinff
ications, if issued. An adverse determination in any such
using or commercializing similar or identical
ity. An adverse determination in any such submission, proceeding or litigation
d any other requirement forff
ge its patents and that we
ity to stop others fromff
candidates.
patentabila
s and
urett
dd
ff
ff
We Are Required To Pay Royalties UndUU erdd Our License Agreements WithWW Third-Party Licensors, And We Must Use
Commercially Reasonable Diligence Efforts
ff
And Meet Milestones To Maintain Our License Rightgg s.tt
Under our in-license agreements, including our in-license agreements with Dr. Emmanuelle Charperr ntier, we will be required to
tier, we have an obligation to use commercially reasonable effor
us of any products that we may seek to commercialize. Under each of our in-license
pay royalties based on our revenues from sales of our products utilizing the licensed technologies and these royalty payments could
adversely affeff ct the overall profitff ability forff
agreements with, Dr. Charpenrr
approval to market a licensed therapeutic product. Our in-license agreements with Dr. Charpentier also include an obligation to file a
U.S. Investigational New Drug appl
ication (or its equivalent in a major market country) by April 2021 and an obligation to file a U.S.
Investigational New Drugrr
meeting these obligations in the futurett
on a timely basis or at all. Our failure to meet these obligations may give Dr. Charperr ntier the
right to terminate our license rights. We will need to outsource and rely on third parties forff many aspects of the clinical development
o meet
of the products covered under our license agreements. Delay or fail
our diligence obligations and the continuation of our license agreements with third-party licensors.
application (or its equivalent in a major market country)rr
ure by these third parties could adversely affecff
by April 2024. We may not be successful in
ts to develop and obtain regulatory
t our ability t
aa
ff
ff
t
Some Of Our In-licensed Patent Applications Are Subject
s
Interference Proceeding WithWW The Broad Institute, Massachusetts Institute of To
echTT
In Front Of The United States Patent And Tradema
Property May Be Subject To Further Priority Disputes Or To Inventorship Dispute
Are Unsuccessfulff
r To CTT
Available On CommCC
One Or More Of The Product Candidates We May Develop, Which Could Have A MateMM rial Advedd rse Impacm t On Our Business.
s, Including An Active
resident And Fellows of Harvard College,
n, Our Owned And In-Licensed Patents And Other IntII ellectual
s And Similar Proceedings. If We Or Our Licensorsrr
Third Parties, Which May Not Be
ture, And Commercialization Of
In Any Of These Proceedings, We MWW ayMM Be Required To OTT
ercially Reasoaa nable Terms Or At All, Ol
s And Inventorship Dispute
easCC e TheTT Developmen
btain Licenses FromFF
rk Office. In Additiodd
To Priority Dispute
t, Manufacff
nology, Pyy
b
dd
o
e
s
s
In January 2016, at our request, the USPTO declared an interferenc
ff
e between one of the pending U.S. patent applications we
licensed from Dr. Charperr ntier and twelve issued U.S. patents, and subsequently added one U.S. patent application, owned jointly by
the Broad Institute and Massachusetts Institute of Technology and, in some instances, the President and Fellows of Harvard College,
collectively referff
red to as the Broad. An interferff ence is a proceeding conducted at the USPTO by the Patent Trial and Appeal Board,
or PTAB, to determine which party was the first to invent subject matter claimed by both of these parties. There are currently two
parties to this interference. Because our application was filed first, the USPTO designated Dr. Charpentier, the Regents of the
University of Californirr a, or Californff
ia, and the University of Vienna, or Vienna, collectively as “Senior Party” and designated Broad
60
rr
rr
yrr 2017 that the
as “Junior Party.” Following motions by the parties and other procedural matters, the PTAB concluded in Februar
declared interference should be dismissed because the claim sets of the two parties were not directed to the same patentable invention
ce were
in accordance with the PTAB’s two-way test for patent interferences. In particular, the Junior Party’s claims in the interferen
all limited to uses in eukaryot
ic cells, while the Senior Party’s claims in the interference were not limited to uses in eukaryotic cells
but included uses in all settings. Either party can appeal an adverse decision to the U.S. Court of Appeals for the Federal Circuit. In
parallel, either party can also pursue existing or new patent applications in the U.S. and elsewhere. Going forwar
as other parties could seek a new interference related to the uses of the technology in eukaryorr
technology, and any existing or new patents could be the subject of other challenges to their validity of enforcff
ity. In the context
of a second interference or in other proceedings, a determination could be reached regarding that the Senior Party was not the first to
invent, or it could be concluded that the contested subjeb ct matter is not patentabla e to the Senior Party and is patentable to the Junior
Party, which in this case could preclude our U.S. patent applications froff m issuing as patents, in which case the proceedings would
result in our losing the right to protect core innovations and our freedom to practice our core gene editing technology. If there is a
second interference, either party can again appeal an adverse decision to the U.S. Court of Appeals for the Federal Circuit. In any case,
it may be years before there is a final
we are responsible forff
licensed technology.
determination on priority. Pursuant to the terms of the license agreement with Dr. Charpentier,
covering or reimbursing Dr. Charpentier’s patent prosecution defense and related costs associated with our in-
rr
tic cells or other aspects of the
d, either party as well
eabila
ff
ff
of the Broad patents currently involved in the interference with Dr. Charpentier,
Furthermore, we may be involved in other interference proceedings or other disputes in the future. For example, Toolgen Inc., or
Toolgen, filed Suggestions of Interferff ence in the USPTO on April 13, 2015, and December 3, 2015, suggesting that they believe some
of the claims in pending U.S. applications owned by Toolgen (U.S. Serial No. 14/685,568 and U.S. Serial No. 14/685,510,
respectively) interfere with certain claims in fiveff
California and Vienna. The USPTO may, in the futurtt e, declare an interference between our patent application and one or more
Toolgen patent applications. We are also aware of additional third parties that have pending patent appl
technologies, which similarly may or may not lead to further interference proceedings. For example, Rockefell
continuation appl
Luciano Marraffini
ff
other jurisdictions (published internationally as WO2013/141680 and WO2013/142578), Harvard University has filed appa
the United States and in other jurisdictions (published internat
in the United States and in other jurisdictions (publiu
technology based on appaa
applications filed after 2012.
er University has filedff
ication (U.S. Serial No. 14/324,960) of an application fileff d by the Broad, but which names Rockefeller’s employee
lications in the United States and in
lications in
ionally as WO2014/099744), and Sigma-Aldrich has filed applications
tionally as WO2014/089290), each claiming aspects of CRISPR/CRR as9
lications claiming priority to provisional filff ings in 2012. Numerous other filings are based on provisional
as co-inventor of CRISPR/Cas9 technology; Vilnius University has filed appaa
ications relating to CRISRR PR
rr
shed internarr
a
aa
aa
ff
Broad, Toolgen, Vilnius and other parties routinely file international counterpar
ts of their U.S. applications, some of which have
been granted or could in futff urtt e be granted in Europe and/odd r other non-U.S. jurisdictions. We and third parties have initiated opposition
proceedings against some of these grants, and we may in the future oppose other grants to these or other applicants. Similarly, our
intellectual property may in the futur
e become involved in opposition proceedings in Europe or other jurisdictions.
ff
rr
b
e proceedings or other disputes. These third parties would be under no obligation to grant to us any such license and such
in any interference proceedings or other priority or validity disputes (including any patent
or become subject to, we may lose valuable intellectual property rights through the loss or
If we or our licensors are unsuccessfulff
oppositions) to which we or they are subu ject
narrowing of one or more of our patent applications. If we or our licensors are unsuccessful in any interference proceeding or other
dispute, we may be required to seek to obtain and maintain licenses from third parties, including parties involved in any such
ff
interferenc
licenses may not be availabla e on commercially reasonabla e terms or at all, or may be non-exclusive. If we are unablea
maintain such licenses, we and our partners may need to cease the practice of our core gene editing, and the development,
manufacturett
narrowing of our patent claims could limit our abili
products
dd
prospects. If we are unsuccessfulff
commercializing any products based on our core gene editing technology. Even if we are successfulff
other similar disputes, it could result in substantial costs and be a distraction to management and other employees.
, and commercialization of one or more of the producdd t candidates we may develop. The loss of exclusivity or the
in the interference proceedings with Broad, we and our partners may be blocked from
. Any of the foregoing could result in a material adverse effect on our business, finaff
ty to stop others from using or commercializing similar or identical technology and
ncial condition, results of operations, or
in an interference proceeding or
to obtain and
a
The Intellectual Propero
ty That Protects Our Core Gene Editidd ng Technology Is Jointly Owned, And Our License IsII From Only
One Of The Joint Owners,rr Materially Limiting Our Right
i
s Itt n TII
heTT United StaSS tes And In Other Jurisdictidd
ons.
The family of patent applications we have in-licensed froff m Dr. Charperr ntier is the foundational patent protection for our core
gene editing technology. However, that family includes other named inventors who assigned their rights either to California
Vienna. As such, the intellectual
ia, and Vienna. On December 15, 2016,
property is currently co-owned by Dr. Charpentier, Californff
we entered into a Consent to Assignments, Licensing and Common Ownership and Invention Management Agreement or IMA with
California, Vienna and their licensees including Caribou Biosciences, Inc. and Caribou’s licensee Intellia Therapeutics, Inc. Under the
or to
ff
tt
61
IMA, the co-owners provided reciprocal worldwide cross-consents to each of the other co-owners’ licensees and sublicensees, and
agreed to a number of other commitments and obligations with respect to supporting and managing the underlying CRISPR/Cas9 gene
below, that leaves us in a position of holding
editing intellectual property, including a cost-sharing agreement. As explained more fully
only non-exclusive or co-exclusive rights to the patent rights that protect our core gene editing technology, and we must continue to
satisfy our contractual obligations under the IMA in order to maintain the effectiveness of the consents by Californiarr
to
our license from Dr. Charpenrr
and Viennann
tier.
ff
In the United States, each co-owner has the freedom to license and exploit the technology. As a result, we do not have exclusive
access to any intellectual property rights that Dr. Charpentier co-owns with another entity, such as California and Vienna. Our license
with Dr. Charpenrr
tier is therefore non-exclusive with respect to such co-owned rights. Furthermore, in the United States each co-owner
is required to be joined as a party to any claim or action we may wish to bring to enforce those patent rights. Moreover, in the United
States, non-exclusive licenses have no standing to bring a patent infringement action before a court. Therefore, for the patents owned
with Californi
a and Vienna
a and Vienna we have no ability to pursue third party infringement claims without cooperation of Californi
and potentially their licensees. Although we have entered into a Consent to Assignments, Licensing and Common Ownership and
Invention Management Agreement with Vienna and Califorff nirr a and their licensees, which provides for,
and coordination in the event of third-party infriff ngement of the CRISPR/Cas9 intellectual property, there can be no assurance that
Vienna and Califorff nia will cooperate with us in any future infriff ngement. If we are unable to enforce our core patent rights licensed
from Dr. Charpentier, we may be unablea
sublicense our technology, either of which could have a material adverse effect
competing with us and may be unable to persuade companies to
among other things, notice of
to prevent third parties fromff
on our business.
ff
ff
ff
ff
If We Experience Disputes With Ttt
That Are Important To OTT
License Rightsgg
heTT
ur Business.
Third Parties ThatTT We In-license IntII ellectual Property Rtt
ights From, We Could Lose
We license our foundational intellectuatt
l property from a third party, and we expect to continue to in-license additional third-
party intellectual property rights as we expand our CRISPR/Cas9 gene-editing technology. Disputes may arise with the third parties
from whom we license our intellectual property rights fromff
for a variety of reasons, including:
•
•
•
•
•
•
the scope of rights granted under the license agreement and other interprerr
tation-related issues;
the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the
licensing agreement;
censing of patent and other rights under our collabor
a
ative development relationships and obligations associated
the subliu
with sublicensing;
our diligence obligations under the license agreement and what activities satisfy t
ff
hose diligence obligations;
the inventorship and ownership of inventions and know-how resulting froff m the joint creation or use of intellectual
property by our licensors and us and our partners; and
the priority of invention of patented technology.
In addition, the agreements under which we currently license intellectual property or technology from third parties, or maintain
t in such a way that puts us in breach of one or more agreements, which would make us susceptible to lengthy and
consents under the IMA, are complex, and certain provisions in such agreements may be susceptible to multiple interpretations, or
may conflicff
expensive disputes with one or more of our licensing partners or the parties to the IMA. The resolution of any contract interpretation
disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectuatt
technology, or increase what we believe to be our financial or other obligations under the relevant agreement, either of which could
have a material adverse effect on our business, financial condition, results of operations, and prospects. Moreover, if disputes over
intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on
commercially acceptable terms, we may be unable to successfull
ff
could have a material adverse effect on our business, finaff
y develop and commercialize the affected product candidates, which
ncial conditions, results of operations, and prospects.
l property or
We May Not Be Succe
SS
ssfulff
In Obtaining Necessary Rights Ttt
o ATT
ny Product CanCC didatedd
s We MWW ayMM Develop To
hrTT ough Agg
cquisitions
And In-licenses.
We currently have rights to intellectual property, through in-licenses fromff
third parties, to identify and develop productdd
candidates. Many pharmaceutical companies, biotechnology companies, and academic instituttt
ions are competing with us in the fieff
of gene-editing technology and filing patent applications potentially relevant to our business. For example, we are aware of several
third party patent applications that, if issued, may be construedrr
order to avoid infringing these third party patents, we may find it necessary or prudent to obtain licenses from such third partyrr
to cover our CRISPR/Cas9 technology and product candidates. In
ld
62
nucleic acids, as well as non-CRISPR/Cas9 technologies such as delivery mrr
intellectual property holders. We may also require licenses from third parties for certain modified or improved components of
CRISPR/Cas9 technology, such as modifiedff
we are evaluating for use with product candidates we may develop. In addition, with respect to any patents we co-own with third
parties, we may require licenses to such co-owners’ interest to such patents. However, we may be unable to secure such licenses or
otherwise acquire or in-license any compositions, methods of use, processes, or other intellectual property rights from third parties that
we identify as necessary for product candidates we may develop and CRISPR/Cas9 technology. The licensing or acquisition of third
party intellectual property rights is a competitive area, and several more established companies may pursue strategies to license or
acquire third party intellectual property rights that we may consider attractive or necessary. These establa ished companies may have a
competitive advantage over us duedd
to their size, capital resources and greater clinical development and commercialization capabilities.
In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to
property rights on terms that would allow us to make an appropriate return on our investment
license or acquire third party intellectual
or at all. If we are unable to successfully obtain rights to required third party intellectuatt
intellectual property rights we have, we may have to abandon development of the relevant program or product candidate, or
discontinue the practice of our core CRISPR/Cas9 gene-editing technology, which could have a material adverse effect on our
business, financial condition, results of operations, and prospects.
l property rights or maintain the existing
ethods that
tt
Issued Patents Covering Our TechTT
nology Agg
Court.
nd Producdd t CandCC
idadd
tes CoulCC d Bll
e FounFF
d InvaII
lid Or Unenforce
ff
able If Challenged In
If we or one of our licensors initiated legal proceedings against a third party to enforff ce a patent covering a producdd t candidate we
may develop or our technology, including CRISPR/Cas9, the defendant could counterclaim that such patent is invalid or
unenforff ceable. In patent litigation in the United States, defenff dant counterclaims alleging invalidity or unenforce
commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutoryrr
lack of novelty, obviousness, or non-enablement.
ability are
ff
requirements, including
dd
Grounds for an unenforceabila
ity assertion could be an allegation that someone connected with prosecution of the patent withheld
g prosecution. Third parties have raised challenges to the
relevant inforff mation from the USPTO, or made a misleading statement, durin
validity of certain of our in-licensed patent applications, such as our in-licensed CRISPR/Cas9 patent applications in the context of
third party observations fileff d in Europe, and may in the future raise similar claims before administrative bodies in the United States or
in other jurisdictions, even outside the context of litigation. Mechanisms forff
challenging the validity of patents in patent offff icff es
include re-examination, post-grant review, inter partes review, interference proceedings, derivation proceedings, and equivalent
proceedings in non-U.S. jurisdictions (e.g., opposition proceedings). Such proceedings could result in the loss of our patent
applications or patents, or their narrowing in such a way that they no longer cover our technology or platform, or any product
candidates that we may develop. The outcome following legal assertions of invalidity and unenforceabia lity is unpredictabla e. With
respect to the validity question, for example, we cannot be certain that there is no invalidating prior art. If a third party were to prevail
on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our
technology or platform, or any product candidates that we may develop. Such a loss of patent protection would have a material
adverse impact on our business, financial condition, results of operations, and prospects.
The Intellectual Propero
ty Landscape Around Gene-Editidd ng Technology, Including CRISPR/CPP
as9CC
, I9 sII Highly Dynamic, And Third
Parties May Initiate And Prevail In Legal
We Are Infrinff
pp
isapMM
prop
Uncertain And Could Have A MaterMM ial Adverse Effect
riating, Or Otherwise Violati
Proceedings
ging, Mgg
dd
e
ff On The Success Of Our Business.
Alleging That The Patents That We In-License Or Own Are Invalid Or That
ng Their Intellectual Property Rights, The Outcome Of WO hicWW h WouWW ld Be
ll
The field of gene editing, especially in the area of CRISPR/Cas9 technology, is still in its infancy, and no such products have
reached the market. Due to the intense research and development that is taking place by several companies, including us and our
competitors, in this field, the intellectual property landscapeaa
be significan
our owned and in-licensed, and other third party, intellectual property and proprietary rights in the future.
the coming years. There may
t intellectual property related litigation and proceedings, in addition to the ongoing interference proceedings, relating to
is in flux, and it may remain uncertain forff
ff
uu
ity of our collabor
our ability and the abila
Our commercial success depends upon
ators to develop, manufacture, market, and sell
any product candidates that we may develop and use our proprietary technologies without infringing, misappropriating, or otherwise
violating the intellectual property and proprietary rights of third parties. The biotechnology and pharmaceutical industdd
characterized by extensive litigation regarding patents and other intellectuatt
become party to, or threatened with, adversarial proceedings or litigation regarding intellectual property rights with respect to our
technology and any product candidates we may develop, including re-examination interference proceedings, post-grant review, inter
partes review, and derivation proceedings beforff e the USPTO and similar proceedings in other jurisdictions such as oppositions before
the European Patent Office. Third parties, including parties involved in ongoing interference proceedings, may assert infriff ngement
claims against us based on existing patents or patents that may be granted in the future, regardless of their merit. We are awareaa
l property rights. We are subju ect to and may in the futurtt e
ries are
of
a
63
a
certain third party patents and patent applications including, for example, the Broad patents involved in the interference proceeding
described abov
e that may be asserted to encompass our CRISPR/CRR as9 technology. If we are unable to prove that these patents are
invalid and we are not abla e to obtain or maintain a license on commercially reasonabla e terms, such third parties could potentially
assert infrff ingement claims against us, which could have a material adverse effect
on the conduct of our business. If we are founduu
infringe such third party patents, we and our partners may be required to pay damages, cease commercialization of the infringing
technology, including our core CRISPR/CaRR
available on commercially reasonable terms or at all. Additionally we have not perforff med any freedom-to-operate analysis on specific
producdd t candidates at this stage to identify potential infringement risks. A proper analysis of that type will not be feasible until specificff
product candidates are designed.
s9 gene-editing technology, or obtain a license from such third parties, which may not be
to
ff
Even if we believe third-party intellectuatt
l property claims are without merit, there is no assurance that a court would find in our
ff
ff
ff
able, and infring
ed, which could materially and adversely affect our ability to commercialize
favor on questions of infriff ngement, validity, enforceability, ownership, or priority. A court of competent jurisdiction could hold that
these third party patents are valid, enforce
any product candidates we may develop and any other product candidates or technologies covered by the asserted third party patents.
In order to successfully challenge the validity of any such U.S. patent in fede
ral court, we would need to overcome a presumption of
validity. As this burden is a high one requiring us to present clear and convincing evidence as to the invalidity of any such U.S. patent
claim, there is no assurance that a court of competent jurisdiction would invalidate the claims of any such U.S. patent. If we are found
to infringe a third party’s intellectual property rights, and we are unsuccessfulff
unenforceable, we could be required to obtain a license fromff
any product candidates we may develop and our technology. However, we may not be able to obtain any required license on
commercially reasonabla e terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our
competitors and other third parties access to the same technologies licensed to us, and it could require us to make substantial licensing
and royalty payments. We also could be forced, including by court order, to cease developing, manufacturing, and commercializing
amages, including
the infringing technology or product candidates. In addition, we could be found liable for significant monetary drr
treble damages and attorneys’ fees, if we are found to have willfully
we have misappropriated the confidential informat
our business, finaff
ff
ncial condition, results of operations, and prospects.
ion or trade secrets of third parties could have a similar material adverse effect
infringed a patent or other intellectual property right. Claims that
such third party to continue developing, manufacturi
in demonstrating that such patents are invalid or
ng, and marketing
on
ff
ff
ff
tt
Intellectual Property Litigation Could Cause Us To Spend Subst
SS
antial Resources And Distrii
act Our Personnel From TheiTT
r
Normal Responsibilities.
Litigation or other legal proceedings relating to intellectuatt
l property claims, with or without merit, is unpredictable and
generally expensive and time-consuming and is likely to divert significff ant resources from our core business, including distracting our
technical and management personnel from their normal responsibilities and generally harm our business. Furthermore, because of the
substantial amount of discovery required in connection with intellectual property litigation in certain countries, including the United
States, there is a risk that some of our confiden
ng this type of litigation. In
addition, there could be publiu
securities analysts or investors perceive these results to be negative, it could have a substu
common shares. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for
development activities or any futff urtt e sales, marketing or distribution activities.
c announcements of the results of hearings, motions or other interim proceedings or developments and if
tial information could be compromised by disclosure duridd
antial adverse effect on the price of our
ff
We may not have suffici
ff
ent finaff
ncial or other resources to adequately conduct such litigation or proceedings. Some of our
competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater
financial resources. Accordingly, despite our efforts, we may not be able to prevent third parties froff m infringing or misappropriating
or successfully challenging our intellectual property rights. Uncertainties resulting fromff
litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.
the initiation and continuation of patent
n,
ii
Obtaining And Maintaining Our Patent Protection Depends On Complim ance WithWW Various Procedural, Document Submi
ssio
Be Reduced Or
osed By Government Patent Agencies And Our Patent Protection CouldCC
ent, And Othett
SS
Fee Payma
Eliminated ForFF Non-compliance WithWW These Requirements.
r Requirements Itt mpII
Periodic maintenance fees, renewal fees, annuity fees and various other governme
rr
nt fees on patents and appl
a
ications will be due
to be paid to the USPTO and various government patent agencies outside of the United States over the lifetime of our owned or
licensed patents and applications. In certain circumstances, we rely on our licensing partners to pay these fees
U.S. patent agencies. The USPTO and various non-U.S. governme
documentary, fee payment, and other similar provisions during the patent application process. In addition, periodic maintenance fees
on issued patents often must be paid to the USPTO and other patent agencies over the lifetime of the patent. We are also dependent on
our licensors to take the necessary arr
ction to comply with these requirements with respect to our licensed intellectual property. In some
can be cured by payment of a late fee or by other means in accordance with the applicable rules. There are
cases, an inadvertent lapse
nt agencies require compliance with several procedural,
due to U.S. and non-
aa
rr
ff
64
situations, however, in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in a
partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse
of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-
payment of fees
patent appli
aa
as or similar to our product candidates, which would have a material adverse effect on our business.
and failure to properly legalize and submit formal documents. If we or our licensors fail to maintain the patents and
marketing drugs that are the same
ff
cations covering our productdd
candidates, we may not be able to stop a competitor fromff
Some Intellectual Property Which We Have In-II
ral Regulation
licensed May Have Been Discovered Throughu Government Funded Programs
nce
nd A Prefereff
liance WithWW Such Regulations May Limit Our Exclusive Rightgg s,tt And Limit Our Ability To
As “march-in” Rights, Certai
n Reporting Requirements Att
s SuchSS
CC
ll
And Thus May Be Subject To FTT
For U.S.-SS based Manufact
Contract With Ntt
edeFF
urers. CompCC
on-NN U.S. Manufacturers.
ff
The intellectual property rights to which we have in-licensed under Dr. Charpentier’s joint interest are co-owned by California,
a
of Health. These
irrevocable worldwide license to use inventions for any government
t to certain federal regulations. The U.S. government has certain rights pursuant to the Bayh-Dole Act of
which has indicated that the invention was made under Grant No. GM081879 awarded by the National Institutett
rights are therefore subjecb
1980, or Bayh-Dole Act, to patents covering government rights in certain inventions developed under a government-funded program.
These rights include a non-exclusive, non-transferable,
al purpose.
In addition, the U.S. government has the right to require us to grant exclusive, partially exclusive, or non-exclusive licenses to any of
these inventions to a third party if it determines that: (i) adequate steps have not been taken to commercialize the invention;
ent action is necessary to meet publu ic health or safety needs; or (iii) government action is necessary t
(ii) governmrr
for public use under federal regulations, also referred to as “march-in rights.” The U.S. governmen
these inventions if we, or the applicablea
register the intellectual property within specifieff d time limits. Intellectuatt
also subject to certain reporting requirements, compliance with which may require us or the applicable contractor to expend
substantial resources. In addition, the U.S. government requires that any products embodying the subjeu
ff
through the use of the subject invention be manufactured substantially in the United States. The manufact
tt
urin
can be waived if the owner of the intellectual property can show that reasonablea
ts have been made to grant
but unsuccessful effor
licenses on similar terms to potential licensees that would be likely to manufacturtt e substantially in the United States or that under the
ture is not commercially feasible. This preference forff U.S. manufacff
circumstances domestic manufacff
contract with non-U.S. productdd manufacturers for products
future patents covering inventions is generated through the use of U.S. government funding, the provisions of the Bayh-Dole Act may
similarly apply.
t also has the right to take title to
ation to
to file an applic
ent and fail
l property generated under a government funded program is
covered by such intellectual property. To the extent any of our current or
ct invention or producdd ed
g prefereff
to disclose the invention to the governmrr
turers may limit our abili
o meet requirements
contractor, fail
nce requirement
ty to
dd
a
aa
ff
rr
rr
rr
ff
ff
We May Not Be Able To Protect Our Intellectual Propeo rty And Proprietary Rightsgg
Throughu out The World.ll
Filing, prosecuting and defending patents on our product candidates in all countries throughout the world would be prohibitively
expensive. The requirements for patentability may differff
ability to protect and enforff ce our intellectual property rights may be adversely affected by unforeseen changes in intellectual property
laws various jurisdictions worldwide. Additionally, the patent laws of some countries do not affor
l property protection to
the same extent as the laws of the United States. For example, unlike patent law in the United States, the patent law in Europe and
many other jurisdictions precludes the patentabia lity of methods of treatment of the human body and imposes substantial restrictions on
the scope of claims it will grant if broader than specifically disclosed embodiments.
in certain countries, particularly in developing countries. Moreover, our
d intellectuatt
ff
rr
dd
infrinff
ff
and, furt
her, may export otherwise
Many companies have encountered significant problems in protecting and defendff
ging products to territories where we have patent protection but enforcement is not
s may compete with our product candidates, and our patents or other intellectual
ing intellectual property rights in various
jurisdictions globally. Consequently, we may not be able to prevent third parties fromff
practicing our inventions in all countries outside
made using our inventions in and into the United States or other jurisdictions.
the United States, or from selling or importing products
Competitors may use our technologies in jurisdictions where we have not pursued and obtained patent protection to develop their own
products
dd
as strong as that in the United States. These productdd
property rights may not be effective or sufficie
certain developing countries, do not favor the enforce
particularly those relating to biotechnology products, which could make it difficff ult for us to stop the infrinff
marketing of competing products
intellectual property and proprietary rights in various jurisdictions globally could result in substantial costs and divert our efforts
attention fromff
patent applications at risk of not issuing, and could provoke third parties to assert claims against us. We may not prevail in any
lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningfulff
efforts to enforce our intellectual
commercial advantage froff m the intellectual property that we develop or license.
in violation of our intellectual property and proprietary rights generally. Proceedings to enforce our
and
other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly, could put our
nt to prevent them froff m competing. The legal systems of certain countries, particularly
ment of patents, trade secrets, and other intellectual property protection,
property and proprietary rights around the world may be inadequate to obtain a significaff
. Accordingly, our
nt
gement of our patents or
dd
ff
ff
ff
tt
65
Many countries have compulsoryrr
licensing laws under which a patent owner may be compelled to grant licenses to third parties.
In addition, many countries limit the enforceability of patents against third parties, including government agencies or government
contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent.
If we or any of our licensors is forff ced to grant a license to third parties with respect to any patents relevant to our business, our
competitive position may be impaired, and our business, financial condition, results of operations, and prospects may be adversely
affecff
ted. Patent protection must ultimately be sought on a country-by-country basis, which is an expensive and time-consuming
process with uncertain outcomes. Accordingly, we may choose not to seek patent protection in certain countries, and we will not have
the benefit of patent protection in such countries.
Changes To TTT
heTT Patent Law In The United StatSS
es And Other
iring Our Ability To Protect Our Product Candidates.
tt
dd
Thereby Ib mpa
II
Jurisdictions CouldCC
Diminishii
The ValVV ue Of Patents Itt n GII
eneral,
As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectuatt
l property, particularly
patents. Obtaining and enforcing patents in the biopharmaceutical industry involves both technological and legal complexity and is
therefore costly, time consuming and inherently uncertain. Recent patent reform legislation in the United States and other countries,
including the Leahy-Smith America Invents Act, or Leahy-Smith Act, signed into law on September 16, 2011, could increase those
uncertainties and costs. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions
that affect the way patent applications are prosecuted, redefine prior art and provide more efficff
ient and cost-effective avenues for
competitors to challenge the validity of patents. In addition, the Leahy-Smith Act has transformff
ed the U.S. patent system into a “first
ve on March 16, 2013. Accordingly, it is not yet clear what,
to file” system. The first-to-fileff
if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation
could make it more difficff
ult to obtain patent protection for our inventions and increase the uncertainties and costs surrounding the
prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could harm our business,
results of operations and financial condition.
provisions, however, only became effecti
ff
., the Supreme Court ruled that a “naturally occurring DNA segment is a productdd
The U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection
availabla e in certain circumstances or weakening the rights of patent owners in certain situations. For example, in Association for
Molecular Pathology v. Myriad Genetics, IncII
of
naturtt e and not patent eligible merely because it has been isolated,” and invalidated Myriad Genetics’s claims on the isolated BRCA1
and BRCA2 genes. Certain claims of our patents relate to CRISPR/Cas9 gene-editing technology as well as guide components that areaa
directed to naturally occurring DNA sequences. To the extent that such claims are deemed to be directed to natural products, or to lack
an inventive concept aboa ve and beyond an isolated natural product, a court may decide the claims are invalid under Myriad.dd
Additionally, there have been recent proposals for additional changes to the patent laws of the United States and other countries that, if
adopted, could impact our ability to obtain patent protection for our proprietary technology or our ability to enforce our proprietary
technology. Depending on future actions by the U.S. Congress, the U.S. courts, the USPTO and the relevant law-making bodies in
other countries, the laws and regulations governing patents could change in unpredictablea
obtain new patents or to enforce our existing patents and patents that we might obtain in the future.
Court, scheduldd ed to begin in 2017, may particularly present uncertainties forff
competitors in Europe. While that new court is being implemented to provide more certainty and efficiency to patent enforcff
throughout Europe, it will also provide our competitors with a new forum to use to centrally revoke our European patents. It will be
several years before we will understand the scope of patent rights that will be recognized and the strength of patent remedies that will
be provided by that court. We will have the right to opt our patents out of that system over the first seven years of the court, but doing
so may preclude us from realizing the benefitff s of the new unifieff d court.
our ability to protect and enforce our patent rights against
ways that would weaken our ability to
Europe’s planned Unified Patent
ement
tt
If We Are UnabUU
le To Protect TheTT Confidn
endd tiality Of Our Trade
TT
Secrets, Our Business And Competm itive Position WouldWW
Be
Harmed.
In addition to seeking patents for some of our technology and product candidates, we also rely on trade secrets and
tiality agreements to protect our unpatented know-how, technology, and other proprietary informa
confiden
ff
competitive position. Trade secrets and know-how can be difficult to protect. In particular, we anticipate that with respect to our
technology platform, these trade secrets and know-how will over time be disseminated within the industdd
ry through independent
development, the publication of journal articles describing the methodology, and the movement of personnel from academic to
industry scientific positions.
tion and to maintain our
ff
We seek to protect these trade secrets and other proprietary technology, in part, by entering into non-disclosure and
ators, CROs, contract manufact
confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientificff
collabor
a
invention or patent assignment agreements with our employees and consultants. We cannot guarantee that we have entered into such
agreements with each party that may have or have had access to our trade secrets or proprietary technology and processes. Despite
rs, consultants, advisors, and other third parties. We also enter into confidentiality and
urett
ff
66
ff
s, any of these parties may breach the agreements and disclose our proprietary inforff mation, including our trade secrets, and
these effort
we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or
misappropriated a trade secret is difficff ult, expensive, and time-consuming, and the outcome is unpredictabla e. In addition, some courts
inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully
obtained or independently developed by a competitor or other third party, we would have no right to prevent them, or those to whom
they communicate it, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to
or independently developed by a competitor or other third party, our competitive position would be materially and adversely harmed.
rr
If We Do Not Obtain Patent Term Extension And Data Exclusivity For Any Product Candidates We May Develop, Our Business
May Be Materially Harmed.
a
uu
Depending upon
the timing, duration and specifics of any FDA marketing appr
oval of any product candidates we may develop,
one or more of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term
Restoration Action of 1984, or Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent extension term of up
to five years as compensation for patent term lost during the FDA regulatory review process. A patent term extension cannot extend
the remaining term of a patent beyond a total of 14 years fromff
those claims covering the approved drug,
not be granted an extension because of, for example, failing to exercise due diligence during the testing phase or regulatory r
process, faiff
aa
ing to appl
a
satisfy aff
ppl
request. If we are unablea
rely on our patent position to forestall the marketing of competing producdd ts following our patent expiration, and our business,
financial condition, results of operations, and prospects could be materially harmed.
ling to apply within applicable deadlines, fail
icable requirements. Moreover, the applicable time period or the scope of patent protection affordff
the date of product approval, only one patent may be extended and only
ng it may be extended. However, we may
eview
y prior to expiration of relevant patents, or otherwise failing to
to obtain patent term extension or term of any such extension is less than we request, we will be unable to
t
a method for using it, or a method for manufact
ed could be less than we
uri
ff
rr
ff
rr
Intellectual Propeo rty Rtt
ightgg s Dtt
o NotNN Necessarily All
ddredd ss All Potential Threats.tt
The degree of futuff
re protection afforded by our intellectual property rights is uncertain because intellectual property rights have
limitations and may not adequately protect our business or permit us to maintain our competitive advantage. For example:
•
•
•
•
•
•
•
•
•
•
may be able to make gene therapy products that are similar to any producdd t candidates we may develop or utilize similar
technology but that are not covered by the claims of the patents that we license or may own in the future;
gene therapyaa
we, or our license partners or current or future collaborators, might not have been the first to make the inventions covered
by the issued patent or pending patent application that we license or may own in the future;
we, or our license partners or current or future collaborators, might not have been the first to file patent applications
covering certain of our or their inventions;
others may independently develop similar or alternative technologies or duplicate any of our technologies without
infrinff
ging our owned or licensed intellectuatt
l property rights;
it is possible that our pending licensed patent applications or those that we may own in the futurett
patents;
will not lead to issued
issued patents that we hold rights to may be held invalid or unenforceable, including as a result of legal challenges by our
competitors;
our competitors might conduct research and development activities in countries where we do not have patent rights and
commercial
then use the informff
markets;
ation learned from such activities to develop competitive products forff
sale in our majora
we may not develop additional proprietary t
rr
echnologies that are patentable;
the patents of others may harm our business; and
we may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third party may
subsequently filff e a patent covering such intellectual property.
Should any of these events occur, they could have a material adverse effect
ff
on our business, finff ancial condition, results of
operations, and prospects.
67
We May Be Subject
To Claims That Our Employees, Consultants,tt Or Advisors Have Wrongfully Used Or Disclosed Alleged
Current Or Former Employers Or Claims Asserting Ownership Oi
f WO hatWW We Regard As Our Own Intellectual
b
TT
f TO heir
Trade Secrets Ott
Property.tt
Many of our employees, consultants, and advisors are currently or were previously employed at universities or other
biotechnology or pharmaceutical companies. Although we try to ensure that our employees, consultants, and advisors do not use the
proprietary information or know-how of others in their work for us, we may be subject to claims that we or these individuals have
used or disclosed intellectual property, including trade secrets or other proprietary i
or
former employer. Litigation may be necessary to defend against these claims. If we fail in defendff
paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending
against such claims, litigation could result in substantial costs and be a distraction to management.
nformation, of any such individual’s current
ing any such claims, in addition to
rr
rr
In addition, while it is our policy to require our employees and contractors who may be involved in the conception or
tt
property to execute agreements assigning such intellectual property to us, we may be unsuccessfulff
development of intellectual
, conceives or develops intellectual property that we regard as our own. The
executing such an agreement with each party who, in fact
l property rights may not be self-eff xecuting, or the assignment agreements may be breached, and we may be
assignment of intellectuatt
forced to bring claims against third parties, or defenff d claims that they may bring against us, to determine the ownership of what we
regard as our intellectual property. Such claims could have a material adverse effect on our business, financial condition, results of
operations, and prospects.
in
ff
Risks Related to The Ownership of Our Common Shares
We Will IncuII
II
r Incr
easedaa
Devote SubSS stantial Time To New ComCC plm iance IniII
Costs As A Result Of OO peO rating As A Public Company And Our Management Will Be Required To
rate Governance Practices.
tiatives And Corpo
CC
As a public company, and particularly after
ce practices. Our management and other personnel will need to devote a substantial amount of time towards
ff we are no longer an “emerging growth company,” we will incur significff ant legal,
accounting and other expenses that we did not incur as a private company. SOX, the Dodd-Frank Wall Street Reform and Consumer
Protection Act, the listing requirements of The NASDAQ Global Market, and other applicable securities rules and regulations impose
various requirements on publu ic companies, including establishment and maintenance of effecff
tive disclosure and finff ancial controls and
corporate governanrr
maintaining compliance with these requirements. Moreover, these requirements will increase our legal and finff ancial compliance costs
and will make some activities more time-consuming and costly. For example, the rulrr es and regulations may make it more diffiff cult and
more expensive forff
qualifieff d members of our board of directors. We are currently evaluating these rules and regulations and cannot predict or estimate the
amount of additional costs we may incur or the timing of such costs. These rules and regulations are often subject to varying
interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new
guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters
and higher costs necessitated by ongoing revisions to disclosure and governarr nce practices.
us to obtain director and officer liability insurance, which could make it more difficul
us to attract and retain
t forff
ff
l control over financial reporting issued by our independent registered publu ic accounting firm. To achieve compliance with
Pursuant to SOX Section 404, we are required to furnish a report by our management on our internal control over financial
reporting, including an attestation report on internal control over financial reporting issued by our independent registered public
accounting firm. However, while we remain an emerging growth company, we will not be required to include an attestation report on
internarr
l control over
SOX Section 404 within the prescribed period, we are engaged in a process to document and evaluate our internarr
resources,
financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal
rr
potentially engage outside consultants, adopt a detailed work plan to assess and document the adequacy of internarr
l control over
financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as
documented, and implement a continuous reporting and improvement process forff
internal control over financial reporting. Despite our
efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over
financial reporting is effective as required by SOX Section 404. If we identify off
adverse reaction in the financial markets duedd
ne or more material weaknesses, it could result in an
ity of our financial statements.
to a loss of confiden
ce in the reliabila
u
ff
68
The Markerr
Losses For Shareholders.
t Price Of Our Common Shares Hasaa Been Volatile and Fluctuate Substantially,yy Which Could Result In Substantial
Our stock price has been and in the future may be subjec
t to substantial volatility. For example, our stock traded within a range of a
high price of $25.00 and a low price of $11.63 per share for the period October 19, 2016, our first day of trading on The NASDAQ
Global Market, through March 1, 2017. As a result of this volatility, our shareholders could incur substantial losses. In addition, the
ff
market price for our common stock may be influenced by many fact
ors, including:
u
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the success of existing or new competitive producdd ts or technologies;
the timing and results of any productdd
candidates that we may develop;
commencement or termination of collaborations for our producdd t development and research programs;
failure or discontinuation of any of our productdd
development and research programs;
results of preclinical studies, clinical trials, or regulatory approvals of product candidates of our competitors, or
announcements about new research programs or product candidates of our competitors;
developments or changing views regarding the use of genomic productdd
s, including those that involve gene editing;
regulatory orr
r legal developments in the United States and other countries;
developments or disputes concerning patent applications, issued patents, or other proprietary r
rr
ights;
the recruitment or departure of key personnel;
the level of expenses related to any of our research programs, clinical development programs, or product candidates that
we may develop;
the results of our effort
ff
s to discover, develop, acquire or in-license additional product candidates or products;
l or anticipated changes in estimates as to financial results, development timelines, or recommendations by securities
actuatt
analysts;
announcement or expectation of additional financing efforts;
sales of our common shares by us, our insiders, or other shareholders;
expiration of market stand-off off
r lock-up agreement;
variations in our financial results or those of companies that are perceived to be similar to us;
changes in estimates or recommendations by securities analysts, if any, that cover our common shares;
changes in the strucrr
ture of healthcare payment systems;
market conditions in the pharmaceutical and biotechnology sectors;
general economic, industry arr
nd market conditions; and
the other factors described in this “Risk Factors” section.
In recent years, the stock market in general, and the market for pharmaceutical and biotechnology companies in particular, has
ance of the companies whose stock is experiencing those price and volume flucff
experienced extreme price and volume flucff
performff
tuations. Broad market and industry factors
may seriously affect the market price of our common shares, regardless of our actual operating performance. Following periods of
such volatility in the market price of a company’s securities, securities class action litigation has often been brought against that
company. Because of the potential volatility of our common share price, we may become the target of securities litigation in the
future. Securities litigation could result in substantial costs and divert management’s attention and resources from our business.
tuations that have often been unrelated or disproportionate to changes in the operating
If Securities Analysts
ll
Do Not Publish Research Or Reports About Our Business Or If They Publish Negative Evaluations Of Our
Common Shares, The Price Of Our Common Share
SS
s CouCC ld Decline.
The trading market for our common shares will rely in part on the research and reports that industry orr
r financial analysts publish
about us or our business. If one or more of the analysts covering our business downgrade their evaluations of our common shares, the
price of our common shares could decline. If one or more of these analysts cease to cover our common shares, we could lose visibility
in the market for our common shares, which in turn could cause our common share price to decline.
69
ff
A Signifgg
ican
t Portion Of Our Total Outstandingdd
Common Shares May Be Sold Into The Marketkk
In The Near Future, Which
Could Cause The Market Price Of Our Common Shares To Decline Significantly,ll Even If Our Business IsII Doing Well.
Sales of a substantial number of our common shares in the public market could occur at any time. These sales, or the perception
in the market that the holders of a large number of common shares intend to sell shares, could reduce the market price of our common
stock.
All lock-up agreements entered into in connection with our initial public offering are expected to expire on April 17, 2017.
Following the lockup expiration, outstanding common shares may be freeff
permitted by Rules 144 and 701 under the Securities Act of 1933, as amended (the “Securities Act”), or to the extent that such shares
have already been registered under the Securities Act and are held by non-affiff liates of ours.
ly sold in the public market at any time to the extent
Moreover, holders of a substantial number of our common shares have rights, subject
b
to conditions, to require us to file
registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other
stockholders. We also have registered substantially all common shares that we may issue under our equity compensation plans or that
are issuable upon exercise of outstanding options. These common shares can be freely sold in the public market uponuu
once vested, subjeu
perceived that they will be sold, in the public market, the market price of our common shares could decline.
icable to affiliates. If any of these additional common shares are sold, or if it is
ct to volume limitations appl
issuance and
aa
Our Executive Officer
All Matters Submitted To STT
ff
tocSS
kholdell
rs For Appropp
val.
s,rr Directors,rr And Principal Stockholders,rr
If TII
heyTT
ChooCC
se To Act Together, Have The Ability To Control
As of March 1, 2017, common shares benefici
ff
ally owned by our executive officers, directors and principal shareholders,
including Vertex, Bayer Healthcare and other shareholders and their affilff iates who owned more than 5% of our outstanding common
shares totaled 31,822,899. As a result, these shareholders, if they were to act together, would be ablea
affairs and all matters requiring shareholder approval, including the election of directors and approval of significant
transactions. This concentration of ownership may have the effect
the market price of our common shares.
might affect
of delaying or preventing a change in control of our company and
to influence our management and
corporate
ff
ff
ff
We Have Broad Discretion In The UseUU Of Our Cash Reserves And May Not Use Such Cash Reserves EffeE ctively.
Our management has broad discretion to use our cash reserves and could use our cash reserves in ways that do not improve our
results of operations or enhance the value of our common shares. The failure by our management to appl
could result in financial losses that could have a material adverse effect
decline, and delay the development of our product candidates. Pending their use, we may invest our cash reserves in a manner that
does not producdd e income or that loses value.
s effectively
a
on our business, cause the price of our common shares to
y these fund
ff
ff
We Are An “Emerging Growth CoCC mpany,”n
Discii
Companies MayMM Makekk Our ComCC mon Shares Less Attractive To Investors.rr
And TheTT Reduced
dd
losure Requirements Applica
pp
ble To Emergir ng Growth
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startuptt
s Act of 2012, or the JOBS Act. We
will remain an emerging growth company until the earlier of (i) the last day of the fisca
revenue of $1 billion or more; (ii) December 31, 2021, being the last day of the fiscal year following the fifth anniversary of the date
of the completion of the IPO; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous
three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange
Commission, which means the market value of our common shares that is held by non-affilff
June 30th. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions fromff
disclosure requirements that are appa
include:
licable to other public companies that are not emerging growth companies. These exemptions
l year in which we have total annual gross
iates exceeds $700 million as of the prior
certain
ff
•
•
•
not being required to comply with the auditor attestation requirements of Section 404 of SOX;
not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight
Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information
about the audit and the financial statements;
being permitted to present only two years of audited financial statements in addition to any required unaudited interim
financial statements with correspondingly reducdd ed “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” disclosure in this prospectus;
70
•
•
reducdd ed disclosure obligations regarding executive compensation; and
the “say on pay” provisions (requiring a non-binding shareholder vote to approve compensation of certain executive
officers) the “say on golden parachute” provisions (requiring a non-binding shareholder vote to approve golden parachute
arrangements forff
Dodd-Frank Wall Street Reform and Protection Act, or Dodd-Frank Act, and some of the disclosure requirements of the
Dodd-Frank Act relating to compensation of our chief executive officer.
certain executive officers in connection with mergers and certain other business combinations) of the
We may choose to take advantage of some, but not all, of the available exemptions. We cannot predict whether investors will
find our common shares less attractive if we rely on these exemptions. If some investors find our common shares less attractive as a
result, there may be a less active trading market forff
our common shares and our common share price may be more volatile.
In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period forff
complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain
accounting standards until those standards would otherwise apply to private companies. We have irrevocablya
elected not to avail
ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised
accounting standards as other publiu
c companies that are not emerging growth companies.
We Do Not Expect To PTT
ay Dividends In The ForeFF
seeable Future.
ff
ively be at the discretion of our board of directors and shareholders after taking into account various facff
We have not paid any dividends since our incorporation. Even if future operations lead to significant levels of distributable
profits, we currently intend that any earnings will be reinvested in our business and that no dividends will be paid prior to the time we
have an established revenue stream to support continuing dividends. The proposal to pay future dividends to shareholders will in
addition effect
our business prospects, cash requirements, financial performff
dividends is subjecb
dividend income from our common shares and any returns on an investment in our common shares will likely depend entirely upon
any future appreciation in the price of our common shares. Dividends, if any, paid on our common shares are subject to Swiss federal
withholding tax, except if paid out of reserves fromff
t to certain limitations pursuant to Swiss law or by our articles of association. Accordingly, investors cannot rely on
ance and new product development. In addition, payment of futff urett
contributions (“Kapitaleinlagen”).
tors including
a
capital
We Are A Swiss
SS
Corporation. The Rights Of Our Shareholders
ll
May Be Different FromFF
The Rights Of Shareholders In
Companies Governed By The Laws Of U.S. Jurisdictions.
We are a Swiss corpor
rr
ation. Our business and corporate affairs are governedrr
by our articles of association and by Swiss law.
The rights of our shareholders and the responsibilities of members of our board of directors may be different from the rights and
obligations of shareholders and directors of companies governed by the laws of U.S. jurisdictions. In the performance of its duties, our
board of directors is required by Swiss law to consider the interests of our Company, our shareholders and our employees with due
observation of the principles of reasonableness and fairnes
s. It is possible that the board of directors will consider interests that are
differeff
nt from, or in addition to, your interests as a shareholder. Swiss corporate law limits the abia lity of our shareholders to challenge
resolutions made or other actions taken by our board of directors in court. Our shareholders generally are not permitted to filff e a suit to
reverse a decision or an action taken by our board of directors but are instead only permitted to seek damages forff
breaches of the duty
of care and loyalty. As a matter of Swiss law, shareholder claims against a member of our board of directors for breach of the duty of
care and loyalty would have to be brought in Basel, Switzerland, or where the relevant member of our board of directors is domiciled.
In addition, under Swiss law, any claims by our shareholders against us must be brought exclusively in Basel, Switzerland.
rr
Our Common Shares Are Issued Under The Laws Of Switzerland,
ll
Which May Not Protect Investors Irr n AII
Similar Fashion
Afforded By IB ncoII
rporation In A U.S.UU State.
We are a Swiss corpor
future or that it will serve to protect investors in a similar fashion affordff
changes or differences in corporate law principles could adversely affect the rights of U.S. investors.
ation subject to the laws of Switzerland. There can be no assurance that Swiss law will not change in the
ed under corpor
ate law principles in the U.S. Any future
rr
rr
71
Our Status As A Swiss Corporation Means That Our Shareholders Enjoy Certain Right
stt That Maya Limit Our Flexibility To
i
Raise Capital, Issue Dividends
Distributions Without Subjecti
dd
b
l NeedNN
And Otherwise Manage Ongoing Capita
ng Our Shareholders To Swiss Withholding Tax.
CC
s Add
nd May Cause Us To Be Unable To Makekk
Swiss law reserves for appro
aa
val by shareholders certain corpor
rr
ate actions over which a board of directors would have authority
in some other jurisdictions. For example, the payment of dividends and cancellation of treasury srr
shareholders. Swiss law also requires that our shareholders themselves resolve to, or authorize our board of directors to, increase our
share capital. While our shareholders may authorize share capital that can be issued by our board of directors without additional
shareholder approval, Swiss law limits this authorization to 50% of the issued share capital at the time of the authorization. The
time to time
authorization, furthermore, has a limited duration of up to two years and must be renewed by the shareholders fromff
thereafter in order to be availablea
xx
for raising capital. Additionally, subju ect to specified exceptions, including exceptions explicitly
described in our articles of association, Swiss law grants pre-emptive rights to existing shareholders to subscribe for new issuances of
shares. Swiss law also does not provide as much flexibility in the various rights and regulations that can attach to different categories
of shares as do the laws of some other jurisdictions, such as in the United States. These Swiss law requirements relating to our cuu
apital
management may limit our flexibility, and situatt
shareholders.
tions may arise where greater flexibility would have provided benefits to our
hares must be appro
ved by
a
Under Swiss law, we, as a Swiss corporation, may pay dividends only if we have sufficient distributable profits from previous
reserves, each as evidenced by its audited statuttt ory balance sheet, and after allocations to
fiscal years, or if we have distributablea
reserves required by Swiss law and our articles of association have been deducted. Freely distributabla e reserves are generally booked
either as “free reserves” or as “capital contributions” (Kapita
, contributions received froff m shareholders) in the “reserve froff m
ll
leinlagen
capital contributions.” Distributions may be made out of registered share capital—the aggregate nominal value of our registered share
capa ital—only by way of a capital reduction. We will not be able to pay dividends or make other distributions to shareholders on a
Swiss withholding tax-freff e basis in excess of our aggregate qualifying contributions and registered share capital unless we increase
our share capital or our reserves fromff
or freely distributablea
will have suffiff cient distributable profitff s, free reserves, reserves from capita
or effect a capital reduction, that our shareholders will appro
to meet the other legal requirements for dividend payments or distributions as a result of capital reductions.
reserves, if any, such dividends would be subjeb ct to Swiss withholding taxes. There can be no assurance that we
l contributions or registered share capital to pay a dividend
ve dividends or capital reductions proposed by us or that we will be ablea
al contributions. While we would also be able to pay dividends out of distributable profitsff
capitaa
a
a
((
Generally, Swiss withholding tax of 35% is due on dividends and similar distributions to our shareholders, regardless of the
ff
ion of registered share capital or
). There can be no assurance that we will have sufficff
place of residency of the shareholder, unless the distribution is made to shareholders out of (i) a reductdd
under the
(ii) assuming certain conditions are met, qualifying capital contribution reserves. A U.S. holder that qualifies for benefitsff
Convention between the United States of America and Switzerland for the Avoidance of Double Taxation with Respect to Taxes on
Income, or the U.S.-Swiss Treaty, may apply forff
a refunff d of the tax withheld in excess of the 15% treaty rate (or in excess of the 5%
reduced treaty rate for qualifying corporate shareholders with at least 10% participation in our voting shares, or for a fulff
case of qualified pension funds
from Swiss withholding tax, or that Swiss withholding rulrr es will not be changed in the future. In addition, we cannot
dividends freeff
provide assurance that the current Swiss law with respect to distributions out of qualifyiff ng capital contribution reserves will not be
changed or that a change in Swiss law will not adversely affecff
qualifying capital contribution reserves becoming subjeb ct to additional corporate law or other restrictions. There are currently motions
pending in the Swiss Parliament that may limit the distribution of qualifying capital contributions. In addition, over the long term, the
amount of registered share capital availablea
to us for registered share capital reductions or qualifying capital contributions available to
us to pay out as distributions is limited. If we are unable to make a distribution through a reduction in nominal value of our registered
share capital or out of qualifying capital contributions, we may not be ablea
cting our shareholders
to Swiss withholding taxes.
l refund in the
ient qualifying capital contribution reserves to pay
t us or our shareholders, in particular as a result of distributions out of
to make distributions without subjeu
Under present Swiss tax laws, repurchases of shares for the purpos
es of cancellation are treated as a partial liquidation subjeb ct to
35% Swiss withholding tax on the difference between the repurchase price and the nominal value except, since January 1, 2011, to the
extent attributabla e to qualifying capital contributions (Kap
italeinlagen) if any, and to the extent that, the repurchase of shares is out of
retained earnirr ngs or other taxabla e reserves, the Swiss withholding becomes due.dd
withholding tax is triggered if the shares are not repurchased forff
should the Company not resell such treasury shares within six years, the withholding tax becomes due at the end of the six year period.
cancellation but held by the Company as treasury shares. However,
No partial liquidation treatment applies and no
((
rr
72
Certain U.S.SS Shareholdersdd May Be Subject To Adverse U.S.SS Federal Income Tax Consequences If We Are A Controll
tt
ed Foreign
Corporation.
Each “Ten Percent Shareholder” (as defined below) in a non-U.S. corporation that is classified as a “controlled foreign
ation,” or a CFC, for United States federal income tax purposes generally is required to include in income for U.S. fedff
the sale of securities and income from certain transactions with related parties. In addition, a Ten Percent
corpor
rr
purposes such Ten Percent Shareholder’s pro rata share of the CFC’s “Subpart F income” and investment of earnings in U.S. property,
even if the CFC has made no distributions to its shareholders. Subpart F income generally includes dividends, interest, rents and
royalties, gains fromff
Shareholder that realizes gain from the sale or exchange of shares in a CFC may be required to classify a p
dividend income rather than capital gain. A non-U.S. corporation generally will be classified as a CFC for United States fedff
income tax purposes if Ten Percent Shareholders own, directly or indirectly, more than 50% of either the total combined voting power
of all classes of stock of such corprr oration entitled to vote or of the total value of the stock of such corporation. A “Ten Percent
Shareholder” is a United States person (as defined by the U.S. Internal Revenue Code of 1986, as amended (the “Code”)) who owns or
is considered to own 10% or more of the total combined voting power of all classes of stock entitled to vote of such corporation. The
determination of CFC status is complex and includes attribution rules, the appaa
ortion of such gain as
eral
lication of which is not entirely certain.
eral tax
ff
During our 2016 taxablea
year we believe that we had certain shareholders that were Ten Percent Shareholders for United States
the taxable year ended December 31, 2016 and our current taxable year is
federal income tax purposes. However, our CFC status forff
uncertain and we may be a CFC for the taxable year ended December 31, 2016, our current taxablea
holders should consult their own tax advisors with respect to the potential adverse U.S. tax consequences of becoming a Ten Percent
Shareholder in a CFC. If we are classifiedff
as both a CFC and a PFIC, we generally will not be treated as a PFIC with respect to those
U.S. holders that meet the definition of a Ten Percent Shareholder during the period in which we are a CFC.
lowing year. U.S.
year or a folff
Certain U.S. Shareholders May Be Subject to Adverse Tax Consequences If We Are A Passive Foreigngg Investmen
tt
t Company.n
Generally, if, for any taxablea
to assets that producedd
year, at least 75% of our gross income is passive income, or at least 50% of the value of our assets
passive income or are held forff
is attributablea
characterized as a PFIC, forff U.S. federal income tax purpos
and gains froff m the sale or exchange of investment property and rents and royalties other than rents and royalties which are received
from unrelated parties in connection with the active conduct of a trade or business. If we are characterized as a PFIC, U.S. holders of
our common shares may suffer adverse tax consequences, including having gains realized on the sale of the common shares treated as
ordinary i
licabla e to dividends received on the common shares by
individuals who are U.S. holders, and having interest charges apply to distributions by us and the proceeds of sales of the common
shares.
es. For purposes of these tests, passive income includes dividends, interest,
ncome, rather than capiaa tal gain, the loss of the preferential rate appaa
the production of passive income, including cash, we would be
rr
rr
Our statustt
as a PFIC will depend on the composition of our income and the composition and value of our assets which may be
determined in part by refereff
depend, in part, on how, and how quickly, we utilize the cash proceeds fromff
intensive determination made on an annual basis and we cannot provide any assurances regarding our PFIC statustt
or future taxable years.
nce to the quarterly market value of our common shares, which may be volatile. Our status may also
the IPO in our business. Our statustt
as a PFIC is a facff
for any past, curreuu
nt
t-
Because it is possible we were a PFIC for the 2016 taxable year, we intend to provide the inforff mation that is necessary f
rr
the 2016 taxable year. We intend to provide such information on our website
to make a QEF election with respect to us forff
(www.crisprtx.com). However, we have not determined whether any of our subsidiaries are lower-tier PFICs and we do not intend to
make the necessary information available to you with respect to any lower-tier PFICs. You are urged to consult your own tax advisors
regarding the availability, and advisability, of, and proceduredd
PFICs.
for making, a QEF election, including, with respect to any lower-tier
you
orff
SS
holdersdd May Na
U.S. SSS hare
f OO ur Board OfO Directors.
Members Orr
otNN Be Able To Obtain Judgments Or Enforce Civil Liabilities Against Us OUU r Our Executive Officff
ers Orr
r
We are a Swiss corporation organized under the laws of Switzerland and our registered offiff ce and domicile is located in Basel,
Switzerland. Moreover, certain of our directors and executive officers and a number of directors of each of our subsidiaries are not
residents of the United States, and all or a substantial portion of the assets of such persons are located outside the United States. As a
result, it may not be possible for investors to effect service of process within the United States upon our directors and officers residing
as our agent to effect service of process
outside the United States. Additionally, even though we have appo
upon us in the United States, investors may be unablea
to enforce against us or our directors and officers residing outside the United
States judgments obtained in U.S. courts, including judgments in actions predicated upon the civil liabia lity provisions of the federal
securities laws of the United States. We have been advised by our Swiss counsel that there is doubt as to the enforceability in
inted CT Systems Corp.rr
a
73
Switzerland of original actions, or in actions for enforcement of judgments of U.S. courts, of civil liabilities to the extent solely
predicated upouu n the federal and state securities laws of the United States. Original actions against persons in Switzerland based solely
upon the U.S. federal or state securities laws are governed, among other things, by the principles set forth in the Swiss Federal Act on
Private International Law. This statute provides that the application of provisions of non-Swiss law by the courts in Switzerlandaa
shall
be precluded if the result is incompatible with Swiss public policy. Also, mandatory prr
rovisions of Swiss law may be applicablea
regardless of any other law that would otherwise apply.
Switzerland and the United States do not have a treaty providing for reciprocal recognition and enforcement of judgments in
civil and commercial matters. The recognition and enforcement of a judgment of the courts of the United States in Switzerland is
governed by the principles set forth in the Swiss Federal Act on Private International Law. This statute provides in principle that a
judgment rendered by a non-Swiss court may be enforced in Switzerland only if:
•
•
•
•
•
the non-Swiss court had jurisdiction pursuant to the Swiss Federal Act on Private International Law;
the judgment of such non-Swiss court has become final and non-appe
aa
alable;
the judgment does not contravene Swiss public policy;
the court procedures and the service of documents leading to the judgment were in accordance with the due process of
law; and
no proceeding involving the same position and the same subjeu
Switzerland, or was earlier adjudicated in a third state and this decision is recognizable in Switzerland.
ct matter was first brought in Switzerland, or adjudicated in
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our principal executive offices are located in Basel, Switzerland, where we occupy approximately 365 square feeff
t of officeff
space on a month-to month lease. We also have facilities in Cambridge, Massachusetts, where we occupy appr
square feet of laboratory and office space under a sublease that expires in December 2026. We also lease approximately 19,817 square
a
feet of additional officeff
and labora
and maintain approximately 350 square feet of office
London, England, we occupyuu
with a term that renews every six months. We believe that our facilities are adequate for our current needs and that suitabla e additional
or substitute space would be available if needed.
pace in Cambridge, Massachusetts pursuant to a lease that expires in February 2022. In
space pursuant to a real estate license agreement
oximately 65,376
tory srr
a
ff
Item 3. Legal Proceedings.
From time to time, we may become involved in litigation or other legal proceedings relating to claims arising from the ordinary
ications we have in-licensed from Dr. Charpenrr
nce between one of the pending U.S. patent appl
, or USPTO, declared
tier and twelve issued U.S.
course of business. There are currently no claims or actions pending against us that, in the opinion of our management, are likely to
have a material adverse effect on our business. In January 2016, the United States Patent and Trademark Officeff
an interfereff
aa
patents and one U.S. patent application owned jointly by The Broad Institute, Massachusetts Instituttt e of Technology, President and
Fellows of Harvard College, or Broad. The interference was redeclared in March 2016 to add a U.S. patent application owned by
Broad. An interference is a proceeding conducted at the USPTO by the Patent Trial and Appeal Board, or PTAB, to determine which
t matter by at least two parties. There are currently two parties to this interference. Our in-licensed
party was first to invent subjecb
patent application is co-owned among Dr. Charpentier, the Regents of the University of Califorff niarr
, and the University of Vienna,
whom the USPTO designated collectively as “Senior Party”; Broad was designated as “Junior Party.” Following motions by the
parties and other procedurdd al matters, the PTAB concluded in Februarr
because the claim sets of the two parties were not directed to the same patentable invention in accordance with the PTAB’s two-way
test for patent interferen
while the Senior Party’s claims in the interfereff
party can appeal an adverse decision to the U.S. Court of Appeals for the Federal Circuit. In parallel, either party can also pursue
existing or new patent appli
interferenc
ff
could be the subject of other challenges to their validity of enforceability. In the context of a second interference or in other
proceedings, a determination could be reached regarding that the Senior Party was not the first to invent, or it could be concluded that
the contested subject
preclude our U.S. patent applications from issuing as patents, in which case the proceedings would result in our losing the right to
ces. In particular, the Junior Party’s claims in the interference were all limited to uses in eukaryotic cells,
matter is not patentable to the Senior Party and is patentable to the Junior Party, which in this case could
cations in the U.S. and elsewhere. Going forward, either party as well as other parties could seek a new
e related to the uses of the technology in eukaryotic cells or other aspects of the technology, and any existing or new patents
nce were not limited to uses in eukaryotic cells but included uses in all settings. Either
ry 2017 that the declared interferen
ce should be dismissed
u
aa
ff
ff
74
protect core innovations and our freedom to practice our core gene editing technology. If there is a second interference, either party
could again appeal an adverse decision to the U.S. Court of Appeals for the Federal Circuit. In any case, it may be years beforff e there is
a finff al determination on priority. In addition, both the Broad and Toolgen Inc. have fileff d international counterpart
applications, some of which were granted in Europe and/odd r other jurisdictions, and Vilnius University and other third parties also have
international counterparts of U.S. patent appli
proceedings against some of these grants, and we may in the futurtt e oppose other grants to these or other applicants. Similarly, if we
should obtain patent grants in the U.S., Europe and other jurisdictions, these could also be the subjeu
grant proceduredd
s sought by third parties in order to revoke the grants or narrow the scope of granted claims. Going forwff
existing and new challenges being filed against CRISPR/Cas9 cases in the U.S., Europe and elsewhere, and considering the number of
interested parties, it is reasonable to expect that patents directed to the underlying technology will continue to be the subject of
ongoing disputes over at least the next several years, and potentially beyond as decisions in favor or against particular parties may be
the subju ect of appaa
cations that could proceed to grant. We and third parties have initiated opposition
ct of oppositions or other post-
s of their U.S.
ard, with
eals.
aa
rr
For further information regarding risks regarding the interferenc
ff
e and patent rights held by third parties, please see “Risk
Factors—Risks Related to Our Intellectual Property” contained in Item 1A of this report.
Item 4. Mine Safety Disclosures.
Not appaa
licable.
75
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common shares trade on the NASDAQ Global Market under the symbol “CRSP” since our initial public offering on
October 18, 2016. Prior to this time, there was no public market for our common shares. As a result, the following table shows the
high and low sale prices per share of our common shares as reported on the Nasdaq Global Market forff
the period indicated:
Fourth Quarter (beggginninggg October 19, 2016)
$
23.97
$
13.75
Market Price
High
Low
Stock Performance Graph
The graph set forth below compares the cumulative total stockholder return orr
n our common stock between October 18, 2016
ff
(the date of our initial public offer
ing) and December 31, 2016, with the cumulative total returtt n orr
Index and (b) the Nasdaq Composite Index, over the same period. This graph assumes the investment of $100 on October 18, 2016 in
our common stock, the Nasdaq Biotechnology Index and the Nasdaq Composite Index and assumes the reinvestment of dividends, if
any. The graph assumes our closing sales price on October 19, 2016 of $14.09 per share as the initial value of our common shares and
not the initial offering price to the public of $14.00 per share.
f (a) the Nasdaq Biotechnology
The comparisons shown in the graph below are based upon historical data. We caution that the stock price performance shown
in the graph below is not necessarily indicative of, nor is it intended to forecast, the potential future performa
shares. Information used in the graph was obtained from the Nasdaq Stock Market LLC, a financial data provider and a source
believed to be reliable.
The Nasdaq Stock Market LLC is not responsible for any errors or omissions in such information.
nce of our common
a
ff
Comparison of Total Return
Among CRISPR Therapeutics AG, the NASDAQ Composite Index, and the
NASDAQ Biotechnology Index
180.00
160.00
140.00
120.00
100.00
80.00
60.00
40.00
20.00
0.00
10/19/2016
10/26/2016
11/2/2016
11/9/2016
11/16/2016
11/23/2016
11/30/2016
12/7/2016
12/14/2016
12/21/2016
12/28/2016
CRSP
NASDAQ Composite
NASDAQ Biotech
Holders
As of March 1, 2017, we had approximately 49 holders of record of our common shares. This number does not include
beneficial owners whose shares were held in street name.
76
Dividends
We have not paid any cash dividends on our common shares since inception and do not anticipate paying cash dividends in the
foreseeable future.
Securities authorized for issuance under equity compensation plans
Information about our equity compensation plans is incorporated herein by reference to Item 12 of Part III of this Annual Report
on Form 10-K.
Use of Proceeds from Registered Securities
On October 24, 2016, we closed the sale of 4,429,311 of our common shares in our initial public offering, or the IPO, inclusive
of 429,311 common shares sold by us pursuant to the partial exercise of an overallotment option granted to the underwriters in
connection with the offering, at a price to the public of $14.00 per share. The aggregate net proceeds received by us from the offering
ing expenses payable by us. None of these
were $53.7 million, after deducting underwriting discounts and commissions and other offer
expenses consisted of payments made by us to directors, officers or persons owning 10% or more of our common shares or to their
associates, or to our affiliates. Concurrent with the IPO, we issued and sold 2,500,000 common shares to Bayer BV, at the IPO price
$14.00 per share, or (the “Concurrent Private Placement”), resulting in aggregate net proceeds of $35.0 million in accordance with the
terms of our subscription agreement with Bayer BV.
ff
The offer
ff
and sale of the shares in the IPO was registered under the Securities Act pursuant to registration statements on
Form S-1 (File No. 333-213577), which was filed with the SEC, on September 9, 2016 and amended subsequently and declared
effective on October 18, 2016. Citigroup Guu
lobal Markets Inc., Piper Jaffray & Co. and Barclays Capital Inc. acted as joint book-
running managers of the offering.
There has been no material change in the planned use of proceeds from our IPO as described in our final prospectus filed with
the SEC on October 19, 2016 pursuant to Rule 424. We invested the unused proceeds from the offering in cash equivalents in
accordance with our investment policy.
Purchase of Equity Securities
There were no repurchases of our common shares made during the year ended December 31, 2016. During 2016, Fay
ation transferred 274,184 shares to us which are reflected as treasury shares on the consolidated balance sheet as of
Corpor
rr
December 31, 2016. Common shares totaling 170,689, which represents the balance of the 600,000 shares granted to the underwriters
pursuant to the overallotment option that were not sold in the IPO, were transferredrr
shares on the consolidated balance sheet as of December 31, 2016.
to the Company and are reflected as treasury
77
Item 6. Selected Financial Data.
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis
of Financial Condition and Results of Operations”, the consolidated financial statements and related notes, and other financial
information included in this Annual Report on Form 10-K.
The consolidated statements of operations data forff
the years ended December 31, 2016, 2015, and 2014 and the consolidated
balance sheet data as of December 31, 2016 and 2015 are derived from our audited consolidated financial statements included in this
Annual Report on Form 10-K. Historical results are not necessarily indicative of the results to be expected in future periods.
Consolidated Statements of Operations Data:
Collabor
a
Operating expenses:
ation revenue
Research and development
General and administrative
Total operating expenses
Loss from operations
Other income (expense), net
NNNet loss before (provision for) benefit from income taxes
(Provision for) benefit from income taxes
NNNet loss
Foreign currency translation adjustment
Comprehensive loss
Reconciliation of net loss to net loss attributable to common
shareholders:
Net loss
Loss attributablea
Loss on extinguishment of redeemable convertible
to noncontrollingg interest
preferred shares
Net loss attributablea
Net loss per share attributable to common shareholders,
to common shareholders
basic and diluted
Weighted-average common shares outstanding, basic and
$
$
$
$
2016
Years Ended December 31,
2015
(in thousands, except share
and per share amounts)
2014
$
5,164
$
247
$
—
42,238
31,056
73,294
(68,130)
45,412
(22,718)
(484)
(23,202)
(18)
(23,220) $
12,573
13,403
25,976
(25,729)
(92)
(25,821)
(7)
(25,828)
(6)
(25,834) $
(23,202) $
25
(25,828) $
325
—
(23,177) $
—
(25,503) $
1,513
5,114
6,627
(6,627)
(236)
(6,863)
63
(6,800)
(2)
(6,802)
(6,800)
536
(745)
(7,009)
(1.89) $
(5.06) $
(1.97)
diluted
12,257,483
5,037,404
3,559,985
Consolidated Balance Sheet Data:
Cash
Working capital
Total assets
Redeemable convertible preferred shares
Total shareholders’ deficit
December 31,
2016
2015
(in thousands)
$
$
315,520
298,190
344,962
—
232,846
155,961
146,685
159,423
64,521
(29,124)
78
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discdd
ussion and analysis of our financial conditidd on and results of operations together
tt
nnual Report on Form 10-K. SKK omSS
section entitled “Selected Consolidated Financial Data” and our consolidated
elsewhere in this Aii
elsewhere in this Annual Report on Form 10-K, includingdd
ff
related financ
those factor
s srr
ff
from the results described in or implm ied by tb he forward-looking statements contained in the following discussion and analysis.
information with respect to our plans and strategy for our business and
ors, including
iffdd erff materially
ff
forward-looking statements that involve risks and uncertainties. As a result of many fn act
ould dll
financial statements and related notes appea
rs" section of to his Annual Report on FormFF
e of to he information contained in this dii
isdd cussion and analysis or set forth
ing, includesdd
et forth in thett
10-K, our actual results ctt
"Risk FactoFF
dd
with the
aring
Overview
We are a leading gene editing company focused on the development of CRISPR/Cas9-based therapeut
a
ics. CRISPR/Cas
RR
9 is a
revolutionary gene editing technology that allows for precise, directed changes to genomic DNA. The application of CRISPR/Cas9 for
gene editing was co-invented by one of our scientificff
published work elucidating how CRISPR/Cas
use in gene editing. We are applying this technology to potentially treat a broad set of rare and common diseases by disrupt
correcting or regulating the genes related to the disease. We believe that our scientific expertise, together with our approach, may
enable an entirely new class of highly active and potentially curative treatments for patients for whom current biopharmaceutical
approaches have had limited success.
founders, Dr. Emmanuelle Charpentier, who, along with her collaborators,
in bacteria, can be adapteaa
se mechanism found
ing,
9, a naturally occurring viral defenff
d forff
RR
rr
ff
Since our inception in October 2013, we have devoted substantially all of our resources to initiating the conduct of our research
nd preclinical development activities,
and development efforts, identifying potential productdd
building and protecting our intellectual property portfolio, organizing and staffing
our company, business planning, raising capital, and
providing general and administrative support for these operations. To date, we have primarily financed our operations through private
placements of our preferr
ed shares, convertible loans and collaboration agreements with strategic partners. From our inception through
December 31, 2016, we raised an aggregate of $308.4 million, of which $125.2 million consisted of gross proceeds fromff
placements of our preferred shares, $73.2 million from the issuance of convertible loans, $75.0 million fromff
a technology access feeff
ation with Vertex Pharmaceuticals, Incorporated, or Vertex, and $35.0 million fromff
our collabor
license of technology to Casebia Therapeutics, LLP, our joint venture with Bayer HealthCare LLC, or Bayer HealthCare.
an upfront payment under
related to our
candidates, undertaking drug discovery arr
private
a
ff
ff
In October 2016, we issued and sold 4,429,311 of our common shares, including 429,311 common shares sold pursuant to the
underwriters’ partial exercise of their option to purchase additional common shares, in our initial public offerin
public offering price of $14.00 per share, for aggregate gross proceeds of approximately $62.0 million. Concurrent with the IPO, we
issued and sold an aggregate of 2,500,000 common shares to Bayer Global Investments BV, or Bayer BV, in a private placement, at
the IPO price of $14.00 a share, for aggregate net proceeds of $35.0 million.
g, or the IPO, at a
ff
ff
a
ation revenue. We have incurred significaff
All of our revenue to date has been collabor
the next several years. Our net losses may fluctuate significantly fromff
ear since
our inception and expect to continue to incur net operating losses for the foreseeable future. As of December 31, 2016, we had $315.5
million in cash and an accumulated deficit
operating losses forff
anticipate that our expenses will increase significantly as we continue our current research programs and development activities; seek
to identify additional research programs and additional producdd t candidates, conducdd t initial drugrr
studies and initiate clinical trials for our product candidates; initiate preclinical testing and clinical trials for any other product
candidates we identify aff
platforff m; hire additional research, clinical and scientific personnel; and incur additional costs associated with operating as a public
company.
nd develop, maintain, expand and protect our intellectual property portfolio, further develop our gene editing
of $57.1 million. We expect to continue to incur significant expenses and increasing
quarter to quarter and year to year. We
application supporting preclinical
nt net operating losses in every yrr
Collaboration Agregg ement and Joint VenVV ture Agregg ement
In October 2015, we entered into a strategic research collaboa
ration agreement with Vertex focused on the development of
CRISPR/CaRR
and $30.0 million in convertible loan proceeds.
s9-based therapies. Under the terms of our agreement, we received an upfroff nt, nonrefundablea
payment of $75.0 million
In December 2015, we entered into an agreement, the JV Agreement, with Bayer HealthCare to create a joint venturtt e, Casebia
Therapeutics LLP, (“Casebia” or “the JV”), to discover, develop and commercialize new breakthrough therapeuaa
disorders, blindness and heart disease. We and Bayer HealthCare each have a 50% interest in the JV. Under the JV Agreement, Bayer
HealthCare is making available its protein engineering expertise and relevant disease know-how and we are contributing our
proprietary CRISPR/Cas9 gene editing technology and intellectual property. Bayer HealthCare will also provide up to $300.0 million
in research and development investments to the JV over the first five years, subjeu
ct to specifieff d conditions.
tics to cure blood
79
In connection with the JV Agreement, the JV was required to pay us an aggregate amount of $35.0 million technology access
fee, consisting of an upfront payment of $20.0 million, which was paid at the closing of the JV Agreement in March 2016, and another
payment of $15.0 million for specified intellectual property rights relating to our CRISPR/Cas9 technology outside of the United
States, which was paid in December 2016. In January 2016, we also issued a convertible loan to Bayer BV (the “Bayer Convertible
Loan”) for gross proceeds of $35.0 million which was immediately converted to Series B Preferred
Shares at a conversion price of
$13.43 per share. Concurrent with the IPO in October 2016, we issued and sold 2,500,000 common shares to Bayer BV, at the IPO
price of $14.00 per share resulting in aggregate net proceeds of $35.0 million.
ff
Financial Overview
Revenue
We have not generated any revenue to date from product sales and do not expect to do so in the near future. During the year
ended December 31, 2016, and 2015, we recognized $5.2 million and $0.2 million, respectively, of revenue related to our
collaboration agreements with Vertex and Casebia. As of December 31, 2016, we had not received any milestone or royalty payments
under the Vertex collaboration agreement. For additional information about our revenue recognition policy, see the “Critical
Accounting Policies and Estimates—Re— venue.”
Research and Developme
o
nt Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our product
discovery err
fforts and the development of our product candidates, which include:
•
•
•
•
•
•
employee-related expenses, including salaries, benefitff s and equity-based compensation expense;
costs of services performed by third parties that conducdd t research and development and preclinical activities on our behalf;
costs of purchasing lab supplies and non-capital equipment used in our preclinical activities and in manufact
preclinical study materials;
ff
urtt
ing
consultant fees;
facility costs, including rent, depreciation and maintenance expenses; and
fees and other payments related to acquiring and maintaining licenses under our third-party licensing agreements.
Research and development costs are expensed as incurred. Nonrefundable advance payments for research and development
goods or services to be received in the future are deferr
are delivered or the services are performff
of the effort
to the numerous risks and uncertainties associated with developing such productdd
ed and capitalized. The capitalized amounts are expensed as the related goods
, timing or estimated costs
s that will be necessary to complete the development of any product candidates we may identify and develop. This is due
ed. At this time, we cannot reasonably estimate or know the naturett
candidates, including the uncertainty of:
ff
ff
•
•
•
•
•
•
•
•
•
•
•
successful completion of preclinical studie
tt
s and Investigational New Drug-e
rr
nabling studies;
successful enrollment in, and completion of, clinical trials;
receipt of marketing appaa
rovals fromff
applicable regulatory arr
uthorities;
establishing commercial manufactu
ff
ring capabilities or making arrangements with third-party manufacturers;
obtaining and maintaining patent and trade secret protection and non-patent exclusivity;
launching commercial sales of the product, if and when approved, whether alone or in collaboration with others;
acceptance of the product, if and when approved, by patients, the medical community and third-party payors;
effecff
tively competing with other therapies and treatment options;
a continued acceptable safetyff
profile following appr
aa
oval;
enforcing and defending intellectual property and proprietary r
rr
ights and claims; and
achieving desirable medicinal properties forff
the intended indications.
A change in the outcome of any of these variabla es with respect to the development of any producdd t candidates we may develop
could significff antly change the costs, timing and viabia lity associated with the development of that producdd t candidate.
80
Except forff
activities we perform in connection with our collaborations with Vertex and Casebia, we do not track research and
development costs on a program-by-program basis. We plan to track research and development costs for individual development
programs when we identify a p
the program that we believe we can advance into clinical trials.
roduct candidate fromff
ff
Research and development activities are central to our business model. We expect research and development costs to increase
significantly for the foreseeable future as our current development programs progress and new programs are added.
General and Administrat
ii
ivett
Expenses
General and administrative expenses consist primarily of employee related expenses, including salaries, benefitff s, and equity-
tions. Other
based compensation, forff
significant costs include facility costs not otherwise included in research and development expenses, legal fees relating to pateaa nt and
corporate matters, and fees for accounting and consulting services.
personnel in executive, finance, accounting, business development and human resources func
ff
We anticipate that our general and administrative expenses will increase in the future to support continued research and
development activities, potential commercialization of our product candidates and increased costs of operating as a public company.
We anticipate increased costs associated with being a public company, including expenses related to services associated with
maintaining compliance with exchange listing and SEC requirements, insurance costs and investor relations costs, the hiring of
additional personnel and fees to outside consultants, lawyers and accountants, among other expenses. We also anticipate increased
expenses related to the reimbursements of third-party patent related expenses in connection with the ongoing interference proceeding
with respect to certain of our in-licensed intellectuatt
l property.
Results of Operations
Comparison of Years Err
ndeEE
d December 31, 2016, a6 nd 2015
The following table summarizes our results of operations forff
the years ended December 31, 2016 and 2015, together with the
dollar change in those items:
Collaboration revenue
Operating expenses:
Research and development
General and administrative
Total operating expenses
Loss from operations
Other income (expense), net
NNet loss before (provision for) benefit from income taxes
(Provision for) benefit from income taxes
NNet loss
Year Ended
December 31,
2016
$
5,164
2015
(in thousands)
247
$
Period-to-
Period Change
$
4,917
42,238
31,056
73,294
(68,130)
45,412
(22,718)
(484)
(23,202) $
12,573
13,403
25,976
(25,729)
(92)
(25,821)
(7)
(25,828) $
29,665
17,653
47,318
(42,401)
45,504
3,103
(477)
2,626
$
Collaboration Revenue
Collaboration revenue for the year ended December 31, 2016 was $5.2 million, compared to $0.2 million forff
the year ended
ff
to a full
the collaboration with Vertex of $4.0 million, and research and development service revenue of $1.2 million under a
December 31, 2015. The increase of $5.0 million was primarily duedd
revenue fromff
collaboration agreement with Casebia. During the year ended December 31, 2015, we recognized $0.2 million of research and
development service revenue related to the collaboration with Vertex.
year’s worth of research and development service
Research and Development ExpeEE
nses
Research and development expenses for the year ended December 31, 2016 was $42.2 million, compared to $12.6 million forff
the year ended December 31, 2015. The increase of $29.7 million in research and development expenses was primarily attributabla e to
approximately $10.6 million in increased facilities costs including rent and utilities, $9.0 million in increased research and
development variable process and platform development costs, $10.4 million in increased research and development employee
compensation costs, partially offset by a $0.4 million reduction of license feeff
s and consulting expenses.
81
General and Administii rat
tt
ive Expenses
General and administrative expenses were $31.1 million for the year ended December 31, 2016, compared to $13.4 million forff
the year ended December 31, 2015. The increase of $17.7 million was primarily duedd
million of employee-related costs to support our overall growth; $3.9 million of intellectual
to procure the issuance of patents in jurisdictions outside the United States and costs related to an interfereff
to our in-licensed intellectual property, $2.0 million in non-recurring shareholder PFIC settlements, $1.1 million in facff
including rent and utilities, $1.6 million in capital and franchise taxes related to finff ancing rounds, and $0.5 million of profess
consulting fees to support the requirements of being a public company.
property costs including third-party costs
nce proceeding with respect
to the following increases in expenses: $8.5
ilities costs
ional and
ff
tt
Other Income (ExpeEE
nse), Net
Other income (expense), net, was $45.4 million of income forff
the year ended December 31, 2016, compared to $0.1 million of
expense for the year ended December 31, 2015. The increase of $45.5 million was primarily due to a $78.6 million gain recognized in
connection with the formation of Casebia which equaled the value of cash consideration received fromff
Casebia and the fair
the Company’s equity interest in Casebia as of the formation of the JV, combined with an $11.5 million gain recognized on
extinguishment of convertible loans with Vertex, all of which was partially offset by $36.5 million in 2016 equity method losses, and
$8.1 million of interest expense related to a convertible loan with Bayer.
value of
ff
Comparison of Years Err
ndeEE
d December 31, 2015, and 2014
The following table summarizes our results of operations forff
the years ended December 31, 2015 and 2014, together with the
dollar change in those items:
Collaboration revenue
Operating expenses:
Research and development
General and administrative
Total operating expenses
Loss from operations
Other expense, net
NNet loss before (provision for) benefit from income taxes
(Provision for) benefit from income taxes
Year Ended
December 31,
2015
2014
(in thousands)
Period-to-
Period Change
$
247
— $
247
12,573
13,403
25,976
(25,729)
(92)
(25,821)
(7)
1,513
5,114
6,627
(6,627)
(236)
(6,863)
63
(6,800) $
11,060
8,289
19,349
(19,102)
144
(18,958)
(70)
(19,028)
NNet loss
$
(25,828) $
Collaboration Revenue
We recognized collabora
a
tion revenue during the year ended December 31, 2015 of $0.2 million, related to our collaboration
agreement with Vertex. We did not record any revenue during the year ended December 31, 2014.
Research and Development Expens
EE
es
Research and development expenses increased by $11.1 million to $12.6 million for the year ended December 31, 2015, from
$1.5 million for the year ended December
, 2014. The increase in research and development expenses was primarily attributable to
an increase in employee costs of $4.8 million associated with salaries, benefits and equity-based compensation expenses from hiring
additional personnel, an increase in professional service expense of $2.0 million, an increase in facilities expense of $2.3 million,
principally associated with the establishment in February 2015 of our research and development center in Cambridge, Massachusetts,
and an increase in licensing fees and related payments of $1.4 million.
82
General and Administrat
ii
ive Expenses
General and administrative expenses increased by $8.3 million to $13.4 million for the year ended December 31, 2015, from
$5.1 million for the year ended December 31, 2014. The increase in general and administrative expenses was primarily attributable to
increase in employee costs of $1.9 million associated with salaries, benefits and equity-based compensation expenses from hiring
additional senior personnel, increased consulting and professional fees of $3.2 million, including directors’ fees, audit and accounting
fees, and consultant fees; and increased intellectual property costs of $1.9 million, including third-party costs to procure the issuance
of patents in jurisdictions outside the United States and costs related to the ongoing interference proceedings with respect to our in-
licensed intellectual property.
Othett
r Expen
EE
se, Net
Other expense, net decreased by $0.1 million for the year ended December 31, 2015 due to a decrease in the loss on foreign
currency remeasurement of $0.2 million, offset by an increase in non-cash interest expense related to the convertible loans of $0.1
million.
Liquidity and Capital Resources
From our inception through December 31, 2016, we raised an aggregate of $308.4 million, of which $125.2 million consisted of
t payment
of $35.0 million from Casebia, pursuant
gross proceeds from private placements of preferred shares, $73.2 million from the issuance of convertible loans, an up-fron
under our collaboration agreement with Vertex of $75.0 million, and a technology access feeff
to our JV Agreement with Bayer HealthCare.
uu
On October 24, 2016, we completed our IPO whereby we sold 4,429,311 common shares, inclusive of 429,311 common shares
ring, at a
sold by us pursuant to the partial exercise of an overallotment option granted to the underwri
price to the public of $14.00 per share. The aggregate net proceeds received by us fromff
deducting underwri
and sold 2,500,000 common shares to Bayer BV, at the IPO price $14.00 per share, or the Concurrent Private Placement, resulting in
aggregate net proceeds of $35.0 million in accordance with the terms of our subscription agreement with Bayer BV.
ting discounts and commissions and other offering expenses payable by us. Concurrent with the IPO, we issued
ters in connection with the offeff
rr
the offering were $53.7 million, after
rr
As of December 31, 2016, we had $315.5 million in cash, of which appro
aa
ximately $309.8 million was held outside of the United
States.
Funding Requirementstt
Our primary uses of capital are, and we expect will continue to be, research and development activities, compensation and
related expenses, laboratory and related suppluu
for our licensed intellectual property and general overhead costs. We expect our expenses to increase compared to prior periods in
connection with our ongoing activities, particularly as we continue research and development and preclinical activities, initiate
preclinical studies to support initial drug applications, and as we begin in 2017 to occupyuu
addition, we expect to incur additional costs associated with operating as a public company.
xpenses, patent prosecution filing and maintenance costs
ies, legal and other regulatory err
e and laboratory facility. In
our new officff
Because our research programs are still in preclinical development and the outcome of these efforts
ff
is uncertain, we cannot
rr
o successfully complete the development and commercialization of any futurtt e product
basis under the JV Agreement and our collaboration with Vertex and Casebia. Except forff
estimate the actual amounts necessary t
candidates or whether, or when, we may achieve profitability. Until such time as we can generate substantial product revenues, if ever,
we expect to finance our cash needs through a combination of equity or debt finaff
entitled to research payments under our collaboration with Vertex. Additionally, we are eligible to earn payments, in each case, on a
these sources of funding, we do
per-productdd
not have any committed external source of liquidity. To the extent that we raise additional capital through the future sale of equity or
debt securities, the ownership interest of our shareholders will be diluted, and the terms of these securities may include liquidation or
other preferences that adversely affecff
arrangements in the futurett
candidates or grant licenses on terms that may not be favorabla e to us. If we are unable to raise additional funds through equity ott
financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization
efforts or grant rights to develop and market product candidates that we would otherwise preferff
t the rights of our existing shareholders. If we raise additional funds through collabor
, we may have to relinquish valuabla e rights to our technologies, futff urett
ncings and collaboration arrangements. We are
to develop and market ourselves.
revenue streams or producdd t
r debt
aa
ation
a
83
Outlook
Based on our research and development plans and our timing expectations related to the progress of our programs, we expect
that the net proceeds from our IPO, including the proceeds from the Concurrent
existing cash, will enable us to fundff
effect to any additional proceeds we may receive under our collaboration agreement with Vertex and the JV. We have based this
estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we expect.
our operating expenses and capital expenditures forff
Private Placement with Bayer BV, together with our
at least the next 24 months, without giving
r
tt
Our ability to generate revenue and achieve profitability depends significant
developing our delivery technologies and our CRISPR/Cas9 technology platform;
completing research and preclinical and clinical development of selected productdd
marketing authorizations forff
manufacturi
approvals and marketing authorizations, either directly or with a collaboa
productdd
collaboa
licensors; maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and
know-how; and attracting, hiring and retaining qualified personnel.
candidates; addressing any competing technological and market developments; negotiating favorable terms in any
ration, licensing or other arrangements into which we may enter; maintaining good relationships with our collaborators and
ly on our success in many areas, including:
selecting appropriate product candidates to develop;
candidates; obtaining regulatory approvals and
ng process for product candidates; launching and commercializing product candidates forff which we obtain regulatory
product candidates for which we complete clinical trials; developing a sustainable and scalable
rator or distributor; obtaining market acceptance of our
ff
ff
ytt
Sources of Liquidit
ii
Cash FloFF ws
The following table provides information regarding our cash flows for each of the period below:
NNNet cash (used in) provided by operating activities
NNet cash provided by (used in) investing activities
NNNet cash provided by financing activities
t of exchange rate changes on cash
Effecff
Net increase in cash and cash equivalents
$
$
Net Cash (Used in) Provideddd
by Operating Activities
Year Ended
December 31,
2015
(in thousands)
59,428
(1,154)
96,733
9
155,016
2016
(55,310) $
31,884
183,220
(235)
159,559
$
2014
(4,793)
—
5,123
254
584
$
$
Net cash used in operating activities was $55.3 million for the year ended December 31, 2016 and primarily consisted of a net
loss of $23.2 million adjusted for non-cash items (including equity-based compensation expense of $10.8 million, non-cash interest
expense of $8.1 million, depreciation and amortization expense of $0.9 million, loss from equity method investment of $36.4 million,
other income of $78.6 million recognized in connection with the formation of our JV with Bayer HealthCare, and a gain on
extinguishment of the Vertex convertible loan of $11.5 million), an increase in prepaid expenses and other current assets of
$1.1 million, and an increase in accounts receivable of $2.8 million, and an increase in restricted cash of $2.5 million, partially offset
by an increase in accounts payablea
expenses of $3.9 million, deferred revenue of $1.9 million, and deferred rent of $2.4
million.
and accruedrr
ff
The net cash provided by operating activities was $59.4 million for the year ended December 31, 2015, and consisted primarily
non-cash items (including equity-based compensation expense of $3.7 million), depreciation
of a net loss of $25.8 million adjusted forff
of $0.1 million, along with an increase in prepaid expenses and other assets of $1.0 million and an increase of restricted cash of
$0.7 million, offset by an increase in accounts payablea
deferred rent of $0.2 million.
and accrued expenses of $7.7 million, deferred revenue of $75.1 million, and
Net cash used in operating activities was $4.8 million for the year ended December 31, 2014 and consisted primarily of a net
loss of $6.8 million adjusted forff
of $38 thousand and foreign currency remeasurement loss of $0.3 million), along with an increase in accounts payable and accrued
expenses of $1.6 million
non-cash items (including equity-based compensation expense of $0.7 million, amortization expense
84
Net Cash Provideddd
by (Used in) Investing Activities
Net cash provided by investing activities for the year ended December 31, 2016 was $31.9 million and consisted primarily of
consisted of proceeds of $35.0 million from our contribution of intellectual property to the JV, offset by our contributions to the JV of
$0.1 million, and the purchase of property and equipment of $3.0 million primarily associated with the commencement of internal
research and development. We expect purchases of property and equipment to continue to increase in each of 2017 and 2018 as we
build-out and outfit the office and laboratory space we began to occupy in December 2016.
Net cash used in investing activities was $1.2 million during the year ended December 31, 2015, compared to $0 during
dd
the year
ended December 31, 2014, which resulted solely from the purchase of property and equipment primarily associated with the
commencement of internal research and development operations in Cambridge, Massachusetts.
Net Cash Provided by Financing Activities
Net Cash provided by financing activities for the year ended December 31, 2016 was $183.2 million and consisted of net
proceeds of $54.1 million from the issuance of common shares in the IPO, proceeds of $35.0 million from the issuance of common
shares in a private placement with Bayer, gross proceeds of $22.9 million from the issuance of Series A-3 preferredrr
proceeds of $38.1 million from the issuance of Series B preferred shares and $35.0 million in proceeds from the issuance of a
convertible loan to Bayer, offset by the issuance costs on preferredrr
share financings of $1.8 million.
shares, gross
Net cash provided by financing activities was $96.7 million for the year ended December 31, 2015, compared to $5.1 million for
the year ended December 31, 2014. The cash provided by financing activities forff
consisted of net proceeds of $5.3 million related to a subscription receivablea
issuance of Series A-3 Preferred Shares, $30.5 million from the issuance of Series B Preferred Shares and $38.2 million from the
issuance of a convertible loan with Vertex and certain existing shareholders. The cash provided by finaff
ended December 31, 2014 primarily consisted of net proceeds of $5.1 million from the issuance of Series A-2 Preferred Shares.
the year ended December 31, 2015 primarily
for Series A-2 Preferred Shares, $22.9 million from the
ncing activities for the year
tt
Contrac
tual Obligations
The following table summarizes our significant contractual obligations as of payment due date by period at December 31, 2016
(in thousands):
Operating lease and sublease commitments (1) (2)
$
6,685
$
13,055
$
44,185
$
63,925
Year 1
Year 2-3
More than 3
Years
Total
(1) We lease additional office and laboratory space in Cambridge, Massachusetts under a non-cancelable operating lease that
(2)
ff
022, with one optional five-
year extension period. We also lease office facil
t to a six month renewal, and corporate housing in Cambridge, Massachusetts which expires in
expires in February 2rr
expires in July 2017 and is subjecb
November 2017 subjecb
t to a one year renewal.
In May 2016, we entered into an agreement to sublease primary officeff
initial term of ten years with an option to extend the lease forff
an additional five years. We have the option to extend the term of
the sublease by five years if the sublessor does not desire to utilize the space for itself or its affiliates at the time of expiration of
the initial term. The sublease contains escalating rent clauses which require higher rent payments in future years. We recognize
rent expense on a straight-line basis over the term of the lease, including any rent-free periods.
and laboratory space in Cambridge, Massachusetts, for an
ities in London, England that
ff
We enter into agreements in the normal course of business with vendors forff
preclinical research studies and other services and
products for operating purposes.
We have engaged several research institutions to identify nff
ew delivery strategies and applications of the CRISPR/Cas9
technology. As a result of these efforts, we sponsored five research programs during 2016. We have committed spending in three of
these programs through 2018.
We have long-term liabilities associated with uncertain tax positions recorded under ASC 740, Income TaxeTT
s totaling $0.2
million. Due to the complexity associated with tax uncertainties, we cannot reasonabla y make a reliabla e estimate of the period in which
we expect to settle these non-current liabia lities. See Note 14 to our consolidated financial statements contained in Item 15 of this
Annual Report forff more information on our unrecognized tax benefits.
85
Under the Invention Management Agreement (“IMA”) signed on December 15, 2016, the Company is obligated to share costs
related to patent maintenance, defense
and their licensees including Caribou Biosciences, Inc. and Caribou’s licensee Intellia Therapeutics, Inc.
and prosecution for the CRISPR/CRR as9 gene editing intellectual property with Califorff nirr a, Vienna
ff
Off-Baff
lance Sheet Arrangements
As of December 31, 2016, we do not have any off-balance sheet arrangements, as defineff
d under appl
a
icable SEC rules.
Critical Accounting Policies and Significant Judgments and Estimates
This discussion and analysis of our financial condition and results of operations is based on our financial statements, which we
have prepared in accordance with U.S. generally accepted accounting principles. We believe that several accounting policies are
important to understanding our historical and futff urtt e performance. We referff
generally require us to make judgments and estimates about matters that are uncertain at the time we make the estimate, and different
estimates—which also would have been reasonable—could have been used. On an ongoing basis, we evaluate our estimates and
judgments, including those described in greater detail below. We base our estimates on historical experience and other market-specific
or other relevant assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carryinrr
from these estimates under different assumptions or conditions.
to these policies as critical because these specific areas
ities that are not readily apparent fromff
g value of assets and liabila
other sources. Actual
results may differff
tt
While our significant accounting policies are described in more detail in the notes to our financial statements included elsewhere
in this prospectus, we believe that the following accounting policies are the most critical to aid you in fully understanding and
evaluating our financial condition and results of operations.
Revenue
We recognize revenue for each unit of accounting when all of the following criteria are met: (i) persuasive evidence of an
arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the seller’s price to the buyer is fixed or
determinable and (iv) collectability is reasonablya
assured.
The terms of our collaboration and license agreements contain multiple deliverables, which include licenses to CRISPR/CRR as9-
based therapeutic products directed to specific targets, referff
to be performed by us on behalf of the collaboa
agreements include nonrefundff
specified milestones and royalties on any resulting net product sales.
able technology access fees,
ff
red to as exclusive licenses, as well as research and development activities
ration partner related to the licensed targets. Payments that we may receive under these
research activities, payments based upouu n the achievement of
payments forff
Multiptt
le Element Arrangen mentstt
We evaluate multiple-element arrangements to determine (i) the deliverables included in the arrangement and (ii) whether the
s represent separate units of accounting or whether they must be accounted for as a combined unit of accounting.
as a single unit of accounting, we must determine the period over which the performance obligations will be
individual deliverablea
When deliverabla es are separabla e, consideration received is allocated to the separate units of accounting based on the relative selling
price method and the appropriate revenue recognition principles are applied to each unit. When we determine that an arrangement
should be accounted forff
performed and revenue will be recognized. This evaluation requires us to make judgments about the individual deliverabla es and
whether such deliverables are separable from the other aspects of the contractual relationship. Deliverablea
units of accounting provided that (i) the delivered item has value to the customer on a standalone basis and (ii) the arrangement
includes a general right of return with respect to the delivered item, delivery or performance of the undelivered item is considered
probable and substantially in our control. In assessing whether an item has standalone value, we consider factors such as the research,
development, manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated
ration partner can use any other deliverabla e forff
expertise in the general marketpltt ace. In addition, we consider whether the collaboa
intended purpos
e without the receipt of the remaining deliverable,
item, and whether there are other vendors that can provide the undelivered items.
whether the value of the deliverable is dependent on the undelivered
s are considered separate
its
a
rr
The consideration received under an arrangement that is fixed or determinabla e is then allocated among the separate units of
accounting based on the relative selling prices of the separate units of accounting. We determine the selling price of a unit of
accounting within each arrangement using (i) vendor-specific objeb ctive evidence of selling price, if available; (ii) third-party evidence
of selling price if vendor-specific objective evidence is not available; or (iii) best estimate of selling price, if neither vendor-specificff
objective evidence nor third-party evidence is available. Determining the best estimate of selling price for a unit of accounting requires
significant judgment. In developing the best estimate of selling price forff
a unit of accounting, we consider appl
icable market
aa
86
conditions and relevant entity-specificff
customer and estimated costs. We validate the best estimate of selling price for units of accounting by evaluating whether changes in
t on the allocation of arrarr ngement
the key assumptions used to determine the best estimate of selling price will have a significaff
consideration between multiple units of accounting.
factors, including factors that were contemplated in negotiating the agreement with the
nt effecff
We recognize arrangement consideration allocated to each unit of accounting when all of the revenue recognition criteria are
satisfied for that particular unit of accounting. In the event that a deliverable does not represent a separate unit of accounting, we
recognize revenue from the combined unit of accounting over the contractual or estimated performance period forff
items, which is typically the term of our research and development obligations. If there is no discernible pattern orr
objectively measurable perforff mance measures do not exist, then we recognize revenue under the arrangement on a straight-line basis
over the period we are expected to complete our performance obligations. Conversely, if the pattern orr
service is provided to the customer can be determined and objectively measurable performance measures exist, then we recognize
revenue under the arrangement using the proportional performance method. Revenue recognized is limited to the lesser of the
cumulative amount of payments received or the cumulative amount of revenue earnedrr
proportional performance method, as applicable, as of the period ending date.
the undelivered
nce or
ff
f performa
, as determined using the straight-line method or
f performance over which the
Significant management judgment is required in determining the level of effort required under an arrangement and the period
over which we are expected to complete our performance obligations under an arrangement. Steering committee services that are not
inconsequential or perfunff
performance obligations required under an arrangement, if any, in determining the level of effort required in an arrangement and the
period over which we expect to complete our aggregate performance obligations.
ctory and that are determined to be performance obligations are combined with other research services or
Recognigg tiii on of Mileii stontt
es and Royaltill es
Our collaboration and license agreements include contingent milestone payments related to specificff development, regulatory
and sales-based milestones. Development and regulatory milestones are typically payable when a product candidate initiates or
advances in clinical trial phases, upon submission forff marketing appro
uthorities, and upon receipt of actuatt
marketing appro
aa
reach specified levels.
ic or for additional indications. Sales-based milestones are typically payable when annual sales
val with regulatory arr
vals for a therapeut
a
a
l
We evaluate whether each milestone is substantive and at risk to both parties on the basis of the contingent naturtt e of the
milestone. This evaluation includes an assessment of whether: (i) the consideration is commensurate with either our performance to
achieve the milestone or the enhancement of the value of the delivered item as a result of a specific outcome resulting from our
performance to achieve the milestone, (ii) the consideration relates solely to past performance and (iii) the consideration is reasonable
relative to all of the deliverables and payment terms within the arrangement. We evaluate factors such as the scientific, clinical,
regulatory, commercial and other risks that must be overcome to achieve the particular milestone and the level of effort and
investment required to achieve the particular milestone in making this assessment. There is considerable judgment involved in
determining whether a milestone satisfies all of the criteria required to conclude that a milestone is subsu tantive. We will recognize
revenue in its entirety upon successful accomplishment of any substantive milestones, assuming all other revenue recognition criteria
are met. Milestones that are not considered subsu tantive are recognized as earnerr d if there are no remaining performance obligations or
over the remaining period of performff
performance, assuming all other revenue recognition criteria are met.
eing recognized for the elapsed portion of the period of
ance, with a cumulative catch-up buu
Nonrefunff dable research, development and regulatory mrr
s duridd
the period of our performff
ance obligations under the collaboration and license agreements are generally considered to be substantive
and are recognized as revenue upon the achievement of the milestone, assuming all other revenue recognition criteria are met. If not
red and recognized over the remaining term of
considered to be substantive, revenue from achievement of milestones is initially deferff
our performance obligations. Milestones that are not considered substu
to their achievement
are recognized as revenue upon achievement, assuming all other revenue recognition criteria are met, as there are no undelivered
elements remaining and no continuing performance obligations on our part.
ilestones that are expected to be achieved as a result of our effort
antive because we do not contribute effort
ff
ff
ng
Amounts received prior to satisfying the revenue recognition criteria listed above
are recorded as deferred revenue in the
accompanying balance sheets. Although we follow detailed guidelines in measuring revenue, certain judgments affeff ct the appa
of our revenue policy. For example, in connection with our existing collabor
short-term and long-term deferr
estimate is based on our current research plan and, if our research plan should change in the futurett
amount of deferred revenue over the following 12-month period.
ed revenue based on our best estimate of when such revenue will be recognized. However, this
lication
ation agreement, we have recorded on the balance sheet
, we may recognize a differff ent
a
a
ff
87
The estimate of deferff
red revenue also reflects management’s estimate of the periods of our involvement in the collaboa
ration.
Our primary performance obligations under this collaboration consist of research and development services. In certain instances, the
timing of satisfying these obligations can be diffiff cult to estimate. Accordingly, our estimates may change in the future. Such changes
to estimates would result in a change in prospective revenue recognition amounts. If these estimates and judgments change over the
course of our collaboa
periods.
rative agreement, it may affect the timing and amount of revenue that we will recognize and record in future
Variable Ill ntII ertt est Entittt iett s
tt
We review each legal entity formed by parties related to the Company to determine whether or not the entity is a Variablea
Interest Entity, or VIE, in accordance with FASB ASC Topic 810, Consolidation. If the entity is a VIE, we assesses whether or not we
are the primary beneficiary of that VIE based on a number of factors, including (i) which party has the power to direct the activities
that most significantly affeff ct the VIE’s economic perforff mance, (ii) the parties’ contractual
rights and responsibilities pursuant to any
contractual
determine that we are the primary brr
eneficiary of a VIE, we treat the VIE as a business combination and consolidate the financial
statements of the VIE into our consolidated financial statements at the time that determination is made. On a quarterly basis, we
evaluate whether it continues to be the primary brr
ry of any consolidated VIEs. If we determine that we are no longer the
primary benefici
that the determination is made.
agreements and (iii) which party has the obligation to absorb l
interest in the VIE, we deconsolidate the VIE in the period
ary of a consolidated VIE, or no longer have a variablea
osses or the right to receive benefits fromff
the VIE. If we
ff
eneficia
ff
r
tt
If we determine that we are the primary brr
eneficiary of a VIE that meets the defini
ff
tion of a business, we measure the assets,
liabia lities and non-controlling interests of the newly consolidated entity at faiff
Business Combinations on the date we become the primary brr
eneficff
iary.
r value in accordance with FASB ASC Topic 805,
aa
ics LLP, a limited liabili
In February 2016, Casebia Therapeut
ty partnership, was formed in the United Kingdom. In March 2016
upon consummation of the JV, we and Bayer each received a 50% equity interest in the entity in exchange for our contributions to the
entity. We determined that Casebia was considered a VIE and concluded that we are not the primary beneficff
iary of the VIE. As such,
we did not consolidate Casebia’s results into the consolidated finaff
Casebia under the equity method of accounting. The formation of Casebia was accounted forff
consolidated finaff
formation.
further details relating to the evaluation of Casebia as a VIE as well as our accounting for the
ncial statements. We account forff
at fair value. See Note 9 to the
our 50% investment share of
ncial statements forff
a
As of December 31, 2016, TRACR
RR
is our wholly-owned subsidiary.rr See Note 4 to the consolidated finaff
ncial statements for
RR
further details relating to the consolidation of TRACR
statements of TRACR into our consolidated finaff
ncial statements as it was both a VIE and a majority owned subsidiary. For the year
ended December 31, 2014, we consolidated TRACRR
as a VIE. For the year ended December 31, 2015, we consolidated the financial
R as a VIE.
Equity-Based CompCC
ensatiott n
We recognize equity-based compensation expense for awards of equity instrumrr
ents to employees and non-employee directors
based on the grant date fair value of those awards in accordance with FASB ASC Topic 718, Stock Compensation (“ASC 718”). ASC
718 requires all equity-based compensation awards to employees and non-employee directors, including grants of restricted shares and
stock options, to be recognized as expense in the statements of operations based on their grant date fair values. We estimate the fair
value of stock options using the Black-Scholes option pricing model. We use the fair value of its Common Shares to determine the fair
ff
value of restricted share awards.
ff
We account for stock options issued to non-employees under FASB ASC Topic 505-50, Equity Based Payments to Non-
Employees (“ASC 505-50”). As such, the value of such options is periodically remeasured and income or expense is recognized over
their vesting terms. Compensation cost related to awards with service-based vesting scheduledd
method.
s is recognized using the straight-line
The Black-Scholes option pricing model requires the input of certain subjeu
price volatility, (ii) the calculation of expected term of the award, (iii) the risk-freeff
Due to the lack of a public market for the trading of our Common Shares prior to its IPO and a lack of company-specific historical and
implied volatility data, we based our estimate of expected volatility on the historical volatility of a group of similar companies that are
publicly traded. The historical volatility is calculated based on a period of time commensurate with the expected term assumption. The
group of representative companies have characteristics similar to us, including stage of product development and focus on the life
science industry. We use the simplified method, which is the average of the final vesting tranche date and the contractual term, to
calculate the expected term for options granted to employees as it does not have sufficie
nt historical exercise data to provide a
ff
ctive assumptions, including (i) the expected share
interest rate and (iv) the expected dividend yield.
88
reasonabla e basis upouu n which to estimate the expected term. For options granted to non-employees, we utilize the contractuatt
the arrangement as the basis forff
is consistent with the expected term of the stock options. We use an assumed dividend yield of zero as we have never paid dividends
and has no current plans to pay any dividends on its Common Shares.
the expected term assumption. The risk-free interest rate is based on a treasury i
l term of
ent whose term
nstrumrr
rr
We expense the fair value of its equity-based compensation awards granted to employees on a straight-line basis over the
associated service period, which is generally the period in which the related services are received. We measures equity-based
compensation awards granted to non-employees at fair value as the awards vest and recognizes the resulting value as compensation
expense at each financial reporting period.
We record the expense for equity-based compensation awards subject to performance-based milestone vesting over the
remaining service period when management determines that achievement of the milestone is probablea
the achievement of a performance-based milestone is probabla e based on the expected satisfacff
the reporting date. There have only been eight such awards to date.
. Management evaluates when
tion of the performance conditions as of
Recent Accounting Pronouncements
Refer to Note 2, “Summary orr
f Significant Accounting Policies,” in the accompanying notes to the consolidated finaff
ncial
statements for a discussion of recent accounting pronouncements. There were no new accounting pronouncements adopted during
2016 that had a material effecff
t on our financial statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Foreigni
Exchange Marketkk Riskii
As a result of our foreign operations, we faceff
exposure to movements in foreign currency exchange rates, primarily the Swiss
Franc and British Pound, against the U.S. dollar. The current exposures arise primarily from cash, accounts payable, and intercompany
receivables
s. Changes in foreign exchange rates affect our consolidated statement of operations and distort comparisons
a
between periods. We do not engage in any foreign exchange rate hedging activities and therefore we are subject to foreign currency
impacts.
and payablea
Taxation
We are subju ect to corporate taxation in Switzerland.
Under Swiss law, we are entitled to carry forward losses we incur for a period of seven years and we can offset future profits, if
any, against such losses. As of December 31, 2016, we reported tax loss carry forwards from inception through 2015 for purposes of
Swiss federal direct taxes in the aggregate amount of CHF 22.0 million. Due to the accepted mixed company status (the tax rulin
g
with respect to the mixed company status was accepted in February 2rr
017 with retroactive effect as from 2013/2014) the tax losses
available to offset
the year in which they occurred. Due to our limited income, there is a high risk that the tax loss carry forwards will expire partly or
entirely. For 2016, the tax return has – in accordance with Swiss tax law – not yet been filed. Therefore, for 2016 the loss carried
rr
forwar
r
future income at cantonal level amount to CHF 4.1 million. If not used, these tax losses will expire seven years afteff
d will only be claimed with filiff ng of the tax returtt n f
the tax year 2016.
orff
rr
rr
ff
The statutory corpor
rr
ate profitff
tax rate in the Canton of Basel-Stadt where we are domiciled amounts (federal and cantonal)
currently to a maximum of 28.5% on the profit after tax (taxes are deductible). We applied for a tax privilege as a mixed company for
the years 2013/2014, 2015 and ongoing years. This appli
the corporate profit tax rate as mixed company amounts to 11.5% (federal and cantonal) on the profit after tax. The Canton does from
time to time amend the level of taxation levied on corporr
change in the future.
cation was confirmed in February 2017. According to the ruling confirmation,
rations and there is no certainty that the tax rate currently in effect
will not
aa
ff
The privileges for mixed companies are under pressure and new tax legislations abol
a
ish mixed companies but at the same time
lowering the ordinary t
February 12, 2017, the scope and timing of such new tax legislation is uncertain.
ax rate is in preparation. Following the negative outcome of a revised tax legislation by a public vote on
rr
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements required to be filed pursuant to this Item 8 are appended to this report. An index of those
financial statements is found
ff
in Item 15.
89
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and proceduredd
s,” as defined in RulRR es 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended, or the Exchange Act, that are designed to ensure that information required to be disclosed in the
reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported, within the time periods
specified in the Securities and Exchange Commission’s rules and forms and (2) accumulated and communicated to our management,
including our principal executive and principal financial officer, as appropriate to allow timely decisions regarding required
disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only
reasonabla e assurance of achieving their objectives and our management necessarily applies its judgment in evaluating the cost-benefitff
relationship of possible controls and proceduredd
s are designed to provide reasonable assurance
s. Our disclosure controls and proceduredd
of achieving their control objectives.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (our principal executive officer
and principal financial offff iceff
2016. Based upon such evaluation, our Chief Executive Officff
31, 2016, our disclosure controls and proceduredd
er and Vice President of Finance have concluded that, as of December
tiveness of our disclosure controls and procedures as of December 31,
tive at the reasonabla e assurance level.
r, respectively), evaluated the effecff
s were effecff
Management’s Annual Report on Internal Controls Over Financial Reporting
This Annual Report on Form 10-K does not include a report of management’s assessment regarding internal control over
financial reporting or an attestation report of our independent registered public accounting firm due to a transition period established
by rules of the Securities and Exchange Commission for newly public companies.
Changes in Internal Control over Financial Reporting
There was no change in our internarr
l control over financial reporting (as defined in Rules 13a-15(f) aff
nd 15(d)-15(f) under the
Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is
reasonabla y likely to materially affecff
l control over finff ancial reporting.
t, our internarr
Item 9B. Other Information.
On March 8, 2017, the Board of Directors of the Company appaa
executive officers, based upon the achievement of 95% of the corpor
$235,940; Marc Becker - $114,700; Samarth Kulkarni - $135,360; and Sven Ante (Bill) Lundberg - $131,600.
roved the payout of annual incentive compensation to our
ate objectives set forth forff
2016, as follows: Rodger Novak -
rr
In addition, the Board of Directors also approved the metrics of the 2017 performance bonus program (the "2017 Program").
The 2017 Program is designed to motivate, retain and reward the Company's executive officers based on the achievement of both
individuadd l objectives and corporate objectives in 2017, including the achievement of certain intellectual property and budgetary grr
as well as clinical, research and development milestones. Each executive officer will be eligible to earn up to 135% of his or her
target incentive annual compensation, which target is a percentage of his or her base salary.rr
oals,
90
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
The information required by this item is incorporated by reference to our Proxy Statement for our 2017 Annual General Meeting
of Shareholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2016.
Item 11. Executive Compensation.
The inforff mation required by this item is incorporated by reference to our Proxy Statement forff
our 2017 Annual General Meeting
of Shareholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2016.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The inforff mation required by this item is incorporated by reference to our Proxy Statement forff
our 2017 Annual Meeting off
Stockholkk
ders to be filff ed with the SEC within 120
ydays after the end of the fiscal yyear ended December 31, 2016.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this item is incorporated by reference to our Proxy Statement for our 2017 Annual General Meeting
of Shareholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2016.
Item 14. Principal Accounting Fees and Services.
The information required by this item is incorporated by reference to our Proxy Statement for our 2017 Annual General Meeting
of Shareholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2016.
91
Item 15. Exhibits, Financial Statement Schedules.
(a)(1) Financial Statements.
PART IV
See the “Index to Consolidated Financial Statements” on page F-1 below for the list of financial statements fileff d as part of this
report.
(a)(2) Financial Statement Schedules.
I. Financial Statements of Casebia Therapeuti
aa
cs LLP (financial statements required by Regulation S-X)
Scheduldd es other than that listed above have been omitted because of the absence of conditions under which they are required or
because the required informa
ff
tion is included in the financial statements or the notes thereto.
(a)(3) Exhibits.
See the Exhibit Index immediately following the signature page of this Annual Report on Form 10-K. The exhibits listed in the
Exhibit Index below are filed or incorporat
rr
ed by reference as part of this Annual Report on Form 10-K.
Item 16. Form 10-K Summary
None.
92
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly
caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 10, 2017
CRISPR Therapeaa utics AG
By:
/s/ Rodger Novak
Rodger Novak
Chief Executive Officer
SIGNATURES AND POWER OF ATTORNEY
We, the undersigned directors and officers of CRISPR Therapeuaa
tics AG (the “Company”), hereby severally constitute and
appoint Rodger Novak and Marc A. Becker, and each of them singly, our true and lawful attorneys, with full power to them, and to
each of them singly, to sign for us and in our names in the capacities indicated below, any and all amendments to this Annual Report
on Form 10-K, and to file or cause to be filed the same, with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys, and each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as each of us
might or could do in person, and hereby ratifying and confirming all that said attorneys, and each of them, or their substitute or
tt
substitutes,
shall do or cause to be done by virtue of this Power of Attorney.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the
following persons on behalf of the Registrant in the capacities and on the dates indicated.
Name
/s/ Rodger Novak
Rodger Novak
/s/ Marc A. Becker
Marc A Becker
/s/
Anthony N. Coles
y
y
Anthony N Coles
/s/ Kurt Von Emster
Kurt Von Emster
/s/ Ali Behbahani
Ali Behbahani
y
/s/ Bradley Bolzon
Bradl yey Bolzon
/s/ Pablo Cagnoni
Pablo Cagnoni
/s/ Simeon J. George
Simeon J. George
/s/ Thomas Woiwode
Thomas Woiwode
/s/ Marc A. Becker
Marc A. Becker
Title
r
Chief Executive Officeff
r)
(Principal Executive Office
ff
Chief Financial Officer
(Principal Financial and Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Date
March 10, 2017
March 10, 2017
March 10, 2017
March 10, 2017
March 10, 2017
March 10, 2017
March 10, 2017
March 10, 2017
March 10, 2017
Authorized Representative in the United States
March 10, 2017
93
Exhibit
Number
3.1
4.1
10.1†
10.2†
10.3†
10.4†
10.5†
10.6†
10.7†
10.8
10.9
10.10#
10.11#
10.12#
10.13#
Exhibit Index
Description
Articles of Association (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K
filed on November 8, 2016).
Subscription Agreement, dated December 19, 2015, by and between CRISPR Therapeutics AG and Bayer Global
Investments B.V. (incorporated herein by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1
filed on September 9, 2016).
Joint Venture Agreement, dated December 19, 2015, between CRISPR Therapeutics AG and Bayer HealthCare LLC
(incorporated herein by refereff
October 7, 2016).
nce to Exhibit 10.1 to the Company’s Registration Statement on Form S-1 filff ed on
IP Contribution Agreement, dated March 16, 2016, by and between CRISPR Therapeutics AG, Bayer HealthCare LLC
and Casebia Therapeutics LLP (incorpor
Statement on Form S-1 filed on October 7, 2016).
ated herein by reference to Exhibit 10.2 to the Company’s Registration
rr
Option Agreement, dated March 16, 2016, by and between CRISPR Therapeutics AG, Bayer HealthCare LLC and
Casebia Therapeaa utics LLP (incorporated herein by referff ence to Exhibit 10.3 to the Company’s Registration Statement
on Form S-1 filed on October 7, 2016).
a
ion, Option and License Agreement, dated October 26, 2015, by and among CRISPR Therapeutics
Strategic Collaborat
aa
AG, CRISPR Therapeuti
Pharmaceuticals, Incorporated and Vertex Pharmaceuticals (Europe) Limited (incorporated herein by reference to
Exhibit 10.4 to the Company’s Registration Statement on Form S-1 filed on October 7, 2016).
ics, Inc., TRACR Hematology Limited, Vertex
cs Limited, CRISPR Therapeut
aa
License Agreement, dated April 15, 2014, by and between CRISPR Therapeuti
Charpenrr
filed on October 7, 2016).
tier (incorporr
aa
rated herein by reference to Exhibit 10.5 to the Company’s Registration Statement on Form S-1
cs AG and Emmanuelle Marie
License Agreement, dated April 15, 2014, by and between TRACR Hematology Limited and Emmanuelle Marie
rr
Charpenti
filed on October 7, 2016).
ed herein by reference to Exhibit 10.6 to the Company’s Registration Statement on Form S-1
er (incorporat
rr
Patent Assignment Agreement, dated November 7, 2014, by and between CRISPR Therapeutics AG, Emmanuelle
Marie Charpentier, the University of Vienna and Ines Fonfara (incorporated herein by reference to Exhibit 10.7 to the
Comp yany’s
gRegistration Statement on Form S-1 filff ed on October 7, 2016).
Form of Indemnification Agreement (incorporated herein by reference to Exhibit 10.8 to the Company’s Registration
Statement on Form S-1 filed on October 7, 2016).
Registration Rights Agreement, dated June 10, 2016, by and among CRISPR Therapeutics AG and certain shareholders
(incorporated herein by reference to Exhibit 10.9 to the Company’s Registration Statement on Form S-1 filed on
September 9, 2016).
Employment Agreement, dated October 6, 2016, by and between CRISPR Therapeutics AG and Rodger Novak
rr
(incorpor
October 7, 2016).
ated herein by reference to Exhibit 10.10 to the Company’s Registration Statement on Form S-1 filed on
Amended and Restated Employment Agreement, dated October 6, 2016, by and between CRISPR Therapeutics, Inc.
and Marc A. Becker (incorporated herein by reference to Exhibit 10.11 to the Company’s Registration Statement on
Form S-1 filed on October 7, 2016).
Employment Agreement, dated October 6, 2016, by and between CRISPR Therapeutics, Inc. and Samarth Kulkarni
(incorpor
rr
October 7, 2016).
ated herein by reference to Exhibit 10.12 to the Company’s Registration Statement on Form S-1 filed on
Amended and Restated Employment Agreement, dated October 6, 2016, by and between CRISPR Therapeutics, Inc.
and Sven Ante Lundberg (incorporated herein by reference to Exhibit 10.13 to the Company’s Registration Statement
on Form S-1 filed on October 7, 2016).
Exhibit
Number
Description
10.14#
10.15#
10.16#
10.17
10.18
†
21.1*
23.1*
23.2*
31.1*
31.2*
32.1+
CRISPR Therapeutics AG 2015 Stock Option and Grant Plan (incorporated herein by reference to Exhibit 10.14 to the
Company’s Registration Statement on Form S-1 filed on September 9, 2016).
CRISPR Therapeutics AG 2016 Stock Option and Incentive Plan (incorporated herein by reference to Exhibit 10.15 to
the Company’s Registration Statement on Form S-1 filed on September 9, 2016).
CRISPR Therapeutics AG 2016 Employee Stock Purchase Plan (incorporated herein by reference to Exhibit 10.16 to
the Company’s
gRegistration Statement on Form S-1 filed on September 9, 2016).
Consent to Sublease, dated May 16, 2016, by and between CRISPR Therapeutics, Inc and Pfizer Inc. (incorporated
herein by reference to Exhibit 10.17 to the Company’s Registration Statement on Form S-1 filed on
September 9, 2016).
DNA Restriction Enzyme for Genome Editing, dated December 15, 2016, by and among CRISPR
Consent to Assignments, Licensing and Common Ownership and Invention Management Agreement for a
Programmablea
Therapeutics AG, The Regents of the University of Californff
Intellia Therapeutics, Inc., Caribou Biosciences, Inc., ERS Genomics Ltd., and TRACR Hematology Ltd. (incorporated
herein yby reference to Exhibit 10.1 to the Comp yany’s Current Report on Form 8-K filed on December 16, 2016).
ia, University of Vienna, Dr. Emmanuelle Charperr ntier,
Subsidiaries of the Registrant
Consent of Ernst & Young LLP
Consent of Ernst
rr & Young LLP – Casebia Therapeutics, LLP
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange
Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxl yey Act of 2002.
Certificaff
Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
tion of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange
Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
XBRL Instance Document
101.SCH
XBRL Taxon
yomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase
kk
Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
*
+
†
#
Filed herewith.
Furnished herewith.
Confidential treatment obtained as to certain portions.
A management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(a)(3) of
Form 10-K.
CRISPR Therapeutics AG
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Loss
Consolidated Statements of Redeemable Convertible Preferred Shares and Shareholders’ (Deficit) Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
g
Pages
F-2
F-3
F-4
F-5
F-6
F-7
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
CRISPR Therapeut
ics AG
aa
We have audited the accompanying consolidated balance sheets of CRISPR Therapeutics AG (the “Company”) as of December 31,
red shares
2016 and 2015, and the related consolidated statements of operations and comprehensive loss, redeemable convertible preferff
and shareholders' (deficit) equity, and cash flows
for each of the three years in the period ended December 31, 2016. These financial
statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial
statements based on our audits.
ff
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perforff m the audit to obtain reasonabla e assurance about whether the financial statements are free of
material misstatement. We were not engaged to perform an audit of the Company’s internal
control over financial reporting. Our
designing audit procedures that are appropriate
audits included consideration of internal control over financial reporting as a basis forff
in the circumstances, but not for the purporr
tiveness of the Company’s internal control over
se of expressing an opinion on the effff ecff
financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
rr
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of
CRISPR Therapeutics AG at December 31, 2016 and 2015, and the consolidated results of its operations and its cash flows for each of
the three years in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
March 10, 2017
F-2
CRISPR Therapeutics AG
Consolidated Balance Sheets
(in thousands, except share and per share data)
December 31,
2016
2015
Assets
Current assets:
Cash
Accounts receivable, including related partyy amounts of $752 and $0 as of December 31, 2016 and 2015, respective yly
Prepaid expenses and other current assets
assets
Total current
rr
Property and equipment, net
Intangible assets, net
Restricted cash
her non-current assets
Total assets
Liabilities, redeemable convertible preferred shares and shareholders’ eq
Current liabilities:
yuity
Accounts payable
Accrued expenses, including related party amounts of $537 and $1,055 as of December 31, 2016 and 2015, respectively
Accrued tax liabia lities
Deferred rent
Other current liabilities
Total current liabilities
Convertible loan, including accruedrr
interest of $0 and $97 as of December 31, 2016 and 2015, respectively
Deferred revenue, including related party amounts of $527 and $0 as of December 31, 2016 and 2015, respectively
Deferred
ff
Other non-current liabilities
rent non-current
Total liabilities
Commitments and contingencies (Note 8)
convertible preferred shares:
Redeemablea
Series A-1 redeemable convertible preferred shares, CHF 0.03 par value, 0 and 440,001 shares authorized, issued, and
outstanding in share capital at December 31, 2016 and 2015, respectively, aggregate liquidation preference of CHF 0 and
CHF 502 at December 31, 2016 and 2015, respectively
Series A-2 redeemable convertible preferred shares, CHF 0.03 par value, 0 and 3,120,001 shares authorized, issued, and
outstanding in share capital at December 31, 2016 and 2015, respectively, aggregate liquidation preference of CHF 0 and
CHF 9,512 at December 31, 2016 and 2015, res
Series A-3 redeemable convertible preferred shares, CHF 0.03 par value, 0 and 10,758,006 shares authorized, issued, and
outstanding in share capital at December 31, 2016 and 2015, respectively, aggregate liquidation preference of $0 and
$22,850 at December 31, 2016 and 2015, respectively
Series B redeemablea
outstanding in share capital at December 31, 2016 and 2015, aggregate liquidation preference of CHF 0 and CHF 28,000
at December 31, 2016 and 2015, respectively
convertible preferred shares, CHF 0.03 par value, 0 and 4,519,016 shares authorized, issued, and
pectively
y
Shareholders’ equity (deficit):
shares, CHF 0.03 par value, 40,253,674, and 5,528,079 shares authorized at December 31, 2016 and 2015,
respectively, 40,164,307 and 5,528,079 shares issued at December 31, 2016 and 2015, respectively, 39,719,434, and
5,528,079 shares outstanding at December 31, 2016 and 2015, respectively, 15,325,607 and 2,444,364 shares in
conditional capital at December 31, 2016 and 2015, respectivelyy
Treasury shares, at cost, 444,873 shares and no shares at December 31, 2016 and 2015, respectively
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total CRISPR Therapeutics AG shareholders’ equity (deficit)
NNoncontrolling interest
Total shareholders’ equity (deficit)
Total liabilities, redeemable convertible preferred shares and shareholders’ equity (deficit)
$
$
$
$
315,520
3,157
1,511
320,188
21,027
399
3,150
198
344,962
4,569
16,320
23
1,027
59
21,998
—
77,646
12,283
189
112,116
—
—
—
—
1,216
—
288,739
(57,083 )
(26 )
232,846
—
232,846
344,962
$
$
$
$
155,961
339
540
156,840
1,328
454
700
101
159,423
1,584
8,430
81
—
60
10,155
38,336
75,090
164
281
124,026
1,169
10,394
22,518
30,440
181
—
4,636
(33,906 )
(8 )
(29,097 )
(27 )
(29,124 )
159,423
See accompanying
n
notes to these consolidated finff ancial statements.
F-3
CRISPR Therapeutics AG
Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per share data)
Collaboration revenue (1)
Operating expenses:
Research and development (2)
General and administrative
Total operating expenses
Loss from operations
Other income (expense):
Interest expense
Loss from equity method investment
Gain on extinguishment of convertible loan
Other income (expense), net
Total other income (expense), net
NNNet loss before (provision for) benefit from income taxes
(Provision for) benefit from income taxes
NNNet loss
Foreign currency translation adjustment
Comprehensive loss
Reconciliation of net loss to net loss attributablea
NNNet loss
to common shareholders:
Loss attributable to noncontrolling interest
Loss on extinguishment of redeemable convertible preferred shares
NNet loss attributabla e to common shareholders
NNNet loss per share attributable to common shareholders—basic and diluted
Weighted-average common shares outstanding used in net loss per share
attributabla e to common shareholders—ba— sic and diluted
Including the following amounts of revenue from a related party, see
(1)
NNNote 16:
(2)
Including the follo
related party, see Note 16:
ff
wing amounts of research and development from a
2016
Year Ended December 31,
2015
2014
$
5,164
$
247
$
—
42,238
31,056
73,294
(68,130)
(8,050)
(36,532)
11,482
78,512
45,412
(22,718)
(484)
(23,202)
(18)
(23,220) $
(23,202) $
25
—
(23,177) $
(1.89) $
12,573
13,403
25,976
(25,729)
(108)
—
—
16
(92)
(25,821)
(7)
(25,828)
(6)
(25,834) $
(25,828) $
325
—
(25,503) $
(5.06) $
1,513
5,114
6,627
(6,627)
—
—
—
(236)
(236)
(6,863)
63
(6,800)
(2)
(6,802)
(6,800)
536
(745)
(7,009)
1.97
12,257,483
5,037,404
3,559,985
1,190
1,755
$
$
— $
1,055
$
—
—
$
$
$
$
$
$
See accompanying
n
notes to these consolidated finff ancial statements.
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F
CRISPR Therapeutics AG
Consolidated Statements of Cash Flows
(In thousands)
Operating activities
Net loss
Reconciliation of net loss to net cash used in operating activities:
2016
Years Ended December 31,
2015
2014
$
(23,202)
$
(25,828)
$
(6,800)
Depreciation and amortization expense
Equity-based compensation expense
Non-cash interest expense
Unrealized foreign currency remeasurement loss
Gain on extinguishment of convertible loan
Other income - formation of joint venture
Loss from
equity method investment
y
Changes in:
tricted cash
Accounts receivable
Prepaid expenses and other assets
Accounts payable and accrued expenses
Deferred revenue
Deferred rent
Other liabila
ities, net
Net cash (used in) provided by operating activities
Investing activities
Purchase of propertyy and equipment
Proceeds from contribution of intellectual property to equity method investee
Cash investment in equity method investee
Net cash provided by (used in) investing activities
Financing activities
Proceeds from issuance of common shares in IPO, net of issuance costs
Proceeds from issuance of common shares in private placement
Proceeds from issuance of common shares
Proceeds from exercise of options
Proceeds from issuance of restricted shares
Proceeds from issuance of Series A-2 preferred shares
Proceeds from issuance of Series A-3 preferredrr
shares
Proceeds from issuance of Series B preferred shares
Issuance costs for preferred share financings
Proceeds from issuance of convertible loans
Net cash provided by financing activities
Effect of exchange rate changes on cash
Increase in cash
Cash, beginning of period
Cash, end of period
Supplemental disclosure of non-cash investing and financing activities
Property and equipment purchases in accounts payable and accrued expenses
Property and equipment related to lease incentives
on extinguishment of Series A-1 preferred shares
NNNoncontrolling interest upon consolidation of TRACR
Conversion of preferred shares to common shares upon IPO
Conversion of Vertex and Bayer convertible loans and accrued interest
Issuance costs for public offering in accounts payable and accrued expenses
Contribution of intellectual property to Casebia
$
$
$
$
$
$
$
$
$
925
10,844
8,050
2
(11,482)
(78,608)
36,380
(2,450)
(2,818)
(1,071)
3,860
1,917
2,360
(17)
(55,310)
(3,016)
35,000
(100)
31,884
54,061
35,000
—
34
—
—
22,850
38,075
(1,810)
35,010
183,220
(235)
159,559
155,961
315,520
$
7,014
10,785
$
$
— $
— $
$
$
$
$
185,565
61,929
397
36,380
127
3,684
97
(20)
—
—
—
(650)
(339)
(620)
7,708
75,090
165
14
59,428
(1,154)
—
—
(1,154)
—
—
—
—
243
5,293
22,850
30,478
(370)
38,239
96,733
9
155,016
945
155,961
$
246
$
— $
— $
— $
— $
— $
— $
— $
38
695
—
(260)
—
—
—
(16)
—
(12)
1,583
—
—
(21)
(4,793)
—
—
—
—
—
—
22
—
—
5,137
—
—
(36)
—
5,123
254
584
361
945
—
—
745
547
—
—
—
—
See accompanying
n
notes to these consolidated finff ancial statements.
F-6
CRISPR Therapeutics AG
Notes to Consolidated Financial Statements
1. Organization and Operations
Nature of business
CRISPR Therapeut
a
ics AG (“CRISPR” or the “Company”) was formed
ff
on October 28, 2013 in Basel, Switzerland. The
Company was established to translate CRISPR/CRR as9, a genome editing technology, into transformff
ative gene-based medicines for the
treatment of serious human diseases. The foundational intellectual property underlying the Company’s operations was licensed to the
Company and its subsidiaries in April 2014. The Company devotes substantially all of its effort
s to product research and development
activities, initial market development and raising capiaa tal. The Company’s principal officff es and operations are in Cambridge,
Massachusetts.
ff
On Januaryrr 23, 2014, the founders of the Company formed TRACR
RR
Hematology Limited (“TRACR”) in the United Kingdom,
to further the development of the CRISPR/Cas9 technology into medicines for the treatment of blood-bornerr
’s operations in 2014, it has been consolidated by the Company from the date that the Company
was funding and managing TRACR
established a variable interest in TRACR in April 2014. In March 2015, the Company acquired 82.1% of the outstanding equity of
TRACR in a share exchange transaction. Concurrent with its initial public offer
the outstanding non-controlling interest in TRACR as such, as of December 31, 2016 TRACR is a wholly-owned subsiu
Company.
ing (“IPO”) in October 2016, the Company acquired
diary of the
illnesses. As the Company
RR
ff
The Company is subjeb ct to risks common to companies in the biotechnology industdd
ry, including but not limited to, risks of
failure of preclinical studies and clinical trials, the need to obtain marketing approval for any drug product candidate that it may
identify and develop, the need to successfully
personnel, protection of proprietary technology, compliance with governme
technological innovations and ability to transition froff m pilot-scale manufacturtt
nt regulations, development by competitors of
ing to large-scale producdd tion of producdd ts.
commercialize and gain market acceptance of its productdd
ff
rr
candidates, dependence on key
The Company had an accumulated deficit of $57.1 million as of December 31, 2016 and has financed its operations to date from
proceeds obtained from its initial public offerin
under its collaboration and joint venture arrangements. The Company will require substantial additional capital to funff d its research
and development and ongoing operating expenses.
g a series of preferred shares and convertible loan issuances and upfront fees received
ff
Liquidityii
In October 2016, the Company completed the IPO of its common shares (“Common Shares”), in which the Company sold
4,429,311 Common Shares, inclusive of 429,311 Common Shares sold by the Company pursuant to the partial exercise of an
overallotment option granted to the underwriters in connection with the offering, at a price of $14.00 per share. The shares began
trading on the NASDAQ Global Market on October 19, 2016. The aggregate net proceeds received by the Company from the offering
were $53.7 million (see Note 2) after deducting underwri
Company. Concurrent with the IPO, the Company issued and sold 2,500,000 Common Shares to Bayer Global Investments B.V.
(“Bayer BV”), in a private placement, at the IPO price of $14.00 per share, for aggregate net proceeds of $35.0 million. Common
Shares totaling 170,689 of the overallotment option granted by the underwri
ing were
reacquired by the Company and are reflected as treasury shares on the consolidated balance sheet as of December 31, 2016. The
Company believes its cash of $315.5 million at December 31, 2016 will be sufficff
at least the next 24 months. Thereafter, the Company will be required to obtain additional funding. There can be no assurances,
ng will be available on terms acceptable to the
however, that the current operating plan will be achieved or that additional fundi
Company, or at all.
ting discounts and commissions and other offering expenses payable by thett
ters in connection with the initial publiu
the Company’s current operating plan forff
ient to fundff
c offerff
rr
ff
rr
2. Summary of Significaff
nt Accounting Policies and basis of presentation
Basis oii
f Po
tt
rePP sentation
and Use of Estimate
tt
s
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally
accepted in the United States of America (“GAAP”), and include the accounts of (i) the Company, (ii) its wholly-owned subsidiaries,
CRISPR Ltd., CRISPR Inc., and TRACR,
eliminated. Any referff ence in these notes to applicable guidance is meant to referff
accounting principles as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASUs”) of the
Financial Accounting Standards Board (“FASB”).
as of December 31, 2016. All intercompany accounts and transactions have been
to the authoritative United States generally accepted
RR
F-7
Investments in partnerships where the Company has significaff
nt influence because it has a voting interest of 20% to 50%, are
under the equity method. Results of associated companies are presented on a one-line basis. The Company accounts forff
LLP (“Casebia”) under the equity method of accounting. See Note 9 forff
further
accounted forff
its 50% investment share of Casebia Therapeutics
details.
aa
The preparation of finff ancial statements in conformi
ff
ty with GAAP requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, the Company’s management
evaluates its estimates, which include, but are not limited to, equity-based compensation expense, revenue recognition, equity method
investments, and reported amounts of expenses during the reported period. Significant estimates in these consolidated finaff
statements have been made in connection with the calculation of revenues, research and development expenses, valuation of equitytt
method of investment, equity-based compensation expense, fair value of Common Shares, fair value of intangible assets, and the
provision for or benefit from income taxes. The Company bases its estimates on historical experience and other market-specificff or
other relevant assumptions that it believes to be reasonabla e under the circumstances. Actual results may differ
assumptions.
from those estimates or
ncial
ff
The Company utilizes significaff
nt estimates and assumptions in determining the fair value of its Common Shares. The Company
utilized various valuation methodologies in accordance with the framework of the 2004 and 2013 American Institutett
Publu ic Accountants Technical Practice Aids, Valuation of Privately-ll Held Cll
estimate the fair value of its Common Shares. Each valuation methodology includes estimates and assumptions that require the
Company’s judgment. These estimates and assumptions include a number of objective and subju ective fact
market conditions affecff
superior rights and prefereff
such as an initial public offering or sale. Significant changes to the key assumptions used in the valuations could result in different fair
values of common stock at each valuation date. Subsequent to becoming a public company, the Company uses the closing price of its
stock on the Nasdaq Global Market as the faiff
of Certified
omCC pam ny Equity Securities Issued as Compensation, to
nces of securities senior to the common stock at the time and the likelihood of achieving a liquidity ett
ector, the prices at which the Company sold shares of preferred stock, the
ting the biotechnology industry srr
r value of its common stock.
ors, including external
vent,
ff
i
Reclassi
ll
fica
tions
A change has been made to the presentation of deferred rent non-current as of December 31, 2015 to conform to the current year
presentation.
Stock Splitii
In connection with preparing forff
Company’s articles of association in July 2016. This amendment became effeff ctive uponuu
register on July 27, 2016 and publication in the Swiss Official Gazette of Commerce on August 2, 2016. Pursuant to this amendment a
3 1/3-for-one share split was effeff cted. All share and per share amounts in the consolidated financial statements and notes thereto have
been retrospectively adjusted for all periods presented to give effect to the share split.
its IPO, the Company’s board of directors and shareholders appro
ved an amendment to the
registration in the Switzerland commercial
aa
gg
Segmen
t InfoII
rmation
Operating segments are definff ed as components of an enterprise about which separate discrete information is availabla e forff
evaluation by the chief operating decision maker, or decision-making group,uu in deciding how to allocate resources and in assessing
performance. The Company and the Company’s chief operating decision maker, namely, the chief executive officff er, view the
Company’s operations and manage its business in one operating segment, which is the business of discovering, developing and
commercializing therapies derived from or incorporr
rating genome-editing technology.
Foreign Currency Tc
ranTT
slationtt
and Transactions
The Company’s reporting currency is the U.S. Dollar. The Company‘s consolidated entities have the U.S. dollar as their
functional currency with the exception of CRISPR Ltd. which has the British Pound Sterling (“GBP”) as its functional currency.
CRISPR Ltd. has assets and liabilities translated into U.S. dollars at exchange rates in effect
at the end of the year. Revenue and
expenses are translated using the average exchange rates for the period. Net unrealized gains and losses resulting fromff
currency translation are included in accumulated other comprehensive income (loss), which is a separate component of shareholders’
(deficit) equity. Net forei
ff
denominated in currencies other than funff
operations and comprehensive loss.
gn currency exchange transaction gains and losses resulting from the remeasurement of transactions
ctional currency are included in other (expense) income, net in the consolidated statements of
foreign
ff
F-8
Cash and Cash Equivalentstt
The Company considers all highly liquid investments with maturities of 90 days or less from the purchase date to be cash
equivalents. As of December 31, 2016, and 2015, the Company had $315.5 million and $156.0 million in cash equivalents,
respectively. All cash was held in depository accounts and is reported at fair
value.
ff
Accounts Rtt
eceivable
Accounts receivable of $3.2 million at December 31, 2016 consist of receivables fromff
ated
(“Vertex”) and Casebia. As of December 31, 2015, the Company had accounts receivabla e of $0.3 million consisting of receivables
from Vertex. Accounts receivables
(see Note 9). Vertex and Casebia are creditworthy entities that maintain an ongoing relationship with the Company, as such the
Company did not have an allowance for estimated losses recorded related to these receivables.
under both the Vertex and Casebia collaboration agreements
are recorded at invoiced amounts duedd
Vertex Pharmaceuticals, Incorpor
a
rr
Concentrati
tt
ons of Creditii Risk and Off-balance Sheet Riskii
Financial instruments that potentially subju ect the Company to concentrations of credit risk are primarily cash. The Company’s
cash is held in accounts with finff ancial instituttt
credit losses in such accounts and does not believe it is exposed to any significan
financial instruments with off-balance sheet risk of loss.
ff
ions that management believes are creditworthy. The Company has not experienced any
t credit risk on these funds. The Company has no
ff
Deferr
ed Public OffeO ring Cn
ostCC stt
Deferred public offering costs, which primarily consist of direct, incremental legal and accounting feeff
s relating to the IPO, were
capitalized within other non-current assets prior to our IPO. The issuance costs of $8.3 million, including underwriter’s commissions,
were offset against the IPO proceeds upon the consummation of the offering in October 2016.
Fair Value of Financial Instruments
The Company’s financial instrumrr
ents consist of accounts payablea
, accruerr d expenses and other non-current liabilities. The
ff
shed a hierarchy of inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of
Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs
used in determining the reported fair
establia
unobservable inputs by requiring that the observablea
participants would use in pricing the financial instrument based on market data obtained from sources independent of the Company.nn
Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing
the financial instrument and are developed based on the best information availablea
values. FASB ASC Topic 820, Fair Value Measurement and Disclosures (“ASC 820”),
inputs be used when available. Observable inputs are inputs that market
in the circumstances.
The accounting standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered
, that may be used to measure fair value, which are the following:
observable and the last unobservablea
Level 1 — Quoted prices in active markets that are accessible at the market date for identical unrestricted assets or liabilities.
Level 2 — Inputs other than Level 1 that are observablea
similar assets or
liabia lities; quoted prices in markets that are not active; or other inputs for which all significant inputs are observable
or can be corroborated by observable market data for substantially the fulff
, either directly or indirectly, such as quoted prices forff
l term of the assets or liabia lities.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the
assets or liaba ilities.
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the
determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining
fair value is greatest forff
instruments categorized in Level 3. A finff ancial instrument’s level within the fair value hierarchy is based on
the lowest level of any input that is significant to the fair value measurement.
The carrying amount of accounts receivable, accounts payable, and accrued expenses as reported on the consolidated balance
sheets as of December 31, 2016 and 2015, approximate fair value, due to the short-term duration of these instruments.
The fair value of the Company’s equity method investment in Casebia and convertible debt instrumrr
ents were determined using
level 3 inputs (See Note 9).
F-9
Propeo rtytt and Equipme
ii
nt
Property and equipment is stated at cost, less accumulated depreciation. Maintenance and repairs that do not improve or extend
the lives of the respective assets are expensed to operations as incurred. Upon disposal, the related cost and accumulated depreciation
is removed from the accounts and any resulting gain or loss is included in the results of operations. Depreciation is recorded using the
straight-line method over the estimated usefulff
lives of the respective assets, which are as folff
lows:
Asset
Computer equipment and softwa
ff
Furnit
urtt e, fixtures, and other
rr
Laboratory equipment
Leasehold improvements
re
Impairmerr
nt of Long-lived Assetstt
Estimated useful life
3 years
5 years
5 years
Shorter of usefulff
life or remaining lease term
The Company evaluates long-lived assets for potential impairment when events or changes in circumstances indicate the
carrying value of the assets may not be recoverable. Recoverability is measured by comparing the book value of the assets to the
expected futff urtt e net undiscounted cash flows that the assets are expected to generate. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the book value of the assets exceed their fair value. The Company
has not recognized any impairment losses in the years ended December 31, 2016, 2015, and 2014.
Revenue Recognition
To date, the Company’s only source of revenue has been the collaboration and license agreement with Vertex as well as
research and development services provided to Casebia under the joint venture with Bayer HealthCare LLC (“Bayer”) (see Note 9).
The Company recognizes revenue in accordance with ASC Topic 605, Revenue Recognition (“ASC 605”). Accordingly,
revenue is recognized for each unit of accounting when all of the following criteria are met:
•
•
•
•
Persuasive evidence of an arrangement exists;
Delivery has occurred or services have been rendered;
The seller’s price to the buyer is fixed or determinabla e; and
Collectability is reasonabla y assured.
Amounts received prior to satisfying
recognized as revenue within the 12 months follo
to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue within non-
current liabilities.
ed revenue. Amounts expected to be
wing the balance sheet date are classified in current liabilities. Amounts not expected
the revenue recognition criteria are recorded as deferr
ff
ff
ff
The Company evaluates multiple-element arrangements based on the guidance in FASB ASC Topic 605-25, Revenue
Recognigg tion—MulMM tipli e-Element Arrangementstt (“ASC 605-25”). Pursuant to the guidance in ASC 605-25, the Company evaluates
multiple-element arrangements to determine (i) the deliverables included in the arrangement and (ii) whether the individual
deliverables represent separate units of accounting or whether they must be accounted forff
as a combined unit of accounting. When
deliverables are separable, consideration received is allocated to the separate units of accounting based on the relative selling price
method and the appropriate revenue recognition principles are applied to each unit. When the Company determines that an
arrangement should be accounted forff
performance obligations will be performed and revenue will be recognized. This evaluation requires the Company to make judgments
about the individual deliverabla es and whether such deliverables are separable from the other aspects of the contractual
tt
Deliverables are considered separate units of accounting provided that (i) the delivered item has value to the collaboa
standalone basis and (ii) if the arrangement includes a general right of returtt n wrr
performance of the undelivered item is considered probable and substantially in the Company’s control. In assessing whether an item
has standalone value, the Company considers facff
capabilities of the collaboration partner and the availability of the associated expertise in the general marketpltt ace. In addition, the
se without the receipt of the
Company considers whether the collaboa
remaining deliverable, whether the value of the deliverable is dependent on the undelivered item, and whether there are other vendors
that can provide the undelivered items.
as a single unit of accounting, the Company must determine the period over which the
tors such as the research, development, manufacturtt
ith respect to the delivered item, delivery or
ration partner can use any other deliverablea
ing and commercialization
relationship.
ration partner on a
for its intended purporr
F-10
The consideration received under the arrangement that is fixed or determinable is then allocated among the separate units of
units of accounting within each arrangement using vendor-specific objective evidence
accounting based on the relative selling prices of the separate units of accounting. The Company determines the selling price of a unit
of accounting within each arrangement following the hierarchy of evidence prescribed by ASC 605-25. Accordingly, the Company
determines the estimated selling price forff
(“VSOE”) of selling price, if availabla e; third-party evidence (“TPE”) of selling price if VSOE is not available; or best estimate of
selling price (“BESP”) if neither VSOE nor TPE is available. The Company typically uses BESP to estimate the selling price as it
generally does not have VSOE or TPE of selling price for its units of accounting. Determining the BESP for a unit of accounting
requires significant judgment. In developing the BESP forff
and relevant entity-specific factors, including factors that were contemplated in negotiating the agreement with the customer and
estimated costs. The Company periodically validates the BESP used for units of accounting by evaluating whether changes in the key
assumptions used to determine the BESP will have a significant effeff ct on the allocation of arrangement consideration between
multiple units of accounting.
a unit of accounting, the Company considers appli
cabla e market conditions
aa
tt
ff
or determinable, and collectability is reasonably assured. In the event that a deliverablea
The Company recognizes arrangement consideration allocated to each unit of accounting when all of the following criteria are
met for that particular unit of accounting: persuasive evidence of an arrangement exists, delivery has occurred or services have been
rendered, the seller’s price to the buyer is fixed
does not represent a separate unit of accounting, the Company recognizes revenue from the combined unit of accounting over the
or estimated performance period for the undelivered items, which is typically the term of the Company’s research and
contractual
development obligations. If there is no discernibrr
ance or objectively measurable performance measures do not
exist, then the Company recognizes revenue under the arrangement on a straight-line basis over the period the Company is expected to
complete its performance obligations. Conversely, if the pattern of perforff mance over which the service is provided to the customer can
be determined and objeb ctively measurabla e performance measures exist, then the Company recognizes revenue under the arrangement
using the proportional performance method. Revenue recognized is limited to the lesser of the cumulative amount of payments
received or the cumulative amount of revenue earned, as determined using the straight-line method or proportional performance
method, as appli
cabla e, as of the period ending date.
le pattern of performff
a
Significff ant management judgment is required in determining the level of efforff
t required under an arrangement and the period
over which the Company expects to complete its performff
not inconsequential or perfunff
performance obligations required under an arrangement, if any, in determining the level of effort required in an arrangement and the
period over which the Company expects to complete its aggregate performance obligations.
ance obligations under an arrangement. Steering committee services that are
ctory and that are determined to be perforff mance obligations are combined with other research services or
At the inception of an arrangement that includes milestone payments, the Company evaluates whether each milestone is
substantive and at risk to both parties on the basis of the contingent naturtt e of the milestone. This evaluation includes an assessment of
whether: (i) the consideration is commensurate with either the Company’s perforff mance to achieve the milestone or the enhancement
of the value of the delivered item as a result of a specific outcome resulting fromff
milestone, (ii) the consideration relates solely to past performance, and (iii) the consideration is reasonable relative to all of the
deliverables and payment terms within the arrangement. The Company evaluates facff
commercial and other risks that must be overcome to achieve the particular milestone and the level of effoff
to achieve the particular milestone in making this assessment. There is considerable judgment involved in determining whether a
milestone satisfies all of the criteria required to conclude that a milestone is substa
entirety upouu n successful accomplishment of any substa
Milestones that are not considered substantive are recognized as earnedrr
if there are no remaining perforff mance obligations or over the
remaining period of performance, with a cumulative catch-up being recognized for the elapsed portion of the period of perforff mance,
assuming all other revenue recognition criteria are met.
ntive milestones, assuming all other revenue recognition criteria are met.
ntive. The Company will recognize revenue in its
tors such as the scientific, clinical, regulatory,
the Company’s performance to achieve the
rt and investment required
u
qq
u
The Company will recognize royalty revenue in the period of sale of the related producdd t(s), based on the underlying contract
terms, provided that the reported sales are reliablya measurablea
all other revenue recognition criteria are met.
and the Company has no remaining performa
ff
nce obligations, assuming
Research and Developme
o
nt Expenxx
ses
Research and development costs, which include employee compensation costs, facff
upplies and materials, overhead,
preclinical development, and other related costs, are charged to expense as incurred. Research and development costs also include the
costs the Company incurs in its performance of services or provision of materials in connection with the funded research undertaken
as a part of the Company’s collaborative agreement with Vertex and Casebia. See Note 9 forff
further details.
ilities, lab sa
F-11
Operatintt gn Leases
e and laboa
ff
ratory f
acil
rr
The Company leases officff
ities under a non-cancelabla e operating lease agreements. The lease agreements
or escalating rent payment provisions. The Company recognizes rent expense under such leases on a straight-line basis
contain freeff
over the term of the lease with the differff ence between the expense and the payments recorded as deferr
ed rent on the consolidated
balance sheets. Lease renewal periods are considered on a lease-by-lease basis in determining the lease term. Funding of leasehold
improvements by the Company’s landlord are accounted for as a tenant improvement allowance and are amortized as a reduction of
rent expense over the term of the lease. Leasehold improvements are amortized straight-line over the shorter of the useful life or the
remaining lease term.
ff
Equityii Based Compe
CC
nsationtt
Expense
The Company recognizes equity-based compensation expense for awards of equity instruments to employees and non-employee
directors based on the grant date fair value of those awards in accordance with FASB ASC Topic 718, Stock Compensation (“ASC
718”). ASC 718 requires all equity-based compensation awards to employees and non-employee directors, including grants of
restricted shares and stock options, to be recognized as expense in the statements of operations based on their grant date faiff
The Company estimates the fair value of stock options using the Black-Scholes option pricing model. The Company uses the fair
value of its Common Shares to determine the fair value of restricted share awards.
r values.
The Company accounts for stock options issued to non-employees under FASB ASC Topic 505-50, Equity Btt
tt o
Non-EmpEE loyeo es (“ASC 505-50”). As such, the value of such options is periodically remeasured and income or expense is recognized
over their vesting terms. Compensation cost related to awards with service-based vesting schedules is recognized using the straight-
line method.
ased Payments t
The Black-Scholes option pricing model requires the input of certain subjeu
ctive assumptions, including (i) the expected share
price volatility, (ii) the calculation of expected term of the award, (iii) the risk-freff e interest rate and (iv) the expected dividend yield.
Due to the lack of a public market for the trading of the Company’s Common Shares prior to its IPO and a lack of company-specififf c
historical and implied volatility data, the Company has based its estimate of expected volatility on the historical volatility of a group of
similar companies that are publicly traded. The historical volatility is calculated based on a period of time commensurate with the
expected term assumption. The group ouu
f representative companies have characteristics similar to the Company, including stage of
product development and focus on the life science industry. The Company uses the simplifiedff method, which is the average of the
options granted to employees as it does not have
l term, to calculate the expected term forff
final vesting tranche date and the contractuatt
which to estimate the expected term. For options granted to non-
uu
ff
suffici
employees, the Company utilizes the contractuatt
l term of the arrangement as the basis for the expected term assumption. The risk-free
interest rate is based on a treasury instrument whose term is consistent with the expected term of the stock options. The Company uses
an assumed dividend yield of zero as the Company has never paid dividends and has no current plans to pay any dividends on its
Common Shares.
ent historical exercise data to provide a reasonable basis upon
The Company expenses the fair value of its equity-based compensation awards granted to employees on a straight-line basis
over the associated service period, which is generally the period in which the related services are received. The Company measures
equity-based compensation awards granted to non-employees at fair value as the awards vest and recognizes the resulting value as
compensation expense at each financial reporting period.
The Company records the expense for equity-based compensation awards subject to performance-based milestone vesting over
the remaining service period when management determines that achievement of the milestone is probable. Management evaluates
when the achievement of a perforff mance-based milestone is probable based on the expected satisfaction of the perforff mance conditions
as of the reporting date.
Patent Coststt
Costs to secure and prosecute patent application and other legal costs related to the protection of the Company’s intellectual
property are expensed as incurred, and are classifieff d as general and administrative expenses in the Company’s consolidated statements
of operations.
F-12
Income Taxes
Income taxes are recorded in accordance with FASB ASC Topic 740, Income Taxes (“ASC 740”), which provides for deferred
taxes using an asset and liability approach. Under this method, deferred tax assets and liabilities are determined based on the
difference between the financial reporting and tax reporting basis of assets and liabilities and are measured using enacted tax rates and
laws that are expected to be in effect when the differences are expected to reverse. Valuation allowances are provided if, based upon
the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The
Company has evaluated availabla e evidence and concluded that the Company may not realize all the benefit of its deferff
therefore a valuation allowance has been established for the amount of the deferre
more likely than not to be realized.
d tax assets that the Company does not believe is
red tax assets;
ff
The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions
exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. The
determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position
as well as consideration of the availabla e fact
significant uncertain tax positions. The Company’s practice is to recognize interest and/or penalties related to income tax matters in
income tax expense. See Note 14 forff
s and circumstances. As of December 31, 2016 and 2015, the Company does not have any
further details.
ff
Comprm ehensive Loss
Comprehensive loss consists of net income or loss and changes in equity during the period fromff
transactions and other events
and circumstances generated from non-owner sources. The Company’s net loss equals comprehensive loss, net of any changes in the
foreign currency translation adjustment, forff
interest equals net loss forff
all periods presented. In addition, comprehensive loss attributable to the noncontrol
all periods presented.
ling
tt
Variable Intertt est Entitiett s
ff
The Company reviews each legal entity forme
d by parties related to the Company to determine whether or not the Company has
ion of a VIE in accordance with FASB ASC Topic
eneficiary
ntly affect
a variable interest in the entity and whether or not the entity would meet the definit
810, Consolidation (“ASC 810”). If the entity is a VIE, the Company assesses whether or not the Company is the primary brr
of that VIE based on a number of factors, including (i) which party has the power to direct the activities that most significaff
the VIE’s economic performa
nce, (ii) the parties’ contractual rights and responsibilities pursuant to any contractual agreements and
(iii) which party has the obligation to absorb losses or the right to receive benefits from the VIE. If the Company determines it is the
primary brr
financial statements at the time that determination is made. The Company evaluates whether it continues to be the primary beneficff
of any consolidated VIEs on a quarterly basis. If the Company were to determine that it is no longer the primary brr
consolidated VIE, or no longer has a variabla e interest in the VIE, it would deconsolidate the VIE in the period that the determination is
made.
eneficiary of a VIE, the Company consolidates the financial statements of the VIE into the Company’s consolidated
eneficiary of a
iaryrr
ff
ff
If the Company determines it is the primary benefici
ff
ary of a VIE that meets the definition of a business, the Company measures
the assets, liabia lities and noncontrolling interests of the newly consolidated entity at faiff
805, Business Combinations (“ASC 805”) at the date the reporting entity first becomes the primary beneficiary.rr
r value in accordance with FASB ASC Topic
In February 2016, Casebia Therapeutics LLP, a limited liabili
a
upon consummation of the JV, Bayer and the Company each received a 50% equity interest in the entity in exchange for their
contributions to the entity. The Company determined that Casebia was considered a VIE and concluded that it is not the primary
beneficiary of the VIE. As such, the Company did not consolidate Casebia’s results into the consolidated finaff
Note 4 for further details.
ty partnership, was formed in the United Kingdom. In March 2016
ncial statements. See
As of December 31, 2016, TRACR is a wholly-owned subsidiary of the Company. See Note 4 forff
further details. For the year
ncial
ended December 31, 2015, the Company consolidated the financial statements of TRACR into the Company’s consolidated finaff
statements as it was both a VIE and a majority owned subsidiary. For the year ended December 31, 2014, the Company consolidated
TRACR as a VIE.
F-13
Noncontrollinll gn Interest
Upon the IPO date of the Company, the non-controlling interest of TRACR
RR
was acquired, and as of the year ended December
31, 2016 TRACR is a wholly-owned subsidiary orr
recorded non-controlling interest, which was related to TRACR during 2015 and 2016. The Company recorded net loss attributabla e to
non-controlling interest on its consolidated statements of operations, reflecting the loss from non-controlling interest for the reporting
period.
further details related to TRACR. The Company
f the Company. See Note 4 forff
Intantt
gin blii e All
ssetstt
The Company’s intangible assets consist of acquired intellectual property rights and relate to the Company’s interest in TRACR.
Intangible assets are recorded at fair value at the date of the business combination and are stated in the consolidated balance sheets net
of accumulated amortization and impairments, if appa
f intangible assets
subju ect to amortization on a periodic basis to determine whether events and circumstances would indicate impairment or warrant a
revision to the remaining useful life. If the estimate of an intangible asset’s remaining useful life is changed, the Company amortizes
the remaining carrying value of the intangible asset prospectively over the revised remaining useful life.ff
licabla e. The Company evaluates the remaining useful life off
Intangible assets related to the acquired intellectuatt
l property rights are amortized over their estimated usefulff
lives using the
straight-line method as the pattern of revenues cannot be reasonabla y estimated. Amortization related to the acquired intellectual
property rights is recorded in general and administrative expense in the consolidated statements of operations and comprehensive loss.
Net Loss Per Share Attribtt
tt
utabl
CC
ll o Ctt
e t
ommo
n Share
SS
srr
holder
ll
Basic net income (loss) per share is calculated by dividing net income (loss) attributable to common shareholders by the
weighted-average number of common shares outstanding during the period. Diluted net income per share is calculated by dividing the
net income attributablea
period, including any dilutive effect from outstanding stock options and warrants using the treasury stock method.
to common shareholders by the weighted-average number of common equivalent shares outstanding for the
The Company follows the two-class method when computing net income per share in periods when participating securities are
outstanding. The two-class method determines net income per share forff
each class of common and participating securities according to
dividends declared or accumulated and participation rights in undistributed earnirr ngs. The two-class method requires income availabla e
to common shareholders for the period to be allocated between common and participating securities based on their respective rights to
receive dividends as if all income for the period had been distributed. Accordingly, in periods in which the Company reports a net loss
attributabla e to common shareholders when participating securities are outstanding, losses are not allocated to the participating
securities because they have no contractual obligation to share in the losses of the Company. For purporr
income per share attributablea
are considered common share equivalents.
red shares, convertible loans, stock options, and unvested restricted common shares
ses of calculating diluted net
to redeemable preferff
The following table sets forth the outstanding potentially dilutive securities that have been excluded in the calculation of diluted
net loss per share because to do so would be anti-dilutive (in common stock equivalent shares):
Convertible preferred shares
Conversion of convertible loans
Dr. Emmanuelle Charpentier call option
Outstanding options
Unvested unissued restricted shares
Total
2016
—
—
—
4,535,371
89,367
4,624,738
As of December 31,
2015
18,837,024
4,110,987
328,017
1,939,986
142,794
25,358,808
2014
3,560,002
—
—
—
—
3,560,002
Subsequent Events
The Company considered the events or transactions occurring after the balance sheet date, but prior to the issuance of the
nt
consolidated financial statements, for potential recognition or disclosure in its consolidated financial statements. All significaff
subsequent events have been properly disclosed in the consolidated financial statements.
F-14
Recent Accountingii
Pronouncementstt
In May 2014, the FASB issued ASU No. 2014-09, Revenue from ContCC racts wtt
Contracts with Ctt
Subsequently, the FASB also issued ASU 2015-14, Revenue fromff
date of ASU 2014-09; ASU No. 2016-08, Revenue from ConCC tracts with Customers (Topic 606): Principal versus Agent
Considerations (Reporting Revenue Gross versus Net), which amends the principal-versus-agent implementation guidance and
illustrations in ASU 2014-09; ASU No. 2016-10, Revenue fromff
Obligations and Licensing, which clarifies identifying performance obligation and licensing implementation guidance and illustrations
in ASU 2014-09; and ASU No. 2016-12, Revenue froff m ConCC tracts with Ctt
Practical Expedients, which addresses implementation issues and is intended to reduce the cost and complexity of applying the new
revenue standard in ASU 2014-09 (collectively, the “Revenue ASUs”).
usCC tomers (Topic 606): Narrow-Scope Improvements and
ustCC omers (Topic 606), which adjusted the effective
ith Customersrr (Topic 606): Identifying Performance
ith Customers (Topic 606) (“ASU 2014-09”).
Contracts wtt
The Revenue ASUs provide an accounting standard for a single comprehensive model for use in accounting for revenue arising
from contracts with customers and supersedes most current revenue recognition guidance. The accounting standard is effective for
interim and annual periods beginning after December 15, 2017, with an option to early adopt for interim and annual periods beginning
after December 15, 2016. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (the
full retrospective method), or retrospectively with the cumulative effect
ff
initial application (the modifieff d retrospective method). We currently anticipate adoption of the new standard effecff
under the full retrospective method. The Company is in the process of determining the impact of the Revenue ASUs on its financial
statements.
lying the guidance recognized at the date of
of initially appaa
tive January 1rr
, 2018
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial StatSS
ements—tt Going Concern (Subtopic 205-40):
Disclosure of Uncertainties about an Entity’s ability to Continue as a Going Concern (“ASU 2014-15”), which requires management
to evaluate whether there is substantial doubt abou
nd to provide related footnote
disclosures. This guidance is effective for the annual reporting period ending after December 15, 2016 and forff
periods thereafter.
effect on our consolidated financial statements or disclosures.
annual and interim
The Company adopted ASU 2014-15 on December 31, 2016 and the adoption of ASU 2014-15 did not have an
ity to continue as a going concern arr
t an entity’s abila
a
ff
rr
In February
2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”), which appl
a
ies to all leases and will require
ive forff
fiscal years beginning after December 15, 2018 and interim periods within those years, which is the year ended December
lessees to record most leases on the balance sheet, but recognize expense in a manner similar to the current standard. ASU 2016-02 is
effect
ff
31, 2019 for the Company. Entities are required to use a modifiedff
entered into after the beginning of the earliest comparative period in the financial statements. Full retrospective application is
prohibited. The Company is evaluating the new guidance and the expected effeff ct on its consolidated financial statements.
retrospective approach of adoption for leases that exist or are
In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stoc— k CompCC
ensation (Top
((
ic 718)8 (“ASU 2016-09”). The
certain aspects of equity-based payments to employees. Entities will be required to
ts of awards in the income statement when the awards vest or are settled. The guidance also allows an
guidance changes how companies account forff
recognize income tax effecff
employer to repurchase more of an employee’s shares than it can under current guidance for tax withholding purposes providing forff
withholding at the employee’s maximum rate as opposed to the minimum rate without triggering liability accounting and to make a
policy election to account for forfeiturett
15, 2017. Early adoption is permitted. Under today’s guidance, the Company does not recognize the income tax effecff
have vested or are settled until they actuatt
lly reduce taxes payable. This standard will require the Company to recognize these effects
when they are vested or are settled, subjeb ct to the assessment of the need for a valuation allowance. The adoption of this standard is
not expected to have a material impact on the Company’s finaff
ncial position, results of operations or statements of cash flows upon
adoption, primarily because any tax effecff
allowance.
s as they occur. The updated guidance is effective for annual periods beginning after December
ts of awards that
ts the Company may be required to realize are expected to be subjeb ct to a full
valuation
ff
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash FlowFF
((
s (ww Top
ic 230):0 Restricted Cash (“ASU 2016-
08”). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total cash, cash equivalents, and
amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash
and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning and ending balances
shown on the statement of cash floff ws. The guidance is effecti
ve in the first quarter of fiscal 2018 and early adoption is permitted. ASU
2016-18 must be applied retrospectively to all periods presented. Upon adoption, the Company’s 2016 statement of cash flowff
an increase in operating cash flows resulting from the adoption of this new standard. The Company does not expect any
ff
reflect
additional impact on its financial statements.
s will
ff
F-15
3. Property and Equipment, net
Property and equipment, net, consists of the following (in thousands):
Computer equipment and software
ff
Furniture, fixtures,
Laboratory equipment
and other
sehold improvements
Construction work in process
Accumulated Depreciation
Property and equipment, net
As of December 31,
2016
2015
$
$
110
2,044
2,970
15,780
1,065
21,969
(942)
21,027
$
$
118
238
861
88
95
1,400
(72)
1,328
Depreciation expense for the year ended December 31, 2016, 2015, and 2014 was $0.9 million, $0.1 million, and $0 million,
respectively.
4. Variable Interest Entities
TRACRRR
tt
Hematology
d
Limite
ii
On January 23, 2014, the founders of the Company formed TRACR in the United Kingdom, to further the development of the
CRISPR/Cas9 technology into medicines for the treatment of blood-borne illnesses. On April 14, 2014, TRACR licensed certain
foundational intellectual
property rights under joint ownership from Dr. Emmanuelle Charpentier to develop and commercialize
products for the treatment or prevention of human diseases related to hemoglobinopathies. See Note 9 forff
technology license agreement with Dr. Charperr ntier.
further details of the
tt
On April 14, 2014 the Company determined that it became the primary benefici
ary of TRACR based on, among other facto
the Company’s power to direct the activities that significantly impacted the economic performance of TRACRR
R and the Company’s
financing of contractual obligations on behalf of TRACR, and the period in which the Company began to benefit from research and
development of TRACR technology. Accordingly, the Company consolidated TRACR’s finaff
ncial statements as a consolidated VIE
beginning on April 14, 2014.
rs,
ff
ff
On March 24, 2015, the Company acquired 4,600 ordinary shares of TRACR, representing 82.1% of the ordinary srr
hare capital,
pursuant to a share exchange transaction with the shareholders of TRACR. In exchange for 4,600 ordinary shares of TRACR and the
assignment of certain rights to subscribe ordinary shares of TRACR, the Company issued 852,846 Common Shares to two founders of
TRACR, 656,031 restricted Common Shares to certain employees and non-employees, and 459,217 Common Shares to Fay
Participation Corporat
issuance to certain employees and non-
employees. As of December 31, 2015, the Company held 4,600 ordinary shares of TRACR, representing 82.1% of the ordinary share
capiaa tal of TRACR.
ion (“Fay Corp.”), an entity formed to hold Common Shares for futurett
rr
Upon the share exchange on March 24, 2015, the Company recorded an adjustment of $0.1 million to decrease the carrying
amount of the noncontrolling interest in TRACRR
adjustment was recognized directly in equity through additional paid-in capiaa tal and is attributabla e to the controlling interest.
R and reflect the Company’s increased ownership interest in TRACR’s net assets. This
Pursuant to the share exchange transaction on March 24, 2015, the Company also entered into a freeff
standing call option
1,000 ordinary shares of TRACR, representing the remaining 17.9% of the ordinary share capital
tier in exchange for 328,017 Common Shares of the Company. In the event the option is exercised by
agreement with Dr. Charpentier forff
of TRACR. Under the terms of the call option agreement, the Company has the option to acquire the remaining 1,000 shares of
TRACR held by Dr. Charpenrr
the Company prior to a liquidation event, the Company will indemnify Dr. Charpentier forff
In addition, upon a bankrupt
liquidation event, as defined in the call option agreement, the remaining 1,000 ordinary shares of TRACR held by Dr. Charpentier will
automatically convert into 328,017 Common Shares of the Company. The call option was determined to have a faiff
million at the time of the share exchange and was attributed to Dr. Charpentier’s for past services rendered to CRISPR and TRACR.
Upon IPO, the call option was exercised and the remaining non-controlling interest of TRACR
was acquired, resulting in a reduction
of Noncontrolling interest of $0.1 million, stock based compensation of $0.2 million for original value of the call option, and
additional paid-in capiaa tal of $0.1 million.
f the Company, a change in control or other deemed
cy, liquidation, closing of an IPO, winding up ouu
all taxes owed as a result of the exchange.
r value of $0.2
RR
rr
F-16
Joint Venture withii Bayer HeaHH lthtt care LLC
In December 2015, the Company entered into an agreement with Bayer to create a joint venture to discover, develop and
commercialize new therapeaa utics for genetically linked diseases, including blood disorders, blindness and heart disease. On
February 12, 2016, Casebia, a limited liability partnership, was formed in the United Kingdom. In March 2016 upon consummation of
the JV, Bayer and the Company each received a 50% equity interest in the entity in exchange for their contributions to the entity. The
f the VIE. As such, the
Company determined that Casebia was considered a VIE and concluded that it is not the primary benefici
Company did not consolidate Casebia’s results into the consolidated financial statements. See Note 9 for further details.
ary orr
ff
5. Intangible Assets
The Company’s intangible assets consist of acquired intellectual property rights related to the Company’s initial consolidation of
TRACR in April 2014. Acquired intellectual property rights had an estimated life of 10 years. Intangible assets, net of accumulated
amortization, are as follows (in thousands):
q
Acquired intangible asset
g
As of December 31, 2016
As of December 31, 2015
Cost
547
547
$
$
Accumulated
Amortization
$
$
(148) $
(93) $
Net
399
454
The Company recorded amortization expense of $0.1 million, $0.1 million, and $40 thousand for each of the years ended
December 31, 2016, 2015, and 2014, respectively. As of December 31, 2016 and 2015, the remaining amortization period was 7.3
years and 8.3 years, respectively. The Company has not recorded any impairment charges for the years ended December 31, 2016,
2015 and 2014. The estimated futurett
(in thousands):
amortization of acquired intangible assets as of December 31, 2016 is expected to be as follows
g
Year Ending December 31:
2017
2018
2019
2020
Thereafter
Total amortization
6. Accrued Expenses
Accrued expenses consist of the following (in thousands):
Payroll and employee-related costs
Research costs
Licensing fees
ssional fees
Intellectual property costs
property and equipment
Other
Total
Amount
55
55
55
55
179
399
$
$
As of December 31,
2016
2015
$
$
2,585 $
996
492
2,715
3,372
5,081
1,079
16,320 $
773
910
1,055
2,412
2,592
—
688
8,430
F-17
7. Convertible Loans
2015 Convertible Loan Agreement with Vertex and certain existing shareholdersdd
On October 26, 2015, the Company entered into a convertible loan agreement with Vertex and certain existing shareholders (the
“Vertex Convertible Loan”) under which the Company could borrow up to $40.0 million. The Vertex Convertible Loan accruerr
s
interest at 2.5% per annum and had an initial maturity date of April 26, 2016 subject to acceleration upon
the occurrence of certain
ity Date”). On various dates between November 23 and December 7, 2015, the
conditions stated in the loan agreement (the “Maturtt
Company borrowed aggregate net proceeds of $38.2 million. The Vertex Convertible Loan included various embedded conversion,
redemption and other features, as furth
ASC 815. On January 29, 2016, all of the outstanding principal plus accrued interest of $0.2 million under the Vertex Convertible
Loan was automatically converted into 2,859,278 Series B Preferred Shares in connection with a qualified financing described below.
er described below, none of which required separate accounting froff m the host instrumrr
ent under
uu
ff
An event of default (“Event of Default”) is defined in the Vertex Convertible Loan Agreement and includes events of
bankruptuu cy, insolvency or reorganization and, solely at the election of Vertex, a material breach that is not cured within the applicabla e
notice and cure periods of the strategic collaboration, option and license agreement entered into by Vertex and the Company. See Note
9 forff
further details of the strategic, option and license agreement.
Conversion Terms
On the Maturity Date, the outstanding principal plus accruerr d interest automatically converts into Series B Preferred Shares at
$9.33 per share.
In the event the Company issues equity securities prior to the Maturity Date with aggregate proceeds of not less than $50.0
million, of which $5.0 million is raised from investors other than Vertex or existing shareholders, the outstanding principal plus
accrued interest under the Vertex Convertible Loan automatically converts into the newly issued equity securities at the price per share
paid by the investors in the financing.
In the event of an underwritten publiu
c offering with shares of the Company listed on the New York Stock Exchange, the
NASDAQ Global Market, or the NASDAQ Global Market, resulting in at least $50.0 million of proceeds to the Company closed prior
to Maturity, the holders may elect, prior to the closing of the IPO, to convert the outstanding principal plus accrued interest into Series
B Preferre
d Shares at $9.33 per share. Any Vertex Convertible Loan not converted prior to the closing of the IPO, shall automatically
ff
convert into Common Shares at a price paid by the investors for such shares in the IPO.
Upon a liquidation event prior to the Maturity Date, the holders may elect to convert the outstanding principal plus accrued
interest into either Common Shares at a price of $9.33 per share or Series B Preferred Shares at a price of $9.33 per share.
Redemption Terms
Upon an Event of Default, all outstanding principal plus accrued interest becomes immediately due and payable.
Upon a liquidation event, if the holders do not exercise their conversion right, the outstanding principal plus accruedrr
interest
lowing the date on which the Company or its shareholders receive the
and payable in cash on the business day folff
shall become duedd
proceeds from the liquidation event.
Contingii
ent IntII ertt est
Upon an Event of Defauff
lt, the outstanding amount of the Vertex Convertible Loan shall bear, in addition to the base interest of
2.5% per annum, default interest at a rate of 7.5% per annum.
Convertible Loan with Bayea r HeaHH lthCtt
arCC e LLC
Concurrent with the execution of the Bayer Joint Venture agreement, the Company also entered into a Convertible Loan
Agreement (“Bayer Convertible Loan”) with Bayer forff
and matured on January 29, 2016 (the “Maturity Date”). On January 2rr
exchange for aggregate net proceeds of $35.0 million. The Bayer Convertible Loan included various embedded conversion,
redemption and other features
, none of which required separate accounting from the host instrument under ASC 815.
9, 2016, the Company issued the Bayer Convertible Loan in
$35.0 million. The Bayer Convertible Loan accrued interest at 2.0% per annum
tt
F-18
Conversirr on of Convertible Loans to Series B Preferff
red Shares
rr
On January 2rr
9, 2016, concurrent
with the issuance of the Bayer Convertible Loan, all of the outstanding principal under the
$35.0 million Bayer Convertible Loan automatically converted into 2,605,330 Series B Preferred Shares at $13.43 per share. The
Company determined the fair value of the Bayer Convertible Loan to be $24.5 million based on the fair
B Preferre
d Shares that were exchanged as part of the immediate conversion. As the Bayer Convertible Loan was executed in
ff
contemplation of the joint venturtt e agreement with Bayer, the Company evaluated the Bayer Convertible Loan as part of one multiple-
element arrangement and using a relative fair value allocation allocated $27.0 million of aggregate arrangement consideration to the
Bayer Convertible Loan upon
issuance (See Note 9). Upon conversion, the Company accreted the Bayer Convertible Loan to its face
value of $35.0 million through a charge to interest expense of $8.0 million and converted the $35.0 million to Series B Preferr
Shares under the conversion model.
value of the underlying Series
ed
uu
ff
ff
The receipt of $35.0 million in proceeds under the Bayer Convertible Loan in exchange for equity securities, combined with the
$38.2 million in proceeds fromff
Vertex Convertible Loan, triggered an automatic conversion provision of the Vertex Convertible Loan
Agreement. Accordingly, on January 29, 2016, the Vertex Convertible Loan, including loans from existing shareholders, plus accruedrr
interest also converted into 2,859,278 of Series B Preferred Shares at $13.43 per share. The Company determined the fair value of the
Vertex Convertible Loan to be $26.9 million based on the fair value of the underlying Series B Preferred Shares that were exchanged
as part of the conversion. Upon extinguishment, the Company recorded a gain on extinguishment of $11.5 million forff
nce
between the carrying value of the debt and the fair value of the Series B Preferred Shares issued to settle the debt under the general
extinguishment model.
ff
the differe
8. Commitments and Contingencies
Operatintt g Ln
eases
As of December 31, 2016, the Company had five non-cancellablea
operating leases for officeff
a
, labor
atory, and corpor
rr
ate housing
spaces during the year ended December 31, 2016. Three of the leases expire in 2017. The lease of the Company’s research facility
space expires in February 2022, with one optional five-year extension period. The sublease of the Company’s primary office and
research facility space expires in December 2026. Rental expense for the years ended December 31, 2016, 2015, and 2014 was $4.2
million, $1.3 million, and $17 thousand, respectively. The Company expenses rent, including tenant improvement allowances received
by the Company, on a straight-line basis over the term of the lease, including any rent-free periods.
In April 2015, the Company entered into a lease for laboratory and officeff
lease facilities in Cambridge, Massachusetts (the “200
Sidney Street Lease”). The 200 Sidney Street Lease lease expires in February 2022 with one additional five year extension period.
The 200 Sidney Street Lease contains escalating rent clauses which require higher rent payments in futuff
re years.
In June 2015, the Company entered into an agreement pursuant to which it has the right to use certain office facff
ilities in London
England. The current term expires in July 2017. The Company’s obligations under this right to use agreement are secured by a cash
deposit in the approximate amount of GBP 9 thousand held by the office space provider.
In October 2015, the Company entered into a lease for corporate housing in Cambridge, Massachusetts. The term of the original
lease was renewed in November 2016 and the current term expires in November 2017 subjecb
Company’s obligations under the terms of this lease are secured by a cash deposit in the approximate amount of $10 thousand held by
the lessor.
t to additional one year renewals. The
In April 2016, the Company entered into a sublease for officff e facil
ff
ities in Cambridge Massachusetts. The Company’ obligations
under the terms of this lease were secured by a cash deposit in the approximate amount of $26 thousand held by the lessor. This lease
term expired in January 2017.
In May 2016, the Company entered into a sublease pursuant to which it subleases in Cambridge, Massachusetts (the “610 Main
Street Sublease”) the Company’s primary research and US office facility. The initial term of the 610 Main Street will expire on
December 22, 2026. The Company has an option to extend the term of the 610 Main Street Sublease for an additional five year
period if, at the time of expiration of the initial term, the sublessor does not intend to utilize the space for itself or its affff ilff iates. The
610 Main Street Sublease contains escalating rent clauses which require higher rent payments in future years.
F-19
The 610 Main Street Sublease included a $10.8 million tenant improvements allowance for normal tenant improvements, for
tion began in June 2016. The date of the construction coincided with the lease commencement date for accounting
which construcrr
purposes under ASC 840, Leases. The Company recorded straight-line rent expense of $2.3 million during the year ended December
31, 2016 and a deferred rent liabia lity of $12.9 million, inclusive of a tenant improvement allowance of $10.2 million which the
Company is amortizing as a reduction of rent expense over the sublease term. As of December 31, 2016, $1.0 million of the tenant
improvement allowance was recorded within current deferr
consolidated balance sheet.
ed rent, and the remaining $11.9 million as non-current deferr
ff
ff
ed rent on the
In May 2016, the Company entered a $2.5 million letter of credit to secure the Company’s obligations under the 610 Main Street
ccount. The deposit is recorded in restricted cash in the
Sublease. The letter of credit is secured by cash held in a restricted depository arr
accompanying consolidated balance sheet as of December 31, 2016.
Futurett minimum payments required under the leases as of December 31, 2016, are as follows (in thousands):
g
Year Ending December 31:
2017
2018
2019
2020
2021
Thereafter
Total minimum lease payments
Amount
6,685
6,431
6,624
6,823
7,027
30,335
63,925
$
$
Letters of Creditdd
As of December 31, 2016 and 2015, the Company had restricted cash of $3.2 million and $0.7 million, respectively,
00
representing letters of credit securing the Company’s obligations under certain leased facilities in Cambridge, Massachusetts at 2aa
Sidney Street and the 610 Main Street as well as certain credit card arrangements. The letters of credit are secured by cash held in a
restricted depository account. The cash deposit is recorded in restricted cash in the accompanying consolidated balance sheet as of
December 31, 2016 and 2015.
Shareholderdd Settlett ment
Under the terms of a shareholder agreement existing prior to the IPO, if a U.S. common shareholder elected to fileff
Electing Fund (“QEF”) and notified the Company of this election, the Company was required to make advance payments to the
shareholder related to their individual tax liability. In September 2016, the Company forma
$2.0 million to certain U.S common shareholders in order to release the Company from any and all obligations or claims concerning
and/or arising out of the Company’s status as a PFIC or a Controlled Foreign Corporation (a “CFC”) for any taxablea
year from 2013
through 2015, including for potential lack of timely notification of the Company’s PFIC statustt
(an “Annual Information Statement”)
for the year ended December 31, 2015.
lly offered an aggregate settlement of up to
a Qualified
ff
Following the formal settlement offer in September 2016, in the fourth quarter of 2016 the Company made payments to
shareholders of $2.0 million, respectively, under the terms of the accepted settlements. The obligation to make advance payments
under the shareholder agreement for tax years subsequent to 2015 terminated upon the closing of the IPO.
The Company has made available a 2016 PFIC Annual Informff
ation Statement on its website for its shareholders.
Sponsored Research Agreements
The Company has engaged several research institutions to identify new delivery srr
trategies and applications of the CRISPR/Cas9
technology. As a result of these efforts, the Company sponsored five research programs during 2016, with two of these programs
continuing through 2018. In association with these agreements, the Company has committed to making payments for related research
and development services of $0.7 million, and $0.1 million in 2017 and 2018, respectively.
F-20
License Agregg ement withii Anagenesis Biotechtt
nologio es SAS
On June 7, 2016, the Company entered into a license agreement with Anagenesis Biotechnologies SAS (“Anagenesis”) pursuant
to which the Company received an exclusive worldwide license to Anagenesis’ proprietary technology for all human based muscle
diseases. Pursuant to the license agreement, the Company made a one-time upfront payment of $0.5 million to Anagenesis and is
required to pay Anagenesis up to $89.0 million upon the achievement of future clinical, regulatory and sales milestones forff
first allogeneic and autologous licensed products developed pursuant to the license agreement, as well as low single digit royalty
payments on futurett
months ended December 31, 2016 as research and development expense on the consolidated statement of operations.
sales of commercialized producdd t candidates. The Company recorded the $0.5 million payment during the twelve
each of the
Licensingii
and PatPP entt
t Assignmgg
ent Agreementstt
In April 2014, the Company and TRACRR
R entered into technology license agreements with Dr. Emmanuelle Charpentier
pursuant to which the Company licensed Dr. Charpentier’s interest to certain intellectual property rights jointly owned by Dr.
Charpentier and others to develop and commercialize products for the treatment or prevention of human diseases. See Note 9 forff
further details.
Litigtt atiott n
Under the Charpentier license agreement, the Company licenses a U.S. patent appaa
lication that is currently subjeb ct to interferff ence
proceedings declared by the Patent Trial and Appeal Board (“PTAB”) of the U.S. Patent and Trademark Office. Following motions by
the parties and other procedural matters, the PTAB concluded in February
because the claim sets of the two parties were not directed to the same patentable invention in accordance with the PTAB’s two-way
test for patent interferences. See Note 17 for further details.
2017 that the declared interference should be dismissed
rr
Under the Invention Management Agreement (“IMA”) signed on December 15, 2016, the Company is obligated to share costs
related to patent maintenance, defense and prosecution. For the years ended December 31, 2016, 2015 and 2014, the Company
incurred $3.0 million, $1.5 million and $1.1 million, respectively in shared costs. The Company recorded accruedrr
cost sharing of $2.8 million and $2.6 million as of December 31, 2016 and 2015, respectively
legal costs froff m the
9. Significant Contracts
ll
Intellectu
al Property Agreements
CRISPII R TPP
heTT rapea utics AG—Charper ntier License Agregg ement
In April 2014, the Company entered into a technology license agreement with Dr. Emmanuelle Charpentier pursuant to which
l property rights under joint ownership from Dr. Charpentier to develop and commercialize
the Company licensed certain intellectuatt
products for the treatment or prevention of human diseases other than hemoglobinopathies (“CRISPR—CRR
Agreement”). In consideration for the granting of the license, the Company paid Dr. Charperr ntier an upfront fee of CHF 0.1 million
($0.1 million), and agreed to pay an immaterial annual license maintenance fee if Dr. Charperr ntier is not otherwise engaged in a service
arrangement with the Company. During the years ended December 31, 2016, 2015 and 2014, Dr. Charpenrr
tier has been in a consulting
arrangement with the Company, as such, no annual payments have been made under this provision. Dr. Charperr ntier is entitled to
receive nominal clinical milestone payments. The Company is also obligated to pay Dr. Charpentier a low single digit percentage of
sublicensing payments received under any sublicense agreement with a third party. In addition, the Company is also obligated to pay
to Dr. Charpentier a low single-digit percentage royalty based on annual net sales of licensed producdd ts and licensed services by the
Company and its affilff iates and sublicensees.
harpentier License
During the years ended December 31, 2016, 2015, and 2014 the Company recorded and accrued $0.5 million, $0.9 million, and
$0 million, respectively, of subliu
terms of the CRISPR—CRR
the Bayer agreement.
censing fees duedd
to Dr. Emmanuelle Charpentier in research and development expense under the
harperr ntier License Agreement that was triggered by the execution of the Vertex collaboration agreement and
HH
TRACR HCC
emat
ology Lgg
imited—Charpentier License Agreement
In April 2014, TRACR entered into a technology license agreement (“TRACR—Cha
RR
rpentier License Agreement”) with Dr.
rr
ier pursuant to which TRACR licensed certain intellectual property rights under joint ownership from Dr.
Emmanuelle Charpent
Charpent
ier to develop and commercialize products for the treatment or prevention of human diseases related to hemoglobinopathies.
rr
In consideration for the granting of the license, Dr. Charpentier is entitled to receive nominal clinical milestone payments. TRACR is
ier a low single digit percentage of sublicensing payments received under any sublicense agreement
also obligated to pay Dr. Charpent
rr
F-21
with a third party. In addition, TRACR
sales of licensed products and licensed services by the Company and its affiliates and sublicensees.
is obligated to pay to Dr. Charpenrr
RR
tier low single digit percentage royalties based on annual net
During the years ended December 31, 2016, 2015, and 2014 the Company recorded $0, $0.1 million, and $0, respectively, of
sublicensing feeff
Charpentier License Agreement that was triggered by the execution of the Vertex collaboration agreements.
to Dr. Emmanuelle Charperr ntier in research and development expense under the terms of the TRACR—RR
s duedd
Invention ManaMM gema
ent Agreement
RR
On December 15, 2016, we entered into a an IMA, with the University of Californff
ia (“California”), the University of Vienna
(“Vienna”), Dr. Charpentier, Intellia therapeaa utics, Inc. (“Intellia”), Caribou Biosciences, Inc. (“Caribou”), ERS Genomics Ltd., or
(“ERS”), and TRACR
. Under the IMA, Californirr a and Vienna retroactively consent to Dr. Charperr ntier’s licensing of her rights to the
CRISPR/CRR as9 intellectual property, pursuant to the Charpentier License, to us, our wholly-owned subsidiary TRACR, and ERS, in the
United States and globally. The IMA also provides retroactive consent of co-owners to sublicenses granted by us, TRACR
licensees, prospective consent to sublicenses they may grant in futurtt e, retroactive approval of prior assignments by certain parties, and
provides for, among other things, (i) good faith cooperation among the parties regarding patent maintenance, defense and prosecution,
t patents and
(ii) cost-sharing arrangements, and (iii) notice of and coordination in the event of third-party infriff ngement of the subjecb
with respect to certain adverse claimants of the CRISPR/Cas9 intellectual property. Unless earlier terminated by the parties, thett
IMA
will continue in effect until the later of the last expiration date of the patents underlying the CRISPR/Cas9 technology, or the date on
which the last underlying patent appaa
lication is abandoned.
and other
RR
Patent Assignment
gg
Agreement
In November 2014, the Company entered into a patent assignment agreement (“Patent Assignment Agreement”) with Dr.
Emmanuelle Charpentier, Dr. Ines Fonfara, and Vienna (collectively, the “Assignors”), pursuant to which the Company was assigned
all rights, title and interest in and to certain patent rights claimed in the U.S. Patent Application No.61/905,835. In consideration for
the assignment of such rights, the Assignors are entitled to receive clinical milestone payments totaling up tuu
(approximately $0.4 million) in the aggregate for the first human therapeutic product. The Company is also obligated to pay to the
Assignors low single digit royalties based on annual net sales of licensed products and licensed services by the Company and its
affiliates and sublicensees.
o €0.3 million
During the years ended December 31, 2016, 2015, and 2014 the Company recorded $33 thousand, $0.1 million, $0, respectively,
dudd e to the Assignors in research and development expense under the terms of the Patent Assignment Agreement
of sublicensing fees
that was triggered by the execution of the Vertex collaboa
ff
ration agreement and the Bayer Agreement.
Collabll
oration Agreement with Vertex Pharmaceutictt als, Is ncoII
rporated
Summary orr
f Ao
greement
On October 26, 2015, the Company entered into a strategic collaboa
ration, option, and license agreement (“Collabor
a
ation
sed on the use of CRISPR’s gene editing technology, known as CRISPR/CaRR
Agreement”) with Vertex, focuff
s9, to discover and develop
potential new treatments aimed at the underlying genetic causes of human disease. The collaboration will evaluate the use of CRISPR-
Cas9 across multiple diseases where targets have been validated through human genetics. Vertex and CRISPR will focus their initial
gene editing research on discovering treatments to address the mutations and genes known to cause and contribute to sickle cell
disease, beta-thalessemia and cystic fibrosis. Vertex and CRISPR will also evaluate a specified number of other genetic targets as part
o six targets, Vertex has an exclusive option to obtain: (1) an exclusive license to commercialize CRISPR
of the collaboration. For up tuu
technology (“Exclusive License”) or (2) a co-exclusive license with respect to hemoglobinopathy and beta-globin targets (“Co-
exclusive License”).
The collaborative program of research to be undertaken by the parties pursuant to the Collaboration Agreement will be
conducdd ted in accordance with a mutuatt
responsibilities across the three research areas. The Company’s research and development responsibilities under the research plan
(“R&D Services”) are related to generating genome editing reagents that modify gff
to the Company’s obligations under the mutuall
worldwide research, development, manufacturing and commercialization of productdd
y agreed upouu n research plan, Vertex has sole responsibility, at its own costs, for the
s resulting from the exclusive licenses obtained.
research plan which outlines each party’s research and development
ene targets selected by Vertex. Except with respect
lly agreed upon
uu
tt
The research collaboration will end on the earlier of the date on which Vertex has exercised six options to obtain exclusive/co-
rth anniversary of the effective date of the agreement. The research
exclusive licenses with respect to a collaboration target, or the fouff
F-22
term may be extended as mutually agreed by the parties up to nine additional months to complete any research activities under the
approved research plan that are incomplete on the fourth anniversary of the effecff
tive date.
The Collabor
a
ation Agreement will be managed on an overall basis by a project leader fromff
addition, the activities under the collaboration agreement during the research term will be governedrr
(“JRC”) formed by an equal number of representatives froff m the Company and Vertex. Decisions by the JRC will be made by
consensus of the group, however, Vertex will have final decision-making authority in the event of disagreement, provided it is in good
faith and not contrary t
o any explicit clause of the agreement.
rr
each of the Company and Vertex. In
by a joint research committee
In connection with the agreement, Vertex made a nonrefundab
ff
le upfront payment of $75.0 million. In addition, Vertex will fund
ctivities conducdd ted pursuant to the agreement. For potential hemoglobinopathy treatments, including treatmett
nts
all of the discovery arr
for sickle cell disease, the Company and Vertex will share equally all research and development costs and worldwide revenues. For
other targets that Vertex elects to license, Vertex would lead all development and global commercialization activities. For each of up
to six targets that Vertex elects to license, other than hemoglobinopathy and beta-globin targets, the Company has the potential to
receive up tuu
nd commercial milestones and royalties on net product sale.
o $420.0 million in development, regulatory arr
Vertex is entitled to terminate the Collaboa
ration Agreement as a whole, or terminate the Collaboration Agreement in part with
respect to a particular collaboration program, for convenience by providing the Company 90 days’ written notice of such termination;
provided, however, that if any termination appl
oval, Vertex will provide
CRISPR no less than 270 days’ notice of such termination. If Vertex is in material breach of this Collaboration Agreement, the
Company has the right to terminate the Collaboration Agreement in full
Vertex.
ies to a producdd t forff which Vertex has received marketing appr
at its discretion 90 days after delivery orr
f written notice to
aa
aa
ff
The Company evaluated the Collaboration Agreement in accordance with the provisions of ASC 605-25. The Company’s
arrangement with Vertex contains the following initial deliverables: (i) a non-exclusive research license; (ii) the option to obtain an
hemoglobinopathy or beta-
exclusive license for up to six Collaboration Targets; (iii) the option to obtain a co-exclusive license forff
globin targets (which would be included within the maximum number of the aforementioned six collabor
ation targets); (iv) R&D
Services; and (v) JRC participation.
a
Management considered whether any of these deliverables could be considered separate units of accounting. Regarding the non-
exclusive research license, the Company concluded that it does not have stand-alone value separate from the option to exercise the
exclusive or co-exclusive license since Vertex would not benefitff
ity to obtain the
license to commercialize the results of that research. As a result, the Company concluded that the research license should be combined
with those options.
from acquiring a research license without the abila
Regarding the R&D Services, the Company concluded that there are other vendors in the market that could performff
the related
services. As such the Company concluded the R&D Services represent a separate unit of accounting.
Regarding the JRC obligations, the Company concluded that the JRC obligations deliverable has standalone value from the
option to license because the services could be perforff med by an outside party. As such the Company concluded the JRC obligations
represent a separate unit of accounting.
As a result, management concluded that there are four
ff
units of accounting at the inception of the agreement: (i) a combined unit
of accounting representing the non-exclusive research license, and the option for up to six exclusive licenses to develop and
commercialize the collabor
representing the non-exclusive research license, and the option for a co-exclusive license (subjecb
limit) to develop and commercialize the hemoglobinopathy or beta-globin targets as these options do not have stand-alone value; (iii)
the perforff mance of R&D Services; and (iv) the participation in the JRC.
ation targets as these options do not have stand- alone value; (ii) a combined unit of accounting
t to the aforementioned six license
a
The Company has determined that neither VSOE of selling price nor TPE of selling price is available for any of the units of
accounting identified at inception of the arrangement. Accordingly, the selling price of each unit of accounting was determined based
on the Company’s BESP. The Company developed the BESP forff
with the objective of determining the price at which it would sell such an item if it were to be sold regularly on a standalone basis.
all of the units of accounting included in the collaboration agreement
The Company developed the BESP for the R&D Services and the JRC participation primarily based on the naturett
of the services
ed and estimates of the associated effort and cost of the services, adjusted forff
to be performff
expected to be realized under similar contracts. The Company’s BESP forff
BESP forff
travel forff
the JRC participation services was de minimis based on an estimate of time spent on preparation, participation, review and
the meetings.
the R&D Services was $26.7 million. The Company’s
a reasonablea
profitff margin that would be
F-23
The Company’s BESP for each combined unit of the non-exclusive research license and the option for an exclusive license to
develop and commercialize a single collaboration target is $37.7 million. As the Company expects Vertex to exercise five of these
this item was determined based on probability and present value adjusted cash
options, the total BESP is $188.5 million. BESP forff
flows from the royalties and milestones outlined in the Collaboration Agreement. BESP reflects the level of risk and expected
probability of success inherent in the naturett
of the associated research area.
The Company’s BESP for a non-exclusive research license and the option for a co-exclusive license to develop and
commercialize a single hemoglobinopathy or beta-globin collaboration target is $12.5 million. As the Company expects Vertex to
exercise one of these options, the total BESP is $12.5 million. BESP forff
this item was determined based on probability and present
value adjusted cash flows from the equal sharing of project worldwide net profit or net loss. BESP reflects the level of risk and
expected probabia lity of success inherent in the nature of the associated research area.
Allocabla e arrangement consideration at inception is comprised of:ff (i) the up-front payment of $75.0 million, (ii) the estimated
R&D services of $26.7 million and (iii) payments related to the estimated exercise of options on futff urtt e exclusive licenses for five
targets of $50.0 million. The aggregate allocablea
arrangement consideration of $151.7 million was allocated among the separate units
of accounting using the relative selling price method as follows: (i) R&D Services: $17.8 million, (ii) non-exclusive research license,
and the option forff
exclusive research license, and the option for one Co-exclusive License to develop and commercialize one hematology target: $8.4
million.
an Exclusive License to develop and commercialize the five collabora
tion targets: $125.5 million, (iii) non-
a
The amount allocated to R&D Services will be recognized as the R&D Services are performed. The Company will recognize as
license revenue an equal amount of the total arrangement consideration allocated to the exclusive licenses as each individual license is
delivered to Vertex uponuu
Vertex’s exercise of its options to such licenses. The Company will recognize $8.4 million as license revenue
when the Co-exclusive License is delivered to Vertex upon Vertex’s exercise of its options to such license.
The Company has evaluated all of the milestones that may be received in connection with the Collaboration Agreement. In
evaluating if a milestone is subsu tantive, the Company assesses whether: (i) the consideration is commensurate with either the
Company’s performance to achieve the milestone or the enhancement of the value of the delivered item(s) as a result of a specific
outcome resulting from the Company’s performance to achieve the milestone, (ii) the consideration relates solely to past perforff mance,
and (iii) the consideration is reasonable relative to all of the deliverabla es and payment terms within the arrangement. The Companm y
notes that the $10.0 million due upon the exercise of each option for an Exclusive License was determined to be part of the fixed and
determinabla e consideration allocabla e at contract inception and is not subju ect to milestone method accounting.
rr
The first potential milestone the Company will be entitled to receive is the $10.0 million milestone duedd
upon the filing of an
Investigational New Drug Application (“IND”) forff
agreement relates to the filing of an IND, the Company has considered it to be substantive. Accordingly, such amounts will be
recognized as revenue in full in the period in which the associated milestone is achieved, assuming all other revenue recognition
criteria are met. There are no other substantive milestones. As such the total amount of substantive milestones subju ect to milestone
each selected Exclusive License.
method accounting treatment is $10.0 million forff
a selected Exclusive License. As the first developmental milestone of the
The remaining milestones are predominately related to the development and commercialization of a product resulting from the
arrangement and are payable with respect to each selected Exclusive License. Each milestone is payabla e only once per collaboration
target, regardless of the number of products directed to such collaboration target that achieve the relevant milestone event. There are
nine remaining clinical development and regulatory arr
a
$235.0 million, respectively, for each selected Exclusive License, and two commercial milestones which may trigger proceeds of up tuu
upon exercise of the exclusive
$75.0 million forff
option and the $10.0 million development milestone associated with an IND, total $420.0 million for each selected Exclusive
License), as follows:
each selected Exclusive License (which, when combined with the $10.0 million duedd
oval milestones which may trigger proceeds of up tuu
o $90.0 million and
ppr
o
Developmental Milestone Events
1.
2.
3.
4.
5.
Initiation of the firff st Clinical Trial of a Product
Establishment of POC for a Producdd t
Initiation of the firff st Phase 3 Clinical Trial of a Product
Acceptance of Approval Application by the FDA for a Product
Acceptance of Approval Application by the EMA for a Product
F-24
6.
Acceptance of Approval Application by a Regulatoryrr Authority in Japan for a Product
7. Marketing Approval in the US for a Product
8. Marketing Approval in the EU for a Product
9. Marketing Approval in Japan for a Product
Commercial Milestone Events
1.
2.
Annual Net Sales for Products with respect to a Collaboa
ration Target exceed $500 million
Annual Net Sales for Products with respect to a Collaboa
ration Target exceed $1.0 billion
After Vertex has exercised an Exclusive License option, Vertex will be solely responsible for all research, development,
tt
ng, and commercialization of licensed agents and producdd ts for the relevant target. As the Company’s involvement in this
manufacturi
process is limited to observer status, management determined that milestones are not considered subsu tantive because they do not relate
solely to the past perforff mance of the Company. Upon the achievement of a milestone, management will evaluate whether the
triggering event occurs during or after the research term. If the triggering event occurs during the research term, management has
elected to treat the milestone similar to an up-front payment. In these cases, if and when any of these milestones are received, the
amount will be included in the overall arrangement consideration and allocated to the remaining identified deliverables. To the extent
all deliverables have been satisfied, any additional consideration allocated to them could be immediately recognized. If the triggering
event occurs after the research term, the Company will recognize the associated revenue in the period in which the event occurs. The
Company will recognize royalty revenue in the period of sale of the related product(s), based on the underlying contract terms,
provided that the reported sales are reliably measurable and the Company has no remaining perforff mance obligations, assuming all
other revenue recognition criteria are met.
During the year ended December 31, 2016, 2015, and 2014, the Company recognized $4.0 million, $0.2 million, and $0 million
of revenue with respect to the collaboration with Vertex. Research and development expense incurred by the Company in relation to
its performance under the collaboration agreement forff
million, respectively. As of December 31, 2016 and 2015, there is $77.1 million and $75.1 million of non-current deferred revenue
related to the Company’s collaboration with Vertex, respectively.
the years ended December 31, 2016 and 2015 was $7.0 million and $0.3
Joint Venture with Bayer Healthcare LLC
On December 19, 2015, the Company entered into an agreement to establish a joint venture (“Bayer Joint Venture”) to research
aa
the development of new therapeut
Company and Bayer completed the formation of the joint venturett
ity partnership formed in the United
Kingdom. Bayer and the Company each received a 50% equity interest in the entity in exchange for their contributions to the entity.
The Company contributed $0.1 million in cash and licensed its proprietary CRISPR/CRR as9 gene editing technology and intellectuatt
l
property for selected disease indications. Bayer contributed its protein engineering expertise and relevant disease know-how.
ics to cure blood disorders, blindness, and congenital heart disease. On February 12, 2016, the
entity, Casebia, a limited liabila
Bayer will provide up to $300.0 million in research and development fund
ff
ing to Casebia over the first five years, subjeb ct to
certain conditions, of which the first $45.0 million was contributed upon formation in the first quarter of 2016. Under the joint venture
agreement, the Company has no obligation to provide any additional funding and the Company’s ownership interest will not be diluted
from future contributions from Bayer. The activities of Casebia are controlled by a management board under the joint control of the
Company and Bayer. As Casebia is jointly controlled by the Company and Bayer, the Company accounts for its 50% interest using the
equity method of accounting.
Under the agreement, Casebia will pay the Company up tuu
o $35.0 million in exchange for a worldwide, exclusive license to
commercialize the Company’s CRISPR/CRR as9 technology specifically for the indications designated by Casebia. In March 2016, the
roff nt payment of $20.0 million as a technology access fee. The remaining $15.0 million was
Company received a non-refundable up-fuu
paid on December 22, 2016 foll
property.
f the necessary consents from patent holders of the Company’s intellectual
ff
There are no milestone, royalties or other payments duedd
that the contribution of the CRISRP/Cas9 technology by license to Casebia did not meet the definff
to the Company under this aspect of the agreement. The Company determined
ition of a business under ASC 805.
owing delivery orr
tt
The Company will also provide to Casebia compensated research and development services through a separate agreement.
Concurrent with the execution of the Bayer Joint Venture agreement, the Company also entered into the Bayer Convertible Loan
for $35.0 million.
F-25
As the Bayer Joint Venture (including the CRISPR/Cas9 technology license and the research and development services) and the
Bayer Convertible Loan were executed at the same time, the Company determined that they should be evaluated as one multiple-
sactions (“ASC 845”) did not
element arrangement. Additionally, the Company also determined that ASC 845, Nonmonetary Trr
apply to this arrangement given the Company’s significant continuing involvement with Casebia and the amount of cash involved in
the arrangement. As a result, the Company analogized to ASC 605-25 in allocating the relative fair value of the consideration received
to the differff ent elements of the arrangement.
ranTT
The Company allocated the fair value of the consideration received using a relative fair value allocation. The allocabla e
arrangement consideration included (i) the total cash payment by Casebia for the technology access feeff
million contribution, of $34.9 million, (ii) the fair value of the equity interest in the Joint Venture of $36.4 million, (iii) the $35.0
million received from the issuance of the Convertible Debt, and (iv) $6.3 million of estimated cash consideration to be received under
the research and development service arrangement, accumulating to $112.6 million.
, net of the Company’s $0.1
The Company identifiedff
the following elements under the transaction:
(i)
Combined element of an exclusive, worldwide, royalty freeff
indications designated by Casebia, and delivery orr
technology to develop, manufacturett
, license to the CRISPR/Cas9 technology specificaff
f the consents of the assignors of the underlying patents to the
lly forff
the
, and commercialize licensed products under that license
(ii) Research and development services, and
(iii) The issuance of the Bayer Convertible Loan.
The Company determined the fair value of the license was $71.4 million based on the consideration paid and the faiff
r value of
s expected fromff
the 50% interest in Casebia, which was determined utilizing discounted cash floff ws based on reasonablea
cash flowff
million. The fair value of the Bayer Convertible Loan was determined to be $24.5 million, based on the fair value of the underlying
preferred shares that were exchanged as part of the immediate conversion. Using a relative fair value allocation, the Company
allocated the aggregate arrangement consideration paid as follows:
Casebia. The fair value of the separate research and development services was determined to be $6.3
estimates and assumptions of
(i)
(ii)
$63.6 million was allocated to the license and patent holder consent combined element
$0.6 million was allocated to the future research and development services
(iii) $27.0 million was allocated to the Bayer Convertible Loan
The difference between combined above amounts of $91.2 million and the total allocable arrangement consideration of $112.6
million is due to allocable arrangement consideration associated with the $6.3 million of estimated cash consideration to be received
under the research and development service arrangement and the remaining $15.0 million of the license fee paid upon the delivery orr
f
the consent from the patent holders of the Company’s intellectual property.
Following deliveryrr of the patent holders’ consent, which occurred on December 17, 2016, the combined amount attributed to the
license and patent holder consent element and the remaining $15.0 million license fee, which amount to $78.6 million, was recognized
as other income forff
combined element did not meet the definition of revenue because the licensing of its technology in connection with the formation of a
joint venture is not part of the Company’s majora
the year ended December 31, 2016. The Company had determined that the license and patent holder consent
ongoing or central operations.
As the amount allocated to the Bayer Convertible Loan represents an $8.0 million discount to its $35.0 million face value, the
Company recognized interest expense duridd
Loan automatically converted into Series B preferff
ng the twelve months ended December 31, 2016 equal to the discount. The Convertible
9, 2016 maturity date.
red shares on its January 2rr
During 2016, the Company recorded an equity method investment of $36.5 million equal to the fair value of the Company’s
interest in Casebia (which was included in the allocabla e arrangement consideration described above). Following delivery of the patent
holders consent element and realization of the described gain allocated to the license and patent holder consent combined element, the
Company recorded unrealized equity method losses up tuu
o the remaining amount of the $36.5 million investment.
During the year ended December 31, 2016, the Company recognized $1.2 million, of revenue with respect to the collabor
with Casebia. Research and development expense incurred by the Company in relation to its performance under the agreement for the
year ended December 31, 2016 was $1.2 million. As of December 31, 2016, there is $0.5 million of non-current deferred revenue
related to the Company’s collabor
investment in Casebia totaled $4.0 million as of and for the year ended December 31, 2016. During 2016, the Company recorded $0.2
million of stock-based compensation expense related to Casebia employees.
ation with Casebia, respectively. Unrecognized equity method losses in excess of the Company’s
ation
a
a
F-26
Total operating expenses, and net loss of Casebia for the twelve months ended December 31, 2016 was $80.8 million, which
included research and development expenses equal to $77.4 million for the fair value of the CRISPR license acquired.
Subscriptii
iott n Agreement withii Bayea r GloGG bal InvII
estments B.V.
On December 19, 2015, the Company entered into a subscription agreement, (“Subscription Agreement”), with Bayer BV.
Pursuant to the Subscription Agreement, Bayer BV was given the option, at its election, to purchase $35.0 million of the Company’s
Common Shares in a private placement concurrent with the Company’s IPO at a per share price equal to the public offerff
ing price, see
Note 16 for further details.
10. Redeemable Convertible Preferred Shares
Upon the closing of the Company’s IPO on October 24, 2016, all outstanding Preferred Shares of the Company were
automatically converted into 27,135,884 Common Shares on a one-for-one basis. As of December 31, 2016, the Company had no
ff
Preferr
ed Stock authorized, issued, or outstanding.
As of December 31, 2015, the Company had 18,837,024 registered Preferred Shares issued and outstanding in share capital,
which was comprised of (i) 440,001 Series A-1 Preferred Shares CHF 0.03 par value per share; (ii) 3,120,001 Series A-2 Preferred
Shares, CHF 0.03 par value per share; (iii) 10,758,006 Series A-3 Preferred Shares, CHF 0.03 par value per share; and, (iv) 4,519,016
Series B Preferr
ed Shares, CHF 0.03 par value per share, (collectively, the “Preferre
d Shares”) .
ff
ff
The Company’s redeemable convertible preferr
ed shares were classified as temporary or mezzanine equity on the accompanying
consolidated balance sheets in accordance with authoritative guidance for the classification and measurement of redeemabla e securities
at the option of the holders.
as the Preferr
ed Shares are contingently redeemablea
ff
ff
In October 2013, the Company issued 440,001 Series A-1 Preferred Shares for CHF 1.14 ($1.28) per share, resulting in gross
d Shares Investment Agreement, the holders
proceeds of CHF 0.5 million ($0.6 million). Under the terms of the Series A-1 Preferre
had the right to purchase an additional 1,315,790 Series A-1 Preferred Shares at CHF 1.14 ($1.28) per share (the “Series A-1 Tranche
Rights”) contingent upon two or more shareholders holding Series A-1 Preferred Shares. These rights were not legally detachabla e. The
Series A-1 Tranche Rights were evaluated under ASC 480 and ASC 815 and it was determined that they did not meet the requirements
for separate accounting from the initial issuance of Series A-1 Preferred Shares. In connection with the issuance of the Series A-1
Preferred Shares, the Company also issued 335,000 Common Shares to the Series A Preferred Shares investors. The Company
recorded the difference of $0.1 million between the fair
issuance cost discount to the Series A-1 Preferred Shares upon issuance.
value of the Common Shares issued and the price paid by the investors as an
ff
ff
In April 2014, the Company issued 3,120,001 Series A-2 Preferred Shares in exchange for CHF 3.05 ($3.47) per share of such
amount CHF 1.45 ($1.65) per share was received upon issuance resulting in gross proceeds of CHF 4.5 million ($5.1 million) and the
balance of CHF 1.60 ($1.82) per share was called in February 2015 by the Board of Directors of the Company resulting in additional
gross proceeds of CHF 5.0 million ($5.3 million).
In connection with the issuance of the Series A-2 Preferred Shares, the Series A-1 Tranche Rights were terminated without
exercise in April 2014. The Company’s policy requires the evaluation of amendments to preferr
whether they are considered a modification or extinguishment. Based on this approach, the amendment to the terms of the Series A-1
Preferred Shares was considered an extinguishment due to the significff ance of the modifications to the substantive contractual terms of
the Series A-1 Preferred
Shares. Accordingly, the Company recorded a loss of $0.7 million on the Series A-1 Preferred Shares within
additional paid-in capital equal to the difference between the fair value of the Series A-1 Preferred Shares of $1.2 million and the
carrying amount of the Series A-1 Preferr
the calculation of net loss available to common stockholders in accordance with FASB ASC Topic 260, Earnings per Share
(“ASC 260”).
ed Shares of $0.4 million upon extinguishment. The loss on extinguishment is reflected in
ed shares qualitatively to determine
ff
ff
ff
In April 2015, the Company issued 10,758,006 Series A-3 Preferred Shares in exchange for $4.24 per share whereby $2.12 per
ed Shares. In connection with the issuance of the Series A-3
ff
ed Shares, the Company amended the dividend and conversion terms of the Series A-1 and Series A-2 Preferred Shares. The
share was received upon issuance, resulting in gross proceeds of $22.8 million and the balance of $2.12 per share was due upon
meeting certain milestones. As of December 31, 2015, none of the milestones had occurred and the Company had an outstanding
subscription receivable of $22.8 million related to the Series A-3 Preferr
Preferr
ff
Company’s policy requires the evaluation of amendments to equity classifiedff
are considered a modification or extinguishment. Based on this appr
Preferred Shares was considered a modificaff
2 Preferre
ff
2016 by the Board of Directors and gross proceeds of $22.8 million were received by May 27, 2016.
d Shares. The balance of the Series A-3 Preferred Share subscription receivable of $2.12 per share was called on May 5,
aa
tion and as a result, there was no adjusd
oach, the amendment to the terms of the Series A-1 and A-2
ed shares qualitatively to determine whether they
tment to the carrying value of the Series A-1 and A-
ff
preferr
F-27
In May 2015, the Company issued 4,519,016 Series B Preferr
ff
ed Shares in exchange for CHF 6.20 ($6.74) per share resulting in
gross proceeds of CHF 28.0 million ($30.5 million).
In January 2016, the Company issued 5,464,608 Series B Preferred Shares upon conversion of $38.4 million of Vertex
Convertible Loans plus accrued interest and $35.0 million of Bayer Convertible Loans at a conversion price of $13.43 per share.
In June 2016, the Company issued 2,834,252 Series B Preferred
ff
Shares in exchange for $13.43 per share resulting in gross
proceeds of $38.1 million.
11. Share Capital
The Company had 40,253,674 and 5,528,079 registered Common Shares as of December 31, 2016 and 2015, respectively, with
a par value of CHF 0.03 per share. Included in the registered Common Shares as of December 31, 2016 is 89,367 shares of unvested
restricted stock award and 444,873 treasury shares, which are legally outstanding, but are not considered outstanding for accounting
purposes.
uu
e
Conditional Capital Reserved forff FuFF ture Issuanc
II
The Company had the following conditional capital reserved forff
future issuance:
Type of Share Capital
Common Shares
Common Shares
Common Shares
Common Shares
Common Shares
Common Shares
Conditional Capital
Charpentier Call Option
Unvested unissued restricted stock
Outstandingg stock options
Reserved forff
Shares available for bonds and similar debt instruments
Shares availablea
future issuance under stock option plans
for employee purchase plans
Total
Common Share Issuances
As of December 31,
2016
—
166,667
4,535,371
5,290,643
4,919,700
413,226
15,325,607
2015
328,017
142,794
1,939,986
33,567
—
—
2,444,364
In October 2016, the Company completed an IPO whereby the Company sold 4,429,311 of its Common Shares, inclusive of
429,311 Common Shares sold by the Company pursuant to the partial exercise of an overallotment option granted to the underwriters
in connection with the offering. Concurrent with the IPO, the Company issued and sold 2,500,000 Common Shares to Bayer BV, in a
private placement. Additionally, the Company issued and subsequently reacquired the unexercised overallotment Common Shares of
170,689 at no cost, which are held in treasury.rr
In March 2015, the Company entered into an agreement to acquire 82.1% of the ordinary share capital of TRACR in a share
ct to a right of repurchase at an escalating purchase price. If any of these holders of restricted Common Shares are terminated,
exchange transaction. In connection with this share exchange transaction, the Company issued 852,846 Common Shares to two
founders of TRACR, 459,217 Common Shares to Fay Corp. and 656,031 restricted Common Shares to certain employee and non-
employee advisors of TRACR. If the holders of any restricted common shares terminates the service relationship the unvested shares
are subjeu
in certain circumstances, the vested and unvested shares are subject to a right of repurchase at the shareholder’s original purchase
price. The Company recorded equity-based compensation expense in April 2015 for the incremental value received by the holders in
exchange forff
compensation expense for the exchange of TRACR
form of CRISPR restricted share awards. See Note 12 for furth
transaction.
restricted share awards which will continue to vest over a remaining term in the
er details of equity-based compensation related to this share exchange
the vested TRACR shares as of the exchange date. The Company is also recognizing additional equity-based
RR
ff
In April 2014, in conjunction with the sale of its Series A-2 Preferred Shares, the Company and its founders agreed to transferff
729,800 Founders’ Shares to several non-employees. The shares transferred were subject to service-based vesting conditions. If the
holder of any restricted Common Shares terminates the service relationship, the unvested shares are subjeb ct to a right of repurchase at
an escalating purchase price. Both vested and unvested shares are subjeu
certain triggering events such as termination for cause, material breach of agreement, and insolvency of the holder. In addition, the
founders and an investor also agreed to transfer 1,192,585 fully vested Common Shares to Fay Corp. The Company recorded equity-
based compensation expense for the Founders Shares and the Common Shares issued with vesting restrictions froff m the founders and
Fay Corp.rr See Note 12 for further details of equity-based compensation related to these transferff s.
ct to a right of repurchase at the original purchase price upon
F-28
The Common Shares have the following characteristics:
Votingii Rights
The holders of Common Shares are entitled to one vote for each Common Share held at all meetings of shareholders and written
actions in lieu of meetings.
Dividendsdd
The holders of Common Shares are entitled to receive dividends, if and when declared by the Board of Directors. As of
December 31, 2016, no dividends have been declared or paid since the Company’s inception.
Liquidatdd iontt
After payment to the holders of Preferred Shares of their liquidation preferences, the holders of the Common Shares are entitled
to share ratablya
liquidation, dissolution or winding up ouu
in the Company’s assets availablea
for distribution to shareholders in the event of any voluntary or involuntaryrr
f the Company or upon the occurrence of a deemed liquidation event.
12. Equity-based Compensation
Option and Grant Plans
In July 2016, the shareholders approved the 2016 Share Option and Incentive Plan (the “2016 Plan”) and in April 2015, the
a
ved the 2015 option and grant plan (the “2015 Plan” collectively the “Plans”). Subsequent to the IPO, no further
shareholders appro
options shall be granted under the 2015 Plan. The Plans provide for the issuance of equity awards in the form of restricted shares,
options to purchase Common Shares which may constitute incentive stock options (“ISOs”) or non-statutor
unrestricted stock unit grants, and qualified performance-based awards to eligible employees, officers, directors, non-employee
consultants, and other key personnel. Terms of the equity awards, including vesting requirements, are determined by the Board,
t to the provisions of the Plans. Options granted by the Company typically vest over four years and have a contractuatt
subjecb
years. During the years ended December 31, 2016, 2015 and 2014, the Company also issued outstanding Common Shares previously
held by Founders and Fay Corp. to employees and non-employees as equity-based compensation (“Founder Awards”), which are
subject to repurchase by the Company upon termination of the holder’s service relationship with the Company as well as upon certrr ain
triggering events such as termination for cause, material breach of agreement and insolvency of the holder that generally lapse over a
requisite service period of four
tock options (“NSOs”),
l life off
years.
y srr
ff
ff
tt
f ten
Equity-Based CompCC
ensatiott n ExpeEE
nse
The Company uses the straight-line attribution method to recognize stock-based compensation expense for stock options and
restricted stock awards. Stock options and restricted stock generally vests over four years with 25% vesting on the first anniversary,
and the remaining vesting monthly thereafter. The following table presents stock-based compensation expense in the Company’s
Consolidated Statements of Operations:
Research and development
General and administrative
Loss from equity method investment
Total
Year Ended December 31,
2015
2014
2016
$
$
4,848 $
5,844
152
10,844 $
1,924 $
1,760
—
3,684 $
487
208
—
695
F-29
Grant- Date Fairii Value
There were no stock options granted prior to 2015. The Company estimated the fair value of each employee and non-employee
stock option award on the grant date using the Black-Scholes option-pricing model based on the following assumptions:
Employees:
Options granted
Weighted - average exercise price
We gighted-ave grage ggrant date fair value
Assumptions:
Weighted-average expected volatility
Expected term (in years)
Weighted-average risk free interest rate
Expected dividend yield
Non employees:
Options granted
Weighted- average exercise price
Weighted- average grant date fair value
Assumptions:
Weighted averagge expected volatility
Expected term (in years)
Weighted-average risk free interest rate
Expected dividend yield
$
$
$
$
Year Ended December 31
2015
2016
$
$
$
$
2,411,240
12.19
8.47
81.0%
6.0
1.4%
0.0%
215,710
19.54
17.38
88.2%
10.0
2.4%
0.0%
1,913,319
2.32
3.11
76.4%
6.0
1.7%
0.0%
26,667
1.85
5.05
84.1%
10.0
2.2%
0.0%
The fair value of the restricted stock awards was determined based on the fair value of Common Stock on the grant date. Non-
employee stock options and restricted stock awards are marked-to-market at each reporting period.
Share Based Payma
ent Activityii
Stock Options
The following table summarizes stock option activity for employees and non-employees during the year ended December 31,
2016 (intrinsic value in thousands):
Outstanding at December 31, 2015
Granted
Exercised
Cancelled or forfe
ited
ff
Outstanding at December 31, 2016
Exercisable at December 31, 2016
Vested or expected to vest at
December 31, 2016 (1)
Stock
Options
Weighted-
Average
Exercise Price
Weighted-
Average
Remaining
Contractual
Term (years)
Aggregate
Intrinsic
Value
1,939,986
2,626,950
(18,900)
(12,665)
4,535,371
960,867
4,169,347
$
$
$
$
$
2.31
12.79
1.81
4.98
8.38
3.24
8.23
9.7
9.1
8.8
9.1
$
$
$
$
$
6,688
216
53,975
16,361
50,155
(1)
This represents the number of vested stock options as of December 31, 2016 plus the unvested outstanding options at December
31, 2016 expected to vest in the future, adjusted for estimated forfeiturett
s.
The total unrecognized compensation cost for employee and non-employee stock options is adjusted for estimated forff
feitures.
As of December 31, 2016, the Company expects to recognize total unrecognized compensation cost related to stock options of $23.4
million over a remaining weighted-average period of 3.3 years.
F-30
During 2016 and 2015, the Company granted options to purchase 123,333 and 261,389 Common Shares, respectively, subject to
performance-based vesting conditions. As of December 31, 2016, options to purchase 262,538 Common Shares subject to
performance-based vesting conditions were vested, as performance conditions were achieved, and options to purchase 12,500
Common Shares subject to performance-based vesting conditions were deemed probable of vesting. In addition, 686,665 options to
purchase Common Shares, subjec
ance conditions uponuu
Company’s IPO on October 18, 2016, and will continue to vest over their requisite service periods.
t to service and performance-based vesting conditions, satisfied the performff
u
the
Restritt cted Stock
SS
The following table summarizes restricted stock activity for employees and non-employees duridd
ng the year ended December 31,
2016:
Unvested restricted Common Stock at
December 31, 2015
Vested
Unvested restricted Common Stock at
December 31, 2016
Reflect
ed as
ff
outstanding
g
upon vesting
Reflect
ed as
ff
outstanding
upon grant date
g
Total
142,794
(53,427)
1,485,244
(834,388)
1,628,038
(887,815)
$
89,367
650,856
740,223
$
Weighted-
Average
Grant Date
Fair Value
4.35
4.78
3.84
During the years ended December 31, 2016 and 2015, the total fair value of restricted stock vested was $9.9 million, $2.3
million, respectively. At December 31, 2016, total unrecognized compensation expense related to unvested restricted stock was $7.2
million which the Company expects to recognize over a remaining weighted-average period of 1.4 years.
During 2016 and 2015, the Company granted 0 and 50,000 restricted Common Shares, respectively, subject to performance-
based vesting conditions. As of December 31, 2016 and 2015, 50,000 and 0 restricted Common Shares subject to performance-based
vesting conditions were vested, respectively. As of December 31, 2015, there were 15,000 restricted Common Shares subject to
performff
ance-based vesting conditions deemed probable of vesting.
During the year ended December 31, 2016, the Company and Fay Corp. transferred 290,400 Common Shares to a Founder,
r value of $12.65 per share. The unvested
268,093 of which are subject to vesting conditions with a weighted average grant date faiff
Common Shares are subject
well as uponuu
Company recognized expense related to the Common Shares transferred to the Founder of $2.6 million during the year ended
December 31, 2016. As of December 31, 2016, Fay Corp.rr no longer held outstanding Common Shares of the Company.
certain triggering events such as termination for cause, material breach of agreement and insolvency of the holder. The
to repurchase by the Company upouu n termination of the holder’s service relationship with the Company as
b
13. 401(k) Savings Plan
The Company establia
shed a defined-contribution savings plan under Section 401(k) of the Internal
rr
Revenue Code (the “401(k)
Plan”) in November 2016. The 401(k) Plan covers all employees who meet defined minimum age and service requirements, and
allows participants to defer a portion of their annual compensation on a pretax basis. The Company contributed $0.1 million to the
401(k) Plan for the year ended December 31, 2016.
14. Income Taxes
The Company is subject to U.S. feder
ff
the
gn subsidiaries have been established. For the years ended December 31, 2016, 2015 and 2014, the loss
al and various state corporate income taxes as well as taxes in foreign jurisdictions forff
ff
foreign parent and where forei
before provision forff
income taxes consist of the following (in thousands):
Domestic
Foreign
Total
Year ended December 31,
2015
2014
2016
$
$
$
3,322
(26,040)
(22,718) $
$
593
(26,414)
(25,821) $
—
(6,863)
(6,863)
F-31
The provision for (benefit from) income taxes consist of the following (in thousands):
Current income taxes:
Federal
State
Foreign
Total current income taxes
Deferred income taxes:
Federal
State
Foreign
Total deferred income taxes
Total income tax (provision) benefit
Year ended December 31,
2015
2014
2016
$
$
(649) $
11
17
(621)
30
105
2
137
(484) $
(23) $
(12)
(26)
(61)
(37)
65
26
54
(7) $
—
—
(11)
(11)
—
—
74
74
63
A reconciliation of income tax expense computed at the statuttt ory corporate income tax rate to the effective income tax rate for
the years ended December 31, 2016, 2015 and 2014 is as follows:
Income tax expense at statutory rate
State income tax, net of federal benefit
NNNondeductible expenses
Foreign rate differential
Statutory to US GAAP permanent differences
Stock-based compensation
Research credits
Change in valuation allowance
Effective income tax rate
Year ended December 31,
2015
2014
2016
10.3%
1.3%
1.6%
(3.3%)
6.6%
(4.9%)
3.1%
(16.8%)
(2.1%)
10.3%
0.1%
0.0%
(1.4%)
0.0%
(1.4%)
0.6%
(8.2%)
0.0%
10.3%
0.0%
0.0%
1.8%
0.0%
(1.1%)
0.0%
(10.1%)
0.9%
The federal statutory rate reflects the Switzerland mixed company service rate.
ff
Deferr
ed taxes are recognized for temporary differences between the basis of assets and liabia lities forff
financial statement and
income tax purposes. The significaff
nt components of the Company’s deferred tax assets are comprised of the following (in thousands):
Deferred tax assets:
t operatingg loss
Accruals and reserves
carryforwards
y
ff
ferred Rent
Other deferred tax assets
ferred revenue
Research credit
ff
deferr
ed tax assets
Less valuation allowance
NNet deferred tax assets
Deferred tax liabilities:
eciation
Intangible assets
Other deferredrr
tax liabilities
Total deferred tax liabilities
Long term deferrerr d taxes
F-32
Year ended December 31,
2016
2015
$
$
3,934
791
5,228
7
2,525
425
12,910
(6,770)
6,140
(5,909)
(68)
—
(5,977)
163
$
$
2,600
189
—
72
406
104
3,371
(2,892)
479
(321)
(80)
(53)
(454)
25
The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Based on
f operating losses in its non-U.S. jurisdictions, the Company has concluded that it is more-likely-than-not that
valuation allowance
the Company’s history orr
the benefitff of its non-U.S. deferred tax assets will not be realized. Accordingly, the Company has provided a full
against its net deferred tax assets in Switzerland, and in the UK for its TRACR subsidiary,rr
valuation allowance increased by $3.9 million during 2016, which is primarily attributablea
Company has established a valuation allowance for certain U.S. deferr
as of December 31, 2016 and 2015. The
to losses in Switzerland. Additionally, the
ed tax assets.
ff
ff
As of December 31, 2016, the Company had availablea
non-U.S. net operating loss carryforwarr
to expire in 2020. As of December 31, 2016, the Company has U.S. domestic state research and development credit carryfrr orwff
$0.2 million which begin to expire in 2031.
rds of $41.7 million which begin
ards of
As of December 31, 2016, the Company has U.S. domestic federal research and development credit carryforr
rwards of $0.3
million which expire in 2036.
ASC 740 clarifies the accounting forff
uncertainty in income taxes recognized in an enterprrr
ise’s finff ancial statement by
.
prescribing the minimum recognition threshold and measurement of a tax position taken or expected to be taken in a tax returntt
As of December 31, 2016 the Company had gross unrecognized tax benefits of $0.2 million of which $0.1 million would
tive tax rate if recognized. The Company will recognize interest and penalties related to uncertain tax
favorabla y impact the effecff
positions in income tax expense. As of December 31, 2016, 2015 and 2014, the Company had no accruedrr
to uncertain tax positions and no amounts have been recognized in the Company’s consolidated statements of operations and
comprehensive loss.
interest or penalties related
The aggregate changes in gross unrecognized tax benefitsff was as foll
ff
ows (in thousands):
Year ended December 31,
2015
2014
2016
Balance at beginning of year
Increases for tax positions taken during current period
Increases for tax positions taken in prior periods
Decreases for tax positions taken during current period
Decreases for tax positions taken in prior periods
Balance at end of year
$
$
49
134
—
—
(20)
163
$
$
— $
49
—
—
—
49
$
—
—
—
—
—
—
The Company files income tax returns in the U.S. federal jurisdiction, Massachusetts, and certain non-U.S. jurisdictions. The
Company is subject to U.S. federal, Massachusetts, and non-U.S. income tax examinations by authorities for all tax years.
F-33
15. Selected Quarterly Financial Data (Unaudited)
Prior to its IPO on October 18, 2016, the Company had outstanding participating Preferred Shares. During the fourth quarter of
the year ended December 31, 2016, the Company had net income, although for the full year the Company had a net loss. Accordingly,
the Company used the two-class method to calculate net income per share for the fourth quarter of 2016. For purposes of calculating
basic net income per share forff
attributable to participating securities. The Company calculated diluted net income per share under both the if-converted method and
verted method. Accordingly, the two-
the two-class method and concluded that the two-class method was more dilutive than the if-con
class income allocations were reapplied after taking into account the dilutive effecff
t of non-participating securities. This resulted in net
income of $3.1 million being allocated to the participating securities and excluded from the numerator of the Common Stock dilutive
net income per share calculation.
the fourth quarter of 2016, the Company excluded fromff
the numerator $3.1 million of net income
ff
Collaboration revenue
Total operating expenses
Loss from operations
NNet (loss) income
NNNet (loss) income attributable to common shareholders
Net (loss) income per share attributable to common
shareholders:
Basic
Diluted
Weighted-average common shares outstanding used in net (loss)
income per share attributable to common shareholders:
Basic
Diluted
Collaboration revenue
Total operating expenses
Loss from operations
NNet loss
NNNet loss attributable to common shareholders
NNet loss per share applicable to common shareholders- basic
and diluted
Weighted-average common shares outstanding used in net loss per
share attributable to common shareholders - basic and diluted
2016
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter (1)
$
476
12,128
(11,652)
(8,442)
(8,439)
$
795
17,353
(16,558)
(17,164)
(17,157)
$
1,549
16,159
(14,610)
(14,694)
(14,680)
2,344
27,654
(25,310)
17,098
17,099
(1.53) $
(1.53) $
(3.15) $
(3.15) $
(2.77) $
(2.77) $
0.43
0.40
5,528,079
5,528,079
5,448,855
5,448,855
5,292,348
5,292,348
32,987,335
34,989,218
2015
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
— $
3,736
(3,736)
(3,522)
(3,237) $
— $
3,625
(3,625)
(3,666)
(3,643) $
— $
6,202
(6,202)
(6,354)
(6,353) $
247
12,413
(12,166)
(12,286)
(12,270)
(0.91) $
(0.80) $
(1.15) $
(2.22)
3,560,000
4,538,595
5,528,079
5,528,079
$
$
$
$
$
$
(1) During the fourth quarter the Company recorded an immaterial correction of an error of $1.2 million for rent expense related to
the three months ended September 30, 2016. The Company determined that these errors are not material to the respective
interim financial statements.
16. Related Party Transactions
We had the following transactions with related parties during the period:
In connection with the Series A-3 Preferred Share finaff
ncing, the Company paid $0.2 million on behalf of investors for legal and
consulting costs incurred for the preparation and completion of the transaction.
tier is a
The Company is a party to intellectual property license agreements with Dr. Charpentier. In addition, Dr. Charpenrr
consultant to the Company. For the year ended December 31, 2016 and 2015, the Company paid Dr. Charpentier a total of $1.0
million and $34 thousand, respectively, in consulting, licensing and other fees. As of December 31, 2016 and 2015, the Company
owed Dr. Charpenrr
primarily related to the Vertex
Collaboration Agreement and Bayer Joint Venture Agreement.
roximately $0.5 million, and $1.0 million, respectively, of additional fees
tier appaa
ff
F-34
During the year ended December 31, 2016, the Company formed a joint venturtt e with Bayer. As a part of the agreement to form
the joint venture, the Company also issued a $35.0 million convertible loan to Bayer, which converted into Series B preferred stock
and ultimately common stock upon the IPO. Bayer also purchased 2,500,000 common shares through a private placement of $35
million during 2016. During the year ended December 31, 2016 and 2015, the Company recognized $1.2 million and $0 million,
respectively, related to the performance of R&D services for Casebia, the Company’s joint venture with Bayer. See Note 9 forff
detail.
furtuu her
17. Subsequent Events
Under the Charpentie
rr
r license agreement, the Company licenses a U.S. patent appli
aa
cation that is currently subject
b
to interference
proceedings declared by the PTAB of the U.S. Patent and Trademark Office. Following motions by the parties and other procedural
matters, the PTAB concluded in Februaryrr 2017 that the declared interference should be dismissed because the claim sets of the two
parties were not directed to the same patentable invention in accordance with the PTAB’s two-way test for patent interferences.
F-35
Casebia Therapeutics, LLP and Subsidiary
Consolidated Financial Statements
As of December 31, 2016 and the Period From February 1rr
2, 2016 (Inception)
Through December 31, 2016
Casebia Therapeutics, LLP and subsidiary
Consolidated financial statements as of December 31, 2016 and the period from February 12, 2016 (inception) through December 31, 2016
Report of independent auditors
Consolidated balance sheet
Consolidated statement of operations and comprehensive loss
Consolidated statement of cash flows
Consolidated statement of changes in partners’ equity
Notes to consolidated financial statements
g
y
g
Pages
S-2
S-3
S-4
S-5
S-6
S-7
S-1
The Management Board and Stockholders
Casebia Therapeutics LLP
Report of Independent Auditors
We have audited the accompanying consolidated financial statements of Casebia Therapeutics LLP and subsu idiary, which comprise
the consolidated balance sheet as of December 31, 2016, and the related consolidated statements of operations, comprehensive loss,
changes in partners’ equity, and cash flowff
February 12, 2016 (inception) through December 31, 2016, and the
related consolidated notes to the consolidated financial statements.
the period fromff
s forff
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these finff ancial statements in conforff mity with U.S. generally
accepted accounting principles; this includes the design, implementation and maintenance of internal control relevant to the
preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conductdd
with auditing standards generally accepted in the United States. Those standards require that we plan and performff
reasonable assurance about whether the financial statements are freff e of material misstatement.
ed our audit in accordance
aa
the audit to obtain
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial
statements, whether duedd
to fraud or error. In making those risk assessments, the auditor considers internal
entity’s preparation and faiff
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we
express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonabla eness of
significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
control relevant to the
cial statements in order to design audit procedures that are appropriate in the
r presentation of the finan
ff
rr
We believe that the audit evidence we have obtained is sufficient and appro
aa
priate to provide a basis for our audit opinion.
Opinion
In our opinion, the finff ancial statements referred to above present faiff
Casebia Therapeutics, LLP and subsidiary arr
for the period fromff
principles.
rly, in all material respects, the (consolidated) finff ancial position of
t December 31, 2016, and the consolidated results of their operations and their cash flows
ity with U.S. generally accepted accounting
February 12, 2016 (inception) through December 31, 2016 in conformff
ff
/s/ Ernsrr
t & Young LLP
Boston, Massachusetts
March 10, 2017
S-2
Casebia Therapeutics, LLP and subsidiary
Consolidated balance sheet
Assets
Current assets:
Cash
Prepaid assets
Tenant improvement allowance receivable
Total current assets
Property and equipment, net
Restricted cash
Total assets
Liabilities and Equity
Current liabilities:
Accounts payabla e
Due to partners
Deferred rent
Accrued expenses
Total current liabia lities
Deferred rent
Total liabilities
Commitments and contingencies
Partners’ Equity:
Partners’ equity
Contribution receivablea
from partner
Total partners’ equity
Total liabia lities and partners’ equity
See accompanying notes to consolidated financial statements.tt
December 31,
2016
2,216,490
36,948
1,299,007
3,552,445
4,560,488
1,225,768
9,338,701
397,441
1,881,160
722,977
302,137
3,303,715
5,043,355
8,347,070
60,991,631
(60,000,000)
991,631
9,338,701
$
$
$
$
S-3
Casebia Therapeutics, LLP and subsidiary
Consolidated statement of operations and comprehensive loss
Operating expenses:
General and administrative (includes $1,157,496 of expenses fromff
related parties)
Research and development (includes $4,879,971 of expenses from related parties)
Total operating expenses
Loss from operations
Net loss and comprehensive loss
See accompanying notes to consolidated financial statements.tt
Period from
February 12, 2016
(inception) through
December 31,
2016
$
$
3,458,074
77,373,590
80,831,664
(80,831,664)
(80,831,664)
S-4
Casebia Therapeutics, LLP and subsidiary
s
Consolidated statement of cash flowff
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
reciation and amortization
Equity-based compensation expense
Non-cash contributions by partners
Deferred rent expense
Contribution of in-process research and development
Changes in operating assets and liabilities:
epaid expenses
Restricted cash
Accounts p yayablea
Due to partners
Accruedrr
expenses
Net cash used in operating activities
Cash flows from investing activities:
Additions to property and equipment
cash used in investing activities
Cash flows from financing activities:
Capiaa tal contributions from partners
Net cash provided by financing activities
Net increase in cash
Cash, begginningg of period
Cash, end of period
Non-cash investing activities:
Purchases of property and equipment included in accounts payable and accrued expenses
Property and equipment additions acquired under tenant improvement allowance
Non-cash financi
Capital contribution receivable from partner
Contribution of in-process research and development from partner
NNNon-cash contributions from partners
ng activities:
ff
Period from
February 12, 2016
(inception) through
December 31,
2016
$
(80,831,664)
7,329
152,270
199,347
374,132
36,371,678
(36,948)
(1,225,768)
372,258
1,881,160
297,137
(42,439,069)
(444,441)
(444,441)
45,100,000
45,100,000
2,216,490
—
2,216,490
30,183
4,093,193
60,000,000
36,371,678
199,347
$
$
$
$
$
$
See accompanying notes to consolidated financial statements.tt
S-5
Casebia Therapeutics, LLP and subsidiary
Consolidated statement of changes in partners’ equity
Partners’
equity
Contribution
receivable froff m
partner
Total
Partners’
equity
partners
Balance at February 12, 2016 (inception)
Contributions fromff
Contribution of in-process research and development from partner
NNet loss
Partner equity-based compensation
Other non-cash contributions by partners
Contribution receivable from partner (See Note 6)
Balance at December 31, 2016
$
$
105,100,000
36,371,678
(80,831,664)
152,270
199,347
— $
— $
—
—
—
—
—
— (60,000,000)
60,991,631 $(60,000,000) $
—
105,100,000
36,371,678
(80,831,664)
152,270
199,347
(60,000,000)
991,631
See accompanying notes to consolidated financial statements.tt
S-6
Casebia Therapeutics, LLP and subsidiary
Notes to consolidated financial statements
1. Organization and Operations
Organization
Casebia Therapeutics, LLP (the “JV” or “Casebia”) is a joint venturett
and Bayer HealthCare LLC (“Bayer HealthCare”) in February
disorders, blindness and congenital heart disease. Bayer HealthCare and CRISPR each received a 50% equity interest in the entity in
exchange for their contributions to Casebia. CRISPR contributed $0.1 million in cash and licensed its proprietary Crr
l property forff
editing technology and intellectuatt
expertise and relevant disease know-how. Bayer HealthCare will also provide up tuu
funding to Casebia over the first five years, subjeb ct to certain conditions. The activities of Casebia are controlled by a Management
Board under the joint control of CRISPR and Bayer HealthCare.
s9 gene
selected disease indications. Bayer HealthCare has contributed its protein engineering
o $300.0 million in research and development
RISPR/CaRR
rr
tics AG (“CRISPR”)
, 2016 to research the development of new therapeutics to cure blood
formed between CRISPR Therapeuaa
ii
Liqii uidity
Casebia’s net loss for 2016 was $80.8 million. As of December 31, 2016, Casebia had unrestricted cash of $2.2 million. In
January, 2017, according to the terms of the Joint Venturett
following the December 2016 receipt of consents necessary from patent holders of CRISPR’s intellectual
made a capital contribution to Casebia of $60.0 million, which is recorded as a contribution receivable in the accompanying
consolidated balance sheet. Casebia believes that its cash as of December 31, 2016, along with the capital contribution received in
January 2rr
Agreement between CRISPR and Bayer HealthCare (the “JV Agreement”),
property, Bayer HealthCareaa
its current operating plan for at least the next 12 months.
017, will be sufficff
ient to fundff
tt
The JV Agreement sets forth the initial 24-month budget forff Casebia, which will be revised by the Management Board on a
yearly basis for the following 24 months. Bayer HealthCare, subju ect to certain conditions, is solely responsible for providing Casebia
with the necessary additional funding as determined by the Management Board until the earlier of (i) its aggregate remaining
commitment amount of $255.0 million as of December 31, 2016 is fully funded, at which point all additional finaff
approved by the Management Board or (ii) the termination of the JV Agreement in accordance with its terms. Any additional funding
beyond the amounts initially committed by Bayer HealthCare in the JV Agreement up tuu
amount, whether forff
ses of an acquisition or otherwise, will not affect or dilute CRISPR’s 50% interest in Casebia.
o the $300.0 million aggregate commitment
ncing must be
purporr
There can be no assurances, however, that Casebia’s current operating plan will be achieved or that additional fund
ff
ing will be
availablea
on acceptable terms to Casebia, or at all.
2. Summary of significan
ff
t accounting policies
Basis oii
f po
resentati
tt
on and consolidation
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally
accepted in the United States of America (“GAAP”), and include the accounts of Casebia and its subsidiary. All intercompany
accounts and transactions have been eliminated. Any reference in these notes to appa
authoritative United States generally accepted accounting principles as found
Accounting Standards Updates (“ASUs”) of the Financial Accounting Standards Board (“FASB”).
licabla e guidance is meant to refer to the
in the Accounting Standards Codification (“ASC”) and
ff
The preparation of financial statements in conformff
ity with GAAP requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, Casebia’s management
evaluates its estimates, which include, but are not limited to, equity-based compensation expense and reported amounts of expenses
during the reporting period. In addition, significant estimates in these consolidated financial statements have been made in connection
with the calculation of the value of contributed technology and research and development expenses. Casebia bases its estimates on
historical experience and other market-specific or other relevant assumptions that it believes to be reasonabla e under the circumstances.
Actual results may differff
from those estimates or assumptions.
S-7
Segmegg
nt Information
Operating segments are defined as components of an enterprise about which separate discrete information is available forff
evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing
performance. Casebia’s chief operating decision maker, the chief executive officff er, views Casebia’s operations and manages its
business in one operating segment which is the business of researching the development of new breakthrough therapeutics to cure
blood disorders, blindness and congenital heart disease.
Cash
Casebia considers all highly liquid investments with maturi
tt
ties of 90 days or less from the purchase date to be cash equivalents.
As of December 31, 2016, Casebia had no cash equivalents. All cash was held in depository accounts and is reported at fair value.
Concentrations of Credit Rii
isk and Off-balance Sheet Risk
Financial instruments that potentially subju ect Casebia to concentrations of credit risk are primarily cash. Casebia’s cash is held
in accounts with financial institutions that management believes are creditworthy. Casebia has not experienced any credit losses in
such accounts and does not believe it is exposed to any significaff
off-balance sheet risk of loss.
nt credit risk on these funff ds. Casebia has no financial instrumrr
ents with
Property and equipment
Property and equipment is stated at cost, less accumulated depreciation. Maintenance and repairs that do not improve or extend
the lives of the respective assets are expensed to operations as incurred. Upon disposal, the related cost and accumulated depreciation
is removed from the accounts and any resulting gain or loss is included in the results of operations. Depreciation is recorded using the
straight-line method over the estimated usefulff
lives of the respective assets, which are as folff
lows:
Asset
re
ff
Computer equipment and softwa
Furnit
urtt e, fixtures, and other
rr
Laboratory equipment
Leasehold improvements
Research and Development Expenses
Estimated useful life
3 years
5 years
5 years
Shorter of useful life or remaining lease term
Research and development costs, which include employee compensation costs, facilities, lab suppli
uu
es and materials, overhead,
preclinical development, and other related costs, are charged to expense as incurred.
Operatintt g Ln
eases
Casebia leases offiff ce and labor
a
atory facilities under non-cancelabla e operating lease agreements. The lease agreements contain
free or escalating rent payment provisions. Casebia recognizes rent expense under such leases on a straight-line basis over the term of
the lease with the difference between the expense and the payments recorded as deferred rent on the consolidated balance sheet.
Amounts received from lessors are accounted for as lease incentives, which are amortized as a reduction of rent expense over the term
of the lease. Lease renewal periods are considered on a lease-by-lease basis in determining the lease term.
tt
Equity-bas
e
ed Compensation Expens
EE
Certain employees of Casebia have been granted options to purchase CRISPR common stock. In accordance with FASB ASC
Topic 323-10, Investments – Equity Method and Joint Ventures (“ASC 323-10”), CRISPR expenses the cost of the stock options
granted to employees of Casebia as incurred. Concurrently, Casebia will also recognize the same cost of the stock options as an
expense and capital contribution from CRISPR.
CRISPR accounts for stock options issued to non-employees under FASB ASC Topic 505-50, Equity-Based Payments to Non-
Employees (“ASC 505-50”). As such, the value of such options is periodically remeasured and income or expense is recognized over
their vesting terms. Compensation cost related to awards with service-based vesting schedules
method. CRISPR estimates the fair value of stock options using the Black-Scholes option pricing model.
is recognized using the straight-line
dd
S-8
The Black-Scholes option pricing model requires the input of certain subju ective assumptions, including (i) the expected share
price volatility, (ii) the calculation of expected term of the award, (iii) the risk-freff e interest rate and (iv) the expected dividend yield.
Due to the lack of sufficient public market data for the trading of CRISPR’s Common Shares and a lack of CRISPR-specific historical
and implied volatility data, CRISPR has based its estimate of expected volatility on the historical volatility of a group of similar
companies that are publicly traded. The historical volatility is calculated based on a period of time commensurate with the expected
term assumption. The group ouu
development and focuff
arrangement as the basis forff
consistent with the expected term of the stock options. CRIPSR uses an assumed dividend yield of zero as CRISPR has never paid
dividends and has no current plans to pay any dividends on its Common Shares.
s on the life science industry. For options granted to non-employees, CRISPR utilizes the contractuatt
f representative companies have characteristics similar to CRISPR, including stage of product
interest rate is based on a treasury instrument whose term is
the expected term assumption. The risk-freeff
l term of the
CRISPR measures equity-based compensation awards granted to non-employees at fair value as the awards vest and recognizes
the resulting value as compensation expense at each financial reporting period.
Patent Costs
Costs to secure and prosecute patent application and other legal costs related to the protection of Casebia’s intellectual property
as general and administrative expenses in Casebia’s consolidated statements of operations.
are expensed as incurred, and are classifiedff
Income taxtt
es
Casebia is a limited liability partnership. No provision for fedff
Casebia because, as a partnership, it is not subjeb ct to federal income tax and the tax effecff
eral income taxes is necessary in the finff ancial statements of
t of its activities accrues to the partners.
In certain circumstances, partnerships may be held to be associations taxable as corporr
rations. The Internal Revenue Service has
issued regulations specifyinff
opinion of counsel based on those regulations that the partnership is not an association taxable as a corporation. A finding that the
partnership is an association taxable as a corporation could have a material adverse effect on the financial position and results of
operations of the partnership.
g circumstances under current law when such a findff
ing may be made, and management has obtained an
Fair vii
alue of fiff naii ncial insii
truments
Casebia’s financial instrumrr
ents consist of accounts payable and accrued expenses. Casebia is required to disclose information
r values.
on all assets and liabilities reported at fair value that enabla es an assessment of the inputs used in determining the reported faiff
FASB ASC Topic 820, Fair Value Measurement and Disclosures (“ASC 820”), established a hierarchy of inputs used in measuring
fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observabrr
le
inputs be used when available. Observablea
based on market data obtained froff m sources independent of Casebia. Unobservable inputs are inputs that reflect
assumptions about the inputs that market participants would use in pricing the financial instrume
best information available in the circumstances.
inputs are inputs that market participants would use in pricing the finff ancial instrument
nt and are developed based on the
Casebia’s
rr
ff
The accounting standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered
, that may be used to measure fair value, which are the following:
observable and the last unobservablea
Level 1 — Quoted prices in active markets that are accessible at the market date for identical unrestricted assets or liabia lities.
Level 2 — Inputs other than Level 1 that are observablea
similar assets or
liabia lities; quoted prices in markets that are not active; or other inputs for which all significant inputs are observable
or can be corroborated by observable market data for substantially the fulff
, either directly or indirectly, such as quoted prices forff
l term of the assets or liabilities.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the
assets or liabilities.
To the extent that valuation is based on models or inputs that are less observablea
or unobservable in the market, the
r
r value requires more judgment. Accordingly, the degree of judgment exercised by Casebia in determining faiff
determination of faiff
value is greatest for instruments categorized in Level 3. A finaff
lowest level of any input that is significant to the fair value measurement.
ncial instrument’s level within the fair value hierarchy is based on the
S-9
The fair value of the CRISPR license which was written off following the formation of Casebia was calculated based on the
consideration paid and the fair
discounted cash flows based on reasonable estimates and assumptions of cash flows expected from Casebia, and thus considered a
Level 3 input. The value of the intellectual property contributed by CRISPR was determined to be $36.4 million.
value of CRISPR’s 50% interest in Casebia as of February 12, 2016, which was determined utilizing
ff
rr
The carrying
31, 2016 approximate faiff
instruments and certain other items at specifiedff
amount of accounts payablea
r value due to the short-term duradd
election dates in the future.
and accrued expenses as reporting in the consolidated balance sheet as of December
tion of these instruments. Casebia may elect to measure financial
Comprm ehensive Loss
Comprehensive loss consists of net loss and changes in equity during the period from transactions and other events and
non-owner sources. Casebia’s net loss equals comprehensive loss for the year ended December 31,
circumstances generated fromff
2016.
Subsequent Eventstt
Casebia considers events or transactions that occur after the balance sheet date but prior to the date the finff ancial statements are
available to be issued for potential recognition or disclosure in the financial statements. Casebia has completed an evaluation of all
the audited balance sheet date of December 31, 2016 through March 10, 2017, to ensure that these financial
subsequent events after
statements include appr
opriate disclosure of events recognized in the financial statements as of December 31, 2016, and events which
occurred subsequently but were not recognized in the financial statements.
ff
aa
Recent Accountintt g Pn
roPP nouncementstt
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”).
Subsequently, the FASB also issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606), which adjusted the
effective date of ASU 2014-09; ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent
Considerations (Reporting Revenue Gross versus Net), which amends the principal-versus-agent implementation guidance and
illustrations in ASU 2014-09; ASU No. 2016-10, Revenue fromff
Obligations and Licensing, which clarifies identifying performance obligation and licensing implementation guidance and illustrations
in ASU 2014-09; and ASU No. 2016-12, Revenue fromff
Practical Expedients, which addresses implementation issues and is intended to reduce the cost and complexity of applying the new
revenue standard in ASU 2014-09 (collectively, the “Revenue ASUs”).
Contracts with Customers (Topic 606): Narrow-Scope Improvements and
Contracts with Customers (Topic 606): Identifyinff
g Perforff mance
The Revenue ASUs provide an accounting standard for a single comprehensive model for use in accounting for revenue arising
from contracts with customers and supersedes most current revenue recognition guidance. The accounting standard is effective for
interim and annual periods beginning after December 15, 2017, with an option to early adopt for interim and annual periods beginning
after December 15, 2016. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (the
full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of
initial application (the modifieff d retrospective method). Casebia currently anticipates adoption of the new standard effeff ctive January 1,
2018 under the full retrospective method. Casebia is currently assessing all potential impacts of the standard on its consolidated
financial statements.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements—Going Concern (Subtou
pic 205-40):
Disclosure of Uncertainties aboa ut an Entity’s ability to Continue as a Going Concern (“ASU 2014-15”), which requires management
to evaluate whether there is substantial doubt abou
nd to provide related footnote
disclosures. This guidance is effective for the annual reporting period ending after December 15, 2016 and forff
periods thereafter. Casebia adopted ASU 2014-15 on December 31, 2016 and the adoption of ASU 2014-15 did not have an effect on
its consolidated financial statements or disclosures.
ity to continue as a going concern arr
annual and interim
t an entity’s abila
a
In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”), which applies to all leases and will require
ive forff
lessees to record most leases on the balance sheet, but recognize expense in a manner similar to the current standard. ASU 2016-02 is
ff
effect
31, 2019 for Casebia. Entities are required to use a modified retrospective appro
after the beginning of the earliest comparative period in the financial statements. Full retrospective appaa
is evaluating the new guidance and the expected effect on its consolidated financial statements.
fiscal years beginning after December 15, 2018 and interim periods within those years, which is the year ended December
ach of adoption for leases that exist or are entered into
aa
lication is prohibited. Casebia
S-10
In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718) (“ASU 2016-09”). The
guidance changes how companies account forff
certain aspects of equity-based payments to employees. Entities will be required to
recognize income tax effects of awards in the income statement when the awards vest or are settled. The guidance also allows an
employer to repurchase more of an employee’s shares than it can under current guidance for tax withholding purposes providing for
withholding at the employee’s maximum rate as opposed to the minimum rate without triggering liability accounting and to make a
policy election to account for forf
15, 2017. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Casebia’s
financial position, results of operations or statements of cash flows
subject to federal income tax and the tax effect of its activities accrues to the partners.
ff urtt es as they occur. The updated guidance is effective for annual periods beginning after
eit
upon adoption, primarily because as a partnership, Casebia is not
ff
ff
ff December
In November, 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-
18”). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total cash, cash equivalents, and
amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash
and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning and ending balances
shown on the statement of cash flowff
annual periods beginning after December 15, 2017 and early
adoption is permitted. ASU 2016-18 must be applied retrospectively to all periods presented. Upon adoption, the 2016 period in
Casebia’s three-year statements of cash flows will reflect an increase in operating cash flowff
the increase in restricted cash
during 2016. Casebia does not expect any additional impact on our financial statements.
s. The guidance is effective forff
s fromff
3. Property and Equipment, net
Property and equipment, net, consists of the following:
Construction work in process
Laboratory equipment
Computer hardware
Accumulated Depreciation
Property and equipment, net
$
As of December 31,
2016
4,400,427
151,828
15,562
4,567,817
(7,329)
4,560,488
$
Depreciation expense for the period from February 12, 2016 (inception) through December 31, 2016 was $7,329.
4. Accrued Expenses
Accrued expenses consist of the following:
Professional fees
Payroll and employee-related costs
Total
As of December 31,
2016
$
$
225,438
76,699
302,137
5. Commitments and Contingencies
Operatingii
Leases
In August, 2016, Casebia entered into an agreement with Pfizer, Inc. to sublease 32,688 square feet of office and laboratory
space in Cambridge, MA. The sublease commenced in October, 2016, expires in March, 2024 and includes a tenant improvement
allowance of $5.4 million, of which Casebia has recorded $4.1 million as leasehold improvements and $1.3 million as tenant
improvement allowance receivable at December 31, 2016. Casebia has the option to extend the term of the sublease by fiveff
years.
S-11
The future minimum payments for non-cancelable leases as of December 31, 2016 is as follows:
Year Ending December 31,
2017
2018
2019
2020
2021
Thereafter
Total
$
1,838,700
2,506,761
2,582,025
2,659,577
2,739,418
6,459,639
$ 18,786,120
In April 2016, Casebia entered into a $1.2 million letter of credit to secure its obligations under this sublease. The letter of credit
is secured by cash held in a restricted depository account.
In addition, during 2016 Casebia occupied a portion of CRISPR’s and Bayer HealthCare’s office and laboratory space, forff
which Casebia was not charged rent. Casebia estimated noncash expense for these spaces of $9,792 for 2016, which is recorded as
Non-cash Contributions from Partners in the accompanying consolidated balance sheet.
Total rent expense for the period from Februar
rr
y 1rr
2, 2016 (inception) through December 31, 2016 was $383,924.
6. Joint Venture Agreement
On December 19, 2015, CRISPR and Bayer HealthCare entered into an agreement to establish Casebia with the purpose of
12,
researching the development of new therapeaa utics to cure blood disorders, blindness and congenital heart disease. On February
2016, CRISPR and Bayer HealthCare completed the formation of Casebia, a limited liabia lity partnership formed in the United
Kingdom. Bayer HealthCare and CRISPR each received a 50% equity interest in the entity in exchange forff
their contributions to the
entity. CRISPR contributed $0.1 million in cash and licensed its proprietary CRISPR/Cas9 gene editing technology and intellectual
property for selected disease indications. Bayer HealthCare has also contributed its protein engineering expertise and relevant disease
know-how.
rr
t to certain conditions, the first $45.0 million of which was contributed upon
Bayer HealthCare is committed to provide up to $300.0 million in research and development funding to Casebia over the firff st
formation in the first quarter of 2016
five years, subjecb
and an additional $60.0 million of which was contributed in January, 2017, following the December, 2016 receipt of consents
necessary from patent holders of CRISPR’s intellectuatt
consolidated balance sheet. Under the joint venturett
CRISPR’s ownership interest will not be diluted from futurett
Management Board under the joint control of CRISPR and Bayer HealthCare.
agreement, CRISPR has no obligation to provide any additional funding and
contributions from Bayer. The activities of Casebia are controlled by a
l property, which is recorded as a contribution receivable in the accompanying
uu
CRISPR and Bayer HealthCare will also provide to Casebia compensated services through separate agreements.
Under the JV Agreement, Casebia has paid CRISPR $35.0 million in exchange for a worldwide, exclusive license to
commercialize CRISPR’s CRISPR/CRR as9 technology specifically forff
uu
paid a non-refundable up-fr
December 22, 2016 folff
lowing delivery orr
milestone, royalty or other payments duedd
ont payment of $20.0 million as a technology access fee. The remaining $15.0 million was paid on
f the consents necessary from patent holders of CRISPR’s intellectual property. There are no
to CRISPR under this aspect of the agreement.
the indications designated by Casebia. In March 2016, Casebia
The fair value of the license was calculated to be $71.4 million based on the consideration paid and the faiff
r value of the 50%
interest in Casebia, which was determined utilizing discounted cash flows based on reasonabla e estimates and assumptions of cash
flows expected from Casebia. As Casebia only paid $35.0 million in cash to acquire the license, the remaining $36.4 million of fair
value received was accounted forff
as contributed capital from CRISPR. Casebia determined that the contribution of the intellectual
property represented an acquisition of in-process research and development with no alternative future use, which was expensed to
research and development expenses at the time of its contribution in accordance with ASC 730, Research and Development.
The JV Agreement can be terminated by Bayer HealthCare and CRISPR upon mutuatt
l written consent. Either party may
terminate the JV Agreement in the event of specified breaches by the other party or in the event the other party becomes subjecb
specifieff d bankruprr
party, as definff ed in the JV Agreement. Bayer HealthCare also has the right to terminate in the event (i) CRISPR is not ablea
r similar circumstances. Either party may also terminate upon
a change of control of the other
tcy, winding up ouu
uu
t to
to maintain
S-12
the intellectual property rights licensed to Casebia pursuant to the CRISPR IP Contribution Agreement or (ii) CRISPR has not
achieved preclinical proof of concept with a CRISPR/Cas9 product candidate in a specified period of time.
The JV Agreement may also be terminated by either party if, subsu equent to the time that Bayer HealthCare has fundff
ed its entire
$300.0 million commitment, the Management Board is unable to approve and obtain suffiff cient funff ding, within the time specifieff d in
the JV Agreement, to continue Casebia’s operations for the next 18 months.
Subjecb
t to certain exceptions, in the event of a termination, all Casebia owned patents, know-how and technology will be jointly
owned by CRISPR and Bayer HealthCare, with the right to sublicense. Upon termination, subjecb
HealthCare will receive an exclusive license to Casebia CRISPR/CRR as technology for all non-human therapeaa utic uses in cardiology,
hematology and ophthalmology (the “Bayer Fields”) and a non-exclusive license for human therapeuaa
CRISPR will receive an exclusive license to Casebia CRISPR/Cas technology in human therapeutic areas, other than in the Bayer
Fields, and a non-exclusive license for human therapeutic uses in the Bayer Fields. Upon any termination, all rights licensed to
Casebia pursuant to the CRISPR IP Contribution Agreement will terminate, except for any rights licensed to third parties or to a party
who has exercised an option pursuant to the Option Agreement described below.
tic uses. Upon such termination,
t to certain exceptions, Bayer
7. Equity-based Compensation
Certain employees of Casebia have been granted options to purchase CRISPR common stock. Terms of the equity awards,
including vesting requirements, are determined by CRISPR’s Board of Directors, subject to the provisions of CRISPR’s stock option
plans. Options granted by CRISPR typically vest over four years and have a contractual
10, CRISPR expenses the cost of the stock options granted to employees of Casebia as incurred. CRISPR accounts for these options
in accordance with ASC 505-50. As such, the value of such options is periodically remeasured and income or expense and is
recognized by CRISPR over their vesting terms. Concurrently, Casebia will also recognize the same cost of the stock options as
expense and a capitaa
al contribution from CRISPR. Compensation cost related to awards with service-based vesting schedules is
recognized using the straight-line method.
f ten years. In accordance with ASC 323-
life off
tt
Equity-based CompCC
ensatiott n ExpeEE
nse
Total equity-based compensation expense is recognized forff
stock options granted to employees and has been reported in
Casebia’s consolidated statement of operations as foll
ff
ows:
Research and development
General and administrative
Total
Period from
February 12, 2016
(inception) through
December 31, 2016
97,117
$
55,153
152,270
$
Stock Option Awards
The following table summarizes stock option activity forff CRISPR stock options granted to employees of Casebia:
Outstanding at February 12, 2016 (inception)
Granted
Exercised
Cancelled or forfe
ited
ff
Outstanding at December 31, 2016
Exercisable at December 31, 2016
Vested or expected to vest at December 31, 2016(1)
Weighted-
Average
Exercise Price
Weighted-
Average
Remaining
Contractual
y
Term (years)
Aggregate
Intrinsic
Value
$
$
$
$
13.19
13.19
1.85
12.94
9.5
8.7
9.5
$ 2,377,144
786,769
$
$ 2,275,950
Stock
Options
—
336,353
—
—
336,353
42,726
311,168
(1) Represents the number of vested options at December 31, 2016 plus the number of unvested options expected to vest based on
the unvested options outstanding at December 31, 2016.
S-13
The fair value of options vested from Februar
ff
rr
weighted-average grant date fair
2, 2016 (inception) through December 31, 2016 was
$18.17. As of December 31, 2016, the total unrecognized compensation cost related to CRISPR stock options was $4.7 million. The
total unrecognized compensation cost will be adjusted for future forf
tures. As of December 31, 2016, Casebia expects to recognize
ff
total unrecognized compensation cost over a remaining weighted-average period of 3.4 years.
values of stock options granted from Februar
y 1rr
eiff
rr
yrr 12, 2016 (inception) through December 31, 2016 was $0.2 million. The
CRISPR estimates the fair value of each stock award on the grant date using the Black-Scholes option-pricing model based on
the following range of assumptions regarding the fair value of the underlying Common Shares on each measurement date:
Weighted average expected volatility
Expected term (in years)
Risk free interest rate
Expected dividend yield
8. Related Party Transactions
Period fromff
February 12, 2016
(inception) through
December 31, 2016
88.2%
9.5
2.3%
0.0%
Bayer HealthCare has agreed to provide to Casebia certain protein engineering knowhow as well as other administrative
services. From February 12, 2016 (inception) through December 31, 2016, Casebia recorded $3.8 million and $1.1 million of expense
related to these activities to research and development and general and administrative expenses, respectively, $1.1 million of which is
included in Due to Partners in the accompanying balance sheet at December 31, 2016. Included in the above expenses, Bayer
HealthCare provided management services to Casebia duridd
were treated as a capital contribution in the accompanying financ
ng 2016 that were not billed to Casebia. These expenses, totaling $189,555,
ff
ial statements.
CRISPR has also agreed to provide Casebia with certain general and administrative and research and development services and
Casebia has recorded expense from February 12, 2016 (inception) through December 31, 2016 related to those services of $1.1 million
and $0.1 million to research and development and general and administrative expenses, respectively, $0.8 million of which is included
in Due to Partners in the accompanying balance sheet at December 31, 2016.
All amounts due to Partners are due within 30 days of receipt of the respective invoices.
9. Income Taxes
Casebia is a pass through entity forff
federal and state income tax purposes and generally does not incur income taxes. Instead, its
earnings and losses are included in the income tax returns of the partners.
10. Employee Benefit Plan
Casebia maintains a defined contribution 401(k) plan (the “Plan”) in which substantially all of its permanent employees are
eligible to participate. Employee contributions are voluntary and are determined on an individuadd l basis, limited by the maximum
amounts allowable under federal tax regulations. The Company makes matching contributions of 100% of the first 3% and 50% of the
next 2% of employees’ contributions to the Plan. Casebia recorded employer contribution expense of $2,622 for the period from
February 12, 2016 (inception) through December 31, 2016.
S-14
Report orr
f the statutory arr
uditor
with consolidated financial statements as of 31 December 2016 of
CRISPR Therapeutics AG, Basel
Ernst & Young Ltd
Aeschengraben 9
P.O. Box
CH-4002 Basel
Phone
Fax
www.ey.com/ch
+41 58 286 86 86
+41 58 286 86 00
To the General Meeting of
CRISPR Therapeutics AG, Basel
Basel, 10 March 2017
Report of the statutory auditor on the consolidated financial statements
As statutory auditor, we have audited the accompanying consolidated financial statements ofo
CRISPR Therapeutics AG (F-2 through F-34), which comprise the consolidated balance
sheets, the consolidated statements of operations and comprehensive loss, consolidated
statements of convertible preferred shares and shareholders’ equity (deficit), consolidated
statements of cash flows, and notes to the consolidated financial statements, for the year
ended 31 December 2016.
responsibility
Board of Directors’rr
The Board of Directors is responsible for the preparation of the consolidated financial
statements in accordance with US Generally Accepted Accounting Principles (US GAAP) and
the requirements of Swiss law. This responsibility includes designing, implementing and
maintaining an internal control system relevant to the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error. The
Board of Directors is further responsible for selecting and applying appropriate accounting
policies and making accounting estimates that are reasonable in the circumstances.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based
on our audit. We conducted our audit in accordance with Swiss law, Swiss Auditing
Standards, and the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable
assurance whether the consolidated financial statements are free from material
misstatement.
rming procedures to obtain audit evidence about the amounts and
An audit involves perforr
disclosures in the consolidated financial statements. The procedures selected depend on the
auditor’s judgment, including the assessment of the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers the internal control system relevant to the entity’s
preparation of the consolidated financial statements in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effeff ctiveness of the entity’s internal control system. An audit also includes evaluating the
appropriateness of the accounting policies used and the reasonableness of accounting
estimates made, as well as evaluating the overall presentation of the consolidated financial
statements. We believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our audit opinion.
Page 2
Opinion
In our opinion, the consolidated financial statements for the year ended 31 December 2016
give a true and fair view of the financial position, the results of operations and the cash flows
in accordance with US Generally Accepted Accounting Principles (US GAAP) and comply
with Swiss law.
Report orr n key audit matters based on the circular 1/2015 of the Federal Audit
Oversight Authority
Key audit matters are those matters that, in our professional judgment, were of most
significance in our audit of the consolidated financial statements of the current period. These
matters were addressed in the context of our audit of the consolidated financial statements as
a whole, and in forming our opinion thereon, and we do not provide a separate opinion on
these matters. For each matter below, our description of how our audit addressed the matter
is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s responsibilit
report, including in relation to these matters. Accordingly, our audit included the performance
of procedures designed to respond to our assessment of the risks of material misstatement of
the consolidated financial statements. The results of our audit procedures, including the
procedures perforr
on the accompanying consolidated financial statements.
rmed to address the matters below, provide the basis for our audit opinion
yt section of our
s
Revenue from R&D services under collaboration agreements
Risk
CRISPR Therapeutics AG (CRISPR) has entered into material revenue
generating collaboration agreements in 2015 (Vertex Pharmaceuticals)
and 2016 (Casebia Therapeutics LLP). These arrangements were
accounted for as multiple element arrangements and each contain
separate Research and Development (R&D) servirr ce deliverables. R&D
service revenue is recognized based on actual time incurred using a
relative selling price and recorded within Collaboration Revenue on the
Consolidated Statement of Operations.
The R&D servirr ce revenue is primarily composed of R&D services
performed by internal CRISPR R&D employees; the revenue is
calculated using projeo ct based employee timesheets. Given the manual
nature of the calculation, we identified a heightened risk related to the
opportunity of management to overstate the internally sourced R&D
service revenue, specifically through the inclusion of other employees
not providing R&D servirr ces under the collaboration agreements in the
Company’s calculation, which could result in a material revenue
misstatement.
Refer to Note 9 in the Consolidated Financial Statements for CRISPR’s
accounting policy and further details.
Page 3
Our audit
response
We analyzed the relevant agreements and discussed each with
management to obtain a full understanding of CRISPR’s accounting
process for the related R&D service deliverables, and the specific
underlying terms and risks.
ts for the period selected. For the selected
For a sample of instances, we obtained confirmations directly from
CRISPR employees related to their involvement in the R&D servirr ce
revenue generating projeco
samples, we reconciled the amount per the CRISPR employee
timesheet to management’s collaboration revenue calculation. We
tested each of the key contracts whereby we agreed the identified R&D
programs and FTE rates to the related collaboration agreements, and
recalculated revenue for the year based on the relative selling price
allocated to the R&D servirr ce deliverable of the arrangement.
We assessed R&D servirr ce revenue recognized by vouching subsequent
payments made by Vertex and Casebia for amounts invoiced and
confirmed outstanding receivables as of period end. Additionally, we
analyzed the Company’s recognized collaboration revenue against
expectations based on the status of the research programs tested.
Accounting forff
Healthcare)
the establishment of Casebia (Joint Venture with Bayer
Risk
On December 19, 2015, CRISPR Therapeutics AG (CRISPR) entered
into an agreement to establish a joint venture (“Bayer Joint Venture”)
with Bayer Healthcare LLC (“Bayer”) to discover, develop and
commercialize new breakthrough therapeutics to cure blood disorders,
blindness, and congenital heart disease. During Q1 2016, the joint
venture was legally formed and equity was contributed by the two
parties. In addition to funding, CRISPR contributed a license of its
proprietary CRISPR-Cas9 gene-editing technology and intellectual
property for selected disease indications and Bayer contributed its
protein engineering expertise and relevant disease know-how.
The Bayer Joint Venture is accounted for under the equity method as
disclosed in the Note 9 to the Consolidated Financial Statements.
Given the multiple elements of the Bayer Joint Venture arrangement
and various forms of consideration involved and the valuation
considerations thereof, we have identified a significant risk associated
with the complexities in applying the relevant accounting guidance for
the formation of the joint venture.
Page 4
audit
response
We analyzed the various clauses within the Bayer Joint Venture
agreement. We evaluated management’s assessment of the variable
interest considerations and their judgements in determining the primaryrr
beneficiary.rr We tested management’s valuation of the fair
50% interest in the joint venture and the faiff
license contributed to the entity. We involved our internal valuation
specialists to assist in the assessment of the valuation methodology and
assumptions used in determining the fair values. We evaluated the
timing of the equity method accounting for losses in the joint venture
considering the necessary elimination of intra-entity losses until such
time that the related gain from contributing the CRISPR license is
realized by CRISPR.
ff
r value of the CRISPR
value of the
Report orr n other legal requirements
We confirm that we meet the legal requirements on licensing according to the Auditor
Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there
are no circumstances incompatible with our independence.
In accordance with article 728a para. 1 item 3 CO and Swiss Auditing Standard 890, we
confirm that an internal control system exists, which has been designed for the preparation of
consolidated financial statements according to the instructions of the Board of Directors.
We recommend that the consolidated financial statements submitted to you be approved.
EEEEErrrrnnnnnnssssttttt && YYYYoooouuuuuunnnnnngggg LLLLtttttd
ü Zürcher
nsed audit experttttt
(((((AAAAAAAAAAAAAAAAAAAAAAAuuddddiiiittttoooorrrr iiiinnnn cccchhhhaaaarrrrggggeeee))))
SSSShhhhaaaahhhhaaaarrrr LLLLiiiiiieeeebbbbeeeerrrrmmmmeeeennnnsch
Certified Public Accountant
Enclosures
• Consolidated financial statements (consolidated balance sheet, consolidated statement
of income, consolidated statement of changes in equity, consolidated statement of cash
flows and notes)
CRISPR Therapeutics AG
Consolidated Balance Sheets
(in thousands, except share and per share data)
December 31,
2016
2015
Assets
Current assets:
Cash
Accounts receivable, including related party amounts of $752 andaa
Prepaid expenses and other current assets
$0 as of Decembm er 31, 2016 and 2015, respectively
Total current assets
Property and equipment, net
Intangible assets, net
Restricted cash
Other non-current assets
Total assets
Liabilities, redeemable convertible ppreferred shares and shareholders’ qequ yity
Current liabilities:
Accounts payable
Accrued expenses, including related party amounts of $537 and $1,055 as of December 31, 2016 and 2015, respectively
Accrued tax liabia lities
Deferred rent
Other current
liabilities
rr
Total current liabilities
Convertible loan, including accruedrr
interest of $0 andaa
$97 as of Decemberm 31, 2016 and 2015, respectively
Deferred revenue, including related party amounts of $527 and $0 as of December 31, 2016 and 2015, respectively
Deferred rent non-current
Other non-current liabilities
rr
Total liabia lities
Commitments and contingencies (Note 8)
convertible preferred shares:
Redeemablea
Series A-1 redeemable convertible preferred shares, CHF 0.03 par value, 0 and 440,001 shares authorized, issued, and
outstanding in share capital at December 31, 2016 and 2015, respectively, aggregate liquidation preference of CHF 0 and
CHF 502 at December 31, 2016 and 2015, respectively
Series A-2 redeemable convertible preferred shares, CHF 0.03 par value, 0 and 3,120,001 shares authorized, issued, and
outstandin
g in share capital at December 31, 2016 and 2015, respectively, aggregate liquidation preference of CHF 0 andaa
aa
CHF 9,512 at Decembem r 31, 2016 and 2015, respectively
Series A-3 redeemable convertible preferred shares, CHF 0.03 par value, 0 and 10,758,006 shares authorized, issued, and
outstanding in share capital at December 31, 2016 and 2015, respectively, aggregate liquidation preference of $0 and
$22,850 at December 31, 2016 and 2015, respectively
Series B redeemable convertible preferred shares, CHF 0.03 par value, 0 and 4,519,016 shares autaa horized, issued, and
outstandaa
aa
at Decemberm 31, 2016 and 2015, respectively
2015, aggregate liquidation preference of CHF 0 andaa CHF 28,000
l at Decembem r 31, 2016 andaa
ing in share capita
Shareholders’ equity (deficit):
Common shares, CHF 0.03 par value, 40,253,674, and 5,528,079 shares autaa horized at Decemberm 31, 2016 and 2015,
respectively, 40,164,307 andaa
5,528,079 shares issued at December 31, 2016 and 2015, respectively, 39,719,434, and
5,528,079 shares outstanding at Decemberm 31, 2016 and 2015, respectively, 15,325,607 and 2,444,364 shares in
conditional capital at Decemberm 31, 2016 and 2015, respectively
Treasury shares, at cost, 444,873 shares and no shares at December 31, 2016 and 2015, respectively
Additional paid-in capital
Accumulated deficit
Accumulatemm
Total CRISPR Therapeutics AG shareholders’ equity (deficit)
Noncontrolling interest
d other comprehensive loss
Total shareholders’ equity (deficit)
Total liaba ilities, redeemable convertible preferred shares and shareholders’ equity (deficit)
$
$
$
$
315,520
3,157
1,511
320,188
21,027
399
3,150
198
344,962
4,569
16,320
23
1,027
59
21,998
——
77,646
12,283
189
112,116
—
——
—
——
1,216
—
288,739
(57,083 )
(26 )
232,846
——
232,846
344,962
$
$
$
$
155,961
339
540
156,840
1,328
454
700
101
159,423
1,584
8,430
81
—
60
10,155
38,336
75,090
164
281
124,026
1,169
10,394
22,518
30,440
181
—
4,636
(33,906 )
(8 )
(29,097 )
(27 )
(29,124 )
159,423
See accompanying notes to these consolidated financi
ff
al statements.
F-2
CRISPR Therapeutics AG
Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per share data)
Collaboration revenue (1)
Operating expenses:
Research and development (2)
General and administrative
Total operating expenses
from operations
Other income (expense):
Interest expense
Loss from equity method investment
Gain on extinguishment of convertible loan
Other income (expense), net
Total other income (expense), net
Net loss before (provision for) benefit from income taxes
(Provision for) benefitff
from income taxes
Net loss
Foreign currency translation adjustment
Comprehensive loss
Reconciliation of net loss to net loss attributable to common shareholders:
Net loss
Loss attributable to noncontrolling interest
Loss on extinguishment of redeemable convertible preferred shares
Net loss attributable to common shareholders
Net loss per share attributable to common shareholders—basic and diluted
Weighted-average common shares outstanding used in net loss per share
attributable to common shareholders—basic and diluted
Including the following amounts of revenue from a related party, see
Including the following amounts of research and development froff m a
(1)
Note 16:
(2)
related party, see Note 16:
2016
Year Ended December 31,
2015
2014
$
5,164
$
247
$
—
42,238
31,056
73,294
(68,130)
(8,050)
(36,532)
11,482
78,512
45,412
(22,718)
(484)
(23,202)
(18)
(23,220) $
(23,202) $
25
—
(23,177) $
(1.89) $
12,573
13,403
25,976
(25,729)
(108)
—
——
16
(92)
(25,821)
(7)
(25,828)
(6)
(25,834) $
(25,828) $
325
—
(25,503) $
(5.06) $
1,513
5,114
6,627
(6,627)
——
—
——
(236)
(236)
(6,863)
63
(6,800)
(2)
(6,802)
(6,800)
536
(745)
(7,009)
1.97
12,257,483
5,037,404
3,559,985
1,190
1,755
$
$
— $
1,055
$
—
——
$
$
$
$
$
$
See accompanying notes to these consolidated financi
ff
al statements.
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4
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F
CRISPR Therapeutics AG
Consolidated Statements of Cash Flows
(In thousands)
Operating activities
Net loss
Reconciliation of net loss to net cash used in operating activities:
Depreciation and amortization expense
Equity-based compensation expense
Non-cash interest expense
Unrealized foreign currency remeasurement loss
Gain on extinguishment of convertible loan
Other income - formation of joint venture
Loss from equity method investment
Changes in:
Restricted cash
Accounts receivable
expenses and other assets
Accounts payable and accrued expenses
ed revenue
Deferred rent
Other liabilities, net
Net cash (used in) provided by operating activities
Investing activities
Purchase of property and equipment
Proceeds from contribution of intellectual property t
Cash investment in equity method investee
tt
o equity mtt
ethod investee
Net cash provided by (used in) investing activities
Financing activities
Proceeds from issuance of common shares in IPO, net of issuance costs
Proceeds from issuance of common shares in private placement
Proceeds from issuance of common shares
Proceeds from exercise of options
Proceeds from issuance of restricted shares
Proceeds from issuance of Series A-2 preferred shares
Proceeds froff m issuance of Series A-3 preferred shares
Proceeds from issuance of Series B preferred shares
Issuance costs for preferred
share financings
ff
Proceeds from issuance of convertible loans
cash provided by financing activities
Effect of exchange rate changes on cash
Increase in cash
Cash, beginning of period
Cash, end of period
Supplemental disclosure of non-cash investing and financing activities
Property and equipment purchases in accounts payable and accrued expenses
Property and equipment related to lease incentives
Loss on extinguishment of Series A-1 preferred shares
Noncontrolling interest upon consolidation of TRACR
Conversion of preferred shares to common shares upon IPO
Conversion of Vertex and Bayer convertible loans and accrued interest
Issuance costs for public offeff
Contribution of intellectual property to Casebia
ring in accounts payablea
and accrued expenses
2016
Years Ended December 31,
2015
2014
$
(23,202)
$
(25,828)
$
(6,800)
925
10,844
8,050
2
(11,482)
(78,608)
36,380
(2,450)
(2,818)
(1,071)
3,860
1,917
2,360
(17)
(55,310)
(3,016)
35,000
(100)
31,884
54,061
35,000
——
34
——
—
22,850
38,075
(1,810)
35,010
183,220
(235)
159,559
155,961
315,520
$
7,014
10,785
$
$
—— $
— $
$
$
$
$
185,565
61,929
397
36,380
127
3,684
97
(20)
——
—
——
(650)
(339)
(620)
7,708
75,090
165
14
59,428
(1,154)
——
—
(1,154)
——
—
——
—
243
5,293
22,850
30,478
(370)
38,239
96,733
9
155,016
945
155,961
$
246
$
— $
—— $
— $
—— $
— $
—— $
— $
38
695
——
(260)
——
—
——
(16)
—
(12)
1,583
——
—
(21)
(4,793)
—
——
—
——
——
—
22
—
——
5,137
——
—
(36)
—
5,123
254
584
361
945
——
—
745
547
——
—
——
—
$
$
$
$
$
$
$
$
$
See accompanying notes to these consolidated financi
ff
al statements.
F-5
CRISPR Therapeutics AG
Notes to Consolidated Financial Statements
1. Organization and Operations
Nature of bo usines
ii
s
CRISPR Therapeutics
aa
AG (“CRISPR” or the “Company”)
mm
was formed on October 28, 2013 in Basel, Switzerland. The
the
Compamm ny was established to translate CRISPR/Cas9, a genome editing technology, into transformative gene-based medicines forff
treatment of serious human diseases. The fouff
property underlying the Compamm ny’s operations was licensed to the
Company and its subsidiaries in April 2014. The Company devotes substantially all of its efforts to product research and development
,
activities, initial market development and raising capital. The Company’s principal offices and operations are in Cambridge
Massachusetts.
ndational intellectual
m
tt
the development of the CRISPR/Cas9 technology into medicines for the treatment of blood-borne illnesses. As the Company
nders of thet Compamm ny formed TRACRR
On January 23, 2014, the fouff
to further
t
was funding and managing TRACR’
established a variablea
TRACR
the outstanding non-controlling interest in TRACR as such, as of Decemberm 31, 2016 TRACR
Compamm ny.
RR
RR
RR
s operations in 2014, it has been consolidated by thet Compamm ny from the date that
interest in TRACR in April 2014. In March 2015, the Compamm ny acquired 82.1% of the outstanding equity of
t the Company
in a share exchange transaction. Concurrent with its initial public offering (“IPO”) in October 2016, the Compamm ny acquired
R Hematology Limited (“TRACR”)
RR
in the United Kingdom,
is a wholly-owned subsidiary orr
f thet
The Compamm ny is subju ect to risks common to compamm nies in the biotechnology industry, including but not limited to, risks of
candidate that it may
failure of preclinical studies and clinical trials, the need to obtain marketing approval forff
identify and develop, the need to successfully commercialize and gain market acceptance of its product candidates, dependence on key
personnel, protection of proprietary technology, complmm iance with government regulations, development by competitors of
technological innovations and ability to transition from pilot-scale manufacturing to large-scale production of products.
any drug productdd
The Compamm ny had an accumulated
mm
deficit of $57.1 million as of Decemberm 31, 2016 and has financed its operations to date from
proceeds obtained from its initial public offering a series of preferred shares and convertible loan issuances and upfront fees received
under its collaboration and joint venture arrarr ngements. The Compamm ny will require substantial additional capital
and development and ongoing operating expenses.
to fund its research
a
Liquiditydd
In October 2016, the Compamm ny completemm
d the IPO of its common shares (“Common Shares”), in which the Company sold
ff
rr
t with thet
ters in connection with the offering,
4,429,311 Common Shares, inclusive of 429,311 Common Shares sold by the Companmm y pursuant to thet
overallotment option granted to the underwri
trading on the NASDAQ Global Market on October 19, 2016. The aggregate net proceeds received by the Compamm ny from the offeri
were $53.7 million (see Note 2) after deducting underwriting discounts and commissions and other offering
expenses payabla e by thett
Compamm ny. Concurrenrr
(“Bayer BV”), in a private placement, at the IPO price of $14.00 per share, forff
Shares totaling 170,689 of the overallotment option granted by the underwriters in connection with the initial public offerff
reacquired by thet Company and are reflected as treasury shares on the consolidated balance sheet as of Decemberm 31, 2016. The
Companymm
at least the next 24 months. Thereafter, the Compamm ny will be required to obtain additional funding. There can be no assurances,
however, that the current operating plan will be achieved or that additional funding will be available on terms acceptable to thett
Compamm ny, or at all.
IPO, the Compamm ny issued and sold 2,500,000 Common Shares to Bayer Global Investments B.V.
aggregate net proceeds of $35.0 million. Common
ing were
at a price of $14.00 per share. The shares began
ff
believes its cash of $315.5 million at Decemberm 31, 2016 will be sufficient to fund the Company’s current operating plan forff
partial exercise of an
ng
ff
2. Summary of Significant Accounting Policies and basis of presentation
Basis oii
f Po
rePP sentati
tt
on and Use of Eo
ii
stiEE mat
estt
The accompamm nying consolidated financial statements have been prepared in confoff rmity with accounting principles generally
(ii) its wholly-owned subsidiar
accepted in the United States of America (“GAAP”), and include the accounts of (i) the Company,
CRISPR Ltd., CRISPR Inc., and TRACR, as of Decemberm 31, 2016. All intercompanymm
eliminated. Any reference in these notes to applicable guidance is meant to refer to the autht oritative United States generally accepted
accounting principles as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASUs”) of the
Financial Accounting Standards Board (“FASB”).
u
accounts and transactions have been
ies,
mm
F-6
Investments in partnett
rships where the Company has significant influence because it has a voting interest of 20% to 50%, are
accounted for under the equity method. Results of associated companies are presented on a one-line basis. The Compamm ny accounts for
its 50% investment
details.
tics LLP (“Casebia”) under the equity method of accounting. See Note 9 for further
share of Casebia Therapeuaa
tt
The preparation of financial statements in conformff
ity with GAAP requires management to make estimates and assumptions
notes. On an ongoing basis, the Company’s management
affect the amounts reported in the financial statements and accompanying
evaluates its estimates, which include, but are not limited to, equity-based compensation
investments, and reported amounts of expenses during the reported period. Significant estimates in these consolidated financial
statements have been made in connection with the calculation of revenues, research and development expenses, valuation of equitqq
y
r value of intangible assets, and the
method of investment, equity-based compemm nsation expense, fair
provision for or benefit froff m income taxes. The Company bases its estimates on historical experience and other market-specific or
other relevant assumptions that
mm
assumptions.
t it believes to be reasonabla e under the circumstances. Actuatt
value of Common Shares, faiff
expense, revenue recognition, equity method
r froff m those estimates or
l results may diffeff
mm
mm
mm
ff
that
The Compamm ny utilizes significant estimates and assumptmm ions in determining the fair value of its Common Shares. The Compamm ny
utilized various valuation methodologies in accordance with the frameaa work of the 2004 and 2013 American Institute of Certified
Public Accountants Technical Practice Aids, Valuation of Privately- Held Cll
ty Securities Issued as Compensation, to
estimate the fair value of its Common Shares. Each valuation methodology includes estimates and assumptions that require thet
Company’s judgment. These estimates and assumptmm ions include a numberm of objective and subjective factors, including external
market conditions affecting thet
superior rights and preferences of securities senior to the common stock at the time and the likelihood of achieving a liquidity ett
such as an initial public offering or sale. Significant changes to the key assumptmm ions used in the valuations could result in different fair
values of common stock at each valuation date. Subsequent to becoming a public company, the Compamm ny uses the closing price of its
stock on the Nasdaq Global Market as the fair value of its common stock.
ector, the prices at which the Company sold shares of preferred stock, thet
biotechnology industry srr
omCC panm
vent,
quiEE
y En
ll
Reclass
s
ificationtt
A change has been made to the presentation of deferred rent non-current as of Decembem r 31, 2015 to conform to the current year
presentation.
Stoctt k SplSS itll
In connection with preparing for its IPO, the Compamm ny’s board of directors and shareholders approved an amendment to the
ive upon registration in the Switzerland commercial
articles of association in July 2016. This amendment became effect
ff
mm
Company’s
register on July 27, 2016 and publication in the Swiss Offici
ff
3 1/3-forff
been retrospectively adjusted for all periods presented to give effect
-one share split was effect
ff
ff
to the share split.
ed. All share and per share amounts in the consolidated financial statements and notes thereto have
al Gazette of Commerce on August 2, 2016. Pursuant to this amendment a
Segment
gg
Informarr
tion
Operating segments are defined as compomm nents of an enterprise about which separate discrete information is available for
evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing
performance. The Company and the Company’s chief operating decision maker, namely, the chief executive officer, view the
Compamm ny’s operations and manage its business in one operating segment, which is thet
commercializing therapies derived from or incorporating genome-editing technology.
business of discovering, developing and
Foreign Currency Translatll
iott n and Transactions
The Company’s reporting currency is the U.S. Dollar. The Company‘s consolidated entities have the U.S. dollar as their
functional currency with the exception of CRISPR Ltd. which has thet British Pound Sterling (“GBP”) as its functional currency.
CRISPR Ltd. has assets and liabilities translated into U.S. dollars at exchange rates in effect at the end of the year. Revenue and
expenses are translated using the average exchange rates for the period. Net unrealized gains and losses resulting from foreign
slation are included in accumulmm ated otht er compremm hensive income (loss), which is a separate componemm
currency trantt
(deficit) equity. Net foreign currency exchange transaction gains and losses resulting from the remeasurement of transactions
denominated in currencies other
operations and comprehmm
ctional currency are included in other (expense) income, net in the consolidated statements of
t
ensive loss.
nt of shareholders’
than funff
F-7
stt
Cash and Cash Equivalent
ll
The Company considers all highly liquid investments with maturities of 90 days or less from the purchase date to be cash
equivalents. As of Decemberm 31, 2016, and 2015, the Company had $315.5 million and $156.0 million in cash equival
respectively. All cash was held in depository arr
ccounts and is reported at fair value.
qq
ents,
Accounts Receivable
Accounts receivable of $3.2 million at Decembem r 31, 2016 consist of receivables from Vertex Pharmaceuticals, Incorporated
of $0.3 million consisting of receivables
(“Vertex”) and Casebia. As of Decemberm 31, 2015, the Company had accounts receivablea
from Vertex. Accounts receivables are recorded at invoiced amounts due under both the Vertex and Casebia collabora
(see Note 9). Vertex and Casebia are creditworthyt
Companymm
did not have an allowance for estimated losses recorded related to these receivables.
entities that maintain an ongoing relationship with the Compamm ny, as such the
a
tion agreements
a
Concentrat
tt
iontt
s of Co
rediCC
t Rii
isk and Off-balance Sheet Risk
Financial instruments that potentially subjeb ct the Compamm ny to concentrations of credit risk are primarily cash. The Company’s
cash is held in accounts with financial
credit losses in such accounts and does not believe it is exposed to any significant credit risk on these funds. The Company has no
financial instruments with off-balance sheet risk of loss.
institutions that management believes are creditworthy. The Companymm
has not experienced any
ff
Deferred Public Offerin
O
g Cn
osCC ts
Deferred public offering costs, which primarily consist of direct, incremental legal and accounting fees relating to the IPO, were
capitalized withit n other non-current assets prior to our IPO. The issuance costs of $8.3 million, including underwriter’s commissions,
were offset against the IPO proceeds upon the consummation of the offering in October 2016.
Fair Value of Fo
inFF ancialii
Instruments
The Company’s finff ancial instrumtt
ents consist of accounts payable,
a
accrued expenses and other non-current liabilities. The
Compamm ny is required to disclose information on all assets and liaba ilities reported at fair value that
used in determining the reported fair values. FASB ASC Topic 820, Fair Value Measurement and Disclosur
established a hierarchy of inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of
unobservable inputs by requiring that
participants would use in pricing the financi
sources independent of the Compamm ny.
Unobservable inputs are inputs that reflect the Compamm ny’s assumptions aboa ut the inputs that market participants would use in pricing
the finff ancial instrument and are developed based on the best information available in the circumstances.
t the observable inputs be used when available. Observable inputs are inputs that market
al instrument based on market data obtained fromff
t enables an assessment of the inputs
es (“ASC 820”),
aa
ll
The accounting standard describes a fair
ff
value hierarchy based on three levels of inputs, of which the first two are considered
observable and the last unobservable,
a
that may be used to measure fair value, which are the following:
Level 1 — Quoted prices in active markets that are accessible at the market date for identical unrestricted assets or liabilities.
Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices forff
similar assets or
liaba ilities; quoted prices in markets that are not active; or other inputs forff which all significant inputs are observable
or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 — Unobservable inputs that are supported by little or no market activity and that
t are significant
ff
to the fair
ff
value of the
assets or liabilities.
To the extent that valuation is based on models or inputs that are less observablea
or unobservablea
in the market, the
determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by thet Company in determining
fair value is greatest forff
value hierarchy is based on
the lowest level of any input that is significff ant to the fair
instrutt ments categorized in Level 3. A finff ancial instrument’s level within the fair
value measurement.
ff
ff
The carrying amount of accounts receivablea
, accounts payable, and accrued expenses as reported on the consolidated balance
sheets as of Decemberm 31, 2016 and 2015, approximate fair value, duedd
to the short-term duration of these instruments.
The faiff
r value of the Company’s equity method investment in Casebia and convertible debt instrumrr
ents were determined using
level 3 inputs (See Note 9).
F-8
Property and Equipment
Property and equipment is stated at cost, less accumulated
or extend
the lives of the respective assets are expensed to operations as incurred. Upon disposal, the related cost and accumulated
depreciation
is removed from the accounts and any resulting gain or loss is included in the results of operations. Depreciation is recorded using the
straight-line method over thet
estimated useful lives of the respective assets, which are as follows:
depreciation. Maintenance and repairs that do not improve
mm
mm
mm
Asset
Computer equipment and software
Furniture,
Laboratory equipment
Leasehold improvem
and other
tt
fixtures,
ents
mm
rr
Estimated useful life
3 years
5 years
5 years
Shorter of useful life or remaining lease term
m
Impairme
nt of Long-lgg ivll ed Assets
The Company evaluates long-lived assets for potential impamm irment when events or changes in circumstances indicate the
carrying value of the assets may not be recoverable. Recoverability is measured by comparing the book value of thet
expected futff urett
impairmm ment to be recognized is measured by the amount by which the book value of the assets exceed thet
has not recognized any impairmm ment losses in the years ended Decemberm 31, 2016, 2015, and 2014.
net undiscounted cash flows that the assets are expected to generate. If such assets are considered to be impaired, the
ir fair value. The Company
assets to the
Revenue Recognitiott n
To date, thet Company’s only source of revenue has been the collaboration and license agreement with Vertex as well as
research and development services provided to Casebia under the joint venture with Bayer HealthCare LLC (“Bayer”) (see Note 9).
The Compamm ny recognizes revenue in accordance with ASC Topic 605, Revenue Recognition (“ASC 605”). Accordingly,
revenue is recognized for each unit of accounting when all of the folff
lowing criteria are met:
(cid:2)
(cid:2)
(cid:2)
(cid:2)
Persuasive evidence of an arrangement exists;
Delivery has occurred or services have been rendered;
The seller’s price to the buyer is fixed or determinable; and
Collectability is reasonably assured.
Amounts received prior to satisfying the revenue recognition criteria are recorded as deferre
ff
recognized as revenue within the 12 months following the balance sheet date are classified in current liabilities.
to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue within non-
current liaba ilities.
a
d revenue. Amounts expected to be
Amounts not expected
The Company evaluates multiple-element arrangements based on the guidance in FASB ASC Topic 605-25, Revenue
t
a
—
appropriate revenuenn
they must be accounted forff
represent separate units of accounting or whether
recognition principles are applied to each unit. When the Company determines that an
e-Element Arrangements (“ASC 605-25”). Pursuant to the guidance in ASC 605-25, the Compamm ny evaluates
Recognition—Multipl
multiple-element arrangements to determine (i) the deliverables included in the arrangement and (ii) whether thet
deliverables
as a combim ned unit of accounting. When
deliverables are separable, consideration received is allocated to the separate units of accounting based on the relative selling price
method and thet
arrangement should be accounted for as a single unit of accounting, the Companmm y musmm t determine the period over which the
performance obligations will be perforff med and revenue will be recognized. This evaluation requires thet Compamm ny to make judgments
about the individual deliverablea
Deliverables
standalone basis and (ii) if the arrangement includes a general right of return wrr
performance of the undelivered item is considered probable and substant
has standalone value, the Company considers factors such as the research, development, manufacturing and commercialization
capabilities of the collabora
Companymm
remaining deliverablea
that can provide the undelivered items.
receipt of the
, whether the value of the deliveraba le is dependent on the undelivered item, and whether there are other vendors
r such deliverabla es are separable from the other aspects of the contractual
are considered separate units of accounting provided that (i) the delivered item has value to the collabora
a
considers whether the collaba oration partner
of the associated expertise in the general marketplace.
r deliverable for its intended purpose without thet
ith respect to the delivered item, delivery or
tion partner and the availability
l. In assessing whether an item
ially in the Company’s contrott
relationship.
tt
tion partaa ner
can use any othett
In addition, the
s and whethet
individual
u
a
a
a
tt
tt
tt
on a
F-9
The consideration received under the arrangement that is fixed or determinable is then allocated among the separate units of
accounting based on the relative selling prices of the separate units of accounting. The Companymm
of accounting within each arrangement following the hierarchy of evidence prescribed by ASC 605-25. Accordingly, the Company
determines the estimated selling price for units of accounting within each arrangement using vendor-specificff objective evidence
(“VSOE”) of selling price, if available; third-party evidence (“TPE”) of selling price if VSOE is not availablea
; or best estimate of
selling price (“BESP”) if neither VSOE nor TPE is available. The Company typically uses BESP to estimate the selling price as it
generally does not have VSOE or TPE of selling price for its units of accounting. Determining the BESP for a unit of accounting
requires significant judgment. In developing the BESP for a unit of accounting, the Compamm ny considers applicable market conditions
and relevant entity-specific factors, including fact
estimated costs. The Compamm ny periodically validates the BESP used forff
assumptmm ions used to determine the BESP will have a significant effect
multiple units of accounting.
ors that were contemplamm ted in negotiating the agreement with the customer and
on the allocation of arrangement consideration between
units of accounting by evaluating whether changes in the key
determines the selling price of a unit
ff
ff
The Compamm ny recognizes arrangement consideration allocated to each unit of accounting when all of the following criteria are
that particular unit of accounting: persuasive evidence of an arrangement exists, delivery has occurred or services have been
d unit of accounting over thet
ual or estimated performance period for the undelivered items, which is typically the term of the Compamm ny’s research and
ance measures do not
met forff
rendered, the seller’s price to the buyer is fixed or determinable, and collectability is reasonably assured. In the event that a deliverablea
does not represent a separate unit of accounting, the Company recognizes revenue froff m the combinem
contract
tt
development obligations. If there is no discernible pattern of performance or objectively measurablea
exist, then thet Companmm y recognizes revenue under the arrangement on a straight-line basis over the period the Company is expected to
complmm ete its performance obligations. Conversely, if the pattern of performance over which the service is provided to the customer can
be determined and objectively measurablea
using the proportional performarr
received or thet
method, as appaa
e amount of payments
cumulatmm ive amount of revenue earned, as determined using the straight-line method or proportional performance
licable, as of the period ending date.
performance measures exist, then the Compamm ny recognizes revenue under the arrangement
nce method. Revenue recognized is limited to the lesser of the cumulativ
performff
mm
Significant management judgment is required in determining the level of effoff
rt required under an arrangement and the period
over which the Compamm ny expects to complmm ete its performff
ance obligations under an arrangement. Steering committee services that are
not inconsequential or perfunctory and that are determined to be performance obligations are combined with other research services or
performance obligations required under an arrangement, if any, in determining the level of effor
period over which the Company expects to complete its aggregate performance obligations.
t required in an arrangement and the
ff
At the inception of an arrangement that includes milestone payments, the Companymm
evaluates whether
t
each milestone is
mm
performance to achieve the milestone or the enhancement
r: (i) the consideration is commensurate with either the Company’s
arties on the basis of the contingent nature of the milestone. This evaluation includes an assessment of
subsu tantive and at risk to both pt
whethet
of the value of the delivered item as a result of a specific outcome resulting from the Compamm ny’s performance to achieve the
milestone, (ii) the consideration relates solely to past performance, and (iii) the consideration is reasonablea
deliverables and payment terms within the arrarr ngement. The Company evaluates factors such as the scientific, clinical, regulatory,
commercial and other risks that
to achieve the particular milestone in making this assessment. There is considerable judgment involved in determining whether
milestone satisfies all of the criteria required to conclude that a milestone is substantive. The Company will recognize revenue in its
entirety upon successful accomplishm
Milestones that are not considered substantaa ive are recognized as earned if there are no remaining performance obligations or over the
remaining period of performance, with a cumulmm ative catch-up being recognized forff
the elapsed portion of the period of performance,
assuming all other
ent of any substantive milestones, assuming all other revenue recognition criteria are met.
t musmm t be overcome to achieve the particular milestone and the level of effoff
revenue recognition criteria are met.
nt required
a
relative to all of the
rt and investmett
mm
t
t
The Company will recognize royalty revenue in the period of sale of the related produdd ct(s), based on the underlying contratt ct
terms, provided that the reported sales are reliaba ly measurablea
all other revenue recognition criteria are met.
and the Compamm ny has no remaining performance obligations, assuming
Research and Development Expenses
Research and development costs, which include employmm
ee compensation costs, facilities, lab supuu plies and materials, overhead,
preclinical development, and other related costs, are charged to expense as incurred. Research and development costs also include the
costs the Companymm
as a part of the Compamm ny’s collaborative agreement with Vertex and Casebia. See Note 9 forff
incurs in its performance of services or provision of materials in connection with the fundff
ed research undertaken
further details.
F-10
Operating Leases
term of the lease with t
The Company leases office and laboratory facilities under a non-cancelable operating lease agreements. The lease agreements
contain free or escalating rent payment provisions. The Company recognizes rent expense under such leases on a straight-line basis
over thet
red rent on the consolidated
balance sheets. Lease renewal periods are considered on a lease-by-lease basis in determining the lease term. Funding of leasehold
as a tenant improvement allowance and are amortized as a reduction of
impmm rovements by the Company’s landlord are accounted forff
rent expense over the term of the lease. Leasehold improvements are amortized straight-line over the shorter of the useful life or the
remaining lease term.
he difference between the expense and the payments recorded as deferff
t
Equity Based Compensation ExpEE ense
The Company recognizes equity-based compensation expense for awards of equity
qq
instruments to emplmm oyees and non-employee
directors based on the grant date fair value of those awards in accordance with FASB ASC Topic 718, Stock Compe
718”). ASC 718 requires all equity-based compemm nsation awards to employmm
restricted shares and stock options, to be recognized as expense in the statements of operations based on their grant date fair values.
The Compamm ny estimates the faiff
value of its Common Shares to determine the fair
r value of stock options using the Black-Scholes option pricing model. The Companmm y uses the fair
CC
ee directors, including grants of
value of restricted share awards.
ees and non-employmm
nsation (“ASC
ff
The Company accounts forff
tt o
stock options issued to non-employees under FASB ASC Topic 505-50, Equity Based Payments t
value of such options is periodically remeasured and income or expense is recognized
r vesting terms. Compensation cost related to awards with service-based vesting schedules is recognized using the straight-
see (“ASC 505-50”). As such, thet
Non-EmpEE loyeeo
over thei
t
line method.
mm
has based its estimate of expected volatility on the historical volatility of a group of
The Black-Scholes option pricing model requires the input of certain subjective assumptions
, including (i) the expected share
award, (iii) the risk-free interest rate and (iv) the expected dividend yield.
icff
trading of the Company’s Common Shares prior to its IPO and a lack of company-specif
development and focus on the life science industry. The Compmm any uses the simplmm ifiedff method, which is thet
price volatility, (ii) the calculation of expected term of thet
Due to thet
lack of a public market for thet
historical and implied volatility data, the Companymm
similar compamm nies that are publicly traded. The historical volatility is calculated based on a period of time commensurate with the
have characteristics similar to the Compamm ny, including stage of
expected term assumption.
productdd
average of the
final vesting tranche date and the contractua
sufficient historical exercise data to provide a reasonablea
employmm
interest rate is based on a treasury instrument whose term is consistent with the expected term of the stock options. The Compamm nyaa
an assumed dividend yield of zero as thet Company has never paid dividends and has no current plans to pay any dividends on its
Common Shares.
l term, to calculate the expected term for options granted to employees as it does not have
which to estimate the expected term. For options granted to non-
ees, the Compamm ny utilizes the contractual term of the arrangement as the basis for the expected term assumption. The risk-freeff
uses
f representative companies
The group ouu
uu
basis upon
mm
mm
mm
tt
The Company expenses the faiff
r value of its equity-based compemm nsation awards granted to emplomm yees on a straight-line basis
associated service period, which is generally the period in which the related services are received. The Company measures
at fair value as the awards vest and recognizes the resulting value as
over thet
equity-based compensation awards granted to non-employees
compensa
tion expense at each finaff
ncial reporting period.
mm
mm
The Company records the expense for equity-base
qq
d compenmm sation awards subject to performance-based milestone vesting over
the remaining service period when management determines that achievement of the milestone is probable.
when the achievement of a performance-based milestone is probabla e based on the expected satisfaction of the performance conditions
as of the reporting date.
a Management evaluates
tt
Patent
Coststt
Costs to secure and prosecute patent application and other legal costs related to the protection of the Company’s intellectual
property are expensed as incurred, and are classified as general and administrative expexx nses in the Company’s consolidated statements
of operations.
F-11
see
Income TaxeTT
Income taxes are recorded in accordance with FASB ASC Topic 740, Income Taxes (“ASC 740”), which provides forff
taxes using an asset and liability approach. Under this method, deferred tax assets and liabilities are determined based on the
difference between the finaff
laws that are expected to be in effect when thet
the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The
Companymm
therefore a valuation allowance has been established forff
more likely than not to be realized.
has evaluated available evidence and concluded that the Company may not realize all the benefitff of its deferred tax assets;
ncial reporting and tax reporting basis of assets and liabilities and are measured using enacted tax rates and
differences are expected to reverse. Valuation allowances are provided if, based upouu n
tax assets that the Compamm ny does not believe is
the amount of the deferred
deferred
ff
The Company accounts forff
uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions
exist, the Compamm ny recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. The
determination as to whether the tax benefit will more likely than not be realized is based uponuu
the technical merits of the tax position
as well as consideration of the available facts and circumstances. As of Decembem r 31, 2016 and 2015, the Company does not have any
significant uncertain tax positions. The Company’s practice is to recognize interest and/or penalties related to income tax matters in
income tax expense. See Note 14 for further details.
Comprm ehensive Loss
Comprehensive loss consists of net income or loss and changes in equity durdd ing thet
non-owner sources. The Compamm ny’s net loss equalqq
period from transactions and other events
s compmm rehensive loss, net of any changes in the
all periods presented. In addition, comprmm ehensive loss attributable to the noncontrott
lling
and circumstances generated fromff
foreign currency translation adjustment, forff
interest equals net loss for all periods presented.
Variable Interest Entities
tt
ff
The Compamm ny reviews each legal entity formed by parties related to the Company to determine whether or not the Company has
or not the entity would meet the definition of a VIE in accordance with FASB ASC Topic
on (“ASC 810”). If the entity is a VIE, the Compamm ny assesses whether or not the Compamm ny is the primary beneficiary
rs, including (i) which party has the power to direct the activities that most significantly affect
a variable interest in the entity and whether
810, Consolidatidd
of that VIE based on a numbem r of facto
the VIE’s economic performance, (ii) the partaa ies’ contractual rights and responsibilities pursuant to any contratt ctuatt
(iii) which party has the obligation to absorb losses or the right to receive benefits from the VIE. If the Companymm
primary brr
eneficiary of a VIE, the Company consolidates the finff ancial statements of the VIE into the Company’s consolidated
financial statements at the time that determination is made. The Compamm ny evaluates whether it continues to be the primary beneficiary
of any consolidated VIEs on a quarterly basis. If the Compamm ny were to determine that it is no longer the primary beneficiary of a
consolidated VIE, or no longer has a variabla e interest in the VIE, it would deconsolidate the VIE in the period that the determination is
made.
l agreements and
determines it is the
ff
If the Compamm ny determines it is the primary brr
eneficiary of a VIE that meets the definition of a business, the Company measures
the assets, liabia lities and noncontroll
805, Business ComCC binations (“ASC 805”) at the date the reporting entity first becomes the primary beneficiary.
ing interests of the newly consolidated entity at fair
ff
tt
value in accordance with FASB ASC Topic
In February 2016, Casebia Therapeutics LLP, a limited liability partnership, was formed in the United Kingdom. In March 2016
tt
upon consummation of the JV, Bayer and the Companymm
contributions
beneficiary of the VIE. As such, thet Company did not consolidate Casebia’s results into the consolidated financia
Note 4 forff
to the entity. The Compamm ny determined that Casebia was considered a VIE and concluded that it is not the primaryrr
each received a 50% equity interest in the entity in exchange for their
further details.
l statements. See
aa
As of Decemberm 31, 2016, TRACR
is a wholly-owned subsidiary of the Company.
details. For the year
consolidated the finff ancial statements of TRACR into the Company’s consolidated financial
ended Decemberm 31, 2015, the Companymm
statements as it was both a VIE and a majority owned subsidiary. For the year ended Decembem r 31, 2014, the Compamm ny consolidated
TRACR as a VIE.
See Note 4 forff
t
further
mm
RR
F-12
Noncontrollingll
Interett
st
Upon the IPO date of the Compamm ny, the non-controlling interest of TRACR was acquired, and as of the year ended December
31, 2016 TRACR is a wholly-owned subsiu
recorded non-contrott
lling interest, which was related to TRACR during 2015 and 2016. The Company recorded net loss attributable to
non-controlling interest on its consolidated statements of operations, reflecting the loss from non-controlling interest for the reporting
period.
further details related to TRACR. The Compamm ny
diary of the Compamm ny. See Note 4 forff
Intangible Assets
The Company’s intangible assets consist of acquired intellectual property rights and relate to the Compamm ny’s interest in TRACR.
value at the date of the business combim nation and are stated in the consolidated balance sheets net
Intangible assets are recorded at fair
of accumulated
amortization and impairmm ments, if applicable. The Compamm ny evaluates the remaining useful life of intangible assets
mm
subject to amortization on a periodic basis to determine whether events and circumstances would indicate impairment or warrant a
revision to the remaining usefulff
life. If the estimate of an intangible asset’s remaining useful life i
the remaining carrying
value of the intangible asset prospectively over the revised remaining useful life.
s changed, the Compamm ny amortizes
rr
ff
ff
Intangible assets related to the acquired intellectual property rights are amortized over thet
ir estimated useful lives using the
straight-line method as the pattern of revenues cannot be reasonablya
property rights is recorded in general and administrative expense in the consolidated statements of operations and compmm rehensive loss.
estimated. Amortization related to the acquired intellectual
ll
Net Loss Per Share Attributable to Common Sharehol
ders
SS
Basic net income (loss) per share is calculated by dividing net income (loss) attributable to common shareholders by thet
weighted-average numberm of common shares outstanding duridd
net income attributable to common shareholders by the weighted-average numbem r of common equivalent shares outstanding forff
period, including any dilutive effect from outstanding stock options and warrantsaa
ng the period. Diluted net income per share is calculated by dividing the
using the treasury stock method.
the
The Compamm ny follows the two-class method when compumm ting net income per share in periods when participating securities are
outstanding. The two-class method determines net income per share for each class of common and participating securities according to
dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available
to common shareholders for the period to be allocated between common and participating securities based on their respective rights to
reports a net loss
receive dividends as if all income for the period had been distributed. Accordingly, in periods in which the Companymm
attributable to common shareholders when participating securities are outstanding, losses are not allocated to the participating
securities because thet y have no contractual
income per share attributable to redeemable preferred shares, convertible loans, stock options, and unvested restricted
are considered common share equivalents.
losses of the Company. For purposes of calculating diluted net
obligation to share in thet
common shares
tt
tt
The following table sets forth the outstanding potentially dilutive securities that have been excluded in the calculation of diluted
net loss per share because to do so would be anti-dilutive (in common stock equivalent shares):
Convertible preferred shares
Conversion of convertible loans
Dr. Emmanuelle Charpentier call option
Outstanding options
Unvested unissued restricted shares
l
Subsequent Events
2016
—
——
—
4,535,371
89,367
4,624,738
As of December 31,
2015
18,837,024
4,110,987
328,017
1,939,986
142,794
25,358,808
2014
3,560,002
——
—
——
—
3,560,002
The Company considered the events or transactions occurring after
the balance sheet date, but prior to the issuance of the
consolidated financial statements, for potential recognition or disclosure in its consolidated financial statements. All significant
subsequent events have been properly disclosed in the consolidated finaff
ncial statements.
ff
F-13
Recent Accountingii
Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Custom
CC
Subsu equently, the FASB also issued ASU 2015-14, Revenue from Contracts with CusCC tomers (Topic 606), which adjusted the effective
date of ASU 2014-09; ASU No. 2016-08, Revenue from Contracts wtt
Considerations (Reporting Revenue Gross versus Net), which amends the principal-versus-agent implmm ementation guidance and
illustrations in ASU 2014-09; ASU No. 2016-10, Revenue from Contracts wtt
Obligations and Licensing, which clarifies identifying performance obligation and licensing implmm ementation guidance and illustrations
in ASU 2014-09; and ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Impromm vements and
Practical Expedients, which addresses implemm mentation issues and is intended to reduce the cost and complmm exity of applying thet
revenue standard in ASU 2014-09 (collectively, the “Revenue ASUs”).
ith Customersrr (Topic 606): Identifying Performance
ith Customers (Topic 606): Principal versus Agent
new
ersrr (Topic 606) (“ASU 2014-09”).
ff
The Revenue ASUs provide an accounting standard for a single comprehensive model for use in accounting for revenue arising
sedes most current revenue recognition guidance. The accounting standard is effective for
from contracts with customers and superuu
interim and annual periods beginning after December 15, 2017, with an option to earlyaa
interim and annual periods beginning
after Decemberm 15, 2016. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (the
full retrott
initial applicat
aa
under the full retrospective method. The Companmm y is in the process of determining the impactmm
statements.
spective method), or retrospectively with the cumulmm ative effect of initially applying the guidance recognized at the date of
ion (thet modified retrospective method). We currently anticipate adoption of the new standard effect
of the Revenue ASUs on its financial
ive January 1, 2018
adopt forff
ff
In August 2014, thet
FASB issued ASU No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40):
Disclosure of Uncertainties about an Entity’s ability to Continue as a Going Concern (“ASU 2014-15”), which requires management
to evaluate whether there is substu
antial doubt about an entity’s abia lity to continue as a going concern and to provide related footnote
annual and interim
disclosures. This guidance is effective for the annual reporting period ending after Decembem r 15, 2016 and forff
periods thereafter. The Compamm ny adopted ASU 2014-15 on Decembem r 31, 2016 and the adoption of ASU 2014-15 did not have an
effect on our consolidated finff ancial statements or disclosures.
In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”), which applies to all leases and will require
lessees to record most leases on the balance sheet, but recognize expense in a manner similar to the current standard. ASU 2016-02 is
effective for fisff cal years beginning after Decembem r 15, 2018 and interim periods within thos
31, 2019 for the Compamm ny. Entities are required to use a modifieff d retrospective approach of adoption forff
entered into after the beginning of the earliest compamm rative period in thet
prohibited. The Compamm ny is evaluating the new guidance and the expected effecff
t on its consolidated financial statements.
e years, which is the year ended Decemberm
financial statements. Full retrott
spective application is
leases that exist or are
t
In March 2016, the FASB issued ASU No. 2016-09, Compensation—St— ock CompCC
TT
certain aspects of equity-based payments to employee
ensation (Topic
mm
mm
to repurchase more of an emplomm yee’s shares than it can under current guidance forff
s. Entities will be required to
of awards in the income statement when the awards vest or are settled. The guidance also allows an
s providing for
maximummm rate as opposed to the minimummm rate without triggering liability accounting and to make a
guidance changes how compamm nies account forff
ff
recognize income tax effects
employer
mm
withholding at the employee’s
ed guidance is effeff ctive for annual periods beginning after December
policy election to account for forfeitures as they occur. The updat
t
15, 2017. Early adoption is permitted. Under today’s guidance, the Compmm any does not recognize the income tax effects of awards that
have vested or are settled until they actually reduce taxes payable. This standard will require the Compamm ny to recognize these effeff cts
when they are vested or are settled, subject to the assessment of the need for a valuation allowance. The adoption of this standard is
not expected to have a material impactmm
on the Compamm ny’s financial position, results of operations or statements of cash floff ws upon
adoption, primarily because any tax effects the Company may be required to realize are expected to be subjeb ct to a fulff
allowance.
tax withholding purpose
l valuation
uu
rr
718) (“ASU 2016-09”). The
In Novembem r 2016, the FASB issued ASU No. 2016-18, Statement
tt
of Cash FloFF ws (Topic
TT
230):0 Restricted Cashaa
(“ASU 2016-
cash equivalents should be included with cash and cash equivalents when reconciling thet
total cash, cash equivalents, and
08”). ASU 2016-18 requires that a statement of cash floff ws explain the change during the period in thet
cash equivalents. Thereforff e, amounts generally described as restricted cash
amounts generally described as restricted cash or restricted
and restricted
beginning and ending balances
tt
shown on the statement of cash flows. The guidance is effeff ctive in the firff st quarter of fiscal 2018 and early adoption is permitted. ASU
2016-18 must be applied retrosp
tt
reflect an increase in operating cash floff ws resulting fromff
additional impact on its financial statements.
ectively to all periods presented. Upon adoption, the Company’s 2016 statement of cash floff ws will
the adoption of thit s new standard. The Company does not expect any
tt
F-14
3. Property and Equipment, net
Property and equipment, net, consists of the following (in thousands):
rr
tt
fixtures,
Computer equipment and software
Furniture,
Laboratory equipment
Leasehold improvem
Construction work in process
and other
ents
mm
Accumulated Depreciation
rty and equipment, net
As of December 31,
2016
2015
$
$
110 $
2,044
2,970
15,780
1,065
21,969
(942)
21,027 $
118
238
861
88
95
1,400
(72)
1,328
Depreciation expense for the year ended Decemberm 31, 2016, 2015, and 2014 was $0.9 million, $0.1 million, and $0 million,
respectively.
4. Variable Interest Entities
TRACR Hematology
ll
Limitedii
On January 23, 2014, the fouff
nders of the Compamm ny formed TRACR in the United Kingdom, to furff
ther the development of the
CRISPR/CRR as9 technology into medicines for the treatment of blood-borne illnesses. On April 14, 2014, TRACR licensed certain
foundational intellectual property rights under joint ownership from Dr. Emmanuelle Charperr ntier to develop and commercialize
producdd ts for thet
technology license agreement with Dr. Charpentier.
treatment or prevention of human diseases related to hemoglobinopathies. See Note 9 forff
details of the
t
further
On April 14, 2014 the Compamm ny determined that it became the primary beneficiary of TRACR
RR
based on, among other factors,
ff
the Compamm ny’s power to direct the activities that significantly impacted
the economic performance of TRACR and thet Company’s
financing of contractual obligations on behalf of TRACR, and the period in which the Compamm ny began to benefit from research and
development of TRACR
technology. Accordingly, the Company consolidated TRACR’s financial statements as a consolidated VIE
beginning on April 14, 2014.
mm
RR
On March 24, 2015, the Companmm y acquired 4,600 ordinary shares of TRACR, representing 82.1% of the ordinary share capital,
and the
pursuant to a share exchange transaction with the shareholders of TRACR.
RR
assignment of certain rights to subscribe ordinary shares of TRACR, the Compamm ny issued 852,846 Common Shares to two founders of
TRACR, 656,031 restricted Common Shares to certain emplmm oyees and non-employmm
ees, and 459,217 Common Shares to Fay
Participation Corporation (“Fay Corp.”), an entity formed to hold Common Shares for future issuance to certain employees
emplomm yees. As of Decemberm 31, 2015, the Company held 4,600 ordinary shares of TRACRR
capitaa
and non-
R, representing 82.1% of the ordinary share
In exchange for 4,600 ordinary shares of TRACR
al of TRACRR
R.
mm
RR
Upon the share exchange on March 24, 2015, the Compamm ny recorded an adjustment of $0.1 million to decrease the carrying
mm
amount of the noncontrolling
adjustment was recognized directly in equity through additional paid-in capital and is attributable to the controlling
increased ownership interest in TRACR’s
and reflect the Company’s
interest in TRACR
interest.
RR
RR
tt
tt
net assets. This
Pursuant to the share exchange transaction on March 24, 2015, the Compamm ny also entered into a freest
ff
anding call option
RR
R, representing the remaining 17.9% of the ordinary share capital
held by Dr. Charpentier in exchange for 328,017 Common Shares of the Compamm ny. In the event the option is exercised by
agreement with Dr. Charpentier for 1,000 ordinary shares of TRACRR
of TRACR. Under the terms of the call option agreement, the Compamm ny has the option to acquire the remaining 1,000 shares of
TRACR
the Compamm ny prior to a liquidation event, the Company will indemnify Dff
In addition, upon a bankruptuu cy, liquidation, closing of an IPO, winding up of the Company, a change in contrott
liquidation event, as defined in the call option agreement, the remaining 1,000 ordinary shares of TRACRR
automatically convert into 328,017 Common Shares of the Compamm ny. The call option was determined to have a fair
share exchange and was attributed to Dr. Charpentier’s for past services rendered to CRISPR and TRACR.
million at the time of thet
Upon IPO, the call option was exercised and the remaining non-controlling interest of TRACR was acquired, resulting in a reduction
of Noncontrolling interest of $0.1 million, stock based compenmm sation of $0.2 million for original value of the call option, and
additional paid-in capital of $0.1 million.
l or other deemed
R held by Dr. Charpentie
rr
value of $0.2
r. Charpentier for all taxes owed as a result of the exchange.
ff
r will
F-15
Joint VenVV ture with Bayer HeaHH lthcare LLC
In December 2015, the Company entered into an agreement with Bayer to create a joint venture to discover, develop and
commercialize new therapeaa utics for genetically linked diseases, including blood disorders, blindness and heart disease. On
February 12, 2016, Casebia, a limited liability partnershi
the JV, Bayer and the Compamm ny each received a 50% equity
qq
Compamm ny determined that Casebia was considered a VIE and concluded that
Compamm ny did not consolidate Casebia’s results into the consolidated financial statements. See Note 9 forff
p, was formed in the United Kingdom. In March 2016 upon consummation of
ions to the entity. The
their contribut
t it is not the primary beneficiary of the VIE. As such, the
interest in the entity in exchange forff
further details.
tt
tt
5. Intangible Assets
The Company’s intangible assets consist of acquired intellectual property rights related to the Compamm ny’s initial consolidation of
TRACR in April 2014. Acquired intellectual
amortization, are as follows (in thousands):
tt
property rights had an estimated life of 10 years. Intangible assets, net of accumulated
Acquired intangible asset
As of December 31, 2016
As of Decemberm 31, 2015
Cost
Accumulated
Amortization
$
$
547 $
547 $
(148) $
(93) $
Net
399
454
The Company recorded amortization expense of $0.1 million, $0.1 million, and $40 thousand for each of the years ended
Decemberm 31, 2016, 2015, and 2014, respectively. As of December 31, 2016 and 2015, the remaining amortization period was 7.3
years and 8.3 years, respectively. The Company has not recorded any impamm irment charges for the years ended Decemberm 31, 2016,
2015 and 2014. The estimated future amortization of acquired
(in thousands):
intangible assets as of Decemberm 31, 2016 is expected to be as follows
qq
Year Ending December 31:
2017
2018
2019
20
Thereafter
l amortization
6. Accrued Expenses
Accruerr d expenses consist of the following (in thousands):
Payroll and employee-related costs
Research costs
Licensing fees
Professional feeff
Intellectual property costs
Accruerr d property and equipment
Other
s
Total
Amount
55
55
55
55
179
399
$
$
As of December 31,
2016
2015
$
$
2,585 $
996
492
2,715
3,372
5,081
1,079
16,320 $
773
910
1,055
2,412
2,592
——
688
8,430
F-16
7. Convertible Loans
2015 Convertible Loan Agreement with Vertex and certain existing shareholders
ll
On October 26, 2015, the Compamm ny entered into a convertible loan agreement with Vertex and certain existing shareholders (the
“Vertex Convertible Loan”) under which the Companymm
interest at 2.5% per annum and had an initial maturity date of April 26, 2016 subject to acceleration upon the occurrence of certain
conditions stated in the loan agreement (the “Maturity Date”). On various dates between Novemberm 23 and Decemberm 7, 2015, the
Compamm ny borrorr wed aggregate net proceeds of $38.2 million. The Vertex Convertible Loan included various embedded conversion,
redemptiomm n and other feat
ASC 815. On January 29, 2016, all of the outstanding principal plus accrued interest of $0.2 million under the Vertex Convertible
Loan waa
s, as further described below, none of which required separate accounting from the host instrument under
could borrow up to $40.0 million. The Vertex Convertible Loan accrues
as automatically converted into 2,859,278 Series B Preferff
red Shareaa s in connection with a qualified finaff
ncing described below.
urett
ff
An event of defauff
lt (“Event of Default”) is defined in the Vertex Convertible Loan Agreement and includes events of
bankrukk ptuu cy, insolvency or reorganization and, solely at the election of Vertex, a material breach that is not cured within the appl
icable
notice and cure periods of the strategic collaboration, option and license agreement entered into by Vertex and the Compamm ny. See Note
9 forff
further details of the strategic, option and license agreement.
aa
Conversion TerTT ms
rr
On the Maturity Date, the outstanding principal plus accrued interest automatically converts into Series B Preferred Shares at
$9.33 per share.
In the event the Compamm ny issues equity securities prior to the Maturity Date with aggregate proceeds of not less than $50.0
than Vertex or existing shareholders, the outstanding principal plus
million, of which $5.0 million is raised froff m investors other
accruerr d interest under the Vertex Convertible Loan autaa omatically converts into the newly issued equity securities at the price per share
paid by the investors in the finff ancing.
t
In the event of an underwritten publu ic offering with shares of the Compamm ny listed on the New York Stock Exchange, the
NASDAQ Global Market, or the NASDAQ Global Market, resulting in at least $50.0 million of proceeds to the Compamm ny closed prior
to Maturity, the holders may elect, prior to the closing of the IPO, to convert the outstanding principal plus accrued interest into Series
B Preferred Shares at $9.33 per share. Any Vertex Convertible Loan not converted prior to the closing of the IPO, shall automatically
convert into Common Shares at a price paid by the investors for such shares in thet
IPO.
Upon a liquidation event prior to the Maturity Date, the holders may elect to convert thet
outstanding principal plus accrued
interest into either Common Shares at a price of $9.33 per share or Series B Preferred Shares at a price of $9.33 per share.
Redemptionm
Terms
Upon an Event of Default,
aa
all outstanding principal plus accrued interest becomes immediately due and payable.
Upon a liquidation event, if the holders do not exercise their conversion right, the outstanding principal plus accrued interest
or its shareholders receive the
in cash on the business day following the date on which the Companymm
and payablea
shall become duedd
proceeds from the liquidation event.
Contingent Interest
Upon an Event of Default,
aa
the outstanding amount of the Vertex Convertible Loan shall bear, in addition to the base interest of
2.5% per annum, default interest at a rate of 7.5% per annum.
Convertible Loan with Bayer HealthCarCC e LLCLL
Concurrent with t
t
he execution of the Bayer Joint Venturett
agreement, the Companmm y also entered into a Convertible Loan
Agreement (“Bayer Convertible Loan”) with Bayer for $35.0 million. The Bayer Convertible Loan accrued interest at 2.0% per annum
and matured on January 29, 2016 (the “Maturity
exchange for aggregate net proceeds of $35.0 million. The Bayer Convertible Loan included various embedde
redemptionmm
and other featurtt es, none of which required separate accounting from the host instrument under ASC 815.
Date”). On January 29, 2016, the Compamm ny issued the Bayer Convertible Loan in
d conversion,
m
tt
F-17
Conversion of Convertible Loans to Series B Preferred Shares
ff
value of the Bayer Convertible Loan to be $24.5 million based on the fair value of the underlying Series
On January 29, 2016, concurrerr nt with the issuance of the Bayer Convertible Loan, all of the outstanding principal under the
$35.0 million Bayer Convertible Loan automatically converted into 2,605,330 Series B Preferred Shares at $13.43 per share. The
Company determined the fair
B Preferred Shares that were exchanged as part of the immediate conversion. As the Bayer Convertible Loan was executed in
mm
contemplation
element arrangement and using a relative fair value allocation allocated $27.0 million of aggregate arrangement consideration to the
Bayer Convertible Loan upon issuance (See Note 9). Upon conversion, thet Companymm
accreted the Bayer Convertible Loan to its face
value of $35.0 million through a charge to interest expense of $8.0 million and converted the $35.0 million to Series B Preferred
Shares under thet
of the joint venture agreement with Bayer, the Compamm ny evaluated the Bayer Convertible Loan as part of one multiple-
conversion model.
The receipt of $35.0 million in proceeds under the Bayer Convertible Loan in exchange for equity securities, combinem
d with thet
$38.2 million in proceeds from Vertex Convertible Loan, triggered an automatic conversion provision of the Vertex Convertible Loan
Agreement. Accordingly, on January 29, 2016, the Vertex Convertible Loan, including loans from existing shareholders, plus accrued
interest also converted into 2,859,278 of Series B Preferred Shares at $13.43 per share. The Company determined the fair value of the
Vertex Convertible Loan to be $26.9 million based on the fair value of the underlying Series B Preferred Shares that were exchangaa
ed
as part of the conversion. Upon extinguishment, the Company recorded a gain on extinguishment of $11.5 million forff
rence
between the carrying value of the debt and the fair
value of the Series B Preferred Shares issued to settle the debt under the general
extinguishment model.
the diffeff
ff
8. Commitments and Contingencies
Operating Leases
As of Decemberm 31, 2016, the Companymm
had fivff e non-cancellable operating leases for office, laboratory, and corporate housing
spaces during the year ended Decemberm 31, 2016. Three of the leases expire in 2017. The lease of the Compamm ny’s research facff
space expires in February 2rr
research facff
million, $1.3 million, and $17 thousand, respectively. The Companymm
by the Company, on a straight-line basis over the term of the lease, including any rent-free periods.
ility space expires in December 2026. Rental expense for the years ended Decembem r 31, 2016, 2015, and 2014 was $4.2
022, with one optional five-year extension period. The sublease of the Companmm y’s primary office and
expenses rent, including tenant improvement allowances received
ilitytt
In April 2015, the Company entered into a lease for laboratory and office lease facilities in Cambridge, Massachusetts (the “200
Sidney Street Lease”). The 200 Sidney Street Lease lease expires in February 2022 with ot
The 200 Sidney Street Lease contains escalating rent clausaa es which require higher rent payments in future years.
ne additional five year extension period.
In June 2015, the Compamm ny entered into an agreement pursuant to which it has the right to use certain officeff
facilities in London
England. The currerr nt term expires in July 2017. The Compamm ny’s obligations under this right to use agreement are secured by a cash
deposit in the approximate amount of GBP 9 thousand held by the officeff
space provider.
In October 2015, the Compamm ny entered into a lease for corporate housing in Cambridge
lease was renewed in Novembm er 2016 and the current term expires in November 2017 subject
Company’s obligations under the terms of this lease are secured by a cash deposit in the appaa
the lessor.
m
u
, Massachusetts. The term of the original
to additional one year renewals. The
roximate amount of $10 thousand held by
In April 2016, the Compamm ny entered into a subu lease for office facilities in Cambridge Massachusetts. The Company’ obligations
under the terms of this lease were secured by a cash deposit in the appaa
term expired in January 2017.
roximate amount of $26 thousand held by the lessor. This lease
In May 2016, the Company entered into a subu lease pursuant to which it subleases in Cambrm idge, Massachusetts (the “610 Main
Street Sublease”) the Compamm ny’s primary research and US office facility. The initial term of the 610 Main Street will expire on
December 22, 2026. The Company has an option to extend the term of the 610 Main Street
Sublease for an additional fivff e year
period if, at the time of expiration of the initial term, the subleu
610 Main Street Sublease contains escalating rent clausaa es which require higher rent payments in future years.
ssor does not intend to utilize the space for itself or its affiliff ates. The
tt
F-18
The 610 Main Street Sublease
u
included a $10.8 million tenant impromm vements allowance for normal tenant improvmm
ements, for
which construction began in June 2016. The date of the construcrr
purposes under ASC 840, Leases. The Company recorded straight-line rent expense of $2.3 million during the year ended Decemberm
31, 2016 and a deferred rent liability of $12.9 million, inclusive of a tenant imprmm ovement allowance of $10.2 million which the
Compamm ny is amortizing as a reduction of rent expense over the sublease term. As of Decemberm 31, 2016, $1.0 million of the tenantaa
improvem
mm
consolidated balance sheet.
ent allowance was recorded within current deferrerr d rent, and the remaining $11.9 million as non-current deferrerr d rent on thet
tion coincided with the lease commencement date for accounting
In May 2016, the Company entered a $2.5 million letter of credit to secure the Compamm ny’s obligations under the 610 Main Street
Sublease. The letter of credit is secured by cash held in a restricted depository account. The deposit is recorded in restricted cash in the
accompanying
consolidated balance sheet as of Decemberm 31, 2016.
mm
Future minimummm payments required under the leases as of Decemberm 31, 2016, are as follows
ff
(in thousands):
Year Ending December 31:
2017
2018
2019
2020
2021
Thereafter
Total minimum lease payments
Amount
6,685
6,431
6,624
6,823
7,027
30,335
63,925
$
$
Lettertt
s orr
f Co
reCC ditii
As of Decemberm 31, 2016 and 2015, the Compamm ny had restricte
tt
d cash of $3.2 million and $0.7 million, respectively,
Massachusetts at 200
representing letters of credit securing the Company’s obligations under certain leased facilities in Cambridge,
Sidney Street and the 610 Main Street as well as certain credit card arrangements. The letters of credit are secured by cash held in a
restricted depository account. The cash deposit is recorded in restricted cash in the accompanymm
ing consolidated balance sheet as of
Decemberm 31, 2016 and 2015.
m
Shareholdell
r SettSS lett ment
Under the terms of a shareholder agreement existing prior to the IPO, if a U.S. common shareholder elected to file a Qualified
Electing Fund (“QEF”) and notified the Compamm ny of this election, the Compamm ny was required to make advance payments to the
shareholder related to their individual tax liability. In Septembem r 2016, thet Compamm ny formally offered an aggregate settlett ment of up to
$2.0 million to certain U.S common shareholders in order to release the Compamm ny from any and all obligations or claims concerning
and/or arising out of the Compamm ny’s status as a PFIC or a Controlled
any taxaba le year from 2013
through 2015, including forff
potential lack of timely notification of the Company’s PFIC status (an “Annual Information Statement”)
for the year ended Decembem r 31, 2015.
Foreign Corporation (a “CFC”) forff
tt
Following the formal settlement offer in Septembem r 2016, in the fourth quarter of 2016 the Compamm ny made payments to
shareholders of $2.0 million, respectively, under the terms of the accepted settlements. The obligation to make advance payments
under the shareholder agreement for tax years subsequent to 2015 terminated upou
n the closing of the IPO.
The Company has made available a 2016 PFIC Annual Informff
ation Statement on its website for its shareholders.
Sponsored Research Agreements
The Compamm ny has engaged several research institutions to identify nff
ew delivery srr
trategies and applications of the CRISPR/Cas9
technology. As a result of these efforts, the Company sponsored five research programs during 2016, with two of these programs
continuing through 2018. In association with these agreements, the Companmm y has committed to making payments for related research
and development services of $0.7 million, and $0.1 million in 2017 and 2018, respectively.
F-19
License Agreement with Anagenesis Bioteii
chnologio esii SAS
On June 7, 2016, the Compamm ny entered into a license agreement with Anagenesis Biotechnologies SAS (“Anagenesis”) pursuant
license agreement, the Company made a one-time upfront payment of $0.5 million to Anagenesis and is
to which the Company received an exclusive worldwide license to Anagenesis’ proprietary technology for all human based musmm cle
diseases. Pursuant to thet
required to pay Anagenesis up to $89.0 million upon the achievement of future clinical, regulatory arr
first allogeneic and autologous licensed products developed pursuant to the license agreement, as well as low single digit royaltytt
payments on futff urett
months ended Decemberm 31, 2016 as research and development expense on the consolidated statement of operations.
sales of commercialized product candidates. The Company recorded the $0.5 million payment during the twelve
nd sales milestones for each of the
Licensing and Patent
PP
Assignment Agreements
In April 2014, the Company and TRACR entered into technology license agreements with Dr. Emmanuelle Charpent
ier
pursuant to which the Company licensed Dr. Charpentier’s interest to certain intellectual property rights jointly owned by Dr.
Charpent
rr
further details.
ier and others to develop and commercialize products for the treatment or prevention of human diseases. See Note 9 forff
rr
Litigationtt
Under the Charpentier license agreement, the Companymm
ce
proceedings declared by the Patent Trial and Appeal Board (“PTAB”) of the U.S. Patent and Trademark Office. Following motions by
the parties and other procedural matters, the PTAB concluded in Februarr
because the claim sets of the twott
test for patent interferences. See Note 17 for further details.
parties were not directed to the same patentable invention in accordance with the PTAB’s two-way
licenses a U.S. patent application that is currently subjeb ct to interferen
declared interferff ence should be dismissed
ry 2017 that thet
ff
Under the Invention Management Agreement (“IMA”) signed on December 15, 2016, the Compamm ny is obligated to share costs
related to patent maintenance, defenff
incurred $3.0 million, $1.5 million and $1.1 million, respectively in shared costs. The Companymm
cost sharing of $2.8 million and $2.6 million as of Decemberm 31, 2016 and 2015, respectively
se and prosecution. For the years ended Decemberm 31, 2016, 2015 and 2014, the Company
recorded accrued legal costs from the
9. Significant Contracts
Intellectual
ll
Property Agreements
CRISPR TPP
a
heTT rapeutics
AG—CGG
harCC
perr ntier License Agreement
tt
In April 2014, the Compamm ny entered into a technology license agreement with Dr. Emmanuelle Charpentier pursuant to which
property rights under joint ownership froff m Dr. Charpentier to develop and commercialize
the Compamm ny licensed certain intellectual
the treatment or prevention of human diseases other than hemoglobinopathies (“CRISPR—Charpentier
products forff
Agreement”). In consideration for the granting of the license, the Company paid Dr. Charpentier an upfront fee of CHF 0.1 million
($0.1 million), and agreed to pay an immaterial annual license maintenancaa
if Dr. Charpentier is not otherwise engaged in a service
arrangement with the Company. During the years ended December 31, 2016, 2015 and 2014, Dr. Charpentier has been in a consulting
arrangement with the Company, as such, no annual payments have been made under thit s provision. Dr. Charpentier is entitled to
receive nominal clinical milestone payments. The Companymm
subliu
to Dr. Charpentier a low single-digit percentage royalty based on annual net sales of licensed products and licensed services by the
Compamm ny and its affiliff ates and sublicensees.
is also obligated to pay Dr. Charpentier a low single digit percentage of
censing payments received under any sublu icense agreement with a third party. In addition, the Compamm ny is also obligated to pay
License
e feeff
rr
During the years ended December 31, 2016, 2015, and 2014 the Companmm y recorded and accrued $0.5 million, $0.9 million, and
$0 million, respectively, of sublicensing fees due to Dr. Emmanuelle
terms of the CRISPR—CRR
the Bayer agreement.
aa
harpentier License Agreement that was triggered by the execution of the Vertex collaboration agreement and
Charpentier in research and development expense under thet
TRACR Hematoltt ogy Limited—Charperr ntier License Agreement
In April 2014, TRACR entered into a technology license agreement (“TRACR—Charpentier License Agreement”) with Dr.
Emmanuelle Charperr ntier pursuant to which TRACR licensed certain intellectual property r
Charpentier to develop and commercialize products for the treatmtt
ent or prevention of human diseases related to hemoglobinopathies.
In consideration for the granting of the license, Dr. Charpentier is entitled to receive nominal clinical milestone payments. TRACR is
also obligated to pay Dr. Charpentier a low single digit percentage of sublu icensing payments received under any sublu icense agreement
ights under joint ownership from Dr.
tt
F-20
with a thit
sales of licensed products and licensed services by the Companymm
rd party. In addition, TRACR is obligated to pay to Dr. Charpentier low single digit percentage royalties based on annual
nn
net
and its affiliates and sublicensees.
During the years ended December 31, 2016, 2015, and 2014 the Compamm ny recorded $0, $0.1 million, and $0, respectively, of
sublicensing fees
Charpenrr
ff
due to Dr. Emmanuelle Charpentier in research and development expense under the terms of the TRACR
RR
—RR
tier License Agreement that was triggered by the execution of the Vertex collaboration agreements.
Invention Management Agreement
On Decemberm 15, 2016, we entered into a an IMA, with the University of California (“California”), the University of Vienna
(“Vienna”), Dr. Charperr ntier, Intellia therapeutics, Inc. (“Intellia”), Caribou Biosciences, Inc. (“Caribou”), ERS Genomics Ltd., or
(“ERS”), and TRACR. Under the IMA, California and Vienna retroactively consent to Dr. Charpentier’s licensing of her rights to thet
CRISPR/Cas9 intellectual property, pursuant to the Charpentier License, to us, our wholly-owned subsidiary TRACR, and ERS, in the
United States and globally. The IMA also provides retroactive consent of co-owners to sublicenses
licensees, prospective consent to sublicens
t
provides for, among other
(ii) cost-sharing arrangements, and (iii) notice of and coordination in the event of third-party infringement of the subject patents and
with respect to certain adverse claimants of the CRISPR/Cas9 intellectuatt
l property. Unless earlier terminated by the parties, the IMA
will continue in effect until the later of the last expiration date of the patents underlying thet CRISPR/Cas9 technology, or the date on
which the last underlying patent application is abandoned.
u
es they may grant in future, retroactive approval of prior assignments by certain parties, and
things, (i) good faith cooperation among the partirr es regarding patent maintenance, defense and prosecution,
granted by us, TRACR
r
and othet
RR
u
Patent Assignment Agreement
In Novemberm 2014, the Company entered into a patent assignment agreement (“Patent Assignment Agreement”) with Dr.
Emmanuelle Charpentier, Dr. Ines Fonfara, and Vienna (collectively, the “Assignors”), pursuant to which the Company was assigned
all rights, title and interest in and to certain patent rights claimed in the U.S. Patent Application No.61/905,835. In consideration for
the assignment of such rights, the Assignors are entitled to receive clinical milestone payments totaling up tuu
(approximately $0.4 million) in the aggregate for the firff st human therapeaa utic product. The Company is also obligated to pay to the
Assignors low single digit royalties based on annual net sales of licensed products and licensed services by the Compamm ny and its
affiliff ates and sublicensees.
o €0.3 million
During the years ended Decembem r 31, 2016, 2015, and 2014 the Compamm ny recorded $33 thousand, $0.1 million, $0, respectively,
of sublicensing fees due to the Assignors in research and development expense under the terms of the Patent Assignment Agreement
that was triggered by the execution of thet Vertex collaboration agreement and the Bayer Agreement.
Collaboration Agreement with Vtt
ertVV extt Pharmaceuticals, Is ncoII
rporatedtt
Summary of Agff
reement
On October 26, 2015, the Company entered into a strategic collaboration, option, and license agreement (“Collaboration
Agreement”) with Vertex, focused on the use of CRISPR’s gene editing technology, known as CRISPR/Cas9, to discover and develop
potential new treatments aimed at the underlying genetic causes of human disease. The collaboration will evaluate the use of CRISPR-
Cas9 across multiple diseases where targets have been validated through human genetics. Vertex and CRISPR will focus their initial
gene editing research on discovering treatments to address the mutations and genes known to cause and contribute
disease, beta-thal
essemia and cystic fibrosis. Vertex and CRISPR will also evaluate a specifieff d numbem r of other genetic targets as part
of the collaboration. For up to six targets, Vertex has an exclusive option to obtain: (1) an exclusive license to commercialize CRISPR
technology (“Exclusive License”) or (2) a co-exclusive license with respect to hemoglobinopathy and beta-globin targets (“Co-
exclusive License”).
to sickle cell
t
tt
The collabora
a
tive program of research to be undertaken by the parties pursuant to the Collaboa
ration Agreement will be
conducted in accordance with a mutmm utt ally agreed upon research plan which outlines each party’s research and development
responsibilities across the three research areas. The Company’s research and development responsibilities under the research plan
(“R&D Services”) are related to generating genome editing reagents that modify gene targets selected by Vertex. Except with respect
to the Compamm ny’s obligations under thet mutually agreed upon research plan, Vertex has sole responsibility, at its own costs, for thet
worldwide research, development, manufacturing and commercialization of products resulting froff m the exclusive licenses obtained.
The research collaboration will end on the earlier of the date on which Vertex has exercised six options to obtain exclusive/co-
nniversary of the effeff ctive date of the agreement. The research
h at
exclusive licenses with respect to a collaboration target, or the fourt
ff
F-21
term may be extended as mutually agreed by the parties up tuu
approved research plan that are incompletemm
on the fourth anniversary of the effective date.
o nine additional months to complmm ete any research activities under the
The Collaboration Agreement will be managed on an overall basis by a project leader fromff
each of the Companymm
and Vertex. In
activities under the collaboration agreement duridd
addition, thet
(“JRC”) formed by an equal numbem r of representatives from the Company and Vertex. Decisions by the JRC will be made by
consensus of the group,uu however, Vertex will have final decision-making authority in the event of disagreement, provided it is in good
faith and not contrary t
ng the research term will be governed by a joint research committeett
o any explicit clause of the agreement.
rr
In connection with the agreement, Vertex made a nonrefundable upfront payment of $75.0 million. In addition, Vertex will funff d
nts
all of the discovery activities conducted pursuant to the agreement. For potential hemoglobinopathy trett atments, including treatmett
for sickle cell disease, thet Company and Vertex will share equally all research and development costs and worldwide revenues. For
other targets that Vertex elects to license, Vertex would lead all development and global commercialization activities. For each of upuu
to six targets that Vertex elects to license, other than hemoglobinopathyt
receive up to $420.0 million in development, regulatory and commercial milestones and royalties on net product sale.
and beta-globin targets, the Compamm ny has the potential to
Vertex is entitled to terminate the Collaba oration Agreement as a whole, or terminate the Collaboration Agreement in part with
respect to a particular collaboration program, for convenience by providing the Compamm ny 90 days’ written notice of such termination;
provided, however, that if any termination applies to a productdd
for which Vertex has received marketing approval, Vertex will provide
CRISPR no less than 270 days’ notice of such termination. If Vertex is in material breach of this Collaboration Agreement, the
Compamm ny has the right to terminate the Collaboration Agreement in full at its discretion 90 days after delivery of written notice to
Vertex.
The Company evaluated the Collaboration Agreement in accordance
a
with the provisions of ASC 605-25. The Company’s
arrangement with Vertex contains the following initial deliverables: (i) a non-exclusive research license; (ii) the option to obtain an
exclusive license forff
up to six Collaboration Targets; (iii) the option to obtain a co-exclusive license for hemoglobinopathy or beta-
globin targets (which would be included within the maximum numberm of the aforemff
Services; and (v) JRC participation.
entioned six collaboration targets); (iv) R&D
Management considered whether any of these deliverables could be considered separate units of accounting. Regarding the non-
exclusive research license, the Companymm
exclusive or co-exclusive license since Vertex would not benefit from acquiring a research license without thet
license to commercialize the results of that research. As a result, the Compamm ny concluded that the research license should be combined
with those options.
concluded that it does not have stand-alone value separate from the option to exercise the
ability to obtain the
Regarding the R&D Services, the Company concluded that there are other vendors in the market that could perform the related
services. As such the Companymm
concluded thet R&D Services represent a separate unit of accounting.
Regarding the JRC obligations, the Compamm ny concluded that
t the JRC obligations deliverable has standalone value from the
option to license becauseaa
represent a separate unit of accounting.
the services could be performed by an outside party. As such the Compamm ny concluded the JRC obligations
As a result, management concluded that there are four units of accounting at the inception of the agreement: (i) a combined unit
non-exclusive research license, and the option for up tuu
of accounting representing thet
commercialize the collaboration targets as thet
representing the non-exclusive research license, and the option for a co-exclusive license (subject to the aforementioned six license
limit) to develop and commercialize the hemoglobinopathyt
the performff
se options do not have stand- alone value; (ii) a combim ned unit of accounting
or beta-globin targets as these options do not have stand-alone value; (iii)
ance of R&D Services; and (iv) the participation in the JRC.
o six exclusive licenses to develop and
The Company has determined that neither VSOE of selling price nor TPE of selling price is availablea
for any of the units of
accounting identified at inception of the arrangement. Accordingly, the selling price of each unit of accounting was determined based
on the Compamm ny’s BESP. The Compamm ny developed the BESP for all of the units of accounting included in the collaba oration agreementnn
with the objective of determining the price at which it would sell such an item if it were to be sold regularly on a standalone basis.
The Company developed thet BESP for the R&D Services and the JRC participation primarily based on the naturett
of the services
to be performed and estimates of the associated effort and cost of thet
expected to be realized under similar contracts. The Company’s
BESP for the JRC participation services was de minimis based on an estimate of time spent on preparation, participation, review and
travel for the meetings.
BESP for the R&D Services was $26.7 million. The Company’s
a reasonable profit margin that would be
services, adjusted forff
mm
F-22
The Company’s BESP for each combim ned unit of the non-exclusive research license and the option for an exclusive license to
develop and commercialize a single collaboration target is $37.7 million. As the Compamm ny expects Vertex to exercise five of these
options, the total BESP is $188.5 million. BESP for this item was determined based on probability and present value adjusted cash
flows from the royalties and milestones outlined in the Collabora
probability of success inherent in the naturtt e of the associated research area.
tion Agreement. BESP refleff cts the level of risk and expected
a
The Company’s BESP for a non-exclusive research license and the option for a co-exclusive license to develop and
commercialize a single hemoglobinopathy or beta-globin collaba oration target is $12.5 million. As the Companymm
expects Vertex to
exercise one of these options, the total BESP is $12.5 million. BESP for this item was determined based on probability and present
value adjud sted cash flows from the equal sharing of project worldwide net profit or net loss. BESP reflects the level of risk andaa
expected probability
of success inherent in the nature of the associated research area.
a
Allocable arrangement consideration at inception is comprmm ised of: (i) the up-uu front payment of $75.0 million, (ii) the estimated
R&D services of $26.7 million and (iii) payments related to the estimated exercise of options on future exclusive licenses for five
targets of $50.0 million. The aggregate allocablea
arrangement consideration of $151.7 million was allocated among the separate units
of accounting using the relative selling price method as follows: (i) R&D Services: $17.8 million, (ii) non-exclusive research license,
and the option for an Exclusive License to develop and commercialize the five collaboration targets: $125.5 million, (iii) non-
exclusive research license, and the option for one Co-exclusive License to develop and commercialize one hematology target: $8.4
million.
The amount allocated to R&D Services will be recognized as the R&D Services are performed. The Company will recognize as
license revenue an equalqq
amount of the total arrangement consideration allocated to the exclusive licenses as each individual license is
delivered to Vertex upon Vertex’s exercise of its options to such licenses. The Compamm ny will recognize $8.4 million as license revenue
when the Co-exclusive License is delivered to Vertex upon Vertex’s exercise of its options to such license.
The Compamm ny has evaluated all of thet milestones that may be received in connection with the Collaboration Agreement. In
mm
performance to achieve the milestone or the enhancement of the value of thet
evaluating if a milestone is substantive, the Compamm ny assesses whether: (i) the consideration is commensurate with either the
Company’s
outcome resulting from the Compamm ny’s performance to achieve the milestone, (ii) the consideration relates solely to past performance,
and (iii) the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement. The Company
notes that the $10.0 million duedd
determinable consideration allocable at contract inception and is not subju ect to milestone method accounting.
upon the exercise of each option for an Exclusive License was determined to be part of the fixeff
delivered item(s) as a result of a specificff
d and
The first potential milestone the Company will be entitled to receive is thet
$10.0 million milestone due upon the filff ing of an
Investigational New Drug Application (“IND”) for a selected Exclusive License. As the firff st developmental milestone of the
agreement relates to the filing of an IND, the Companymm
recognized as revenue in full in the period in which the associated milestone is achieved, assuming all other revenue recognition
criteria are met. There are no other substantive milestones. As such the total amount of substa
method accounting treatment is $10.0 million forff
has considered it to be substantive. Accordingly, such amounts will be
each selected Exclusive License.
ntive milestones subject to milestone
u
The remaining milestones are predominately related to the development and commercialization of a product resulting from the
arrangement and are payable with respect to each selected Exclusive License. Each milestone is payable only once per collaboration
target, regardless of the numberm of products directed to such collaboration target that
t achieve the relevant milestone event. There are
nine remaining clinical development and regulatory approval milestones which may trigger proceeds of up to $90.0 million and
$235.0 million, respectively, forff
$75.0 million forff
option and the $10.0 million development milestone associated with an IND, total $420.0 million for each selected Exclusive
License), as follows:
each selected Exclusive License (which, when combim ned with the $10.0 million duedd
each selected Exclusive License, and two commercial milestones which may trigger proceeds of up to
upon exercise of the exclusive
Developmental Milestone Events
1.
2.
3.
4.
5.
Initiation of the first Clinical Trial of a Producdd t
Establishment of POC for a Product
Initiation of the first Phase 3 Clinical Trial of a Producdd t
Acceptance of Approval Application by the FDA for a Product
Acceptance of Approval Application by the EMA for a Product
F-23
6.
Acceptance of Approval Application by a Regulatory Authority in Japan forff
a Product
7. Marketing Approval in the US forff
a Producdd t
8. Marketing Approval in the EU forff
a Producdd t
9. Marketing Approval in Japaaa n forff
a Product
Commercial Milestone Events
1.
2.
Annual Net Sales for Products with respect to a Collaboration Target exceed $500 million
Annual Net Sales for Products with respect to a Collaboration Target exceed $1.0 billion
tt
ng, and commercialization of licensed agents and products
for the relevant target. As the Compamm ny’s involvement in this
After Vertex has exercised an Exclusive License option, Vertex will be solely responsible for all research, development,
dd
manufacturi
process is limited to observer status, management determined that milestones are not considered substantive becausaa e thet y do not relate
solely to the past performance of the Compamm ny. Upon the achievement of a milestone, management will evaluate whethet
triggering event occurs during or after the research term. If the triggering event occurs duridd
ng the research term, management has
elected to treat the milestone similar to an up-front payment. In these cases, if and when any of these milestones are received, the
amount will be included in the overall arrangemaa
To the extent
triggering
all deliverables have been satisfiedff
event occurs after the research term, the Company will recognize the associated revenue in the period in which the event occurs. The
Compamm ny will recognize royalty revenue in the period of sale of the related product(s), based on the underlying contractt
provided that the reported sales are reliablya measurable and the Compamm ny has no remaining performance obligations, assuming all
other revenue recognition criteria are met.
, any additional consideration allocated to them could be immediately recognized. If thett
ent consideration and allocated to the remaining identified deliverables.
t terms,
r the
a
During the year ended December 31, 2016, 2015, and 2014, the Company recognized $4.0 million, $0.2 million, and $0 million
of revenue with respect to the collaboration with Vertex. Research and development expense incurred by the Companymm
its performance under thet
million, respectively. As of Decemberm 31, 2016 and 2015, there is $77.1 million and $75.1 million of non-current deferredrr
related to the Company’s collaboration with Vertex, respectively.
collaboration agreement for the years ended December 31, 2016 and 2015 was $7.0 million and $0.3
revenuenn
in relation to
Joint VenVV ture with Bayer Healthtt care LLC
On Decemberm 19, 2015, the Compamm ny entered into an agreement to establish a joint venture (“Bayer Joint Venture”
tt
) to research
the development of new therapeaa utics to cure blood disorders, blindness, and congenital heart disease. On February
Compamm ny and Bayer complmm eted the formff
Kingdom. Bayer and the Company each received a 50% equity interest in the entity in exchange forff
The Company contributed
property for selected disease indications. Bayer
$0.1 million in cash and licensed its proprietary CRISPR/Cas9
entity, Casebia, a limited liability partnership formff
contributed its protein engineering expertise and relevant disease know-how.
ed in the United
their contributions to the entity.
gene editing technology and intellectual
ation of the joint venturett
12, 2016, the
RR
aa
rr
tt
tt
Bayer will provide up tuu
o $300.0 million in research and development funff ding to Casebia over the first five years, subject to
certain conditions, of which the firff st $45.0 million was contributed upon formation in the firff st quarter of 2016. Under the joint ventutt re
agreement, the Compamm ny has no obligation to provide any additional funding and the Companmm y’s ownership interest will not be diluted
from future
ff
Compamm ny and Bayer. As Casebia is jointly contrott
equity method of accounting.
contributions froff m Bayer. The activities of Casebia are controlled by a management board under thet
lled by the Compamm ny and Bayer, the Company accounts for its 50% interest using the
joint control of the
Under the agreement, Casebia will pay the Company up to $35.0 million in exchange for a worldwide, exclusive license to
mm
s CRISPR/Cas9 technology specifically forff
commercialize the Company’
Company received a non-refundablea
paid on December 22, 2016 folff
There are no milestone, royalties or other payments due to the Compamm ny under thist
that the contribution of the CRISRP/Cas9 technology by license to Casebia did not meet the definition of a business under ASC 805.
the indications designated by Casebia. In March 2016, the
up-front payment of $20.0 million as a technology access fee. The remaining $15.0 million was
.
propertyrr
lowing delivery of the necessary consents from patent holders of the Company’s intellectual
aspect of the agreement. The Compamm ny determined
tt
The Company will also provide to Casebia compensated research and development services through a separate agreement.
Concurrent with t
t
he execution of the Bayer Joint Venturett
agreement, the Compamm ny also entered into the Bayer Convertible Loan
for $35.0 million.
F-24
As the Bayer Joint Venture (including the CRISPR/Cas9 technology license and the research and development services) and the
Bayer Convertible Loan were executed at thet
element arrangement. Additionally, the Company also determined that ASC 845, Nonmonetary Tr
apply to this arrangem
the arrangement. As a result, the Compamm ny analogized to ASC 605-25 in allocating thet
to the diffeff
rent elements of the arrangement.
rr
same time, the Compamm ny determined that they should be evaluated as one multiple-
raTT nsactions (“ASC 845”) did not
ent given the Compamm ny’s significant continuing involvement with Casebia and the amount of cash involved in
relative fair value of the consideration received
The Company allocated the fair value of the consideration received using a relative fair value allocation. The allocable
arrangement consideration included (i) the total cash payment by Casebia for the technology access fee, net of the Company’s $0.1
million contribution, of $34.9 million, (ii) the fair
million received fromff
the research and development service arrange
the issuance of the Convertible Debt, and (iv) $6.3 million of estimated cash consideration to be received under
equity interest in the Joint Venturtt e of $36.4 million, (iii) the $35.0
ment, accumulating to $112.6 million.
value of thet
rr
ff
The Company identified the following elements under the tratt nsaction:
(i)
Combinm ed element of an exclusive, worldwide, royalty free, license to the CRISPR/Cas9 technology specifically for the
indications designated by Casebia, and delivery of the consents of the assignors of the underlying patents to thet
technology to develop, manufacture, and commercialize licensed products under that license
(ii) Research and development services, and
(iii) The issuance of the Bayer Convertible Loan.
The Company determined the fair value of the license was $71.4 million based on the consideration paid and the fair value of
the 50% interest in Casebia, which was determined utilizing discounted cash floff ws based on reasonable estimates and assumptions of
cash flows expected from Casebia. The fair
million. The faiff
preferred shares that were exchanged as part of the immediate conversion. Using a relative fair value allocation, the Compamm ny
lows:
allocated the aggregate arrangement consideration paid as folff
r value of the Bayer Convertible Loan was determined to be $24.5 million, based on the fair
value of the separate research and development services was determined to be $6.3
value of the underlying
ff
ff
(i)
(ii)
$63.6 million was allocated to the license and patent holder consent combined element
$0.6 million was allocated to the futur
ff
e research and development services
(iii) $27.0 million was allocated to the Bayer Convertible Loan
The differe
nce between combinm ed above amounts of $91.2 million and the total allocable arrangement consideration of $112.6
ff
$6.3 million of estimated cash consideration to be received
million is duedd
under the research and development service arrangement and the remaining $15.0 million of the license fee paid upon the delivery orr
f
the consent from the patent holders of the Company’s intellectual property.tt
arrangement consideration associated with thet
to allocablea
Following delivery of the patent holders’ consent, which occurred on December 17, 2016, the combim ned amount attributed to the
license and patent holder consent element and the remaining $15.0 million license fee, which amount to $78.6 million, was recognized
as othet
combinem
joint venture is not part of the Compamm ny’s majoa r ongoing or central operations.
d element did not meet the definition of revenue because the licensing of its technology in connection with t
ad determined that the license and patent holder consent
the year ended Decembem r 31, 2016. The Companmm y hnn
he formation of a
r income forff
t
As the amount allocated to the Bayer Convertible Loan represents an $8.0 million discount to its $35.0 million facff
e value, the
Compamm ny recognized interest expense during the twelve months ended Decemberm 31, 2016 equal to the discount. The Convertible
Loan automatically converted into Series B preferred shares on its January 29, 2016 maturity date.
During 2016, the Company recorded an equity method investment of $36.5 million equal to the fair value of the Company’s
arrangement consideration described above). Following delivery of the patent
interest in Casebia (which was included in the allocablea
holders consent element and realization of the described gain allocated to the license and patent holder consent combined element, the
Compamm ny recorded unrealized equity method losses up to the remaining amount of the $36.5 million investment.
During the year ended December 31, 2016, the Compamm ny recognized $1.2 million, of revenue with respect to the collaboration
with Casebia. Research and development expense incurred by the Company in relation to its performance under thet
year ended Decemberm 31, 2016 was $1.2 million. As of Decemberm 31, 2016, there is $0.5 million of non-current deferff
related to the Company’s collaboration with Casebia, respectively. Unrecognized equity method losses in excess of the Company’s
investment in Casebia totaled $4.0 million as of andaa
million of stock-based compensation expense related to Casebia empmm loyees.
for the year ended Decembm er 31, 2016. During 2016, thet Company recorded $0.2
the
a
agreement forff
red revenue
mm
F-25
Total operating expenses, and net loss of Casebia for the twelve months ended Decemberm 31, 2016 was $80.8 million, which
included research and development expenses equal to $77.4 million for the fair value of the CRISPR license acquired.
Subscription Agreement with Bayer Global Investments B.V.
On December 19, 2015, the Compamm ny entered into a subscription agreement, (“Subscription Agreement”), with Bayer BV.
Pursuant to the Subscription Agreement, Bayer BV was given the option, at its election, to purchase $35.0 million of the Compamm ny’s
Common Shares in a private placement concurrent with thet Company’s
IPO at a per share price equal to the public offering price, see
Note 16 for further details.
mm
10. Redeemable Convertible Preferred Shares
Upon the closing of the Compamm ny’s IPO on October 24, 2016, all outstanding Preferred Shares of the Compamm ny were
automatically converted into 27,135,884 Common Shares on a one-for-one basis. As of Decemberm 31, 2016, the Company had no
Preferred Stock authorized, issued, or outstanding.
As of Decemberm 31, 2015, the Companymm
which was comprised of (i) 440,001 Series A-1 Preferrerr d Shares CHF 0.03 par value per share; (ii) 3,120,001 Series A-2 Preferff
Shares, CHF 0.03 par value per share; (iii) 10,758,006 Series A-3 Preferred Shares, CHF 0.03 par value per share; and, (iv) 4,519,016
Series B Preferred Shares, CHF 0.03 par value per share, (collectively, the “Preferred Shares”) .
had 18,837,024 registered Preferred Shares issued and outstanding in share capital,
rerr d
The Company’s redeemable convertible preferred shares were classified as tempormm ary orr
r mezzanine equity on the accompanying
consolidated balance sheets in accordance with authoritative guidance for the classification and measurement of redeemable securituu ies
as the Preferred Shares are contingently redeemable at the option of the holders.
mm
In October 2013, the Compamm ny issued 440,001 Series A-1 Preferred Shares for CHF 1.14 ($1.28) per share, resulting in gross
terms of the Series A-1 Preferred Shares Investment Agreement, the holders
proceeds of CHF 0.5 million ($0.6 million). Under thet
“Series A-1 Tranche
had the right to purchase an additional 1,315,790 Series A-1 Preferred Shares at CHF 1.14 ($1.28) per share (thet
. The
Rights”) contingent uponuu
Series A-1 Tranche Rights were evaluated under ASC 480 and ASC 815 and it was determined that they did not meet the requirements
for separate accounting from the initial issuance of Series A-1 Preferred Shares. In connection with the issuance of the Series A-1
Preferred Shares, the Companymm
recorded the diffeff
issuance cost discount to the Series A-1 Preferred Shares upon issuance.
rence of $0.1 million between the fair value of the Common Shares issued and the price paid by the investors as an
two or more shareholders holding Series A-1 Preferred Shares. These rights were not legally detachablea
also issued 335,000 Common Shares to the Series A Preferred Shares investors. The Companymm
In April 2014, the Compamm ny issued 3,120,001 Series A-2 Preferred Shares in exchange for CHF 3.05 ($3.47) per share of such
amount CHF 1.45 ($1.65) per share was received upon issuance resulting in gross proceeds of CHF 4.5 million ($5.1 million) and the
015 by thet Board of Directors of the Companmm y resulting in additional
balance of CHF 1.60 ($1.82) per share was called in February 2rr
gross proceeds of CHF 5.0 million ($5.3 million).
In connection with the issuance of the Series A-2 Preferred Shares, thet
Series A-1 Tranche Rights were terminated without
exercise in April 2014. The Company’s policy requires the evaluation of amendments to preferred shares qualitatively to determine
whethet
Series A-1
r they are considered a modification or extinguishment. Based on this approach, the amendment to the terms of thet
Preferred Shares was considered an extinguishment due to the significance of the modifications to the substantive contractual terms of
the Series A-1 Preferred Shares. Accordingly, the Company recorded a loss of $0.7 million on thet
Series A-1 Preferred Shares within
additional paid-in capital equal to the differen
carrying amount of the Series A-1 Preferred Shares of $0.4 million upon extinguishment. The loss on extinguishment is reflected in
the calculation of net loss available to common stockholders in accordance with FASB ASC Topic 260, Earnings per ShaSS
(“ASC 260”).
Series A-1 Preferred Shares of $1.2 million and the
ce between the fair
value of thet
re
ff
ff
In April 2015, the Compamm ny issued 10,758,006 Series A-3 Preferred Shares in exchange for $4.24 per share whereby $2.12 per
share was received upon issuance, resulting in gross proceeds of $22.8 million and the balance of $2.12 per share was due upon
meeting certain milestones. As of Decemberm 31, 2015, none of the milestones had occurred and the Compamm ny had an outstanding
subsu cription receivable of $22.8 million related to the Series A-3 Preferred Shares. In connection with the issuance of the Series A-3
Preferred Shares, the Compamm ny amended the dividend and conversion terms of the Series A-1 and Series A-2 Preferred Shares. The
Compamm ny’s policy requires the evaluation of amendments to equity classified preferred shares qualitatively to determine whether they
are considered a modification or extinguishment. Based on this approach, the amendment to the terms of the Series A-1 and A-2
Preferred Shares was considered a modification and as a result, there was no adjustment to the carrying value of the Series A-1 and A-
2 Preferred Shares. The balance of the Series A-3 Preferred Share subsu cription receivabla e of $2.12 per share was called on May 5,
2016 by the Board of Directors and gross proceeds of $22.8 million were received by May 27, 2016.
F-26
In May 2015, the Compamm ny issued 4,519,016 Series B Preferred Shares in exchange for CHF 6.20 ($6.74) per share resulting in
gross proceeds of CHF 28.0 million ($30.5 million).
In January 2016, the Compamm ny issued 5,464,608 Series B Preferred Shares upon conversion of $38.4 million of Vertex
Convertible Loans plus accruerr d interest and $35.0 million of Bayer Convertible Loans at a conversion price of $13.43 per share.
In June 2016, the Company issued 2,834,252 Series B Preferred Shares in exchange for $13.43 per share resulting in gross
proceeds of $38.1 million.
11. Share Capital
The Company had 40,253,674 and 5,528,079 registered Common Shares as of Decemberm 31, 2016 and 2015, respectively, with
a par value of CHF 0.03 per share. Included in the registered Common Shares as of December 31, 2016 is 89,367 shares of unvested
restricted stock award and 444,873 treasury shares, which are legally outstanding, but are not considered outstanding for accounting
.
purposes
rr
Conditional Capita
altt Reserved forff Future Issuance
The Company had the following conditional capiaa tal reserved for futff urtt e issuance:
Type of Share Capital
Common Shares
Common Shares
Common Shares
Common Shares
Common Shares
Common Shares
Conditional Capital
Charpentier Call Option
Unvested unissued restricte
tt
Outstanding stock options
Reserved forff
Shares available for bonds and similar debt instruments
Shares available forff
future issuance under stock option plans
e purchase plans
mm
employe
d stock
Total
Common Share IssuII
ances
As of December 31,
2016
—
166,667
4,535,371
5,290,643
4,919,700
413,226
15,325,607
2015
328,017
142,794
1,939,986
33,567
—
——
2,444,364
In October 2016, thet Company complmm eted an IPO whereby the Company sold 4,429,311 of its Common Shares, inclusive of
429,311 Common Shares sold by the Company pursuant to the partial exercise of an overallotment option granted to the underwriters
in connection with the offering. Concurrerr nt with the IPO, thet Company issued and sold 2,500,000 Common Shares to Bayer BV, in a
private placement. Additionally, the Companymm
issued and subsequently reacquired the unexercised overallotment Common Shares of
170,689 at no cost, which are held in treasury.rr
ee advisors of TRACRR
R. If the holders of any restricted common shares terminates the service relationship the unvested shares
In March 2015, the Compamm ny entered into an agreement to acquire 82.1% of the ordinary share capital of TRACR
exchange transaction. In connection with this share exchange transaction, the Compamm ny issued 852,846 Common Shares to two
founders of TRACR, 459,217 Common Shares to Fay Corp. and 656,031 restricted Common Shares to certain emplmm oyee and non-
employmm
are subject to a right of repurchase at an escalating purchase price. If any of these holders of restricted Common Shares are terminated,
in certain circumstances, the vested and unvested shares are subject to a right of repurchase at the shareholder’s original purchase
price. The Companymm
exchange for the vested TRACR shares as of the exchange date. The Company is also recognizing additional equity-based
compemm nsation expense for the exchange of TRACR restricted share awards which will continue to vest over a remaining term in the
form of CRISPR restricted share awards. See Note 12 for further
details of equity-based compemm nsation related to this share exchange
transaction.
expense in April 2015 for the incremental value received by the holders in
recorded equity-based compensation
in a share
mm
RR
tt
In April 2014, in conjunction with the sale of its Series A-2 Preferred Shares, the Compamm ny and its fouff nders agreed to transfer
729,800 Founders’ Shares to several non-employees. The shares transferred were subject to service-based vesting conditions. If thett
holder of any restricted Common Shares terminates the service relationship, the unvested shares are subjeb ct to a right of repurchase at
an escalating purchase price. Both vested and unvested shares are subjeb ct to a right of repurchase at the original purchase price upon
certain triggering events such as termination forff
founders and an investor also agreed to transfer 1,192,585 fully vested Common Shares to Fay Corp. The Compamm ny recorded equity-
based compenmm sation expense for the Founders Shares and the Common Shares issued with vt
esting restrictions from the founders and
Fay Corp. See Note 12 for further details of equity-based compemm nsation related to these transfers.
cause, material breach of agreement, and insolvency of the holder. In addition, the
F-27
The Common Shares have the following characteristics:
Votingii Righi
ts
The holders of Common Shares are entitled to one vote for each Common Share held at all meetings of shareholders and written
actions in lieu of meetings.
Dividenii
ds
The holders of Common Shares are entitled to receive dividends, if and when declared by the Board of Directors. As of
Decemberm 31, 2016, no dividends have been declared or paid since the Company’s inception.
Liquidation
After payment to the holders of Preferred Shares of their liquidation preferences, the holders of the Common Shares are entitled
to share ratabla y in the Company’s assets availabla e forff
liquidation, dissolution or winding up ouu
distribution to shareholders in the event of any voluntary or involuntaryrr
f thet Compamm ny or upon the occurrence of a deemed liquidation event.
12. Equity-based Compensation
Option and GraGG nt Plans
ll
In July 2016, the shareholders approved the 2016 Share Option and Incentive Plan (the “2016 Plan”) and in April 2015, the
the issuance of equitqq
shareholders approved the 2015 option and grant plan (the “2015 Plan” collectively the “Plans”). Subsequent to the IPO, no further
options shall be granted under the 2015 Plan. The Plans provide forff
options to purchase Common Shares which may constitute incentive stock options (“ISOs”) or non-statuttt ory stock options (“NSOs”),
performff
unrestricted stock unit grants, and qualifiedff
consultants, and other key personnel.
Terms of the equity
subject to the provisions of the Plans. Options granted by the Company typically vest over fouff
years. During the years ended Decemberm 31, 2016, 2015 and 2014, the Compamm ny also issued outstanding Common Shares previously
held by Founders and Fay Corp. to employees
subject to repurchase by the Companmm y upon
termination of the holder’s service relationship with the Compamm ny as well as upon certain
triggering events such as termination for cause, material breach of agreement and insolvency of the holder that generally lapse over a
requisqq
ers, directors, non-emplmm oyee
awards, including vesting requirements, are determined by the Board,
ance-based awards to eligible emplmm oyees, officff
qq
y awards in the form of restricted shares,
tion (“Founder Awards”), which are
r years and have a contractual life of ten
ite service period of four years.
as equity-based compensa
mm
and non-employees
mm
mm
uu
nn
Equity-Ba-
sed Compensation ExpEE ense
The Company uses the straight-line attribution method to recognize stock-based compensation expense forff
stock options and
restricted stock awards. Stock options and restricted stock generally vests over four years with 25% vesting on the firff st anniversary,rr
and the remaining vesting monthly thereafteff
Consolidated Statements of Operations:
owing table presents stock-based compemm nsation expense in the Compamm ny’s
r. The foll
ff
Research and development
General and administrative
Loss from equity method investment
Total
Year Ended December 31,
2015
2014
2016
$
$
4,848 $
5,844
152
10,844 $
1,924 $
1,760
—
3,684 $
487
208
—
695
F-28
Grant- Date Fair Value
There were no stock options granted prior to 2015. The Compamm ny estimated the fair value of each employee and non-employmm
ee
stock option award on the grant date using the Black-Scholes option-pricing model based on the following assumptions:
mm
Employees:
Options granted
Weighted - average exercise price
Weighted-average grant date faiff
Assumptions:
r value
Weighted-average expected volatility
Expected term (in years)
Weighted-average risk free interest rate
Expected dividend yield
Non employees:
Options granted
Weighted- average exercise price
Weighted- average grant date fair value
Assumptions:
Weighted average expected volatility
Expected term (in years)
Weighted-average risk free interest rate
Expected dividend yield
$
$
$
$
Year Ended December 31
2015
2016
$
$
$
$
2,411,240
12.19
8.47
81.0%
6.0
1.4%
0.0%
215,710
19.54
17.38
88.2%
10.0
2.4%
0.0%
1,913,319
2.32
3.11
76.4%
6.0
1.7%
0.0%
26,667
1.85
5.05
84.1%
10.0
2.2%
0.0%
The faiff
r value of the restricted stock awards was determined based on the fair value of Common Stock on the grant date. Non-
mm
employee
stock options and restricted stock awards are marked-to-market at each reporting period.
Share Based Payment Activity
Stock Options
The following table summarizes stock option activity for employees and non-employees
mm
during the year ended Decemberm 31,
2016 (intrinsic value in thousands):
Outstanding at December 31, 2015
Granted
Exercised
Cancelled or forfeited
Outstanding at December 31, 2016
Exercisable at Decemberm 31, 2016
Vested or expected to vest at
December 31, 2016 (1)
Stock
Options
Weighted-
Average
Exercise Price
Weighted-
Average
Remaining
Contractual
Term (years)
Aggregate
Intrinsic
Value
1,939,986
2,626,950
(18,900)
(12,665)
4,535,371
960,867
4,169,347
$
$
$
$
$
2.31
12.79
1.81
4.98
8.38
3.24
8.23
9.7
9.1
8.8
9.1
$
$
$
$
$
6,688
216
53,975
16,361
50,155
(1)
This represents the numberm of vested stock options as of Decemberm 31, 2016 plus the unvested outstanding options at Decembem r
31, 2016 expected to vest in the futff urett
, adjusted for estimated forfeitures.
The total unrecognized compensation cost for employee
As of Decemberm 31, 2016, the Companymm
million over a remaining weighted-average period of 3.3 years.
stock options is adjusted for estimated forfeitures.
expects to recognize total unrecognized compemm nsation cost related to stock options of $23.4
and non-employee
mm
mm
F-29
During 2016 and 2015, the Compamm ny granted options to purchase 123,333 and 261,389 Common Shares, respectively, subject to
performance-based vesting conditions. As of Decemberm 31, 2016, options to purchase 262,538 Common Shares subject to
performance-based vesting conditions were vested, as performance conditions were achieved, and options to purchase 12,500
Common Shares subject to performff
purchase Common Shares, subject to service and perforff mance-based vesting conditions, satisfied the performance conditions upon the
Compamm ny’s IPO on October 18, 2016, and will continue to vest over their requisite service periods.
ance-based vesting conditions were deemed probable of vesting. In addition, 686,665 options to
Restricted StoSS ck
The following table summarizes restricted stock activity for employe
mm
es and non-employees
mm
during the year ended Decemberm 31,
2016:
Unvested restricted Common Stock at
December 31, 2015
Vested
Unvested restricted Common Stock at
December 31, 2016
Reflected as
outstanding
upon vesting
Reflected as
outstanding
upon grant date
Total
142,794
(53,427)
1,485,244
(834,388)
1,628,038
(887,815)
$
89,367
650,856
740,223
$
Weighted-
Average
Grant Date
Fair Value
4.35
4.78
3.84
During thet
years ended December 31, 2016 and 2015, the total fair value of restricted stock vested was $9.9 million, $2.3
million, respectively. At December 31, 2016, total unrecognized compemm nsation expense related to unvested restricted stock was $7.2
million which the Compamm ny expects to recognize over a remaining weighted-average period of 1.4 years.
During 2016 and 2015, the Compamm ny granted 0 and 50,000 restricted Common Shares, respectively, subject to performance-
based vesting conditions. As of Decemberm 31, 2016 and 2015, 50,000 and 0 restricted Common Shares subject to performance-based
vesting conditions were vested, respectively. As of Decemberm 31, 2015, there were 15,000 restricted Common Shares subject to
performance-based vesting conditions deemed probable of vesting.
b
During the year ended December 31, 2016, the Compamm ny and Fay Corp. transferred 290,400 Common Shares to a Founder,
to vesting conditions with a weighted average grant date fair value of $12.65 per share. The unvested
268,093 of which are subject
Common Shares are subject to repurchase by the Compamm ny upuu on termination of the holder’s service relationship with thet Company as
well as upon certain triggering events such as termination forff
Company recognized expense related to the Common Shares transferred to the Founder of $2.6 million during the year ended
Decemberm 31, 2016. As of December 31, 2016, Fay Corp. no longer held outstanding Common Shares of the Company.
cause, material breach of agreement and insolvency of the holder. The
13. 401(k) Savings Plan
The Compamm ny established a definff ed-contribtt
ution savings plan under Section 401(k) of thet
Internal Revenue Code (the “401(k)
Plan”) in November 2016. The 401(k) Plan covers all employmm
allows participants to defer a portion of their annual compensation on a pretax basis. The Compamm ny contritt buted $0.1 million to the
401(k) Plan forff
ees who meet defined minimummm age and service requirements, and
the year ended Decembem r 31, 2016.
14. Income Taxes
The Company is subject to U.S. federal and various state corporate income taxes as well as taxes in foreign jurisdictions for the
hed. For the years ended Decemberm 31, 2016, 2015 and 2014, the loss
ries have been establis
a
foreign parent and where foreign subsidia
beforff e provision forff
income taxes consist of the follo
u
ff
Domestic
Foreign
Total
Year ended December 31,
2015
2014
2016
$
$
$
3,322
(26,040)
(22,718) $
$
593
(26,414)
(25,821) $
—
(6,863)
(6,863)
wing (in thousands):
F-30
The provision for (benefit from) income taxes consist of the follow
ff
ing (in thousands):
Current income taxes:
Federal
State
Foreign
Total current income taxes
Deferred income taxes:
Federal
State
Foreign
Total deferred income taxes
Total income tax (provision) benefit
Year ended December 31,
2015
2014
2016
$
$
(649) $
11
17
(621)
30
105
2
137
(484) $
(23) $
(12)
(26)
(61)
(37)
65
26
54
(7) $
——
—
(11)
(11)
—
——
74
74
63
A reconciliation of income tax expense computed
mm
at the statutory corporate income tax rate to the effeff ctive income tax rate for
the years ended Decemberm 31, 2016, 2015 and 2014 is as follows:
Income tax expense at statutory rate
State income tax, net of federal benefitff
Nondeductible expenses
Foreign rate differential
Statutory to US GAAP permanent differences
Stock-based compensmm
Research credits
Change in valuation allowance
Effective income tax rate
ation
Year ended December 31,
2015
2014
2016
10.3%
1.3%
1.6%
(3.3%)
6.6%
(4.9%)
3.1%
(16.8%)
(2.1%)
10.3%
0.1%
0.0%
(1.4%)
0.0%
(1.4%)
0.6%
(8.2%)
0.0%
10.3%
0.0%
0.0%
1.8%
0.0%
(1.1%)
0.0%
(10.1%)
0.9%
federal statutory rate reflects the Switzerland mixed companymm
service rate.
Deferred taxes are recognized forff
tempomm rary drr
ff
iffer
ences betwett
en the basis of assets and liabia lities for financial statement and
income tax purpose
rr
s. The significant compomm nents of the Compamm ny’s deferred tax assets are comprmm ised of the following (in thousands):
Deferred tax assets:
Net operating loss carryforwards
Accruals and reserves
Deferred Rent
Other deferred tax assets
Deferred revenue
Research credit
Total deferred tax assets
Less valuation allowance
et deferred tax assets
Deferred tax liabilities:
Depreciation
Intangible assets
ff
Other deferred
tax liabilities
Total deferred tax liabilities
ff
Long term deferr
ed taxes
F-31
Year ended December 31,
2016
2015
$
3,934 $
791
5,228
7
2,525
425
12,910
(6,770)
6,140
(5,909)
(68)
——
(5,977)
$
163 $
2,600
189
——
72
406
104
3,371
(2,892)
479
(321)
(80)
(53)
(454)
25
The Compamm ny has evaluated the positive and negative evidence bearing upon the realizabilit
the Compamm ny’s history of operating losses in its non-U.S. jurisdictions, the Compamm ny has concluded that
the benefit of its non-U.S. deferred
against its net deferred tax assets in Switzerland, and in the UK forff
valuation allowance increased by $3.9 million during 2016, which is primarily attributable to losses in Switzerland. Additionally, the
Compamm ny has established a valuation allowance for certain U.S. deferff
y of its deferred tax assets. Based on
t it is more-likely-than-not that
valuation allowance
tax assets will not be realized. Accordingly, the Company has provided a full
diary, as of December 31, 2016 and 2015. The
its TRACR subsiu
red tax assets.
a
ff
ff
As of Decemberm 31, 2016, the Companmm y had available non-U.S. net operating loss carryforwar
ds of $41.7 million which begin
to expire in 2020. As of December 31, 2016, the Company has U.S. domestic state research and development credit carryforwards of
$0.2 million which begin to expire in 2031.
ff
As of Decemberm 31, 2016, the Companymm
has U.S. domestic federal research and development credit carryforwards of $0.3
million which expire in 2036.
ASC 740 clarifies the accounting forff
uncertainty in income taxes recognized in an enterprise’s financial statement by
prescribing the minimum recognition threshold and measurement of a tax position taken or expected to be taken in a tax return.
As of Decemberm 31, 2016 the Company had gross unrecognized tax benefits of $0.2 million of which $0.1 million would
tive tax rate if recognized. The Compamm ny will recognize interest and penalties related to uncertain tax
favorably impamm ct the effecff
positions in income tax expense. As of Decemberm 31, 2016, 2015 and 2014, the Compamm ny had no accrued interest or penalties related
to uncertain tax positions and no amounts have been recognized in the Compamm ny’s consolidated statements of operations and
comprehe
nsive loss.
mm
The aggregate changes in gross unrecognized tax benefits was as follows (in thousands):
Year ended December 31,
2015
2014
2016
Balance at beginning of year
Increases for tax positions taken during current period
Increases for tax positions taken in prior periods
Decreases for tax positions taken during current period
Decreases for tax positions taken in prior periods
Balance at end of year
$
$
49
134
—
——
(20)
163
$
$
— $
49
—
——
—
49
$
—
——
—
——
—
——
The Company files income tax returns
tt
in the U.S. federal jurisdiction, Massachusetts, and certain non-U.S. jurisdictions. The
Compamm ny is subject to U.S. federal, Massachusetts, and non-U.S. income tax examinations by authorities for all tax years.
15. Selected Quarterly Financial Data (Unaudited)
Prior to its IPO on October 18, 2016, the Companmm y had outstanding participating Preferred Shares. During the fourth quarter of
had a net loss. Accordingly,
the year ended Decemberm 31, 2016, the Company had net income, although for the full year the Companymm
the Compamm ny used the two-class method to calculate net income per share for the fourth qt
basic net income per share for the fourth quarter of 2016, the Company excluded froff m the numerator $3.1 million of net income
attributable to participating securities. The Company calculated diluted net income per share under both the if-converted method and
the two-class method and concluded that the two-class method was more dilutive than the if-converted method. Accordingly, the two-
of non-participating securities. This resulted in net
class income allocations were reapplied after taking into account the dilutive effect
uarter of 2016. For purposes of calculating
ff
F-32
income of $3.1 million being allocated to the participating securities and excluded from the numerator of the Common Stock dilutive
net income per share calculation.
Collaboration revenue
Total operating expenses
Loss from operations
et (loss) income
Net (loss) income attributable to common shareholders
Net (loss) income per share attributable to common
shareholders:
Basic
Diluted
Weighted-average common shares outstanding used in net (loss)
income per share attributable to common shareholders:
Basic
Diluted
Collaboration revenue
Total operating expenses
Loss from operations
Net loss
Net loss attributable to common shareholders
Net loss per share applicable to common shareholders- basic
and diluted
Weighted-average common shares outstanding used in net loss per
share attributable to common shareholders - basic and diluted
2016
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter (1)
$
476
12,128
(11,652)
(8,442)
(8,439)
$
795
17,353
(16,558)
(17,164)
(17,157)
$
1,549
16,159
(14,610)
(14,694)
(14,680)
2,344
27,654
(25,310)
17,098
17,099
(1.53) $
(1.53) $
(3.15) $
(3.15) $
(2.77) $
(2.77) $
0.43
0.40
5,528,079
5,528,079
5,448,855
5,448,855
5,292,348
5,292,348
32,987,335
34,989,218
2015
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
— $
3,736
(3,736)
(3,522)
(3,237) $
— $
3,625
(3,625)
(3,666)
(3,643) $
— $
6,202
(6,202)
(6,354)
(6,353) $
247
12,413
(12,166)
(12,286)
(12,270)
(0.91) $
(0.80) $
(1.15) $
(2.22)
3,560,000
4,538,595
5,528,079
5,528,079
$
$
$
$
$
$
(1) During the fourth
ff
quarter the Compamm ny recorded an immaterial correctio
rr
n of an error of $1.2 million for rent expense related to
the three months ended September 30, 2016. The Compamm ny determined that these errors are not material to the respective
interim financial statements.
16. Related Party Transactions
We had the following transactions with related parties durdd ing the period:
In connection with the Series A-3 Preferrerr d Share financing, the Compamm ny paid $0.2 million on behalf of investors for legal and
consulting costs incurred forff
the preparation and complmm etion of the transaction.
The Company is a party to intellectual property license agreements with Dr. Charpentier. In addition, Dr. Charperr ntier is a
paid Dr. Charpentier a total of $1.0
consultant to the Compamm ny. For the year ended Decemberm 31, 2016 and 2015, the Companymm
million and $34 thousand, respectively, in consulting, licensing and other fees. As of December 31, 2016 and 2015, the Compamm ny
owed Dr. Charpentier approximately $0.5 million, and $1.0 million, respectively, of additional fees primarily related to the Vertex
Collaboration Agreement and Bayer Joint Venture Agreement.
F-33
During the year ended December 31, 2016, the Compamm ny formed a joint venture with Bayer. As a part of the agreement to form
the joint venture, the Company also issued a $35.0 million convertible loan to Bayer, which converted into Series B preferred stock
and ultimately common stock upon the IPO. Bayer also purchased 2,500,000 common shares through a private placement of $35
million during 2016. During the year ended Decemberm 31, 2016 and 2015, the Company recognized $1.2 million and $0 million,
respectively, related to the performance of R&D services for Casebia, the Company’s
r
furthe
uu
detail.
joint venture with Bayer. See Note 9 forff
mm
17. Subsequent Events
Under the Charpentier license agreement, the Company licenses a U.S. patent application that is currently subjeb ct to interferen
l
. Following motions by the parties and other proceduradd
proceedings declared by the PTAB of the U.S. Patent and Trademark Office
matters, the PTAB concluded in February 2017 that the declared interference should be dismissed becausaa e the claim sets of the two
parties were not directed to the same patentable invention in accordance with the PTAB’s two-way test for patent interferences.
ff
ff
ce
F-34
Report orr
f the statutory arr
uditor
with financial statements as of 31 December 2016 of
CRISPR Therapeutics AG, Basel
Ernst & Young Ltd
Aeschengraben 9
P.O. Box
CH-4002 Basel
Phone
Fax
www.ey.com/ch
+41 58 286 86 86
+41 58 286 86 00
To the General Meeting of
CRISPR Therapeutics AG, Basel
Basel, 10 March 2017
Report of the statutory auditor on the financial statements
As statutory auditor, we have audited the accompanying financial statements of Co RISPR
Therapeutics AG, which comprise the balance sheet, income statement and notes, for the
year ended 31 December 2016.
responsibility
Board of Directors’rr
The Board of Directors is responsible for the preparation of the financial statements in
accordance with the requirements of Swiss law and the company’s articles of incorporation.
This responsibility includes designing, implementing and maintaining an internal control
system relevant to the preparation of foo inancial statements that are free from material
misstatement, whether due to fraud or error. The Board of Directors is further responsible for
selecting and applying appropriate accounting policies and making accounting estimates that
are reasonable in the circumstances.
Auditor’s responsibility
Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Those
standards require that we plan and perform the audit to obtain reasonable assurance whether
the financial statements are free from material misstatement.
rming procedures to obtain audit evidence about the amounts and
An audit involves perforr
disclosures in the financial statements. The procedures selected depend on the auditor’s
judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor
considers the internal control system relevant to the entity’s preparation of the financial
statements in order to design audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the entity’s internal
control system. An audit also includes evaluating the appropriateness of the accounting
policies used and the reasonableness of accounting estimates made, as well as evaluating
the overall presentation of the financial statements. We believe that the audit evidence we
have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements for the year ended 31 December 2016 comply with
Swiss law and the company’s articles of incorporation.
Page 2
Report orr n key audit matters based on the circular 1/2015 of the Federal Audit
Oversight Authority
Key audit matters are those matters that, in our professional judgment, were of most
significance in our audit of the financial statements of the current period. These matters were
addressed in the context of our audit of the financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters. For each
matter below, our description of how our audit addressed the matter is provided in that
context.
ies section of our
We have fulfilled the responsibilities described in the Auditor’s responsibilit
report, including in relation to these matters. Accordingly, our audit included the performance
of procedures designed to respond to our assessment of the risks of material misstatement of
the financial statements. The results of our audit procedures, including the procedures
performed to address the matters below, provide the basis for our audit opinion on the
accompanying financial statements.
s
Revenue from R&D services under collaboration agreements
Risk
CRISPR Therapeutics AG (CRISPR) has entered into material revenue
generating collaboration agreements in 2015 (Vertex Pharmaceuticals)
and 2016 (Casebia Therapeutics LLP). These arrangements were
accounted for as multiple element arrangements and each contain
separate Research and Development (R&D) servirr ce deliverables under
Generally Accepted Accounting Principles in the United States (US
GAAPAA ). R&D servirr ce revenue is recognized based on actual time
incurred using a relative selling price and recorded within Collaboration
Revenue on the Consolidated Statement of Operations.
The R&D servirr ce revenue is primarily composed of R&D services
performed by internal CRISPR R&D employees, the revenue is
calculated using projeo ct based employee timesheets. Given the manual
nature of the calculation, we identified a heightened risk related to the
opportunity of management to overstate the internally sourced R&D
service revenue, specifically through the inclusion of other employees
not providing R&D servirr ces under the collaboration agreements in the
Company’s calculation, which could result in a material revenue
misstatement.
Refer to Note 9 in the standalone statutory financial statements for
CRISPR’s accounting policy and further details.
Page 3
Our audit
response
We analyzed the relevant agreements and discussed each with
management to obtain a full understanding of CRISPR’s accounting
process for the related R&D service deliverables, and the specific
underlying terms and risks.
ts for the period selected. For the selected
For a sample of instances, we obtained confirmations directly from
CRISPR employees related to their involvement in the R&D servirr ce
revenue generating projeco
samples, we reconciled the amount per the CRISPR employee
timesheet to management’s collaboration revenue calculation. We
tested each of the key contracts whereby we agreed the identified R&D
programs and FTE rates to the related collaboration agreements, and
recalculated revenue for the year based on the relative selling price
allocated to the R&D servirr ce deliverable of the arrangement.
We assessed R&D servirr ce revenue recognized by vouching subsequent
payments made by Verterr x and Casebia for amounts invoiced and
confirmed outstanding receivables as of period end. Additionally, we
analyzed the Company’s recognized collaboration revenue against
expectations based on the status of the research programs tested. We
tested the Company’s accounting and presentation of the Collaboration
Revenue in accordance with US GAAP, as well as for the statutory
standalone financials.
Accounting forff
Healthcare)
the establishment of Casebia (Joint Venture with Bayer
Risk
On December 19, 2015, CRISPR Therapeutics AG (CRISPR) entered
into an agreement to establish a joint venture investment (“Bayer Joint
Venture”) with Bayer Healthcare LLC (“Bayer”) to discover, develop and
commercialize new breakthrough therapeutics to cure blood disorders,
blindness, and congenital heart disease. The joint venture investment
into the partnership was legally formed during Q1 2016 and funding was
contributed by the two partirr es. In addition to the funding, CRISPR
contributed a license of its proprietary CRISPR-Cas9 gene-editing
technology and intellectual property for selected disease indications and
Bayer contributed its protein engineering expertirr se and relevant disease
know-how. Per the underlying agreement the risk the Crispr
Therapeutics AG bears is limited to the value of its contribution.
The Bayer Joint Venture investment is disclosed in the Note 9 to the
Consolidated Financial Statements.
The principal considerations for our determination that accounting for
the establishment of Casebia is a key audit matter are the materiality to
the standalone statutory financial statements, multiple elements of the
Bayer Joint Venture arrangement, as well as complexities in applying
the relevant accounting guidance for the formation of the joint venture
investment.
Page 4
audit
response
We analyzed the various clauses within the Bayer Joint Venture
agreement and discussed each with management to obtain an
understanding for the accounting treatment. We evaluated
management’s assessment of the variable interest considerations and
their judgements in determining the primary brr
eneficiary as well as the
risks borne by each party.
We obtained the underlying financial statements of Casebia in
connection with the impairment recorded. We evaluated the accounting
for the impairment in the participation value of the partnership in
accordance with the agreement.
Report orr n other legal requirements
We confirm that we meet the legal requirements on licensing according to the Auditor
Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there
are no circumstances incompatible with our independence.
In accordance with article 728a para. 1 item 3 CO and Swiss Auditing Standard 890, we
confirm that an internal control system exists, which has been designed for the preparation of
financial statements according to the instructions of the Board of Directors.
We recommend that the financial statements submitted to you be approved.
Ernst & Young Ltd
ü Zürcher
nsed audit experttttt
itor in chargggge)))))
((
SSSShhhhaaaahhhhaaaarrrrrr LLLLiiiiiieeeebbbbeeeerrrrrrmmmmmmmmeeeennnnnnsch
Ceritfied Public Accountant
Enclosures
•
Financial statements (balance sheet, income statement and notes)
CRISPR THERAPEUTICS AG
Compensation Report
For the year ended December 31, 2016
Ernst & Young Ltd
Aeschengraben 9
P.O. Box
CH-4002 Basle
Phone
Fax
www.ey.com/ch
+41 58 286 86 86
+41 58 286 86 00
To the General Meeting of
CRISPR Therapeutics AG, Basle
Basle, 6 April 2017
Report of the statutory auditor on the remuneration report
We have audited the remuneration report of CRISPR Therapeutics AG, Basle, for the year ended
31 December 2016. The audit was limited to the information according to articles 14 – 16 of the
Ordinance against Excessive Compensation in Stock Exchange Listed Companies (Ordinance)
contained in sections B.1 and C.1 of the remuneration report.
Board of Directors’ responsibility
The Board of Directors is responsible for the preparation and overall fair presentation of the
remuneration report in accordance with Swiss law and the Ordinance. The Board of Directors is
also responsible for designing the remuneration system and defining individual remuneration
packages.
Auditor’s responsibility
Our responsibility is to express an opinion on the remuneration report. We conducted our audit in
accordance with Swiss Auditing Standards. Those standards require that we comply with ethical
requirements and plan and perform the audit to obtain reasonable assurance about whether the
remuneration report complies with Swiss law and articles 14 – 16 of the Ordinance.
An audit involves performing procedures to obtain audit evidence on the disclosures made in the
remuneration report with regard to compensation, loans and credits in accordance with articles
14-16 of the Ordinance. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatements in the remuneration report, whether due to fraud
or error. This audit also includes evaluating the reasonableness of the methods applied to value
components of remuneration, as well as assessing the overall presentation of the remuneration
report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our opinion.
Opinion
In our opinion, the remuneration report for the year ended 31 December 2016 of CRISPR
Therapeutics AG complies with Swiss law and articles 14 – 16 of the Ordinance.
Ernst & Young Ltd
Jürg Zürcher
Licensed audit expert
(Auditor in charge)
Helena Rosa
Chartered Accountant (SA)
A. General
Due to the listing of our common shares on the NASDAQ Stock Market on October 18, 2016, we became
subject as of that date to the Swiss Federal Ordinance Against Excessive Compensation with respect to Listed
Stock Corporations (Ordinance). As a result, we are required to prepare a separate Swiss Statutory Compensation
Report each year that contains specific items in a presentation format determined by these regulations.
Our Board of Directors is comprised of one class with eight (8) members consisting of one management
director, and seven (7) non-employee directors holding office for one year terms. The following persons are
members of the Board of Directors:
Name
Position(s)
Election Year
Rodger Novak, M.D.
President and Chief Executive Officer, Director
N. Anthony Coles, M.D.(1)(2)
Chairman and Director
Bradley Bolzon, Ph.D.(2)
Ali Behbahani, M.D.(1)(3)
Kurt von Emster(4)
Simeon J. George, M.D.(1)(3)
Thomas Woiwode, Ph.D.(5)
Pablo Cagnoni, M.D.(1)(6)
Director
Director
Director
Director
Director
Director
(1) Member of the Compensation Committee.
(2) Member of the Nominating and Corporate Governance Committee.
(3) Member of the Audit Committee.
(4) Chairman of the Audit Committee.
(5) Chairman of the Compensation Committee.
(6) Chairman of the Nominating and Corporate Governance Committee.
2013
2015
2013
2015
2015
2015
2013
2015
Our executive management (as defined under Swiss law) consists of the following six (6) executives:
• Rodger Novak, Chief Executive Officer
• Marc Becker, Chief Financial Officer
•
Samarth Kulkarni, Chief Business Officer
• Kala Subramanian, Sr. Vice President, Strategic Development and Operations
•
Sven Ante Lundberg, Chief Scientific Officer
• Tyler Dylan-Hyde, Chief Legal Officer
The following sets forth the compensation for the year ended December 31, 2016 of the members of our
Board of Directors and Executive Management for all of the functions that they have performed for CRISPR
Therapeutics AG and each its subsidiaries, being CRISPR Therapeutics, Inc., CRISPR Therapeutics Limited, and
Tracr Hematology Limited.
For more detailed information about compensation for our Board of Directors and Executive Management,
please review our Definitive Proxy Statement for our 2017 Annual Meeting of Shareholders. You may access this
report on the Investor Relations section of our website at:
ir.crisprtx.com/phoenix.zhtml?c=254376&p=irol-sec
B. Compensation of the Board of Directors
Our Board of Directors adopted a non-employee director compensation policy, which became effective
upon the closing of our initial public offering in October 2016. Prior to that time, we did not compensate any
directors, other than Drs. Coles and Cagnoni, for service on our Board of Directors.
The non-employee director compensation policy currently in effect is designed to provide a total
compensation package that enables us to attract and retain, on a long-term basis, high caliber non-employee
directors. Under the non-employee director compensation policy, our non-employee directors are compensated as
follows:
•
•
•
•
•
•
each non-employee director receives an annual cash fee of $35,000 (CHF 34,466), $65,000 (CHF
64,009) for the chairman of the Board of Directors;
each non-employee director who is a member of the Audit Committee receives an additional annual
cash fee of $7,500 (CHF 7,386), $15,000 (CHF 14,771) for the Audit Committee chairman;
each non-employee director who is a member of the Compensation Committee receives an additional
annual cash fee of $5,000 (CHF 4,924), $10,000 (CHF 9,848) for the Compensation Committee
chairman;
each non-employee director who is a member of the Nominating Committee receives an additional
annual cash fee of $4,000 (CHF 3,939), $8,000 (CHF 7,878) for the Nominating Committee chairman;
upon initial election or appointment to our Board of Directors, each new non-employee director will be
granted an option to purchase 30,000 common shares upon his or her initial election and appointment,
which vest in substantially equal monthly installments during the 36 months following the grant date,
subject to continued service as a director; and
on the date of each annual meeting of stockholders, each non-employee director previously serving
who is re-elected to the board will be granted a non-qualified stock option to purchase 15,000 common
shares, which will vest in substantially equal monthly installments during the 12 months following his
or her re-election as a director, subject to continued service as a director through such date.
All cash fees are paid quarterly, in arrears, or upon the earlier resignation or removal of the non-employee
director. The amount of each payment is prorated for any portion of a quarter that a non-employee director is not
serving on our Board of Directors, based on the number of calendar days served by such non-employee director.
The directors’ compensation is paid without regard to achievement of corporate goals or objectives and it is
not conditioned or dependent upon the performance of the director.
Each non-employee director is also entitled to reimbursement for reasonable travel and other expenses
incurred in connection with attending meetings of the Board of Directors and any committee on which he or she
serves.
In connection with our initial public offering, each non-employee director serving on our Board of Directors
at that time was granted (i) in the case of each non-employee director who had not received compensation for his
service on the board of directors prior to the initial public offering, being Drs. Bolzon, Behbahini, George and
Woiwode and Mr. von Emster, a stock option to purchase 30,000 common shares, which vests in substantially
equal monthly installments during the 36 months following the initial public offering effective date, subject to
continued service as a director through such date and (ii) in the case of non-employees director who has
previously received equity compensation for services on the board of directors, being Dr. Coles and Cagnoni, a
stock option to purchase 15,000 common shares, which vests in substantially equal monthly installments during
the 12 months following the grant date, subject to continued service as a director through such date.
The Compensation Committee reviews and proposes to the Board of Directors the resolution to be submitted
to the Annual General Meeting of Shareholders for the total compensation of the Board of Directors.
B.1 Annual Director Compensation Table – 2016
The following table sets forth a summary of the compensation for our non-employee directors during 2016.
Dr. Novak, who serves as our Chief Executive Officer, was an employee during fiscal year 2016 and received no
additional compensation for his service as a member of our Board of Directors.
The following table sets forth a summary of the compensation paid to our non-employee directors in 2016:
Name
N. Anthony Coles . . . .
Bradley Bolzon . . . . . .
Ali Behbahani . . . . . . .
Pablo Cagnoni
. . . . . .
Simeon J. George . . . .
Kurt von Emster . . . . .
Tom Woiwode . . . . . .
Fees Earned
or Paid in Cash
(1)(2)
54,333(5)
$
CHF 53,504
7,375
$
7,263
CHF
8,896
$
8,760
CHF
32,583(5)
$
CHF 32,086
9,632
$
9,485
CHF
10,139
$
9,984
CHF
9,125
$
8,986
CHF
Option Awards
(1)(3)
507,157(6)
$
147,855
CHF 145,600
295,710
$
CHF 291,201
$
295,710
CHF 291,201
$
CHF 499,423
$
295,710
CHF 291,201
295,710
$
CHF 291,201
$
295,710
CHF 291,201
Number
of Options
15,000
30,000
30,000
55,263(6)
30,000
30,000
30,000
Total . . . . . . . . . .
$
132,083
$
2,133,562
CHF 130,069
CHF2,101,027
Total (1)(4)
$
202,188
CHF 199,105
303,085
$
CHF 298,463
$
304,606
CHF 299,961
539,740
$
CHF 531,510
$
305,342
CHF 300,686
305,849
$
CHF 301,185
$
304,835
CHF 300,187
$
2,265,645
CHF2,231,096
(1) The Company’s reporting currency is U.S. Dollar (USD). Amounts shown in CHF have been converted
from USD at an exchange rate of CHF 0.984751 to USD 1 based on average noon buying rate at U.S.
Federal Reserve for 2016.
(2) Amounts reported represent fees earned by each director for their board service in 2016, including their
respective roles as chairman of the board, chairman of a committee of the board and as members of one or
more committees of the board.
(3) Amounts represent the aggregate grant date fair value of option awards granted to our directors computed in
accordance with FASB ASC Topic 718. Pursuant to FASB ASC Topic 718, the amounts shown exclude the
impact of estimated forfeitures related to service-based vesting conditions. The amounts above reflect our
aggregate accounting expense for these awards and do not necessarily correspond to the actual value that
will be recognized by the directors.
(4) Compensation is not subject to employer paid social contributions.
(5) Prior to the effectiveness of our initial public offering on October 18, 2016, the annual retainer for service
on the Board for each of Drs. Coles and Cagnoni was $30,000 (CHF 29,543) with Dr. Coles receiving an
additional annual cash retainer in the amount of $20,000 (CHF 19,695) for his service as the Chairman of
the Board. Fees earned for board service prior to October 18, 2016 were $39,861 (CHF 39,253) for
Dr. Coles and $23,917 (CHF 23,552) for Dr. Cagnoni.
In addition to the cash consideration for service in 2016 on the Board of Directors prior to our initial public
offering, in August 2016 Dr. Cagnoni was granted options to purchase 40,263 Common Shares for his
service on the board.
(6)
In 2016, the Company granted no loans to members or former members of the Board of Directors and as of
December 31, 2016, no such loans of credit payments existed to present or former members of the Board of
Directors, or to related parties of present or former members of the Board of Directors.
As of December 31, 2016, no compensation was paid former members of the Board of Directors.
C. Compensation of Executive Management
The Compensation Committee evaluates annually the performance of the CEO and the Executive Management
and submits the evaluation for review and discussion by the Board of Directors. Subject to and within the bounds of the
compensation approved by the Annual General Meeting of Shareholders, the Compensation Committee reviews and
recommends for approval by the Board of Directors the annual base salary, incentive compensation (bonus) and equity
compensation of the CEO, and in consultation with the CEO, of the Executive Management, and the overall
compensation of the CEO and the Executive Management. The Compensation Committee also requests approval by the
Board of Directors regarding the determination of the compensation-related targets for the Executive Management and
requests approval by the Board of Directors of the individual compensation packages to be paid to members of the
Executive Management.
C.1 Annual Compensation of Executive Management - 2016
The following table presents a summary of the Executive Management’s 2016 compensation.
Name
Year
Salary (1)
Bonus (1)(2)
Share Awards
(1)(3)
Option Awards
(1)(3)
Number
of Options
Non-Equity
Incentive
Compensation
(1)(4)
All Other
Compensation
(1)(5)
Total (1)(6)
Rodger Novak, M.D.
Chief Executive Officer
. . . 2016 $
436,888 $
— $
3,674,722 $
1,971,400 200,000 $
CHF 430,225 CHF — CHF 3,618,686 CHF 1,941,338
235,940 $
6,357,880
CHF 232,342 CHF 38,336 CHF 6,260,928
38,930 $
All Other Members of
Executive
Management(7)
. . . . . 2016 $
1,460,941 $
311,500 $
CHF 1,438,663 CHF 306,750 CHF
— $
— CHF 4,423,523
4,492,022 688,591 $
567,339 $
6,853,207
CHF 558,687 CHF 21,119 CHF 6,748,703
21,446 $
Total . . . . . . . . . . . . 2016 $
1,897,828 $
311,500 $
3,674,722 $
6,463,422
$
803,239 $
59,324 $
13,211,087
CHF 1,868,888 CHF 306,750 CHF 3,618,686 CHF 6,364,861
CHF 790,990 CHF 58,419 CHF 13,009,631
(1) The Company’s reporting currency is U.S. Dollar (USD). Amounts shown in CHF have been converted from USD at an exchange rate of CHF
0.984751 to USD 1 based on average noon buying rate at U.S. Federal Reserve for 2016.
(2) Amounts represent bonuses earned and paid in the year ending December 31, 2016.
(3) Amounts represent the aggregate grant date fair value of stock and option awards granted to our Executive Management computed in accordance
with FASB ASC Topic 718. Pursuant to FASB ASC Topic 718, the amounts shown exclude the impact of estimated forfeitures related to
service-based vesting conditions. The amounts above reflect our aggregate accounting expense for these awards and do not necessarily
correspond to the actual value that will be recognized by the Executive Management.
(4) Amounts represent non-equity incentive compensation paid to Executive Management for performance based upon achievement of certain
corporate goals, business development objectives and research and development milestones.
(5) Amounts reported reflect: contributions to private pension for Dr. Novak in the amount of USD 38,930 (CHF 38,336); employer matching
contributions to U.S. tax qualified retirement plan (401(k)) for Dr. Lundberg in the amount of USD 3,122 (CHF 3,074), for Dr. Subramanian in
the amount of USD 2,045 (CHF 2,014) and for Dr. Kulkarni in the amount of USD 1,052 (CHF 1,036); and for Dr. Dylan-Hyde contributions to
private pension in the amount of USD 5,733 (CHF 5,646) and private medical insurance in the amount of USD 9,493 (CHF 9,348).
(6) Excludes social charges consisting of: for Dr. Novak, old age and survivors insurance (AHV) and accident insurance (UVG) in the amount of
aggregate amount of USD 45,171 (CHF 44,482); for Dr. Dylan-Hyde USD 55,303 (CHF 54,460) for UK National Insurance Contributions
(NIC); and for Mr. Becker and Drs. Lundberg, Kulkarni and Dr. Subramanian, U.S. social security and medicare tax in the respective amounts of
USD 13,029 (CHF 12,830), USD 17,731 (CHF 17,461), USD 11, 477 (CHF11,302) and USD 14,812 (CHF 14,586).
(7) All other members of Executive Management consist of Mr. Becker and Drs. Kulkarni, Lundberg, Subramanian and Dylan-Hyde.
In 2016, the Company granted no loans to members or former members of the Executive Management and as of
December 31, 2016, no such loans or credit payments existed to present of former members of the Executive
Management, or to related parties of present or former members of the Executive Management.
In 2016, no compensation was paid to former members of the Executive Management.
BOARD OF DIRECTORS
SENIOR LEADERSHIP
CORPORATE HEADQUARTERS
Dr. N. Anthonyy CC loleses
Chairman of thee Board
Chief Executivee Offfificer, Yumam nity
Therapeutics
Dr. Rodger Novak
Founder & Chief ExE ecutive Officer
Dr. Ali Behbahani
Partner, New Enttere prise AsA sociates
Dr. Bradley Bolzon
Managing Director, Versant Ventures
Dr. Pablo Cagnoni
Chief Executive Officec r, TTizona
Managiing Director, MPM Capital
Kurt von Emsts er, CFA
Managing PPara tnerr, Abingworth
Dr. Simeon J. GeGeGeoro ge
Partner, SR Onee
DrDr. ToTom WoWoW iwodeee
MaaMananagigingng DDirirecectoor,r, VVererrsasanttnt VVenenentures
Dr. Rodgeer NNovak
Foundederr & & ChC ief Executive Officer
DrDr. SvSvvenene AAnte (Bill) Lundberg
Chief Scientific Officer
Dr. Samarth Kulkarni
Chief Business Officer
Marc Becker
Chief Financial Officer
Dr. Tyler Dylalan-Hyde
Chief Legal OfOffificer
Dr. Kala Subbramanian
Senior Vice PrP esidenntt, Sttrateggicic
Development t && OpOpeerattioionss
Megan Mennnere
Senior Vice PPresident,
Huumaman n ReR sourcces
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ANNUAL GENERAL MEETING
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VVISCHEH R AG, Schühüttzengagg sse 1,, 80001 Zuririccchch, Switzerland
INVESTOR INFORMATION
Copies of ouur r annualaa reports on Formm 10-K, proxy statements, qquuartterrlyly repeporortsts on Form 10-Q, and current reports onn
Form 8-K are avaiaa labbble to shareholderrss upon request without cchahargrge.e. Plel asasee vivissit our website at www.crisprtx.com, send
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STOCK INFORMATION
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FORWARD LOOKING STATEMENTS
Thhisi annual reportrt ccconono tatatainininss “ffororwawardrd--lookkining stattememennts”” wwhich are made pursuant too thehe ssafe hah rbor provisions of the
Prrivvatate e Seecuc riititiese LLitittigigatatioion ReRefoform AAcct off 19959 , asas aamendndede . The forward-lookingg sttatateements in this annual report do not
coconsnstititututete gguauararantees of future performaance. Investors arere cautioned that statatememenents in this annual report that are not t
strictly historical statta ememenentsts, , ininclclududining,g buut not limitedd to, statements concerernningng: ththe therapeutic value, devele opment, anandd
cocommercial potenntiala of CRCRISISPR/Cas-9 gene editing technologies and therappies anndd thhe intellectual property protecectit on of f
ououur tetetechchnonologyg andd ttheerrapipiees. YoYou u ara ee cacautioned that forward-looking stattememeents are inherenently uncecertain. Such fforwwarardd--
lookookkining g stststatatemmenntsts aare suubjeectct to a a nun mbmberer oof f ririsks s and uncertainties that cououldld cause acttuau l results to differ mateririaallyy
fromomm thooseseee antnticicipipi atatatededede ,, ini clc ududing,gg withhohout limititatatioion,, the risks identified in ourur aannual rereport on Form 10-K K andd our other
filiingnggsss wiwiw ththhh ttthehe SSSeceeecuuurities and Exchangggege Commission. WWe assume no obligationon tto updatte any forwawardrd- lolooking information
conttaiaiaiineennenedd innnn tthihisss anannual report.