Transformative Gene-Based Medicines
For Serious Human Diseases
2019 AN N UAL R E P O RT
We are rapidly translating our specific,
efficient and versatile CRISPR/Cas9
gene-editing platform into therapies
to treat hemoglobinopathies, cancer,
diabetes and other diseases
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(cid:85)
Table of Contents
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equiq ty
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
ff
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Owners and Management and Related Stockholder Matters
Exhibits, Financial Statement Schedules
Summary
y
Form 10-K
Page
1
41
84
84
85
86
87
89
90
102
102
102
103
105
106
106
106
106
106
107
110
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.
i
Throughout this Annual Report on Form 10-K, the “Company,” “CRISPR,” “CRISPR Therapeutics,” “we,” “us,” and “our,”
except where the context requires otherwise, refer to CRISPR Therapeutics AG and its consolidated subsu idiaries, and “our board of
directors” refers to the board of directors of CRISPR Therapeutics AG.
“CRISPR Therapeutics” is a registered trademark of CRISPR Therapeutics AG. The trademarks for “CTX001TM,”
“CTX110TM,” “CTX120TM,” and “CTX130TM” are pending in the United States and the trademark for “CRISPR Therapea utics” is
pending in the European Union, or EU, Switzerland and the United Kingdom. Other brands, logos, names and trademarks contained in
this Annual Report on Form 10-K are the property of their respective owners. So ylely for convenience, trademarks, service marks
trade names referredr
tnot
intended to indicate, in any
law, our rigghts to these trademarks,
service marks and trade names.
to in this Annual Report on Form 10-K may appear without the ® or ™ symbols, but such references are
yway, that we will not assert, to the fullest extent under pappplicablea
dand
Special Note Regarding Forward-Looking Statements and Industry Data
This Annual Report on Form 10-K contains “forff ward-looking statements” that involve subsu tantial risks and uncertainties. All
statements, other than statements of historical facts, contained in this Annual Report on Form 10-K are forward-looking statements.
These statements are often identified by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,”
“intend,” “may,” “plan,” “predict,” “project,” “potential,” “will,” “would” or the negative or plural of these words or similar
expressions or variations, although not all forward-looking statements contain these identifying w
this Annual Report on Form 10-K include, but are not limited to, statements about:
ords. Forward-looking statements in
ff
the safety, efficacy and clinical
CTX110, CTX120 and CTX130;
ff
p gprogress of our and our collaborat
a
ors’ various clinical p gprograms, includ ging CTX001,
the status of clinical trials, development timelines and discussions with regulatory authorities related to product candidates
under development by us and our collaboa
rators;
ng our ongoing clinical trials
g
pment
any planned clinical trials for CTX001, CTX110, CTX120 and CTX130, and our research and development
the initiation, timing, progress and results of our preclinical studies and clinical trials, includi g
and
y p
prpr gograms;
g
our ability to advance product candidates into, and successfully complete, clinical trials;
the size and growth potential of the markets for our product ca
d
ndidates and our ability to serve those markets;
the rate and degree of market acceptance of our product candidates and the success of competing therapies that are or
become available;
our intellectual property coverage and positions, including those of our licensors and third parties as well as the status and
potential outcome of proceedings involving any such intellectual property;
our ability to obtain funding for our operations and the sufficiency of our cash resources; and
the therapeut
a
ic value, development, and commercial potential of CRISPR/CRR as9 gene-editing technologies and therapies.
Any forward-looking statements in this Annual Report on Form 10-K reflect our current views with respect to future events or
to our future financial performance and involve known and unknown risks, uncertainties and assumptions that could cause our actual
results and the timing of certain events to differ materially from future results expressed or implmm ied by the forward-looking statements.
Factors that could causeaa
or contribute to such differences include, but are not limited to, those identified herein, and those discussed in
the section titled “Risk Factors,” set forth in Part I, Item 1A of this Annual Report on Form 10-K. You should not rely upon forward-
looking statements as predictions of futurett
events. Such forward-looking statements speak only as of the date of this report. Our
forward-looking statements do not reflect the potential impam ct of any future acquisitions, mergers, dispositions, joint venturt es or
investments we may make or enter into.
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, performance or achievements may be materiallyally
different from what we expect. Except as required by law, we undertake no ob gligation to pupdate
reflect events or circumstances after
the date of such statements.
yany forward-lo
oking statements to
g
ff
This Annual Report on Form 10-K includes statistical and other industry and market data, which we obtained from our own
internal estimates and research, as well as from industry and general publications and research, surveys, and studies conducted by third
parties. Industry publications, studies, and surveys generally state that they have been obtained from sources believed to be reliable,
although they do not guarantee the accuracy or completeness of such information. While we believe that each of these studies and
publications is reliable, we have not
a
internal company research is reliablea
verified by any independent source.
independently verified market
and industry data from third-party sources. While we believe our
and the market definitions are appropriate, neither such research nor these definitions have been
a
ii
Item 1. Business.
Overview
PART I
BUSINESS
We are a leading gene editing company focused on the development of CRISPR/CaRR
s9-based therapeutics. CRISPR/CRR as9 stands
for Clustered Regularly Interspaced Short Palindromic Repeats (CRISPR)/CRISPR-associated protein 9 (Cas9) and is a revolutionary
technology for gene editing, the process of precisely altering specific sequences of genomic DNA. We aim to apply this technology to
disrupt, delete, correct and insert genes to treat genetically-definff ed diseases and to engineer advanced cellular therapies. We believe
that our scientific expertise, toget
t
her
potentially curative therapies for patients with both rare and common diseases for whom current biopharmaceutical approaches have
had limited success. Our most advanced programs target the genetically-defined diseases transfusff
ion-dependent beta thalassemia, or
TDT, and severe sickle cell disease, or SCD, two hemoglobinopathies with high unmet medical need. We are also progressing several
gene-edited allogeneic cell therapy programs, beginning with three allogeneic chimeric antigen receptor T cell, or CAR-T candidates
for the treatment of hematological and solid tumor cancers.
with our gene-editing approach, may enable an entirely new class of highly effective and
ff
The use of CRISPR/Cas9 for gene editing was derived from a naturally occurring viral defenff
se mechanism in bacteria and has
been described by leading scientific journals as a breakthrough technology. The application of CRISPR/Cas9
for gene editing was co-
invented by one of our scientific founders, Dr. Emmanuelle Charpentier, the Acting and Founding Director of the Max Planck Unit for
the Science of Pathogens in Berlin, Germany. Dr. Charper ntier and her collaborat
which the Cas9 endonuclease, a key component of CRISPR/CaRR
locations. We have acquired rights to the intellectual property encompassing CRISPR/Cas9 and related technologies from
Dr. Charpent
efforff
ier and continue to strengthen our intellectual property estate through our own research and additional in-licensing
our leadership in the development of CRISPR/Cas9-based therapeutics.
s9, can be programmed to cut doublu e-stranded DNA at specific
ors published work elucidating the mechanism by
t
ts, furthering
RR
a
rr
Our product development and partnership strategies are designed to exploit the full potential of the CRISPR/Cas9 platform
candidates. For our most advanced product candidates, we
while maximizing the probability of successfully developing our productd
have taken an ex vivo approach in which we edit cells outside of the human body using CRISPR/Cas9 before administering them to
the patient. We are also
cells within the human
pursuing select in vivo applications, in which we deliver the CRISPR/Cas9-based therapeutic di
body.
y
rectly to targetget
g
y
HHem goglobinopathies
Our lead productd
candidate, CTX001, is an investigational ex vivo CRISPR gene-edited therapya
that is being evaluated
rfor
ing from TDT or severe SCD in which a patient’s hematopoietic stem cells are engineered to produce high levels fof
ppatients sufferff
fetal hemoglobin (HbF; hemoglobin F) in red blood cells. HbF is a form of the oxygen-carrying hemoglobin that is naturally pres
bbirth and is then replaced by the adult form of hemoglobin. The elevation of HbF by CTX001 has the potential to alleviate transfusff
requiq rements for TDT patients and painfulff
and debilitating sickle crises for SCD patients. CTX001 is being developed under a co-
development and co-commercialization gagreement between us and Vertex Pharmaceuticals Incorporate
d, or Vertex.
rr
t
ent at
ion
BBeta Thalassemiaii
We and Vertex are investigating CTX001 in a Phase 1/2 open-label clinical trial, CLIMB THAL-111, that is designed to assess
dose of CTX001 in patients ages 18 to 35 with TDT, non-beta zero/beta zero subtu ypes. The first two
ff
the safety and efficacy of a single
ppatients in the trial will be treated sequentially and, pending data from the initial two patients, the trial will open for broad rer
concurrent enrollment. CLIMB THAL-111 is designed to enroll up to 45 patients and follow patients for approximately
after infusion. Each patient will be asked to participate in a long-term follow-up study.
Designation by the U.S. Food and
ODD, by the European Commission.
gDrug Administration, or FDA, for the treatment of TDT, as well as orphan
y
two years
Fast Track
k
gdrug de gsignation,
CTX001 has been granted
ror
y
rr
t
Enrollment is ongoing at multiple clinical trial sites globally. In the fourth quarter of 2019, we released
preliminary clinical data
y
from the first patient treated with CTX001 with TDT, and we expanded the TDT patient population for CTX001 to include beta
zero/beta zero subtypes. For addi
Hemoglobinopathies Product Candidate—CTX001.”
ynary clinical data, please see
tional information regar
“Business—Our
gding the prelimi
dLead
—
g
g
1
SSickle Cell Disease
We and Vertex are also investigating CTX001 in a Phase 1/2 open-label clinical trial, CLIMB SCD-121, that is de gsigned to
assess the safety and efficacy of a single dose of CTX001 in patients ages 18 to 35 with severe SCD. Similar to the trial in
thalassemia, the first two patients in the trial will be treated sequentially and, pending data from the initial two patients, the trial will
open for broader concurrent enrollment. CLIMB SCD-121 is designed to enroll up to 45 patients and follow patients for
approximately two years after infusion. Each patient will be asked to participate in a long-term follow-up study. CTX001 has been
ggranted Fast Track Desiggnation yby the FDA for the treatment of SCD, as well as ODD yby the European Commission.
abeta
Enrollment is ongoing at multiple clinical trial sites globally. In the fourth quarter of 2019, we released preliminary clinical data
gding the prelimina yry clinical data, please
tional information regar
from the first patient treated with CTX001 with severe SCD. For addi
see “Busine —ss—Our Lead Hemogglobinopathies Product Candidate—CTX001.”
g
Oncology
IImmuno-Oncology
u
We believe CRISPR/Cas9 has the potential to create the next generation of CAR-T cell therapies that may have a su
perior
r
pproduct pr
d
vivo ggene
ofileff
-editing capabilities gga
compared to current autologous therapies and allow accessibility to broader patient populations. Drawing from the ex
gprograms.
g
ined through our lead pr gograms, we are adva
ncing several immuno-oncologygy cell th
erapy
y
g
g
Our lead candidate, CTX110, is a healthy donor-derived gene-edited allogeneic CAR-T therapy targeting cluster
fof
differentiation 19, or CD19, for the treatment of CD19+ malignancies. We are investigating CTX110 in a Phase 1/2 clinical trial that is
designed to assess the safety and efficacy of CTX110 in relapsed
clinical trial is designed to enroll up to 95 patients and invest gigate several dose levels of CTX110. The trial is curren ytly enrolling at
lling at
multiple clinical trial sites ggl
or refractory B-cell malignancies. The multi-center, open-label
obally.
y
a
Our second gene-edited allogeneic CAR-T program, CTX120, targets B-cell maturation antigen, or BCMA. We are
investigating CTX120 in a Phase 1 clinical trial that is designed to assess the safety and efficacy of CTX120
in relapsed or refractory
multiple myeloma. The multi-center, open-label clinical trial is desiggned to enroll up to 80 patients and invest gigate several dose levels
of
CTX120. The trial is currently enro
lling.
g
y
ff
Our third gene-edited CAR-T candidate, CTX130, targets CD70. CTX130 is in development for the treatment of both so dlid
tumors, such as renal cell carcinoma, and T-cell and B-
cell hematologic ma glignancies.
g
Other Pr gograms
Regenerative Medicine. To further expand the applications of our ex vivo gene-editing expertise, we have increased our efforts
Regenerative Medicine.
tion lost
t
in the field of regenerative medicine. Regenerative medicine, or the use of stem cells to repair or replace tissue or organ func
due to disease, damage or age, holds the potential to treat both rare and common diseases. We are pursuing gene-editing approaches to
allow allogeneic use of stem cell-derived therapies by enabling immune evasion, improving existing cell function and direct ging cell
fate using CRISPR/Cas9. Our first majjora
rt in this area is in diabetes toggether with our partner, Via yCyte, Inc., or
yViaCyte.
effoff
g
IIn Vivo. In addition to our ex vivo programs, we are pursuing a number of in vivo gene-editing programs. Our initial in
vivo applications target diseases of the liver, lung and muscle and leverage well-establa ished delivery technologies for gene-b
therapeutics, such as lipid nanoparticle-based de
livery vehicles, or LNPs, and adeno-associated viral vectors, or AAV vectors.
y
dased
Strategic Partnerships
Strategic
Given the numerous potential therapeutic applications for CRISPR/Cas9, we have partnet
red strategically to broaden the
indications we can pursue and accelerate development of programs by accessing specific technologies and/or disease-area expertise.
We maintain three broad strateggic partnerships to develop ggene
editing-based therapeutics in specific disease areas.
g
Vertex. We established our initial collabora
a
tion agreement in 2015 with Vertex, which focused on TDT, SCD, cystic fibrosis,
and select additional indications. In December 2017, we entered into a joint development and commercialization agreement with
Vertex to co-develop and co-commercialize CTX001 as part of that collaboration. In June 2019, we expanded
our collaboration and
d
entered into a strategic collaboration and license agreement for the development and commercialization of products for the treatme tnt
of Duchenne muscular dystrophy and myotonic dyst
“Business—Strat gegic Partnerships and Collaborat
gregard ging this partnership, please see
1. For additional information
rophy ytypeyy
y
ions.”
a
2
ViaCyte. We entered into a research and collaboration agreement in September 20
m
18 with ViaCyte to pursue the discovery,
development and commercialization of gene-edited allogeneic stem cell therapies for the treatment of diabetes. The
ViaCyte’s stem cell capabi
deliver durable bene
a
pplease see “Business—Strat gegic Partnerships and Collaboa
a
fit to patients without the need for immune suppression. For additional in
lities and our gene-editing capabilities has the potential to enable a beta-cell replacement product that
formation regar
gding this partnet
f
combination of
ymay
rations.”
rship,
g
BBayer. In the fourth quarter of 2019, we entered into a series of transactions pursuant to which we and Bayer He
althcare LLC, or
r
Bayer, terminated our 2015 agreement, which created the joint venture Casebia Therapeua
Casebia, to discover, develop and commercialize CRISPR/Cas9 gene-editing therapeutics to treat the genetic causes of bleeding
disorders, autoimmune di
sease, blindness, hearing loss and heart disease. In connection thereto, Casebia became a wholly-owned
subsidiary of ours. We and Bayer also entered into a new option agreement pursuant to which Bayer has an option to co-develop
co-commercialize two products for the diagnosis, treatment, or prevention of certain autoimmune disorders, eye disorders,
hemophilia A disorders for a specified period of time, or, under certain circumstances, exclusively license such optioned products.
additional information
gding this partnership, please see “Business—Stra gtegic Partnerships and Collaborations.”
tics Limited Liability Partnership,
gregar
ror
ror
m
dand
rFor
Our mission is to create transformative gene-based medicines for serious human diseases. We believe that our highlyghly
experienced team, together with our scientific expertise, product development
us as a leader in the development of CRISPR/Cas9-based therapeutics.
Gene Editing Background
strategyy, partnerships and intellectual pr
g
operty, position
y
There are thousands of diseases caused by aberrant
r
DNA sequences. Traditional small molecule and biologic therapies have had
mRNARR
limited success in treating many of these diseases because they fail to address the underlying genetic causes. Newer approaches such
as RNA therapeutics and viral gene therapy more directly target the genes related to disease, but each has clear limitations. RNA-
a
based therapies, such as
and siRNA, face challenges with repeat dosing and related toxicities. Non-integrating viral gene
therapy pl
atforms, such as AAV, may have limited durability because they do not permanently change the genome and have limited
a
efficacy upon re-administration due to resulting immune respons
permanently alter the genome but do so randomly, which leads to the potential for undesirable mutations. Additionally, cells may
recognize the transduced genes as foreign and respond by reducing their expression, limiting their efficacy. Thus, while our
understanding of genetic diseases has increased tremendously since the mapping
effectively has been limited.
of the human genome, our ability to treat them
es. Integrating viral gene therapy platforff ms,
such as lentivirus,
mm
a
r
We believe gene editing has the potential to enable a next generation of therapeutics and provide potentially curative therapies
to many genetic diseases through precise gene modification. 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 undesirable sequences, potentially reversing their negative effects. Importantly,
genome itself is modified in this process, the change is permar
nent in the patient.
because the
ff
Furthet
rmore, the ability to alter DNA sequenc
es precisely has applications beyond the treatment of genetically-defined diseases.
CRISPR/Cas9 gene editing could also enable the engineering of genomes of cell-based therapies to make them more efficff acious, safer
and available to a broader group of patients. Cell therapies have already begun to make a meaningful impactm
gene editing could help accelerate that progress across diverse disease areas, including oncology and diabetes.
in certain diseases and
q
Earlier generations of gene-editing technologies, such as zinc finger nucleases, or ZFNs, transcription-activator like effector
nucleases, or TALENs, and meganucleases, rely on engineered protein-DNA interactions. While these systems were an imporm tant first
step to demonstrate the potential of gene editing, their development has been challenging in practice due to the complexity of
engineering protein-DNA interactions. In contrast, CRISPR/Cas9 is guided by RNA-DNA interactions, which are more predictablea
and straightforward to engineer and apply. In addition, given the advantages of CRISPR/Cas systems, multiple academic groups have
developed new technologies based on CRISPR/CaRR
s9, such as base editing and prime editing. While still nascent, such new
CRISPR/Cas-based technologies could have advantages over existing gene-editing technologies, including CRISPR/Cas9
technologies, in select applications.
The CRISPR/Cas9 Technology
CRISPR/CaRR
s9 evolved as a naturally occurring defense mechanism that protects bacteria against viral infections. Dr.
Charpentier and her collaborators elucidated this mechanism and developed ways to adapt and simplify it for use in gene editing. The
CRISPR/CaRR
s9 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 specific cuts and edits in selected double-stranded DNA.
3
Dr. Charpent
rr
ier and her collaboa
rators further simplm ified the system for use in gene editing by combining the crRNA and
tracrRNA into a single RNA molecule called a guide RNA. The guide RNA binds to Cas9 and can be programmed to direct the Cas9
enzyme to a specific DNA sequence based on Watson-Crick base pairing rules. The CRISPR/CaRR
cuts in DNA at specific sites of targeted genes, providing a powerful tool for developing gene editing-based therapeutics.
s9 technology can be used to make
Once the DNA is cut, the cell uses naturally occurring DNA repair mechanisms to rejoin the cut ends. If a single cut is made, a
process called non-homologous end joining can result in the addition or deletion of base pairs, disruptu ing the original DNA sequence
and causing gene inactivation. A larger fragment of DNA can also be deleted by using two guide RNAs that target separate sites. After
cleavage at each site, non-homologous end joining unites the separate ends, deleting the intervening sequence. Alternatively, if a DNA
template is added alongside the CRISPR/Cas9 machinery, the cell can correct a gene or even insert a new gene through a process
called homology directed repair.
CRISPR/Cas9 gene editing
We believe that CRISPR/Cas9 is a versatile technology that can be used to disrupt, del
take advantage of the versatility and modularity of the CRISPR/Cas9 system to adapt and rapidly cu
a
specific disease applications. Consequently, we believe that CRISPR/Cas9 may form the basis of a new class of therapeutics with the
potential to treat both rare and common diseases.
ete, correct or insert genes. We intend to
stomize individual components for
rr
4
Our Pipeline
The following table summarizes the status of our product development pipeline:
Hematoptt oietic Programs
Background
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
performing allo-HSCT, physicians replace a patient’s blood-forming cells that contain the defective gene with cells obtained from a
different
ff
do undergo allo-HSCT face a high risk of complications such as infections related to immunosuppu ression, transplant reject
graft-versus-host disease, where immune cells in the transplanted tissue (the graft) recognize the recipient (the host) as “forff eign” and
begin to attack the host’s cells.
person that contain the normal gene. Unfortunately, not all patients are able to be matched with suitable donors. Patients who
ion and
e
In contrast to allo-HSCT, our approach is to harvest stem cells directly from the patient, edit the target gene ex vivo, and
reintroduce those same cells back into the patient. We believe this ex vivo gene-editing approach, which uses the patient’s own cells,
may provide better results than allo-HSCT.
Our Lead ProgramsHemoglobinopathies
Hemoglobinopathies are a diverse group of inherited blood disorders that result from variations in the synthesis or structure of
t
hemoglobin. Our lead program in hemoglobinopathies, for which we have partnered with Vertex, aims to develop a single, potentially
curative CRISPR/Cas9-based therapy to treat both beta thalassemia and SCD. These diseases are caused by mutations in the gene
encoding the beta globin protein. Beta globin is an essential component of hemoglobin, a protein in red blood cells that delivers
oxygen and removes carbon dioxide throughout the body. Several factors make these attractive lead indications, including: (i) high
unmet medical need, (ii) compelling market potential, (iii) well-understood genetics and (iv) the ability to employm
an ex vivo gene
disruption strategy.
5
Beta Thalassemia
Overview
Beta thalassemia is a blood disorder that is associated with a reduction in the productd
ion 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 not only to the
lack of hemoglobin, but also to the buildup of unpaired alpha globin proteins in red blood cells. The severity of symptoms
blood cells. The unpaired alpha globin
with beta thalassemia varies depending on the levels of functional beta globin present in thet
chains are toxic to red blood cells and reduce red blood cell lifespan. In the most severe cases, described as beta thalassemia major,
functional beta globin is either completely absent or reduced
d, resulting in severe anemia. In these patients, the bone marrow cannot
keep pace with the destruction of red blood cells, and thus these patients require periodic blood transfusff
transfusions can be effect
eventually death.t Patients with mild forms of beta thalassemia may experience some mild anemia or even be asymptomatic. The total
worldwide incidence of beta thalassemia is estimated to be 60,000 births annually, the total prevalence in the United States and the EU
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.
ive at addressing symptoms, they often lead to iron overload, progressive heart and liver failure, and
ions. While chronic blood
associated
m
a
ff
Limitations of current treatment options
The most common treatment for beta thalassemia is chronic blood transfusions. Patients typicyy
ff
ns every two
ads to elevated levels of iron in the body and can cause organ damage over a
to four weeks and chronic administration of blood often le
relatively short period of time. Patients are often given iron chelators, or medicines to reduce iron levels in t
associated with their own significant toxicities. Low adherence to this burdensome regime often results in death by 30 years of age for
patients with transfusff
patients die in early childhood. Also, a disease-modifying therapy for beta thalassemia, Reblozyl (luspatercept-aamt), recently
received FDA approval.
ion-dependent beta thalassemia. In developing countries, where chronic transfusions are not available, most
ally receive transfusio
he blood, which are
d
ff
A potentially curative therapy for this disease is allo-HSCT, but few patients elect to have this procedured
given its associated
morbidity and mortality. In addition, the European Medicines Agency, or EMA, recently gave a conditional marketing authorization to
Zynteglo (autologous CD34+ cells encoding βA-T87Q-globin gene), a lentiviral gene therapy, for
aa
TDT. We believe that our therapeutic approach could offer a potentially curative therapya
for this devastating disease.
nt of certain patients with
the treatmet
Sickle Cell Disease
Overview
SCD is an inherited disorder of red blood cells resulting from a specific mutation in the beta globin gene that causes abnormal
red blood cell function. Under conditions of low oxygen concentration, the abnormal hemoglobin proteins aggregate within the red
blood cells causing them to become sickled in shape and inflexible. These sickled cells obstruct blood vessels, restricting blood flow
to organs, ultimately resulting in anemia, severe pain, infections, stroke, overall poor quality of life and early death.t The worldwide
incidence of SCD is estimated to be 300,000 births annually and there are 20-25 million people worldwide with the disease. In the
United States, the total prevalence is estimated to be 100,000 individuals.
Limitations of current treatment options
As with beta thalassemia, in regions where access to modern medical care is available, standard treatment for SCD involves
chronic blood transfusions, which has the same associated risks of iron overload and toxicities associated with chelation therapy. Two
disease-modifyiff ng therapia es for SCD, Adakveo (crizanlizumab-tmca) and Oxbryta (voxelotor), also recently received FDA approval.
Allo-HSCT is another potential treatment option. While allo-HSCT provides the only potentially curative therapeutic path for SCD, it
is often avoided given the significant risk of transplant-related morbidity and mortality in these patients.
Our Gene-Edi
G
tiii ngii Apprpp oach
Our therapea utic approach to treating beta thalassemia and SCD employs gene
m
editing to upregulate the expression of the gamma
globin protein, a hemoglobin subunit that is commonly present only in newborn infants. Hemoglobin that contains gamma globin
red to as fetal hemoglobin, or HbF. In most individuals HbF disappears in infancy as gamma
instead of beta globin protein is referff
globin is replaced by beta globin through naturatt
thalassemia and SCD typically do not manifest until several months after
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.
birth, when the levels of HbF have declined considerabla y.
ession of the gamma globin gene. The symptoms of beta
lly occurring suppru
ff
6
This protective HPFH condition has been shown to result from specific changes to these patients’ genomic DNA, either in the region
of the globin genes or in certain genetic regulatory elements that control the expression levels of the globin genes.
Relationship between level of HbF and morbidity in sickle cell disease and beta thalassemia
An alternative CRISPR/Cas9 approach to treating hemoglobinopathies
t
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 disruption
strategy involved, the ability of this strategy to counteract a wide variety of different beta globin mutations, and the absence of
symptoms in patients with high HbF levels.
Our Lead Hemoglobinopathies Product Candidatedd ee CTX001
Our lead product can
d
didate, CTX001, uses CRISPR/Cas9 to mimic the high levels of HbF that occur naturally in HPFH patients.
the erythroid specific enhancer of the BCL11A gene. This gene encodes
To achieve this effect, CTX001 uses CRISPR/Cas9 to disrupt
the BCL11A protein, a critical factor that keeps HbF levels low in most individuals. Disrupting the BCL11A erythroid specific
enhancer reduces BCL11A expression specifically in erythroid lineage cells, thereby upregulating expression of gamma globin and
increasing HbF levels.
rr
Our therapea utic approach involves isolating hematopoietic stem cells, or HSCs, which give rise to red blood cells, from a
patient, treating those cells ex vivo with CRISPR/Cas9 to disrupt the BC
cells back into the patient. We believe that once reintroduced into the patient, these genetically modified stem cells will produce red
blood cells that contain high levels of HbF. In beta thalassemia, elevating HbF may reduce the toxicity of unpaired alpha globin
chains, thereby increasing red blood cell lifespan.
for transfusi
most red blood cells could significantly
ons in these patients. In SCD, elevated HbF may prevent a cell from sickling, and so achieving sufficiently high HbF in
reduce or eliminate the symptoms associated with the disease.
Consequently, CTX001 may have the potential to reduce or
L11A erythroid specific enhancer
and reintroducing the edited
even eliminate the need
d
a
ff
ff
ff
r
PPreclinical studies
In preclinical studies
t
using CTX001, our CRISPR/Cas9 gene-editing process demonstrated the ability to edit HSCs with
approximately 80% allelic editing efficiency at clinical scale in a bulk population of cells. We observed this high editing efficiency
across all stem cell subsets, including in long-term repopulating HSCs. After
in vitro erythroid differentiation, this editing resulted in
HbF accounting for greater than 30% of total hemoglobin in edited cells, compared to approximately 10% HbF in the control arm fof
the study. On a
per cell basis, more than 90% of cells had modifications at the desired location, with 76% of the cells having edits in
bboth copies of the target gene and 16% of the cells having edits made on one copy of the target gene. We estimate that after in vitro
erythroid different
the target gene, and over 20% for cells edited at o
g g
iation this editing rate results in HbF expression levels of ggreater than 35% in cells that have edits on both copies fof
gne gene.
ff
ff
ff
t
7
Editing efficiency in human CD34+ cells and
g
y
resulting HbF ratio afterff
g
in vitro
yerythroid differentiation
In preclinical mouse models designed to test the safety of CTX001, gene-edited HSCs maintained the ability to engra
nce in the
CTX001 guide RNA after
detectable for the CTX001 guide RNA after
term and to differentiate into multiple lineages. Toxicology studies revealed no significant findings and no differeff
bbiodistribution of edited cells compared to controls. Finally, no off-target activity was
assessi gng over 5,000 homologygy-based sites and over 2,000 homol gogyy-independent sites.
ft long
g
tt
CTX0
01 engraftment in vivo in mice1
g
We believe our CRISPR/Cas9 gene-editing strategy may have significff ant advantages over other gene therapies in development
ased treatments involve a random integration of one or more copies
for the treatment of hemoglobinopathies. For examplm e, lentivirus-b
of the globin gene throughout the genome. The expression levels of the newly introduced gene can vary depending on the exact
location of the DNA in the genome, leading to inconsistent and variable levels of expression. We believe our strategy may lead to
more uniform globin expression across a high percentage of cells. In addition, with each random lentiviral integration, a mutation may
be created, which may have an associated safety concern, including the potential to cause cancer. In contrast, CRISPR/Cas9 tar
specific genomic site for editing, and we have detected no off-target activity for our CTX001 guide RNA.
gets a
RR
rr
8
Clinical Trials
We and Vertex are investigating CTX001 in two Phase 1/2 open-label clinical tri
a
a single dose of CTX001 in patients ages 18 to 35 with TDT (CLIMB THAL-111) and severe SCD (CLIMB SCD-1
On November 19, 20
m
for TDT or severe
y
SCD in these ongo ging Phase 1/2 clinical trials.
ff
sitive safety and ef
ficacy data from
19, we and Vertex announced po
g
y
fof
als designed to assess the safety and efficacy
ff
21), respectively.
y
the first two patients treated with CTX001
Schematic of study procedures for the CLIMB THAL-111 and CLIMB SCD-121 Phase 1/2 trials
The patient with TDT has the β0/IVS-I-110 genotype and required 16.5 transfusi
ons per year before enrolling in the clinical trial
(annualized rate during the two years prior to consenting for the trial). The patient achieved successful neutrophil engraftment 33 days
after CTX001 infusion and platelet engraftment 37 days after in
which the principal investigator considered related to CTX001. The SAEs were pneumonia in the presence of neutropenia and veno-
occlusive liver disease attributed to busulfan conditioning, both of which subsequ
blood cell transfusion one month following the infusion of CTX001 and from that point forward has been free from transfusff
the nine month post-infusion data point, with total hemoglobin levels of 11.9 g/dL, 10.1 g/dL fetal hemoglobin and 99.8% F-
cells (erythrocytes expressing fetal hemoglobin).
ently resolved. This patient received a peripheral red
ions as of
fusion. Two serious adverse events, or SAEs, occurred, neither of
u
ff
ff
The patient with SCD experienced seven vaso-occlusive crises per year before enrolling in the clinical trial (annualized rate
during the two years prior to consenting for the trial). The patient achieved neutrophil and platelet engraftmff
ff CTX001
infusion. Three SAEs occurred, none of which the principal investigator considered related to CTX001. The SAEs were sepsis in the
presence of neutropenia, cholelithiasis and abdominal pain, all of which subsequently resolved. At four months after CTX001
infusion, the patient was free of vaso-occlusive crises and had total hemoglobin levels of 11.3 g/dL, 46.6% fetal hemoglobin and
94.7% F-cells.
ent 30 days after
These trials are ong
going and patients will be followed for approxima ytely two yyears
g
following infusion.
g
9
Immuno-Oncology Programs
Over the past several years, interest in the oncology communimm ty has grown rapidly
a
in the field of immuno-oncology,
ror
treatments that harness the immune system to attack cancer cells. Engineered immune cell therapy is one such approach, in which
immune ysystem cells such as T cells are gge
netically modified to enable them to rec gognize and attack cancerous cells.
y
Engineered cell therapya
has demonstrated encouraging results leading to two approvals for autologous CD19-targeted CAR-T
pproducts, and may become an entirely new class of oncology therapeutics; however, realizing this full potential will require
overcoming some key challenges. Most engineered cell therapies in development require unique producd ts to be created for each
ppatient treated, an approach that has in the past proven challenging and cost prohibitive in the field of oncology. Additiona ylly, these
versions of engineered cell therapies appear limited in their ability to treat solid tumors and have demonstrated sub-optim
pprofiles. In contrast, allogeneic engineered T cell therapies could have immediate availability because of their ability to be
administered “off-the-she
yields ma yny doses, imprm oved access yby av
re-dos ging.
imprm oved potency due to the use of healthy-donor starting material, greater co
oiding the need for patient apheresis, and flexible dosi gng, whether th
nsistency since each batch
rough dose titration ror
al safety
y
lf”,ff
y
g
g
ff
We expect that the cellular engineering strategies that are ultimately successful in immuno-oncology will involve multiple
genetic modifications, an application for which we believe CRISPR/Cas9 will play a central role. While other gene
could potentially be used for these purposes, CRISPR/CaRR
modification and/or insertion of multiple genes within a single cell. Current gene-editing techniques that require differff ent protein
enzymes for each genetic modification may be limited in the number of edits they can make concurrently due to effici
cytotoxicity and/or manufacturing
tt
gsingle Cas9 protein and multi
g
ularly well-suited for multiplexed editing, which is the
challenges. In contrast, CRISPR/Cas9 has the
potential to efficiently make multiple edits us ging a
ple small guide RNA molecules.
s9 is partica
-editing platforms
ency,
y
g
ff
In our immuno-oncology cell therapia es, we plan to use the multiplexing ability of CRISPR/Cas9 not only to enable allogeneic
administration, but also to introduce additional genetic edits to improve the efficacy and safety profile of these product candidates.
Such edits could include the removal of immune checkpoints or introduction of safety elements. We continue to expand our
multiplexing capabilities to help us realize the full potential of engineered cell therapya
including solid tumors. Given the importmm
thus far elected to retain full ownership of our immuno-oncol gyogy proggrams.
ant role we believe CRISPR/Cas9 will pl y
in immuno-oncology across all tumor types,
ay in engineered cell thera y g
a
py going
g
g
forward we have
Our Lead Immuno-Oncology Product Candidateee CTX11XX 0
Our lead immuno-oncology product candidate, CTX110, is a healthy donor-derived allogeneic CAR-T cell therapy targget ded
toward CD19-positive malignancies, such as certain lymphomas and leukemias. A primary aim of CTX110 is to overcome the
inefficiency and cost of creating a unique product for each patient with a given tumor typeyy
by treating many different patients
single batch, which we refer to as being an “off-the-s
helf” therapy. To generate CTX110, we make three modifications to T cells taken
from healthy donors using our gene-editing technology: (i) the T cell receptor, or TCR, is eliminated to reduce the risk of graft versus
host disease, or GvHD, from the product candidate, (ii) a CD19-directed CAR is inserted site-specifically into the TRAC gene
dand
(iii) the class I major histocompatibility complex, MHC I, is removed from the cell surface in order to improve the persistence fof
the CAR-T cells in an “off-the-shelf” setting. We believe this approach will have advantages over other allogeneic CAR-T producd ts in
development that semi-rand
ppersistence.
omly insert the CAR usi gng an integgrat ging virus and do not include the MHC I knockout to increase
from a
a
y
ff
As shown in the figure below, we have demonstrated the ability to perform the edits necessary to generate CTX110 at high
efficiency, and that in preclinical testing CTX110 prolonged the survival of mice with a CD19-positive xe gnograft tumor model that is
compamm rable to what is seen with the cu
rrent generation CAR-T products.
g
10
Efficient production of CTX110 via
p
pmultiple
xed editing and prolonged survival of CTX110-treated mice in a disseminated
g
Nalm6 xen gograft tumor model
We are currently investigating CTX110 in a Phase 1/2 clinical trial that is designed to assess the safety and efficacy of
ff
in relapsed or refractory B-cell malignancies. The multi-center, open-label clinical trial is de gsigned to enroll up to 95 pati
investigate several dose levels of CTX110. The trial is curren ytly
enrolling at multiple clinical trial sites ggl
obally.
y
g
g
CTX110
ents and
d
CTX120
Our second gene-edited allogeneic CAR-T cell product candidate, or CTX120, is targeted towards BCMA and is in
development for the treatment of relapsed or refractory multiple myeloma. BCMA has attractive properties for CAR-T cell therapy,
namely expression on the surface of B-lineage cells, especially the plasma cells involved in multiple myeloma, and absence from other
tissues and cell types. As a result, BCMA has become a promising target for autologous CAR-T cell therapy. We believe an allogeneic
approach may have distinct advantages over autologous CAR-T in multiple myeloma given the poor health of patient T cells
following many lines of prior therapy.
To generate CTX120, we make the same three modifications to healthy-donor T cells as we do for CTX110 but insert a BCMA-
R.
specific CA CTX120 leverages
development. As depicted in the figure below, in preclinical studies of CTX120, we observe complete elimination of a xenograft
multiple
many of the capabilities and reagents developed for CTX110, accelerating its path into
ymyeloma tumor model in all mice treated with CTX120.
Elimination of a subcutaneous RPMI-8226 multiple
ymyeloma model yby CTX120
11
We are currently investigating CTX120 in a Phase 1 clinical trial that is designed to assess the safety and efficacy of
ed or refractory multiple myeloma. The multi-center, open-label clinical trial is designed to enroll up to 80 ppatients and
g
relapsa
investigate several dose levels of CTX120. The trial is curren ytly
enrolling at a clinical trial site in the United States.
g
ff
CTX120 in
CTX130
Our third gene-edited allogeneic CAR-T cell product candidate, or CTX130, is targeted towards CD70 and is in development for
the treatment of both solid tumors, such as renal cell carcinoma, and T-cell and B-cell hematologic malignancies. Several cancers
express CD70, including non-Hodgkin’s lymphoma, certain T cell lymphomas, renal cell carcinoma, glioblastoma and pancreatic,
lung and ovarian cancers, while normal tissues do not express or show extremely limited expression of CD70. This target enabla es us to
transition from hematological cancers, such as non-Hodgkin’s lymphoma, to solid tumor cancers, such as renal cell carcinoma.
To generate CTX130, we plan to include additional edits beyond the three modifications used in CTX110 and CTX120. As
ies of CTX130, we observe complete elimination of a xenograft model of renal cell
shown in the figure below, in preclinical studtt
carcinoma in all mice treated with CTX130.
Elimination of a subcutaneous A498 renal cell carcinoma model yby CTX130
gRegenerativtt e Me
dicine Programs
g
Regenerative medicine, or the use of stem cells to repair or replace tissue or organ function lost due to disease, damage or age,
gbegin
pp
holds ppotential to treat both rare and common diseases. The field
to emerge. Most of these effoff
large. We are pursuing gene-editing approaches to allow allogeneic use of stem cell-derived therapia es by enabling immune evasion,
tes together
improving existing cell function and directing cell fate using CRISPR/Cas9. Our first majora
with
rts use unmodified stem cells, and the potential to genetically engineer these cells via gene editing is
rt in this area is in diabea
clinical proofs of co
ng the point where
is approachi g
our partner,
p
yViaCyte.
pncept
ymay
effoff
p
p
ViaCyte Collaboration in Diabetes
Clinical data with islet transplants indicate that beta-cell replacement approaches may offer
benefit to patients with insulin-
requiq ring diabetes. ViaCyte has pioneered the approach of generating pancreatic-lineage cells from stem cells and delivering them
safely and efficiently to patients. PEC-Direct, ViaCyte’s lead product candidate currently being evaluated in the clinic, uses a non-
immunoprotective delivery device that permits direct vascularization of the cell therapy. This approach has the potential to deliver
durable benefit;ff
immunosuppu ression to avoid reject
diabetes at high risk for complications.
however, because the patient’s immune system will identify these cells as foreign, PEC-Direct will require long-term
ion. As a result, PEC-Direct is being developed as a therapy for the subset
of patients with type 1
u
e
ff
Our gene-editing technology offers the
ff
potential to protect the transplanted cells from the patient’s immune system by ex vivo
editing of immune-modulatory genes within the stem cell line used to produce the pancreatic-lineage cells. We believe that the speed,
specificity and multiplexing efficiency of CRISPR/Cas9 make our technology well suited to this task. We have established expertise
in immunem -evasive gene editing through our allogeneic CAR-T programs. The combination of ViaCyte’s stem cell capabilities and our
gene-editing capabilities has the potential to enable a beta-cell replacement product that may deliver durablea
without the need for immunemm
benefit to patients
ppsuppression.
12
In Vivo Programs
g
We are also pursuing treatments for several genetic diseases beyond the hemoglobinopathies. Most of these programs involve in
vivo gene editing, or delivery of a CRISPR/Cas9-based therapeutic directly to tissues withint
applications will leverage well-established delivery technologies, such as LNPs and AAV vectors.
the human body. Our initial in vivo
We are pursuing liver diseases because delivery of nucleic acid therapies into the liver has been clinically established and
validated delivery technologies are now available. We believe this proof of concept reduces the challenges associated with delivering
CRISPR/Cas9-based therapeutics in vivo to the liver. Within the liver we are pursuing diseases that have well understood genetic
linkages, such as Glycogen Storage Disease Type Ia, or GSDIa. Evidence suggests that correction of the mutant gene in only a small
percentage of liver cells may have a significant therapeutic effect
feasible.
in this disease, which makes the gene correction strategy
ff
t
Glycogen Storage Disease Ia
GSDIa, also known as Von Gierke disease, is an autosomal recessive inborn
error of glucose metabolism 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 accumulm ation 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 dietary regimes. GSDIa patients also face long-term risks such as
growth delay, neuropathy and kidney stones. Additionally, due to the accumulatm ion of glycogen in the liver, 70% to 80% of patients
over 25 years of age will develop hepatocellular adenomas, a typeyy
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.
n
There are currently no disease-modifying treatment options for patients with GSDIa. Any disrupti
may lead to low blood sugar levels, which can cause life-ff
the risk of acute complications, patients are required to adhere to highly burdensome, lifelong dietary
administration of uncooked cornstarch or a slow-release carbohydrate product such as Glycosade. These regimens have a high rate of
non-complmm iance, leading to increased risk of serious long-term complications.
regimens such as overnight
on in carbohydrate delivery
threatening consequences including seizure, coma and death. To minimize
rr
rr
ff
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 can correct the deficiency 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 ineffective
control of glucose levels.
ff
VV
Vertex
Partnered Programs
We have partnered certain of our programs in other disease areas, such as Duchenne muscular dystrophy, or DMD, myotonic
dystrophy type 1, or DM1, and cystic fibrosis, or CF. We have entered into collaborat
programs with Vertex, a global leader in rare diseases with extensive disease area expertise in CF. We believe that our CRISPR/Cas9
gene-editing technology is well suited to address DMD, DM1 and CF, all of which have significant patient populations with high
unmet medical need.
ion agreements with respect to these three
a
Duchenne Muscular Dystrott phyo
(DMD)
DMD is an X-linked recessive genetic disease caused by mutations in the dystrophin gene, which results in a lack of the
dystrophin protein. Because dystrophin plays a key structural role in muscle fiber function, the absence of this protein in muscle cells
leads to significff ant cell damage and ultimately causes muscle cell death and fibrosis. Patients with the disease experience muscle
degeneration, loss of mobility and premature death. DMD is among the most prevalent severe genetic diseases, occurring in one in
3,300 male births worldwide. There are currently two approved disease-modifying therapies in the United States for the treatment of
DMD, one for patients who have confirff med mutatmm ions of the dystrophin gene amenable to exon 51 skipping and one for patients who
have confirmed mutations of the dystrophin gene amenable to exon 53 skipping. These mutations affect about
DMD population, respectively.
13% and 8% of the
ff
13
Myotonic dystrophy type 1 (DM1)
o
ff
the skeletal and smooth muscle, as well as other
DM1 is an autosomal genetic disease caused by the expansion of a CTG trinucleotide repeat in the noncoding region of the
organ systems, such as the eye, heart, endocrine
DMPK gene. The disease affects
system, and central nervous system. The clinical manifestations of DM1 span a continuum from mild to severe. Based on these
phenotypes, DM1 is classified into three somewhat overlappa
normal lifespans and typically develop cataracts and experience mild sustained muscle contractions, or myotonia. Those with classic
DM1 tend to have muscle weakness and wasting, myotonia, cataracts and often abnormalities in cardiac conduction, and may become
physically disabla ed and have shortened lifespan
s. Patients with congenital DM1 commonly have intellectual disability and typically
have hypotonia and severe generalized weaknek ss at birth, often with respiratory insufficiency and early death. DM1 affeff cts around 1
in 8,000 people worldwide. No approved therapies exist to treat the underlying disease; instead, most interventions to date aim to
address specific symptm oms of the disease.
s: mild, classic and congenital. Patients with mild DM1 have
ing formff
ff
t
)F
Cystic Fibrosis (CF
ii
CF is a progressive disease caused by mutations in the cystic fibrosis transmembrane regulator, or CFTR, gene resulting in the
loss or reduced function of the CFTR protein. 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 infections, chronic lung inflammation, poor
absorption of nutrients, progressive respiratory failure and early mortality. The median age of death from CF in the United States was
31 years in 2017, with most deaths resulting from respiratory failure. CF is an orphan disease that is estimated to effect more than
70,000 patients in the United States and Europe. CF patients require lifelong treatment with multiple daily medications and hours of
self-care.
ff
curative.
require frequent hospitalizations and sometimes even lung transplantation, which can prolong survival but is not
They oftenff
Bayera
Partnered Programs
We are also investigating programs for the diagdiagnosis, treatment, or prevention of certain autoimmunem
disorders, eye disorders
and hemophilia A disorders, from which Bayer has options to either
certain circumstances, exclusiv yely license such optioned products.
t
co-develop and co-commercialize two products with us or, un rder
Further Unlocking the Potential of Our CRISPR/CRR as9 Platformff
We are working to optimize our CRISPR/Cas9 platform. Our key areas of focus are described below.
14
Nuclease Engineering
The Cas9 nucleases found
ff
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 support an effective therapeutic. However, we also see potential in
certain disease areas and organ systems where modified versions of Cas9 may be more effective, and we are working internally and
through our external collaborations to engineer Cas9.
Our research and development efforts seek to enhance several characteristics of Cas9, including size, specificity,
immunogenicity and ability to support differff ent types of editing strategies. We believe that the process of optimizing these different
parameters may yield novel Cas9 versions with different properties, each of which may be best suited to a certain disease area or type
of genetic editing.
ff
Guideii RNA Optimization
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
undetectable or extremely low off-target cutting. While computational models can predict efficiency and off-target
ts with
reasonablea
best possible guide RNAs.
accuracy, we believe that a combination of computation and experimental approaches is necessary to reliably select the
effecff
d
ff
Our guide RNA selection process combines bioinformatics and experimental assays to enable the screening of large numbers of
guide RNAs in each experiment. This process starts with proprietary bioinformatics algorithms that select a large pool of guide RNAs
that are predicted to have desired properties. These guides are then tested for target site cutting efficie
screening platform in a model cell line. The most efficient guides are then put through two screening processes for possible off-target
effects. First, bioinformatics algorithms are used to identify the 10 to 20 sites in the genome that are most likely to show off-target
effeff cts, and these sites are examined through high-throu
screening is performed to
the highest effiff ciency and lowest off-target potential are tested in
guides for our program.
ghput assays for empim rical off-target cutting. Second, homology-independent
ns. Finally, a small subset of guides with
the cell type of therapeutic interest before choosing a lead guide or
identify any potential off-target cutti
ng, even at unpredicted locatio
ncy using a high-throughput
t
ff
n
ff
ff
ff
ff
Advanced Editingn
While gene correction is achievable today using CRISPR/CaRR
s9, it is more difficult and has lower efficacy than the
ff
more
straightforward gene disruptu ion strategy. Our initial gene correction programs target diseases in which therapeut
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 to increase the efficiency of gene correction to facilitate the potential
treatment of these additional indications.
a
ic efficacy can be
A central focus of our development efforts 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 different parameters of the CRISPR/Cas9 system on
correction efficiency. We are also collaboa
optimize correction rates.
rating more broadly with leaders in the DNA repair field, to explore other approaches to
We are also focused on expanding our ability to performff
multiple edits simultaneously. In contrast to other gene-editing
technologies, which require extensive protein engineering and an additional construct for each new genetic target, CRISPR/Cas9 only
requires a new guide RNA using simple Watson-Crick base pairing to target a new genetic locus. As a result, one can easily perform
many edits at once using CRISPR/Cas9, a process known as multiplexing. We believe multiplexing holds promise in cell therapies,
where making several modificff ations may lead to a safer and more efficacious therapy. Our research efforts in this area emphasize
developing strategies to keep editing rates high while multiplexing without increasing the risk of off-target activity.
ff
Synthetic Biology
The application of engineering principles to biological systems, broadly known as synthetic biology, could facilitate the
development of imprm oved cellular therapeutics. Novel strategies and tools in this area, such genetic circuits to regulate gene expression
based on Boolean logic, may allow us to control specific cellular activity, such as the secretion of a protein, in response to a selected
input, such as an administered small molecule or a marker sensed on a cell surface. We believe synthetic biology holds promise when
combim ned with CRISPR/Cas9 gene editing because CRISPR/Cas9 enables the precise engineering of such circuits into the genomes of
cell therapies in order to improve
synthetic biology tools for incorporation into future immuno-oncology and regenerative medicine cell therapies.
their therapeutic properties. Given this potential, we have active efforts to develop and test such
m
15
Strategic Partnerships and Collaborations
We intend to develop CRISPR/Cas9-based therapeutics both independently and in collaboration with current and potential
corporate partners. We view strategic partnerships as a core component of our strategy, allowing us to access capabilities and
futurett
resources in support of our therapeutic programs. We have established three broad strategic partnerships to develop gene editing-based
therapea utics in specific disease areas
Vertex
We have entered into a series of agreements with Vertex that contemplate certain research, development, manufacturing
t
commercialization activities involving various targets. Since October 2015, we have entered into a Stratt
ration Agreement; a Joint De
and License Agreement, as amended in 2017 and 2019, or the 2015 Collaboa
Commercialization Agreement, or JDA; and a
g
Strategic Collaborati
g
g
Joint Developm
ent and
d
on and License Agreement, or the 2019 Collaboration gAgreement.
and
tegic Collaboration, Option
2015 Collaboration Agreement
Pursuant to the 2015 Collaboration Agreement, we agreed to provide technology and options to obtain licenses relating to our
CRISPR/Cas technology to Vertex in exchange for a $75.0 million upfront payment. In 2015, in connection with the initial entry into
the 2015 Collaboration Agreement, Vertex also made a $30.0 million equity investment in us.
The initial focus of the 2015 Vertex collaboration was to use CRISPR/CaRR
s9 technology to discover and develop gene-based
treatments for hemoglobinopathies and cystic fibrosis. In 2017, Vertex exercised its option to co-develop and co-commercialize the
and losses, as applicable, will be shared equally by the parties. Matters relating to
hemoglobinopathies program for which net profitsff
hemoglobinopathies targets are governed by
rts focused on a specified numberm
of other genet
specified number of collaboration targets that emerged from the four-year research collaboa
background intellectual property to develop, manufacture, commercialize, sell and use therapea utics directed to each such collaboration
target. We were responsible for discovery activities, and the related expenses were fully funded by Vertex.
ration Agreement, Vertex had the option to exclusively license treatments for a
ration under certain of our platformff
a
the JDA, as summarized below. Further discovery effoff
ic targets. Under the 2015 Collaboa
and
r
t
In October 2019, Vertex exercised the remaining options granted to it under the 2015 Collaboration Agreement to exclusively
in-license three additional targets for the development of gene-based treatments using CRISPR-based gene editing. The targets include
the cystic fibrosis transmembrane conductance regulator gene and two undisclosed targets. Under the terms of the 2015 Collaboration
Agreement, we received an upfront payment of $30.0 million in connection with the option exercise and have the potential to receive
up to $410.0 million in development, regulatory and commercial milestones, as well as royalty payments in the single digits to low
teens on net product sales for each of the three targets. The milestone and royalty payments are each subject
specified conditions set forth in the 2015 Collaboration Agreement. For these targets, Vertex is solely responsible for all research,
development, manufacturing and global commercialization activities and Vertex received exclusive rights to develop and
commercialize products related to these targets globally. The research term of the 2015 Collaboa
Vertex no longer holds rights to in-license additional targets under the 2015 Collaboration Agreement.
ration Agreement has expired, and
to reduction under certain
u
Either party can terminate the 2015 Collaborati
a
on Agreement upon the other party’s material breach, subject to
u
specified notice
and cure provisions. Vertex also has the right to terminate the 2015 Collaboration Agreement for convenience at any time upon 90
days’ written notice prior to any product receiving marketing approval and upon 270 days’ notice after a product has received
marketing approval. We may also terminate the 2015 Collaboration Agreement in the event Vertex challenges any of our patent rights.
Absent early termination, the 2015 Collaboration Agreement will continue until the expiration of the Vertex’s payment
obligations under the 2015 Collaboration Agreement.
Joint Development Agreement
In December 2017, we entered into the JDA with Vertex. The initial focus of the JDA is forff
the development of CTX001 for
TDT and SCD. In connection with entering into the JDA, we received a $7.0 million up-front payment from Vertex and subsequently
received a one-time low seven-digit milestone payment upon the dosing of the second patient in a clinical trial with the initial product
candidate. The net profits and net losses, as applicable, incurred under the JDA will be shared equally between us and Vertex.
16
The JDA includes, among other things, provisions relating to the following:
Governance. We and Vertex will form the following committees: (i) a joint steering committee to provide high-level oversight
and decision making regarding the activities covered by the JDA, (ii) a joint development committee to provide oversight and decision
making-making regarding development activities, (iii) a joint commercialization committee to provide oversight and decision-making
regarding commercialization activities and (iv) a joint manufacturi
ng committee to provide oversight and decision-making regarding
manufacturing
activities. Each of the committees will contain an equal number of representatives from each of us and Vertex.
tt
tt
Commercialization. The JDA provides that we will be the responsible for commercialization activities in the United States and
Vertex will be responsible for commercialization activities outside of the United States.
Termination. Either party can terminate the JDA upon the other party’s material breach, subject to
u
specified notice and cure
provisions, or, in the case of Vertex, in the event that we become subject to specified bankruptcy, winding up or similar circumstances.
Either party may terminate the JDA in the event the other party commences or participates in any action or proceeding challenging the
validity or enforceabia lity of any patent that is licensed to such challenging party pursuant to the JDA. Vertex also has the right to
terminate the JDA for convenience at any time after giving prior written notice.
If circumstances arise pursuant to which a party would have the right to terminate the JDA on account of an uncured material
breach, such party may elect to keep the JDA in effect and cause such breaching party to be treated as if it had exercised its opt-
out rights with respect to the products associated with such uncured material breach (described below) and the royalties payablea
breaching party would be reduced by a specified percentage.
to the
Opt-Out Rights. Either party may opt of out of the development of a product candidate under the JDA after
ff
predetermined points
in the development of the product ca
no longer share in the net profits and net losses associated with such product candidate and, instead, the opting out party will be
entitled to high single to mid- teen percentage royalties on the net sales of such product, if commercialized.
ndidate, on a candidate-by-candidate basis. In the event of such opt-out, the party opting-out will
d
2019 Collabll oration Agreement
On June 6, 2019, we and Vertex entered the 2019 Collaboa
ration Agreement, pursuant to which we and Vertex agreed to
collaborate to develop and commercialize products for the treatmet
nt of DMD and DM1.
The 2019 Collaboration Agreement includes, among other things, provisions relating to the following:
Governance. We and Vertex will form a joint advisory committee to provide high-level oversight and coordination of the
activities covered by the 2019 Collaboration Agreement.
Development and Commercialization. The 2019 Collaboration Agreement provides that Vertex will be responsible for
development and commercialization activities, subject to our option, exercisable during a specified exercise period, to co-develop and
co-commercialize products for the treatment of DM1.
Financial Termsrr
. In connection with entering into the 2019 Collaboration Agreement, we received a $175.0 million up-front
payment from Vertex. We are eligible to receive milestone payments from Vertex of up to $825.0 million in the aggregate, depending
on the numbers and types of products that achieve pre-determined development and commercial milestones. We are also eligible to
receive royalties on the sales of products ranging from the low single digits to the low double digi
ts.
u
Co-Development and Co-Commercialization Option. If we elect to co-develop and co-commercialize products for the treatment
of DM1, we would reimburse Vertex for fifty percent (50%) of the DM1 research and development costs incurred by Vertex and
would be responsible for fifty percent (50%) of such costs going forward. We would receive, in lieu of further
t milestone or royalty
payments associated with DM1 development and commercialization activities, fifty percent (50%) of all profits from sales of such
products and would be responsible for fifty percent (50%) of all losses.
Termination. Either party may terminate the 2019 Collaboration Agreement upon the other party’s material breach, subject to
specified notice and cure provisions. We may also terminate the 2019 Collaboration Agreement in the event Vertex commences or
participates in any action or proceeding challenging the validity or enforceability of any patent that is licensed to Vertex pursuant to
the 2019 Collaboration Agreement. Vertex may also terminate the 2019 Collaboration Agreement upon our bankruptcy or insolvency,
or for convenien
ce at any time, after ggivi gng written notice.
y
17
If circumstances arise pursuant to which Vertex would have the right to terminate the 2019 Collaboration Agreement on account
of an uncured material breach, Vertex may elect to keep the 2019 Collaboration Agreement in effect and reduce by a specified
pe
rcentage the applicable royyalties payyable in respect of the product(s) that
are the subject of the breach.
g
j
Bayer
In December 2015, we and Bayer entered into a joint venture agreement, or the Joint Venture Agreement, pursuant to which we
and Bayer established Casebia to discover, develop and commercialize CRISPR/Cas9 gene-editing therapeutics to treat the genetic
causes of bleeding disorders, autoimmune disease, blindness, hearing loss and heart disease. Under the Joint Venturet
Bayer made availablea
CRISPR/CaRR
s9 gene-editing technology and intellectual property. We and Bayer each held a 50% partnership interest in Casebia.
its protein engineering expertise and relevant disease know-how and we made available our proprietary
Agreement,
In December 2019, we, Bayer, certain subsidiaries and affiliates of
ff
us and Bayer, and Casebia entered into a series of
transactions by which, among other things, Casebia became a wholly-owned subsidiary of ours; we and Bayer terminated the joint
venture; and we and Bayer entered into a new option agreement, or the 2019 Option Agreement.
Retirement Agreement
On December 13, 2019, we, Bayer and Casebia entered into an agreement, or the Retirement Agreement, pursuant to which
Casebia retired Bayer’s outstanding partnership interests in exchange for up to $22.0 million returt ned from Casebia operating cash
less certain estimated interim operating expenses, subju ect to potential post-closing adjud stmet
nts, or the Retirement.
In connection with the Retirement, our wholly-owned subsidiary simultaneously acquired a 1% partnership interest in Casebia
effeff cting the
to 1% of the fair market value of Casebia. Accordingly, after
diary own 100% of the partnership interests in Casebia. The completion of the Retirement
in exchange for a capia tal contribution in an amount equalq
Retirement, we and our wholly-owned subsiu
occurred simultm aneously with the signing of the Retirement Agreement.
ff
The Retirement Agreement contains customary representations and warranties and other customary terms for a transaction of
this type.
In connection with the Retirement, the parties also entered into certain other ancillary agreements, including a joint venturet
termination agreement and option agreement, each summarized below.
Joint Venture Termination Agreement
In connection with entering into the Retirement Agreement, we, Bayer, certain subsidiaries and
u
ff
affiliates of us
and Bayer, and
Casebia entered into an agreement, or the Joint Venture Termination Agreement, pursuant to which we and Bayer agreed to terminate
the Joint Venture Agreement consistent with the terms of such agreement.
j
r
Under the Joint Venture Termi
y
nation Agreement, Casebia-owned patents, know-how and technology are now co-owned by us
and obligations under an
and Bayer, subject to certain exclusive
amended and restated intellectual property management agreement and terminated other agreements between the parties related to the
joint venturt e, including the CRISPR IP Contribution Agreement with Casebia, dated as of March 16, 2016, pursuant to which we and
certain of our affiliated entities granted Casebia an exclusive, worldwide, fulff
sublicense, to the use of our CRISPR/Cas technology to research, develop, produce, commercialize and sell products in certain fields
and the existing Option Agreement, dated as of March 16, 2016, by and between us, Bayer and Casebia.
licenses granted therein. In addition, the parties modified their rigghts
ly paid-up, royalty-free license, including the right to
g
g
2019 Option Agreement
In connection with entering into the Retirement Agreement and the Joint Venturet
Termination Agreement, we and Bayer also
entered into the 2019 Option Agreement pursuant to which Bayer obtained an option (exercisable during a specified exercise period
definff ed by futurett
events, but in no event longer than five years after the effective date of the 2019 Option Agreement) to co-develop
and co-commercialize two products for the diagnosis, treatment, or prevention of certain autoimmunemm
hemophilia A disorders. In the event Bayer elects to co-develop and co-commercialize a product, the parties will negotiate and enter
into a co-development and co-commercialization agreement, or a Co-Commercialization Agreement, for such product,
and Bayer
would be responsible for 50% of the research and development costs incurred by us for such product going forward. Bayer would
receive 50% of all profits from sales of such product and would be responsible for 50% of all losses.
disorders, eye disorders, or
d
18
If Bayer elects to exercise its option to co-develop and co-commercialize a product, Bayer will make a one-time $20.0 million
payment, or the Option Payment, to us that will become non-refundable once the parties execute a Co-Commercialization Agreement
with respect to such optioned product. The Option Payment is payable only once with respect to the first time Bayer exercises an
option under the 2019 Option Agreement.
for a period beginning on the effecff
In addition, following Bayer’s exercise of its option and/or the execution of a Co-Commercialization Agreement for an optioned
tive date of such Co-Commercialization Agreement and ending on the earlier of the three-
product,
d
ive date or during the 90-day negotiation process of such Co-Commercialization Agreement, Bayer
month anniversary of such effect
has a right to negotiate an exclusive license to develop and commercialize such optioned product. If Bayer exercises such right, the
parties will enter into an exclusive license agreement for such optioned product on terms mutually agreeable to the parties. Furthet
Option Payment paid for such optioned product would become credited against payments due under such exclusive license or any
other exclusive license entered into in connection with the 2019 Option Agreement.
r, the
ff
Either party may terminate the 2019 Option Agreement upon the other party’s material breach, subju ect to specified notice and
cure provisions. We may also terminate the 2019 Option Agreement in the event Bayer commences or participates in any action or
proceeding challenging the validity or enforceability of any CRISPR patent necessary or useful for the research, development,
manufacture or commercialization of a product th
Option Agreement upon our bankruptcy or insolvency, or for convenience at any time, after giving written notice.
at is the subject of the 2019 Option Agreement. Bayer may also terminate the 2019
dd
ViaCii
yteCC
In Septemberm 2018, we and ViaCyte entered into a research collaboration agreement, or the ViaCyte Collaboration Agreement.
Pursuant to the ViaCyte Collaboration Agreement, we and ViaCyte established a research plan, or the Research Plan, for the purpose
of designing and advancing allogeneic cell therapies derived from gene edited human stem cells for use in the treatment of diabetes
y
type 1, di
abetes type 2 and insulin dependent diabetes, or the Field.
For purposes of carrying out the parties’ respective activities under the Research Plan, each party granted the other party a non-
those activities during the research term. In addition, each party also
ndidates
exclusive, royalty free, fully-paid, worldwide license to performff
granted the other party a non-exclusive license to research, develop, manufacture and commercialize products and product ca
for use in the Field, which is exercisable only upon the occurrence of certain termination events.
d
We and ViaCyte have formed a Joint Research Committee, or the JRC, comprised of three representatives from each of us and
ViaCyte to review the progress of the research activities. All decisions by the JRC are made by consensus subject to specified dispute
resolutions procedures. Each party to the ViaCyte Collabor
with their respective activities set forth in the Research Plan. During the Research Term, neither party nor any of its affiliates
alone or in conjunction with a third party, conduct di
with respect to any product which employs allogeneic cell therapy derived from gene-edited human stem cell for use in the Field.
ation Agreement will be responsible for the costs incurred in connection
may,
scovery, research, development, manufacturing or commercialization activities
d
a
ff
Pursuant to the ViaCyte Collaboration Agreement, in 2018 we issued an aggregate of 380,148 shares and paid an aggregate of
$1.2 million to ViaCyte in satisfaction of our upfront payment obligations. Refer to Note 7 of the notes to our consolidated financial
statements included in this Annual Report on Form 10-K for additional information.
Either party may terminate the ViaCyte Collaboration Agreement for convenience or uncured material breach, upon notice of a
specified period. Either party may also terminate the ViaCyte Collaboration Agreement upon notice if the other challenges the
enforceability, validity or scope of any patent rights belonging to the other party, unless the challenging party withdraws or causa es the
challenge to be withdrawn within a specified period. The ViaCyte Collaboration Agreement also may be terminated by either party
upon the insolvency of the other
gAgreement
party. In the event either party is acquired by specified third parties the ViaCyte Collaboration
ymay be terminated, at the election of the non- qacquired pparty py, upon the cl
ch acquisition.
osing of su
g
q
t
Intellectual Property
We strive to protect and enhance the proprietary technology, inventions, know-how and improvements that we believe are
commercially important to our business by seeking, maintaining, and defending patent rights, whether
from third parties, that cover our gene-editing technology, existing and planned therapeut
protection and confidentiality agreements to protect our proprietary technologies and know-how to protect aspects of our business that
are not amenable to, or that we do not consider appropriate for, patent protection, as well as continuing technological innovation and
seeking in-licensing opportuntt
additionally rely on trademark protection, copyright protection and regulatory protection available via
exclusivity, market exclusivity, and patent term extensions. Our success will depend significantly on our ability 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. We also protect the
integrity and confidff entiality of our data, know-how and trade secrets by maintaining physical security of our premises and physical
and electronic security of our information systems.
ities to develop, strengthen and maintain our proprietary position in the field of gene editing. We
ic programs. We also rely on trade secret
orphan drug designations, data
developed internally or licensed
aa
a
t
19
In-Licensed Intellectual Property from Dr. Charpentier
In April 2014, pursuant to an exclusive license with Dr. Charper ntier, we licensed certain rights to a worldwide patent portfolio
which covers various aspects of our genome editing platform technology including, for examplmm e, compositions of matter, including
additional CRISPR/TRACR/Cas9 complexes, and methods of use, including their use in targeting or cutting DNA. We refer to this
worldwide patent portfolff
biologics and any associated companion diagnostics, for the treatment or prevention of human diseases, disorders, or conditions. For
further information about this license, please see “Business – CRISPR License with Dr. Charpent
io as the “Patent Portfolio”. This license is limited to therapeutic products such as pharmaceuticals and
ier.”
rr
rr
a, or California,
In addition to Dr. Charpent
ff
ff
ier, the Patent Portfolio has named inventors who assigned their rights either to the Regents of the
or the University of Vienna, or Vienna. California’s rights are subject to certain overriding
University of Californi
obligations to the sponsors of its research, including the Howard Hughes Medical Institutet
Biosciences, or Caribou, had reported that it had an exclusive license to patent rights from California and Vienna, subju ect to a retained
right to allow non-profit entities to use the inventions for research and educational purposes. Intellia Therapeutics, Inc., or Intellia
Therapeutics, had reported that it had an exclusive license to such rights from Caribou in certain fields. We refer collectively to
Dr. Charpent
and the U.S. Government. Caribou
and Vienna as the “CVC Group”.
ff
ier, California,
rr
In January 2016, the U.S. Patent and Trademark Office, or USPTO, declared an interference (Interference No. 106,048, or ‘048
interference) between one of the pending U.S. patent applications (now issued as U.S. Patent No. 10,266,85 )0) included in the Patent
Portfolio and twelve issued U.S. patents owned jointly by the Broad Institute and Massachusetts Institute of Technology and, in some
instances, the President and Fellows of Harvard College, which we refer to individually and collectively as the Broad. The interference
was redeclared in March 2016 to add a U.S. patent application owned by the 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.
Following motions by the parties and other procedural
d
matters, the PTAB concluded in Februarr
ry 2017 that the ‘048 interference
should be terminated without deciding which party was the first to invent. In its decision, the PTAB concluded that the claim sets
presented by the two parties were considered patentably distinct from each other because the involved CVC Group patent
application’s claims were broader in scope in that they were not restricted to use in eukaryotic cells, whereas Broad’s claims were so
limited. In April 2017, the CVC Group appealed the PTAB decision to the U.S. Court of Appeals for the Federal Circuit, or the
Federal Circuit. In the appeal, the CVC Group asked the court to review and reverse the PTAB’s Februarr
ry 2017 decision, which
terminated the interference without determining which inventors first invented the use of the CRISPR/Cas9 genome editing
technology in eukaryotic cells. The Federal Circuit conducted a hearing on the appeal on April 30, 2018, and on September 10, 20
affirmed the PTAB’s decision to terminate the interference proceeding. As a result of the Federal Circuit’s decision, U.S. Serial No.
13/842,859, which was ppr
eviously considered allowable, was released from the interference and issued U.S. Patent No.
as U.S. Patent No. 10,266,850.
18,
m
y
In June 2019, we received notification that the USPTO initiated a new interferff ence proceeding at the PTAB, which the PTAB
redeclared in August 2019 (Interference No. 106,115, or ‘115 interference). The ‘115 interference involves fourteen (14) pending U.S.
patent applications co-owned by the CVC Group and thirteen (13) patents and a patent application owned by the Broad. Specifically,
the PTAB declared the ‘115 interference between the CVC Group’s pending U.S. Patent Application Nos. 15/947,680; 15/947,700;
15/947,718; 15/981,807; 15/981,808; 15/981,809; 16/136,159; 16/136,165; 16/136,168; 16/136,175; 16/276,361; 16/276,365;
16/276,368; and 16/276,374, and the Broad’s U.S. Patent Nos. 8,697,359; 8,771,945; 8,795,965; 8,865,406; 8,871,445; 8,889,356;
8,895,308; 8,906,616; 8,932,814; 8,945,839; 8,993,233; 8,999,641; 9,840,713, and U.S. Patent Application No. 14/704,551. This list
includes the same twelve Broad patents and application that were involved in the ‘048 interference. In contrast, none of the issued
U.S. patents the CVC Group owns are subju ect to this proceeding. The CVC Group’s inventions that are the subju ect of the ‘115
interference were first filed with the USPTO in May of 2012, while the Broad filed its first application seven months later in
December of 2012. However, the 14 CVC Group patent applications that are involved in the current interference are continuing patent
applications that were filed in 2018 and claim priority to the CVC Group’s original 2012 filing, while the Broad’s involved patents
and patent application were filed between 2013 and 2015. Because the PTAB accorded neither party the benefitff of any of its first
filing dates, but instead accorded only the benefit of the actual filing dates of the involved patents and patent applications, the CVC
Group was by defaulta
named the Junior Party. Both parties have filed motions requesting benefit of their earliest priority dates (the
CVC Group in May 2012 and the Broad in December 2012) during the interference proceeding.
We expect the CVC Group will continue to prosecute patent claims covering inventions included in the Patent Portfolio, which
could also result in additional allowable or issued patents in the United States, Europe or other foreign jurisdictions. The patents and
patent applications within the Patent Portfolio are, or may in the future be, subju ect to further intellectual property proceedings and
disputes in the U.S. The CVC Group, Br
the Patent Portfolio, and any existing or new patents could be the subject of other
interference was declared, either party could appeal an adverse decision to the Federal Circuit. In any case, it may be years before
there is a final determination on priority. Pursuant to the termsr
covering or reimbursm
of the license agreement with Dr. Charpentier, we are responsible for
tier’s patent prosecution, defense and related costs associated with our in-licensed technology.
oad or other parties could seek a new interference involving some or all of the technology in
challenges to their validity of enforceability. If an
ing Dr. Charpenrr
u
t
20
The patents and patent applications within the Patent Portfolio are, or may in the future be, involved in proceedings similar to
interferff ences or priority disputes in Europe or other foreign jurisdictions. For examplm e, the Opposition Division has initiated
opposition proceedings against European Patent Nos. EP 2,800,811 B1, EP 3,241,902 B1 and EP 3,401,400. The EPO opposition
proceedings may involve issues including, but not limited to, procedural formalities related to filing the European patent application,
priority, and the patentability of the involved claims. We cannot be certain which of these results, if any, will actually occur or at what
time, and the effects
that any such results may have on us and our intellectual property position are currently unknown.
ff
For further information regarding risks regarding the interference and patent rights held by third parties, please see “Risk
Factors—Risks Related to Intellectual
t
Property.”
On December 15, 2016, we entered into a Consent to Assignments, Licensing and Common Ownership and Invention
ff
RR
RR
Under the IMA, California and Vienna retroactively
enna, Dr. Charpentier, Intellia Therapeutics, Caribou, ERS Genomics Ltd., or
Management Agreement, or the IMA, with California, Vi
ERS, and our wholly-owned subsidiary TRACR Hematology Ltd., or TRACR.
consent to Dr. Charpentier’s licensing of her rights to the CRISPR/Cas9 intellectual property, pursuant to our license with Dr.
Charpentier, to us, TRACR, 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
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, (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 intellectual
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 the gene-editing technology, or the date on which the last underlying patent application is abandoned. For further
information regarding the effeff cts of joint ownership in the United States and in other jurisdictions worldwide, please see “Risk Factors
– The Intellectual Property That Protects Our Core Gene-EdiEE ting Technology Is Jointly Owned,dd And Our License Is From Only One
Of The Joint Owners, Materially Limiting Our Rights In The United Stattt es And In Other Jurisdictions.”
licensees, prospective consent to sublu icenses they may grant in future, retroactive
u
CRISPR-Owned Intellectua
tt
l Property
In addition to the Patent Portfolio, we have a broad intellectual property estate that includes numerous patent families covering
key aspects of our CRISPR/Cas9 technologies and development programs which is intended to provide multiple layers of protection.
These patent families encompass filings covering our development programs (such as composition of matter, method of use,
manufacturing processes, dosing and formulations), the use and improvem
m
(such as imprm ovements to component systems including nucleases and single or modified guide RNAs), technologies for delivering
protein/nucleic acid complexes and RNA into cells (such as improved viral vector systems and self-inactivating systems),
technology relevant to stem cell-based therapies.
ent modifications of CRISPR/CRR as9 systems for gene editing
and
ff
Overall, our intellectual property estate includes over 40 active patent families and approximately 25 granted or allowed patents
in the United States, United Kingdom, Europe, Japaa n, China, Ukraine, New Zealand, Singapore, Australia, Mexico, Tunisia, Hong
Kong, Israel and South Afriff ca, and pending patent applications in the United States, Europe, Australia, Canada, China, Japan,
and other selected countries in Central America, South America, the Middle East, Asia and Africa.
patents that may ultimately issue from these patent families are expected to expire starting in 2033, not including any applicable patent
term extensions.
Mexico
The granted patents and any other
a
ff
Our U.S. trademark estate consists of 8 pending applications, including for CTX001, CTX101, CTX110, CTX120, CTX130,
and CRISPR TX, as well as several U.S. registrations, including for CRISPR THERAPEUTICS and the CRISPR THERAPEUTICS
logo. Our international trademark estate consists of 15 pending applications and 3 International Registrations, including a pending
tional Registrations for CTX001,
application for CRISPR THERAPEUTICS
CTX101, and the CRISPR THERAPEUTICS logo designating the EU, Switzerland, and UK.
in the EU, Switzerland, and UK. We also have Internar
RR
Patent Assignment Agreement
In November 2014, we entered into a patent assignment agreement with Dr. Charpent
rr
ier, Dr. Ines Fonfaraff
and Vienna, or the
Patent Assignment Agreement. Under the Patent Assignment Agreement, Dr. Charper ntier, Dr. Fonfara and Vienna assigned to us all
rights to a family of patent applications relating to certain compositions of matter, including additional CRISPR/TRACR/Cas9
complm exes, and methods of use, including their use in targeting or cutting DNA.
As consideration for the patent rights assigned to us, we agreed to pay an upfront payment, milestone payments beginning with
of a U.S. Investigational New Drug application or its equivalent in another country, a minimum annual royalty, a low single-
the filing
ff
digit royalty on net sales of products whose manufacture, use, sale, or importm
single-digit percentage of licensing revenues.
ation is covered by the assigned patent rights, and a low
21
We are obliged to use commercially reasonable efforts to obtain regulatory approval to market a product whose manufacture,
ion is covered by the assigned patent rights, including but not limited to an obligation to use commercially
application (or its equivalent in a majora market country) by Novemberm
m
use, sale, or importat
reasonable efforts to file a U.S. Investigational New Drugrr
2021.
License Agreements
CRISPR License With Dr. Charpentier
rr
ier License Agreement, with Dr. Charpent
In April 2014, we entered into a license agreement, or the Charpent
to as the CRISPR Field. The license is exclusive, even as to Dr. Charpent
ier, one of our co-
founders, pursuant to which we received an exclusive license under Dr. Charpentier’s joint ownership interest in the Patent Portfolio,
to research, develop and commercialize therapeutic products such as pharmaceuticals or biological preparations, and any associated
companion diagnostics, for the treatment or prevention of human diseases, disorders, or conditions, other than hemoglobinopathies,
which we referff
right to use the technology for her own research purposes and in research collaboa
exclusive license is granted only under Dr. Charpentier’s interest in the patent applications and the exclusivity is not granted under any
other joint owner’s interest. Additionally, the Charpentier License Agreement granted us an exclusive, worldwide, royalty-free
sublicense, including the right to sublicense, to research, develop, produce, com
CRISPR Field which incorporate any intellectual
t
granted to Dr. Charpentier an exclusive license with the obligation to sublu icense to TRACR
under the license with Dr. Charpentier for treatment and prevention of hemoglobinopathies in humans, including, without limitation,
sickle cell disease and thalassemia.
property that TRACR develops under its license with Dr. Charpent
mercialize and sell therapeutic products relating to the
rations with academic and non-profit partners. The
ier, except that she retains a non-transferable
any intellectual property we develop
ier. In turn, we
RR
d
aa
r
rr
rr
Under the terms of the Charpent
rr
ier License Agreement, as consideration for the license, Dr. Charpentier received a technology
transfer fee, an immaterial annual maintenance fee, immaterial milestone payments that will be due after the initiation of clinical trials,
a low single digit percentage royalty on net sales of licensed products, and a low single digit percentage royalties of sublu icensing
revenue. We are obligated to use commercially reasonable efforts to obtain regulatory approval to market a licensed therapeutic
product.
d
majora market country for a therapeutic pr
reasonable efforts to file a U.S. Investigational New Drug application (or its equivalent in a majora market country) for a therapeutic
product in the CRISPR field by April 2024.
CRISPR must use commercially reasonable efforts to file a U.S. Investigational New Drugrr
the CRISPR field) by April 2021. In addition, CRISPR must use commercially
application (or its equivalent in a
oduct in
d
a
Unless terminated earlier, the term of the Charpentier License Agreement will expire on a country-by-country basis, upon the
expiration of the last to expire valid claim of the Patent Portfolio in such country. We have the right to terminate the agreement at will
upon 60 days’ written notice to Dr. Charpent
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 enforff ceability, validity, or scope of any Patent Portfolio.
ier. We and Dr. Charperr ntier may terminate the agreement upon 90 days’ notice in the
rr
TRACR License With Dr. Charpentier
In April 2014, concurrently with our license agreement with Dr. Charpentier, TRACR
RR
entered into a license agreement, or the
r
RR
License Agreement, with Dr. Charpentier, a
minority shareholder of TRACR, under the Patent Portfolio. Pursuant to the
TRACR
TRACR License Agreement, TRACR was granted an exclusive, worldwide, royalty-bearing license, including the right to sublu icense,
to research, develop, produce, commercialize and sell therapeut
hemoglobinopathies in humans, including sickle cell disease and thalassemia, or the TRACR Field. TRACR also received a non-
exclusive, worldwide, royalty-free license, including the right to sublicense, to carry out internal pharmaceutical research for
therapea utic products
outside of the TRACR Field and an exclusive, worldwide, royalty-free sublicense, including the right to
sublicense, to research, develop, produce, commercialize and sell therapeutic products relating to the TRACR
any intellectual property that CRISPR develops under its license with Dr. Charpentier. In turn, TRACR granted to Dr. Charpentier
exclusive license to sublicense
use in the CRISPR Field.
Field which incorporate
an
rr
ops under the license with Dr. Charpentier for
ic and diagnostic products for the treatment and prevention of
to CRISPR any intellectual property that TRACR devel
RR
RR
d
u
a
TRACR is obligated to use commercially reasonable effoff
the prevention or treatment of human disease under the license agreement. TRACR
product for
d
ts to file a U.S. Investigational New Drugr
efforff
TRACR field by April 2021. In addition, TRACR
application (or its equivalent in a majora market country) for a therapeutic productdd
responsible for all clinical, regulatory and development costs.
RR
rts to research, develop, and commercialize at least one therapeutic
must use commercially reasonable
a
application (or its equivalent in a majora market country) for a therapeut
ic product in the
RR
must use commercially reasonable efforts to file a U.S. Investigational New Drug
RR
field by April 2024. TRACR
in the TRACR
is solely
RR
Under the TRACR
RR
License Agreement, Dr. Charpent
rr
payments per product that TRACR commercializes. TRACR is also required to pay Dr. Charpent
royalties on the net sales of any approved therapeutic or diagnostic products,
single-digit percentage royalties on sublu icensing revenue.
d
ier is entitled to receive immaterial clinical and regulatory milestone
ier low single digit percentage
rr
made by it, its affiliates, or its sublicensees and low
22
Unless terminated earlier, the term of the license agreement will expire on a country-by-country basis, upon the expiration of the
last to expire valid claim of the Patent Portfolio in such country. TRACR
RR
days’ written notice to Dr. Charpentier. TRACR 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. Charpent
ier may terminate the license
agreement immediately if TRACR challenges the enforceability, validity, or scope of any Patent Right.
has the right to terminate the agreement at will upon 60
rr
Enabling Technologl
ies
In support of our lead ex vivo programs, we have entered into a commercial license agreement with MaxCyte Incorporated, or
MaxCyte. The license provides CRISPR and Casebia a non-exclusive commercial-use right to MaxCyte’s cell engineering platform to
immunodeficiency. Our lead program,
develop CRISPR/Cas9-based therapies for hemoglobin-related diseases and severe combined
CTX001, utilizes MaxCyte’s Flow Electroporation Technology to deliver CRISPR/Cas9 components to hematopoietic stem cells. In
November 20
m
develop CRISPR/Cas9-based therapies in immuno-oncology.
18, we expanded our existing relationship with MaxCyte to deploy MaxCyte’s Flow Electroporation Technology to
m
u
In support
of our allogeneic CAR-T platform, we have
ff
entered into a license agreement with KSQ Therapeutics Incorporated, or
KSQ, whereby we gained access to KSQ intellectual property for editing certain novel gene targets in our allogeneic oncology cell
therapya
programs, and KSQ gained access to our intellectual property for editing novel gene targets identified by KSQ as part of its
current and futurett
engineered tumor infiltrating lymphocyte cell programs.
We have also formed several collaborat
a
CureVac, to develop novel Cas9 mRNARR
decreased duration of expression and reduced
d
mRNARR
manufacturing through clinical development and commercialization.
ions to support our in vivo programs. We have a collaboration with CureVac AG, or
r
constructs wi
potential for immunogenicity. As part of the collaboration, CureVac will provide
th improm ved properties for gene editing in the liver, such as increased potency,
We have also entered into a development and option agreement with Stritt deBio, Inc., or StrideBio, to develop novel AAV
vectors for in vivo gene-editing applications. Under the agreement, StrideBio will use its proprietary structure-guided evolution
platform to develop AAV vectors with imprm oved properties, such as tissue specificity and reduced susceptibility to immune responses.
Under this agreement we have the option to exclusively license AAV vectors with desired properties for certain of our in vivo
programs. In February 2019, we expanded our existing relationship with StrideBio to develop AAV vectors for additional undisclosed
applications.
We also entered into a multi-year research collaboration and license agreement with ProBioGen AG, or ProBioGen, focused on
the development of novel in vivo delivery modalities for CRISPR/Cas9 leveraging ProBioGen’s existing technology and expertise.
The collaboration includes a license option for CRISPR Therapea utics upon successful completion of the research goals.
Additionally, we have access to non-viral delivery technology through an exclusive license from the Massachusetts Institute of
Technology to a family of LNP technologies developed in the lab of Dr. Daniel G. Anderson, a scientific founder of CRISPR
Therapeutics.
Manufacturing
g
We have entered into certain manufacturing and supply arrarr ngements with third-party suppli
u
u
ers to support
production of our
d
ndidates and their components. We plan to continue to rely on qualified third-party organizations to produce or process bulk
product ca
compounds, formulm ated compounds, viral vectors or engineered cells for IND-supporting activities and early stage clinical trials. We
expect that commercial quantities of any compound, vector, or engineered cells that we may seek to develop will be manufacturtt ed in
facilities and by processes that comply with FDA and other regulations. At the appropriate time in the product development process,
we will determine whether to establish manufacturing facilities or continue to rely on third parties to manufacture commercial
quantities of any products that we may successfully develop. Outside of the United States and Europe, where appropriate, we may
elect in the future to utilize strategic partnet
certain instances, we may consider building our own commercial infrastructure.
rs, distrit butors or contract sales forces to assist in the commercialization of our products. In
As product 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 infrastructure and manufacturing needs may all influence our strategies in the United States, Europe and the rest of the
world.
23
Competition
The biotechnology and pharmaceutical industries, including in the gene editing, gene therapy and cell therapy fields, are
characterized by rapidly advancing technologies, intense competition and a strong emphasis on intellectual property and proprietary
products. While we believe that our technology, development experience and scientific knowledge provide us with competim tive
advantages, we currently face, and will continue to face, substantial competition from many different sources, including large
pharmaceutical, specialty pharmaceutical and biotechnology compam nies; academic institutions and governmental agencies; and publu ic
and private research institutions, some or all of which may have greater access to capia tal or resources than we do. For any products
that we may ultimately commercialize, not only will we compem te with any existing therapia es and those therapia es currently in
development, we will have to compete with new therapies that may become available in the future.
We compete in the segments of the pharmaceutical, biotechnology and other related markets that utilize technologies
encompam ssing genomic medicines to create therapiaa es, including gene editing, gene therapy and cell therapy. In addition, we compete
with companies working to develop therapies in areas related to our specific research and development programs.
Our platform and product focus is on the development of therapies us
s9 gene-editing technology. We are aware
s9 gene-editing technology, including
of several companies focused on developing therapies in various indications using CRISPR/CaRR
Intellia Therapeutics and Editas Medicine. In addition, several academic groups have developed new gene-editing technologies based
on CRISPR/Cas9, such as base editing and prime editing, that may have utility in therapeutic development. Companies seeking to
develop therapies based on these technologies include Beam Therapeutics and Prime Medicine.
ing CRISPR/CaRR
aa
There are also companies developing therapies using additional gene-editing technologies, such as TALENs, meganucleases and
ZFNs. These companies include Allogene Therapeutics, bluebird bio, Cellectis, Precision BioSciences and Sangamo Therapeutics.
We are also aware of companies developing therapia es in various areas related to our specific research and development
programs. In hemoglobinopathies, these companies include Acceleron Pharma, Aruvant Therapeutics, bluebird bio, Editas Medicine,
Global Blood Therapeutics, Novartis Pharmaceuticals, Orchard Therapeut
ics, and Sangamo Therapeutics. In immuno-oncology, these
compam nies include Allogene Therapeutics, bluebird bio, Bristol Myers Squibb, Cellectis, Fate Therapeutics, Gilead Sciences, Novartis
Pharmaceuticals, Poseida Therapeutics and Precision BioSciences. In regenerative medicine, these companies include BlueRock
Therapeutics (acquired by Bayer in 2019),
these companies include Editas Medicine, Intellia Therapeutics, Sarepta Therapeutics, Ultragenyx and Verve Therapeutics.
Sana Biotechnology and Semma Therapeutics (acquired by Vertex in 2019). In in vivo,
a
a
Gene editing is a highly active field of research and new technologies, related or unrelated to CRISPR, may be discovered and
create new competition. These new technologies could have advantages over CRISPR/CRR as9 gene editing in some applications and
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 producd ts. For example, Editas has exclusively licensed a CRISPR system involving a different
nuclease, Cas12a (Cpf1), which can also edit human DNA, as well as advanced forms of Cas9. Editas and certain of its scientificff
founders have asserted that Cas12a may work better than Cas9 in some cases. Cas9 may be determined to be less attractive than
Cas12a or other CRISPR proteins that have yet to be discovered. Multiple academic labs and companies have also publish
CRISPR-associated nuclease variants that can edit human DNA.
ed on other
CRISPR-associated
u
ff
t
In addition to competition from other gene-editing therapies or gene or cell therapia es, any product we may develop may also
face competition from other types of therapia es, such as small molecule, antibody or protein therapies. In addition, new scientific
discoveries may cause CRISPR/Cas9 technology, or gene editing as a whole, to be considered an inferior form of therapy.
a
In addition, many of our current or potential competitors, either alone or with their collaboration partnett
rs, have significantly
greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials,
obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical,
biotechnology, and gene therapy industries may result in even more resources being concentrated among a smaller numberm of our
competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative
arrangements with large and established companies. These competitors also compete with us in recruirr
scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in
acquiring technologies complementary to, or necessary for, our programs. Our commercial opportunity could be reduced or eliminated
if our competitors develop and commercialize producd ts that are safer, more effective, have fewer or less severe side effects, are more
convenient, have broader acceptance and higher rates of reimburm sement by third party payors or are less expensive than any products
that we may develop. Our competitors also may obtain FDA or other
regulatory approval for their products more rapidly than we may
t
obtain approval for ours, which could result in our competitors establishing a strong market position before 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. The key
compemm titive factors affecti
ent.
reimbursem
ng the success of all of our programs are likely to be their efficacy, safety,
convenience, and availability of
ting and retaining qualified
m
ff
ff
24
If our current programs are approved for the indications for which we are currently planning clinical trials, they may compete
with other products currently under development, including gene editing, gene therapy, and cell therapy products. Competim tion with
other related products currently under development may include competition for clinical trial sites, patient recruitment, and product
sales. In addition, due to the intense research and development taking place in the gene-editing field, including by us and our
competitors, the intellectual property landscape is in flux and highly competitive. There may be significant intellectual property
related litigation and proceedings relating to our owned and in-licensed, and other third party, intellectual property and proprietary
rights in the futurtt e. For examplmm e, see our discussion of the ‘048 interference, the ‘115 interference and European opposition
proceedings above in “Business—Intellectual Property—In-Lice
Proceedings.”
Dr. Charpentier” and in “Legal
nsed Intellectual Property from
—
tt
t
t
interference proceedings or other
Furthermore, we may be involved in other
disputes in the futurtt e. 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 five of the Broad patents previously involved in the interference with Dr. Charpent
rr
California
and Vienna. The USPTO may, in the future, declare an interference between our patent application and one or more
ff
Toolgen, patent applications. We are also aware of additional third parties that have pending patent applications relating to CRISPR
technologies, which similarly may or may not lead to further interference proceedings. For examplem Vilnius University, or Vilnius, has
filed applications in the United States and in other jurisdictions (published internationally as WO2013/141680 and WO2013/142578
and granted as a patent in the United States as U.S. Patent No. 9,637,739), Harvard University, or Harvarr
rd, has filed applications in
the United States and in other jurisdictions (published internationally as WO2014/099744 and granted as a patent in the United States
as U.S. Patent No. 9,023,649), and Sigma-Aldrich has filed applications in the United States and in other jurisdictions (published
internationally as WO2014/089290), each claiming aspects of gene-editing technology based on applications claiming priority to
provisional filings in 2012. Numerous other filings are based on provisional applications filed after 2012.
ier,
y
voked in January 2018; the decision was
The Broad, Toolgen, Vilnius, Harvard, Sigma-Aldrich and otherr parties routinely file internar
tional counterparts of their U.S.
applications, some of which have been ggranted or could in the future be ggranted in Europe and/or other non-U.S. jjurisdictions. We
dand
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. For example, we and eight other entities opposed the Broad’s EP 2,771,468, or the ‘468 patent. The ‘468 pat
was re
the ‘468 patent, three other of the Broad’s European patents have been revoked (EP 2,764,103, 2,784,162 and 2,931,898); and two
g
positions are also now pending with
have been maintained but in amended form with substantial limitations in the scope of claims. Op
d
respect to a number of
volved
ymay in the future become in
operty
y
rier
sdictions. For examplmm e, issued European patents we in-licensed from Dr. Charperr nt
in opposition proceedings in Europe or other juri
have been opposed by multiple third parties. The oppositions to the European patents could lead to the revocation of the patents in
whole or in part, or could lead to the claims
gagainst competitors in Europe.
tent
appealed by the patentees and the appeal will be heard in Janu yary 2020. In addition to
yway that could impam ir or preclude our abia
other patents ggranted to them in Europe.
Similarly, our intellectual pr
ylity to enforce the patents
being narrowed in a
m
y
y
g
t
Government Regulation
Governmr
ent authorities in the United States, at the federal, state and local level, and in other countries and jurisdictions,
including the EU, extensively regulate, among other things, the research, development, testing, manufacture, quality 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
t
jurisdictions, along with subsu equent compliance with applicable statutes and regulations and other
regulatory authorities, require the
expenditure of substantial time and financial resources.
t
Licensure and Regul
e
atll
iott n of Biologics
o
in the Uniteii d Statestt
In the United States, our product candidates are regulated as biological products, or biologics, under the Public Health Service
Act, or PHSA, and the Federal Food, Drug, and Cosmetic Act, or FDCA, and their implm ementing regulations. The failure to comply
with the applicable U.S. requirements at any time during the product development process, including nonclinical testing, clinical
testing, the approval process or post-approval process, may subject an applicant to delays in the conductd
and approval, and/or administrative or judicial sanctions. These sanctions may include, but are not limited to, the FDA’s refusal to
allow an applicant to proceed with clinical testing, refusff
withdrawal of an appa
of production or distribution, injunn
Department of Justice or other governmental entities.
roval, untitled or warning letters, adverse publicity, product recalls, product seizures, total or partial suspension
ctions, fines, and civil or criminal investigations and penalties brought by the FDA or the
al to approve pending applications, license suspension or revocation,
of a study, regulatory review
25
An applicant seeking approval to market and distribute a new biologic in the United States generally must satisfactorily
complmm ete each of the following steps:
preclinical laboratory tests, animal studies and formulmm ation studies
Laboratory Practice, or GLP, regulations;
tt
all performff
ed in accordance with the FDA’s Good
submission to the FDA of an IND application for human clinical testing, which must become effective before human
clinical trials may begin;
approval by an independent institutional review board, or IRB, representing each clinical site before each clinical trial
may be initiated, or by a central IRB if appropriate;
performance of adequate and well-controlled human clinical trials to establish the safety,tt 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, for a biologic product requesting
marketing for one or more proposed indications, including submission of detailed information on the manufacturet
and
composition of the product and proposed labeli
ng;
a
review of the product by an FDA advisory committee, where appropriate or if applicable;
satisfactory completion of one or more FDA inspections of the manufactur
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,
and, if applicable, the FDA’s current good tissue practice, or CGTP, for the use of human cellular and tissue products;
ing facility or facilities, including those of third
a
satisfactory complmm etion of any FDA audits of the nonclinical study and clinical trial sites to assure compliance with GLPs
and GCPs, respectively, and the integrity of clinical data in suppou
rt of the BLA;
payment of user fees and securing FDA approval of the BLA; and
compliance with any post-approval requirements, including the potential requiq rement to implmm ement a Risk Evaluation and
Mitigation Strategy, or REMS, adverse event reporting, and compliance with any post-approval studies required by the FDA.
Preclinical Studies and Investigational New Drugu Application
Before testing any biologic product candidate in humans, including a gene therapy product candidate, the product candidate
ratory evaluations of product chemistry, formulm ation and stabia lity, as
must undergo preclinical testing. Preclinical tests include laboa
well as studies to evaluate the potential for efficacy and toxicity in animals. The conduct of
ff
compounds for testing must comply with federal regulations and requirements. The results of the preclinical tests, together with
information and analytical data, are submitted to the FDA as part of an IND application. The IND automatically
tt
manufact
uring
becomes effective 30 days after rece
linical hold based on concernsrr
questions about the product or conduct of the proposed clinical trial, including concerns that human research subju ects 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.
that time the FDA imposes a c
ipt by the FDA, unless beforeff
the preclinical tests and formulmm ation of the
or
m
ff
ff
As a result, submu
ission of the IND may result in the FDA not allowing the trials to commence or not allowing the trial to
commence on the terms originally specified by the sponsor in the IND. If the FDA raises concerns or questions either during this
initial 30-day period, or at any time during the conduct of the IND study, including safety concerns or concerns due to non-
compliance, it may 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 companym
significant delays or difficulties in completing planned clinical studies in a timely manner.
that investigations may proceed or recommence but only under terms authorized by the FDA. This could cause
Human Clinical Trials in Support of a BLALL
Clinical trials involve the administration of the investigational product candidate to healthy volunteers or patients with the
disease to be treated under the supeu rvision of a qualified principal investigator in accordance with GCP requirements. Clinical trials
inclusion and exclusion criteria, the
are conducted under study
parameters to be used in monitoring safety, and the effect
subsequent protocol amendments must be submit
iveness criteria to be evaluated. A protocol for each clinical trial and
protocols detailing, among other things, the objectives of the study,
ted to the FDA as part of the IND.
u
ff
t
t
26
A sponsor who wishes to conduct a
d
clinical trial outside the United States may, but need not, obtain FDA authorization to
conduct the clinical trial under an IND. If a non-U.S. clinical trial is not conducted under an IND, the sponsor may submit data from a
u
well-designed and well-conducted clinical trial to the FDA in support
compliance with GCP and the FDA is able to validate the data from the study through an onsite inspection if the FDA deems it
necessary.
of the BLA so long as the clinical trial is conducted in
d
An IRB must operate in compliance with FDA regulations. The FDA or the clinical trial
Further, each clinical trial must be reviewed and approved by an IRB either centrally or individually at each institution at which
ct informed consent, ethical
The IRB will consider, among other things, clinical trial design, subjeu
the clinical trial will be conducted.
factors, and the safety of human subjects.
u
sponsor may suspend or terminate a clinical trial at any time for various reasons, including a finding that the clinical trial is not being
conducted in accordance with FDA requirements or the subju ects or patients are being exposed to an unacceptable health risk.
Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted 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 extensive GCP rules and the requirements for informed consent. Additionally, some clinical trials are overseen by an
independent group of qualified experts organized by the clinical trial sponsor, known as a data safetyff monitoring board or committee.
This group may recommend continuation of the study as planned, changes in study conduct, or
check points based on access to certain data from the study. Finally, research activities involving infectious agents, hazardous
chemicals, recombim nant DNA, and genetically altered organisms and agents may be subject to review and approval of an Institutional
Biosafety Committee, or IBC, a local institutional committee that reviews and oversees basic and clinical research conducted at that
tic
institution established under the National Institutes of Health,t or NIH, Guidelines for Research Involving Recombinant or Synthett
Nucleic Acid Molecules, or NIH Guidelines. The IBC assess the safety of the research and identifies any potential risk to public
health or the environment.
cessation of the studyt
at designated
d
t
Clinical trials typically are conducted in three sequential phases, but the phases may overlap or be combined. Additional studies
may be required after
ff
approval.
Phase 1 clinical trials are initially conducted in a limited population to test the product candidate for safety, including
adverse effect
or, on occasion, in patients, such as cancer patients.
s, dose tolerance, absorption, metabolism, distribution, excretion, and pharmar
codynamics in healthy humans
ff
Phase 2 clinical trials are generally conducted in a limited patient population to identify possible adverse effects and
safety risks, evaluate the efficacy of the product candidate for specific targeted indications and determine dose tolerance
and optimal dosage. Multiple Phase 2 clinical trials may be conducd ted by the sponsor to obtain information prior to
beginning larger and costlier Phase 3 clinical trials.
Phase 3 clinical trials are undertaken within an expanded patient population to further evaluate dosage and gather the
additional information about effectiveness and safety that is needed to evaluate the overall benefit-risk relationship of the
drugrr
and to provide an adequate basis for physician labeling.
Progress reports detailing the results, if known, of the clinical trials must be submitted at
u
least annually to the FDA. Written IND
safety reports must be submitted to the FDA and the investigators within 15 calendar days of receipt by the sponsor or its agents after
ff
determining that the information qualifies for such expedited reporting. IND safety reports are required for serious and unexpected
suspected adverse events, findings from other studies
the drug, and any clinically imporm tant 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 concernirr ng any
unexpected fatal or life-threatening suspected adverse reaction.
or animal or in vitro testing that suggest a significant risk to humans exposed to
t
assess the productd
In some cases, the FDA may approve a BLA for a product candidate but require the sponsor to conduct additional clinical trials
to further
t
Phase 4 clinical trials. These studi
indication and to document a clinical benefit in the case of biologics approved under accelerated approval regulations. Failure to
exhibit due diligence with regard to conducting Phase 4 clinical trials could result in withdrawal of approval for products.
iveness after approval. Such post-approval trials are typically referred to as
es are used to gain additional experience from the treatment of patients in the intended therapeutic
candidate’s safety and effect
ff
t
27
Special Regulatio
ll
ns and Guidance Governing Gene Therapy Products
It is possible that the procedures and standards applied to gene therapy products and cell therapy products
d
may be applied to any
s9 product ca
d
one that mediates its effecff
ts by transcription and/or translation of transferred genetic material or by specifically altering
ndidates we may develop, but that remains uncertain at this point. The FDA has defined a gene therapya
CRISPR/CaRR
product as
d
host (human) genetic sequences. Examplmm es of gene therapyaa
ribonucleic acid), genetically modified microorganisms (e.g. viruses, bacteria, fungi), engineered site specific nucleases used for
red
human genome editing and ex vivo genetically modified human cells. The producd ts may be used to modify cells in vivo or transferff
to cells ex vivo prior to administration to the recipient. Within the FDA, the Center for Biologics Evaluation and Research, or CBER,
regulates gene therapy products. Within the CBER, the review of gene therapy and related products
Tissues and Advanced Therapies, and the FDA has established the Cellular, Tissue and Gene Therapia es Advisory Committee to advise
CBER on its reviews. The FDA and the NIH have published guidance documents with respect to the development and submission of
gene therapy protocols.
producd ts include nucleic acids (e.g., plasmids, in vitro transcribed
is consolidated in the Offiff ce of
d
Although the FDA has indicated that its guidance documents regarding gene therapies are not legally binding, we believe that
ndidate we may develop. The guidance documents
our compliance with them is likely necessary to gain approval for any product ca
provide additional factors that the FDA will consider at each of the above stages of development and relate to, among other things, the
proper preclinical assessment of gene therapiaa es; the chemistry, manufacturing, and control information that should be included in an
IND application; the proper design of tests to measure productd
observe delayed adverse effecff
high. Further, the FDA usually recommends that sponsors observe subju ects for potential gene therapy-related delayed adverse events.
Depending on the product type, long term follow up can be up to 15 years or as little as five years.
ts in subju ects who have been exposed to investigational gene therapies when the risk of such effects is
potency in support of an IND or BLA application; and measures to
d
Previously, if a gene therapy trial was conducted at, or sponsored by, institutions receiving NIH funding for recombinant DNA
itted to, and the study registered with, the NIH Office of
research, a protocol and related documentation were requiq red to be submu
Biotechnology Activities, or OBA, pursuant to the NIH Guidelines prior to the submission of an IND to the FDA. In addition, many
companies and other institutions not otherwise subject to the NIH Guidelines voluntarily followed them. The NIH would convene the
Recombinant DNA Advisory Committee, or RAC, a federal advisory committee, to discuss protocols that raised novel or particularly
important scientific, safety or ethical considerations at one of its quarterly public meetings. The OBA notified the FDA of the RAC’s
decision regarding the necessity for full publu ic review of a gene therapy protocol. RAC proceedings and reports are posted to the OBA
web site and may be accessed by the public. In August 2018, the NIH publu ished a notice in the Federal Register to seek public
comment on its proposal to amend the NIH Guidelines to streamline oversight for human gene transfer clinical research protocols and
reduced
duplu icative reporting requirements while focusing the NIH Guidelines more specifically on biosafety issues associated with
research involving recombinant or synthetic nucleic acid molecules. The notice included proposed amendments to eliminate RAC
q ments to NIH for human gene transfer research protocols and to modify the roles and responsibilities of
review and reporting require
investigators, institutions, IBCs, the RAC, and the NIH to be consistent with these goals. During the comment period and effeff ctive
August 2018, the NIH stated it will no longer accept new human gene transferff
NIH Guidelines, or convene the RAC to review individual human gene transfer protocols. The NIH Office of Scie
not accept annual reports, safety reports, amendments or other documentation for any previously registered human gene transferff
protocols under the NIH Guidelines. In April 2019, NIH announced the updated guidelines, which reflect these proposed changes,
and clarified that these trials will remain subjeb ct to the FDA’s oversight and other clinical trial regulations, and oversight at the local
level will continue as set forth in the NIH Guidelines. Specifically, under the NIH Guidelines, supeu rvision of human gene transferff
trials includes evaluation and assessment by an IBC, a local institutional committee that reviews and oversees research utilizing
recombinant or synthetic nucleic acid molecules at that institution. The IBC assesses the safety of the research and identifies any
potential risk to public health or the environment, and such review may result in some delay before initiation of a clinical trial. Only
after FDA, IBC and other relevant approvals are in place can these protocols proceed.
protocols for the protocol registration process under the
nce Policy also will
ff
Compliance with cGMP and CGTP Requirements
Before approving a BLA, the FDA typically will inspect the facility or facilities where the product is manufactured. The FDA
ng processes and facilities are in full compliance with cGMP
t
will not approve an application unless it determines that the manufacturi
requirements and adequate to assure consistent production of the product within required specifications. The PHSA emphasizes the
importance of manufacturing control for products like biologics whose attributes cannot be precisely defined.
For a gene therapy product, the FDA also will not approve the productd
if the manufacturt er is not in compliance with CGTP.
These requirements are found in FDA regulations that govern the methods used in, and the facilities and controls
manufacture of human cells, tissues, and cellular and tissue-based products, or HCT/Ps, which are human cells or tissue intended for
implantation, transplant, infusion,
or transfer into a human recipient. The primary intent of the CGTP requirements is to ensure that
cell and tissue-based products are manufactured in a manner designed to prevent the introduction, transmission, and spread of
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.
used for, the
ff
tt
28
Manufacturers and others involved in the manufacture and distribution of products must also register their establishments with
d
ed for the U.S. market, and with analogous health regulatory agencies for
the FDA and certain state agencies for products intend
products intended for other markets globally. Both U.S. and non-U.S. manufacturing establishments must register and provide
additional information to the FDA and/or other health regulatory agencies upon their initial participation in the manufacturing process.
Any product manufactured
under the FDCA, and could be affected by similar as well as additional compliance issues in other jurisdictions. Establishments may
u
be subject
Manufacturers may also have to provide, on request, electronic or physical records regarding their establishments. Delaying, denying,
limiting, or refusing inspection by the FDA or other governing health regulatory agency may lead to a product bei
adulterated.
ed from a facility that has not registered, whether U.S. or non-U.S., is deemed misbranded
ent authorities to ensure compliance with cGMPs and other laws.
to periodic unannounced inspections by governmr
ng deemed to be
by or importm
d
ff
Review and Approval of a BLA
The results of productd
candidate development, preclinical testing, and clinical trials, including negative or ambigum
ous results as
well as positive findings, are submitted to the FDA as part of a BLA requesting a license to market the producd t. The BLA must contain
extensive manufacturing information and detailed information on the composition of the product and proposed labeling as well as
payment of a user fee.
The FDA has 60 days after submu
ission of the application to conductdd
accept for filing based on the agency’s threshold determination that it is sufficiently co
mplete to permit substantive review. Once the
submission has been accepted for 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 for a priority review of the application. The FDA does not
always meet its PDUFA goal dates for standard and priority BLAs. The review process may often be significff antly extended by FDA
requests for additional information or clarification. The review process and the PDUFA goal date may be extended by three months if
amendment additional information or
the FDA requeq sts or if the applicant otherwise provides through the submission of a majora
clarification regarding information already provided in the submission within the last three months before the PDUFA goal date.
an initial review to determine whether it is sufficient to
ff
ff
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 product will be manufactured meets standards designed to ensure that it continues to be safe, pure, and potent.
t
roval letter or a complete response letter. An approval letter authorizes commercial marketing
On the basis of the FDA’s evaluation of the application and accompanying information, including the results of the inspection of
and clinical trial sites to assure compliance with GLPs and GCPs,
the manufacturing facilities and any FDA audits of nonclinical study
respectively, the FDA may issue an appa
of the product with specific prescribing information for specific indications. If the application is not approved, the FDA will issue a
complm ete response letter, which will contain the conditions that must be met in order to secure final approval of the application, 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 the FDA.
Such resubmu
information submitted by an applicant 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 resubmu
not approve an application until issues identified in the complete response letter have been addressed. Alternatively, sponsors that
receive a complete response letter may either withdraw the application or request a hearing.
issions are classified under PDUFA as either Class 1 or Class 2. The classification of a resubmission is based on the
ission and six months to review a Class 2 resubmission. The FDA will
The FDA may also refer the application to an advisory committee for review, evaluation, and recommendation as to whether the
application should be approved. In particular, the FDA may refer applications for novel biologic products or biologic products that
present difficult questions of safety or efficacy to an advisory committee. Typically, an advisory committee is a panel of independent
experts, including clinicians and other
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 carefully when making decisions.
scientific experts, that reviews, evaluates, and provides a recommendation as to whether
the
t
t
If the FDA approves a new product, it may limit the approved indications for use of the product. It may also require that
contraindications, warnings or precautions be included in the product labeling. In addition, the FDA may call for post-approval
studies, including Phase 4 clinical trials, to further assess the product’s safety after approval. The agency may also require testing and
surveillance programs to monitor the product after commercialization, or impose other
other risk management mechanisms, including REMS, to help ensure that the benefits of the product outweigh the potential risk
REMS can include medication guides, communication plans for healthcare professionals, and elements to assure safe use, or ETASU.
ETASU can include, but are not limited to, specific or special training or certification for prescribing or dispensing, dispensing only
under certain circumstances, special monitoring, and the use of patent registries. The FDA may prevent or limit further marketing of a
product based on
product, such as adding new indications, certain manufacturing
requirements and FDA review and approval.
the results of post-market studies or surveillance programs. After approval, many types of changes to the approved
testing
conditions, including distribution restrictions or
ling claims, are subject to further
changes and additional labea
m
s.
d
t
tt
t
29
Fast Track,kk Breakthrough Therapy, Priority Review and Regene
erative Advanc
dd
ed Therapya Designations
The FDA is authorized to designate certain products
d
for expedited review if they are intended to address an unmet medical need
in the treatment of a serious or life-thrt eatening disease or condition. These programs are referred to as fast track designation,
breakthrough therapy designation, priority review, and regenerative advanced therapy designation.
y, the FDA may designate a product for fast track review if it is intended, whether
s, for the treatment of a serious or life-threatening disease or condition, and it demonstrates the potential to
ff
Specificall
or more other productd
sponsors may have greater interactions with the
address unmet medical needs for such a disease or condition. For fast track products,
FDA and the FDA may initiate review of sections of a fast track product’s application beforeff
the application is complete. This rolling
review may be available if the FDA determines, after preliminary evaluation of clinical data submitted by the sponsor, that a fast track
product may be effective. The sponsor must also provide, and the FDA must approve, a schedule for
the submission of the remaining
information and the sponsor must pay applicable user fees. However, the FDA’s time period goal forff
reviewing a fast track application
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
development program is no longer being pursued.
alone or in combination with one
d
d
t
Second, FDA has a new regulatory scheme allowing for expedited review of products designated as “breakthrough therapies.” A
product may be designated as a breakthrough therapya
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 product may demonstrate
ints, such as subsu tantial treatment effects
substantial imprm ovement over existing therapies on one or more clinically significant endpod
observed early in clinical development. The FDA may take certain actions with respect to breakthrough therapies, 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 efficient
manner.
ff
t
Third, the FDA may designate a product for priority review if it is a product that treats a serious condition and, if approved,
m
ent in safety or effecff
would provide a significant improvem
proposed product represents a significant improvem
be illustrated by evidence of increased effectiveness in the treatment of a condition, elimination or subsu tantial reduction of a treatment-
limiting adverse reaction, documented enhancement of patient compliance that may lead to improve
evidence of safety and effectiven
to the evaluation of such applications, and to shorten the FDA’s goal for taking action on a marketing application from ten months to
six months.
tiveness. The FDA determines, on a case-by-case basis, whether the
ent when compared with other available therapies. Significant improvement may
ess in a new subpopulation. A priority designation is intended to direct overall attention and resources
ment in serious outcomes, and
m
m
ff
Finally, the FDA can accelerate review and approval of products designated as regenerative advanced therapies. A product is
eligible for this designation if it is a regenerative medicine therapy that is intended to treat, modify, reverse or cure a serious or life-
threatening disease or condition and preliminary clinical evidence indicates that the product has the potential to address unmet medical
needs for such disease or condition. The benefits of a regenerative advanced therapy designation include early interactions with FDA
to expedite development and review, benefits availablea
to breakthro
accelerated approval based on surrogate or intermediate endpoints.
ugh therapies, potential eligibility for priority review and
kk
Accelerated Approval Pathwaya
t
The FDA may grant accelerated approval to a product for a serious or life-t
hrea
ff
tening condition that provides meaningful
therapeutic advantage to patients over existing treatments based upon a determination that the product has an ef
ff
fect
endpoint that is reasonably likely to predict clinical benefit. The FDA may also grant accelerated approval for such a condition when
on irreversible morbidity or
the product has an effect
mortality, or IMM, and that is reasonably likely to predict an effect
clinical benefit, taking into account the severity,
rarity, or prevalence of the condition and the availabia lity or lack of alternative treatments. Products granted accelerated approval must
meet the same statutory standards for safetyff
on an intermediate clinical endpoint that can be measured earlier than an effect
and effeff ctiveness as those granted traditional approval.
on IMM or other
on a surrogate
d
ff
ff
ff
t
For the purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboa
ratory measurement, radiographic
image, physical sign, or other measure that is thought to predict clinical benefit but is not itself a measure of clinical benefit. Surrogate
ff
endpoints can often be measured more easily or more rapidly than clinical endpoints. An intermediate clinical endpoint is a
measurement of a therapeutic effect 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 endpoints but has indicated that such
endpoints generally could support accelerated approval where a study demonstrates a relatively short-term clinical benefit in a chronic
disease setting in which assessing durabia lity of the clinical benefit is essential for traditional approval, but the short-term benefit is
considered reasonably likely to predict long-term benefit.
ff
30
The accelerated approval pathwt
of time is required to measure the intended clinical benefit of a product, even if the
endpoint occurs rapia dly. Thus, accelerated approval has been used extensively in the development and approval of products
treatment of a variety of cancers in which the goal of therapy is generally to improve
of the typical disease course requires lengthy and sometimes large trials to demonstrate a clinical or survival benefit.
ay is most often used in settings in which the course of a disease is long and an extended period
ff
effect
on the surrogate or intermediate clinical
survival or decrease morbidity and the duration
for
mm
d
d
The accelerated approval pathwt
ay is usually contingent on a sponsor’s agreement to conduct, in a diligent manner, additional
post-approval confirmatory studies to verify and describe the product’s clinical benefit. As a result, a product candidate approved on
this basis is subjeb ct to rigorous post-marketing compliance requirements, including the completion of Phase 4 or post-appa
trials to confirm the effect on the clinical endpoint. Failure to conduct re
d
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 prior review by the FDA.
quired post-approval studies, or confirm a clinical benefit
roval clinical
Post-Approval Regulation
If regulatory approval for marketing of a product or new indication for an existing productd
is obtained, the sponsor will be
ing requirements. Manufacturers and certain of their subcu ontractors are required to register their establa ishments with the FDA and
required to comply with all regular post-approval regulatory requirements as well as any post-approval requirements that the FDA has
imposed as part of the approval process. The sponsor will be required to report certain adverse reactions and productd
the FDA, provide updated safety and efficacy information and co
label
a
certain state agencies and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with
ongoing regulatory requirements, including cGMP regulations, which imposem
upon manufacturers. Accordingly, the sponsor and its third-party manufacturers must continue to expend time, money, and effoff
the areas of production and quality control to maintain complim ance with cGMP regulations and other
mply with requirements concerning advertising and promotional
certain procedural and documentation requirements
regulatory requirements.
ion problems to
rt in
ff
t
A product may also be subject
u
to official lot release, meaning that the manufacturer is required to perform certain tests on each
lot of the product before it is released for distribution. If the product is subject to official lot release, the manufacturer must submit
samples of each lot, together with a release protocol showing a summary of the history of manufacturet
of the manufacturet
ff
some products before releasi
potency, and effectiveness of pharmaceutical products.
r’s tests performed on the lot, to the FDA. The FDA may in addition perform certain confirmato
ng the lots for distribution. Finally, the FDA will conduct laboratory research related to the safety, purity,
of the lot and the results of all
ry tests on lots of
ff
ff
Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements is not maintained
problems with a product, including
or if problems occur after
adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply wi
requirements, may result in revisions to the approved labea
tion of post-market studies or
clinical trials to assess new safety risks; or imposm ition of distribution or other restrictions under a REMS program. Other potential
consequences of a failure to comply with regulatory requirements include, among other
the product reaches the market. Later discovery of previously unknown
ling to add new safety information; imposimm
th regulatory
things:
mm
k
t
restrictions on the marketing or manufacturing of the product,
product recalls;
dd
complete withdrawal of the product from the market or
fines, untitled or warning letters or holds on post-approval clinical trials;
of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation
ff
refusal
of product license approvals;
productd
seizure or detention, or refusal to permit the importm
or export of products; or
injunctions or the imposm ition of civil or criminal penalties.
t
The FDA strictly regul
ates marketing, labeling, advertising and promotion of licensed and approved products that are placed on
the market. Pharmaceutical products may be promoted only for the approved indications and in accordance with the provisions of the
uses, and
approved label.
a compam ny that is found to have improperly promoted off-label uses may be subjeb ct to significant liability.
The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label
a
ff
Orphan Drug
r
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 statutorily defined as a condition that affects fewer than 200,000
individuals in the United States or that affeff cts more than 200,000 individuad ls in the United States and for which there is no reasonable
expectation that the cost of developing and making availablea
the product in the United States.
the biologic for the disease or condition will be recovered from sales of
31
Orphan drug designation qualifies a compam ny for tax credits and market exclusivity for seven years following the date of the
product’s marketing approval if granted by the FDA. An application for designation as an orphrr
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 Offiff ce of Orphrr
under the regulatory provisions. The product must then go through the review and approval
any other product.
an Products Development, or OOPD, at the FDA based on acceptable confidff ential requests made
process for commercial distribution like
an product can be made any time prior
a
A sponsor may request orphan drugrr
designation of a previously unapproved product or new orphan indication for an already
marketed product. In addition, a sponsor of a product that is otherwise the same product as an already approved orphan drugrr may seek
and obtain orphan drug des
hypothesis that its product may be clinically superior to the first drug. More than one sponsor may receive orphan drug designation for
the same product for the same rare disease or condition, but each sponsor seeking orphrr
request for designation.
product for the same rare disease or condition if it can present a plausible
designation must file a complete
ignation for the subsequent
an drugrr
u
rr
The period of exclusivity begins on the date that the marketing application is approved by the FDA and applies only to the
for a differeff
indication for which the product has been designated. The FDA may approve a second application for the same productd
use or a second application for a clinically superior version of the product for
the same use. The FDA cannot, however, approve the
same product 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 unable to provide sufficie
nt quantities.
d
ff
nt
Pediatric Studies and Exclusivity
Under the Pediatric Research Equity Act of 2003, as amended, a BLA or supplement thereto
must contain data that are adequate
to assess the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations, and to support
dosing and administration for each pediatric subpopula
pediatric studytt
applicant plans to conduct, including study objeb ctives and design, any deferff
regulation. The applicant, the FDA, and the FDA’s internal review committee must then review the information submu
with each other, and agree upon a final plan. The FDA or the applicant may request an amendment to the plan at any time.
plans prior to the assessment data. Those plans must contain an outline of the proposed pediatric study or studies the
ts, and other information required by
tion for which the product is safe and effeff ctive. Sponsors must also submit
ral or waiver requesq
itted, consult
u
u
The FDA may, on its own initiative or at the request of the applicant, grant deferff
rals for submu
ission of some or all pediatric data
until after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements. Unless othet
required by regulation, the pediatric data requirements do not apply to products wi
th orphan designation.
d
rwise
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
ive in the pediatric population
to a written request from the FDA forff
studi
r, if the clinical trial is deemed to fairly respond to the FDA’s request, the additional protection is granted. If reports of
t
requested pediatric studies are submitted to and accepted by the FDA withint
periods of exclusivity or patent protection cover the product are
effectively extends the regulatory period during which the FDA cannot approve another application.
extended by six months. This is not a patent term extension, but it
such data. The data do not need to show the product to be effect
the statutory time limits, whatever statutory or regulatory
ed; rathet
u
d
ff
Biosimilars and Exclusivity
The Patient Protection and Affordable 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. The FDA has issued several guidance documents outlining an approach to
review and approval of biosimilars.
Under the BPCIA, a manufacturer may submit an application for licensure of a biologic product that is “biosimilar to” or
“interchangeable with” a previously approved biological product or “reference
product.” In order for the FDA to approve a biosimilar
product, it must find that there are no clinically meaningful differences between the referff ence product and proposed biosimilar product
in terms of safety, purity, and potency. For the FDA to approve a biosimilar product as interchangeable with a reference product, the
agency must find that the biosimilar product can be expected to produce the same clinical results as the reference product, and (for
products administered multiple times) that the biologic and the reference biologic may be switched after one has been previously
administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic.
ff
ff
32
Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date
of approval of the reference product. The FDA may not approve a biosimilar product until 12 years from the date on which the
reference product was approved. Even if a product is considered to be a reference product eligible for exclusivity, another
could market a competing version of that product if the FDA approves a full BLA for such product containing the sponsor’s own
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 for biosimilars approved as interchangeable pr
is unclear whether
governed by state pharmacy law.
products deemed “interchangeabla e” by the FDA will, in fact, be readily substituted by pharmacies, which are
a
t
t
oducd ts. At this juncture, it
company
Patent Term Restoration and Extension
A patent claiming a new biologic product may be eligible for a limited patent term extension under the Drug Price Competition
and Patent Term Restoration Act of 1984, or Hatch-Waxman Amendments, which permits a patent restoration of up to five years for
patent term lost during product development and FDA regulatory review. The restoration period granted on a patent covering a
product is typiy cally one-half the time between the effective date of an IND and the submission date of a marketing application, plus
ission date of the marketing application and the ultimate approval date, less any time the applicant failed to
the time between the submu
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 applicable to an approved product is eligible for the extension, and the application for the
extension must be submitted prior to the expiration of the patent in question. A patent that covers multiple products for which approval
is sought can only be extended in connection with one of the approvals. The USPTO reviews and approves the application for any
patent term extension or restoration in consultation with the FDA.
e
Regul
atll
iott n And Procedures Governingii Approval Of Medicinal Productstt In The EU
must also comply with numerous and varying regulatory
In order to market any product outside of the United States, a companym
ments of other countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical
require
q
trials, marketing authorization, commercial sales and distribution of products. Whether or not it obtains FDA approval for a product,
an applicant will need to obtain the necessary approvals by the comparable health regulatory authorities before it can commence
clinical trials or marketing of the product in those countries or jurisdictions. Specifically, the process governing approval of medicinal
products in the EU generally follows the same lines as in the United States, although the approval of a medicinal product in the United
States is no guarantee of approval of the same product in the EU, either at all or within the same timescale as approval may be granted
in the United States. The process entails satisfacto
ff
to the EMA, or the
productd
to establish the safety and efficacy of the
relevant competent authorities of a marketing authorization application, or MAA, and granting of a marketing authorization by the
EMA or these authorities before the product can be marketed and sold in thet EU.
ry completion of preclinical studies and adequaq te and well-controlled clinical trials
for each proposed indication. It also requires the submission
u
ff
Clinical Trial Approval
Pursuant to the currently applicable Clinical Trials Directive 2001/20/EC and Directive 2005/28/EC on GCP, a system for the
approval of clinical trials in the EU has been implm emented through national legislation of the EU member states. Under this system, an
applicant must obtain approval from the competent national authority of an EU member state in which the clinical trial is to 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 specific studyt
the clinical trial. The clinical trial application must be accompanied by an investigational medicinal product dossier with suppou
information prescribed by Directive 2001/20/EC and Directive 2005/28/EC and corresponding national laws of the relevant EU
member states, and further detailed in applicable guidance documents.
site after the ethics committee has issued a favorablea
opinion in relation to
rting
In April 2014, the EU adopted a new Clinical Trials Regulation (EU) No 536/2014, which is set to replace the current Clinical
Trials Directive 2001/20/EC. It will overhaul the current system of approvals for clinical trials in the EU. Specifically, the new
legislation, which will be directly applicable in all EU member states (meaning that no national implm ementing legislation in each EU
member state is required), aims at simplm ifyiff ng and streamlining the approval of clinical trials in the EU. For instance, the new Clinical
Trials Regulation provides for a streamlined application procedure via a single-entry point and strictly defined deadlines for the
assessment of clinical trial applications. It is expected that the new Clinical Trials Regulation (EU) No 536/2014 will come into effect
following confirmation of full functionality of the Clinical Trials Information System, the centralized EU portal and database for
clinical trials foreseen by the new Clinical Trials Regulation, through an independent audit.
33
Marketing Authorization
To obtain a marketing authorization for a productd
under the EU regulatory system, an applicant must submit an MAA, either
under a centralized procedure administered by the EMA or one of the procedures administered by competent authorities in
EU member states (decentralized procedurd e, national procedure, or mutual recognition procedure). A 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
Pediatric
authorization in the EU, an applicant must demonstrate compliance with all measures included in an EMA-approved
Investigation Plan, or PIP, covering all subsets of the pediatric population, unless the EMA has granted a product-specific waiver,
class waiver, or a deferral for one or more of the measures included in the PIP.
a
The centralized procedure provides for the grant of a single marketing authorization by the European Commission that is valid
for all EU member states (as well as Iceland, Norway and Liechtenstein). Pursuant to Regulation (EC) No. 726/2004, the centralized
procedure is compulsory for specific products, including for medicines produced
designated as orphan medicinal productd
treatment of certain diseases, including products for the treatment of cancer. For those producd ts for which the use of the centralized
contains a new active
procedure is not mandatory, applicants may elect to use the centralized procedure where either the productd
substance indicated for the treatment of other diseases, or where the applicant can show that the product constitutes a significff ant
therapeutic, scientific or technical innovation or for which a centralized process is in the interest of patients at an EU level.
by certain biotechnological processes, products
ce indicated for the
s, advanced therapy products and products with a new active substan
d
u
d
Specifically, the grant of marketing authorization in the EU for products containing viable human tissues or cells such as gene
therapya 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 specific rules concerning the authorization, supeu rvision, and
pharmacovigilance of gene therapy medicinal products, somatic cell therapy medicinal products, and tissue engineered products.
of their products to the
Manufacturt ers of advanced therapy medicinal products
Committee for Advanced Therapies, or CAT, at EMA, which provides an opinion regarding the application for marketing
authorization for an advanca
of the opinion delivered by EMA.
ed therapy medicinal product. The European Commission grants or refuses marketing authorization in light
must demonstrate the quality, safety, and efficacy
d
ff
t
tt
Under the central
ized procedure, the Committee for Medicinal Producd ts for Human Use, or the CHMP, established at the EMA
is responsible for conducd ting an initial assessment of whether a product
meets the required quality, safety and efficacy requirements,
and whether a product has a positive benefit/risk profile. Under the centralized procedure in the EU, the maximumm timeframe for the
evaluation of an MAA is 210 days from receipt of a valid MAA, excluding clock stops when additional information or written or oral
explanation is to be provided by the applicant in response to questions of the CHMP. Clock stops may extend the timeframe of
evaluation of an MAA considerably beyond 210 days. Where the CHMP gives a positive opinion, it provides the opinion, together
with support
u
Accelerated evaluation may be granted by the CHMP in exceptional cases, when a medicinal product is of majora
point of view of public health and, in particular, from the viewpoint of therapeutic
time frame of 210 days for assessment will be reducd ed to 150 days (excluding clock stops), but it is possible that the CHMP may
revert to the standard time limit for the centralized proceduredd
an accelerated assessment.
ing documentation, to the European Commission, who make the final decision to grant a marketing authorization.
if it determines that the application is no longer appropriate to conduct
innovation. If the CHMP accepts such a request, the
interest from the
a
ff
PRIME scheme
EMA now offers a scheme that is intended to reinforce early dialogue with, and regulatory support from, EMA in order to
stimulate innovation, optimize development and enablea
build upon the scientific advice scheme and accelerated assessment procedure offered by
eligibility criteria must be met for a medicine to qualify for PRIME.
ff
accelerated assessment of PRIority Medicines, or PRIME. It is intended to
EMA. The scheme is voluntary and
The PRIME scheme is open to medicines under development and for which the applicant intends to apply for an initial
lized procedure. Eligible products must target conditions for which there is an
therapeutic advantage) and they must demonstrate the potential to address the unmet medical need by
marketing authorization application through the centrat
unmet medical need (meaning there is no satisfactory method of diagnosis, prevention or treatment in the EU or, if there is, the new
medicine will bring a majora
introducing new methods or therapya
development, and will have preliminary clinical evidence in patients to demonstrate the promising activity of the medicine and its
potential to address, to a significant extent, an unmet medical need. In exceptional cases, applicants from the academic sector or
SMEs (small and medium sized enterpri
clinical data in a relevant model provide early evidence of promising activity, and first in man studies indic
the desired pharmacotherapeutic effects and tolerability.
ses) may submit an eligibility request at an earlier stage of development if compelling non-
or imprmm oving existing ones. Applicants will typically be at the exploratory clinical trial phase of
ate adequate exposure for
r
t
34
If a medicine is selected for the PRIME scheme, the EMA:
appoints a rapport
medicine in advance of the filing of a marketing authorization application;
eur from the CHMP or from the CAT to provide continuous support and to build up knowledge of the
a
issues guidance on the applicant’s overall development plan and regulatory strategy;
organises a kick-off meeting with the rapporte
a
ur and experts from relevant EMA committees and working groups;u
provides a dedicated EMA contact person; and
provides scientific advice at key development milestones, involving additional stakeholders, such as health technology
assessment bodies and patients, as needed.
Medicines that are selected for the PRIME scheme are also expected to benefit from EMA’s accelerated assessment procedure at
the time of application for marketing authorization. Where, during the course of development, a medicine no longer meets the
eligibility criteria, support under the PRIME scheme may be withdrawn.
Regulatory Data Protection in the EU
In the EU, new chemical entities approved on the basis of a complete independent data package qualify for eight years of data
exclusivity upon grant of a 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 EU from
referencing the innovator’s data to assess a generic (abbreviated) application for a period of eight years. During the 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 period. The overall ten-
year period will be extended to a maximum of eleven years if, during the first eight years of those ten years, the marketing
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 significant clinical benefit 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.
Periods of Authorizaii
tion and Renewalsll
A marketing authorization is valid for five years, in principle, and it may be renewed after
ff
five years on the basis of a
ff
rization holder must provide the EMA or the compemm tent authority with a consolidated version of the file in respect of
reevaluation of the risk-benefit balance by the EMA or by the competent authority of the authorizing member state. To that end, the
marketing authot
including all variations introduced since the marketing authorization was granted, at least nine months
quality, safety and efficacy,
before the marketing authorization ceases to be valid. Once renewed, the marketing authorization is valid for an unlimited period,
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 market (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.
Regulatoryr Requirements afteff r Marketing Authorization
ii
Following approval, the holder of the marketing authorization is required to comply with a range of requirements applicable to
t
g, marketing, promotion and sale of the medicinal product. These include compliance with the EU’s stringent
the manufacturin
pharmacovigilance or safety reporting rules, pursuant to which post-authorization studies and additional monitoring obligations can be
imposed. In addition, the manufacturing of authorized products, for which a separate manufacturer’s license is mandatory,rr must also
be conducted in strict compliance with the EMA’s GMP requirements and comparable requirements of other regulatory bodies in the
to assure their safety
EU, which mandate the methods, facilities, and controls used in manufacturing, processing and packing of drugs
and identity. Finally, the marketing and promotion of authorized productdd
drugs, are strit ctly regulated in the EU under Directive 2001/83/EC, as amended. The advertising of prescription-only medicines to the
general public is not permitted in the EU.
s, including advertising directed toward the prescribers of
rr
35
Orphan Drug
r
Designation and Excl
i
usivity
an drugrr
Regulation (EC) No 141/2000 and Regulation (EC) No 847/2000 provide that a product can be designated as an orphrr
the European Commission if its sponsor can establish: that the product 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-threatening, seriously debilitating or serious and chronic condition in the EU and that without
incentives it is unlikely that the marketing of the drug in the EU would generate sufficient return to justify the necessary investment.
For either of these conditions (i) and (ii), the applicant must demonstrate that there exists no satisfactory method of diagnosis,
prevention, or treatment of the condition in question that has been authorized in the EU or, if such method exists, the drug will be of
significant benefit to those affected
by that condition.
ff
by
d
An orphan drugrr
milar medicinal product” is defined as a medicinal product containing a similar active substance or subsu tances as
designation provides a number of benefits, including fee reductions, regulatory assistance, and the ability to
apply for a centralized EU marketing authorization. The grant of a marketing authori
an drug leads to a ten-year
period of market exclusivity. During this market exclusivity period, neither the European Commission nor the member states can
accept an application or grant a marketing authorization for the same therapeutic indication in respect of a “similar medicinal
product.” A “si
contained in an authorized orphrr
exclusivity period for the authorized therapeutic indication may, howev
established that the product no longer meets the criteria for orphrr
profitable not to justify market exclusivity. There are a number of derogations from the ten-year period of market exclusivity pursuant
to which the European Commission may grant a marketing authorization for a similar medicinal product in the same therapeutic
indication, including where the second applicant can establish that although their product is similar to the orphrr
already authorized, the second product is safer, more effecti
ff
er, be reduced to six years if, at the end of the fifth year, it is
is sufficiently
an medicinal product, and which is intended for the same therapeutic indication. The market
an drug designation because, for examplm e, the productd
ve or otherwise clinically superior.
an medicinal product
zation for an orphrr
aa
ff
t
For other markets in which we might in the future seek to obtain marketing approval for the commercialization of products,
there are other health regulatory regimes for seeking approval, and we would need to ensure ongoing compliance with applicable
health regulatory procedures and standards, as well as other governirr ng laws and regulations for each applicable jurisdiction.
Coveragea ,e Pricing and
ii
Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of any product candidates for which we may seek
ff
d
m
he prescribed services generally rely on third-party payors to
all or part of the associated healthcare costs. Patients are unlikely to use any product candidates we may develop unless
ement is adequate to cover a significant portion of the cost of such product candidates. Even if any
ndidates we may develop are approved, sales of such product candidates will depend, in part, on the extent to which third-
regulatory approval by the FDA or other government authorities. In the United States and markets in other
prescribed treatments for their conditions and providers performing t
reimburse
coverage is provided and reimbursm
product ca
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 establish adequate reimbursement levels for, such product candidates. The
process for determining whether a payor will provide coverage for a product may be separate from the process for setting the price or
reimbursm
ement 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-effectiveness of medical products
imposing controls to manage costs. Third-party payors may limit coverage to specific products on an approved list, also known as a
formulary, which might not include all of the approved products for a particular indication.
countries, patients who are
and services and
d
t
In order to secure coverage and reimbursement for any productd
that might be approved for sale, a company may need to conduct
ff
physician utilization of such product candidates once approved and have a material adverse effect
expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of the producd t, in addition
to the costs required to obtain FDA or other comparable marketing approvals. Nonetheless, product candidates may not be considered
medically necessary or cost effective. A
reduced
operations and financial condition. Additionally, a payor’s decision to provide coverage for a product does not implym that an adequate
r, one payor’s determination to provide coverage for a product does not assure that other
reimbursm
payors will also provide coverage and reimbursm
significff antly from payor to payoa
sufficient to realize an appropriate return on our investment in product development.
decision by a third-party payor not to cover any product candidates we may develop could
ement for the product, and the level of coverage and reimbursement can differ
ment and coverage may not be available to enable us to maintain price levels
ement rate will be approved. Furthet
r. Third-party reimburse
on our sales, results of
m
ff
36
t
The containment of healthcare costs also has become a priority of various federal, state and/or local governments, as well as
countries globally, and the prices of pharmaceuticals have been a focus in these efforts.
other payors, within the U.S. and in other
Governments and other payors have shown significant interest in implm ementing cost-containment programs, including price controls,
ls and cost-containment
restrictions on reimburm sement, and requirements for substitution of generic products. Adoption of price controt
measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further
limit a
compam ny’s revenue generated from the sale of any approved products. Coverage policies and third-party reimbursement rates may
change at any time. Even if favorablea
its collaborators receive marketing approval, less favorable coverage policies and reimbursement rates may be implement
tt
future.
is attained for one or more products
coverage and reimbursement statust
for which a company or
ed in the
m
d
t
Outside the United States, ensuring adequate coverage and payment for any product candidates we may develop will face
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 approval for a productd
conduct a clinical trial that compares the cost effectiveness of any product cand
erapies.
The conduct of such a clinical trial could be expensive and result in delays in our commercialization efforts.
idates we may develop to other available th
d
a
In the EU, pricing and reimbursement schemes vary widely from country to country. Some countries provide that products
d
may
be marketed only after a reimbursement price has been agreed. Some countries may require the completion of additional studies that
compamm re the cost-effectiveness of a particular product candidate to currently available therapies (so called health technology
assessments, or HTAs) in order to obtain reimbursement or pricing approval. For examplm e, the EU provides options for 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. EU member states may approve a specific price
system of direct or indirect controls on the profitability
ff
allow companies to fix their own prices for products, but monitor and control prescription volumes and issue guidance to physicians to
limit prescriptions. Recently, many countries in the EU have increased the level of discounting required in relation to the pricing of
pharmaceuticals and these efforts
are expenditures, especially in light of the
severe fiscal and debt crises experienced by many countries in the EU. The downward pressure on health care costs in general,
particularly prescription products, has become intense. As a result, increasingly high barriers are being erected to the entry of new
products. Political, economic, and regulatory developments may further complimm cate pricing negotiations, and pricing negotiations may
continue after
ce pricing used by various EU member states, and parallel trade (arbitrage
between low-priced and high-priced member states), can further reduce prices. There can be no assurance that any country that has
price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursm
for any of our products, if approved in those countries.
for a product or it may instead adopt a
of the company placing the product on the market. Other EU member states
could continue as countries attempt to manage healthct
reimbursement has been obtained. Referen
ement and pricing arrangements
ff
ff
ff
ff
Healthcare Law and Regue
lation
Healthcare providers and third-party payors play a primary role in the recommendation and prescription of pharmaceutical
that are granted marketing approval. Arrangements with providers, consultants, third-party payors, and customers are subjeb ct
products
d
to broadly applicable fraud and abuse, anti-kickback, false claims laws, reporting of payments to physicians and teaching physicians
and patient privacy laws and regulations and other healthcare laws and regulations that may constrain our business and/or financial
arrangements. Restrictions under applicable federal and state healthcare laws and regulations, include the following:
the U.S. federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and
willfully soliciting, offerff
ing, paying, or receiving remuneration, directly or indirectly, overtly or covertly, in cash or in
kind, in exchange for or intended to induce or reward either the referral of an
individual for, or the purchase, order or
recommendation of, any good or service, for which payment may be made, in whole or in part, under a federal healthcare
program such as Medicare and Medicaid;
rr
the federal civil and criminal false claims laws, including the civil U.S. False Claims Act, and civil monetary penalties
laws, which prohibit individuals or entities from, among other things, knowingly presenting, or causing to be presented, to
the federal government, claims for payment that are false, fictitious, or fraudulent or knowingly making, using, or causa ing
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 from a violation of
the U.S. federal Anti-Kickback Statute constitutes a false or frauda ulent claim for purposes
of the U.S. False Claims Act;
r
the federal false statements statute prohibits knowingly and willfully falsifyiff ng, concealing, or covering up a material fact
or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items, or
services; similar to the federal Anti-Kickback Statutt e, a person or entity does not need to have actual knowledge of the
statute or
specific intent to violate it in order to have committed a violation;
t
37
the anti-inducement law, which prohibits, among other things, the offeri
without limitation, any transferff
ff
a Medicare or Medicaid beneficia
u
of a particular suppli
ff
of items or services for free or for less than fair market value (with limited exceptions), to
ry that the person knows or should know is likely to influence the beneficiary’s selection
er of items or services reimbursable by a federal or state governmental program;
ng or giving of remunerat
mm
ion, which includes,
the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health
Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their respective implementing
regulations, collectively HIPAA, which imposes
attempting to execute, a scheme to defraud any healthcare benefit program (including private payors) or obtain, by means
of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the
custody or control of, any healthcare benefit program, regardless of the payor
willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false
statements in connection with the delivery of, or payment for, healthcare benefits, items or services;
criminal and civil liability for knowingly and willfully executing, or
(e.g., public or private) and knowingly and
m
a
HIPAA, which impose obligations with respect to safeguarding the privacy, security, and transmission of individuad lly
identifiable information that constitutes protected health information, including mandatory contractual terms and
restrictions on the use and/or disclosure of such inforff mation without proper authorization;
the federal transparency requirements known as the federal Physician Payments Sunshine Act, under the U.S. Patient
Protection and Affordable Care Act, as amended by the U.S. Health Care and Education Reconciliation Act, collectively
Care Act or ACA, which requires certain manufacturtt ers of drugs, devices, biologics and medical supplies
the Affordablea
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 transfers of value
defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, and requires
certain manufacturers and applicable group purchasing organizations to report ownership and investment interests held by
physicians or their immediate family members, effective January 1, 2022, these reporting obligations will extend to
include transfers of value made to certain non-physician providers such as physician assistants and nurse practitioners;
made by that entity to physicians (currently
ff
federal government price reporting laws, which require us to calculate and report complex pricing metrics in an accurate
and timely manner to government programs;
federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that
potentially harm consumers;
The Foreign Corruptu Practices Act prohibits companies and their
make improper payments to non-U.S. offiff cials for the purpose of obtaining or retaining business or otherwise seeking
favorable treatment; and
intermediaries from making, or offering or promising to
m
analogous laws and regulations in other national jurisdictions and states, such as state anti-kickbak ck and false claims laws,
which may apply to healthcare items or services that are reimbursm
private insurers.
ed by non-governmental third-party payors, including
Some state and other laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary
complm iance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring
pharmaceutical manufacturers to report information related to payments to physicians and other health care providers or marketing
expenditures. State and other laws also govern the privacy and security of health information in some circumstances, many of which
differ from each other in significant ways and often are not preempted by HIPAA, thus complicating complm iance efforts.
Healthcare Reform
ll
A primary trend 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 products, limiting coverage
and reimbursement for drugs
States.
s, government control and other changes to the healthcare system in the United
t medical productd
and other
rr
38
By way of example,m
the United States and state governments 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
coverage and payment for producd ts under government health care programs. Among the provisions of the ACA of impom rtance to our
potential product candidates are:
an annual, nondeductible fee on any entity that manufactures or imports
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 approved exclusively for orphan indications;
specified branded prescription drugs and biologic
m
expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer
to certain individuals with income at or below 133% of the federal poverty level, thereby potentially increasing a
manufacturtt er’s Medicaid rebate liability;
ff Medicaid coverage
expanded manufacturers’ rebate liability under the Medicaid Drug Rebate Program by increasing the minimum rebate for
both branded and generic drugs and revising the definition of “average manufacturer price,” or AMP, for calculating and
reporting Medicaid drug re
bates on outpatient prescription drug prices and extending rebate liability to prescriptions for
individuals enrolled in Medicare Advantage plans;
rr
addressed a new methodology by which rebates owed by manufacturtt ers under the Medicaid Drug Rebate Program are
calculated for products that are inhaled, infused, instilled, implm anted or injected;
expanded the types of entities eligible for the 340B drug discount program;
established the Medicare Part D coverage gap discount program by requiring manufacturt ers to provide a 70% point-of-
sale-discount off the negotiated price of applicable products to eligible beneficiaries during their coverage gap period as a
condition for the manufacturtt ers’ outpatient products to be covered under Medicare Part D, increased pursuant to the
Bipartisan Budget Act of 2018 which became effective as of 2019;
a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conductd
effectiveness research, along with funding for such research; and
comparative clinical
established the Center for Medicare and Medicaid Innovation within CMS to test innovative payment and service delivery
models to lower Medicare and Medicaid spending, potentially including prescription product spending. Funding has been
ort the mission of the Center for Medicare and Medicaid Innovation from 2011 to 2019.
allocated to suppu
Other legislative changes have been proposed and adopted in the United States since the ACA was enacted. For examplmm e, in
August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint
Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years
2012 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government
programs. This includes aggregate reductions of Medicare payments to providers of up to 2% per fiscal year, which went into effect
in
2029 unless additional Congressional action is taken. In January 2013, President Obama
April 2013 and will remain in effect through
signed into law the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to several
providers, including hospitals, imaging centers, and cancer treatment centers, and increased the statutet
government to recover overpayments
to providers from three to five years.
of limitations period for the
ff
r
ff
Since its enactment, there have been numerous judicial, administrative, executive, and legislative challenges to certain aspects of
the ACA, and we expect there will be additional challenges and amendments to the ACA in the future. Various portions of the ACA
are currently undergoing legal and constitutional challenges in the Fifth Circuit Court and the United States Supreme Court; the
Trump Administration has issued various Executive Orders which eliminated cost sharing subsidies and various provisions that would
impose a fiscal burden on states or a cost, fee, tax, penalty or regulatory burden on individuals, healthcare providers, health insurers,
or manufacturers of pharmaceuticals or medical devices; and Congress has introduced several pieces of legislation aimed at
significantly revising or repealing the ACA. It is unclear whether the ACA will be overturned, repealed, replaced, or further amended.
We cannot predict what affect furff
ther changes to the ACA would have on our business.
Further, CMS recently finalized regulations that give states greater flexibility in setting benchmarks for insurers in the individual
and small group marketplaces, which may have the effect of relaxing the essential health benefits required under the ACA for plans
sold through such marketplaces. For examplm e, in May 2019, CMS issued a final rule to allow Medicare Advantage Plans the option of
of impact, if any,
using step therapy, a type of prior authorization, for Part B drugs
efforts such as this will have on our business.
beginning January 1, 2020. It is unclear what typeyy
r
39
There has also been heightened governmental scrutiny over the manner in which manufacturers
t
set prices for their marketed
t
t
m
ment constraints, discounts, restrictions on certain product access and marketing cost disclosure and
s, which has resulted in several recent Congressional inquiries and proposed bills designed to, among other things, br
productd
transparency to product pricing, review the relationship between pricing and manufacturt er patient programs, and reformff
program reimbursement methodologies for pharmaceutical products. Individual states in the United States have also become
increasingly active in enacting legislation and implm ementing regulations designed to control pharmaceutical product pricing, including
price or patient reimburse
transparency measures, and, in some cases, designed to encourage importm
challenges to the ACA, other
development pressures on our business. For example, on May 30, 2018, the Right to Try Act, was signed into law. The law, among
other things, provides a federal framework for certain patients to access certain investigational new drug products that have completed
a Phase 1 clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can
seek treatment without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access program.
There is no obligation for a drugrr manufacturer to
products available to eligible patients as a result of the Right to Try
Act, but the manufacturt er must develop an internal policy and respond to patient requests according to that policy. We expect that
additional foreign, federal and state healthcare reform measures will be adopted in the futur
that federal and state governments will pay for healthcare products and services, which could result in limited coverage and
reimbursement and reduced demand for our products, once approved, or additional pricing pressures.
legislative measures have also been enacted that may impose additional pricing and product
ation from other countries and bulk purchasing. Beyond
e, any of which could limit the amounts
ing more
ent
make its drugrr
governmr
ff
t
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 reformsr
anticipated revenues from product candidates that we may successfully develop and for which we may obtain marketing approval and
may affect our overall financial condition and ability to develop product candidates.
could have an adverse effect
on
ff
Addidd tional Re
gue
ii
lation
In addition to the foregoing, state, and federal laws regarding environmental protection and hazardous substances, including the
Occupational Safety and Health Act, the Resource Conservation and Recovery Act, and the Toxic Substances Control Act, affect
our
business. These and other laws govern the use, handling, and disposal of various biologic, chemical, and radioactive substances used
in, and wastes generated by, operations. If our operations result in contamination of the environment or expose individuals to
hazardous substances, we
u
that impose similar obligations.
could be liable for damages and governmental fines. Equivalent laws have been adopted in third countries
ff
Employees
As of December 31, 2019, we had 304 full-time employees, 104 of
m
whom held Ph.D. or M.D. degrees, 252 of whom were
engaged in research and development, and 52 of whom were engaged in business development, finance, inforff mation systems,
facilities, human resources, legal functions or administrative support.
u
m
of our employees
has entered into a collective bargaining agreement with us. We consider our employee relations to be good.
None of our emplm oyees is represented by a labor union, and none
Information Available on the Internet
Investors and others should note that we announce material information to our investors using our investor relations website
(https://crisprtx.gcs-web.com/), SEC filings, press releases, publu ic conferff ence calls and webcasts. We use these channels as well as
social media to communicate with the public about our company, our business, our product candidates and other matters. It is possible
encourage investors, the
that the information we post on social media could be deemed to be material information. Therefore, we
media, and others interested in our comp yany to review the information we post on the social media channels listed on our inves rtor
relations website.
ff
40
Item 1A. Risk Factors.
This report contains forward-loo
r
king statements that involve risks and uncertainties. Our actual results cou
tt
ld differ materi
i
ally
from those discussed in this rep
discussed below and
elsewhere in this report and in anyn documentstt
ort. Factors that could cause or contribute to these differences
i
rated in this report
incorporr
ii
l
e
include, but are not limited to, those
by refere
ence.
You should carefully consider the following risk factors, together with all other infon rmation in this report, including our
financial statements and notes thereto, and in our other filings with the Securities and Exchange Commission. If any of the following
risks, or other risks not presently known to us or that we currently believe to not be significff ant, develop into actual events, then our
business, financial condition, results of operations or prospects could
market
price of our common shares could decline, and shareholderdd srr maya lose all or part of their investmett
be materially adversely affected. If that
happens, the
nt.
a
s
ff
Risks Related to Our Financial Position and Need for Additional Capital
We Have Incurred Significa
i
The Foreseeable Future.
nt Operating Losses Since Our Incepte ion And Anticipat
i
e That We Will Incur Continued Losses For
We have funded our operations through public and private offeri
shares, convertible loans and collaboration agreements with strategic partnett
m
losses. We generated net income of $66.9 million for the year ended December 31, 20
$68.4 million for the years ended December 31, 2018 and 2017, respectively. As of December 31, 20
accumulm ated deficit of $224.7 million and $291.6 million, respectively. We expect to continue to incur significant expenses and
operating losses over the next several years and for the foreseeable future. Our prior losses, combined with expected future losses,
have had and will continue to have an adverse effect on our shareholders’ deficit and working capiaa tal. We anticipate that our expenses
will increase substantially if and as we:
ngs of our equity securities, private placements of our preferred
rs. Since inception, we have incurred significant operating
19, but our net loss was $165.0 million and
19 and 2018, we had an
m
ff
continue our clinical trials for our various programs;
continue our current research programs and our preclinical and clinical development of product candidates;
seek to identify additional research programs and additional product candidates;
conductdd
IND supporting preclinical studies and initiate clinical trials for our productd
candidates;
initiate preclinical studies and clinical trials for any other product candidates we identify and choose to develop;
expand, maintain, enforce and/or defendff
our intellectual property estate;
seek marketing approvals for any of our product ca
d
ndidates that successfully complete clinical trials;
further develop our gene-editing technology;
hire additional clinical, quality control
tt
and scientific personnel;
establa ish or contract for manufact
tt
uri
candidates;
ff
ng capabilities if we obtain regulatory approvals to manufacture our product
add operational, financial and management information systems and personnel, including personnel to support our productd
candidate development;
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 significff ant and increasing operating losses for the foreseeable future. Because of the
numerous risks and uncertainties associated with developing gene-editing product ca
any future losses or when we will become profitabff
increase our profitability on a quarterly or ann
due to collaboration revenue from Vertex and our gain resulting from the consolidation of Casebia, we do not expect to sustain our
profitability in future years.
le, if at all. Even if we do become profitff able, we may not be able to sustain or
ual basis. For example, while we were profitable for the year ended Decemberm 31, 2019
ndidates, we are unablea
to predict the extent of
d
a
41
We Will Need To Raise Substantial Additional Funding,gg Which Will Dilute Our Shareholderdd s. If We Are Unable To Raise
Capital When Needed, We Would Be Forced To Delay,a Reduce Or Eliminate Some Of Our Product Development Programs Or
Commercialization Efforts.
rr
The development of gene-editing product candidates is capita
al intensive. We expect our expenses to increase in connection with
d
es. In addition, if we obtain marketing approval for any of our product
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 product candidat
candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and
distribution to the extent that such sales, marketing, manufacturi
future collaborators. We may also need to raise additional funds sooner if we choose to pursue additional indications or geographies
than we presently anticipate. In addition, relative to prior years when we
for our product candidates or otherwise expand more rapidly
were a private company, we expect to incur significant additional costs associated with operating as a public company. Accordingly,
we will need to obtain subsu tantial additional funding in connection with our continuing operations. If we are unable to raise capia tal
when needed or on attractive terms, we would be forced to delay, reduce or eliminate certain of our research and development
programs or future commercialization efforts.
ng and distribution are not the responsibility of Bayer, Vertex or other
a
aa
tt
19, we completed an offering of an aggregate of 4.9 million common shares, which were sold at a price to the public of
As of December 31, 2019, and 2018, we had cash of approximately $943.8 million and $456.6 million, respectively. In
November 20
m
$64.50 per share for gagggr gegate net proceeds of $294.4 million, which were net of
ff
on hand as of December 31, 2019, we expect cash and cash equivalents to be sufficie
least the next 24 months.
equity issuance costs of $20.7 million. With our cash
nt to fund our current operating plan through at
y
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 clinical trials, drug discovery, preclinical development, and labora
our wholly owned and partnered product candidates;
a
tory testing for
the scope, prioritization and number of our research and development programs;
the costs, timing and outcome of regulatory review of our productd
candidates;
the costs of establishing and maintaining a supply chain for the development and manufacture of our product candidates;
the success of our collaborations with Vertex and ViaCyte;
our ability to establish and maintain additional collaborations on favorable 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 reimbursm
collaboration agreements, if any;
e, or entitled to reimbursement of, clinical trial costs under future
the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property
rights and defending intellectual property-related claims;
ff
the costs of fulfilling
Invention Management Agreement to reimburse other parties for costs incurred in connection with the prosecution and
maintenance of associated patent rights;
our obligations under the Consent to Assignments, Licensing and Common Ownership and
the extent to which we acquire or in-license other product candidates and technologies;
the costs of establishing or contracting for manufacturing
product candidates;
t
capaa bia lities if we obtain regulatory approvals to manufacture our
the costs of establishing or contracting for sales and marketing capabilities if we obtain regulatory approvals to market our
product candidates; and
our ability to establish and maintain healthcare coverage and adequaq te reimbursem
m
ent.
42
Any additional fundraising efforff
ts may divert our management from their day-to-day activities, which may adversely affect our
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 equiq ty or convertible securities would dilute all of our shareholders
and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a shareholder. The
incurrence of indebtedness would result in increased fixed payment obligations and we may be required to agree to certain restrictive
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 impamm ct our ability to conduct our business. We could also be
required to seek funds through arrangements with collaborators or otherwise at an earlier stage than otherwise would be desirable and
we may be required to relinquish rights to some of our technologies or product candidates or otherwise agree to terms unfavorable to
us, any of which may have a material adverse effect on our business, operating results and prospects.
If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or
more of our research or development programs or the commercialization of any product candidate, or be unable to expand our
operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial
condition and results of operations.
We Have A Limited Operating History, Which Maya Make It Difficult To Evaluate Our Technology And Product Development
Capabilities And Predict Our Future Perforff mance.
rr
We were formed in October 2013, have no products approved for commercial sale and have not generated any revenue from
product sales. Our ability to generate product revenue or profits, which we do not expect will occur for many years, if ever, will
depend heavily on the successful development and eventual commercialization of our product ca
may never be able to develop or commercialize a marketable product.
ndidates, which may never occur. We
dd
d
We are early in our development efforts
ff
and the first clinical trial for any of our product candidates was initiated at the end of
2018. Each of our other programs requires additional discovery research and then preclinical development. All of our programs
require clinical development, regulatory approval in multiple jurisdictions, obtaining manufacturing supply,
building of a commercial organization, substantial investment and significant marketing efforff
product sales. In addition, our product candidates must be approved for marketing by the FDA or certain other health regulatory
agencies, including the EMA, before we may commercialize any product.
ts before we generate any revenue from
capacity and expertise,
u
Our limited operating history, particularly in light of the rapidly evolving gene-editing field, may make it difficult to evaluate
dd
and predict our future performance. Our short history as an operating company makes any assessment of
our technology and industry
our future success or viability subject to significant
a
early stage companies in rapidly
expect that our financial condition and operating results will fluctuate significantly from quarter to quarter and year to year due to a
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
evolving fields. If we do not address these risks successfully, our business will suffer.
uncertainty. We will encounter risks and difficulties frequently experienced by
Similarly, we
ff
ff
In addition, as an early stage company, we have encountered unforeseen expenses, difficulties, complications, delays and other
known and unknown circumstances. As we advance our product candidates, we will need to transition from a company with a research
focus to a company capable
such a transition.
of supporting clinical development and if successful, commercial activities. We may not be successfulff
in
a
Our Ability To Use Tax Loss Carryforwards In Switzerland May Be Limited.
Under Swiss law, we are entitled to carry forward losses we incur for a period of seven years and we can offsff et futurett
profits, if
any, against such losses. Tax losses are only finally assessed by the tax authorities when offset wi
the case if are loss making). If not used, these tax losses will expire seven years after 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 and as a result they would not be
applied to reduce future cash tax payments. These carry forwards are fully reserved and will remain so until we become consistently
profitable.
profit (which will not be
th taxablea
ff
ff
43
ff
The effective
corporate income tax rate in the Canton of Zug for 2019 amounts to 14.35% (federal, cantonal and communal). As
already mentioned above, no tax ruling was filed with the Zug tax authorities for applying for the taxation as mixed company.
m
can be made in the
However, up until and including the tax period 2019 a respective application for taxation as a mixed companym
annual tax return and will be granted by the Zug tax authorities, assuming we fulfill the respective criteria. The effective corporate
income tax rate as mixed companym
number of full-time equivalents employed in Switzerland in a given year. The maximumm tax rate applies in case we employm
30 full time equivalents by the end of a given year.
in the Canton of Zug ranges between 8.53% and 9.55% on the profit beforeff
taxes, depending on the
more than
As of January 1, 2020, the Canton of Zug introduced its law on the corporate tax reform. According to this new law, the
ordinary effective corporate income tax rate has been reduced to 11.91% (fedff
privileges for mixed companmm ies have been abolished. Furthet
not limited to generous rules for compamm nies, which were previously taxed as mixed companies (e.g. special tax rate or step up of the
tax based followed by tax effeff ctive depreciations in the following years). Determining which of these options would be most favorablea
and to what extend these rules are beneficial for us, depends on the development of our taxable profit during this peri
assessed in the upcoming year.
rmore, a number of additional tax benefits are implm emented, including but
eral, cantonal and communam l) and, among others, the
od and must be
ff
Risks Related to Our
ii
Business, Technology and Industry
We Are EarEE ly In Our Development Efforts. It Will Be Many Years Before We Or Our Collaborators Commercialize A Producdd t
Candidate, If Ever. If We Are Unable To Advadd nce Our Product Candidates To Clinical Development, Obtain Regulatory Approval
And Ultimately Commercialize Our Product Candidates, Or Expex
Materially Harmed.
ing So, Our Business Will Be
a
nt Delays In Do
rience Significai
We are early in our development efforts and have focused our research and development efforff
ts to date on CRISPR/Cas9, gene-
d
enue, which we do not expect will occur for many years, if ever, will depend heavily on the successful
editing technology, identifying our initial targeted disease indications and our initial product candidates. Our future success depends
heavily on the successful development of our CRISPR/Cas9 gene-editing product candidates. We have invested substantially all of our
efforff
ts and financial resources in the identification and preclinical development of our current product candidates. Our ability to
generate product rev
development and eventual commercialization of our product candidates, which may never occur. For examplmm e, our research programs,
including those subject to our collaboration agreements with Vertex and ViaCyte and option agreement with Bayer, may fail to
identify potential product candidates for clinical development for a number of reasons or may fail to successfully advance any productd
candidates through clinical development. Our research methodology may be unsuccessful in identifying potential product candidates,
or our potential product ca
products imprm actical to manufacture, unmarketable, 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 product.
ndidates may be shown to have harmful side effeff cts or may have other characteristics that may make the
d
We must file U.S. investigational new drug applications, or INDs, clinical trial applications, or CTAs, or their equivalents with
t
u
to acceptance by the European regulatory authori
ties, or its equivalent, of our CTAs, or the FDA of our INDs, and
regulatory authorities to commence clinical trials. The filing of future CTAs or INDs for any other product candidate we develop is
subject to the identification and selection of guide RNA with acceptable effiff ciency. In addition, commencing any of our clinical trials
is also subject
finalizing the trial design based on discussions with the applicablea
authorities, FDA or their equivalent requires us to complete additional preclinical studies or we are required to satisfy other requests,
our clinical trials may be delayed. Even after we receive and incorporate guidance from these regulatory authorities, they 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,
impose stricter approval conditions than we currently expect. Our product candidates will require additional preclinical and clinical
development, regulatory and marketing approval in multiple jurisdictions, obtaining manufacturing supply,
capacity and expertise,
building of a commercial organization, substantial investment and significant marketing efforff
product sales. In addition, our product development programs must be approved for marketing by the FDA, EMA or certainrr
health regulatory agencies, before we may commercialize our product cand
which may require us to complmm ete additional preclinical studies or clinical trials or
regulatory authorities. In the event that the European regulatory
ts before we generate any revenue from
idates.
other
u
d
d
The success of our product cand
d
idates will depend on several factors, including the following:
successful completion of clinical trials and preclinical studies;
sufficiency of our financial and other
t
resources to complete the necessary clinical trials and preclinical studies;
t
ability to develop safe and effective delivery mechanisms for our in vivo therapeutic programs;
ability to identify optimal RNA sequences to guide genomic editing;
44
entry into collaborations to further the development of our productd
candidates;
approval of CTAs or INDs for our product candidates to commence clinical trials;
successfulff
enrollment in, and completion of, clinical trials and preclinical studies;
t
successful data from our clinical program that supports an accep
intended patient populations;
u
table risk-benefit profile of our product candidates for the
receipt of regulatory and marketing approvals from applicable regulatory authorities;
establishment of arrangements with third-party manufacturers for clinical supply and commercial manufacturing and,
where applicable, commercial manufacturing capaba
ilities;
successful development of our internal
contract manufacturing organization or by us;
r manufacturing processes and transfer to larger-scale facilities operated by either a
establishment and maintenance of patent and trade secret protection or regulatory exclusivity for our product candidates;
commercial launch of our product 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 communimm ty and third-party payors;
effective competition with other
t
therapies 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 profileff
of the product candidates following approval; and
achieving desirablea medicinal properties for the intended indications.
Additionally, because our technology involves gene editing across multiple cell and tissue types, we are subject to many of the
challenges and risks that gene therapies face, including:
regulatory requirements governing gene and cell therapy products have changed frequently and may continue to change in
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 product has been approved in the EU;
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 follow-up observation period of 15 years or longer for all patients who receive treatment using
gene therapies, and we may need to adopt and support such an observarr
tion period for our product c
andidates.
d
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
inability to successfully commercialize our product candidates, which would materially harm our business. If we do not receive
regulatory approvals for our product candidates, we may not be able to continue our operations.
Our CRISPR/CasCC 9 Gene-Editing Product Candidates Are Based On A New Gene-EdiEE ting Technology, Which Makes It Difficult
To Predict The Time And Cost Of Development And Of Subsequently Obtaitt ning Regulatory Approval, If At All. There Have Only Been
A Limited Number Of Clinical Trials Of Product Can
Have Been Approved In The United States Or In The
didates Based On Gene-Editing Technology And No Gene-Editing Products
EU.UU
pp
yy
ll
CRISPR/CaRR
s9 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 EU and only a limited number of clinical trials of product candidates
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 product discovery or identification, preclinical studies and clinical
trials. For examplm e, because we have only very limited data from clinical trials in CTX001, we have not yet been able to fully assess
safety in humans. In addition, because we have only recently commenced clinical trials for certain of our other product candidates, we
have not yet been able to assess safety in humans. 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
from human DNA, testing of our product candidates in animal models may not be predictive of the results we observe in
DNA differs
human clinical trials of our product candidates for either safety or
efficacy. Also, animal models may not exist for some of the diseases
we choose to pursue in our programs. As a result of these factors, it is more difficult for us
candidate development, and we cannot predict whether the application of our gene-editing technology, or any similar or competitive
gene-editing technologies, will result in the identification, development, and regulatory approval of any products. There can be no
assurance that any development problems we experience in the future related to our gene-editing technology or any of our research
programs will not cause significant delays or unanticipated costs, or that such development problems can be solved. Any of these
factors may prevent us from completim
ng our preclinical studies or any clinical trials that we may initiate or commercializing any
d
product c
andidates we may develop on a timely or profitable basis, if at all.
to predict the time and cost of product
ff
ff
ff
45
The clinical trial requirements of the FDA, the EMA and other
candidate vary substa
u
t
determine the safety and efficacy of a productdd
candidate. No producd ts based on gene-editing technologies have been approved by regulators. As a result,
and market of the productd
the regulatory approval process for product candidates such as ours is uncertain and may be more expensive and take longer than the
approval process for product candidates based on othet
determine how long it will take or how much it will cost to obtain regulatory approvals for our product candidates in either the United
es. Delay or failure to obtain, or unexpected costs in
d
States or the EU or how long it will take to commercialize our product candidat
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.
r, better known or more extensively studied technologies. It is difficult to
ntially according to the type, complexity, novelty and intended use
regulatory authorities and the criteria these regulators use to
The FDA, The NIH And The EMA Have Demonst
II
ratt
ted Caution In Their Regue
And Legalgg Concerns About Gene Therapy And Genetic Testing May Resu
Development And Commercialization Of Our Product Candidates, Which May Be Difficult To Predict.
a
lation Of Gene Therapy Treatmett
lt In Additional Regulations Or Restrictions On The
nts,tt And Ethical
tt
The FDA, NIH and the EMA have each expressed interest in further regulating biotechnology, including gene therapy and
genetic testing. For examplmm e, the EMA advocates a risk-based approach to the development of a gene therapy product. Agencies at
both the federal and state level in the United States, as well as the U.S. congressional committees and other
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.
governments or governing
t
Regulatory requirements in the United States and in other jurisdictions governing gene therapy products ha
d
ve changed
ff
a
Office of Tissues and
products. The FDA established the
Advanced Therapies within its Center for Biologics Evaluation and
frequently and may continue to change in the future. In January 2020, the FDA issued several new guidance documents on gene
therapya
Research to consolidate the review of gene therapy and related products, and established the Cellular, Tissue and Gene Therapies
Advisory Committee to advise this review. In addition to the government regulators, the IBC and IRB of each institution at which we
conduct clinical trials of our product candidates, or a central IRB if appropriate, would need to review the proposed clinical trial to
assess the safety of the trial. In addition, adverse developments in clinical trials of gene therapyaa
products conducted by others may
cause the FDA or other oversight bodies to change the requirq
EMA governs the development of gene therapies in the EU and may issue new guidelines concerning the development and marketing
products and require that we comply with these new guidelines. These regulatory review agencies and
authorization for gene
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 and 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 re
product candidates can be costly and could negatively impact our
commercialize our current and future product candidates in a timely manner, if at all.
ements for approval of any of our product candidates. Similarly, the
or our collaborators’ ability to complete clinical trials and
strictions on the development of our
therapyaa
m
ff
t
If Any Of The Product Candidates We May Develop Or The Delivery
a
Modes We Rely On Cause Undesirable Side Effects, It
Could Delay Or Prevent Their Regulatoryr Approval, Limi
pp
Following Any Potential Marketing Approval.
t The Commercial Potential Or Result In Signifii cant Negatgg ive Consequences
on of a gene or a genetic regulatory sequence at an unintended site in the DNA, or, in those
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
as a repair template, it is possible that following off-target cut events,
ing another important
adverse events, including off-target cuts of DNA, or the introductdd
off-target cuts could lead to disrupti
r
instances where we also provide a segment of DNA to serverr
DNA from such repair template could be integrated into the genome at an unintended site, potentially disrupt
gene or genomic element. There also is the potential risk of delayed adverse events following exposure to gene-editing therapy due to
persistent biologic activity of the genetic material or other components of products used to carry the genetic material. Possible adverse
administration which
side effects that could occur with treatment with gene-editing products include an immunologic reaction after
could substantially limit the effectiveness of the treatment. Additionally, immunotherapy, and its method of action of harnessing the
body’s immune system, is powerful and could lead to serious side effects that we only discover
effects could arise either during clinical development or, if such side effects are
more rare, after
approved by regulatory authorities and the approved product has been marketed, resulting in the exposure of additional patients. If our
CRISPR/CaRR
development or clinical development of our product candidates. In addition to serious adverse events or side effects caused by any
product ca
undesirable side effeff cts. If any
such events occur, our clinical trials could be suspended or terminated.
ndidate we may develop, the administration process or related procedures also can causea
in clinical trials. Unforeseen side
our product candidates have been
t, we may decide or be required to halt or delay preclinical
s9 gene-editing technology demonstrates a si
milar effecff
d
ff
rr
ff
ff
ff
tt
46
If in the future we are unable to demonstrate that such adverse events were caused by factors other
d
idate,
the FDA, EMA or other comparable health regulatory authorities could order us to cease further clinical studies of, or
deny approval
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 recruitment or the ability of enrolled patients to
complm ete 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 productdd
candidates may be harmed and our ability to generate product revenues from
any of these product candidates may be delayed or eliminated. Any of these occurrences may harm our ability to identify and develop
product candidates, and may harm our business, financial condition, result of operations and prospects significantly.
than our product cand
t
t
Additionally, if we successfully develop a product 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
product for distribution to patients, a communmm ication plan to health care practitioners, extensive patient monitoring, or distribution
systems and processes that are highly controlled, restritt ctive, and more costly than what is typical for
or othet
rs later identify undesirable side ef
negative consequences could result, including:
ndidate that we develop, several potentially significant
ts caused by any product ca
the industry. Furthermt
fecff
d
y
a
ore, if we
regulatory authorities may revoke licenses or suspend, vary or withdraw approvals of such product candidate;
regulatory authorities may require additional warnings on the label;
a
we may be required to change the way a product candidate is administered or conduct additional clinical trials;
we could be sued and held liablea
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 gene-editing technology and any
candidates we may identify and develop and could have a material adverse effect on our business, financial condition, results
productd
of operations and prospects.
If We Experience Delays Or Diffiff culties In TheTT Enrollment Of Patients In Clinical Trials, Our Receipt Of Necessary Regulatory
Approvals Could Be Del
ll
ayed Or Prevented.
We or our collaborators may not be able to initiate or continue clinical trials for any product candidates we
d
identify or develop if
we are unable to locate and enroll a sufficient numberm of eligible patients to participate in these trials as required by the FDA or
analogous regulatory authorities outside the United States, or as needed to provide appropriate statistical power for a given trial.
Enrollment may be particularly challenging for any rare genetically defined diseases we may target in the futurtt e. In addition, if
patients are unwilling to participate in our gene-editing trials because of negative publici
biotechnology, gene therapy or gene-editing fields, competitive clinical trials for similar patient populations, clinical trials with
compem ting products, or for other reasons, the timeline for recruiting patients, conducting 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 forff
product c
andidates that would treat the same indications as any product candidates we may develop, and patients who would othet
d
be eligible for our clinical trials may instead enroll in clinical trials of our competitors’ productd
ty from adverse events related to the
candidates.
a
rwise
Patient enrollment is also affected by other factors, including:
severity of the disease under investigation;
size of the patient population and process for identifying
ff
subju ects;
design of the trial protocol;
availability of eligible prospective patients that are otherwise eligible patients for competitive clinical trials;
availability and efficacy
ff
of approved medications for the disease under investigation;
availability of genetic testing for potential patients;
ability to obtain and maintain subject consent;
risk that enrolled subjeb cts will drop out before completion of the trial;
eligibility and exclusion criteria for the trial in question;
47
perceived risks and benefits of the product candidate under trial;
perceived risks and benefits of gene editing and cellular therapies as therapeutic
a
approaches;
effoff
rts to facilitate timely enrollment in clinical trials;
patient referral practices of physicians;
ability to monitor patients adequately during and after treatment; and
proximity and availabia lity of clinical trial sites for prospective patients.
Enrollment delays in our clinical trials may result in increased development costs for any product ca
ndidates we may develop,
which would cause our value to decline and limit our ability to obtain additional financing. If we or our collaborators have difficulty
enrolling a sufficient number of patients to conduct our clinical trials as planned, we may need to delay, limit, or terminate ongoing or
planned clinical trials, any of which would have an adverse effect
prospects.
on our business, financial condition, results of operations, and
d
ff
Positive Results From Early
FF
Preclinical Studies Of Our Product Candidates Are Not Necessarily Predictive Of TheTT Results Of
Later Preclinical Studies And Any Future Clinical Trials Of Ou
r Product Candidates. If We Cannot Replicate The Positive Results
From Our Earlier Preclinical Studies Of Our Product Candidatdd es In Our Later Preclinical Studies And Future Clinical Trials, We
May Be Unable To Successfully Develop, Obtain Regulatory Approval For And Commercialize Our Product Candidates.
ll
Any positive results from our preclinical studies of our product candidates may not necessarily be predictive of the results from
required later preclinical studies and clinical trials. Similarly, even if we are able to complete our planned preclinical studies or any
futurett
studies and clinical trials of our product candidates may not be replicated in subseu
clinical trials of our product candidates according to our current development timeline, the positive results from such preclinical
ies or clinical trial results.
quent preclinical studtt
cks have been caused by, among other things, preclinical and other
Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical
trials after achieving positive results in early-stage development and we cannot be certain that we will not face similar setbacks. These
nonclinical findings made while clinical trials were underway
setbat
or safety or efficacy obse
ff
Moreover, preclinical, nonclinical and clinical data are often susceptible to varying interpretations and analyses and many companies
that believed their product candidates performed satisfactorily in preclinical studies and clinical trials nonetheless failed to obtain FDA
or EMA approval.
rvations made in preclinical studies and clinical trials, including previously unreported adverse events.
t
Even If We Complete TheTT Necessary Preclinical Studies And Clinical Trials,ll The Marketing Approval
pp
Process Is Expex nsive,
For The Commercialization Of Any Product
Time-Consuming, And Uncertaitt n And Maya Prevent Us From Obtaining Approvals
yy
s In Ob
Candidates We May Develop. If We Are Not Able To Obtain, Or If There Are Delayll
We Will Not Be Able To Commercialize, Or Will Be Delayed In Commercializing, Product Candidates We May Develop, And Our
Ability To Generate Revenue Will Be Materially Impaired.
taining, Required Regulatory Approvals,
pp
n
r
Any product candidates we may develop and the activities associated with their development and commercialization, including
ff
eping, labea
ling, storage, approval, advertising, promotion, sale, and
their design, testing, manufacture, safety, efficacy, recordke
distribution, are subju ect to comprehensive regulation by the FDA and other regulatory authorities in the United States, by EMA in the
EU and by compamm rable authorities in other countries. Failure to obtain marketing approval for a product candidate will 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 productd
candidates we may seek to develop in the future will ever obtain regulatory approval or clearance. We have only limited experience in
filing and supporting the applications necessary to gain marketing approvals and expect to rely on third-party contract research
organizations, or CROs, or regulatory consultants to assist us in this process. Securing regulatory approval requires the submission of
rities for each therapeutic indication
extensive preclinical and clinical data and supporting informat
and potency. Securing regulatory approval also requires the
to establish the biologic product candidate’s safety, purity, efficacy
ff
submission of information about the product manufacturing process to, and inspection of manufact
facilities by, the relevant
tt
uring
regulatory authority. Any product candidates we develop may not be effective, may be only moderately effective, or may prove to
have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining marketing approval or
prevent or limit commercial use.
ion to the various regulatory authot
candidates or any product
ff
ff
48
complexity, and novelty of the product candidates involved. Changes in marketing approval policies during the
The process of obtaining marketing approvals, both in the United States and in other jurisdictions, is expensive, may take many
antially based upon a variety of factors,
years if additional clinical trials are required, if approval is obtained at all, and can vary substu
including the type,yy
development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each
submitted product application, may cause delays in the approval or rejection of an application. The FDA and comparable authorities in
other countries have substu
data are insufficff
data obtained from preclinical and clinical testing could delay, limit, or prevent marketing approval of a product candidate. Any
marketing approval we ultimately obtain may be limited or subject to restrictions or post-appa
roval commitments that render the
approved product not commercially viable.
antial discretion in the approval process and may refuse to accept any application or may decide that our
ient for approval and require additional preclinical, clinical or other studt
ies. In addition, varying interpretations of the
If we experience delays in obtaining approval or if we fail to obtain approval of any product candidates we may develop, the
commercial prospects for those product candidates may be harmed, and our ability to generate revenues will be materially impam ired.
We May Never Obtain FDADD Approval
n
Never Obtain Approval For Or Commercialize Any Of Our Product Candidates In Any Other Jurisdii
Ability To Realize Their Full Market Poten
Candidates In The United States, And Even If We Do, We May
iction, Which Would Limit Our
For Any Of Our Product
tial.
pp
ii
d
In order to eventually market any of our product ca
ndidates in any particular jurisdiction, we must establish and comply with
numerous and varying regulatory requirements on a jurisdiction-by-jurisdiction basis regarding safety and efficacy. Approval by the
FDA in the United States, if obtained, does not ensure approval by regulatory authorities in other countries or jurisdictions. In
addition, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory
approval in one country does not guarantee regulatory approval in any other
can involve additional product testing and validation and additional administrative review periods. Seeking regulatory approval in
multiple jurisdictions could result in difficulties and costs for us and require additional preclinical studi
be costly and time-consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the
introduction of our products 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 approved for sale in any jurisdiction, including international
markets, and, as a company, 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 approvals, or if regulatory approvals in
international markets are delayed, our target market will be reduced and our ability to realize the full market potential of our producd ts
will be unrealized.
country. Approval processes vary among countries and
es or clinical trials which could
t
t
Therapy Designi ation, Fast Track Designation
tt
Breakthrough
Review by the FDA, Orphan
of Our Product Candidates, Maya Not Lead to a Faster Developmo
pp
Increase the Likelihood That Any of Our Product Candidates Will Receive Marking Approval.
, Regenerative Medicine Advance
ent,t Regulatory Review or Approval Pr
Drugu Designation by the Europeo an Commission or PRIMEMM Scheme by the EMA, Even If Gra
MM
ocess, and It Maya Not
d Therapya Designation
dd
gg
rr
i
or Priority
nted for Anyn
We may seek a Breakthrough Therapya Designation for some of our product candidates. A breakthrou
t
gh therapy is definff ed as a
that is intended, alone or in combination with one or more other therapies, to treat a serious or life-threatening disease or
therapya
condition, and preliminary clinical evidence indicates that the therapy may demonstrate substantial imprm ovement over existing
therapies on one or more clinically significant endpoints, such as substantial treatment effects observedrr
early in clinical development.
For therapia es that have been designated as breakthrough therapies, interaction and communication between the FDA and the sponsor
of the trial can help to identify the most efficient path for
ineffective control regimens. Therapia es designated as breakthrough therapies by the FDA may also be eligible for priority review and
accelerated approval. Designation as a breakthrough therapya
the discretion of the FDA. Accordingly, even if we believe one
is withint
of our product candidates meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine
not to make such designation. In any event, the receipt of a Breakthrough Therapy Designation for a product candidate may not result
in a faster development process, review or approval compamm red to therapies considered for approval under conventional FDA
procedures and does not assure ultimate approval by the FDA. In addition, even if one or more of our product candidates qualify as
breakthrough therapies, the FDA may later decide that such product candidates no longer meet the conditions for qualification or
decide that the time period for FDA review or approval will not be shortened.
clinical development while minimizing the number of
patients placed in
m
ff
We may seek Fast Track Designation for some of our product candidates. For instance, CTX001 has been granted Fast Track
nt of a serious or life-threatening
Designation by the FDA for the treatment of TDT and SCD. If a therapy is intended for the treatmet
condition and the therapy demonstrates the potential to address unmet medical needs for this condition, the therapy sponsor may apply
for Fast Track Designation. The FDA has broad discretion whether or not to grant this designation, so even if we believe a particular
product ca
ndidate is eligible for this designation; we cannot assure you that the FDA would decide to grant it. Even if we do receive
Fast Track Designation, we may not experience a faster development process, review or approval compared to conventional FDA
procedures. The FDA may withdraw Fast Track Designation if it believes that the designation is no longer supported by data from our
clinical development program. Fast Track Designation alone does not guarantee qualification for the FDA's priority review
procedures.
d
49
t
rr
to address unmet medical needs for such a disease or condition. Like Breakthrough Therapya
We may seek Regenerative Medicine Advanced Therapy, or RMAT, designation for one or more of our product candidates. In
2017, the FDA established the RMAT designation as part of its implm ementation of the 21st Century Cures
Act to expedite review of
any drug that meets the following criteria: it qualifies as a RMAT, which is defined as a cell therapy, therapeutic tissue engineering
product, human cell and tissue product, or any combination product using such therapies or products, with limited exceptions; it is
intended to treat, modify, reverse, or cure a serious or life-thrtt eatening disease or condition; and preliminary clinical evidence indicates
that the drug has the potential
Designation, RMAT designation provides potential benefits that include more frequent meetings with FDA to discuss the development
plan for the product candidate, and eligibility for rolling review and priority review. Producd ts granted RMAT designation may also be
eligible for accelerated approval on the basis of a surrogate or intermediate endpoint reasonably likely to predict long-term clinical
benefit, or reliance upon data obtained from a meaningful number of sites, including through expansion to additional sites. RMAT-
designated products that receive accelerated approval may, as appropriate, fulfill their post-appa
submission of clinical evidence, clinical trials, patient registries, or other sources of real world evidence, such as electronic health
records; through the collection of larger confirmatory data sets; or via post-approval monitoring of all patients treated with such
therapya
candidates. RMAT designation does not change the FDA's standards for productd
designation will result in expedited review or approval or that the approved indication will not be narrower than the indication covered
by the designation. Additionally, RMAT designation can be revoked if the criteria for eligibility cease to be met as clinical data
emerges.
prior to approval of the therapy. There is no assurance that we will be able to obtain RMAT designation for any of our product
approval, and there is no assurance that such
roval requirements through the
If the FDA determines that a product candidate offers a treatm
d
ent for a serious condition and, if approved, the product would
m
ment in safety or effectiveness, the FDA may designate the product candidate for priority review. A
provide a significant improve
priority review designation means that the goal for the FDA to review an application is six months, rather than the standard review
period of ten months. The FDA has broad discretion with respect to whether or not to grant priority review status to a productd
candidate, so even if we believe a particular product ca
grant it. Moreover, a priority review designation does not necessarily result in expedited regulatory review or approval process or
necessarily conferff
the FDA does not guarantee approval within the six-month review cycle or at all.
any advantage with respect to approval compared to conventional FDA proceduredd
ndidate is eligible for such designation or status, the FDA may decide not to
s. Receiving priority review from
d
We may seek orphan drug designation, or ODD, from the European Commission for one or more of our product candidates. For
instance, CTX001 has been granted ODD by the European Commission for the treatment of TDT and SCD. An ODD provides a
number of benefits, including fee reductions, regulatory assistance, and the ability to apply for a centralized EU marketing
authorization. The grant of a marketing authorization for an orphan drug
rr
market exclusivity period, neither the European Commission nor the member states can accept an application or grant a marketing
authorization for the same therapeutic indication in respect of a “similar medicinal product.” Ho
ff
for the authorized
t
longer meets the criteria for ODD because, for examplm e, the productd
le not to justify market exclusivity. There
is sufficiently profitabff
are a number of derogations from the ten-year period of market exclusivity pursuant to which the European Commission may grant a
marketing authorization for a similar medicinal product in the same therapeutic indication, including where the second applicant can
an medicinal product already authorized, the second product is safer, more
establish that although their product is similar to the orphrr
effective or otherwise clinically superior. There
candidates. ODD does not change the standards for productd
expedited review or approval.
therapeutic indication may be reduced to six years if, at the end of the fifth year, it is established that
is no assurance that we will be able to obtain ODD for any of our other product
approval, and there is no assurance that such designation will result in
leads to a ten-year period of market exclusivity. During this
wever, the market exclusivity period
d
u
the product no
Finally, we may seek to qualify our product candidates under the PRIority MEdicines, or PRIME, scheme from the EMA. The
PRIME scheme is open to medicines under development and for which the applicant intends to apply for an initial marketing
authorization application through the centralized procedure. Eligible products must target conditions for which where is an unmet
medical need (there is no satisfactory method of diagnosis, prevention or treatment in the EU or, if there is, the new medicine will
bring a majora
therapeutic advantage) and they must demonstrate the potential to address the unmet medical need by introducing new
methods or therapy or impromm ving existing ones. There is no assurance that we will be able to obtain PRIME qualification for any of
our productd
candidates. PRIME does not change the standards for product approval, and there is no assurance that such qualification
will result in expedited review or approval. Moreover, where, during the course of development, a medicine no longer meets the
eligibility criteria, support under the PRIME scheme may be withdrawn.
Gene-EdiEE ting Producdd ts Are Novel And May Be Complm ex And Difficult To Man
i
ufacture. We Could Experience Manufa
MM
cturing
Problems That Result In Delayll
Business.
syy In The Development Or Commercialization Of Our Product Candidates Or Othett
rwise Harm Our
The manufacff
turing process used to produce CRISPR/Cas9-based productd
candidates may be complex, as they are novel and
have not been validated for clinical and commercial production. Several factors could causea
equipment malfunctions, facility co
ff
services, human error or disrupti
production interruptu ions, including
ntamination, raw material shortages or contamination, natural disasters, disruptu ion in utility
ons in the operations of our suppli
ers.
u
rr
50
Our product candidates will require processing steps that are more complex than those required for most small molecule drugrr
s.
Moreover, unlike small molecules, the physical and chemical properties of biologics generally cannot be fully characterized. As a
result, assays of the finished product may not be sufficient to ensure that the product will perform in the intended manner.
Accordingly, we will emplmm oy multiple steps to control the manufacturing process to assure that
candidate is made strictly and consistently in compliance with the process. Problems with the manufacturing pr
deviations from the normal process, could result in product defects or manufacturing failures that result in lot failures, product recalls,
nt inventory. We may encounter problems achieving adequate quantities and quality of clinical
product liabia lity claims or insufficie
grade materials that meet FDA, the EMA or other applicable standards or specifications with consistent and acceptable production
yields and costs.
the process works and the product
ocess, even minor
ff
ff
t
In addition, the FDA, the EMA and other health regulatory authorities may require us to submit samples of any lot of any
approved product together with the protocols showing the results of applicable 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 manufacturing process, including those affecting quality attributes and stabia lity, may result in unacceptable
changes in the product that could result in lot failures or product recalls. Lot failures or product recalls could cause us
launches or clinical trials, which could be costly to us and otherwise harm our business, financial condition, results of operations and
prospects. Problems in our manufacturing
process could restrict our ability to meet market demand for our products.
to delay product
a
t
We also may encounter problems hiring and retaining directly or through contract manufacturing organizations the experienced
scientific, quality-control and manufacturing personnel needed to operate our manufacturing processes, which could result in delays in
production or difficulties in maintaining complim ance with applicable regulatory requirements. Any problems in our manufacturing
process or facilities could make us a less attractive collaborator for potential partners, including larger pharmaceutical companies and
academic research institutions, which could limit our access to additional attractive development programs.
Adverse Public Perception Of Gene Editing And Cellular Therapy Products May Negatively Impact Demand For, Or
ff
Regulatory Approval Of, Our Product Candid
atdd 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, consequent
the acceptance of the public or the medical community. Negative public reaction to gene therapy in general could result in greater
government regulation and stricter labeling requirements of gene-editing products, including any of our productdd
candidates, and could
cause a decrease in the demand for 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 available.
ly, our products may not gain
q
In particular, gene-editing technology is subju ect to public debate and heightened regulatory scrutr
iny due to ethical concerns
rr
ly
m
of restrictions on gene editing of
vember 2018, Dr. Jiankui He, a biophysics researcher who was an associate
relating to the application of gene-editing technology to human embrm yos or the human germline. For examplm e, in April 2016, a group
of scientists reported on their attempts to edit the genome of human embryos
to modify the 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 purposefulff
conducted in embrm yos that were not viable, the work prompted calls for a moratorium or other typesyy
human eggs, sperm, and embrm yos. Additionally, in No
professor in the Department of Biology of the Southern University of Science and Technology in Shenzhen, China, reportedly claimed
he had created the first human genetically edited babies, twin girls. This claim, and another that Dr. He had helped create a second
gene-edited pregnancy, was subsequently confirmed by Chinese authorities and was negatively received by the public, in particular by
those in the scientific community. News reports indicate that Dr. He was sentenced to three years in prison and fined $430,000 in
December 2019 by the Chinese government for illegal medical practice in connection with such activities. In the wake of the claim,
the World Health Organization establa ished a new advisory committee to create global governance and oversight standards for human
gene editing. The Alliance for Regenerative Medicine in Washington, D.C. has called for a voluntary moratorium on the use of gene-
editing technologies, including CRISPR/Cas
9, in research that involves altering human embrm yos or human germline cells and has also
released principles for the use of gene editing in therapeutic applications endorsed by a number of companies that use gene-editing
technologies. Similarly, the NIH has announced that it would not fund any use of gene-editing technologies in human embrym os, noting
that there are multiple existing legislative and regulatory prohibitions against such work, including the Dickey-Wicker Amendment,
which prohibits the use of appropriated funds for the creation of human embrm yos for research pu
embryos are destroyed. Laws in the United Kingdom prohibit genetically modified embrym os from being implanted into women, but
embryos can be altered
m
is more tightly controlled in
in research labs under license from the Human Fertilisation and Embryology
rposes or for research in which human
Authority. Research on embrm yos
many other European countries.
m
RR
rr
r
tt
51
Although we do not use our technologies to edit human embryos or the human germline, such publu ic debate about the use of
gene-editing technologies in human embryos and heightened regulatory scrutiny could prevent or delay our development of product
candidates. More restrictive government regulations or negative public opinion would have a negative effeff ct on our business or
financial condition and may delay or impairm
products
d
researchers utilizing gene-editing technologies, even if not ultimately attributable to product candidates we may identify and develop,
and the resulting publicity could result in increased governmental regulation, unfavorablea
delays in the testing or approval of potential product candidates we may identify and develop, stricter labeling requirements for those
product candidates that are approved, and a decrease in demand for any such product candidates.
our development and commercialization of product candidates or demand for any
es or clinical trials or those of our competitors or of academic
we may develop. Adverse events in our preclinical studi
public perception, potential regulatory
t
If, In The FutFF ure, We Are Unable To Establish Sales And Marketing Capaa
bilities Or Enter Into Agreements With Third Parties
stt Based On Our Technologies, We Maya Not Be Successful In Commercializing Our Products If And When
To Sell And Market Productdd
Any Products Candidates Are Approved And We May Not Be Able To Generate Any Revenue.
We do not currently have a sales or marketing infrastructure and, as a company, have no experience in the sale, marketing or
ndidate for which we retain sales and
s. To achieve commercial success for any approved product ca
distribution of therapeutic productd
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, we may choose to build a focused sales and marketing infrastructure to
sell,
or participate in sales activities with our collaborators for, some of our product candidates if any are approved.
d
tt
There are risks involved with both establishing our own sales and marketing capabilities and entering into arrangements with
third parties to perform these services. For examplm e, recruiting and training a sales force is expensive and time consuming and could
delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing
capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization
expenses. This may be costly and our investmet
nt would be lost if we cannot retain or reposition our sales and marketing personnel.
Factors that may inhibit our effoff
rts to commercialize our productd
candidates on our own include:
our inability to recruit, train and retain adequate numbers of effective sales and marketing personnel;
the inabia lity of sales personnel to obtain access to physicians or persuade adequate
futurett
product that we may develop;
q
numbers of physicians to prescribe any
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 product 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 rev
d
enue or the
profitability to us from these revenue streams is likely to be lower than if we were to market and sell any product candidates that we
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 favorablea
and any of them may fail to devote the necessary resources and attention to sell and market our product candidates effectively. If we
do not establa ish sales and marketing capabilities successfully, either on our own or in collaboration with third parties, we may not be
in commercializing our product candidates. Further, our business, results of operations, financial condition and prospects
successfulff
will be materially adversely affected.
to us. We likely will have little control over such third parties
Even If We, Or Any Collab
n
Terms Of Approval
Limit How We, Or They, Manufacture And Market Our Products, Which Could Materially Impair Our Ability To Generate Revenue.
vals For Any Producdd t Candidates We Develop,o The
Of Our Products Could Require The Substantial Expenditure Of Resources And May
Have, Obtaintt Marketing Appro
sll And Ongoing Regulation
orators We May
pp
e
kk
rr
Any product candidate for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical
data, labeling, advertising, and promotional activities for such product, will be subjeb ct to continual requirements of and review by the
FDA and other regulatory authorities. These requirements include submu
reports, registration and listing requirements, current Good Manufacturing Practice, or cGMP, requirements relating to quality control,
quality assurance and corresponding maintenance of records and documents and requirements regarding recordkeeping. Even if
marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the
ements for costly post-marketing testing and surveillance
product may be marketed or to the conditions of approval, or contain requirq
to monitor the safety or efficacy of the product. The FDA also may place other conditions on approvals including the requirement for
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 distrit bution methods, patient registries and other risk
minimization tools.
post-marketing information and
issions of safety and other
t
52
a
Accordingly, assuming we, or any collaborat
we develop, we, and such collaborators, and our and their contract manufacturers
all areas of regulatory compliance, including manufacturing, production, productdd
collaborat
ors are not able to comply with post-approval regulatory requirements, we and such collaborators could have the marketing
a
approvals for our products withdrawn by regulatory authorities and our, or such collaborators’, ability to market any future products
could be limited, which could adversely affect our ability to achieve or sustain profitability. Further, the cost of compliance with post-
approval regulations may have a negative effeff ct on our business, operating results, financial condition, and prospects.
ors we may have, receive marketing approval for one or more product candidates
will continue to expend time, money, and effort in
surveillance, and quality control. If we and such
ff
Any Product Candidate For Which We, Or Any Collaborators We May Have, Obtain Marketing Approval Could Be Su
pp
bject To
From The Market, And We Or They May Be Subject To Substantial Penalties If We Or They Fail To
Restrictions Or WitWW hdrawal
yr Requirementstt Or If WeWW Or They Experience Unanticipated Problems WithWW Our Products,tt When And IfII Any
Comply With Regulator
d.
OfO Them Are Approve
e
pp
tt
The FDA and other regulatory agencies closely regulate the post-approval marketing and promotion of biologics to ensure that
they are marketed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA and
other regulatory agencies impomm se stringent restrictions on manufacturers’ communicat
collaborators we may have, do not market our products
action for off-label marketing by the FDA and other f
edff
Justice. Violation of the Federal Food, Drug,
promotion and advertising of prescription products may also lead to investigations or allegations of violations of fedff
health care fraud and abuse laws and state consumer protection laws.
and Cosmetic Act and other statutes, including the False Claims Act, relating to the
eral and state
for their approved indications, we or they may be subject
eral and state enforcement agencies, including the United States Department of
ions regarding off-ff label use, and if we, or any
to enforcement
mm
u
d
rr
t
In addition, later discovery of previously unknown problems with a product candidate, including adverse events of unanticipated
severity or frequency, or with our or other collaborators’ manufacturing processes, or failure to comply with regulatory requirements,
may result in, among other things:
restrictions on such products, manufacturers, or manufacturing
t
processes;
restrictions on the labeling or marketing of a product;
d
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,
mandatory biologic recalls;
dd
withdrawal of the product from the market, or voluntary or
refusal to approve pending applications or supplements
u
to approved applications that we or our collaborators submit;
fines, restitutt
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 importmm
or export of our products;
productd
seizure or detention; and
injunctions or the imposm ition of civil or criminal penalties.
The FDA’s policies may change and additional government regulations may be enacted that could prevent, limit or delay
regulatory approval of our product candidates. If we or our collaborators are slow or unable to adapt to changes in existing
requirements or the adoption of new requirements or policies, or if we or our collaboa
complmm iance, we or our collaborators may lose any marketing approval that we or our collaborators
adversely affect our business, prospects and ability to achieve or sustain profitability.
rators are not able to maintain regulatory
may have obtained, which would
a
Any government investigation of alleged violations of law, including investigations of any of our vendors, 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 or our collaborators’ ability to commercialize any product candidates we may develop and
adversely affect our business, financial condition, results of operations, and prospects.
53
The Commercial Success Of Any Of Our Product Candidates Will Depend Upon Its Degree Of Market Acceptance By
kk
Physicians, Patients, Third-party Payors And Others In The Medical Community.
Ethical, social and legal concerns about gene therapy could result in additional regulations restricting or prohibiting our
s. Even with the requisite approvals from FDA in the United States, the EMA in the EU and other regulatory authorities
productd
internationally, the commercial success of our product candidates will depend, in significant part, on the acceptance of physicians,
rticular, as medically necessary,
patients and health care payors of gene therapy products in general, and our product candidates in pa
cost-effective and safe.ff Any product that we commercialize may not gain acceptance by physicians, patients, health care 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 factors, including:
d
the efficacy, durability and safety of such product candidates as demonstrat
ted in any futurett
clinical trials;
the potential and perceived advantages of product candidates over alternative treatments;
the cost of treatment relative to alternative treatments;
the clinical indications for which the product candidate is approved by FDA, the EMA or other regulatory authorities;
patient awareness of, and willingness to seek, genotyping;
the willingness of physicians to prescribe new therapies;
the willingness of the target patient population to try new therapies;
the prevalence and severity of any side effeff cts;
productd
limitations or warnings contained in a product’s approved labea
a
label
ing or product insert requirements of FDA, the EMA or other regulatory authorities, including any
ling;
relative convenience and ease of administration;
the strength of marketing and distribution suppu ort;
the timing of market introduction of competitive products;
publicity concerning our products or competing products and treatments; and
suffiff cient third-party payor coverage and reimbursement.
Even if a potential product displays a favorable efficacy
and safety profile in preclinical studies 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
of acceptance following regulatory approval, if ever, we may not generate significant product revenue and may not become profitable.
a
We May Expend Our Limited Resources To Pursue A Particular Product Candidate Or Indication And Fail To Capitalize On
ii
Product Candidates Or Indications That May Be More Profitable Or For Which There Is A Greater Likelihood 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 products or profitable market opportunities. Our spending on current
and future research and development programs and product candidates for specific indications may not yield any commercially viable
productd
s. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may
relinquish valuable rights to that productd
would have been more advantageous for us to retain sole development and commercialization rights to such product candidate.
candidate through collaboration, licensing or other royalty arrangements in cases in which it
We Face Signifii cant Competition In An Environment Of Rapid Technological Change, And The Possi
e
bility That Our
Competitors Maya Achieve Regulatory Approval Before Us Or Develop Therapies That Are More Advanced Or Effective Than Ours,
Which Maya Harm Our Business And Financial Condition And Our Ability To Successfully Market Or Commercialize Our Product
Candidates.
The biotechnology and pharmaceutical industries, including in the gene editing, gene therapy and cell therapy fields, are
characterized by rapidly advancing technologies, intense competition and a strong emphasis on intellectual property and proprietary
products. While we believe that our technology, development experience and scientific knowledge provide us with competim tive
advantages, we currently face, and will continue to face, substantial competition from many different sources, including large
pharmaceutical, specialty pharmaceutical and biotechnology companies; academic institutions and governmental agencies; and publu ic
and private research institutions, some or all of which may have greater access to capia tal or resources than we do. For any products
that we may ultimately commercialize, not only will we compem te with any existing therapies and those therapia es currently in
development, we will have to compete with new therapies that may become available in the future.
54
We compete in the segments of the pharmaceutical, biotechnology and other related markets that utilize technologies
encompam ssing genomic medicines to create therapiaa es, including gene editing, gene therapy and cell therapy. In addition, we compete
with companies working to develop therapies in areas related to our specific research and development programs.
Our platform and product focus is on the development of therapies using CRISPR/CaRR
s9 gene-editing technology. We are aware
of several companies focused on developing therapies in various indications using CRISPR/CaRR
s9 gene-editing technology, including
Intellia Therapeutics and Editas Medicine. In addition, several academic groups have developed new gene-editing technologies based
on CRISPR/Cas9, such as base editing and prime editing, that may have utility in therapeutic development. Companies seeking to
develop therapies based on these technologies include Beam Therapeutics and Prime Medicine
There are also companies developing therapies using additional gene-editing technologies, such as transcription activator-like
effector nucleases, meganucleases and zinc finger nucleases. These companmm ies include Allogene Therapeutics, bluebird bio, Cellectis,
Precision BioSciences and Sangamo Therapea utics.
We are also aware of companies developing therapia es in various areas related to our specific research and development
programs. In hemoglobinopathies, these companies include Acceleron Pharma, Aruvant Therapeutics, bluebird bio, Editas Medicine,
Global Blood Therapeutics, Novartis Pharmaceuticals, Orchard Therapeut
ics and Sangamo Therapeutics. In immuno-oncology, these
compam nies include Allogene Therapeutics, bluebird bio, Bristol Myers Squibb, Cellectis, Fate Therapeutics, Gilead Sciences, Novartis
Pharmaceuticals, Poseida Therapeutics and Precision BioSciences. In regenerative medicine, these companies include BlueRock
Therapeutics (acquired by Bayer in 2019), Sana Biotechnology and Semma Therapeutics (acquired by Vertex in 2019). In in vivo,
these companies include Editas Medicine, Intellia Therapeutics, Sarepta Therapeutics, Ultragenyx and Verve Therapeutics.
a
Gene editing is a highly active field of research and new technologies, related or unrelated to CRISPR, may be discovered and
create new competition. These new technologies could have advantages over CRISPR/CRR as9 gene editing in some applications and
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 producd ts. For example, Editas has exclusively licensed a CRISPR system involving a different
nuclease, Cas12a (Cpf1), which can also edit human DNA, as well as advanced forms of Cas9. Editas and certain of its scientificff
founders have asserted that Cas12a may work better than Cas9 in some cases. Cas9 may be determined to be less attractive than
Cas12a or other CRISPR proteins that have yet to be discovered. Multiple academic labs and companies have also publish
CRISPR-associated nuclease variants that can edit human DNA.
ed on other
CRISPR-associated
u
ff
t
In addition to competition from other gene-editing therapies or gene or cell therapia es, any product we may develop may also
face competition from other types of therapia es, such as small molecule, antibody or protein therapies. In addition, new scientific
discoveries may cause CRISPR/Cas9 technology, or gene editing as a whole, to be considered an inferior form of therapy.
a
In addition, many of our current or potential competitors, either alone or with their collaboration partnett
rs, have significantly
greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials,
obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical,
biotechnology, and gene therapy industries may result in even more resources being concentrated among a smaller numberm of our
competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative
arrangements with large and established companies. These competitors also compete with us in recruirr
scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in
acquiring technologies complementary to, or necessary for, our programs. Our commercial opportunity could be reduced or eliminated
if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more
convenient, have broader acceptance and higher rates of reimburm sement by third party payors or are less expensive than any products
regulatory approval for their products more rapidly than we may
t
that we may develop. Our competitors also may obtain FDA or other
obtain approval for ours, which could result in our competitors establishing a strong market position before 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. The key
compemm titive factors affecti
ent.
reimbursem
ng the success of all of our programs are likely to be their efficacy, safety, convenience, and availability of
ting and retaining qualified
m
ff
If our current programs are approved for the indications for which we are currently planning clinical trials, they may compete
with other products currently under development, including gene editing, gene therapy, and cell therapy products. Competimm tion with
other related products currently under development may include competition for clinical trial sites, patient recruitment, and product
sales. In addition, due to the intense research and development taking place in the gene-editing field, including by us and our
competitors, the intellectual property landscape is in flux and highly competitive. There may be significant intellectual property
related litigation and proceedings relating to our owned and in-licensed, and other third party, intellectual property and proprietary
rights in the futurtt e.
55
Moreover, 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
d
competitors from commercializing competing products. 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.
and our patents may not be sufficient to
prevent our
ff
To become and remain profitable,
a
we must develop and eventually commercialize product candidates with significant market
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 product candidates, obtaining marketing and reimbursm
manufacturing, marketing and selling those products that are approved and satisfyiff ng any post marketing requirements. We may never
succeed in any or all of these activities and, even if we do, we may never generate revenues that are significff ant or large enough to
achieve profitability. If we do achieve profitability, we may not be able to sustain or increase profitabia lity on a quarterly or annual
basis. Our failure to become and remain profitable would
research and development efforts, expand our business or continuen
shareholders to lose all or part of their investment.
decrease our value and could impam ir our ability to raise capital, maintain our
our operations. A decline in our value also could causea
ement approval for these product candidates,
a
Even If We Are Able To Commercialize Any Product Candidatdd es, Such Products May Become Subject To Unfavorable Pricing
Regulations, Third-party Reimbursement Pra
rr
ctices, Or Healthcare Reforff m Initiatives, Which Would Harm Our Busin
rr
ess.
The regulations that govern marketing approvals, pricing, and reimburse
m
ment for new biologic products vary widely from
ff marketing or product licensing approval is granted. In some non-U.S. markets, prescription
country to country. Some countries require approval of the sale price of a product before it can be marketed. In many countries, the
pricing review period begins after
pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might
obtain marketing approval for a product in a particular country, but then be subju ect 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 ge
the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more productd
es we may develop obtain marketing approval.
candidates, even if any product candidat
nerate from the sale of
m
d
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. Third-party payoa
rs, such as private health insurers, health maintenance organizations, and governmental programs such
as Medicare and Medicaid, decide which medications they will pay for and establish reimbursem
ent levels. A primary trend in the
U.S. healthcare industry and elsewhere is cost containment. Governmental and private 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 for medical
products. We cannot be sure that reimbursm
available, the level of reimbursement. Reimbursement may impam ct the demand for, or the price of, any product candidate for which we
obtain marketing approval. If reimbursem
commercialize any product candidate for which we obtain marketing approval.
ement will be available for any product that we commercialize and, if reimbursement is
only to limited levels, we may not be able to successfully
ent is not available or is availablea
m
m
tt
There may be significant delays in obtaining reimbursement for newly approved products, and reimbursm
ement 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 for reimbursement does not imply that any product will be paid for in all cases or at a rate that covers our
costs, including research, development, manufacture, sale, and distribution. Interim reimbursm
applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to
the use of the product and the clinical setting in which it is used, may be based on reimbursem
ent levels already set for lower cost
products and may be incorporated into existing payments for other services. Net prices for 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
restrict imports
of products from countries where they may be sold at lower prices than in the United States. Third-party payors oftenff
ement policies. Our inability to promptlymm
rely upon Medicare coverage policy and payment limitations in setting their own reimbursm
ent-funded and private payors for any approved products we may
obtain coverage and profitable payment rates from both governmrr
develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products,
and our overall financial condition.
ement levels for new products, if
m
m
56
Risks Related to Our Relationships with Third Parties
If Conflicts Arise Between Us And Our Collaborators Or
rr
And Could Limit Our Ability To Implement Our Strategies.
tt
Strateg
tt
ic Partnett
rs, These Parties May Act In A Manner Adverse To Us
If conflicts arise between our corporate or academic collaborators or strategic partners and us, the other party may act in a
manner adverse to us and could limit our ability to implm ement our strategies. Some of our academic collaborators and stratt
partners are conducting multiple product devel
collaborators or strategic partners, however, may develop, either alone or with others, products in related fields that are competitive
with the products or potential products that are the subjeb ct of these collaborat
ions. Competing products, either developed by the
collaborators or strategic partners or to which the collaborators or strategic partners have rights, may result in the withdrawal of
partner support for our productd
within each area that is the subject of the collaboration with us. Our
opment efforts
candidates.
tegic
dd
a
ff
Some of our collaborators or strategic partners could also become our competitors in the future. Our collaborators or strategic
partners could develop competing productd
regulatory approvals, terminate their agreements with us prematurely, or fail to devote sufficient resources to the development and
commercialization of products. Any of these developments could harm our product development efforts.
s, preclude us from entering into collaborations with their competitors, fail to obtain timely
ff
Our Collaborators Or Strategic Partners May Decide To
dd
Commercially Viable Products With Our Technology, Which Would Negatively Impact Our Revenues And Our Strategy To Develop
These Products.tt
gies Or May Be Unable To Develop
Adopt Alternative Technolo
a
Our collaborators or strategic partners may adopt alternative technologies, which could decrease the marketability of our
s9 gene-editing technology. Additionally, because our current collaborators or strategic partners are and we anticipate that
CRISPR/CaRR
any future collaborators or strategic partners will be working on more than one development project,
resources to projeo cts other 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 gene-editing technology. Furthet
collaborators and strategic partners may elect not to develop products arising out of our collaborat
ive and strategic partnering
arrangements or to devote sufficient resources to the development, manufacturing, marketing or sale of these products. The failure to
develop and commercialize a product candidate pursuant to our agreements with our current or future c
ollaborators would prevent us
from receiving future milestone and royalty payments which would negatively impact our revenues.
they could choose to shift their
r, our
o
a
tt
Our Collaborators And Strategic Partners Maya Contrott
l Aspes
cts Of Our Clinical Trials and Commercializaii
tion Efforts, Which
Could Result In Delays And Other Obstacles In The Commercialization Of Our Proposed Productdd
Of Operations.
stt And Materially Harm Our Results
a
For some programs, we will depend on third party collaborators and strategic partners to design and conduct our clinical trials,
these programs in
and for any approved products, the commercialization of such products. As a result, we may not be able to conductd
the manner or on the time schedule we currently contemplate, which may negatively impam ct our business operations. In addition, if
any of these collaborators
development or commercialization, our business could be negatively affected. For examplm e, in October 2015, we entered into the 2015
Collaboration Agreement with Vertex to research, develop and commercialize new treatments aimed at the underlying genetic causes
of human diseases, including beta thalassemia and sickle cell. In December 2017, we entered into the JDA with Vertex initially for the
development and commercialization of CTX001 forff
Collaboration Agreement with Vertex to develop and commercialize products for the treatment DMD and DM1.
or strategic partners withdraw support for our programs or proposed products or otherwise impairm
beta thalassemia and sickle cell disease. In June 2019, we entered into the 2019
their
Under our 2015 Collaborat
a
ion Agreement with Vertex, Vertex had sole authority to select genetic targets to pursue and we do
t
d
er the development of any product ca
ndidates for the selected genetic targets. Under the JDA, we and Vertex have
not have control ov
an equal numberm of representatives on the various committees contemplm ated by the JDA, which will prevent us from having sole
control of the development of CTX001 or any future product candidates subject to the
will be solely responsible for the commercialization activities of any approved products subject to the JDA outside of the United
States. Additionally, under the 2019 Collaboration Agreement with Vertex, Vertex has sole authority to develop and commercialize
products
d
of control over the clinical development and commercialization activities in our agreements with Vertex could cause delays or
difficulties in the development and commercialization of product candidates, which may
intended IND fili gngs in a tim yely fashion, if at all, or the complmm etion or de y
klack
other
r
prevent among other thinggs, completion fof
g
under the agreement (subju ect to our option to co-develop and co-commercialize products for the treatment of DM1). Our
rmore, pursuant to the JDA, Vertex
lay in BLA filings.
JDA. Furthet
u
g
57
In addition, the termination of our agreements with Vertex would prevent us from receiving any milestone, royalty payments
and other benefits under that agreement, which may have a materially adverse effect
ff
on our results of operations.
We May Seek To Establish Addidd tional Collaborations And,dd If We Are Not Able To Establish Them On Commercially Reasonable
Terms, We May Have To Alter Our Development And Commercialization Plans.
Our product candidate development programs and the potential commercialization of our product candidates will require
substantial additional cash to fund expenses. For some of our product candidates, we may decide to collaborate with additional
pharmaceutical and biotechnology companies for the development and potential commercialization of those product candidates.
We face significant compem tition in seeking appropriate collabor
a
ators. Whether we reach a definitive
ff
agreement for any
additional collaborations will depend, among other things, upon our assessment of the collaborator’s re
and conditions of the proposed collaboration and the proposed collaborat
or’s evaluation of a number of factors. Those factors may
include the design or results of clinical trials, the likelihood of approval by FDA or similar regulatory authorities outside the United
States, the potential market for the subju ect product candidate, the costs and complexities of manufacturing and delivering such product
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 industry and market
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 product
candidate. The terms of any additional collaborations or other arrangements that we may establish may not be favff orable to us.
sources and expertise, the terms
a
a
We may also be restricted under existing collaboration agreements from entering into future agreements on certain terms with
potential collaborators. For example, we have granted exclusive rights to Vertex for certain genetic targets, and during the term of the
collaboration agreements, we will be restricted from granting rights to other parties to use our gene-editing technology to pursue
therapies that address these genetic targets. The non-competition provisions in this agreement could limit our ability to enter into
strategic collaborations with future collaborators.
We may not be able to negotiate additional collaboa
rations on a timely basis, on acceptable terms, or at all. Collaborations are
mm
complmm ex and time-consuming to negotiate and document. In addition, there have been a significff ant number of recent business
combinations among large pharmaceutical companies that have
collaborators. If we
are unable to negotiate and enter into new collaborations, we may have to curtail the development of the product candidate for 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 expenditures 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 available to us on acceptablea
terms or at all. If we do not have sufficie
ff
market and generate product revenue.
nt funds, we may not be able to further develop our product candidates or bring them to
resulted in a reduced number of
potential futuret
m
We Expex
ct To Rely On Third Parties To Conducdd t Our Clinical Trials And Certain Aspects Of Our Preclinical Studies For Our
Product Candidates. If These Third Parties Do Not Successfully Carry Out Their Contractual Duties, Complm y With
Requirements Or Me
Candidates And Our Business Could Be Substantially Harmed.
et Expected Deadlines, We May Not Be Able To Obtain Regulatory Approval For Or Commercialize Our Product
yr
Regulator
e
tt
ll
We expect to rely on medical institutions, clinical investigators, contract laboratories and other third parties, such as CROs, to
less, we are responsible for ensuring that each of our preclinical studtt
conduct future clinical trials and we currently rely on third parties to conductd
certain aspects of our preclinical studies for our product
ies and any future clinical trials we sponsor
candidates. Neverthet
are conducted in accordance with the applicable protocol, legal and regulatory requirements and scientific standards and our reliance
on CROs will not relieve us of our regulatory responsibilities. For examplm e, we will remain responsible for ensuring that each of our
clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires
us to comply with regulations, commonly referff
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 government-sponsored databaa
result in fines, adverse publicity, and civil and criminal sanctions. For any violations of laws and regulations during the conduct of our
preclinical studtt
to and including criminal prosecution.
red to as Good Clinical Practices, or GCPs, for conducting, recording, and reporting the
to warning letters or enforcement action that may include civil penalties up
se, ClinicalTrials.gov, within certain timeframes. Failure to do so can
ies and clinical trials, we could be subject
u
58
We and our CROs will be required to comply with regulations, including GCPs, for conducting, monitoring, recording and
reporting the results of preclinical studies and clinical trials to ensure that the data and results are scientifically 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 the FDA, the Competent Authorities of the Member States of the European
Economic Area and comparable health regulatory authorities for any drugs in clinical
regulations through periodic inspections of clinical trial sponsors, principal investigators and trial sites. If we or our CROs fail to
FDA or comparable
comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and
health regulatory authorities may require us to perform additional clinical trials beforeff
approving our marketing applications. We
cannot assure you that, upon inspection, the FDA will determine that any of our future clinical trials will comply with GCPs. In
addition, our future clinical trials must be conducted with product candidates produced 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 and require significantly greater
expendituret
development. The FDA enforces GCP
s.
a
ff
rr
Although we intend to design the clinical trials for our product candidates, CROs will conduct all of the clinical trials. As a
ant aspects of our development programs, including their conduct and timing, will be outside of our direct control.
result, many importm
Our reliance on third parties to conduct futuret
management of data developed through preclinical studies and clinical trials than would be the case if we were relying entirely upon
our own staff. Communicat
ing with outside parties can also be challenging, potentially leading to mistakes as well as difficulties in
coordinating activities. Outside parties may:
preclinical studies and clinical trials will also result in less direct control over the
m
have staffing difficulties;
fail to comply with contractual
t
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.
ies and
These factors may materially adversely affect the willingness or ability of third parties to conduct our preclinical studtt
clinical trials and may subject us to unexpected cost increases that are beyond our control. If the CROs do not perform preclinical
studies and future clinical trials in a satisfactory manner, breach their obligations to us or fail to comply with regulatory requirements,
the development, regulatory approval and commercialization of our product candidates may be delayed, we may not be able to obtain
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 conductd
and this could significantly delay commercialization and require
significantly greater expenditures.
We Expex
ct To Rely On Third Parties To Manufacture Our Clinical Product Supplies, And We Intend To Rely On Third Parties
u
For At Least A Portion Of The Manufau cturing Process Of Our Product Candidates. Our Business Could Be Harmed If The Third
Parties Fail To Provide Us WitWW htt Sufficient Q
uantities Of Product Inputs Or Fail To Do So At Acceptable Quality Levels Or Prices.
ff
We do not currently own any facility that may be used as our clinical-scale manufacturing
tt
and processing facility and must rely
ies and process our product candidates in connection with any clinical trial we undertake of
on outside vendors to manufacture suppl
such product candidates. We have not yet caused any product candidates to be manufactured or processed on a commercial scale and
may not be able to do so for any of our product candidates. We will make changes as we work to optimize the manufacturing process,
and we cannot be sure that even minor changes in the process will result in therapies that are safe and effective.
u
The facilities used by our contract
tt
manufacturers to manufacture our product candidates must be approved by the FDA, or other
health regulatory agencies in other jurisdictions, pursuant to inspections that will be conducted after we submu
FDA or other health regulatory agencies. We will not control the manufacturtt
contract manufacturing partners for compliance with regulatory requirements, known as cGMP requirements, for manufacff
product candidates. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the
strict regulatory requirements of the FDA or other regulatory authorities, they will not be able to secure and/or maintain regulatory
approval for their manufacturing facilities. In addition, we have no direct control over
maintain adequate quality control, quality assurance and qualifiedff
does not approve these facilities for the manufacturett
may need to find alternative manufacturing
approval for or market our product candidates, if approved. In addition, if our contract manufacff
become distracted as a result of actions taken by the FDA or a comparable health regulatory authority, we may experience
manufacturing delays or may need to find alternative manufacturing facilities, which in each case, would significantly impam ct our
ability to develop, obtain regulatory approval for or market our product candidates, if approved.
the ability of our contract
personnel. If the FDA or a comparable health regulatory authority
of our product candidates or if it withdraws any such approval in the future, we
ing process of, and will be completely dependent on, our
ture of our
facilities, which would significantly impact our ability to develop, obtain regulatory
turers are unable to timely performff
it an application to the
manufacturers to
or
tt
tt
t
59
Our Relationships With Healthcare Providers, Physicians, And Third-party Payors Will Be Subject To Applicable Anti-
kickback, Fraud And Abuse And Other Healthcare Laws And Regulation
Penalties, Exclusion From Government Healthcare Programs, Contractual Damag
Future Earnings.gg
e
tt
s, Which Could Expose Us
x
To Criminal Sanctions, Civil
es, Reputational Harm And Diminished Profits And
Although we do not currently have any products on the market, once we begin commercializing our product candidates, if ever,
and regulatory requirements and enforcement by the U.S. federal government and
we will be subject to additional healthcare statutory
states as well as other
t
t
national, regional or local governments in other jurisdictions in which we conduct our business.
Healthcare providers, physicians and third-party payors play a primary role in the recommendation and prescription of any
d
ndidates that we may develop for which we obtain marketing approval. Our future arra
product ca
customers may expose us to broadly applicable fraud and abuse and other
business or financial arrange
candidates for which
we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations include the following:
t
ments and relationships through which we market, sell, and distribute our productd
healthcare laws and regulations that may constrain the
ngements with third-party payors and
r
tt
kk
Statutet
prohibits, among other
the federal Anti-Kickback
offering, receiving or providing remuneration, directly or indirectly, overtly or covertly, in cash or in kind, in exchange for
or intended to induce or reward either the referral of an individual for, or the purchase, order, or recommendation of, any
good or servirr ce, for which payma
Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order
to have committed a violation. Violation of the statute may give rise to criminal and/or civil penalties;
ent may be made under a state or Federal healthcare program, such as Medicare and
things, persons from knowingly and willfully soliciting,
t
the federal civil and criminal false claims laws, including the civil False Claims Act, imposem
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 approval from
Medicare, Medicaid, or other government payoa
ent or knowingly making, using or
causing to be made or used a false record or statement to avoid, decrease or conceal an obligation to pay money to the
federal government, with potential liability including mandatory treble damages and significant
per-claim penalties. In
addition, the government may assert that a claim including items and services resulting from a violation of the federal
Anti-Kickbakk ck Statute constitutt es a false of fraudulent claim for purposes of the False Claims Act;
rs that are falff se, fictitious or fraudul
criminal and civil penalties,
a
ff
HIPAA, as further amended by HITECH, and their implement
certain requirements on
covered entities, including healthcare providers, health plans and healthcare clearing houses, as well as their business
associates that perform certain services with respect to safeguarding the privacy, security and transmission of individually
identifiable health information that constitutes protected health information, including mandatory contractual terms and
restrictions on the use and/or disclosure of such information without appropriate authot
ing regulations which imposem
rization;
mm
the federal false statements statute prohibits knowingly and willfully falsifyiff ng, concealing, or covering up a material fact
or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items, or
services; similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the
statute or specific intent to violate it in order to have committed a violation;
the federal physician payment transparency requirements, sometimes referred to as the “Sunshine Act” under the
Affordable Care Act, require manufacturers of drugs, devices, biologics and medical supplies that are reimbursm
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 tr
t
doctors, dentists, optometrists, podiatrists and chiropractors) 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; effeff ctive January 1, 2022, these reporting obligations will extend to include transfers of value
made to certain non-physician providers such as physician assistants and nurse practitioners; and
ansfers of value to physicians (currently defined to include
able under
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-kickbak ck and false claims laws, which may apply to healthcare items or services that are reimbursed by
non-governmental third-party payors, including private insurers.
The provision of benefitsff
or advantages to physicians to induce or encourage the prescription, recommendation, endorsement,
purchase, supply, order, or use of medicinal products is prohibited in the EU. The provision of benefits or advantages to physicians is
also governed by
could result in substantial fines and imprim sonment.
the national anti-bribery laws of EU member states, such as the UK Bribery Act 2010. Infringement of these laws
rr
60
Payments made to physicians in certain EU member states must be publicly disclosed. Moreover, agreements with physicians
u
often must be the subject of prior
organization, and/or the regulatory authorities of the individual EU member states. These requirements are provided in the national
laws, industry codes, or professional codes of conduct applicable in the EU member states. Failure to comply with these requirements
could result in reputational risk, publu ic reprimands, administrative penalties, fines, or imprisonment.
notification and approval by the physician’s employmm
er, his or her competent professional
Efforff
ts to ensure that our business arrangements with third parties will complymm with applicable healthcare laws and regulations
will involve subsu tantial costs. It is possible that governmental authorities will conclude that our business practices may not comply
with current or future statutes, regulations, or case law involving applicablea
re laws and regulations.
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some
of our business activities could be subjeb ct to challenge under one or more of such laws. 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
regulations that may apply to us, we may be subju ect to significff ant civil, criminal, and administrative penalties, damages, fines,
exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructurt
operations. If any of the physicians or other providers or entities with whom we expect to do business is found to be not in complm iance
ct to criminal, civil, or administrative sanctions, including exclusions from government funded
with applicable laws, they may be subjeu
healthcare programs. Liabia lities they incur pursuant to these laws could result in significant costs or an interruptu ion in operations,
which could have a material adverse effect
on our business, financial condition, results of operations, and prospects.
and abuse or other healthca
governmental
ing of our
frauda
ff
t
t
Risks Related to Employee Matters, Managing Growth and Other Risks Related to Our Business
Our Future Success Depends On Our Ability To Retain Key Executives And To Attract, Retain And Motivate Qualified
Personnel.
m
We are highly dependent on the research and development, clinical, commercial and business development expertise of
Dr. Samarth Kulkarni, our Chief Executive Officer, as well as the other principal members of our management, scientific and clinical
team. Although we have entered into employm
employment with us at any time. We do not maintain “key person” insurance for any of our executives or other emplm oyees. In
addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulmm ating 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 availability to us. The loss of the
services of our executive officers or other
the achievement of our research, development
key emplm oyees or consultants could impedemm
and commercialization objectives and seriously harm our ability to successfully implm ement our business strategy. If we are unable to
retain higgh qua ylity personnel, our
ent agreements with our executive officers, each of them may terminate their
ability to pursue our growth
strategy will be limited.
gy
g
y
t
We will also need to recruit and retain qualified scientific, clinical and commercial personnel as we advance the development of
our product candidates and product pipeline. We may be unablea
terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience
competition for the hiring of scientific, clinical and commercial personnel from universities and research institutions. Failure to
succeed in clinical trials may make it more challenging to recruit and retain qualified scientific personnel.
to hire, train, retain or motivate these key personnel on acceptablea
Swiss Corporr
rate Governance With Respes
ct To Executive Compensation May Affect Our Business.
a
The Swiss Federal Council Ordinance Against Excessive Compensation at Public Companies, or the Ordinance, among other
things, (a) requires a binding shareholder “say on pay” vote with respect to the compensation of members of our executive
management and board of directors, (b) generally prohibits the making of severance, advance, transaction premiums and similar
payments to members of our executive management and board of directors and (c) requires companies to specify various
compensation-related matters in their articles of association, thus requiring them to be approved by a shareholders’ vote. At our annual
general meetings, our shareholders are required to approve the maximum aggregate compensation of our board of directors and our
executive management team. The Ordinance further provides for criminal penalties against directors and members of executive
management in case of non-compliance with certain of its requirements. The Ordinance may negatively affect our ability to attract and
retain executive management and members of our board of directors.
61
We Will Need To Develop And Expand Our Company,yy And We May Enc
a
ounter Difficulties In Managing This Development And
Expansion, Which Could Disrupt Our Operations.
As of December 31, 2019, we had 304 full-time employees and we
m
expect to continue to increase our number of em
plm oyees and
m
the scope of our operations in 2020 and beyond as we seek to advance development and if successful, commercialization, of our
product c
andidates. To manage our anticipated development and expansion, we must continue to implm ement and improve
d
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 effectively
manage the expansion of our operations or recruit
infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among
remaining employees. The physical expansion of our operations may lead to significant costs and may divert financial resources from
other projects, such as the development of our product candidates. If our management is unable to effect
ively 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 approved, and compete effectively will depend, in part, on our ability to effectively manage the future development and
expansion of our company.
and train additional qualified personnel. This may result in weaknesses in our
our
m
m
ff
r
ff
ee
Our Employee
s, Pri
m
ncipal Investigators, Consultants And Commercial Partners Maya Engage In Misconduct Or Othett
r Imprm oper
Activities, Including Non-compliance With Regulatory Standards And Req
tt
uirements And InsII
dd
ider Trad
ing.
We are exposed to the risk of fraud or other misconduct by our employees, consultants, commercial partners, and principal
u
kk
are industry are subject to
f-dealing and other abusive practices. These laws and regulations restrict or prohibit a wide range of pricing,
investigators. Misconduct by these parties could include intentional failures to comply with FDA regulations or the regulations
applicable in the EU and other jurisdictions, provide accurate information to the FDA, the European Commission, and other regulatory
authorities, comply with healthcare fraud and abuse laws and regulations in the United States and in other jurisdictions, report
financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business
arrangements in the healthct
extensive laws and regulations intended to prevent fraud, misconduct,
kickbacks, sel
discounting, marketing and promotion, sales commission, customer incentive programs, and other
misconduct also could involve the improm per use of information obtained in the course of clinical trials or interactions with the FDA or
other regulatory authorities, which could result in regulatory sanctions and causea
code of conduct applicablea
precautions we take to detect and prevent this activity may not be effeff ctive in controlling unknown or unmanaged risks or losses or in
protecting us from government investigations or other actions or lawsuits stemming from a failure to complymm with these laws or
regulations. Additionally, we are subjeb ct 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
have a significant impam ct on our business, financial condition, results of operations, and prospects, including the impom sition of civil,
criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other
federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings and curtailment of our
operations, any of which could adversely affect our ability to operate our business and our results of operations.
serious harm to our reputation. We have adopted a
ees, but it is not always possible to identify and deter employee misconduct, and the
in defending ourselves or asserting our rights, those actions could
business arrangements. Such
to all of our employm
t
If We Fail To Comply With Environmental, Health And Safea ty Lawsww And Regulations, We Could Become Subject To Fines Or
Penalties Or Incur Costs That Could Harm Our Business.
We are subject to numerous environmental, health and safetyff
laws and regulations, including those governing laboratory
s. 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 flammable materials, including chemicals and biological materials. Our operations also produced
productd
contamination or injury fromff
these materials. In the event of contamination or injury resulting from any use by us of hazardous
materials, we could be held liable for any resulting damages, and any liability 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.
hazardous waste
In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and
Our failure to
regulations. These current or future laws and regulations may impam ir our research, development or production efforts.
complym with these laws and regulations also may result in substantial fines, penalties or other sanctions.
ff
62
Producdd t Liability Lawsuits Against Us Could Ca
ll
use Us To Incur Substantial Liabilities And Could Limit Commercialization Of
Any Product Candidates That We May Develop.
a
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,
or eventual outcome, liability claims may result in:
we could incur subsu tantial liabilities. Regardless of merit
n
decreased demand forff
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 have obtained productd
liability insurance coverage, it may not be adequate to cover all liabilities that we may
incur. Further, we anticipate that we will need to increase our insurance coverage if we successfully commercialize any productd
candidate. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable co
an amount adequate to satisfy any liability that may arise.
a
st or in
If We Fail To Establish And Maintain
MM
Proper And Effective Internal Control Over Financial Reporting
,gg Our Operating Results
e
And Our Ability To Operate Our Business Could Be Harmed.
Ensuring that we have adequate internal finan
ff
cial and accounting controls and procedures
d
in place so that we can produce
q
to comply with the requirements of The Sarbanes-Oxley Act of 2002, which requires that we maintain effective internal
accurate financial statements on a timely basis is a costly and time-consuming effoff
required
control over financial reporting and disclosure controls and procedures. In particular, we must perform system and process evaluation,
document our controls and perform testing of our key control over financial reporting to allow management and our independent
public accounting firm to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the
Sarbar nes-Oxley Act. Our testing, or the subsequent testing by our independent publu ic accounting firm, may reveal deficiencies in our
internal control over financial reporting that are deemed to be material weaknesses. If we are not able to comply with the requirements
of Section 404 in a timely manner, or if we or our accounting firm identify deficiencies in our internal control over financial reporting
that are deemed to be material weaknesses, the market price of our stock would likely decline and we could be subju ect to lawsuits,
sanctions or investigations by regulatory authorities, which would require additional financial and management resources.
rt that needs to be re-evaluated frequeq ntly. We are
ff
We continue to invest in more robust technology and in more resources in order to manage those reporting requirements.
Implementing the appropriate changes to our internal controls may distract our officff ers and employees, result in substa
implement new processes or modify our existing processes and require significant time to complete. Any difficulties or delays in
implementing these controls could impam ct our ability to timely report our financial results. In addition, we currently rely on a manual
process in some areas which increases our exposure to human error or intervention in reporting our financial results. For these reasons,
we may encounter difficulties in the timely and accurate reporting of our financial results, which would impam ct our ability to provide
our investors with information in a timely manner. As a result, our investors could lose confidence in our reported financial
information, and our stock price could decline.
ntial costs if we
u
In addition, any such changes do not guarantee that we will be effective in maintaining
ff
the adequacy of our internal controls,
and any failure to maintain that adequacy could prevent us fromff
accurately reporting our financial results.
We May Fail To Comply With Evolving Europ
WW
ean And Other Privacy Laws.
We currently conduct clinical trials in the European Economic Area, or EEA. As a result, we are subjeb ct to additional privacy
laws. The General Data Protection Regulation, (EU) 2016/679, or GDPR, became effective on May 25, 2018, and deals with the
broad range of strict requirements on
processing of personal data and on the free movement of such data. The GDPR imposes a
companmm ies subju ect to the GDPR, including requirements relating to having legal bases for processing personal information relating to
identifiablea
individuals regarding the processing of their personal information, keeping personal information secure, having data processing
agreements with third parties who process personal information, responding to individuals’ requests to exercise their rights in respect
of their personal information, reporting security breaches involving personal data to the competent national data protection authority
individuals and transferring such information outside the EEA, including to the United States, providing details to those
m
63
and affected individuals, appointing data protection officers, conducting data protection impact assessm
ents, and record-keeping. The
GDPR increases subsu tantially the penalties to which we could be subju ect in the event of any non-compliance, including fines of up to
10,000,000 Euros or up to 2% of our total worldwide annual turnover for certain comparatively minor offenses,
Euros or up to 4% of our total worldwide annual turnover for more serious offenses. Gi
date, we face uncertainty as to the exact interpretation of the new requirements on our trials and we may be unsuccessful in
implementing all measures required by data protection authot
or up to 20,000,000
ven the limited enforcement of the GDPR to
rities or courts in interpretation of the new law.
m
ff
ff
In particular, national laws of member states of the EU have implemented national laws which may partially
rr
deviate from the
m
erff ent and more restrictive obligations from country to country, so that we do not expect to operate in a uniformff
GDPR and impose diff
legal landscape in the EU. Also, as it relates to processing and transfer of genetic data, the GDPR specifically allows member state
nations to enact laws that imposem
differed quite substantially in this field, leading to additional uncertainty.
additional and more specific requirements or restrictions, and European laws have historically
In addition, we must also ensure that we maintain adequate safeguards to enable the transferff
of personal data outside of the
rts to comply with our obligations under European privacy laws will be sufficient. If we are
EEA, in particular to the United States, in compliance with European data protection laws. We expect that we will continue to face
uncertainty as to whether our effoff
investigated by a European data protection authority, we may face fines and other penalties. Any such investigation or charges by
European data protection authorities could have a negative effect on our existing business and on our ability to attract and retain new
clients or pharmaceutical partners. We may also experience hesitancy, reluctance, or refusal by European or multi-national clients or
pharmaceutical partners to continue to use our products and solutions due to the potential risk exposure as a result of the current (and,
on them by certain data protection authorities in interpretation of current law,
in particular, future) data protection obligations imposed
including the GDPR. Such clients or pharmaceutical partnett
rs may also view any alternative approaches to compliance as being too
costly, too burdensome, too legally uncertain, or otherwise objeb ctionable and therefore decide not to do business with us. Any of the
foregoing could materially harm our business, prospects, financial condition and results of operations.
mm
rr
Our Internal Computer Systems, Or Those Of Our Collaboratortt
s Or Ot
hett
r Contractors Or Consultants, Maya Fail Or Sufferff
Security Breaches, Which Could Result In A Material Disruption Of Our Product Development Programs.
o
Our internal computer systems and those of our current and any futurett
rr
authorized access, natural disasters, terrorism, war and telecommunication and
vulnerable to damage from computer viruses, un
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 interrupt
ions in our operations, it could result in a disruption of our development programs and our
business operations, whether
example, the loss of clinical trial data from future clinical trials could result in delays in our regulatory approval effoff
significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a
loss of, or damage to, our data or applications, or inappropriate disclosure of confidff ential or proprietary information, we could incur
liability, our competim tive position could be harmed and the further
could be delayed.
due to a loss of our trade secrets or other proprietary information or other
development and commercialization of our product candidates
similar disruptu ions. For
rts and
rr
t
t
t
collaborators and other contractors or consultants are
We could be subject to risks caused by misappropriation, misuse, leakage, falsification or intentional or accidental release or
subjeu
cts, and company and vendor confidential data. In addition, outside parties may attempt
loss of information maintained in the information systems and networks of our company and our vendors, including personal
information of our employees and studyt
to penetrate our systems or those of our vendors or fraudulently induce our personnel or the personnel of our vendors to disclose
sensitive information in order to gain access to our data and/or systems. We may experience threats to our data and systems, including
malicious codes and viruses, phishing and other cyber-attacks. The number and complexity of these threats continue to increase over
time. If a material breach of our information technology systems or those of our vendors occurs, the market perception of the
effectiveness of our security measures could be harmed and our reputation and credibility could be damaged. We could be required to
expend significant amounts of money and other resources to repair or replace information systems or networks. In addition, we could
be subjeb ct to regulatory actions and/or claims made by individuals and groups in private litigation involving privacy issues related to
data collection and use practices and other data privacy laws and regulations, including claims for misuse or inappropriate disclosure
of data, as well as unfair or deceptive practices. Although we develop and maintain systems and controls designed to prevent these
events from occurring, and we have a process to identify and mitigate threats, the development and maintenance of these systems,
controls and processes is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome
security measures become increasingly sophisticated. Moreover, despite our efforts, the possibility of these events occurring cannot be
eliminated entirely. As we outsource more of our information systems to vendors, engage in more electronic transactions with payors
and patients, and rely more on cloud-based information systems, the related security risks will increase and we will need to expend
additional resources to protect our technology and information systems. In addition, there can be no assurance that our internal
information technology systems or those of our third-party contractors,
tt
control
system malfunff
attacks or insider threat attacks which could result in financial, legal, business or reputational harm.
tt measures, will be sufficient to protect us against breakdowns, service disruptu ion, data deterioration or loss in the event of a
ted in the event of a cybey rattack, security breach, industrial espionage
ction, or prevent data from being stolen or corrupr
rts to implm ement adequate security and
or our consultants’ effoff
r
64
Our Business Is Subject To Economic, Political, Regulatory And Other Risks Associated With Internation
ii
al Operations.
Our business is subject to risks associated with conductd
ing business internationally. We and a number of our suppli
u
ers 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 instability in particular non-U.S. economies and markets;
differing regulatory requirements for drug approvals in non-U.S. countries;
potentially reducd ed protection for intellectual property rights;
difficulties in compliance with non-U.S. laws and regulations;
changes in non-U.S. regulations and customs, tariffs and trade barriers;
changes in non-U.S. currency exchange rates and currency controls;
changes in a specific country’s or reg
tt
ion’s political or economic environment;
trade protection measures, import or export licensing requirements or other restrictive actions by U.S. or non-U.S.
governments;
negative consequences from changes in tax laws;
compliance with tax, emplom yment, immigration and labor laws forff
emplmm oyees living or traveling outside the United States;
workforce uncertainty in countries where labor
a
unrest is more common than in the United States;
difficulties associated with staffing
ff
and managing international operations, including differing labor relations;
production shortages resulting from any events affecting raw material supply or manufacturing capabilities outside the
United States;
business interrupt
floods and fires; and
r
ions resulting from geo-political actions, including war and terrorism, or naturtt al disasters including
adverse effects and instability in global financial markets, political institutions
United Kingdom’s June 23, 2016 vote to leave the EU, subsequent invocation of Article 50 of the Lisbon Treaty on March
29, 2017, and the United Kingdom is formally leaving the EU on January 31, 2020.
and regulatory agencies resulting from the
t
e
Legal,
political and economic uncertainty surrounding the exit of the U.K. from the EU may be a source of instabi
tt
lity in
international markets, create signigg fici ant currency fl
our business, revenue, financial condition, and results
c
e
of operations.
uctuations, adversely affect our o
peo rations in the U.K. and pose additional risks to
ff
On June 23, 2016, the U.K. held a referendum in which a majority of the eligible members of the electorate voted to leave the
EU, commonly referred to as Brexit. Pursuant to Article 50 of the Treaty on EU, the U.K. ceased being a Memberm State of the EU on
January 31, 2020. However, the terms of the withdrawal have yet to be fully negotiated. The implm ementation period began February 1,
2020 and will continue until December 31, 2020. During this 11-month period, the U.K. will continue to follow all of the EU’s rules,
the EU’s pharmaceutical law remains applicable to the U,K, and the U.K.’s trading relationship will remain the same. However,
regulations (including financial laws and regulations, tax and free trade agreements, intellectual property rights, data protection laws,
supply chain logistics, environmental, health and safety laws and regulations medicine licensing and regulations, immigration laws
m
and employm
EU laws and regulations may negatively impact foreign direct investment in the U.K., increase costs, depress economic activity and
restrict access to capia tal.
ent laws), have yet to be addressed. This lack of clarity on future U.K. laws and regulations and their interaction with the
The uncertainty concerning the U.K’s legal, political and economic relationship with the EU after Brexit may be a source of
instability in the international markets, create significant curru ency fluctuations, and/or othet
similar cross-border co-operation arrangements (whether economic, tax, fiscal, legal, regulatory or otherwise) beyond
rwise adversely affect trading agreements or
the date of Brexit.
tt
These developments, or the perception that any of them could occur, may have a significant adverse effeff ct on global economic
conditions and the stabia lity of global financial markets, and could significantly reduce global market liquidity and limit the ability of
key market participants to operate in certain financial markets. In particular, it could also lead to a period of considerable uncertainty
in relation to the U.K. financial and banking markets, as well as on the regulatory process in Europe. Asset valuations, currency
exchange rates and credit ratings may also be subject to increased market volatility.
65
If the U.K. and the EU are unable to negotiate acceptable agreements or if other EU member states pursue withdrawal, barrier-
tt
free access between
the UK and other EU member states or among the European Economic Area overall could be diminished or
eliminated. The long-term effects of Brexit will depend on any agreements (or lack thereof) between the U.K. and the EU and, in
particular, any arrangements for the U.K. to retain access to EU markets either during a transitional period or more permanently.
Such a withdrawal from the EU is unprecedented, and it is unclear how the U.K’s access to the European single market for
a
thin the EU, or single market, and the wider commercial, legal and regulatory environment, will
goods, capital, services and labor wi
impact our current and future operations (including business activities conducted by third parties and contract manufacturers on our
behalf) and clinical activities (including, without limitation, clinical activities for CTX001) in the U.K. In addition to the foregoing,
our U.K. operations suppu ort our current and future operations and clinical activities (including, without limitation, clinical activities
for CTX001) in other countries in the EU and European Economic Area, or EEA, and these operations and clinical activities could be
disrupted by Brexit.
We may also face new regulatory costs and challenges that could have an adverse effect
ff
on our operations. Depending on the
ff
terms of the U.K’s withdrawal from the EU, the U.K. could lose the benefits of global trade agreements negotiated by the EU on
behalf of its members, which may result in increased trade barriers that could make our doing business in the EU and the EEA more
difficult. Since the regulatory framework in the U.K. covering quality, safety and efficacy of pharmaceutical products,
clinical trials,
marketing authorization, commercial sales and distribution of pharmaceutical products is derived from EU directives and regulations,
Brexit could materially impact the future regulatory regime with respect to the approval of our product candidates in the U.K. For
instance, in Novemberm 2017, EU member states voted to move the EMA, the EU’s regulatory body, from London to Amsterdam.
Operations in Amsterdam commenced in March 2019, and the move itself may cause significant disruprr
tion to the regulatory approval
process in Europe. It remains to be seen how, if at all, Brexit will impamm ct regulatory requirements for product candidates and products
in the U.K. Any delay in obtaining, or an inability to obtain, any regulatory approvals, as a result of Brexit or otherwise, would
prevent us from commercializing our product candidates in the U.K. and/or the EU and restrict our ability to generate revenue and
achieve and sustain profitability. If any of these outcomes occur, we may be forced to restrict or delay efforts to seek regul
approval in the U.K. and/or EU for our product candidates, which could significantly and materially harm our business Even prior to
any change to the U.K’s relationship with the EU, the announcement of Brexit has created economic uncertainty surrounding the
terms of Brexit and its consequences could adversely impact cus
tomer confidence resulting in customers reducing their spending
budgets on our solutions, which could adversely affect our business, revenue, financial condition, results of operations and could
adversely affect the market price of our common shares.
atory
mm
ff
Our Business Operations Have a Substantial International Footprint and We May Further Expand In The Future, Which
Presents Challenges In Managing
ee
Our Business Operations.
We are headquaqq rta ered in Zug, Switzerland and have offices in the United States and the United Kingdom. In addition, we may
expand our international operations into other countries in the future. While we have acquired significant managem
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:
ent and other
aa
the increased complexity and costs inherent in managing internatioaa
nal operations;
diverse regulatory, financial and legal requirements, and any future changes to such requirq
countries where we are located or do business;
ements, in one or more
country-specific tax, labor
a
and emplm oyment laws and regulations;
challenges inherent in efficiently managing employees in diverse geographie
policies, benefitsff
and compliance programs to differing labor and other regulations;
a
s, including the need to adapt systems,
liabilities for activities of, or related to, our internar
changes in currency rates; and
tional operations or product ca
d
ndidates;
regulations relating to data security and the unauthorized use of, or access to, commercial and personal information.
We continue to expand our operations, and our corporate structure and
t
tax structure is
t
complex. In connection with our current
and future potential partnerships, we are actively engaged in developing and applying technologies and 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 us and other entities such as partners and licensees, and between us and our subsid
cross-border and global arrangements are both difficult to manage and can potentially give rise to complexities in areas such as tax
iaries. Such
u
66
treatment, particularly since we are subject to
other, even as regards the same cross-border transaction or arrangement. There can be no assurance that we will effectively manage
this increased complexity without experiencing operating inefficiencies, control
time and effort is required to effect
have a material adverse effect on our business, financial condition, results of operations and growth prospects.
deficiencies or tax liabia lities. Significant management
ively manage the increased complexity of our company, and our failure to successfully do so could
multiple tax regimes and different tax authorities can also take different views from each
u
ff
t
Risks Related to Intellectual Property
If We Are Unable To Obtaintt
Or Protect Intellectual Property Rights Rel
tt
ated to Our Proprietary Gene-Editing Technology And
Product Candidates, We May Not Be Able To Compete Effectively In Our Markets.
t
rty protection in the
jurisdictions with respect to our CRISPR/CaRR
Our success depends in large part on our ability to obtain and maintain proprietary or intellectual prope
t
s9 platform technology and any proprietary product candidates
t
property rights, including patent rights, trade secret protection
United States and other
and technology we develop. We rely upon a combination of intellectual
and confidentiality agreements to protect the intellectual property related to our gene-editing technology and product candidates.
Presently we have rights to certain intellectual property, through licenses from third parties and under patent rights that we own, to
develop our gene-editing technology and/or product candidates. For example, through our 2014 exclusive license with Dr.
io which covers various aspects of our
Emmanuelle Charpent
genome editing platform technology, including, for example,m
compositions of matter, including additional CRISPR/TRACR/Cas9
complm exes, and methods of use, including their use in targeting or cutting DNA. We refer to this worldwide patent portfolio as the
“Patent Portfolio”. This Patent Portfolff
States, United Kingdom, Germar
Israel, Peru, the Philippines, and South Africa and pending patent applications in the United States, Europe, Canada, Mexico,
Australia and other selected countries in Central America, South America, Asia and Africa.
patent applications covering our product candidates.
io to-date includes, for example, more than fifty (50) granted or allowed patents in the United
ny, Europe, Japan, China, Ukraine, New Zealand, Singapore, Australia, Mexico, Tunisia, Hong Kong,
ier, we exclusively license certain rights to a worldwide patent portfolff
In addition, we have filed numerous
rr
We seek to protect our proprietary position by in-licensing intellectual property to cover our platformff
patent applications in the United States and in other jurisdictions related to our technologies and product candidat
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 unablea
our CRISPR/CaRR
results of operations and prospects could be materially harmer
s9 platform technology and any proprietary products and technology we develop, our business, financial condition,
to obtain or maintain patent protection with respect to
technology and filing
es that are impormm tant
d.
d
However, the strength of patents in the biotechnology and pharmaceutical field generally, and the genome-editing field in
particular, involves complex legal and scientific questions and can be uncertain and we cannot offer any assurances about which, if
any, patent rights that we own or in-license will issue, the breadth of any such patent rights or whether any issued patents will be
found invalid and unenforceable or will be threatened by third parties. For example, 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 interprrr etation in the
United States and other countries may diminish our ability to protect our intellectual property, obtain, maintain, defend and enforce
our intellectual property rights and, more generally, could affect
owned and licensed patents. With respect to both in-licensed and owned intellectual property, we cannot predict whether the patent
applications we and our licensors are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any
issued patents will provide sufficient protection from competitors, or if any such patents will be found invalid, unenforceable or not
infringed if challenged by our competitors.
property or narrow the scope of our
the value of our intellectual
ff
t
The patent prosecution process is expensive, time-consuming, and complex, and we may not be able to file, prosecute, maintain,
ff
enforce, or license all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we
will fail to identify patentable aspects of our research and development output in time to obtain patent protection. Although we enter
into non-disclosure and confidentiality agreements with parties who have access to confidential or patentable aspects of our research
and development output, such as our employees, corporate collaboa
manufacturers, consultants advisors, and other third parties, any of these parties may breach the agreements and disclose such output
before a pa
the scientific literature oftenff
typiy cally not published until 18 months after filing, or in some cases not at all. Therefore, we cannot know with any degree of certainty
whether the inventors of our licensed patents and applications were the first to make the inventions claimed in our owned or any
licensed patents or pending patent applications, or that we were the first to file for patent protection of such inventions. Moreover,
there is no assurance that all of the potentially relevant prior art relating to our owned and in-licensed patents and patent applications
has been found, which can invalidate a patent or prevent a patent from issuing from a pending patent application.
tent application is filed, thereby jeopardizing our ability to seek patent protection. In addition, publications of discoveries in
lag behind the actual discoveries and patent applications in the United States and other jurisdictions are
rators, outside scientific collaborators, CROs, contract
tt
67
The ultimate outcome of any pending or allowed patent application we file is uncertain and the coverage claimed in a patent
application can be significantly reducd ed before the
patent is issued, and its scope can be reinterpreted after issuance. Even if patent
applications we license or own currently or in the future issue as patents, they may not issue in a form that will provide us with any
meaningful protection, prevent competitors or other third parties from competing with us, or otherwise provide us with any
competitive advantage.
ff
Additionally, the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability and our patents
t
ff
ff
in another
rs. Indeed, certain of our fundamental intellectual property has been subjeu
in the United States and in other jurisdictions. We may be subju ect to a third party pre-
may be challenged in the courts or patent offices
issuance submission of prior art to the USPTO or a patent office
jurisdiction, or become involved in opposition, derivation,
revocation, reexamination, post-grant review and inter partes review, or interference proceedings, or litigation challenging our patent
rights or the patent rights of othet
observations and oppositions outside the United States and interference proceedings within the United States. Numerous U.S. and
foreign issued patents and pending patent applications owned by third parties exist in the fields in which we are developing our gene-
editing technology and/or product candidates. It is possible that we have failed to identify relevant third-party patents or applications.
Thus, there is no assurance that all of the potentially relevant prior art relating to our, or our in-licensed patents and patent applications
has been found, which can invalidate a patent or prevent a patent from issuing from a pending patent application. Competitors may
also claim that they invented the inventions claimed in such issued patents or patent applications prior to our inventors, or may have
filed patent applications before our inventors did. A competitor may also claim that our products
and
that we therefore cannot practice our technology as claimed under our patent applications, if issued. An adverse determination in any
such claim may result in our inability to manufacturett
Competitors 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 failed any other requirement for patentability. An adverse determination in any such submission, proceeding
or litigation could reduce the scope of, or invalidate, our patent rights or allow third parties to commercialize our technology or
d
products
or commercialize products without infringing third-party patent rights.
and compete directly with us, without payment to us.
and services infringe its patents
ct to third party
d
aa
Moreover, we, or one of our licensors, may have to participate in additional interference proceedings declared by the USPTO to
that challenge
determine priority of invention or in post-grant challenge proceedings, such as oppositions in a non-U.S. patent office,
priority of invention or other features of patentability. 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
ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent
protection of our technology and product candidates. Such proceedings also may result in substantial cost and require significant time
from our scientists and management, even if the eventual outc
protection provided by our owned and in-licensed patents and patent applications is threatened, it could dissuade companies from
collaborating with us to license, develop or commercialize current
ome is favorable to us. In addition, if the breadth or strength of
or future product candidates.
rr
ff
t
r, even if they are unchallenged, our owned and in-licensed patents and patent applications may not adequately protect our
operty, provide exclusivity for our product cand
Furthet
intellectual pr
t
Consequently, we do not know whether any of our genome-editing platform advances and product candidates will be protectablea
remain protected by valid and enforceable patents. For example, our competitors or other third parties may be able to circumvent our
patents by developing similar or alternative technologies or producd ts in a non-infringing manner. For example, we 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 conjunction with a protein other
t
than Cas9, our business, financial condition, results of operations, and prospects could be materially adversely affected.
idates or prevent others from designing around our claims.
or
d
Because our gene-editing technology and product candidates could require the use of proprietary rights held by third parties, the
growth of our business could depend in part on our ability to acquire, in-license, or use these proprietary rights. We may be unable to
acquire or in-license such intellectual property rights from third parties that we identify. In addition, companim
es that perceive us to be a
competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third-party intellectual
property rights on terms that would allow us to make an appropriate return on
rr
rmore, as industry, gover
nment,
d
academia and other biotechnology and pharmaceutical research expands and more patents are issued, the risk increases that our
product candidates may give rise to claims of infringement of the patent rights of others. We cannot guarantee that our gene-editing
technology, product candidates or the use of such productd
granted jurisdiction-by-jurisdiction, our freedom to practice certain technologies, including our ability to research, develop and
commercialize our product candidates, may differ by country.
candidates do not infringe third-party patents. Because patent rights are
our investment. Furthet
tt
Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impamm ct on
our business. If the patent rights we own or have in-licensed fail to issue, if their breadth or strength of protection is threatened, or if
they fail to provide meaningful exclusivity for either our gene-editing technology and/or product candidates, it could threaten our
ability to commercialize future products, or dissuade companies from collaborating with us to develop current or future product
candidates.
68
In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect
proprietary know-how that is not patentable or that we elect not to patent, processes for which patents are difficult to enforce and any
other elements of our product candidate discovery and development processes that involve proprietary know-how, information or
technology that is not covered by patents. However, trade secrets can be difficult to protect. We seek to protect our proprietary
technology and processes, in part, by entering into confidff entiality agreements with our employm
ees, consultants, scientific advisors and
contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of
our premises and physical and electronic security of our information technology systems. While we have confidence in these
individuals, organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies
for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors.
Although we expect all of our emplm oyees and consultants to assign their inventions to us, and all of our employee
mm
s, consultants,
advisors and any third parties who have access to our proprietary know-how, information or technology to enter into confidentiality
agreements, we cannot provide any assurances that all such agreements have been duly executed or that our trade secrets and other
confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or
independently develop substu
zed disclosure of our trade
secrets could impam ir our competitive position and may have a material adverse effect on our business. Additionally, if the steps taken
to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropr
iating the
trade secret. In addition, othet
rs may independently discover our trade secrets and proprietary information. For examplmm e, the FDA, as
part of its Transparency Initiative, is currently considering whether
basis, including information that we may consider to be trade secrets or other proprietary information, and it is not clear at the present
time how the FDA’s disclosure policies may change in the future, if at all.
antially equivalent information and techniques. Misappropriati
to make additional information publicly availablea
on or unauthori
on a routine
a
a
t
t
t
Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws
of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual
the United States and abroad. If we are unable to prevent material disclosure of the non-patented intellectual property related to our
technologies to third parties, and there is no guarantee that we will have any such enforceable trade secret protection, we may not be
able to establish or maintain a competitive advantage in our market,
which could materially adversely affect our business, results of
operations and financial condition.
property both in
aa
t
Our Rights To Develop And Commercialize Our Technology And
gg
Product Candidates Are Subject, In Part, To The Termsrr
And
Conditions Of Licenses Granted To Us By Others.
tt
We are reliant upon licenses to certain intellectual property from third parties that are impom rtant or necessary to the development
of our gene-editing technology and product candidates. These and other licenses may not provide exclusive rights to use such
intellectual property and technology in all relevant fields of use or cover all territories in which we may wish to develop or
commercialize our technology and products in the future. As a result, we may not be able to prevent competitors from developing and
commercializing competitive products in territories included in all of our licenses.
Moreover, under our in-license agreements, including our 2014 exclusive license agreement with Dr. Emmanuelle Charpent
we will be required to pay royalties based on our revenues from sales of our products utilizing the licensed technologies and these
royalty payments could adversely affect the overall profitaff bia lity for us of any products
that we may seek to commercialize. Under each
of our in-license agreements with Dr. Charpentier, we have an obligation to use commercially reasonable efforts to develop and obtain
regulatory approval to market a licensed therapeutic product. Our in-license agreements with Dr. Charpentier also include an
obligation to file an IND (or its equivalent in a majora market country) by April 2021 and an obligation to file an IND (or its equivalent
in a majora market country)r
by April 2024. We may not be successful in meeting these obligations in the future 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 for many aspects of the clinical development of the products covered under our license agreements. Delay or
failure by these third parties could adversely affect
agreements with third-party licensors.
our ability to meet our diligence obligations and the continuation of our license
ier,
d
rr
ff
In spite of our best effoff
rts, our licensors might conclude that we have materially breached our license agreements and might
therefore terminate the license agreements, thereby removing our ability to develop and commercialize products and technology
covered by these license agreements. If these in-licenses are terminated, or if the underlying patents fail to provide the intended
exclusivity, competitors would have the freedom to seek regulatory approval of, and to market, products identical to ours. In addition,
we may seek to obtain additional licenses from our licensors and, in connection with obtaining such licenses, we may agree to amend
our existing licenses in a manner that may be more favorable to the licensors, including by agreeing to terms that could enable third
parties (potentially including our competitors) to receive licenses to a portion of the intellectual property that is subju ect to our existing
licenses. Any of these events could have a material adverse effect on our competimm tive position, business, financial conditions, results
of operations, and prospects.
69
Some Of Our Own and In-licensed Patents Rights Were and May Be Subject To Inter
Owned And In-Licensed Patents And Other Intellectual Propertytt May Be
Licensorsrr Are Unsuccessful In Any Of These Proceedings
Not Be Available On Commercially Reasonable Termsrr Or At All, Or To Cease The Development, Manufacture, And
Commercialization Of One Or More Of The Product Candidates We May Develop, Which
Our Business.
gg
n
a
, We May Be Required To Obtaitt n Licenses From Third Parties, Which May
Could Have A Material Adverse
dd
Impact On
a
a
dd
Subject To Further Such Proceedings. If We Or Our
Partes Administrative Proceedings. Our
The Broad Institute and Massachusetts Institute of Technology and, in some instances, the President and Fellows of Harvard
tt
t
College, which we refer to individuald
ly and collectively as the “Broad”, owns a patent family that includes issued patents in the U.S.
and Europe that claim certain aspects of CRISPR/Cas9 systems to edit DNA in eukaryotic cells, including human cells (collectively,
the claims from
the Broad Institute Patent Family). In January 2016, an interferff ence proceeding was declared in the USPTO between
one Patent Portfolio patent application (now issued as U.S. Patent No. 10,266,850) and certain U.S. patents and one application of the
Broad Institute Patent Family to determine which set of inventors invented first and, thus, is entitled to patents on the invention in the
U.S. The interference was redeclared in March 2016 to add a U.S. patent application owned by the Broad. Following motions by the
parties and other
procedural matters, the PTAB concluded in early 2017 that the declared interference should be discontinued without
deciding who was first to invent. In its decision, the PTAB concluded that the claim sets presented by the two parties were considered
patentably distinct from each other because the CVC Group patent application’s claims were broader in scope in that they were not
restricted to use in eukaryotic cells, whereas the Broad’s claims were so limited. The PTAB did not make any decision regarding
inventorship or priority, and therefore ownership, of the inventions claimed by the patents and applications at issue. In April 2017, the
CVC Group appealed the PTAB decision to the Federal Circuit, asking it to review and reverse the PTAB’s February 2017 decision.
The Federal Circuit conducted a hearing on the appa
ed the PTAB’s decision
to terminate the interferen
interference proceeding betwett
and a patent application owned by the Broad. The Broad patents include those that were the subject of the earlier, now-terminated
interference. Because the Patent Portfolio and the Broad Institutett
Patent Family both allege owning intellectual property claiming
overlapping aspects of CRISPR/CaRR
s9 systems and methods to edit DNA in eukaryotic cells, including human cells, our ability to
market and sell CRISPR/CaRR
over the inventions claimed in the competing patent portfolios.
eal on April 30, 2018, and on September 10, 20
ce proceeding. However, in June 2019, we received notification that the USPTO initiated another
en fourteen (14) pending U.S. patent applications co-owned by the CVC Group and thirteen (13) patents
ics may be adversely impacted depending on the scope and actual ownership
s9-based human therapeut
18, affirmff
m
a
ff
In addition to the Broad, other third parties including for examplem Vilnius, ToolGen, Sigma-Aldrich (a subsidia
u
ry of Merck
ff
ff
m
19, but has yet to decide its second petition
KGaA) and Harvard, have filed patent applications claiming CRISPR/Cas9-related inventions around or within a year after the
first
CVC Group patent application within the Patent Portfolio was filed and may allege that they invented one or more of the inventions
claimed by the Patent Portfolio before the CVC Group. In fact, in July 2019 and again in October 2019, Sigma-Aldrich filed petitions
with USPTO and the PTAB seeking an interference bet
ween itself and the CVC Group that would parallel the ‘115 interference; in
Septemberm 2019, Toolgen filed a similar petition also seeking an interferff ence between itself and the CVC Group that would parallel
the ‘115 interference. The PTAB dismissed Sigma-Aldrich’s first petition in September 20
en certain CVC Group patent
or the petition filed by Toolgen. Thus, the USPTO may, in the future, declare an interference betwett
applications and one or more To golgen or Siggma-Aldrich patent applications. The CVC Group continues to prosecute other patent
claims covering the CRISPR/Cas9 inventions, which could also result in allowable or issued patents in the U.S. Certain of the claims
being prosecuted by the CVC Group, if found allowable by the USPTO, could lead to interference proceedings against patents or
patent applications owned by other parties, including the Broad Institute Patent Family, with respect to certain claims expressly
relating to the use of CRISPR/Cas9 in eukaryotic cells. If the USPTO deems the scope of the claims of one or more of these parties to
sufficiently overlap with the allowable claims from a patent or patent application within the Patent Portfolio, the USPTO could declare
other interference proceedings to determine the first inventor of such claims. We cannot be certain which of these results, if any, will
actually occur. Furthet
r, the effects that any such results may have on us and our intellectual property position are currently unknown.
The Broad, as well as other third parties, could seek to assert its issued patents against us based on our CRISPR/Cas9-based activities,
including commercialization. Defense of these claims, regardless of their merit, would involve substantial litigation expense, would be
a substantial diversion of management and other employee resources from our business and may impactm
our reputation. In the event of
a successful claim of infringement against us, we may have to pay subsu tantial damages, including treble damages and attorneys’ fees
for willful infringement, obtain one or more licenses from third parties, pay royalties or redesign our infringing products, which may
be impossible or require
commercialize our product candidates, which could harm our business s gigni
ntial time and monetary expenditure. In that event, we could be unable to further develop and
ficantly.
y
u
substa
m
In addition, the CVC Group or the other third parties could seek judicial review of their inventorship claims. If the CVC Group
fails in defending their inventorship priority on any of these claims, we may lose valuable intellectual property rights, such as the
exclusive right to use, such intellectual property. Such an outcome could have a material adverse effect on our business. Even if we
are successful in defenff ding against such claims, any disputes could result in substantial costs and be a distraction to management and
other employees.
70
Further, the Broad, Toolgen, Vilnius, Harvard, Sigma-Aldrich, and other par
t
ties routinely file international counterparts
r
of their
U.S. applications, some of which have been granted or could in the future be granted in Europe and/or 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 is and may in the future become involved in opposition proceedings in
Europe or other jurisdictions. For example, two of our in-licensed granted European patents have been opposed by multiple third
parties. These oppositions could lead to the revocation of the patents in whole or in part, or could lead to the claims being narrowed in
a way that could impam ir or preclude our ability to enforff ce the patents against competitors in Europe.
u
If we or our licensors are unsuccessful in any interference proceedings or other priority or validity disputes (including any patent
to, we may lose valuable intellectual property rights through the loss or
oppositions) to which we or they are subject or become subject
narrowing of one or more of our patents and/or 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 interference proceedings or other disputes. These third parties would be under no obligation to grant to us any such license
on commercially reasonable terms or at all, or may be non-exclusive. If we are unable to obtain
and such licenses may not be availablea
and maintain such licenses, we and our partnet
rs may need to cease the practice of our core gene editing, and the development,
manufacture, and commercialization of one or more of the product candidates we may develop. The loss of exclusivity or the
narrowing of our patent claims could limit our ability to stop others from using or commercializing similar or identical technology and
productd
prospects. If we are unsuccessful in a dispute with the Broad, for example, then we and our partners may be blocked from
commercializing any products based on our core gene-editing technology. Even if we are successful in an interference proceeding or
other similar disputes, it could result in substantial costs and be a distraction to management and other employees.
s. Any of the foregoing could result in a material adverse effect on our business, financial condition, results of operations, or
The Intellectual Propeo rtytt That Protects Our Core Gene-Editing Technology Is Jointly Owned, And Our License Is From Onlyll
One Of The Joint Owners, Materially Limiting Our Rights In The United States And In Other Jurisdictions
The Patent Portfolio we have exclusively licensed from Dr. Charpent
rr
ier is the core patent protection for our gene-editing
technology. However, that family includes other named inventors who assigned their rights either to California
the Patent Portfolio is currently co-owned by Dr. Charpent
Consent to Assignments, Licensing and Common Ownership and Invention Management Agreement, or IMA, with California, Vienna
and their licensees including Caribou and Caribou’s licensee Intellia Therapeutics. Under the IMA, the co-owners provided reciprocal
worldwide cross-consents to each of the other co-owners’ licensees and sublicensees,
and obligations with respect to supporting and managing the underlying CRISPR/Cas9 gene-editing intellectual
cost-sharing agreement. As explained more fully below, that leaves us in a position of holding 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
to our license from Dr. Charpentier.
under the IMA in order to maintain the effecti
and agreed to a number of other commitments
property, including a
t
ier, California, and Vienna. On December 15, 2016, we entered into a
veness of the consents by California and Vienna
or Vienna. As such,
u
ff
ff
rr
ff
t
rr
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. Charpentier 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
and Vienna we have no ability to pursue third party infringement claims without cooperation of Califorff nia and Vienna
with Californiar
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 nia and their licensees, which provides for, among other things, notice of
and coordination in the event of third-party infringement of the patent rights within the Patent Portfolio, there can be no assurance that
will cooperate with us in any future infringement. If we are unable to enforce our core pat
ff
Vienna and California
from Dr. Charpenrr
sublicense our technology, either of which could have a material adverse effeff ct on our business.
tier, we may be unable to prevent third parties from competing with us and may be unable to persuade companies to
ent rights licensed
ff
ff
If We Experience Disputes With The Third Parties That We In-license Intellectual Property Rights From, We Could Lose
License Right
stt That Are Important To Our Business
i
We license the intellectual property that covers our gene-editing technology from a third party, and we expect to continue to in-
license additional third-party intellectual property rights as we expand our gene-editing technology. Disputes may arise with the third
parties from whom we license our intellectual property rights from for a variety of reasons, including:
the scope of rights granted under the license agreement and other interpretation-related issues;
71
the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the
licensing agreement;
the sublu icensing of patent and other rights under our collaborative development relationships and obligations associated
with sublicensing;
our diligence obligations under the license agreement and what activities satisfy those diligence obligations;
the inventorship and ownership of inventions and know-how resulting from 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
consents under the IMA, are complex, and certain provisions in such agreements may be susceptible to multiple interpretations, or
may conflict in such a way that puts us in breach of one or more agreements, which would make us susceptible to lengthy and
expensive disputes with one or more of our licensing partnet
disagreement that may arise could narrowr
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 impam ir our ability to maintain our current licensing arran
commercially acceptable terms, we may be unable to successfully develop and commercialize the affected
could have a material adverse effeff ct on our business, financial conditions, results of operations, and prospects.
what we believe to be the scope of our rights to the relevant intellectual property or
rs or the parties to the IMA. The resolution of any contract interpretation
product candidates, which
gements on
ff
rr
We May Not Be Successful In Obtaining Necessary Rights To Any Product Candidates We Maya Develop Through Acquisitions
And In-Licenses.
d
ent to obtain licenses from such third party intellectual
We currently have rights to intellectual property, through in-licenses from third parties, to identify and develop product
candidates. Many pharmaceutical companies, biotechnology compam nies, and academic institutions are competing with us in the field
of gene-editing technology and filing patent applications potentially relevant to our business. For examplmm e, we are aware of several
third-party patent applications that, if issued, may be construed to cover our gene-editing technology and product ca
to avoid infringing these third-party patents, we may find it necessary or prudrr
property holders. We may also require licenses from third parties for certain modified or improved components of gene-editing
technology, such as modified nucleic acids, as well as non-CRISPR/Cas9 technologies such as delivery methods that 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
identify as necessary for product candidates we may develop and gene-editing technology. The licensing or acquisition of third party
intellectual property rights is a competitive area, and several more established compam nies may pursue strategies to license or acquire
third party intellectual property rights that we may consider attractive or necessary. These established companies may have a
competitive advantage over us due to their size, capital resources and greater clinical development and commercialization capabia lities.
es that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to
In addition, companim
on our investment
license or acquire third party intellectual property rights on terms that would allow us to make an appropriate returntt
or at all. If we are unable to successfully
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.
obtain rights to required third party intellectual property rights or maintain the existing
intellectual property rights from third parties that we
ndidates. In order
ff
t
Issued Patents Covering Our Technology And Productdd
Candidates Could Be Found Invalid Or Unenfon rceable If Challenged In
Court.
If we or one of our licensors initiated legal proceedings against a third party to enforce a patent covering a product candidate we
may develop or our technology, including CRISPR/Cas9, the defendant could counterclaim that such patent is invalid ror
unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforff ceability are
commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, includ ging
lack of novelty, obviousness, or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone
connected with prosecution of the patent withheld relevant information from the USPTO, or made a misl
pprosecution.
eading statement,
during
g
g
72
Third parties have raised challenges to the 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 and oppositions filed in Europe and Australia,
may in the future raise similar claims before administrative bodies in the United States or in other
context of litigation. Mechanisms for challenging the validity of patents in patent offices include re-examination, post-gra tnt
review, inter partes review, interference proceedings, derivation proceedings, and equivalent proceedings in non-U.S. jurisdictions
(e.g., opposition proceedings). Such proceedings could – after exhausting availablea
applications or patents, or their narrowing in such a way that they no longer cover our technology or platform, or any prod tuct
candidates that we may develop. The outcome following legal assertions of invalidity and unenforceability is unpredictable.
respect to the validity question, for examplm e, 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 perhar psa
technology or platform, or any product ca
adverse impactm
rour
ndidates that we may develop. Such a loss of patent protection would have a material
on our business, financial condition, results of operations, and prospect .s
appeals – result in the loss of our pate tnt
all, of the patent protection on
jurisdictions, even outside the
a With
d
t
dand
The Intellectual Property Landscapea Around Gene-Editing Technology, Inclu
yy
ding CRISPR/Cas9, Is9
i
Highly
Dynamic, And ThiTT rd
a
Parties May Initiate And Pre
We Are Infrn inging, Misappa roprio
Uncertain And Could Have A Material Adverse Effect
vail In Legal P
e
roceedings Alleging That The Patents That We In-License Or Own Are Invalid Or That
ating,gg Or Otherwise Violating Their Intellectual Propeo rtytt Rights, The Outcome Of Which Would Be
ff On The Success Of Our
TT
Business.
The field of gene editing, especially in the area of gene-editing 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 landscape is in flux, and it may remain uncertain for the coming years. There may
be significant intellectual property related litigation and proceedings relating to our owned and in-licensed, and other third party,
intellectual property and proprietary rights in the future.
t
perty and proprietary rights of third parties. The biotechnology and pharmaceutical industries are
Our commercial success depends upon our ability and the ability of our collaborators 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 pro
characterized by extensive litigation regarding patents and other intellectual property rights. We are subject to and may in the future
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 before the USPTO and similar proceedings in other jurisdictions such as oppositions before
the European Patent Office. Third parties may assert infringement claims against us based on existing patents or patents that may be
granted in the future, regardless of their merit. We are aware of certain third-party patents and patent applications including, for
example, the Broad, Vilnius, Harvard and Sigma-Aldrich patents described above. If we are unable to prove that these patents are
invalid and we are not able to obtain or maintain a license on commercially reasonable terms, such patents could have a material
adverse effect
to pay damages, cease commercialization of the infringing technology, including our core CRISPR/CaRR
obtain a license from such third parties, which may not be available on
not performed any freedom-to-operate analysis on specific product 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.
on the conduct of our business. If we are found to infringe such third-party patents, we and our partners may be required
terms or at all. Additionally, we have
s9 gene-editing technology, or
commercially reasonablea
a
rr
ff
Even if we believe third-party intellectual property claims are without merit, there is no assurance that a court would find in our
favor on questions of infringement, validity, enforceability, ownership, or priority. A court of competent jurisdiction could hold that
these third-party patents are valid, enforceable, and infriff nged, which could materially and adversely affect our ability to commercialize
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 federal 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 unsuccessful in demonstrating that such patents are invalid or
unenforceable, we could be required to obtain a license from such third party to continue developing, manufacturing, and marketing
any product candidates we may develop and our technology. However, we may not be able to obtain any required license on
commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our
compemm titors and other third parties access to the same technologies licensed to us, and it could require
and royalty payma
ents. We also could be forced, including by courtu order, to cease developing, manufacturing, and commercializing
the infringing technology or product candidates. In addition, we could be found liable for significant monetary damages, including
treble damages and attorneys’ fees, if we are found to have willfully infringed a patent or other intellectual property right. Claims that
we have misappropriated the confidential information or trade secrets of third parties could have a similar material adverse effect on
our business, finff ancial condition, results of operations, and prospects.
us to make subsu tantial licensing
q
ff
73
Intellectual Property Litigation Could Cause Us To Spend Substantial Resources And Distract
ii
Our Personnel From Their
Normal Responsibilities.
Litigation or other legal proceedings relating to intellectual property claims, with or without merit, is unpredictable and
generally expensive and time-consuming and is likely to divert significant resources from our core business, including distracting our
technical and management personnel from their normal responsibilities and generally harm our business. Furthet
rmore, 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 confidential information could be compromm
ised by disclosure during this type of litigation. In
addition, there could be public announcements of the results of hearings, motions or other i
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 future sales, marketing or distritt bution activities.
antial adverse effect on the price of our
a
nterim proceedings or developments and if
t
We may not have sufficient
ff
financial or other resources to adequately conduct such litigation
q
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 effoff
or successfully challenging our intellectual property rights. Uncertainties resulting from the initiation and continuation of patent
litigation or other proceedings could have a material adverse effect on our ability to compemm te in the marketplace.
rts, we may not be able to prevent third parties from infringing or misappropriating
l
Obtaining And Maintaining Our Patent Protection Depends On Complm iance With Various Procedural
, Docum
ent Submission,
Fee Payment, And Other Requirementstt Impom sed By Government Patent Agencies And Our Patent Protection Couldll Be Reduced Or
Eliminated For Non-compliance With These Requirements.tt
dd
Periodic maintenance fees, renewal fees, annuity fees and various other government fees on patents and applications will be due
ent patent agencies outside of the United States over the lifetime of our owned or
to be paid to the USPTO and various governmr
licensed patents and applications. In certain circumstances, we rely on our licensing partnett
U.S. patent agencies. The USPTO and various non-U.S. government agencies require complmm iance with several procedural,
documentary, fee payment, and other similar provisions during the patent application process. In addition, periodic maintenance fees
on issued patents oftenff 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 action to comply with these requirements with respect to our licensed intellectual property.tt
In some
cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. There are
situat
tions, 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-
rr
payment of fees and failure to properly legalize and submit for
mal
patent applications covering our product candidates, we may not be able to stop a competitor fromff
as or similar to our product candidat
documents. If we or our licensors fail to maintain the patents and
marketing drugs that are the same
es, which would have a material adverse effect on our busi
rs to pay these fees due to U.S. and non-
ness.
u
a
ff
Some Intellectual Property Which We Have In-licensed May Have Been Discovered Through Government Funded Programs
ing Requirementstt And A Preference
Subject To Federal Regulat
And Thus May Be
For U.S.-based Manufacturers. Compliance With Such Regulations May Limit Our Exclusive Rig
Contract With Non-
ions Such As march-in Rights,tt Certain Report
a
U.S. Manufacturers.
hts, And Limit
tt
Our Ability To
a
SS
e
e
tt
The intellectual property rights to which we have in-licensed under Dr. Charper ntier’s joint interest are co-owned by Califorff nir a,
a
which has indicated that one or more of the inventions were made under Grant No. GM081879 awarded by the National Institute of
Health. These rights are therefore subju ect to certain federal regulations. The U.S. government has certain rights pursuant to the Bayh-
Dole Act of 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-transferff able, irrevocable wo
rldwide license to use inventions for any
governmental 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; (ii) government action is necessary to meet public health or safety needs; or (iii) government action is
necessary to meet requirements for public use under federal regulations, also referred to as “march-in rights.” The U.S. government
also has the right to take title to these inventions if we, or the applicable contractor, fail to disclose the invention to the government
and fail to file an application to register the intellectual property within specified time limits. Intellectual property generated under a
government funded program is also subju ect to certain reporting requirements, compliance with which may require us or the applicable
contractor to
invention or produced through the use of the subject invention be manufactured substantially in the United States. The manufacturing
tt
preference requirement can be waived if the owner of the intellectual property can show that reasonable but unsuccessful efforts
have
been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United
States or that under the circumstances domestic manufacture is not commercially feasible. This preferen
ce for U.S. manufacturers may
limit our ability to contract with non-U.S. product manufacturers for products covered by such intellectual property. To the extent any
of our current or future patents covering inventions is generated through the use of U.S. government funding, the provisions of the
Bayh-Dole Act may similarly apply.
expend subsu tantial resources. In addition, the U.S. government requires that any products embodym
ing the subjeb ct
ff
ff
tt
74
We May Not Be Able To Protect Our Intellectual Property And Proprietary Rights Throughout The World.dd
Filing, prosecuting and defending patents on our product candidates in all countries throughout the world would be prohibitively
expensive. The requirements for patentability may differ in certain countries, particularly in developing countries. Moreover, our
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 afford
intellectual property protection to
the same extent as the laws of the United States. For examplm e, unlike patent law in the United States, the patent law in Europe and
many other jurisdictions precludes the patentability 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.
ff
ing products made using our inventions in and into the United States or other
Many companies have encountered significant problems in protecting and defending intellectual property rights in various
jurisdictions globally. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside
the United States, or from selling or importm
jurisdictions.
Competitors may use our technologies in jurisdictions where we have not pursued and obtained patent protection to develop their own
products
and, further, may export otherwise infringing products to territories where we have patent protection but enforcement is not
d
as strong as that in the United States. These products may compem te with our product candidates, and our patents or other intellectual
property rights may not be effeff ctive or sufficie
certain developing countries, do not favor the enforcement of
particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or
marketing of competing products in violation of our intellectual property and proprietary rights generally. Proceedings to enforce our
intellectual property and proprietary rights in various jurisdictions globally could result in substantial costs and divert our effoff
rts and
attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly, could put our
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 meaningful. Accordingly, our
efforts to enforce our intellectual
commercial advantage from the intellectual property that we develop or license.
property and proprietary rights around the world may be inadequate to obtain a significant
nt to prevent them from compem ting. The legal systems of certain countries, particularly
patents, trade secrets, and other intellectual property protection,
ff
ff
t
t
Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to thit
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 forced to grant a license to third parties with respect to any patents relevant to our business, our
competitive position may be impamm ired, and our business, financial condition, results of operations, and prospects may be adversely
affected. 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.
rd parties.
Changes To The Patent Law In The United States And Other Jurisdii
ictions Could Diminish Th
ii
e Value Of Patents In General,
Thereby Impairing Our Ability To Protect Our Product Candidates.
As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly
patents. Obtaining and enforcing patents in the biopharmaceutical industry involves both technological and legal complexity and is
costly, time consuming and inherently uncertain. Recent patent reform legislation in the United States and other countries,
thereforeff
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 efficient and cost-effective avenues for
ff
competitors to challenge the validity of patents. In addition, the Leahy-Smith Act has transformed the U.S. patent system into a “first
to file” system. The first-to-file provisions, however, only became effective on March 16, 2013. Accordingly, it is not yet clear what,
if any, impam ct the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implmm ementation
could make it more difficult 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.
75
The U.S. Supru eme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection
available in certain circumstances or weakening the rights of patent owners in certain situations. For example,mm
in Association for
Molecularll Pathology v. Myriad Genetics, Inc., the Supreu me Court ruled that a “naturally occurring DNA segment is a product of
nature and not patent eligible merely because it has been isolated,” and invalidated Myriad Genetics’ 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 are
directed to naturtt ally occurring DNA sequences. To the extent that such claims are deemed to be directed to natural products, or to lack
an inventive concept above and beyond an isolated natural product, a court may decide the claims are invalid under Myriad.
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 unpredictab
obtain new patents or to enforce our existing patents and patents that we might obtain in the future. Europe’s planned Unified Patent
Court may particularly present uncertainties for our ability to protect and enforce our patent rights against competitors in Europe.
While that new court is being implemented to provide more certainty and efficiency
to patent enforcement 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 benefits of the new unified court.
le ways that would weaken our ability to
n
ff
l
Obtaining And Maintaining Our Patent Protection Depends On Compliance with Various Procedural
, Docum
ent Submission,
Fee Payment and Other Requirements Imposed by Governmental Patent Agencies, And Our Patent Protection Could be Reducdd ed or
Eliminated ForFF Non-Compliance With These Requirements.
dd
Periodic maintenance fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages
ime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of
over the lifetff
procedural, documentary, fee payment and other similar provisions during the patent application process. Although an inadvertent
lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are
situations in which noncompliance can result in abandonment or lapse of
the patent or patent application, resulting in partial or
complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of a
or patent application include failure to respond to official
properly legalize and submit for
u
have a material adverse effect on our business.
actions within prescribed time limits, non-payment of fees, and failure to
mal documents. In any such event, our compemm titors might be able to enter the market, which would
a
a
ff
patent
If We Are Unable To Protect The Confidenti
ff
ality Of Our Trade
rr
Secrets, Our Business And Competitive Position Would Be
Harmed.
In addition to seeking patents for some of our technology and product candidates, we also rely on trade secrets and
confidentiality agreements to protect our unpatented know-how, technology, and other
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 indusd try through independent
development, the publication of journal articles describing the methodology, and the movement of personnel from academic to
industry scientific positions.
proprietary information and to maintain our
ff
t
We seek to protect these trade secrets and other proprietary technology, in part, by entering into non-disclosure and
ees, corporate collaborators, outside scientific
ors, CROs, contract manufacturers, consultants, advisors, and other third parties. We also enter into confidentiality and
confidentiality agreements with parties who have access to them, such as our employm
a
collaborat
invention or patent assignment agreements with our employm
agreements with each party that may have or have had access to our trade secrets or proprietary technology and processes. Despite
these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and
we may not be able to obtain adequaq te remedies for such breaches. Enforcff
misappropriated a trade secret is difficult,
expensive, and time-consuming, and the outcome is unpredictabla e. In addition, some courts
ff
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 communimm cate it, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to
ysely harmed.
or independen ytly developed yby a competitor or other th
ees and consultants. We cannot guarantee that we have entered into such
ird party, our competitive position would be materi yally and adver
ing a claim that a party illegally disclosed or
y
76
If We Do Not Obtaitt n Patent Term Extension And Datatt Exclusivity For Any Product
n
Candidates We May Develop, Our
a
Business
May Be Materially Harmerr
d.
Depending upon the timing, duration and specificsff
of any FDA marketing approval 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 from the date of product approval, only one patent may be extended and only
those claims covering the approved drug, a method for using it, or a method for manufacturt
ing it may be extended. However, we may
not be granted an extension because of, for examplm e, failing to exercise due diligence during the testing phase or regulatory review
process, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents, or otherwise failing to
satisfy applicable requiq rements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we
requesq
t. If we are unable to obtain patent term extension or if the term of any such extension is less than we request, we will be unable
to rely on our patent position to forestall the marketing of competm ing products following our patent expiration, and our business,
financial condition, results of operations, and prospects could be materially harmed.
Intellectual Property Righ
o
ts Do Not Necessarily Address All Potential Threats.
The degree of future protection afford
ff
ed 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 compemm titive advantage. For examplm e:
others may be able to make gene therapy products that are similar to any product candidates we may develop or utilize
similar gene therapy technology but that are not covered by the claims of the patents that we license or may own in the
futurtt e;
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 futurtt e;
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
infringing our owned or licensed intellectual property rights;
it is possible that our pending licensed patent applications or those that we may own in the future will not lead to issued
patents;
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
then use the information learned from such activities to develop competitive products for sale in our majora
commercial
markets;
we may not develop additional proprietary technologies 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 file a patent covering such intellectual property.
Should any of these events occur, they could have a material adverse effect
ff
on our business, financial condition, results of
operations, and prospects.
We May Be Subject To Claims That Our Employees, Consultants, Or Advisors Have Wrong
m
fugg lly Used Or Disclosed Alleged
Trade Secrets Of Their Current Or Former Employers Or Claims Asserting Ownershipi Of What WeWW Regard As
Property.
e
Our Own Intellectual
Many of our employees, consul
mm
tants, and advisors are currently or were previously employm
ed at universities or other
biotechnology or pharmaceutical companies. Although we try to ensure that our employee
rs in their work for us, we may be subju ect to claims that we or these individuals have
proprietary information or know-how of othet
used or disclosed intellectual property, including trade secrets or other proprietary information, of any such individual’s current or
former emplm oyer. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to
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.
s, consultants, and advisors do not use the
m
77
In addition, while it is our policy to require our employmm
ees and contractors who may be involved in the conception or
development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in
executing such an agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own. The
assignment of intellectual property rights may not be self-executing, or the assignment agreements may be breached, and we may be
forced to bring claims against third parties, or defend 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.
ff
If Our Trademarks Are
Not Adequately Protected, Then We May Not Be Able To Build Name Recognition In Our Markets Of
a
Interest And Our Business May Be Adversely Affected.
kk
g
ong potential partners or
If our trademarks are not adequately protected, then we may not be able to build name recognition in our markets of interest and
our business may be adversely affected. Our unregistered trademarks may be challenged, infringed, circumvented or declared generic
or determined to be infringing on other marks. We may not be able to protect our rights to these trademarks, which we need to build
name recognition am g p
m
similar to ours, thereby impeding
be potential trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate va
of our unregistered trademarks. Over the long term, if we are unable to successfully register our trademarks and establa ish name
recognition based on our trademarks, then we may not be able to compete effect
efforff
property may be ineffective and could result in substantial c
condition
p
our ability to build brand identity and possibly leading to market confusion. In addition, there could
riations
ts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual
financial
osts and diversion of resources and could adversely impact our
customers in our markets of interest. At times, co pmpetitors
ively and our business may be adversely affected. Our
ff
or results of operations.
ymay ad popt trademarks
m
p
ff
rr
tt
Risks Related to The Ownership of Our Common Shares
We Will Incur Increased Costs As A Result Of Operating As A Public Company And Our Management Will Be Required To
Devote Substantial Time To New Compliance Initiatives And Corporate Governance Practices.
As a publu ic company, and particularly now that we are no longer an “emerging growth company,” we will incur significant
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 vari
financial controls and corporate governance practices. Our management and other
towards maintaining compliance with these requirements. Moreover, these requirements have increased our legal and financial
compliance costs and have made some activities more time-consuming and costly.
ous requirements on public companies, including establishment and maintenance of effective disclosure and
t
personnel devote a substantial amount of time
m
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 publu ic
accounting firm. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants, adopt a
detailed work plan to assess and document the adequaq cy of internal cont
control
processes as appropriate, validate through testing that controls are functioning as documented, and implm ement a continuous reporting
and improvem
ent process for 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 one or more material weaknesses, it could result in an adverse reaction in the financial markets due to a
loss of confidence in the reliability of our financial statements.
rol over financial reporting, continue steps to improve
m
mm
rr
The Market Price Of Our Common Shares Has Been VolVV atile and Fluctuate Substantia
SS
ll
lly, Which Cou
ld Result In Substantial
Losses For Shareholders.
Our share price has been, and in the future may be, subju ect to substantial volatility. In addition, the stock market in general, and
Nasdaq listed biopharmaceutical companies in particular have experienced extreme price and volume fluctuations that have oftenff
been
unrelated or disproportionate to the operating performance of these companies. For example, our shares traded within a range of a high
price of $74.00 and a low price of $11.63 per share for the period beginning on October 19, 2016, our first day of trading on the
Nasdaq Global Market, through December 31,
addition, the market price for our common shares may be influenced by many factors, including:
2019. As a result of this volatility, our shareholders could incur substantial losses. In
m
the success of existing or new competitive products or technologies;
the timing and results of any product candidates that we may develop;
commencement or termination of collaboa
rations for our productd
development and research programs;
78
failure or discontinuation of any of our product 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 products, including those that involve gene editing;
regulatory or legal developments in the United States and other countries;
developments or disputes concerning patent applications, issued patents, or other proprietary rights;
the recruitment or departure of
t
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 efforts to discover, develop, acquire or in-license additional product candidates or products;
actual or anticipated changes in estimates as to financial results, development timelines, or recommendations by securities
analysts;
announcement or expectation of additional financing efforts;
sales of our common shares by us, our insiders, or other
t
shareholders;
expiration of market stand-off or lock-up agreements;
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 structure of healthcare payment systems;
market conditions in the pharmaceutical and biotechnology sectors;
general economic, industry and market conditions; and
the other factors described in this “Risk Factors” section.
These and other market and industryt
factors may cause the market price and demand for our common shares to fluctuate
substantially, regardless of our actual operating performance, which may limit or prevent investors from readily selling their common
shares and may otherwise negatively affect the liquidity of our common shares. In the past, when the market price of a stock has been
volatile, holders of that stock have institutt ed securities class action litigation against the company that issued the stock. If any of our
antial costs defending the lawsuit. Such a lawsuit could also divert the
shareholders brought a lawsuit against us, we could incur substu
time and attention of our management.
If Securities Analysts Do
ll
Not Publish Research Or Reports About Our Business Or If They Publish Negative Evaluations Of Our
Common Shares, The Price Of Our Common Shares Could Decline.
The trading market for our common shares will rely in part on the research and reports that industry or 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.
Our Executive Officers, Directors, Principal Shareholders An
dd
d Their Affiliates Maintain The Ability To Exercise Signifii ca tnt
pp
IInfluence Over Our Company And All Matters Submitted To Shareholderdd s For Ap
rr
.
proval
The holdings of our executive officers, directors and
ff
shareholders who own more than 5% of our outstanding common shares,
together with their affiliates and related persons, represent beneficial ownership, in the aggregate, of approximately 27.3% of
common shares, based on the number of common shares outstanding as of February
choose to act together, will be able to influence our management and affairs and the outcome of matters submu
itted to our shareholders
for approval, including the election of directors and any sale, merger, consolidation, or sale of all or substantially all of our assets. This
voting power could del yay or prevent an acquisition of our comp yany on terms that other shareholders
concentration of
sult, these shareholders, if they
ymay desire.
As a re
2020.
rour
7,
g
r
79
In addition, this concentration of ownership
gmight
adversely affect the
y
ff
market price of our common sh
ares by:
y
delaying, deferrirr ng or preventing a change of control of us;
impeding a merger, consolidation, takeover or other business combination involving us; or
discouraging a potential acquirer from making a tender offer or otherwise attemptm ing to obtain control of us
.yy
We Have Broad Discretion In The Use Of Our Cash Reserves And May Not Use Such Cash Reserves Effectively
ff
Our management has broad discretion to use our cash reserves and could use our cash reserves in ways that do not imprm ove our
results of operations or enhance the value of our common shares. The failure by our management to apply these funds effeff ctively
could result in financial losses that could have a material adverse effect
on our business, cause the price of our common shares to
decline, and delay the development of our product candidat
does not produce income or that loses value.
es. Pending their use, we may invest our cash reserves in a manner that
d
ff
The Market Price Of Our Common Shares May Be Adversely
dd
Affected By Market
ff
Conditions Affeff cting The Stock Markets In
kk
General, Including Price And Trading Fluctuations On The Nasdaq Global Market.
Market conditions may result in volatility in the level of, and fluctuat
t
ions in, market prices of stocks generally and, in turn,rr our
common shares and sales of substu
to cha gnges in our operat ging performance. The overall weakness in the econ
the markets which may have an effect on the market price of our
ff
common shares.
antial amounts of our common shares in the market, in each case being unrelated or disproportionate
yomy has
recently contributed to the ex
y
tt
treme vol
atility of
y
Sales Of A Substantial Number Of Our Common Sh
CC
ares In The Public Market Could Cause Our Share Price To Fall.
Sales of a subsu tantial number of our common shares in the public market or the perception that these sales might occur could
depress the market price of our common shares, could make it more difficult for you to sell your common shares at a time and price
that you deem appropriate and could impam ir our ability to raise capia tal through the sale of additional equity securities. We are unable
to predict the effect that sales may have on the prevailing market price of our common shares.
We Do Not ExpEE ect To Payy Dividends In
a
The Foreseeable Future.
We have not paid any dividends since our incorporation. Even if future operations lead to significff ant 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 effectively be at the discretion of our board of directors and shareholders after taking into account various factors including
our business prospects, cash requirements, financial performance and new product development. In addition, payment of future
dividends is subject
dividend income from our common shares and any returns on
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 from capital contributions, or Kapitaleinlagen.
to certain limitations pursuant to Swiss law or by our articles of association. Accordingly, investors cannot rely on
an investment in our common shares will likely depend entirely upon
u
t
We Are A Swiss Corporation. The Rights Of Our Shareholders May
ll
Be Different From The Rights Of Shareholders In
Companies Governed By The Lawsww Of U.SUU .SS Jurisdictions.
We are a Swiss corporation. Our corporate affairs are governedr
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
shareholders and directors of companies governed by the laws of U.S. jurisdictions. In the perforff mance of its duties, our board of
directors is required by Swiss law to consider the interests of our Company, our shareholders and our employees w
ith due observation
of the principles of reasonableness and fairness. It is possible that the board of directors will consider interests that are different from,
or in addition to, your interests as a shareholder. Swiss corporate law limits the ability 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 file a suit to reverse a
decision or an action taken by our board of directors but are instead only permitted to seek damages for 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 Zug, 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 Zug, Switzerland.
from the rights and obligations of
m
ff
80
As A Swiss Corporation, We Are Subject To Swiss Legal Provisions That May Limit Our Flexiee bility To Swiftly Implement
SS
Certain Initiatives Or Strateg
t
ies.
We are required, from time to time, to evaluate the carrying amount of our investments in affiliates, as prese
nted on our Swiss
standalone balance sheet. If we determine that the carrying amount of any such investment exceeds its fair value, we may conclude
that such investment is impaired. The recognized loss associated with such a non-cash impaim rment could result in our net assets no
al and statutory capital reserves. Under Swiss law, if our net assets cover less than 50 percent
longer covering our statutory share capita
of our statutt ory share capital and statutory capital reserves, the board of directors must convene a general meeting of shareholders and
propose measures to remedy such a capital loss. The appropriate measures depend on the relevant circumstances and the magnitude of
the recognized loss and may include seeking shareholder approval for offsetting the aggregate loss, or a portion thereof, with our
statutory capital reserves
for distributions to shareholders or raising
new equity. Depending on the circumstances, we may also need to use qualifying additional paid‑in capital available for distributions
in order to reduce our accumulated net loss and such use might reduced
shareholders to Swiss withholding tax. These Swiss law requirements could limit our flexibility to swiftly implement certain initiatives
or strategies.
our ability to make distributions without subjeu
additional paid-in capital otherwise availablea
including qualifying
cting our
ff
ff
rr
Anti-takeover Provisions In Our Ar
kk
ticles Of Association Could Make An Acquisiii
tion Of Our Company,
Which Maya Be
m
e
To Replace Or Remove Our Curr
ent
Beneficial To Our Shareholders, More Difficult And May Prevent Attempts By Our Shareholders
Management.
ll
Provisions in our articles of association may discourage, delay or prevent an acquisition of our Company or changes in the
composition of our board of directors. Among other things, these provisions require the approval of at least two thirds of represented
shares present or voting at a shareholder meeting for the removal of a member of our board of directors and to increase the maximum
number of members of our board of directors; limitt the accumulmm ated voting rights of any person or entity to 15% of our register ded
share capital; limit the voting rights of an acquirer of more than 5% of our registered share capital in a transaction or se
hich could prevent or delay a change in control of
transactions in which our board of directors did not provide for an exemption, w
Company; provide that the board of directors is authorized, subju ect to obtaining shareholder approval every two years, at any time
during a maximumm two‑year period, which under our current authorized share capia tal will expire on June 10, 2021, to issue a sp
number of shares, which under our current authorized share capital is approximately thirty-two percent of the share capia tal register ded
in the commercial register, and to limit or withdraw the preemptimm ve rights of existing shareholders in various circumstances; provide
for a conditional share capital that authorizes the issuance of additional shares up to a maximummm amount of approximately thirty-nine
perce
percent of the share capital registered in the commercial register, without obtaining additional shareholder approval, (i) thro gugh the
exercise of conversion and/or option rights granted in connection with bonds or similar instruments, including convertible de tbt
instruments, and (ii) in connection with the exercise of options granted to employmm
of its subsu idiaries; and pprovide that a me grger or demergger transaction reqquires the affirmative vote of at least two thirds of the shares
represented at a shareholders’ meeting..
service providers of the Comppam yny or
ees or other
ries of
f
m
p
rour
ecified
d
yany
Although we believe these provisions collectively provide for an opportunity to obtain greater
tt
value for shareholders by
requiring potential acquirors to negotiate with our board of directors, they would apply even if an offer rejected by our board were
considered beneficial by some shareholders. In addition, these provisions may frustrate or prevent any attemptsm by our shareholders to
replace or remove our current management by making it more difficult for shareholders to replace members of our board of directors,
which is responsible for appointing the members of our management.
Our Common Shares Are Issued Under The Law
dd
Affoff rded By Incorporation In A U.S. State.
SS
sww Of Switze
rland, Which May Not Protect Investors In A Similar
rr
Fashion
We are organized under the laws of Switzerland. However, there can be no assurance that Swiss law will not change in the
ff
ed under corporate law principles in the U.S., which could
future or that it will serve to protect investors in a similar fashion afford
adversely affect the rights of investors.
Our Status As A Swiss Corporation May Limit Our Flexibility Wit
ee
yMay Cause Us To Be Unable To Make Distributions WithWW out
tt
htt Respect To Certain Aspects Of Capital Management And
s Of Capital Management And
jSubjectingg Our Shareholderdd s Trr
oTT Swiss Withholdingg Tax.aa
Swiss law allows our shareholders to authorize share capia tal that can be issued by the board of directors without additional
shareholder approval. This authorization is limited to 50% of the existing registered share capital and must be renewed by the
shareholders every two years. The authorized share capital approved by our shareholders will expire on June 10, 2021 and is limited to
approximately thirty-two percent of our registered share capital pursuant to the articles of association in force. Subject to specified
exceptions, Swiss law grants preemptm ive rights to existing shareholders to subscribe to any new issuance of shares. Swiss law also
does not provide as much flexibility in the various terms that can attach to different classes of shares as the laws of some other
jurisdictions. Swiss law also reserves for approval by shareholders certain corporate actions over which a board of directors would
have authority in some other jurisdictions. For examplm e, the payment
of dividends and the cancellation of treasury shares must be
approved by shareholders. These Swiss law requirements relating to our capital management may limit our flexibility, and situations
may arise where greater flexibility would have provided substantial benefits to our shareholders.
a
81
rr
quired by Swiss law and our articles of association have been deducted. Freely distribtt
Under Swiss law, a Swiss corporation may pay dividends only if the corporation has sufficient distributable profits from
previous fiscal years, or if the corporation has distributable reserves, each as evidenced by its audited standalone statutory balance
sheet, and after allocations to reserves re
reserves are generally booked either as “free reserves” or as “capia tal contributions” (Ka((
shareholders) in the “reserve from capital contributions.” Distribut
value of a company’s registered shares—only by way of a capia tal reduction. We will not be able to pay dividends or make other
distributions to shareholders on a Swiss withholding tax-free basis in excess of our aggregate qualifying contributions and registered
share capital unless we increase our share capita
al or our reserves from capital contributions. We would also be able to pay dividends
a
s, but such dividends would be subject to Swiss withholding taxes. There can
out of distributable profits or freely distributable res
distributable profits, free reserves, reserves from capital contributions or registered share
be no assurance that we will have sufficient
capital to pay a dividend or effect a capital reduction, that our shareholders will approve dividends or capital reductions proposed by
dividend payments or distributions as a result of capital reductions.
us or that we will be able to meet the other legal requirements forff
ions may be made out of registered share capital—the aggregate par
pia taleinlagen, contributions received from
utable
erverr
ff
tt
Dividends and similar cash or in-kind distributions made by the Company to a shareholder (including liquidation proceeds and
stock dividends) are subject to Swiss withholding tax (Verrechnungssteuer), currently at a rate of 35% (appl
of the taxable distribution). The Company is obliged to deduct the Swiss withholding tax from the gross amount of any taxable
distribution and to pay the tax to the Swiss Federal Tax Administration within 30 calendar days of the due date of such distribution.
However, the repayment of the nominal value of the shares and any repayment of qualifying additional paid-in capital (capia tal
serven aus Kapitaleinlagen)) are not subju ect to Swiss withholding tax. The Swiss withholding tax will also
contribution reserves (Re((
apply to payments (exceeding the respective share capital and used capital contribution reserves) upon a repurchase of shares by the
Compam ny, (i) if the Compam ny’s share capital is reduced upon such repurchase (redemptm ion of shares), (ii) if the total of repurchased
shares exceeds 10% of the Company’s share capital or (iii) if the repurchased shares are not resold within six years after the
repurchase. This six-year deadline to resell the repurchased shares is suspended for so long as the shares are reserved to cover
obligations under convertible bonds, option bonds or employm
maximumm suspension is six years). In the event of a taxable share repurchase, Swiss withholding tax is imposed
between the repurchase price and the sum of the nominal value of the repurchased shares and capita contribution reserves paid back
upon the repurchase.
ee stock option plans, the
ee stock option plans (in the case of employm
on the difference
m
a
icable to the gross amount
Swiss resident individuals who hold their shares as private assets, or Resident Private Shareholders, are in principle eligible for a
full refund or credit against income tax of the Swiss withholding tax if they duly report the underlying income in their income tax
return. In addition, (i) corporate and individual shareholders who are resident in Switzerland for tax purposes, (ii) corporate and
individual shareholders who are not resident in Switzerland, and who, in each case, hold their shares as part of a trade or business
carried on in Switzerland through a permanent establishment with fixed place of business situated in Switzerland for tax purposes and
(iii) Swiss resident private individuad ls who, for income tax purposes, are classified as “professional securities dealers” for reasons of,
inter alia, frequent dealing, or leveraged investments, in shares and other securities (collectively, “Domestic Commercial
Shareholders”) are in principle eligible for a full refund or credit against income tax of the Swiss withholding tax if they duly report
the underlying income in their income statements or income tax returtt n, as the case may be.
Shareholders who are not resident in Switzerland for tax purposes, and who, during the respective taxation year, have not
engaged in a trade or business carried on through a permanent establishment with fixed place of business situated in Switzerland for
tax purposes, and who are not subju ect to corporate or individuald
income taxation in Switzerland for any other reason (collectively,
“Non-Resident Shareholders”) may be entitled to a total or partial refund of the Swiss withholding tax if the country in which such
recipient resides for tax purposes maintains a bilateral treaty, or Tax Treaty, for the avoidance of double taxation with Switzerland and
further conditions of such Tax Treaty are met.
A U.S. shareholder that qualifies for benefits under the U.S.-Swiss Tax Treaty, may apply for a refund 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% voting
rights, or for a full refund in the case of qualified pension funds). Non-Resident Shareholders should be aware that the procedures for
from country to country. Non-Resident Shareholders
claiming treaty benefits (and the time required for obtaining a refund) may differff
should consult their own legal, financial or tax advisors regarding receipt, ownership, purchases, sale or other dispositions of shares
and the procedures
for claiming a refund of the Swiss withholding tax.
d
82
Certain U.S. Shareholdersrr Maya Be Subject To Adverse U.S. Federal Income Taxaa Consequences If We Are A Controlled Foreigni
Corporation.
Each “Ten Percent Shareholder” (as defined below) in a non-U.S. corporation that is classified as a “controlled foreign
ration,” or a CFC, for United States federal income tax purpu oses generally is required to include in income for U.S. federal tax
corporr
pupurposes such Ten Percent Shareholder’s pro rata share of the CFC’s “Subpart F income” and investment of earnings in U.S. pr pop
even if the CFC has made no distributions to its shareholders. Subpu art F income generally includes dividends, interest, rents
dand
royalties, gains from the sale of securities and income from certain transactions with related parties. For tax years beginning af
ff
rter
December 31, 2017, each Ten Percent Shareholder of a CFC is also required to include in income such Ten Percent Shareholder’s
share of “global intangible low-taxed income” with respect to such CFC. In addition, a Ten Percent Shareholder that realizes gain
from the sale or exchange of shares in a CFC may be required to classify a portion of such gain as dividend income rather than
gain. A non-U.S. corporation generally will be classified as a CFC for United States federal income tax purposes if Ten Perce tnt
Shareholders own, directly or indirectly, more than 50% of either the total combined voting power of all classes of stock of such
corporation entitled to vote or of the total value of the stock of such corporation. A “Ten Percent Shareholder” is a United States
persperson (as defined by the U.S. Internal Revenue Code of 1986, as amended, or the Code, who owns or is considered to own 10% or
more of (1) the total combined voting power of all classes of stock entitled to vote or (2) the value of all classes of stock of such
corpporr
ration. The determination of CFC status is co pmplex and includes attribut
ion rules, the application of which is not entir yely certain.
pcapital
yerty,
pp
During our 2019 taxable year we believe that we did not have shareholders that were Ten Percent Shareholders for United States
for the taxable year ended December 31, 2019 and our current taxable year is
federal income tax purposes. However, our CFC statust
unknown and we may be a CFC for the taxable year ended December 31, 2019, our current taxablea
addition, recent changes to the attribution rules relation to the determination of CFC status may make it difficult to determine our CFC
status for any taxable year. Furthermore, because of recent changes pursuant to the Tax Cuts and Jobs Act, it is possible that our non-
United States subsidiaries will be CFCs for the current taxable year or a future ta
year even if we are not a CFC for such taxable
year(s). However, IRS guidance on which taxpayers such as us can rely may permit us to avoid certain negative consequences of these
changes, and we expect to consider the availability and advisability of relying on this guidance. U.S. holders should consult their own
tax advisors with respect to the potential adverse U.S. tax consequences of
classified as both a CFC and a passive foreign investment company,
to those U.S. holders that meet the definition of a Ten Percent Shareholder during the period in which we are a CFC.
becoming a Ten Percent Shareholder in a CFC. If we are
or PFIC, we generally will not be treated as a PFIC with respect
year or a following year. In
xablea
m
q
ff
a
Certain U.S. Shareholdersrr May
dd
ffeffff r Adverse
f
y Suf
Taxaa Co
Company.
p
y
nsequences If We Are Characterized As A Passive Foreiggni
q
f
Inve
stment
t
Generally, if, for any taxablea
year, at least 75% of our gross income is passive income, or at least 50% of the value of our assets
is attributable to assets that produce passive income or are held for the production of passive income, including cash, we would be
characterized as a PFIC for U.S. federal income tax purporr
and gains from the sale or exchange of investmet
from unrelated parties in connection with the active conductd
our common shares may sufferff
ntial rate applicable to dividends received on the common shares yby
ordinary income, rather than capital gain, the loss of the prefereff
individuals who are U.S. holders, and havi gng interest chargges papp yply to distributions yby us and the pproceeds of sales of the common
shares.
ceived
d
of a trade or business. If we are characterized as a PFIC, U.S. holders fof
adverse tax consequences, including having gains realized on the sale of the common shares treated as
nt property and rents and royalties other than rents and royalties which are re
ses. For purposes of these tests, passive income includes dividends, interest,
Our status 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 reference to the quarterly market value of our common shares, which may be volatile. Our status may also
depend, in part, on how, and how quickly, we utilize the cash proceeds from prior offerings
fact-intensive determination made on an annual basis and we cannot provide any assurances regarding our PFIC status for
current or future taxable years.
in our business. Our status as a PFIC is a
any past,
ff
t
Because it is possible we were a PFIC for the 2018 taxable year, we provided inforff mation necessary for our shareholders to
electing fund, or QEF, election with respect to us for the 2018 taxable year. We provided such information on our
make a qualifiedff
website (www.crisprtx.com). A U.S. holder that makes a QEF election with respect to our shares is required to include a pro rata share
of our income on a current basis, whether or not we make distributions. For the 2018 taxable year, the amount of our ordinary earnings
and net capital gain for purposes of the QEF inclusion rules was zero. Although we have not yet determined whether we are a PFIC
for the 2019 taxable year, it is possible that we may be a PFIC for the 2019 taxable year as well. We were in a net income pos
ition for
r
the 2019 taxable year. While we have not yet determined what our ordinary earnings and net capia tal gain was in 2019 for purposes fof
the QEF inclusion rules, the consequences of our treatment as a PFIC may be more adverse to U.S. holders than in prior years as a
result. We will endeavor to provide to you, for each taxablea
year that we are or may be a PFIC, a PFIC Annual Information Statement
containing information necessary for you to make a QEF election with respect to us. Alternatively, a U.S. holder may be able to make
a mark-to-market election, assuming that our shares constitute “marketable” securities under the Code, which generally avoids the
adverse consequences
increase in value of our shares duri gng
of PFIC status discussed above, but would require a U.S. holder to annually report as ordinary in
ductions for any decrease in the value of our sh
y
come any
ares).
)
as generally allowi gng de
y
the year ((as well
q
y
g
y
83
If we are determined to be a PFIC, a U.S. holder will generally be treated as owning a proportionate amount (by value) of shares
a
owned by us in any of our direct or indirect subsidiaries that are also PFICs, each a lower-tier PFIC, and will be subject to similar
adverse rules with respect to distributions from, or dispositions of, such lower-tier PFICs, in each case as if such U.S. holder held such
shares directly (even if such U.S. holder does not receive the proceeds of such distributions or dispositions directly). We have not
and CRISPR Therapeutics Ltd.) are or may be lower-tier PFICs for
determined whether any of our subsidiaries (including TRACR
any prior taxable ye
years, and we do not intend to do so. We also do not intend to make
ar, the current taxable year or future taxablea
available the information necessary for U.S. holders to make a QEF election with respect to any lower-tier PFICs and therefore you
should expect that you will not be able to make a QEF election with respect to them. You are urged to consult your own tax advisors
regarding our PFIC status and the tax considerations relevant to an investment in a PFIC, including the availability, and advisability,
of, and procedure for making, a QEF election or a mark to market election with respect to us, and the application of the PFIC rules to
any of our subsu idiaries. See “Risk Factor—Comprehensive Tax Reformff
Financial Condition.”
Legislation Could Adverselyll Affeff ct Our Business And
RR
U.S.SS Shareholders May Not Be Able To Obtain Judgments Or Enforce Civil Liabilities Against Us Or Our Executive Officers Or
Members Of Our Board Of Directors.
We are organized under the laws of Switzerland and our registered office and domicile is located in Zug, Switzerland.
ff
and a number of directors of each of
Moreover, certain of our directors and executive officers
rour 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 effeff ct service of process within the United States upon us or upon such persons or to enforce against them
judgments obtained in U.S. courts, including judgments in actions predicated upon the civil liability 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 Switzerland of
original actions, or in actions for enforcement of judgments of U.S. courts, of civil liabilities to the extent solely predicated upon 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 Switzerland shall be
precluded if the result is incompatible with Swiss public policy. Also, mandatory provisions of Swiss law may be applicable
rr
regardless of any other law that would other
t wi
se 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
jju gdgment rende
ymay be enforced in Switzerland
red by a non-Swiss court
yonly if:
y
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-appealable;
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 subject matter was first brought in Switzerland, or adjudicated in
Switzerland, or was earlier adjudicated in a third
state and this decision is recognizable in Switzerland.
d
d
a
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our principal executive offices are located in Zug, Switzerland pursuant to a real estate lease agreement with a term that renews
every three months. Our U.S. headquarters are located at 610 Main Street, Cambridge, Massachusetts where we lease approximately
98,064 square feet of laboratory and office space under two separate subleu
respectively. We have an option to extend the term of each of these subleases for five years if, at the time of expiration of the initial
term, the sublessor does not intend to utilize the space for itself or its affiliates. A portion of this space is subject to a sub-sublease
u
and London,
with a third party. We also have business offices elsewhere in Cambrm idge, Massachusetts, San Francisco, California
United Kingdom. We believe that our facilities are adequate for our current needs and that suitablea
additional or substitute space
would be availablea
ases that expire in March 2024 and December 2026,
if needed.
ff
84
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
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 USPTO declared an interference (Interference No. 106,048, or ‘048 interference) between one of the then
pending U.S. patent applications (now issued as US Patent No. 10,26
patents owned jointly by the Broad Institute and Massachusetts Institute of Technology and, in some instances, the President and
Fellows of Harvard College, which we refer to individually and collectively as the Broad. The interference was redeclared in March
2016 to add a U.S. patent application owned by the Broad. An interference is a proceeding conductd
ed at the USPTO by the PTAB to
determine which party was the first to invent subject matter claimed by at least two parties. There were two parties to this interference
being Dr. Charperr ntier, California, and Vienna, which we refer to collectively as the “CVC Group”,u
6,850) included in the Patent Portfolio
and twelve issued U.S.
and the Broad.
ff
)
Following motions by the parties and other procedural
d
matters, in Februar
ry 2017, the PTAB concluded that the ‘048 interference
should be dismissed. In its decision, the PTAB concluded that, although the claims overlap, the respective scope of the CVC Group’su
and the Broad’s claim sets as presented did not define the same patentable invention and, accordingly, terminated the ‘048
interference.
In April 2017, the CVC Group appealed the PTAB’s decision to the Federal Circuit. In the appeal, the CVC Group asked the
court to review and reverse the PTAB’s February 2017 decision, which terminated the ‘048 interference without determining which
inventors actually invented the use of the CRISPR/Cas9 genome editing technology in eukaryotic cells. The Federal Circuit conducted
a hearing on the appeal on April 30, 2018. On Septemberm 10, 2018, the Federal Circuit affirmed the PTAB’s decision to terminate the
‘048 interference proceeding. As a result of the Federal Circuit’s decision, U.S. Serial No. 13/842,859, wwhich was pprevi
considered allowable, was released from t
he interference and issued as U.S. Patent No. 10,266,850.
ously
y
ff
In June 2019, we received notification that the USPTO initiated a new interference proceeding at the PTAB, which the PTAB
u
U.S. Patent Application Nos. 15/947,680; 15/947,700; 15/947,718; 15/981,807; 15/981,808;
redeclared in August 2019. The ‘115 interference involves fourteen (14) pending U.S. patent applications co-owned by the CVC
Group and thirteen (13) patents and a patent application owned by the Broad. Specifically, the PTAB declared the ‘115 interference
between the CVC Group’s pending
15/981,809; 16/136,159; 16/136,165; 16/136,168; 16/136,175; 16/276,361; 16/276,365; 16/276,368; and 16/276,374, and the Broad’s
U.S. Patent Nos. 8,697,359; 8,771,945; 8,795,965; 8,865,406; 8,871,445; 8,889,356; 8,895,308; 8,906,616; 8,932,814; 8,945,839;
8,993,233; 8,999,641; 9,840,713, and U.S. Patent Application No. 14/704,551. This list includes the same twelve Broad patents and
application that were involved in the ‘048 interference. In contrast, none of the issued U.S. patents the CVC Group owns are subject
this proceeding. The CVC Group’s inventions that are the subjeb ct of the ‘115 interference were first filed with the USPTO in May of
2012, while the Broad filed its first application seven months later in December of 2012. However, the 14 CVC Group patent
applications that are involved in the ‘115 interference are continuing patent applications that were filed in 2018 and claim priority to
the CVC Group’s original 2012 filing, while the Broad’s involved patents and patent application were filed between 2013 and 2015.
Because the PTAB accorded neither party the benefit of any of its first filing dates, but instead accorded only the benefit of the actual
filing dates of the involved patents and patent applications, the CVC Group was by defaulta
named the Junior Party. Both parties have
filed motions requesting the benefit of their earliest priority dates (CVC in May of 2012 and the Broad in December of 2012) during
the interference proceeding.
u
to
Either party can pursue existing or new patent applications in the
a
U.S. and elsewhere. Going forward, either party and other
parties could seek a new interference re
any existing or new patents could be the subject of other challenges to their validity of enforceability. If there is an additional
interference, either party could again appeal an adverse decision to the Federal Circuit.
lated to the uses of the technology in eukaryotic cells or other aspects of the technology, and
ff
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. Charpentier, we are responsible for covering or reimbursing Dr. Charperr ntier’s patent prosecution, defense and related costs
associated with our in-licensed technology.
In February 2018, several parties filed oppositions in the European Patent Office to the grant of our first in-licensed European
to the grant of both our second and
patent. Later in 2018 and in 2019, several parties filed oppositions in the European Patent Office
third in-licensed European patent. Opposition proceedings can lead to the revocation of a patent in its entirety; the maintenance of the
patent as granted, or the maintenance of a patent in amended form. Opposition proceedings typically take years to resolve, including
the time taken by appeals that can be filed by any of the parties. We cannot guarantee the outcome of the oppositions to our in-
licensed European patent, and an adverse result could preclude us from enforff cing our rights in Europe against third parties.
ff
85
We are unable to predict the outcome of these matters and are unable to make a meaningful estimate of the amount or range of
outcome. In the futurtt e, we may become party to legal matters and claims arising in
loss, if any, that could result from an unfavorablea
the ordinary course of business, the resolution of which we do not anticipate would have a material adverse impam ct on our financial
position, results of operations or cash flows. We devote considerablea
estate of intellectual property related to the use of CRISPR/Cas9 genome editing systems to develop therapeutic products.
regard, we have amassed an estate of patents, patent applications and other intellectual property covering, among other things:
in building, maintaining and protecting a broad, worldwide
In this
ff
effort
d
fundamental aspects of CRISPR/Cas9
Charpentier;
RR
systems for gene editing via the in-licensed patent rights of Dr. Emmanuelle
internally developed platform technologies supporting the use of CRISPR/Cas9 genome editing systems;
guide RNAs directed to specific targets as treatments for specific diseases;
ff
improved delivery technologies; and
all aspects of our specific development candidates.
As both our platform and development pipeline mature, we intend to continue expanding our intellectual property portfolio
through new patent filings that claim aspects of our proprietary technologies and development candidates. Furthet
CRISPR/CaRR
ff
world. There is uncertainty about which patents will issue, and, if they do, as to when, to whom and with what claims.
s9 technologies and therapeutics is maturing, patent applications are being examined by national patent offices ar
rmore, as the field of
ound the
It is likely that there will be significant litigation and other proceedings, such as interference,
ff
reexamination, inter partes review,
post-grant review and opposition proceedings, in various patent offices relating to patent rights in the CRISPR/Cas9 field. For
example, the European patents we in-licensed from Dr. Charper ntier have been opposed by several third parties. On September 16,
2012, the America Invents Act went into effect and expanded the opportunities to challenge issued U.S. patents, creating proceedings
including inter partes reviews and post-grant reviews. These provide additional opportunities for third parties to challenge patents
within our intellectual property estate. Given the importm
vigorously enforce our rights and defend against challenges that have arisen or may arise in this area, as we deem appropriate.
ance of our intellectual property estate to our business operations, we intend to
For further information regarding risks regarding the interference 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 applicabla e.
86
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common shares are traded on The Nasdaq Global Market under the symbol “CRSP.”
PART II
Stock Performance Graph
The following performance graph and related information shall not be deemed to be “soliciting material” or to be “filed”
the Securities and Exchange Commission, or SEC, for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or
the Exchange Act, nor shall such information be incorporated by reference into any future filing under the Exchange Act or Securities
Act of 1933, as amended, or the Securities Act, except to the extent that we specifically incorporate it
by reference into such filing.
with
ff
rr
The grapha
set forth below compares the cumulative total stockholder return on our shares between October 19, 2016 (the date of
our initial public offering) and December 31, 2019, with the cumulative total return of (a) the Nasdaq Biotechnology Index and (b) the
Nasdaq Composite Index, over the same period. This graph assumes the investment of $100 on October 19, 2016 in our common
shares, the Nasdaq Biotechnology Index and the Nasdaq Composite Index and assumes the reinvestment of dividends, if any. The
grapha
initial offering
price to the publu ic of $14.00 per share. The comparisons shown in the graph be
ff
stock price performance included in this graph is not necessarily indicative of future stock price performance.
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
low are based upon historical data. The
a
Comparison of Total Return Among CRISPR Therapeutics AG, the NASDAQ Composite Index and the NASDAQ
Biotechnology Index
87
Holders
As of February 7, 2020, we had approximately 8 holders of record of our common shares. This number does not include
beneficial owners whose shares were held in street name.
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 equiq ty compensation plans is incorporated herein by reference to Item 12 of Part III of this Annual Report
on Form 10-K.
88
Item 6. Selected Financial Data.
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data are derived from our audited consolidated financial statements. These data
should be read in conjunction with our audited consolidated financial statements and related notes that are included elsewhere in this
Annual Report on Form 10-K and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
included in Item 7.
2019
December 31,
2017
(in thousands, except share and per share amounts)
2018
2016
2015
Consolidated Statements of Operations Data:
Collaboration revenue
Operating expenses:
Research and development
General and administrative
Total operating expenses
Income (loss) from operations
Other income (expense), net
Net income (loss) before income taxes
Provision for income taxes
Net income (loss)
Foreiggn curr
Comprehensive income (loss)
Reconciliation of net income (loss) to net income (loss)
ation adjustment
j
yency transl
attributable to common shareholders:
Net income (loss)
Loss attributable to noncontrolling interest
Net income (loss) attributable to common shareholders
Net income (loss) per share attribt
utable to common
shareholders—b— asic
Weighted-average common shares outstanding used in
net income (loss) per share attributable to common
shareholders—b— asic
Net income (loss) per share attribt
utable to common
shareholders—diluted
Weighted-average common shares outstanding used in
net income (loss) per share attributable to common
shareholders—diluted
Consolidated Balance Sheet Data:
Cash
Working capital
Total assets
Redeemable convertible preferred shares
Total shareholders' equi yty (deficit)
ff
$
289,590 $
3,124 $
40,997 $
5,164 $
247
179,362
63,488
242,850
46,740
20,566
67,306
(448)
66,858
15
66,873
113,773
48,294
162,067
(158,943)
(5,485)
(164,428)
(553)
(164,981)
(22)
(165,003)
69,800
35,845
105,645
(64,648)
(1,960)
(66,608)
(1,749)
(68,357)
40
(68,317) $
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)
66,858 $ (164,981) $
——
——
66,858 $ (164,981) $
(68,357) $
——
(68,357) $
(23,220) $
25
(23,177) $
(25,828)
325
(25,503)
1.23 $
(3.44) $
(1.71) $
(1.89) $
(5.06)
54,392,304
47,964,368
40,057,365
12,257,483
5,037,404
1.17 $
(3.44) $
(1.71) $
(1.89) $
(5.06)
$
$
$
$
$
56,932,798
47,964,368
40,057,365
12,257,483
5,037,404
2019
2018
December 31,
2017
(in thousands)
2016
2015
$
943,771
930,441
1,066,752
——
939,425
$
456,649
438,649
489,016
——
392,195
$
239,758
233,874
271,346
——
187,832
$
315,520
298,190
344,962
——
232,846
$
155,961
146,685
159,423
64,521
(29,124)
89
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussio
ii
n and analysis
ll
of our financial condition and results of operations together with thett
section entitled Selected Consolidated Financial Data and our consolidated financial statements and related notes appearing
elsewhere in this Annual Report on
elsewhere in thisii Annual Report on
related financing, includes forwa
thos
tt
from the results described in or implm ied by the forward-ldd ooking statementstt contained in the following discussion and analysis.ii
s and strategygg for our business and
ding
n of this Annual Report on Form 10-K, our actual results could differ materially
Form 10-K. Some of the information contained in thitt sii discussion and analysisii or set forthtt
Form 10-K, including infon rmation with respect to our planl
rd-looking statements that involve risks and uncertaint
e factors set forth in the "Risk Factors" sectio
ies. As a result of many factors, inclu
e
e
ee
rr
rr
i
tt
Overview
We are a leading gene editing company focused on the development of CRISPR/CaRR
s9-based therapeutics. CRISPR/Cas9 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 scientific founders, Dr. Emmanuelle Charperr ntier, who, along with her collaborators,
published work elucidating how CRISPR/Cas9, a naturally occurring viral defense mechanism found in bacteria, can be adapta ed for
use in gene editing. We are applying this technology to potentially treat a broad set of rare and common diseases by disrupting,
correct
rr
enable an entirely new class of highly active and potentially curative therapia es for patients for whom current biopharmaceutical
approaches have had limited success.
ing or regulating the genes related to such diseases. We believe that our scientific expertise, together with our approach, may
We have established a portfolff
io of therapeut
oncology, regenerative medicine and rare diseases.
a
ic programs across a broad range of disease areas including hemoglobinopathies,
Our lead productdd
candidate, CTX001, is an investigational, autologous, gene-edited hematopoietic stem cell therapy that is be ging
evaluated for the treatment of transfusion-dependent beta thalassemia, or TDT, and severe sickle cell disease, or SCD. CTX001 is
bbei gng devel poped under a co-devel popment and co-commercialization gagreement between us and Vertex.
We and Vertex are investigating CTX001 in a Phase 1/2 open-label clinical trial, CLIMB THAL-111, that is designed to assess
dose of CTX001 in patients ages 18 to 35 with TDT, non-beta zero/beta zero subtu ypes. The first two
ff
the safety and efficacy of a single
ppatients in the trial will be treated sequentially and, pending data from the initial two patients, the trial will open for broad rer
concurrent enrollment. CLIMB THAL-111 is designed to enroll up to 45 patients and follow patients for approximately
after infusion. Each patient will be asked to participate in a long-term follow-up study.
Designation by the FDA for the treatment of TDT, as well as has been granted orphan drug designation, or ODD, by the European
Commission. Enrollment is ongoing at multiple clinical trial sites globally. In the fourth quarter of 2019, we released pr
eliminary
y
clinical data from the first patient treated with CTX001 with TDT, and we expanded the TDT patient population for CTX001 to
include beta zero/be//
y
two years
Fast Track
k
CTX001 has been granted
u
ta zero su ybtypes.
t
We and Vertex are also investigating CTX001 in a Phase 1/2 open-label clinical trial, CLIMB SCD-121, that is designed to
assess the safety and efficacy of a single dose of CTX001 in patients ages 18 to 35 with severe SCD. Similar to the trial in beta
thalassemia, the first two patients in the trial will be treated sequentially and, pending data from the initial two patients, the trial will
open for broader concurrent enrollment. CLIMB SCD-121 is designed to enroll up to 45 patients and follow patients for
approximately two years after infusion. Each patient will be asked to participate in a long-term follow-up study. CTX001 has been
granted Fast Track Designation by the FDA for the treatment of SCD, as well as ODD by the European Commission. Enrollment is
ongoing at multiple clinical trial sites globally. In the fourth quarter of 2019, we released preliminary clinical data from the first
patient treated with CTX001 with severe SCD.
In addition, we are developing our own portfolio of CAR-T cell product candidates based on our gene-editing technology.
lead candidate, CTX110, is a healthy donor-derived gene-edited allogeneic CAR-T therapy targeting CD19 for the treatment of CD19+
malignancies. We are investigating CTX110 in a Phase 1/2 clinical trial that is designed to assess the safety and efficff
ed or refractory B-cell malignancies. The multi-center, open-label clinical trial is designed to enroll up to 95 pati
in relapsa
investigate several dose levels of CTX110. The study is currently enrolling at multiple clinical trial sites globally. Our second gene-
edited allogeneic CAR-T program, CTX120, targets B-cell maturation antigen. We are investigating CTX120 in a Phase 1 clinical trial
relapsed or refractory multiple myeloma. The multi-center, open-label
that is designed to assess the safety and efficacy of CTX120 in
clinical trial is designed to enroll up to 80 patients and investigate several dose levels of CTX120. The trial is currently enrolling.
rOur
third gene-edited CAR-T candidate, CTX130, targets CD70. CTX130 is in development for the treatment of both solid tumors, such as
renal cell carcinoma, and T-cell and B-cell hematologgic ma glignancies.
acy of CTX110
ents and
d
rOur
ff
90
Given the numerous potential therapeutic applications for CRISPR/Cas9, we have partnet
red strategically to broaden the
indications we can pursue and accelerate development of programs by accessing specific technologies and/or disease-area exppertise.
We maintain three broad strateg pgic partnersh pips to devel pop ggene
erapeutics in specific disease areas.
editing-based th
p
p
g
Vertex. We established our initial collabora
dand
select additional indications. In December 2017, we entered into a joint development and commercialization agreement with Vertex to
co-develop and co-commercialize CTX001 as part of that collaboration. In June 2019, we expanded our collaboration and entered into
and license agreement for the developpment and commercialization of pproducd ts for the treatment of DMD dand
a
DM1.
tion agreement in 2015 with Vertex, which focused on TDT, SCD, cystic fibrosis
strategic collaboa
ration
g
g
a
ViaCyte. We entered into the ViaCyte Collaboration Agreement in September 20
m
18 with ViaCyte to pursue the discovery,rr
development and commercialization of gene-edited allogeneic stem cell therapies for the treatment of diabetes. The
ViaCyte’s stem cell capaba
a
deliver durable bene
ilities and our gene editing capabiliti
fit to ppatients without the need for immune suppppu
es has the potential to en
ression.
able a beta-cell replacement product that
combination of
f
ymay
p
p
p
s9 gene-editing therapeutics to treat the genetic causes of bleeding disorders, autoimmune disease, blindness, hearing loss
Bayer. In the fourth quarter of 2019, we entered into a series of transactions, or the Bayer Transaction, pursuant to
Bayer
Bayer terminated our 2015 agreement, which created the joint venturt e, Casebia, to discover, develop and commercialize
CRISPR/CaRR
and heart disease. In connection thereto, Casebia became a wholly-owned subsidiary of ours. We and Bayer also entered into a new
option agreement pursuant to which Bayer has an option to co-develop and co-commercialize two products for the diagnosis,
treatment or prevention of certain autoimmunem
under certain circumstances, exclusi
disorders, eye disorders, or hemopphilia A disorders
yvely license such poptioned pproducts.
for a specified pperiod of time, or,
which we and
d
p
Referff
to Note 7 of the notes to our consolidated financial statements included in this Annual Report on Form 10-K for a
description of the key terms of our arrangements with Vertex, ViaCyte and Bayer.
potential product candidates, undertaking drug discovery and preclinical development activities, building and protecting
Since our inception in October 2013, we have devoted substantially all of our resources to our research and development efforts,
identifying
ff
our intellectual property estate, 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
preferred shares, common share issuances, convertible loans and collaboration agreements with strategic partners.
All of our revenue to date has been collaboration revenue. We were profitaff blea
for the year ended December 31, 2019 due to
collaboration revenue from Vertex and Casebia, but we do not expect to sustain our profitabia lity in future years. With the exception of
the year ended December 31, 2019, we have incurred significant net operating losses each year since our inception and expect to
continue to incur net operating losses for the foreseeable future. As of December 31, 2019, we had $943.8 million in cash and cash
equivalents and an accumulated deficit
nt expenses and increasing operating
losses for the next several years. Our net losses may fluctuate significantly from quarter to quarter and year to year. We 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 product candidates; conduct initial drug application supporting preclinical studies and
initiate clinical trials for our productd
identify and develop; maintain, expand and protect our intellectual property estate; further deve
additional research, clinical and scientific personnel; and incur additional costs associated with operating as a public company.
candidates; initiate preclinical testing and clinical trials for any other product candidates we
of $224.7 million. We expect to continue to incur significaff
lop our gene editing platform; hire
aa
ff
t
Financial Overview
Revenue Recognigg tionii
We have not generated any revenue to date from product sales and do not expect to do so in the near futurtt e. During the years
ended December 31, 2019, 2018 and 2017, we recognized $289.6 million, $3.1 million and $41.0 million, respectively, of revenue
related to our collaboration agreements with Vertex, as well as certain arrangements with Casebia prior to the Bayer Transaction. For
additional information about our revenue recognition policy, see the “Critical Accounting Policies and Estimates — Revenue.”
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our product
discovery efforts
ff
and the development of our product candidates, which include:
employee-related expenses, including salaries, benefits and equity-based compensation expense;
costs of services performed by third parties that conduct research
d
and development and preclinical activities on our behalf;
costs of purchasing lab suppl
preclinical studytt
u
materials;
ies and non-capital equipment used in our preclinical activities and in manufacturing
91
consultant fees;
facility costs, including rent, depreciation and maintenance expenses; and
fees and other pa
t
yments related to acquiring and maintaining licenses under our third-party licensing agreements.
Research and development costs are expensed as incurred. Nonrefundable
ff
advance payments for research and development
deferred and capitalized. The capia talized amounts are expensed as the related goods
goods or services to be received in the future are
are delivered or the services are performed. At this time, we cannot reasonably estimate or know the nature, timing or estimated costs
of the efforts that will be necessary to complete the development of any product candidates we may identify and develop. This is due
to the numerous risks and uncertainties associated with developing such product candidates, including the uncertainty of:
ff
successfulff
completion of preclinical studies and IND-enabling studies;
successfulff
enrollment in, and completion of, clinical trials;
receipt of marketing approvals from applicable regulatory authorities;
establa ishing commercial manufacturi
tt
ng capabilities or making arrangem
rr
ents 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;
effectively competing
m
with other therapies and treatment options;
a continued acceptable safety profile following approval;
enforff cing and defenff ding intellectual property and proprietary rights and claims; and
achieving desirablea medicinal properties for the intended indications.
A change in the outcome of any of these variables with respect to the development of any product ca
quent
commercialization of any product candidates we may successfully develop could significff antly change the costs, timing and viability
associated with the development of that product candidate.
ndidates or the subseu
d
Except for activities we perform in connection with our collaborations with Vertex, as well as certain arrangements with
Casebia prior to the Bayer Transaction, we do not track research and development costs on a program-by-program basis.
Research and development activities are central to our business model. We expect our research and development costs to
increase significantly for the foreseeable future as our current development programs progress, new programs are added and as we
ation and expansion of
continue to prepare regulatory filings. These increases will likely include the costs related to the implement
clinical trial sites and related patient enrollment, monitoring, program management and manufacturing expenses for current and future
clinical trials. In addition, we expect that our research and development expenses will increase in future periods as we incur additional
costs in connection with research and development activities under our collaboration with ViaCyte.
m
General and Admidd nis
ii
xx
trativtt e Expenses
General and administrative expenses consist primarily of employee rel
and equity-
mm
based compensation, for personnel in executive, finance, accounting, business development and human resources functions. Other
significant costs include facility costs not otherwise included in research and development expenses, legal fees relating to patent and
corporate matters and fees for accounting and consulting services.
ated expenses, including salaries, benefitsff
t
We anticipate that our general and administrative expenses will increase in the future to suppou
rt continued research and
development activities, potential commercialization of our product candidates and increased costs of operating as a publu ic company.
In addition, we anticipate increased expenses related to the reimbursements of third-party patent related expenses in connection with
certain of our in-licensed intellectual property.tt
Other income (expense), net
Other income (expense), net consists primarily of interest income earned on investments, the gain resulting from the
consolidation of Casebia following the Bayer Transaction and the loss from equity method investment from stock-based compensation
awards granted to employees of Casebia, prior to consolidation.
92
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 future performance. We refer to these policies as critical because these specific areas
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-specificff
or other
relevant assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making
t
judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions.
While our significant accounting policies are described in more detail in the notes to our financial statements included elsewhere
in this Annual Report on Form 10-K, 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
Effective January 1, 2018, we adopted Accounting Standards Codification Topic 606, Revenue from Contracts with Customers,
or ASC 606, using the modified retrospective transition method. The adoption of this guidance did not have a significant impactm
our consolidated financial statements.
on
ASC 606 applies to all contracts w
ith customers, except for contracts that are within the scope of other standards, such as leases
and collaboration arrangements. To determine revenue recognition for arrangements that an entity determines are within the scope of
ASC 606, the entity performs the following five steps:
tt
1)
Identify the contract with
fy
tt
the customer
A contract with a customer exists when (i) we enter into an enforceable contract with a customer that defines each party’s rights
regarding the goods or services to be transferred a
and (iii) we determine that collection of subsu tantially all consideration for goods and services that are transferred is probable based on
the customer’s intent and ability to pay the promised consideration.
nd identifies the related payment terms, (ii) the contract has commercial substance
ff
2) Identify the performance obligat
i
ions in the contract
Performance obligations promised in a contract are identified based on the goods and services that will be transferred to the
customer that are both capable of being distinct, whereby the customer can benefit from the good or service either on its own or
together with other available resources, and are distinct in the context of the contract, whereby the transfer of the good or service is
separately identifiable from other promises in the contract. To the extent a contract includes multiple promised goods and services, we
must apply judgment to determine whether promised goods and services are capaba
le of being distinct and distinct in the context of the
contract. If these criteria are not met, the promised goods and services are accounted for as a combined performance obligation.
3) Determine the transaction price
The transaction price is determined based on the consideration to which we will be entitled in exchange for transferri
and services to the customer. To the extent the transaction price includes variable consideration, such as research, development,
regulatory and commercial milestones, we determine if it is probable that we will receive such amounts and there is no risk of a
significant revenue reversal. When we cannot
consideration resulting in its exclusion from transaction consideration. In determining the portion of the transaction consideration to be
constrained, we consider the probability and uncertainty that the related research, developmental, regulatory and commercial
milestones will be achieved given the nature of research and clinical development and the stage of the underlying programs. This
assessment is performed at each reporting period. In making this evaluation, we consider both internal and external information
available, including information from industry publu ications and other relevant factors. Changes to the constraint
consideration can have a material effect on the amount of revenue recognized in the period.
conclude that receipt of such amounts is probable, we constrain the related variable
of variable
ng goods
a
ff
t
93
4) Allocate the transaction considerdd ation to perfor rmance obligat
i
ions in the contract
If the contract contains a single performance obligation, the entire transaction consideration is allocated to the single
tt
ff
multiple performance obligations require an allocation of the transaction consideration
on a relative standalone selling price basis unless the transaction consideration is variable and meets
performance obligation. Contracts that contain
to each performance obligation
the criteria to be allocated entirely to a performance obligation or to a distinct service that forms part of a single performar
obligation. The consideration to be received is allocated among the separate performance obligations based on relative standalone
selling prices. In determining these estimated standalone selling prices, we make a numberm of significant judgements including, for
licenses, management’s assumptions
regarding probability weighted projected discounted cash flows for each of the collaboration
development programs. The estimated standalone selling prices are sensitive to changes in assumptions, such as probabilities of
scientific success, discount rate and certain assumptions that form the basis of forecasted cash flows. In developing these assumptm ions,
management considers both internal and external information available, including information from other guideline companies within
the same industry and other relevant factors. Changes to these assumptmm ions can have a material effect on the allocation of the
transaction consideration to performance obligations, as well as the amount and timing of revenue recognized.
nce
mm
5) Recognize revenue when or as we satisfy a perfor rmance obligatgg ion
We satisfy performance obligations over time or at a point in time, depending on the nature of the performance obligation.
Revenue is recognized over time if the customer simulm taneously receives and consumes the benefits provided by the entity’s
performance, the entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced, or
the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment
for performance completed to date. If the entity does not satisfy a performance obligation over time, the related performance
obligation is satisfied at a point in time by transferring the control of a promised good or service to a customer.
ff
Collaboration Arrangements
We record the elements of our collaborat
a
ion agreements that represent joint operating activities in accordance with ASC 808,
Collaborative arrangements, or ASC 808. Accordingly, the elements of the collaboration agreements that represent activities in which
both parties are active participants and to which both parties are exposed to the significff ant risks and rewards that are dependent on the
commercial success of the activities, are recorded as collaborative arrangements.
We evaluate the proper presentation of the commercial activities and the profit and loss sharing associated with the collaboration
agreements. ASC 808 states that when payments between parties in a collaborat
authoritative accounting literature, the income statement classification should be based on the nature of the
its business operations and the contractual terms of the arrar ngement. To the extent that these payments are not within the scope of
other authoritative accounting literature, the income statement classification for the payments shall be based on an analogy to
authoritative accounting literature or if there is no appropriate analogy, a reasonable, rational, and consistently applied accounting
policy election.
ive arrangement are not within the scope of other
arrangement, the nature of
a
t
Accrued research and development expenses
xx
As part of the process of preparing our financial statements, we are required to estimate our accrued expenses. This process
involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been
performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have
rs for
not yet been invoiced or othet
services performed
t milestones are met. We make estimates of our accrued expenses as of each balance sheet date
ual
r
in our financial statements based on facts and circumstances known to us at that time. Examplesmm
development expenses include fees paid to:
ty of our service providers invoice us monthly in arrear
rwise notified of the actual cost. The majori
of estimated accrued research and
or when contract
a
tt
CROs in connection with clinical studies;
investigative sites in connection with clinical studies;
vendors in connection with preclinical development activities; and
vendors related to development, manufacturing and distribution of clinical trial materials.
We base our expenses related to clinical studies on our estimates of the services received and efforts
ff
expended pursuant to
contracts with multiple CROs that conductd
subjeb ct to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which
payments made to our vendors will exceed the level of services provided and result in a prepayment of the clinical expense. Paymen
aa
under some of these contracts depend on factors such as the successful enrollment of subjects
milestones. In accruing service fees, we estimate the time period over which services will be perforff med and the level of effort to be
expended in each period and adjud st accordingly.
and manage clinical studies on our behalf. The financial terms of these agreements are
and the complm etion of clinical study
u
ts
94
Variable Interest Entities
We review each legal entity formed by parties related to us to determine whether
t
or not the entity is a variable interest entity, or
ff
ry of that VIE based on a number of factors, including (i) which party has the power to direct the activities that most
VIE, in accordance with ASC Topic 810, Consolidatdd ion. If the entity is a VIE, we assess whether or not we are the primary
beneficia
ff
significantly affect
the VIE’s economic performance, (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 we determine that
we are the primary beneficiary of a VIE, we
VIE into our consolidated financial statements at the time that determination is made. On a quarterly basis, we evaluate whether
continues to be the primary beneficia
consolidated VIE, or no longer have a variable interest in the VIE, we deconsolidate the VIE in the period that the determination is
made.
treat the VIE as a business combination and consolidate the financial statements of the
it
ry of any consolidated VIEs. If we determine that we are no longer the primary beneficiary of a
ff
ff
t
tt
If we determine that we are the primary beneficiary of a VIE that meets the definition of a business, we measure the assets,
liabilities and non-controlling interests of the newly consolidated entity at fair value in accordance with ASC Topic 805, Business
Combinations, on the date we become the primary beneficiary.r
The Company determined that Casebia was a VIE and concluded that it was not the primary beneficiary of the VIE prior to
December 13, 2019. As such, the Company did not consolidate Casebia’s results into the consolidated financial statements prior to
December 13, 2019. Instead, the Company accounted for its 50% investment in Casebia under the equity method. On December 13,
2019, Casebia became a fully-owned subsidiary and, as a result, the Company consolidated Casebia’s financial results from that date
forward.
Equity-Based Compensation
Our share-based compensation programs grant awards that have included stock options, restricted stock units and restricted
stock awards. Grants are awarded to employees and non-employmm
ees, including directors.
We account for our stock-based compensation awards in accordance with ASC Topic 718, CompensationStock
or ASC 718. ASC 718 requires all stock-based payments to employees and non-employee directors, including grants of employm
stock options and restricted stock units and modifications to existing stock options, to be recognized in the consolidated statements of
operations and comprehensive loss based on their fair values. We use the Black-Scholes option pricing model to determine the fair
value of options granted.
Compensat
ee
m
ion,
We account for forfeitures as they occur instead of estimating forfeitures at the time of grant and revising those estimates in
subsequent periods if actual forfeiff
statements is based on awards for which performance or service conditions are expected to be satisfied.
tures differ from its estimates. Stock-based compensation expense recognized in the financial
Prior to the adoption of ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployl
ee
ent Accounting, or ASU 2018-07, on July 1, 2018, the measurement date for non-employee awards was generally
Share-Based Payma
the date the services were completed, resulting in financial reporting period adjud stments to stock-based compem nsation during the
vesting terms for changes in the fair value of the awards. After adoption of ASU 2018-07, the measurement date for non-employm
awards is the date of grant withot ut changes in the fair value of the award.
ee
Our stock-based awards are subju ect to service or performance-based vesting conditions. Compensation expense related to
awards to employees, directors and non-employees with service-based vesting conditions is recognized on a straight-line basis based
on the grant date fair value over the associated service period of the award, which is generally the vesting term. Compensation
expense related to awards to employm
grant date fair value over the requisite service period using the accelerated attribution method to the extent achievement of the
performance condition is probable.
ees with perforff mance-based vesting conditions is recognized based on the
ees and non-employm
We expense restricted stock unit awards to employees based
m
on the fair value of the award on a straight-line basis over the
associated service period of the award.
95
We estimate the fair value of our option awards to employees, directors and non-employees using the Black-Scholes option
pricing model, which requires the input of subjeb ctive assumptions, including (i) the expected stock price volatility, (ii) the calculation
of expected term of the award, (iii) the risk-free interest rate and (iv) expected dividends. Due to the lack of complmm ete compamm ny-
specific historical and implm ied volatility data for the full expected term of the stock-based awards, we base our estimate of expected
volatility on a representative group of publicly traded companies in addition to our own volatility data. For these analyses, we selected
compam nies with comparable characteristics to our own, including enterprise value, risk profiles, position within the industry and with
historical share price information sufficient to meet the expected life of the stock-based awards. We compute historical volatility data
using the daily closing prices for the selected companies’ shares during the equivalent period of the calculated expected term of the
stock-based awards. We will continue to apply this process until a sufficie
of our own stock price becomes available. We have estimated the expected term of our employm
method, whereby, the expected term equals the arithmetic average of the vesting term and the original contractual term of the option
due to its lack of sufficient historical data. The risk-free interest rates for periods within the expected term of the option are based on
the U.S. Treasury securities with a maturity date commensurate with the expected term of the associated award. We have never paid,
and do not expect to pay, dividends in the foreseeable future.
nt amount of historical information regarding the volatility
ee stock options using the “simplified”
ff
Recent Accounting Pronouncements
Referff
to Note 2 of the notes to our consolidated financial statements included in this Annual Report on Form 10-K for a
ff
discussion of recent accounting pronouncements.
Results of Operations
Comparison of Years Ended December 31, 2019 and 2018
The following table summarizes our results of operations for the years ended December 31, 2019 and 2018, together with the
dollar change in those items:
Collaboa
ration revenue
Operating expenses:
g
Research and development
General and administrative
Total operating expenses
Income (loss) from operations
Other income (expense), net
Net income (loss) before income taxes
Provision for income taxes
Net income (loss)
Years Ended December 31,
2019
$
289,590
2018
(in thousands)
3,124
$
Period-to-
Period Change
$
286,466
179,362
63,488
242,850
46,740
20,566
67,306
(448)
66,858
$
113,773
48,294
162,067
(158,943)
(5,485)
(164,428)
(553)
$ (164,981) $
65,589
15,194
80,783
205,683
26,051
231,734
105
231,839
Collaboration Revenue
Collaboa
ration revenue was $289.6 million for the year ended December 31, 2019, compared to $3.1 million for the year ended
December 31, 2018. The increase of $286.5 million was primarily due to recognition of $289.1 million in revenue in 2019 in
connection with the collaboration agreements with Vertex. Refer to Note 7 of the notes to our consolidated financial statements
included in this Annual Report on Form 10-K for a description of revenue recognized related to Vertex.
Research and Development Expenses
x
Research and development expenses were $179.4 million for the year ended December 31, 2019, compared to $113.8 million
for the year ended December 31, 2018. The increase of $65.6 million was primarily attributable to the following:
$24.4 million of increased employee compensation, benefit and other he
increased stock-based compensation expense, primarily due to an increase in headcount to support advancing programs
and research;
adcount related expenses, of which $5.7 million is
t
$28.3 million of increased variable research and development costs; and
$12.3 million of increased facility-related expenses.
96
General and Administrative
dd
Expenses
x
General and administrative expenses were $63.5 million for the year ended December 31, 2019, compared to $48.3 million for
the year ended December 31, 2018. The increase of $15.2 million was primari yly attributable to the follo
y
gwing:
$8.2 million of increased emplmm oyee compem nsation, benefit and other
increased stock-based compensation expense, primarily due to an increase in headcount to support overall growth;
headcount related expenses, of which $3.4 million is
t
$2.2 million of increased intellectual property costs;
$2.2 million of increased professional servirr ces costs; and,
$1.6 million of increased facility-related expenses.
Other income (expense),e net
Other income, net, was $20.6 million for the year ended December 31, 2019, compared to $5.5 million in other
t
expense, net, for
the year ended December 31, 2018. Other income, net for the year ended December 31, 2019 consisted of interest income of $10.1
million, a $16.0 million gain resulting from the consolidation of Casebia following the Bayer Transaction, offset by
$5.5 million in
losses from equity method investment from stock-based compensation awards granted to employees of Casebia prior to the Bayer
Transaction. Other expense, net, for the year ended December 31, 2018 consisted of interest income of $0.2 million, offsff et by $2.5
million of losses from equity method investment from stock-based compensation awards granted to employees of Casebia and $1.2
million related to the change in fair value of the derivative liability issued under the ViaCyte Collaboration Agreement.
ff
Comparison of Years Ended December 31, 2018 and 2017
The following table summarizes our results of operations for the years ended December 31, 2018 and 2017, together with the
dollar change in those items:
Collaboa
ration revenue
Operating expenses:
Research and development
General and administrative
Total operating expenses
Loss from operations
Other (expense) income, net
Net loss before provision for income taxes
Provision for income taxes
Net loss
Years Ended December 31,
2018
2017
(in thousands)
Period-to-
Period Change
3,124
40,997 $
(37,873)
113,773
48,294
162,067
(158,943)
(5,485)
(164,428)
(553)
(164,981) $
69,800
35,845
105,645
(64,648)
(1,960)
(66,608)
(1,749)
(68,357) $
$
43,973
12,449
56,422
(94,295)
(3,525)
(97,820)
1,196
(96,624)
Collaboration Revenue
a
Collaborat
ion revenue for the year ended December 31, 2018 was $3.1 million, compared to $41.0 million for the year ended
December 31, 2017. The decrease of $37.9 million was primarily due to recognition of $30.3 million in revenue in 2017 as a result of
the delivery of the co-exclusive licenses to develop and commercialize various hemoglobinopathy targets under the collaboration
agreement with Vertex as well as a decrease in research and development service revenue from the collaborat
ion with Vertex.
a
Research and Development Expenses
x
Research and development expenses for the year ended December 31, 2018 was $113.8 million, compared to $69.8 million for
the year ended December 31, 2017. The increase of $44.0 million was primarily attributable to the following:
$15.0 million of expenses related to the ViaCyte Collaboration Agreement;
$7.5 million of variable research and development costs and license fees;
$8.8 million of stock-based compensation costs;
97
$9.5 million of employmm
ee-related costs; and,
$2.5 million of facility-related costs.
General and Administrative
dd
Expenses
x
General and administrative expenses were $48.3 million for the year ended December 31, 2018, compared to $35.8 million for
the year ended December 31, 2017. The increase of $12.5 million was primarily due to the following:
$7.4 million of stock-based compensation costs;
$3.5 million in intellectual property costs;
$2.8 million in employm
ee-related costs; offset by,
$1.2 million of decreased professio
ff
nal, consulting and facilities costs.
Other Income (ExpeEE
nse), Net
Other expense, net, was $5.5 million for the year ended December 31, 2018, compared to $2.0 million for the year ended
December 31, 2017. The increase was primarily due to an increase in the loss from equity method investment from stock-based
compensation awards granted to employees of Casebia of $2.5 million and other expenses of $1.2 million related to the change in fair
value of the derivative liability issued under the ViaCyte Collaboration Agreement. The increases were offset by $0.2 million of
investment income for the year ended December 31, 2018.
Liquidity and Capital Resources
Sources of Liquiditytt
As of December 31, 2019, we had cash and cash equivalents of ap
q
proximately $943.8 million, of which $891.0 million was held
outside of the United States.
With our cash on hand as of December 31, 2019, we expect cash and cash equivalents to be sufficie
ff
nt to fund our current
operating plan through at least the next 24 months.
We have predominantly incurred losses and cumulative negative cash flows from operations since our inception, and as of
December 31, 2019, we had an accumulated deficit of $224.7 million. We anticipate that we will continue to incur losses for at least
the next several years. We expect that our research and development and general and administrative expenses will continue to increase
and, as a result, we will need additional capia tal to fund our operations, which we may raise through public or private equity or debt
finff ancings, strategic collaboa
rations, or other sources.
Since our initial public offering, we have primarily financed our operations through common share issuances (as outlined below)
and collaboration agreements with strategic partnett
rs. Recent sources of equity financing include:
In January 2018, we completed an underwritten public offering of 5.7 million common shares (inclusive of shares sold
pursuant to an overallotment option granted to the underwriters in connection with the offering), which were sold at a
price of $22.75 per share. This offeri
costs of $8.2 million.
ng resulted in net proceeds to us of $122.6 million, which were net of equity issuance
ff
In Septemberm 2018, we completed an underwritten publu ic offering of 4.2 million common shares, which were sold at a
price to the public of $47.50 per share. This offeri
ng resulted in net proceeds to us of $184.5 million, which was net of
equity issuance costs of $15.5 million.
ff
ff
es LLC, or Jefferff
In the first quarter of 2019, we began to issue and sell securities under an Open Market Sale AgreementSM entered into
with Jefferi
common shares having aggregate gross proceeds of up to $125.0 million. During the year ended December 31, 2019, we
issued and sold an aggregate of 2.8 million common shares at an average price of $44.38 per share for aggregate net
proceeds of $120.6 million, which were net of equity issuance costs of $4.4 million.
ies, in August 2018, or the 2018 ATM, under which we may offer and sell, from time to time,
In November 2019, we sold 4.9 million common shares through an underwritten public offeri
pursuant to the exercise of the option to purchase additional shares granted to the underwriters in connection with the
offering) at a price of $64.50 per share forff
costs of $20.7 million.
aggregate net proceeds of $294.4 million, which were net of equity issuance
ng (inclusive of shares sold
ff
98
In addition, in August 2019, following the termination of the 2018 ATM by its terms, we entered into a new Open Market Sale
AgreementSM with Jefferies, or the 2019 ATM, under which we may offer and sell, from time to time, common shares having
aggregate gross proceeds of up to $200.0 million. We have not yet issued or sold any securities under the 2019 ATM.
Sources of Liquidity
Cash Flows
The following table provides information regarding our cash flows for each of the periods below:
Net cash provided by (used in) operating activities
Net cash provided by (used in) investing activities
activities
Net cash provided by financing
Effect of exchange rate changes on cash
ff
Increase (decrease) in cash and restricted cash
$
$
Years Ended December 31,
2018
(in thousands)
$
(96,239) $
(2,773)
315,934
(22)
216,900
$
$
2019
56,677
1,325
430,983
15
489,000
2017
(70,093)
(8,314)
2,608
41
(75,758)
Operating Activities
Net cash provided by operating activities was $56.7 million for the year ended December 31, 2019 and primarily consisted of
net income of $66.9 million adjusted for non-cash items (including equiq ty-based compensation expense of $44.1 million, depreciation
and amortization expense of $4.7 million, and a loss from equity method investment of $5.5 million, offset by a gain from our equity
method investment in Casebia of $16.0 million as a result of the Bayer Transaction), reduced by an increase in prepaid expenses and
other current assets of $32.6 million, primarily driven by contract assets resulting from the
deferred revenue of $45.1 million, primarily resulting from the exercise of options under the Vertex collaborat
increase of $25.0 million in other liabilities, net, primarily related to research obligations as a result of the Bayer Transaction and an
increase in accounts payable and accrued expenses of $5.0 million.
rations, and a decrease in
ion, offset by an
Vertex collaboa
a
tt
Net cash used in operating activities was $96.2 million for the year ended December 31, 2018 and primarily consisted of a net
loss of $165.0 million adjusted for non-cash items (including equity-based compensation expense of $35.0 million, depreciation and
amortization expense of $3.5 million and a loss from equity method investment of $4.3 million), a decrease in prepaid expenses and
other current assets of $3.3 million, an increase in accounts payable and accrued expenses of $12.1 million, an increase in deferred
revenue of $0.3 million and a decrease in deferred rent of $0.7 million, partially offset by a decrease of $2.5 million in accounts
receivable and a decrease in other liabilities of $0.2 million.
Net cash used in operating activities was $70.1 million for the year ended December 31, 2017 and primarily consisted of a net
loss of $68.4 million adjusted for non-cash items (including equity-based compensation expense of $18.9 million, depreciation and
amortization expense of $3.0 million and a loss from equity method investment of $1.8 million), an increase in prepaid expenses and
other current assets of $4.1 million, a decrease in accounts payablea
and accrued expenses of $0.8 million, a decrease in deferred
revenue of $20.7 million and a decrease in deferred rent of $0.5 million, partially offset by a decrease of $0.5 million in accounts
receivable and an increase in other liabilities of $0.3 million.
Investing Activities
Net cash provided by investing activities for the year ended December 31, 2019 was $1.3 million and consisted of $8.0 million
in net cash and restricted cash acquired from Casebia in connection with the Bayer Transaction, offsff et by $6.7 million of purchases of
property and equipment for use in research and development activities.
Net cash used in investing activities for the year ended December 31, 2018 was $2.8 million and consisted of purchases of
property and equipment for use in research and development activities.
Net cash used in investing activities for the year ended December 31, 2017 was $8.3 million and consisted primarily of
purchases of property and equipment for use in research and development activities and leasehold improve
Massachusetts office.
mm
ments for our Cambrm idge,
99
Financing Activities
Net cash provided by financing activities for the year ended Decemberm 31, 2019 was $430.9 million and consisted of net
proceeds of $415.0 million from the issuance of common shares and net proceeds of $15.9 million from stock option exercise.
Net cash provided by financing activities for the year ended Decemberm 31, 2018 was $315.9 million and consisted of net
proceeds of $307.1 million from the issuance of common shares and net proceeds of $8.9 million from stock option exercises, offset
by $0.1 million for the repurchase of common shares.
Net cash provided by financing activities for the year ended December 31, 2017 was $2.6 million and consisted entirely of net
proceeds from stock option exercises.
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 suppli
for our licensed intellectual
property and general overhead costs. We expect our expenses to increase compared to prior periods in
t
connection with our ongoing activities, particularly as we continue research and development and preclinical activities and initiate
preclinical studtt
public company.
ies to support initial drug applications. In addition, we expect to incur additional costs associated with operating as a
es, legal and other regulatory expenses, patent prosecution filing and maintenance costs
u
Because our research programs are still in early stages of development and the outcome of these effoff
rts is uncertain, we cannot
andidates, if approved, or whether, or when, we may achieve profitability. Until such time as we can generate substantial
enues, if ever, we expect to finance our cash needs through a combination of equity financings, debt financings and
estimate the actual amounts necessary to successfully complete the development and commercialization of any current or future
product c
d
product rev
d
payments received in connection with our collaboration agreements. We are entitled to research payments under our collaboration
ion with Vertex.
with Vertex. Additionally, we are eligible to earn payments, in each case, on a per-product basis under our collaborat
Except for this source of funding, we do not have any committed external
source of liquidity. We intend to consider opportunities to
raise additional funds through the sale of equity or debt securities when market conditions are favorable to us to do so. To the extent
that we raise additional capia tal through the future sale of equity or debt securities, the ownership interests of our shareholders will be
diluted, and the terms of these securities may include liquidation or other preferences
shareholders. If we raise additional funds through collaboration arrangements in the future, we may have to relinquish valuable rights
to us. If we are
to our technologies, futurett
unable to raise additional funds through equity or debt financings when needed, we may be required
terminate our product development or future commercialization effoff
we would otherwt
revenue streams or product candidates or grant licenses on terms that may not be favorablea
rts or grant rights to develop and market product candidates that
that adversely affeff ct the rights of our existing
ise prefer to develop and market ourselves.
to delay, limit, reduce or
q
a
ff
r
Outlook
Based on our research and development plans and our timing expectations related to the progress of our programs, we expect
our existing cash will enable us to fund our operating expenses and capital expenditurt es for at least the next 24 months, without giving
effect to any additional proceeds we may receive under our collaborations and any other capital raising transactions we may complete.
We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we
expect. Given our need for additional financing to support
additional financing opportuntt
u
ities when market terms are favorable to us.
the long term clinical development of our programs, we intend to consider
Our ability to generate revenue and achieve profitability
ff
depends significantly on our success in many areas, including:
developing our delivery technologies and our gene editing technology platform; selecting appropriate product candidates to develop;
complmm eting research and preclinical and clinical development of selected product candidates; obtaining regulatory approvals and
marketing authorizations for product candidates for which we complete clinical trials; developing a sustainable and scalablea
manufacturing process for product candidates; launching and commercializing product candidates for which we obtain regulatory
approvals and marketing authot
product candidates, if approved; addressing any competing technological and market developments; negotiating favorable terms in any
collaborat
a
licensors; maintaining, protecting and expanding our estate of intellectual property rights, including patents, trade secrets and know-
how; and attracting, hiring and retaining qualified personnel.
ion, licensing or other arrangements into which we may enter; maintaining good relationships with our collaborators and
rizations, either directly or with a collaborator or distributor; obtaining market acceptance of our
100
Contractual Oblig
tt
ations
The following table summarizes our significant contractual obl
tt
igations as of payment due date by period at December 31, 2019
(in thousands):
Operating lease and sublease obli
Op
erating lease obligations - not yyet commenced
gations - commenced
g
g
u
Total
Less than
1 year
1-3 years
3-5 years
More
than
5 years
$
$
70,209
21,197
$
$
13,963
3,317
$
$
21,991
7,400
$
$
18,577
7,400
$
$
15,678
3,080
Operating lease and sublease obligations - commenced
Our operating lease obligations primarily consist of lease payments on our research and offiff ce facilities in Cambridge,
m
Massachusetts, which are described in further
on Form 10-K.
t
detail in Note 5 of our consolidated financial statements included in this Annual Report
Operating lease obligat
i
ions not yet commenced
In November 2019, we, together with one of our partners, entered into a commitment with a clinical manufacturing organization
under a lease agreement, which is described in further detail in Note 5 of the consolidated financial statements included in this Annual
Report on Form 10-K. The amounts in the table represent the amounts owed from us to the manufacturing organization and our
partner has agreed to reimburse us for 50% of the amounts paid under this agreement.
In December 2019, as part of the Bayer Transaction, we and Bayer entered into an option agreement, under which, among other
things, we committed to invest a specified amount in certain research and development activities as described in further detail in Note
7 of our consolidated financial statements included in this Annual Report on Form 10-K.
Under the Invention Management Agreement signed on December 15,
m
2016, we are obligated to share costs related to patent
maintenance, defense and prosecution for the CRISPR/CaRR
licensees including Caribou, and Caribou’s licensee Intellia Therapeutics. Because such costs are not quantifiable at this time, they
have not been included in the above tabla e.
operty with Califorff nia, Vienna and their
s9 gene-editing intellectual pr
t
ing and with vendors for pre-clinical research studies
In the normal course of business, we enter into agreements with contract research organizations for clinical trials and clinical
and other services and products for operating purposes. We
supply manufacturt
t
have not included these payments in the table of contractual obligations above since the contracts are generally cancelable at any time
by us upon less than 180 days’ prior written notice. Certain of these agreements require us to pay milestones to such third parties upon
achievement of certain development, regulatory or commercial milestones as further described in Note 6 of our consolidated financial
statements included in this Annual Report on Form 10-K. Amounts related to contingent milestone payments are not considered
contractual obligations as they are contingent on the successful achievement of certain development, regulatory approval and
commercial milestones, which may not be achieved.
We also have obligations to make future payments to third parties that become due and payable on the achievement of certain
milestones, including future payments to third parties with whom we have entered into research, development and commercialization
agreements. We have not included these commitments on our balance sheet or in the tablea
above because the achievement and timing
a
of these milestones is not fixed and determinable.
Off-Balance Sheet Arrangements
As of December 31, 2019, we do not have any off-balance sheet arrangem
rr
ents, as defined under applicable SEC rules.
101
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Sensitivity
Cash and cash equivalents were held primarily in cash deposits and money market funds. The fair value of our cash and cash
equivalents would not be significantly affected by either an increase or decrease in interest rates due mainly to the short-term nature of
these instruments.
Foreign Currency Exchange Rate Risk
As a result of our foreign operations, we face 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 and payables. Changes in foreign exchange rates affect
between periods. To date, foreign currency transaction gains and losses have not been material to our financial statements, and we
have not engaged in any foreign currency hedging transactions.
our consolidated statement of operations and distort comparisons
ff
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 in Item 15.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None
102
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our chief executive officer and chief financial officer, after evaluating
ff
the effectiveness of our disclosure controls and
procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgam
of the end of the period covered by this Annual Report on Form 10-K, have concluded that, based on such evaluation, our disclosure
controls and procedures were effective. In designing and evaluating the disclosure controls and procedures, our management
recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonablea
achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-
benefit relationship of possible controls and procedures.
ted under the Securities Exchange Act of 1934, as amended) as
assurance of
Management's Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control
over financial reporting is definff ed in Rule 13a-15(f) and Rule 15d-15(f) promulgated under the Securities Exchange Act of 1934, as
amended, as a process designed by, or under the supeu rvision of, our principal executive and principal financial officers and effected
ff
our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. Our internal control over financial reporting includes those policies and procedures that:
by
•
•
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and
dispositions of the assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in
accordance with authorizations of our management and directors; and
provide reasonable assurance regardaa ing prevention or timely detection of unauthorized acquisition, use or disposition of
our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019.
In making this assessment, it used the criteria set forth in the Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 framework)(COSO). Based on its assessment, our management has
concluded that, as of December 31, 2019, the Company’s internal control over financial reporting is effect
ive based on those criteria.
ff
Our independent registered public accounting firm, Ernst & Young LLP, issued an attestation report on our internal control over
financial reporting. See below.
Changes in Internal Control Over Financial Reporting
There have been no changa
es in our internal control over financial reporting, as such term is defined in
ff
Rules 13a-15(f) and
15(d)-15(f) promulgmm ated under the Securities Exchange Act of 1934, during the fourth quarter of 2019 that have materially affeff cted, or
are reasonablya
likely to materially affect, our internal control over financial reporting.
103
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of CRISPR Therapeutics AG
Opinion on Internal Control over Financial Reporting
We have audited CRISPR Therapeutics AG’s internal
rr
control over financial reporting as of December 31, 2019, based on
criteria establa ished in Internal
Treadway Commission (2013 framework) (the COSO criteria). In our opinion, CRISPR Therapeutics AG (the Company) maintained,
in all material respects, effect
ive internal control over financial reporting as of December 31, 2019, based on the COSO criteria.
Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the
ff
r
We also have audited, in accordance with the standards of the Publu ic Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of
operations and comprehensive income (loss), shareholders’ equity, and cash flows for each of the three years in the period ended
December 31, 2019, and the related notes and our report dated February 12, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control
tt
over financial reporting and for its
ff
over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
iveness of internal control over financial reporting included in the accompam nying Management’s Report on
assessment of the effect
Internal Control
tt
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Compamm ny in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effecff
respects.
tive internal control over financial reporting was maintained in all material
Our audit included obtaining an understanding of internal control ov
tt
ff
weakness exists, testing and evaluating the design and operating effect
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonablea
basis for our opinion.
er financial reporting, assessing the risk that a material
iveness of internal control based on the assessed risk, and
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonablea
assets of the compam ny; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditurtt es of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
detail, accurately and fairly reflect the transactions and dispositions of the
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 12, 2020
104
Item 9B. Other Information.
None.
105
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 2020 Annual General Meet ging
the end of the
of Shareholders to be filed with the SEC within 120
fiscal year ended December 31, 2019.
ydays after
y
ff
Item 11. Executive Compensation.
The information required by this item is incorporated by reference to our Proxy Statement for our 2020 Annual General Meet ging
the end of the
of Shareholders to be filed with the SEC within 120
fiscal year ended December 31, 2019.
ydays after
y
ff
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this item is incorporated by reference to our Proxy Statement for our 2020 Annual Meet ging fof
Stockholders to be filed with the SEC within 120 dayys after the end of the
fiscal year ended December 31, 2019.
y
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 2020 Annual General Meet ging
the end of the
of Shareholders to be filed with the SEC within 120
fiscal year ended December 31, 2019.
ydays after
y
ff
Item 14. Principal Accounting Fees and Services.
The information required by this item is incorporated by reference to our Proxy Statement for our 2020 Annual General Meet ging
the end of the
of Shareholders to be filed with the SEC within 120
fiscal year ended December 31, 2019.
ydays after
y
ff
106
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 filed as part of this
report.
Schedules other
t
than that listed above have been omitted because of the absence of conditions under which they are required or
because the required information is included in the financial statements or the notes thereto.
(a)(2) Exhibits.
The exhibits listed in the Exhibit Index below are filed or incorporated by reference as part of this Annual Report on Form 10-K.
Exhibit
Number
3.1*
4.1*
10.1†
10.2†
10.3†
10.4†
10.5
10.6
10.7#
10.8#
10.9#
Exhibit Index
Description
Amended and Restated Articles of Association of CRISPR Therapeutics AG, dated December 2, 2019.
Description of Capital Shares
Strategic Collaboration, Option and License Agreement, dated October 26, 2015, by and among CRISPR Therapeutics
AG, CRISPR Therapeutics Limited, CRISPR Therapeutics, Inc., TRACR
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).
Hematology Limited, Vertex
RR
License Agreement, dated April 15, 2014, by and between CRISPR Therapea utics AG and Emmanuelle Marie
Charpentier (incorporr
filed on October 7, 2016).
rated herein by reference to Exhibit 10.5 to the Company’s Registration Statement on Form S-1
License Agreement, dated April 15, 2014, by and between TRACR
Charpentier (incorporr
filed on October 7, 2016).
RR
rated herein by reference to Exhibit 10.6 to the Company’s Registration Statement on Form S-1
Hematology Limited and Emmanuelle Marie
ssignment Agreement, dated November 7, 2014, yby and between CRISPR Therapeutics AG, Emmanuelle
g
Patent A g
Marie Charpentier, the University of Vienna and Ines Fonfaraff
Company’s Registration Statement on Form S-1 filed on October 7, 2016).
(incorporated herein by refereff
nce to Exhibit 10.7 to the
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 Therapea utics 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 December 1, 2017, by and between CRISPR Therapeutics AG and Rodger Novak
(incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 21,
2017).
Second Amended and Restated Employment Agreement, dated October 2, 2017, by and between CRISPR
Therapeut
a
Report on Form 8-K filed on October 2, 2017).
rated herein by reference to Exhibit 10.1 to the Company’s Current
ics, Inc. and Samarth Kulkarnirr
(incorporr
Employment Agreement, dated Novemberm 13, 2017, by and between CRISPR Therapeutics, Inc. and Michael
r
Tomsicek (incorporated
March 8, 2018).
herein by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K filed on
107
Exhibit
Number
10.10#
10.11#
10.12#
10.13#
10.14#
10.15#
10.16#
10.16.1#
10.16.2#
10.16.3#
10.16.4#
10.16.5#
10.16.6#
10.17#
10.17.1#
10.17.2#
10.17.3#
Description
Employment Agreement, dated May 31, 2017, by and betwett
(incorporated herein by reference to Exhibit 10.16 to the Company’s Annual Report on Form 10-K filed on March 8,
2018).
en CRISPR Therapeutics, Inc. and James R. Kasinger
Employment Agreement, dated August 1, 2017, by and between CRISPR Therapeutics, Inc. and Tony Ho (incorporated
herein by reference to Exhibit 10.17 to the Company’s Annual Report on Form 10-K filed on March 8, 2018).
Employment Agreement, dated January 2, 2019, by and between CRISPR Therapeut
(incorporated herein by reference to Exhibit 10.16 to the Company’s Annual Report on Form 10-K filed on February
25, 2019).
ics, Inc. and Lawrence Klein
a
Mandate Agreement, dated December 27, 2019, by
LLC (incorporated he
r
December 27, 2019).
m
rein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on
and between CRISPR Therapeutics AG and Oriolus Consulting
Termination Agreement, dated December 27, 2019, by and between CRISPR Therapeutics AG and Rodger Novak
(incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 27,
2019).
CRISPR Therapeutics AG 2015 Stock Option and Grant Plan (incorporr
Companyy’s Reggistration Statement on Form S-1 filed on Septembem r 9, 2016).
rated herein by reference to Exhibit 10.14 to the
CRISPR Therapeutics AG Amended and Restated 2016 Stock Option and Incentive Plan (incorporated herein by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 2, 2017).
Form of Incentive Stock Option Agreement under CRISPR Therapea utics AG’s Amended and Restated 2016 Stock
Option and Incentive Plan (incorporr
10-Q filed on November 8, 2017).
rated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form
Form of Non-Qualified Stock Option Agreement for Company Employees under CRISPR Therapea utics AG’s Amended
and Restated 2016 Stock Option and Incentive Plan (incorporr
rated herein by reference to Exhibit 10.3 to the Company’s
Current Report on Form 10-Q filed on November 8, 2017).
Form of Non-Qualified Stock Option Agreement for Non-Employee Directors under CRISPR Therapeutics AG’s
Amended and Restated 2016 Stock Option and Incentive Plan (incorporated herein by reference to Exhibit 10.4 to the
Company’s Current Report on Form 10-Q filed on November 8, 2017).
Form of Restricted Stock Award Agreement under CRISPR Therapea utics AG’s Amended and Restated 2016 Stock
Option and Incentive Plan (incorporr
10-Q filed on November 8, 2017).
rated herein yby reference to Exhibit 10.5 to the Comp yany’s Current Report on Form
Form of Restricted Stock Award Agreement for Company Employees under CRISPR Therapeutics AG’s Amended and
Restated 2016 Stock Option and Incentive Plan (incorporated herein by reference to Exhibit 10.6 to the Company’s
Current Report on Form 10-Q filed on November 8, 2017).
Form of Restricted Stock Award Agreement for Non-Employee Directors under CRISPR Therapeutics AG’s Amended
and Restated 2016 Stock Option and Incentive Plan (incorporr
rated herein by reference to Exhibit 10.7 to the Company’s
Current Report on Form 10-Q filed on November 8, 2017).
CRISPR Therapeutics AG 2018 Stock Option and Incentive Plan and forms of agreements thereunder (incorporated
herein by refereff
nce to Exhibit 99.1 to the Company’s Registration Statement on Form S-8 filed on June 1, 2018).
r
Form of Incentive Stock Option Agreement under CRISPR Therapea utics AG’s 2018 Stock Option and Incentive Plan
(incorporated herein by reference to Exhibit 99.2 to the Company’s Registration Statement on Form S-8 filed on June 1,
2018).
Form of Non-Qualified Stock Option Agreement for Company Employees under CRISPR Therapeutics AG’s 2018
Stock Option and Incentive Plan (incorporated herein by re
Statement on Form S-8 filed on June 1, 2018).
ference to Exhibit 99.3 to the Company’s Registration
rr
Form of Non-Qualified Stock Option Agreement for Non-Employee Directors under CRISPR Therapeutics AG’s 2018
Stock Option and Incentive Plan (incorporated herein by re
Statement on Form S-8 filed on June 1, 2018).
ference to Exhibit 99.4 to the Company’s Registration
rr
108
Exhibit
Number
10.17.4#
10.17.5#
10.17.6#
10.18#
10.19
10
†.20
10
†.21
10
†.22
10.23#
10
.24
†
210. 5†*
10 26†.
10
†.27
Description
Form of Restricted Stock Award under CRISPR Therapeutics AG’s 2018 Stock Option and Incentive Plan
(incorporated herein by reference to Exhibit 99.5 to the Company’s Registration Statement on Form S-8 filed on June 1,
2018).
Form of Restricted Stock Award Agreement for Company Employees under CRISPR Therapeutics AG’s 2018 Stock
Option and Incentive Plan (incorporr
rated herein by reference to Exhibit 99.6 to the Company’s Registration Statement
on Form S-8 filed on June 1, 2018).
Form of Restricted Stock Award for Non-Employee
and Incentive Plan (incorporated
rr
S-8 filed on June 1, 2018).
m
herein by reference to Exhibit 99.7 to the Company’s Registration Statement on Form
Directors under CRISPR Therapeutics AG’s 2018 Stock Option
CRISPR Therapeutics AG 2016 Employee
the Companym
m
’s Registration Statement on Form S-1 filed on Septembem r 9, 2016).
Stock Purchase Plan (incorporr
rated herein by reference to Exhibit 10.16 to
Consent to Sublease, dated May 16, 2016, by and between CRISPR Therapea utics, Inc. and Pfizff er Inc. (incorporated
herein by reference to Exhibit 10.17 to the Company’s Registration Statement on Form S-1 filed on
September 9, 2016).
Consent to Assignments, Licensing and Common Ownership and Invention Management Agreement for a
Programmable DNA Restriction Enzyme for Genome Editing, dated December 15, 2016, by and among CRISPR
Therapeutics AG,
Intellia Therapeutics, Inc., Caribou Biosciences, Inc., ERS Genomics Ltd., and TRACR Hematology Ltd. (incorporated
herein by refereff
nce to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 16, 2016).
The Regents of the Univers yity of California, Universi yty of Vienna, Dr. Emmanuelle Charpent
ier,
g
rr
rr
Joint Development and Commercialization Agreement by and between, on the one hand, Vertex Pharmaceuticals
Incorporated
Therapeutics, Inc., CRISPR Therapeutics Limited and TRACR Hematology Ltd., dated as of December 12, 2017
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 18, 20
and Vertex Pharmaceuticals (Europe) Limited, and on the other hand, CRISPR Therapeutics AG, CRISPR
17).
m
Amendment No. 1 to the Strategic Collaboration, Option and License Agreement by and between, on the one hand,
Vertex Pharmaceuticals Incorporated and Vertex Pharmaceuticals (Europe) Limited, and on the other hand, CRISPR
Therapeutics AG, CRISPR Therapeutics, Inc., CRISPR Therapeutics Limited and TRACR Hematology Ltd., dated as
of December 12, 2017 (incorporated by reference to
Exhibit 10.2 to the Company’s Current Report on Form 8-K filed
on December 18, 2017).
rr
Senior Executive Cash Incentive Bonus Plan (incorporated herein by reference to Exhibit 10.26 to the Company’s
Annual Report on Form 10-K filed on March 8, 2018).
rch Collabora
Resea
a
September 17, 2018. (incorpor
Q filed on November 7, 2018).
rr
tion Agreement by and between CRISPR Therapeutics AG and ViaCyte, Inc., dated as of
ated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-
Amendment No. 1 to Research Collaboration Agreement by and between CRISPR Therapeutics AG and ViaCyte, Inc.,
dated as of April 30, 2019.
Amendment No. 2 to the Strategic Collaboration, Option and License Agreement by and between, on the one hand,
Vertex Pharmaceuticals Incorporated and Vertex Pharmaceuticals (Europe) Limited, and on the other hand, CRISPR
Therapeutics AG, CRISPR Therapeutics, Inc., CRISPR Therapeutics Limited and TRACR Hematology Ltd., dated as
of June 6, 2019 (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q
filed on July 29, 2019).
Strategic Collaboration and License Agreement dated June 6, 2019, between CRISPR Therapeutics AG and Vertex
Pharmaceuticals Incorporated (i
Form 10-Q filed on July 29, 2019).
by reference to Exhibit 10.2 to the Company’s Quarterly Report on
ncorporated herein
r
rr
10.2 †*8
Amendment No. 2 to Research Collaboration Agreement by and between CRISPR Therapeutics AG and ViaCyte, Inc.,
dated as of October 21, 2019.
109
Exhibit
Number
10.29
†*
t
nture Term
Joint Ve
of Bayer Healthcare LLC for purposes of Article II), CRISPR Therapeutics AG (and certain subsidiaries of CRISPR
Therapeutics AG for purposes of Article II), and Casebia Therapeutics Limited Liability Partnership.
ination Agreement, dated December 13, 2019, among Bayer Healthcare LLC (and certain affiliates
Description
10.30
†*
Retirement Agreement, dated December 13, 2019, among Casebia Therapeutics Limited Liability Partnership, Bayer
HealthCare LLC, CRISPR Therapeutics AG and CRISPR Therapeutics, Inc.
10.31†*
Option Agreement, dated December 13, 2019, between CRISPR Therapeutics AG and Bayer HealthCare LLC.
10.32
†*
Assignment of Sublease and Sub-Sublease, dated December 13, 2019, betwett
CRISPR Therapeutics, Inc.
en Casebia Therapeutics LLC and
21.1*
23.1*
31.
1*
31.2*
32.1+
Subsu idiaries of the Registrant
Consent of Ernst &rr
Young LLP
ation of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange
Certific
Act of 1934, as Adopted Pursuant to Section 302 of the Sarbane
r
s-Oxley Act of 2002.
Certification of Principal Financial Officer Pu
Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
rsuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange
ff
Certification of Principal Executive Officer
Adopted Pursuant to Section 906 of the Sarbar nes-Oxley Act of 2002.
ff
and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as
101.INS
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL
tags are embedded within the Inline XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label
a
kk
Linkbase
Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase
k
Document
104
Cover Pagge Interactive Data File (embedded within the Inline XBRL document)
*
+
†
#
Filed herewith.
Furnished herewith.
Confidential portions of this exhibit have been omitted.
A management contract or compensatory plan or arrarr ngement required to be filed as an exhibit pursuant to Item 15(a)(3) of
Form 10-K.
Item 16. Form 10-K Summary
None.
110
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
Report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 12, 2020
CRISPR Therapeutics AG
By:
/s/ Samarth Kulkarni
Samarth Kulkarni
Chief Executive Officer
We, the undersigned directors and officers of CRISPR Therapeutics AG (thet
“Company”), hereby severally constitutet
and
SIGNATURES AND POWER OF ATTORNEY
appoint Rodger Novak, Samarth Kulkarni,
rr Michael Tomsicek and James R. Kasinger, 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 performff
fully to all intents and purposes as each of us might or could do in person, and hereby ratifying
and each of them, or their substitute or
each and every act and thing requisite and necessary to be done in connection therewith, as
and confirming all that said attorneys,
ff
substitutes, shall do or cause to be done by virtue of this Power of Attorney.
u
r
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 capaa
cities and on the dates indicated.
Name
/s/ Samarth Kulkarni
Samarth Kulkarni
/s/ Michael Tomsicek
Michael Tomsicek
g
/s/ Rodger Novak
Rodger Novak
/s/ Ali Behbahani
Ali Behbahani
y
/s/ Bradley Bolzon
Bradley Bolzon
y
/s/ Pablo Cagnoni
g
gnoni
Pablo Ca
a
g
/s/ Simeon J. George
Simeon J. George
/s/ John Greene
John Greene
g
/s/ Katherine High
Katherine High
/s/ Michael Tomsicek
Michael Tomsicek
Title
Chief Executive Officer
(Principal Executive Offiff cer)
Chief Financial Officer
(Principal Financial and Accounting Officer)
President and Director
Director
Director
Director
Director
Director
Director
Date
February 12, 2020
y
February 12, 2020
y
February 12, 2020
y
February 12, 2020
y
February 12, 2020
y
February 12, 2020
y
February 12, 2020
y
February 12, 2020
y
February 12, 2020
y
Authorized Representative in the United States
February 12, 2020
y
111
CRISPR Therapeutics AG
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Income (Loss)
Consolidated Statements of Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Pages
F-2
F-5
F-6
F-7
F-8
F-9
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of CRISPR Therapeutics AG
Opinion on the Financial Statements
sheets of CRISPR Therapea utics AG (the Company) as of December 31,
We have audited the accompanying consolidated balance
2019 and 2018, the related consolidated statements of operations and comprehensive income (loss), shareholders’ equity, and cash
flows for each of the three years in the period ended December 31, 20
“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of the Companyaa
each of the
three years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
at December 31, 2019 and 2018, and the results of its operations and its cash flows forff
19, and the related notes (collectively referred to as the
m
a
We also have audited, in accordance with the standards of the Publu ic Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria establa ished in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework),
and our report dated February 12, 2020 expressed an unqualified opinion thereon.
r
Adoption of ASU No. 2016-02, “Leases”
As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases in 2019 due
to the adoption of Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), and the related amendments.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s finff ancial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and performff
the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedurd es to assess the risks of material misstatement of the financial statements, whether
due to
error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
t
F-2
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were
communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material
to the financial statements and (2) involved our especially challenging, subjec
critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not,
m
by communicat
disclosures to which they relate.
ing the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or
tive or complex judgements. The communication of
u
Descripti
Matter
ion of the
EstimEE
ationtt
ii
of Variable
Consideration for ongoing Collaborationii Agreements
As discussed in Note 7 to the consolidated financial statements, the Company has multiple ongoing
collaboration agreements which include rights to future payments totaling up to $2.06 billion as of Decemberm
31, 2019 that are payable upon the achievement of various developmental, regulatory and commercial
milestones related to certain programs under development. These future payments represent variable
consideration that is included in the transaction price for these collaboration agreements to the extent that the
Company determines it is probable that a significant revenue reversal of cumulmm ative revenue recognized under
the contract will not occur. When the Company cannot conclude that it is probable that a significant revenue
reversal of cumulm ative revenue under the contract will not occur, the Company constrains the related variable
consideration resulting in its exclusion from the transaction price. The Company’s estimation of variable
consideration to be constrained impacts the reported amounts of revenue and deferred revenue within the
consolidated financial statements.
In determining the portion of the transaction price to be constrained, management considers the probability and
uncertainty of whether the related developmental, regulatory and commercial milestones will be achieved given
the nature of clinical development and the stage of the underlying programs. This assessment is performed at
each reporting period. In making this evaluation, management considers both internal and external information
available including information from industryt
programs and other relevant factors. Changes to the constraint of variable consideration can have a material
effect on the amount of revenue recognized in the financial reporting period. As a result, auditing the
accounting for the application of constrat
judgement.
publications, the stage of development of the underlying
consideration required especially complex auditor
int to variablea
How We
HH
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effect
iveness of controls over the
Company’s revenue recognition process. For examplmm e, we tested controls over management's estimation of the
total transaction price for its collaboration agreements including those related to the application of constraint to
consideration associated with future developmental, regulatory and commercial milestones.
variablea
ff
To audit the Company’s judgements related to the application of constraint to variable consideration, we
performed audit procedures that included, among others, evaluating the Company’s judgements related to the
probability of achieving the related future developmental, regulatory and commercial milestones. To evaluate
the Company’s estimated probability of achieving developmental, regulatory and commercial milestones, we
considered the nature of clinical development and the stage of development of the underlying programs in
relation to relevant external
trends and available information from other guideline companies within the same industry and other relevant
factors. We also discussed the probability of achieving the milestones in relation to each program’s phase of
development with the Company’s research and development managers.
data and compared the probabilities of achieving the milestones to current industry
rr
F-3
Revenue Recogno
ition for Collaboration Agreements with Vertex Pharmaceuticals Incorporated
Description of the
Matter
As discussed in Note 7 to the consolidated financial statements, on July 23, 2019 the Company entered into a
series of agreements with Vertex Pharmaceuticals Inc., collectively referred to as the “2019 Collaboa
Agreements”, which resulted in the recognition of $289.6 million of revenue for the year ended December 31,
2019 and $12.7 million of deferred revenue as of December 31, 2019.
ration
a
tion Agreements required the Company to make a number of significant
Accounting for the 2019 Collabora
judgements, including the estimation of the standalone selling price of each identified perforff mance obligation.
The estimates of the standalone selling price for certain performance obligations reflect manage
ment’s
assumptions regarding probability weighted projected discounted cash flows for each of the underlying
programs. The estimates of standalone selling prices were sensitive to changes in assumptions such as the
probability of scientific success of the programs, discount rate, and certain assumptm ions that form the basis of
the forecasted cash flows (e.g., price per patient). In developing these assumptions, management considered
both internal and external information availablea
the same industry and other relevant factors. Changes to these assumptm ions can have a material effect on the
allocation of the transaction price to the performance obligations as well as the amount and timing of revenue
recognized. As a result, auditing the estimates of standalone selling price for certain performance obligations
required especially complex auditor judgement.
including information from other guideline companies within
ff
ff
HowHH We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effect
Company’s revenue recognition process. For examplmm e, we tested controls over management's process to
determine the significant assumptmm ions described above with respect to the estimation of the standalone selling
price of certain performance obligations.
iveness of controls over the
ff
t
s, evaluating management’s estimates of the standalone selling price of
To audit the Company’s revenue recognition related to the 2019 Collaboration Agreements, we performed audit
procedures that included, among other
certain performance obligations. For examplm e, we evaluated the probability weighted projected discounted cash
flow assumptions used by the Company in developing the estimates of standalone selling price by comparing
the significant assumptions described above to current industry trends using availablea
information from other
guideline companies within the same industry and other relevant factors. We also performed a sensitivity
ff
analysis of the significant assumptions to evaluate the impam ct that the change in the estimated standalone selling
price of certain performance obl
the allocation of transaction price to each performance obligation, as well as revenue recognized during the
period. We involved our valuation professionals to assist in the assessment of the estimation methodology and
the significant assumptions used in determining the estimated standalone selling price of certain performance
obligations.
igations resulting from changes in the significant assumptions would have on
ff
/s/ Ernst & Young LLP
We have servedrr
Boston, Massachusetts
February 12, 2020
as the Company’s auditor since 2015.
F-4
CRISPR Therapeutics AG
Consolidated Balance Sheets
(in thousands, except share and per share data)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable,
a
including related party amounts of $0 and $88 as of
December 31, 2019 and 2018, respectively
Prepaid expenses and other current assets, including related party amounts of
$0 and $3,417 as of December 31, 2019 and 2018, respectively
Total current assets
Property and equipment, net
Intangible assets, net
Restricted cash
Operating lease assets
Other non-current assets
Total assets
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payablea
Accrued expenses, including related party amounts of $0 and $1,700 as of
December 31, 2019 and 2018, respectively
Deferff
red revenue current, including related party amounts of $0 and $102 as of
December 31, 2019 and 2018, respectively
Accrued tax liabilities
Deferred rent
Operating lease liabilities
Other current liabilities
Total current liabilities
red revenue, including related party amounts of $0 and $57,780 as of
Deferff
December 31, 2019 and 2018, respectively
Deferred rent non-current
Operating lease liabilities, net of current portion
Other non-current liabilities
Total liabia lities
Commitments and contingencies (Note 6)
Shareholders’ equity:
Common shares, CHF 0.03 par value, 103,901,006 and 90,343,803 shares
authorized at December 31, 2019 and 2018, respectively, 61,034,025 and
52,160,798 shares issued at December 31, 2019 and 2018, respectively,
60,783,799 and 51,852,862 shares outstanding at December 31, 2019 and 2018,
respectively.
Treasury shares, at cost, 250,226 and 307,936 shares at December 31, 2019
and 2018, respectively
Additional paid-in capital
Accumulm ated deficit
Accumulated other comprehensive income (loss)
Total shareholders' equity
Total liabilities and shareholders’ equity
y
December 31,
2019
2018
$
943,771
$
456,649
$
$
99
43,677
987,547
31,330
235
5,041
41,502
1,097
1,066,752
5,944
30,180
960
583
——
8,489
10,950
57,106
11,776
——
44,050
14,395
127,327
88
9,658
466,395
18,500
289
3,163
——
669
489,016
5,069
20,852
102
402
1,202
——
119
27,746
57,780
11,052
——
243
96,821
1,847
1,584
(63)
1,162,345
(224,711)
7
939,425
1,066,752
$
(57)
682,245
(291,569)
(8)
392,195
489,016
$
$
$
See accompanying notes to these consolidatdd ed financial statements.tt
F-5
CRISPR Therapeutics AG
Consolidated Statements of Operations and Comprehensive Income (Loss)
(In thousands, except share and per share data)
Collaboration revenue (1)
Operating expenses:
elopment (2)
General and administrative
Total operating expenses
Income (loss) from operations
Other income (expense):
ity method investment
Other income (expense), net
Total other income (expense), net
Net income (loss) before income taxes
Provision for income taxes
Net income (loss)
Foreign currency translation adjustment
Comprehensive income (loss)
Net income (loss) per share attribtt
utable to common shareholders—
basic
Weighted-average common shares outstanding used in net income
(loss) per share attributable to common shareholders—b— asic
Net income (loss) per share attribtt
utable to common shareholders—
diluted
Weighted-average common shares outstanding used in net income
(loss) per share attributable to common shareholders—diluted
(1) Including the following amounts of revenue from a related party,
see Note 7
(2) Including the following amounts of research and development from a
related partyy,tt
see Note 7
2019
Years Ended December 31,
2018
2017
$
289,590
$
3,124
$
40,997
179,362
63,488
242,850
46,740
(5,467)
26,033
20,566
67,306
(448)
66,858
15
66,873
$
113,773
48,294
162,067
(158,943)
(4,275)
(1,210)
(5,485)
(164,428)
(553)
(164,981)
(22)
(165,003) $
69,800
35,845
105,645
(64,648)
(1,763)
(197)
(1,960)
(66,608)
(1,749)
(68,357)
40
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$
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$
$
$
$
$
See accompanying notes to these consolidatdd ed financial statements.tt
F-6
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CRISPR Therapeutics AG
Consolidated Statements of Cash Flows
(In thousands)
pOperating activities
Net income (loss)
Reconciliation of net loss to net cash used in poperating activities:
preciation and amortization
Equityt -based compensation
Loss from equityt method investment in Casebia
Non-cash expense related to ViaCyte transaction
Gain from consolidation of Casebia
Other income, non-cash
Changes in:
Prepaid expenses and other assets
Accounts payable and accrued expenses
Deferred revenue
Deferred rent
Operating lease assets and liabilities
Other liabilities, net
Net cash provided by (used in) operating activities
Investing activities
Purchase of propertytt and equipment
Net cash and restricted cash received in connection with the acquisition
of Casebia
Purchase of available for sale debt security
Net cash provided by (used in) investing activities
Financing activities
Proceeds from issuance of common shares, net of issuance costs
Proceeds from exercise of options, net of issuance costs
Repurchase of treasury shares
Net cash provided by financing activities
Effect of exchange rate changes on cash
Increase in cash
Cash, cash equivalents and restricted cash, beginning of period
Cash, cash equivalents and restricted cash, end of period
Supplemental disclosure of non-cash investing and financing activities
Propertytt and equipment purchases in
Stock option issuance costs included in accrued expenses
Costs for proposed supplemental offering
accounts payable and accrued expenses
in accounts payable and accrued exppenses
p p
pp
qq
p
Reconciliation to amounts within the consolidated balance sheets
Cash and cash equivalents
Restricted Cash
Total
2019
Years Ended December 31,
2018
2017
$
66,858
$
(164,981)
$
(68,357)
4,725
44,057
5,467
——
(16,000)
——
(11)
(32,618)
5,025
(45,146)
——
(663)
24,983
56,677
(6,684)
8,009
——
1,325
415,019
15,964
——
430,983
15
489,000
459,812
948,812
$
3,519
34,985
4,275
15,582
——
(169)
2,538
(3,342)
12,110
(296)
(709)
——
249
(96,239)
(2,773)
——
——
(2,773)
307,053
8,938
(57)
315,934
(22)
216,900
242,912
459,812
$
3,024
18,873
1,763
——
(9)
531
(4,117)
(831)
(20,718)
(522)
——
270
(70,093)
(7,814)
——
(500)
(8,314)
——
2,608
——
2,608
41
(75,758)
318,670
242,912
$
1,811
$
295
—— $
334
375
—— $
2019
943,771
5,041
948,812
As of December 31,
2018
456,649
3,163
459,812
$
$
290
2017
239,758
3,154
242,912
$
$
$
$
$
See accompanying notes to these consolidatdd ed financial statements.tt
F-8
CRISPR Therapeutics AG
Notes to Consolidated Financial Statements
1. Organization and Operations
CRISPR Therapeutics AG (“CRISPR” or the “Compam ny”) was incorporated on October 31, 2013 in Basel, Switzerland. The
Company was established to translate CRISPR/Cas9, a genome editing technology, into transformative gene-based medicines for the
treatment of serious human diseases. The foundational intellectual property underlying the Company’s operations was licensed to the
Company in April 2014. The Company devotes substantially all of its efforts to product research and development activities, initial
market development and raising capiaa tal. The Company’s principal offices are in Zug, Switzerland and operations are in Cambrm idge,
Massachusetts.
u
The Company is subject
to risks common to companies in the biotechnology industry, 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 commercialize and gain market acceptance of its product candidates, dependence on key
personnel, protection of proprietary technology, compliance with government regulations, development by competitors of
technological innovations and ability to transition from pilot-scale manufacturing to large-scale production of products.
The Company had an accumulm ated deficit of $224.7 million as of December 31, 2019 and has financed its operations to date
rr
from a series of preferff
red sh
offerings of its common shares, as well as upfront fees and milestones received under its collaboration and joint venturet
The Company will require substantial additional capital to fund its research and development and ongoing operating expenses.
ares and convertible loan issuances, proceeds obtained from its initial public offering, subseque
nt public
arrar ngements.
u
As of December 31, 2019, the Company had cash and cash equivalents of $943.8 million. While the Company had net income
of $66.9 million for the year ended December 31, 2019, the Company has a history of recurring losses and expects to continue to incur
losses for the foreseeable future. The Company expects its cash and cash equivalents will be sufficient to fund currer nt planned
operations for at least the next twenty-four months.
2. Summary of Significant Accounting Policies and basis of presentation
Basis of Presentation and Use of Estimates
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 the Company and its wholly-owned subsidiaries as of
December 31, 2019. All intercompany accounts and transactions have been eliminated. Any reference in these notes to applicable
guidance is meant to refer to the authoritative 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.
Prior to December 13, 2019, the Company accounted for its 50% investment in Casebia Therapeutics, Limited Liability
Partnership (“Casebia”) under the equity method. As described in Note 7, on December 13, 2019, Casebia became a fully-owned
subsidiary and, as a result, the Company consolidated Casebia’s financial results from that date forward.
The preparation of financial statements in conformity 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, revenue recognition, equiq ty-based compensation expense and reported
amounts of expenses during the period. Significant estimates in these consolidated financial statements have been made in connection
with revenue recognition and equity-based compensation expense. The Company bases its estimates on historical experience and other
market-specific or other relevant assumptions that it believes to be reasonable under the circumstances. Actual results may differ from
those estimates or assumptions.
t
Certain items in the prior year’s condensed consolidated financial statements have been reclassified to conform to the current
presentation. As a result, no subtotals
u
in the prior year condensed consolidated financial statements were impamm cted.
Segmegg
nt Information
The Company and the Company’s chief operating decision maker, namely, the chief executive officer, view the Company’s
operations and manage its business in one operating segment, which is the business of discovering, developing and commercializing
therapia es derived from or incorporating genome-editing technology.
F-9
Foreign Currency Translation and Transactions
The majoa rity of the Company’s operations occur in entities that have the U.S. dollar as their functional currency. Non-U.S.
dollar denominated functional currency subsidiaries have assets and liabilities translated into U.S. dollars at rates of exchange in effect
ff
at the end of the year. Revenue and expense amounts are translated using the average exchange rates for the period. Net unrealized
gains and losses resulting from foreign currency translation are included in “Accumulated other comprehensive income (loss).” Net
foreign currency exchange transaction gains or losses are included in “Other income (expense), net” on the Company’s consolidated
statement of operations, the impam ct of which is not significant.
Cash and Cash Equivalents
The Company considers all highly liquidq
investments with maturities of three months or less from the purchase date to be cash
equivalents. As of December 31, 2019 and 2018, the Company had $943.8 million and $456.6 million in cash equivalents,
respectively.
Restricted Cash
As of December 31, 2019 and 2018, the Company had $5.0 million and $3.2 million, respectively, in restricted cash
representing letters of credit securing the Company’s obligations under certain leased facilities in Cambrim dge, Massachusetts, as well
as certain credit card arrangements. The letters of credit are secured by cash held in a restricted depository account.
Other Receivables
Other receivabla es of $4.1 million and $3.4 million at December 31, 2019 and 2018, respectively, consists of receivables from
rr
of our arrangement accounted for under ASC 808, Collaborative Arrangements. Other receivabla es are recorded at
Vertex and are included with prepaid and other current assets in the consolidated balance sheet. These am
from the portion
invoiced amounts due under the Vertex collabora
relationship with the Company and as such, the Company did not have an allowance for estimated losses recorded related to these
receivables.
tion agreement (see Note 7). Vertex is a creditworthytt
entity that maintains an ongoing
represent the balance due
ountsu
a
aa
Concentrations of Credit Risk and Off-bO
alanll
ce Sheet Risk
Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash. The Company’s
cash is held in accounts with financial institutions that management believes are creditworthy. The Company has not experienced any
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-ff balance sheet risk of loss.
Fair Value of Financial Instruments
The Company has certain financial assets and liabilities recorded at fair value which have been classified as Level 1, 2 or 3
within the fair value hierarchy as described in the accounting standards for fair value measurements:
Level 1 — Quoted prices in active markets that are accessible at the market date for identical unrestritt cted assets or liabia lities.
Level 2 — Inputs
n
t
other
than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other
be corroborated by observable market data for substantially the full term of the assets or liabilities.
inputs for which all significant inputs
ff
t
are observable or can
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
n
determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Companymm
in determining
fair value is greatest for instruments categorized in Level 3. A financial 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.
that are less observable or unobservable in the market, the
The carryrr
receivables, accounts
consolidated balance sheets as of December 31, 2019 and 2018, approximate fair value, due to the short-rr term duration of these instrumen
expenses as reported on the
ing amount of accountsuu
and accruedrr
a
receivable,
payaaa blea
tt
other
a
tt
ts.
F-10
Propeo rtytt and Equipmii
ent
Property and equipment are recorded at cost, less accumulated depreciation. Maintenance and repairs that do not imprm ove or
extend the lives of the respective assets are expensed to operations as incurred. Upon disposal, the related cost and accumulatm ed
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 follows:
ent
Asset
Computer equipmq
Furnir
Laboratory equipment
Leasehold improvements
r
ture, fixtures and othet
Estimated useful life
3 years
5 years
5 years
Shorter of useful life or remaining lease term
Impairment of Long-lived Assets
The Company reviews long-lived assets when events or changes in circumstances indicate the carrying value of the assets may
not be recoverable. Recoverability is measured by comparison of the book values of the assets to futurett
net undiscounted cash floff ws
that the assets are expected to generate. If such assets are considered to be impaimm red, the impairm ment to be recognized is measured by
the amount by which the book value of the assets exceed their fair value, which is measured based on the projected discounted future
net cash flows arising from the assets.
Revenue Recognigg tionii
Effeff ctive January 1, 2018, the Company adopted ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), using
the modified retrospective transition method by recognizing the cumulative effect of initially applying ASC 606 as an adjustment to
the opening balance of equiq ty at January 1, 2018. The adoption of this guidance did not have a significant impact on our consolidated
financial statements. The reported results for 2019 and 2018 reflect the application of ASC 606 guidance while the reported results for
2017 were prepared under the guidance of ASC 605, Revenue Recognition (“ASC 605”).
In connection with adopting ASC 606, the Company elected a practical expedient and applied ASC 606 only to contracts that
were not completed at the date of initial application. In addition, the Comp yany applied the practical expedient in ASC 606-10-65-1 in
identifying the satisfied and unsatisfied pe
ce and allocating the transaction price
606
.
under the practical expedient in ASC
termining the transaction pri
rformance obligations, de
g
g
g
ASC 606 applies to all contracts with c
ustomers, except for contracts that are within the scope of other standards, such as leases
and collaboration arrangements. To determine revenue recognition for arrangements that an entity determines are within the scope of
ASC 606, the entity performs the following five steps:
tt
1)
Identify the contract with
fy
tt
the customer
A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each
party’s rights regarding the goods or services to be transferred
commercial substance and (iii) the Company determines that collection of substantially all consideration for goods and services that
are transferred is probable based on the customer’s intent and ability to pay the promised consideration.
and identifies the related payment terms, (ii) the contract has
ff
2) Identify the perforff marr
nce obligat
i
ions in the contract
Performance obligations promised in a contract are identified based on the goods and services that will be transferred to the
customer that are both capable of being distinct, whereby the customer can benefit from the good or service either on its own or
together with other available resources, and are distinct in the context of the contract, whereby the transfer of the good or service is
separately identifiable from other promises in the contract. To the extent a contract includes multiple promised goods and services, the
Company must apply judgment to determine whether promised goods and services are capable of being distinct and distinct in the
context of the contract. If these criteria are not met, the promised goods and services are accounted for as a combined performance
obligation.
F-11
3) Determine the transaction price
The transaction price is determi
r
ned based on the consideration to which the Company will be entitled in exchange for
transferring goods and services to the customer. To the extent the transaction price includes variable consideration such as research,
development, regulatory and commercial milestones, the Company determines if it is probable that it will receive such amounts and
there is no risk of a significant revenue reversal. When the Company cannot conclude that receipt of such amounts is probable, the
Compam ny constrains the related variable consideration resulting in its exclusion from transaction consideration. In determining the
portion of the transaction consideration to be constrained, the Company considers the probability and uncertainty that the related
research, developmental, regulatory and commercial milestones will be achieved given the nature of research and clinical development
and the stage of the underlying programs. This assessment is performed at each reporting period. In making this evaluation, the
Company considers both internal and external
information available, including information from industry publications and other
relevant factors. Changes to the constraint of variable consideration can have a material effect on the amount of revenue recognized in
the period.
r
4) Allocate the transaction consideration to performarr
nce obligat
i
ions in the contract
If the contract contains a single performance obligation, the entire transaction consideration is allocated to the single
tt
ff
multiple performance obligations require an allocation of the transaction consideration
performance obligation. Contracts that contain
to each performance obligation on a relative standalone selling price
the criteria to be allocated entirely to a performance obligation or to a distinct service that forms part of a single performar
obligation. The consideration to be received is allocated among the separate performance obligations based on relative standalone
selling prices. In determining these estimated standalone selling prices, the Company makes a number of significant judgements
including, for licenses, management’s assumptions regarding probability weighted projeo cted discounted cash flows for each of the
collaborat
a
probabilities of scientific success, discount rate and certain assumptm ions that form the basis of forecasted cash flows. In developing
these assumptions, management considers both internal and external
rr
compam nies within the same industrytt
allocation of the transaction consideration to performance obl
and other relevant factors. Changes to these assumptions can have a material effect on the
igations, as well as the amount and timing of revenue recognized.
ion development programs. The estimated standalone selling prices are sensitive to changes in assumptions, such as
basis unless the transaction consideration is variable and meets
information available, including information from other guideline
nce
ff
5)5 Recognigg zeii
revenue when or as the Companyn satisfies a performance obligation
The Company satisfies performa
ff
nce obligations over time or at a point in time, depending on the nature of the
m
obligation. Revenue is recognized over time if the customer simultaneously receives
entity’s performance, the entity’s performance creates or enhances an asset that the customer controls as the asset is created or
enhanced, or the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable
right to payment for performance completed to date. If the entity does not satisfy a perforff mance obligation over time, the related
performance obligation is satisfied at a point in time by transferrirr ng the control of a promised good or service to a customer.
t
and consumes the benefits provided by the
performance
Contract Balances
ff
The Company recognizes a contract asset when the Company transfersff
goods or services to a customer before the customer pays
yment is due, excluding any amounts presented as a receivable (i.e. accounts receivable). A contract asset is
goods or services that the entity has transferred to a customer. The contract liabilities
consideration or before pa
an entity’s right to consideration in exchange forff
(i.e. deferred revenue) primarily relate to contracts where we have received payment, but we have not yet satisfied the related
performance obligations. The Company recorded contract assets of $25.7 million and $0.0 million as of December 31, 2019 and 2018,
respectively. Deferred revenue as of December 31, 2019 and 2018 was $12.7 million and $57.8 million. The change in contract assets
and deferred revenue is related to the collaboration agreement with Vertex described in Note 7.
t
Collaboration Arrangements
The Company records the elements of its collaboration agreements that represent joint operating activities in accordance with
ll
ASC 808, Collaborat
activities in which both parties are active participants and to which both parties are exposed to the significant risks and rewards that
are dependent on the commercial success of the activities, are recorded as collaborative arrangements.
ive arrangements (“ASC 808”). Accordingly, the elements of the collaboration agreements that represent
F-12
The Company evaluates the proper presentation of the commercial activities and the profit and loss sharing associated with the
authoritative accounting literature, the income statement classification should be based on the naturet
collaboration agreements. ASC 808 states that when payments between parties in a collaborative arrangement are not within the scope
t
of other
nature of its business operations and the contractual terms of the arrangement. To the extent that these payments are not within the
scope of other authoritative accounting literature, the income statement classification for the payments shall be based on an analogy to
authoritative accounting literature or if there is no appropriate analogy, a reasonable, rational and consistently applied accounting
policy election.
of the arrangement, the
Research and Development Expenses
Research and development costs are charged to expense as costs are incurred in performing research and development activities,
including salaries and benefits, facilities costs, overhead costs, clinical study and related clinical manufacturing costs, license and
milestone fees, contract services and other related costs. Research and development costs, including up-front fees and milestones paid
to collaborators, are also expensed as incurred. In circumstances where amounts have been paid in excess of costs incurred, the
Compamm ny records a prepaid expense. The Company accrues costs for clinical trial activities based upon estimates of the services
received and related expenses incurred that have yet to be invoiced by the contract research organizations, clinical studyt
laboratories, consultants or other clinical trial vendors that perform the activities. The Companym
associated with collaborative activities to its collaborative partners as research and development expense in the period the services are
provided.
sites,
recognizes the reimbursement
Leases
Effeff ctive January 1, 2019, the Company adopted ASC 842, Leases (ASC 842), using the required modified retrospective
approach and utilizing the effective date as its date of initial application. As a result, prior periods are presented in accordance with the
previous guidance in ASC 840, Leases (“ASC 840”).
At the inception of an arrange
rr
ment, the Company determines whether the arrangement is or contains a lease based on the unique
facts and circumstances present in the arrangement. Leases with a term greater than one year are recognized on the balance sheet as
right-of-use assets and short-term and long-term lease liabilities, as applicable. The Company does not have financing leases.
Operating lease liabilities and their corresponding right-of-use assets are initially recorded based on the present value of lease
payments over the expected remaining lease term. Certain adjustmet
incentives received. The interest rate implicit in lease contracts is typiy cally not readily determinable. As a result, the Company utilizes
its incremental borrowing rate to discount lease payments, which reflects the fixed rate at which the Company could borrow on a
collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment.
Prospectively, the Company will adjust the right-of-use assets for straight-line rent expense or any incentives received and remeasure
as of the lease commencement
the lease liabia lity at the net present value using the same incremental borrowing rate that was in effect
or transition date.
nts to the right-of-use asset may be required for items such as
ff
The Company has elected not to recognize leases with an original term of one year or less on the balance sheet. The Company
typiy cally only includes an initial lease term in its assessment of a lease arrangement. Options to renew a lease are not included in the
Compam ny’s assessment unless there is reasonable certainty that the Company will renew.
Assumptions made by the Company at the commencement date are re-evaluated upon occurrence of certain events, including a
lease modification. A lease modification results in a separate contract when the modification grants the lessee an additional right of
use not included in the original lease and when lease payments increase commensurate with the standalone price for the additional
right of use. When a lease modification results in a separate contract, it is accounted for in the same manner as a new lease.
Equity Based Compensation Expense
The Company’s share-based compensation programs grant awards that have included stock options, restricted stock units and
restricted stock awards. Grants are awarded to emplmm oyees and non-employees, including directors.
The Company accounts for its stock-based compensation awards in accordance with ASC Topic 718, Compensation—Stock
m
Compensation (“ASC 718”). ASC 718 requires all stock-based payments to employees and non-employee directors, including grants
of employee
stock options and restricted stock units and modifications to existing stock options, to be recognized in the consolidated
statements of operations and comprehensive income (loss) based on their fair values. The Companym
pricing model to determine the fair value of options granted.
uses the Black-Scholes option
F-13
The Company accounts for forfeitures as they occur instead of estimating forfeitures at the time of grant and revising those
estimates in subsequent periods if actual forfeitures differ from its estimates. Stock-based compensa
financial statements is based on awards for which performance or service conditions are expected to be satisfied.
m
tion expense recognized in the
Prior to the adoption of ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): ImpII
ee
ent Accounting (“ASU 2018-07”) on July 1, 2018, the measurement date for non-employee awards was generally
rovements to Nonemployl
ial reporting period adjud stments to stock-based compensation during the vesting
adoption of ASU 2018-07, the measurement date for non-employee awards is
Share-Based Payma
the date the services are completed, resulting in financa
terms for changes in the fair value of the awards. After
the date of grant without changes in the fair value of the award.
ff
The Company’s stock-based awards are subject
u
ees, directors and non-employm
related to awards to employm
basis based on the grant date fair value over the associated service period of the award, which is generally the vesting term.
Compensation expense related to awards to emplomm yees and non-employees with performance-based vesting conditions is recognized
based on the grant date fair value over the requisite service period using the accelerated attribution method to the extent achievement
of the performance condition is probable.
to service or performff
ance-based vesting conditions. Compensation expense
ees with service-based vesting conditions is recognized on a straight-line
The Company expenses restritt cted stock unit awards to employees based on the fair value of the award on a straight-line basis
over the associated service period of the award.
The Company estimates the fair value of its option awards to employees, directors and non-employees using the Black-Scholes
option pricing model, which requires the input of subjeb ctive assumptions, including (i) the expected stock price volatility, (ii) the
calculation of expected term of the award, (iii) the risk-freeff
interest rate and (iv) expected dividends. Due to the lack of complete
company-specific historical and implmm ied volatility data for the full expected term of the stock-based awards, the Company bases its
estimate of expected volatility on a representative group of publicly traded companies in addition to its own volatility data. For these
analyses, the Company selected companies with comparable characteristics to its own, including enterprrr
position within the industry, and with historical share price information sufficient to meet the expected life of the stock-based awards.
The Company computes historical volatility data using the daily closing prices for the selected companies’ shares during the
equivalent period of the calculated expected term of the stock-based awards. The Company will continue to apply this process until a
sufficient amount of historical information regarding the volatility of its own stock price becomes available. The Company has
estimated the expected term of its employm
ee stock options using the “simplified” method, whereby the expected term equals the
arithmetic average of the vesting term and the original contractual term of the option, due to its lack of sufficient historical data. The
risk-free interest rates for periods within the expected term of the option are based on the U.S. Treasury securities with a maturity date
commensurate with the expected term of the associated award. The Company has never paid, and does not expect to pay,a dividends in
the foreseeable future.
ise value, risk profiles,
ff
Patent Costs
Costs to secure and prosecute patent applications and other
t
legal costs related to the protection of the Company’s intellectual
property are expensed as incurred and are classified as general and administrative expenses in the Company’s consolidated statements
of operations.
Income Taxesaa
Income taxes are recorded in accordance with ASC Topic 740, Income Taxes (“ASC 740”), which provides for deferff
using an asset and liability approach. Under this method, deferred tax assets and liabilities are determined based on the differen
ff
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 wh
en 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 available evidence and concluded that the Company may not realize all the benefit of its deferred tax assets; therefore, a
valuation allowance has been established for the amount of the deferred tax assets that the Company does not believe is more likely
than not to be realized.
red taxes
ce
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 available facts and circumstances. As of December 31, 2019,
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 12 for further details.
and 2018, the Company does not have any
m
F-14
Comprm ehensive Income (Loss)
Comprehensive income (loss) consists of net income or loss and other comprehensive income (loss). Other comprehensive
income (loss) consists of foreign currency translation adjustments.
Variable Interest Entities
The Company reviews each legal entity formed by parties related to the Company to determine whether or not the Company has
t
or not the entity would meet the definition of a variablea
a variable interest in the entity and whether
interest entity (“VIE”) in
accordance with ASC Topic 810, Consolidatdd ion (“ASC 810”). If the entity is a VIE, the Company assesses whether or not the
Compam ny is 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 affect the VIE’s economic performance, (ii) the parties’ contractu
pursuant to any contractual ag
VIE. If the Company determines it is the primary beneficiary of a VIE, the Company consolidates the financial statements of the VIE
into the Company’s consolidated financial statements at the time that determination is made. The Company evaluates whether
continues to be the primary beneficiary of any consolidated VIEs on a quarterly basis. If the Company were to determine that it is no
longer the primary beneficiary of a consolidated VIE, or no longer has a variable interest in the VIE, it would deconsolidate the VIE in
the period that the determination is made.
reements and (iii) which party has the obligation to absorb losses or the right to receive benefits from the
al rights and responsibilities
it
t
t
t
If the Company determines it is the primary beneficiary of a VIE that meets the definition of a business, the Company measures
the assets, liabia lities and noncontrolling interests of the
Business Combinations (“ASC 805”) at the date the reporting entity first becomes the primary beneficff
newly consolidated entity at fair value in accordance with ASC Topic 805,
iary.
tt
In February 2016, Casebia, was formed in the United Kingdom. In March 2016, upon consummation of the joint venturett
(“JV”),
Bayer Healthcare LLC and certain of its affiliates (“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 has not historically consolidated Casebia’s results into the consolidated
financial statements.
As described in Note 7, on December 13, 2019, Casebia became a fully-owned subsidiary and, as a result, the Company
consolidated Casebia’s financial results accordingly from that point forward.
Net Income (Loss) Per Share Attributable to Common Shareholdersrr
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 attributable to common shareholders by the weighted-average number of common equivalent shares outstanding for the
period, including any dilutive effect from outstanding stock options and restricted stock units using the treasury stock method. See
Note 10 for further details.
New Accounting Pronouncements Recently Adopted
Leases
As discussed above, the Company adopted ASC 842, using the required modified retrospective approach, effecti
ff
ve January 1,
chose to apply the transition provisions as of the period of adoption. The Company elected the package of
2019. The Companym
practical expedients permitted under the transition guidance within the new standard, which, among other th
Compamm ny to carry forward the historical lease classification. In addition, the Company elected the practical expedient not to apply the
recognition requiq rements in the lease standard to short-term leases (a lease that at commencement date has a lease term of 12 months
or less and does not contain a purchase option that it is reasonably certain to exercise) and the practical expedient that permi
ts lessees
to make an accounting policy election (by class of underlying asset) to account for each separate lease component of a contract and its
associated non-lease compom nents as a single lease compom nent. The adoption of the new standard resulted in the recording net lease
assets and lease liabia lities of $26.1 million and $37.6 million, respectively, as of January 1, 2019. The difference between the
additional lease assets and lease liabia lities is primarily due to the change in classification of lease incentives from liabilities to a
reduction in our net lease assets. The standard had no impam ct on our net loss or cash flows.
ings, allowed the
r
t
F-15
Impact of Adopti
dd
ng ASC 842 on the Financial Statementstt
January 1,
2019
Prior to ASC
PP
842 Adoption
ASC 842
Adjustment
January 1,
2019
As Adjusted
Consolidated Balance Sheet Data (in thousands):
Prepaid expenses and other current assets(1)
Operating lease assets(2)
Deferred rent(3)(4)
Deferred rent non-current(3)
Operating lease liabilities(5)
Non-current operating lease liabilities(5)
$
$
$
$
$
$
9,658
1,026
11,052
$
—— $
$
$
—— $
—— $
(553) $
26,087
$
(1,026) $
(11,052) $
$
4,930
$
32,682
9,105
26,087
——
——
4,930
32,682
operating lease assets and reclassification of equipment licenses from prepaid
(1) Represents reclassification of prepaid rent to operating lease assets.
a
(2) Represents capitalization of
expenses to operating lease assets, offset by reclassification of deferred rent to operating lease assets.
(3) Represents reclassification of deferred rent and tenant incentives to operating lease assets.
(4) As of December 31, 2018, the deferred rent balance was $1,202, which included $176 of sublease income received
prior to year-end but not due until Januaryrr 1, 2019.
(5) R pepresents recognition of poperating lease liabilities.
New Accounting Pronouncements Not Yet Adopted
Credit Losses
In June 2016, the FASB issued ASU 2016-13, Financial Instruments Credit Losses (Topic 362):2 Measurement of Credit
Losses on Financial Statements. The new standard requires that expected credit losses relating to financial assets measured on an
amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. It also limits the amount
of credit losses to be recognized for availabla e-for-sale debt securities to the amount by which carrying value exceeds fair value and
also requires the reversal of previously recognized credit losses if fair value increases. The targeted transition relief standard allows
filers an option to irrevocably elect the fair value option of ASC 825-10, Financial Instrutt ments-tt Overall, applied on an instrument-by-
instrument basis for eligible instruments. The new standard will be effect
ive beginning January 1, 2020. The adoption of ASU 2016-
13 is not expected to have a material impam ct on the Company’s financial position or results of operations upon adoption.
ff
3. Property and Equipment, net
Property and equipment, net, consists of the following (in thousands):
ent
ture, fixtures, and other
Computer equipmq
Furnir
Laboratory equipment
Leasehold improvements
Construction work in process
Total property and equipment, gross
Accumulm ated Depreciation
Total property and equipment, net
y
As of December 31,
2019
2018
$
$
727
3,215
16,640
21,400
1,394
43,376
(12,046)
31,330
$
$
443
2,453
8,964
13,776
239
25,875
(7,375)
18,500
Depreciation expense for the year ended December 31, 2019, 2018, and 2017 was $4.7 million, $3.5 million, and $3.0 million,
respectively.
F-16
4. Accrued Expenses
Accruedrr
expenses consist of the following (in thousands):
Payroll and employee-related costs
Research costs
Licensing fees
Professional fees
Intellectual property costs
rr
Accrued property and
Other
equipment
Total
As of December 31,
2019
2018
$
$
15,229 $
9,434
750
2,040
2,311
407
9
30,180 $
7,321
7,973
625
1,848
2,193
294
598
20,852
5. Leases
In June 2015, the Company entered into a lease agreement for the lease of research facility space in Cambridge, Massachusetts,
with a commencement date of Novemberm 15, 2015 (the “2015 Lease”). The lease expires in February 2022 with no further
extend. The 2015 Lease contains escalating rent clauses, which require higher rent payments in future years. With the adoption of
ASC 842, the Company has recorded a right-of-use asset and corresponding lease liability.
option to
t
In May 2016, the Company entered into a sublease agreement for its primary office and research facility in Cambrm idge,
Massachusetts, with a commencement date of December 23, 2016 (thet
the Company has an option to extend the term of the 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 affiliates. The 2016 Sublease contains escalating rent
clauses, which require higher rent payments in future years. With the adoption of ASC 842, the Company has recorded a right-of-use
asset and corresponding lease liability. The right-of-use asset and corresponding lease liability does not include the additional five-
year period under the renewal option as the Company is not reasonably certain not to exercise that option.
The sublu ease expires in December 2026, and
u
“2016 Sublease”).
In May 2019, the Company entered into a lease agreement for officeff
facility space in Cambridge, Massachusetts, with a
commencement date of June 1, 2019 (the “2019 Lease”). The lease expires in November 2026, and the Company has an option to
2019
extend the term of the lease for an additional five-year period based on certain conditions within the Company’s control. The
Lease contains escalating rent clauses which require higher rent payments in future years. At lease commencement, the Company
recorded a right-of-use asset and corresponding lease liabia lity. The right-of-use asset and corresponding lease liability does not include
the additional five-year period under the renewal option as the Company is not reasonably certain not to exercise that option.
t
In December 2019, Casebia became a wholly-owned subsiu
sublease for an office and research facility in Cambridge, Massachusetts (“2019 Sublease”) to the Company. The sublea
March 2024 and the Company has an option to extend the term of the 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 affiliates. The 2019 Sublease contains
escalating rent clauses which require higher rent payments in future years. The Company recorded a right-of-use asset and
corresponding lease liability. The right-of-use asset and corresponding lease liability does not include the additional five-year period
under the renewal option as the Company is not reasonably certain not to exercise that option.
diary of the Company. In connection therewith, Casebia assigned its
se expires in
u
In addition, the Company rents certain office space in Zug, Switzerland, on a short-term basis for which a right-of-use asset and
liability are not recorded, in accordance with the practical expedient elected.
The Company has embedded leases in certain research and license agreements for which the Company has recorded a right of
use asset and liability. These arrangements are not significant in comparison to the Company’s total operating lease assets and
liabilities. In addition, the Company has identified certain short-term leases embedded
not recorded on the Company’s balance sheet in accordance with the practical expedient elected.
within its manufacturing contracts which are
m
F-17
The Company identified and assessed the following estimates in recognizing the right-of-use asset and corresponding liability:
Expected lease term: The expected lease term for those leases commencing prior to January 1, 2019 did not change with
the adoption of ASC 842. The expected lease term for leases commencing after the
noncancelable lease periods and, when applicable, periods covered by an option to extend the lease if the Company is
reasonably certain to exercise that option, as well as periods covered by an option to terminate the lease if the Company is
reasonably certain not to exercise that option.
adoption of ASC 842 includes
ff
Incremental borrowing rate: As the discount rates in the Company’s lease are not implicm it, the Company estimated the
incremental borrowing rate based on the rate of interest the Company would have to pay to borrow a similar amount on a
collateralized basis over a similar term.
m
The following table summarizes the lease assets and liabilities as of December 31, 2019 (in thousands):
Assets
Operating lease assets
Total lease assets
Liabilities
Current
Operating lease liabilities
Non-current
Operating lease liabilities, net of current portion
Total lease liabilities
As of December 31, 2019
$
$
41,502
41,502
8,489
44,050
52,539
The following table summarizes operating lease costs included in research and development and general and administrative
expense, as well as sublease
u
income for the twelve months ended December 31, 2019 (in thousands):
Operating lease costs
Short-term lease costs
Variable lease costs
Sublease income
Net lease cost
Twelve Months Ended
December 31, 2019
8,067
4,554
4,282
(525)
16,378
$
$
The following tablea
summarizes the maturity of undiscounted payments due under lease liabilities and the present value of those
liabilities as of December 31, 2019 (in thousands):
2020
2021
2022
2023
2024
Thereafter
Total
Present value adjud stment
Present value of lease liabilities
$
$
$
Total
13,963
11,824
10,167
10,269
8,308
15,678
70,209
(17,670)
52,539
F-18
The following table summarizes the lease term and discount rate as of December 31, 2019:
Weigghted-averagge rem
Operating leases
aining lease term y(years)
g
Weighted-average discount rate
Operating leases
g
As of December 31, 2019
6.0
9.9%
The following table summarizes the cash paid for amounts included in the measurement of lease liabilities for the twelve months
ended December 31, 2019 (in thousands):
Cash paid for amounts included in the measurement of lease liabia lities
erating leases
g
Operating cash flows from op
g
$
$
8,420
8,420
Twelve Months Ended
December 31, 2019
In November 2019, the Company, together with one of its partnett
rs, committed to making payments to a clinical manufacturing
organization under a lease arrarr ngement.
upfront payment of $2.6 million is due. In addition, the Company and its partner have committed to paying
in annual rental payments for a five-year period following commencement. All payments will be split equally between the Company
and its partner.
The lease arrangement in expected to commence in the second half of 2020, at which time an
approximately $3.7 million
a
a
6. Commitments and Contingencies
ll
Intellectu
al Propeo rty Agreements
Patent Assignment Agreement
In November 2014, the Company entered into a patent assignment agreement with Dr. Emmanuelle Charpent
rr
ier, 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. As a result, the Assignors are entitled to receive certain
low single digit clinical milestone payments and low single digit royalties based on annual net sales of licensed products and licensed
services by the Company, its affiliates and sublicensees.
Charpentier License Agreements
In April 2014, the Company entered into certain technology license agreements with Dr. Charpent
ier pursuant to which the
Compam ny licensed certain intellectual property rights under joint ownership from Dr. Charpentier to develop and commercialize
products
d
clinical milestone payments, low single digit percentage of sublicensing payments received under any sublicense
third party, and low single-digit percentage royalties based on annual net sales of licensed producd ts and services by the Company and
its affiliates and sublicensees.
for the treatment or prevention of human diseases. In connection therewith, Dr. Charpentier is entitled to receive nominal
agreement with a
u
rr
During the years ended December 31, 2019, 2018 and 2017, the Company paid an immaterial amount of fees to Dr. Charpentier,
which were recorded as research and development expense.
Research, Manufacturing and License Agreements
gg
The Company has engaged several research institutions and companies to identify new delivery strategies and applications of
the gene-editing technology. The Company is also a party to a number of research license agreements which require significant
upfront payments, and may require future royalty payments and potential milestone payments from time to time. In addition, the
Company is also a party to intellectual property agreements, which require maintenance and milestone payments from time to time.
Further, the Company is a party to a number of manufacturing
services.
agreements that require upfront payments for the future pe
t
tt
rformance of
F-19
In association with these agreements, on a product by product ba
d
digit potential payments upon specified research, development and regulatory milestones. In addition, on a product by product ba
the counterparties are eligible to receive potential commercial milestone payments based on specified annual sales thresholds. The
potential payments are low-single digit percentages of the specified annual sales thresholds. The counterpart
ies are also eligible to
receive low single-digit royalties on future net sales.
sis, the counterparties are eligible to receive up to low eight-
sis,
d
r
Under certain circumstances and if certain contingent future events occur, Vertex is eligible to receive up to $395.0 million in
potential specified research, development, regulatory and commercial milestones and tiered single-digit royalties on future net sales.
Refer to Note 7 for further discussion on the Company’s arrar ngements with Vertex.
Litigationtt
The Company licenses a U.S. patent application from Dr. Charperr ntier that was subject
procedural matters, the PTAB concluded in February 2017 that the declared interference should be dismissed because the
to interference proceedings declared by
the Patent Trial and Appeal Board (“PTAB”) of the U.S. Patent and Trademark Office (“USPTO”). Following motions by the parties
t
and other
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. In April 2017, Dr. Charperr ntier, the Regents of the University of California (“UC
”), and the University of Vienna
(collectively “UC”) appealed the PTAB decision to the U.S. Court of Appeals for the Federal Circuit (“Federal Circuit”). In the
appeal, UC asked the court to review and reverse of the PTAB’s February 2017 decision, which terminated the interferff ence without
determining which inventors actually invented the use of the CRISPR/Cas9 genome editing technology in eukaryotic cells. The
Federal Circuit conducted a hearing on the appeal on April 30, 2018. On Septemberm 10, 2018, the Federal Circuit affirmed the PTAB’s
decision to terminate the interference proceeding.
u
ff
rr
In June 2019, we received notification that the USPTO initiated a new interferff ence proceeding at the PTAB, which the PTAB
ff
the PTAB declared the ‘115 interference
redeclared in August 2019. The ‘115 interference involves fourteen (14) pending U.S. patent applications co-owned by the CVC
Group and thirteen (13) patents and a patent application owned by the Broad. Specifically,
bbetween the CVC Group’s pending U.S. Patent Application Nos. 15/947,680; 15/947,700; 15/947,718; 15/981,807; 15/981,808;
15/981,809; 16/136,159; 16/136,165; 16/136,168; 16/136,175; 16/276,361; 16/276,365; 16/276,368; and 16/276,374, and the Broad’s
U.S. Patent Nos. 8,697,359; 8,771,945; 8,795,965; 8,865,406; 8,871,445; 8,889,356; 8,895,308; 8,906,616; 8,932,814; 8,945,839;
8,993,233; 8,999,641; 9,840,713, and U.S. Patent Application No. 14/704,551. This list includes the same twelve Broad patents and
application that were involved in the ‘048 interference. In contrast, none of the issued U.S. patents the CVC Group owns are subject
u
in May fof
this proceeding. The CVC Group’s inventions that are the subjeb ct of the ‘115 interference were first filed with the USPTO
tent
2012, while the Broad filed its first application seven months later in December of 2012. However, the 14 CVC Group pat
applications that are involved in the ‘115 interference are continuing patent applications that were filed in 2018 and claim priority to
the CVC Group’s original 2012 filing, while the Broad’s involved patents and patent application were filed between 2013 and 2015.
Because the PTAB accorded neither party the benefit of any of its first filing dates, but instead accorded only the benefit of the actual
lt named the Junior Party. Both parties have
filing dates of the involved patents and patent applications, the CVC Group was by defauff
filed motions reque
in May of 2012 and the Broad in December of 2012) duri gng
sting the benefit of their earliest priori yty dates (CVC
the interference
proceeding.
g
g
y
y
to
In February 2018, several parties filed oppositions in the European Patent Office to the grant of the Compam ny’s in-licensed
European patent. Opposition proceedings can lead to the revocation of a patent in its entirety; the maintenance of the patent as granted,
or the maintenance of a patent in amended form. Opposition proceedings typically take years to resolve, including
appeals that can be filed by any of the parties. The Company cannot guarantee the outcome of the oppositions to its in-licensed
European patent, and an adverse result could preclude the Company from enforcing its rights in Europe against third parties.
the time taken by
y
On December 15, 2016, the Company entered into a Consent to Assignments, Licensing and Common Ownership and Invention
Management Agreement (the “Invention Management Agreement”) with the Regents of the University of California, University of
Vienna, Dr. Charpentier, Intellia Therapeutics, Inc. Caribou Biosciences, Inc., ERS Genomics Ltd. and one of our subsidiaries. Under
the Invention Management Agreement, the Company is obligated to share costs related to patent maintenance, defense and
prosecution. For the years ended December 31, 2019, 2018 and 2017, the Company incurred $2.9 million, $2.4 million and $1.2
million, respectively, in shared costs. The Compam ny recorded accrued legal costs from the cost sharing of $1.5 million and
$1.9 million as of December 31, 2019 and December 31, 2018, respectively. The Company is unable to predict the outcome of these
matters and is unable to make a meaningful estimate of the amount or range of loss, if any, that could result fromff
outcome.
an unfavorable
ff
F-20
In addition to the above, in the ordinary course of business, the Company is from time to time involved in lawsuits, claims,
investigations, proceedings, and threats of litigation relating to intellectual property, commercial arrangements, employm
ent and other
matters. While the outcome of those proceedings and claims cannot be predicted with certainty, the Company is not party to any legal
or arbitration proceedings that may have significant effects on its financial position. It is not a party to any material proceedings in
which any director, member of executive management or affiliate of the Company is either a party adverse to it or its subsidiaries or
has a material interest adverse to it or its subsu idiaries.
m
t
7. Significant Contracts
Agreements with Vertex Pharmaceuticals Incorporated and certaitt nii of its subsidiaries
Summary
On October 26, 2015, the Company entered
m
into a strategic collaboration, option and license agreement (the “2015
Collaboration Agreement”) with Vertex Pharmaceuticals Incorporated and certain of its subsidia
Collaboration Agreement is focused on the use of the Company’s CRISPR/Cas9 gene-editing technology to discover and develop
potential new treatments aimed at the underlying genetic causes
ries (“Vertex”). The 2015
of human disease.
u
a
On December 12, 2017,
m
the Company and Vertex entered into Amendmed
nt No. 1 to the 2015 Collaboration Agreement
(“Amendment No. 1”) and the Joint Development Agreement (thet
definitions and provisions of the 2015 Collaboration Agreement to make them consistent with the JDA and clarified how many
options are exercised (or deemed exercised) in connection with certain targets specified under the 2015 Collaboration Agreement.
Amendment No. 1 also amended other provisions of the 2015 Collaboa
“JDA”). Amendment No. 1, among other things, modified certain
ration Agreement, including the expiration terms.
In connection with the 2015 Collaboa
ration Agreement, Vertex made a nonrefundable upfront payment of $75.0 million. Under
the 2015 Collaboration Agreement, Vertex agreed to fund the discovery activities conducted pursuant to the agreement while retaining
options to co-exclusive and exclusive licenses. In December 2017, upon execution of the JDA and Amendment No. 1, Vertex
exercised its option to obtain a co-exclusive license to develop and commercialize hemoglobinopathyt
for potential hemoglobinopathy tr
research and development costs and worldwide revenues. In connection with the JDA, the Company received a $7.0 million up-front
payment from Vertex and subsequently received a one-time low seven-digit milestone payment upon the dosing of the second patient
in a clinical trial with the initial product candidate. In addition, upon execution of the JDA and Amendment No. 1, it was clarifiedff
that
Vertex may elect to license up to four remaining targets, for which it will lead global development and commercialization activities
and the Company received the right to receive up to $420.0 million in development, regulatory and commercial milestones and
royalties on net product sales for each of the targets (inclusive of $10 million due upon exercise of each exclusive option).
and beta-globin targets. As such,
nts for sickle cell disease, the Company and Vertex will share equally all
eatments, including treatmet
t
In June 2019, the Company and Vertex entered into a series of agreements, which closed on July 23, 2019, including a strategic
t
collaboration and license agreement (the “2019 Collaboration Agreement”) for the development and commercialization of products
for the treatment of Duchenne Muscular Dystrophy (“DMD”) and Myotonic Dystrophy Type 1 (“
Collaboration Agreement, the Company received an upfront, nonrefundable pa
eligible to receive potential future p
development, regulatory and commercial milestones for the DMD and DM1 programs. The Company is also eligible to receive tiered
royalties on future net sales on any products that may result from this collaboration. For the DMD program, Vertex is responsible for
all research, development, manufacturing and commercialization activities and all related costs. For the DM1 program, the Company
will perform specified guide RNA research and Vertex is responsible for all other research, development, manufacturing and
commercialization costs. Upon Investigational New Drug (“IND”) application filing, the Company has the option to forego the DM1
milestones and royalties and instead, co-develop and co-commercialize all DM1 products globally in exchange for payment of 50% of
research and development costs incurred by Vertex from the effective date of the agreement through IND filing.
ayments of up to $825.0 million based upon the successful achievement of specified research,
yment of $175.0 million. In addition, the Company is
DM1”). Under the terms of the 2019
yy
ff
In connection with the execution of the 2019 Collaboration Agreement, the Company and Vertex entered into a second
ration Agreement (“Amendment No. 2”). Among other things, Amendment No. 2 modified certain
amendment to the 2015 Collaboa
definitions and provisions of the 2015 Collaboration Agreement to make them consistent with the 2019 Collaboration Agreement and
set forth the numberm and identity of the collaboration targets under the 2015 Collaboration Agreement. The Company and Vertex
agreed that one of the four remaining options under the 2015 Collaborat
ion Agreement, as amended, would not be exercised; instead,
a
the Company will reacquire the exclusive rights and will conduct research and development activities for the specified target. Vertex
will have the option to co-develop and co-commercialize the specified target upon IND filing in exchange for payment of 50% of
research and development costs incurred by the Company from the effective date of the agreement through IND filing. If Vertex does
not exercise its option to co-develop and co-commercialize the specified target, Vertex is eligible to receive up to $395.0 million in
potential specified research, development, regulatory and commercial milestones and tiered single-digit royalties on future net sales.
F-21
In October 2019, Vertex exercised the remaining three options granted to it under the 2015 Collaboration Agreement to
exclusively license the collaboa
million to the Company in the fourth quarter of 2019.
ration targets developed under the 2015 Collaboration Agreement, resulting in a payment of $30.0
Accounting for the Vertex Agreements
The 2015 Collaboration Agreement, Amendment No. 1, and JDA are collectively the “2015 Agreements” and the 2019
ration Agreement and Amendment No. 2. are collectively the “2019 Agreements.” The 2015 Collaboration Agreement,
Collaboa
Amendment No. 1, Amendment No. 2, JDA and 2019 Collaboration Agreement are collectively the “Vertex Agreements.”
The Vertex Agreements include components of a customer-vendor relationship as defined under ASC 606, , collaborative
arrangements as defined under ASC 808 and research and development costs as defined under ASC 730, Research and Development
(“ASC 730”).
Accountintt gn Analysisii Under ASC 606
Accounting for the 2019 Agreements
Identification of the Contract
tt
The 2019 Agreements represented a contract modification to the 2015 Agreements. As a result, the 2019 Agreements and the
2015 Agreements are combined for accounting purposes and treated as a single arrangement.
IdeII ntification of Performance Obligations
The Company concluded the following material promises were both capable
of being distinct and distinct within the context of
the Vertex Agreements and represented separate performance obligations: (i) an exclusive license for worldwide rights for DMD gene
editing products (“DMD License”); (ii) an exclusive license for worldwide rights for DM1 gene editing products (“DM1 License”);
(iii) the performance of specified guide RNA research for DM1 (“DM1 R&D Services”); (iv) a material right representing the option
to obtain a co-exclusive development and commercialization license for a specified target (“Specified Target Option”); (v) three
material rights representing the option for up to three exclusive licenses to develop and commercialize the collaboration targets
(“Collaboration Target Options”), and (vi) the waiving of Vertex’s material right associated with its option to a fourth exclusive
license in connection with the Company’s reacquisition of exclusive rights to the specified target.
a
Determination of Transaction Price
The overall transaction price was determined based on the remaining transaction price from the 2015 Agreements, as well as the
transaction price from the 2019 Agreements. The transaction price includes variable consideration estimated using the most likely
amount methodology. As such, the Company determined the transaction price totaling $268.6 million was comprised of: (i) $57.8
million of pre-existing deferred revenue from the 2015 Agreements; (ii) non-cash consideration of $10.0 million related to the waiving
of Vertex’s material right associated with its option to a fourth exclusive license in connection with the Company’s reacquisition of
exclusive rights to the specified target; (iii) an upfront payment of $175.0 million; (iv) variablea
consideration of $25.0 million which
represents the Company’s estimate related to a near-term research and development milestone for which the Company determined that
it is not probable that a significff ant reversal of cumulative consideration will occur; and (v) variable consideration of $0.8 million
which represents the Company’s estimate of payments from Vertex for DM1 R&D Services.
The Company determined that all other possible variable consideration resulting from milestones and royalties discussed above
was fully constrained as of December 31, 2019. The Company will re-evaluate the transaction price in each reporting period.
Allocation of Transaction Price to Perforff mance Obligations
rr
The selling price of each performance obligation was determined based on the Company’s estimated standalone selling price
(the “ESSP”). The Company developed the ESSP for all the performarr
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
Compam ny then allocated the transaction price to each performance obligation on a relative standalone selling price basis.
nce obligations included in the Vertex Agreements with the
The ESSP for the DMD License and DM1 License was determined to be $224.6 million and $76.2 million, respectively. The
ESSP was determined based on probability and present value adjusted cash flows from projected worldwide net profit for each of the
respective programs based on probability assessments, projections based on internal forecasts, industry data, and information from
other guideline compamm nies within the same industry and other relevant factors. On a relative basis $151.1 million and $51.3 million of
the transaction price was allocated to the DMD License and DM1 License, respectively.
ff
F-22
The ESSP for the Specified Target Option material right was determined to be $17.5 million, which was based on the
incremental discount between (i) the value of the probability and present value adjud sted cash flows from the equal sharing of projected
worldwide net profit increased by the value of the option provided to Vertex less (ii) the expected exercise price at the time of option
exercise. The present value adjusted cash flows also
forecasts, industry data, and information
from other guideline companies within the same industry and other
transaction price was allocated to the Specified Target Option material right.
relevant factors. On a relative basis $11.8 million of the
considered projections based on internal
d
r
t
The ESSP for each of the three Collaboration Target Option material rights was determined to be $25.0 million, $22.2 million
and $22.2 million, respectively, which was determined based the probability and present value adjusted cash flows from milestone
payments owed for exclusive licenses, less the price paid to exercise each option. On a relative basis $46.7 million of the transaction
price was allocated to the Collaboa
ration Target Option material rights.
The aforementioned ESSPs reflect the level of risk
ff
associated research area.
and expected probability of success inherent in the nature associated of
t
the
The ESSP for the waiving of Vertex’s material right associated with its option to a fourth exclusive license under the 2015
Agreements was determined to be $10.0 million, or the contractual
transaction price was allocated to the waiving of Vertex’s material right associated with its option to a fourth exclusive license under
the 2015 Agreements.
value of the option. On a relative basis $6.7 million of the
t
The ESSP for the DM1 R&D Services was determined to be $1.7 million, which was based on estimates of the associated effort
and cost of the services, adjust
relative basis $1.1 million of the transaction price was allocated to the DM1 R&D Services.
ed for a reasonable profit margin that would be expected to be realized under similar contracts. On a
d
Recognition of Revenue
gg
The Company determined that the DMD License and DM1 License represent functional intellectual property, as the intellectual
property provides Vertex with the abia lity to perform a function or task in the form of research and development. As such, the revenue
related to the licenses was recognized at the point in time in which they were delivered during the third quarter of 2019.
t
The revenue allocated to the waiving of Vertex’s material right associated with its option to a fourth exclusive license in
connection with Company’s reacquisition of exclusive rights to the specifiedff
option was waived, on the effeff ctive date of the 2019 Agreements.
target was recognized at the point in time in which the
The Company concluded that the Specified Target Option and Collaboration Target Options are considered material rights under
the Vertex Agreements. Revenue related to the three Collaboration Target Options material right was recognized at the point in time in
which Vertex exercised the Collaborat
recognized $30.0 million in revenue corresponding to the three $10.0 million payments made by Vertex to exercise the three options,
the consideration for which, the Company determined relates specifically to the
ff
performance obligations (material rights) and that allocating the amounts to those perforff mar
allocation objeb ctives in ASC 606-10-32-28.
ion Target Options, which occurred in the fourth quarter of 2019. In addition, the Company
Company’s efforts to satisfy the respective
nce obligations (material rights) satisfies
a
The Company recognizes revenue related to the DM1 R&D Services over time as the servirr ces are rendered, which is expected to
be over an 18-month period fromff
the effective date of the 2019 Agreements.
Accounting for the 2015 Agreementstt (prior to the execution of the 2019 Agreeme
gg
nts)tt
On January 1, 2018, the Company adopted ASC 606 using the modified retrospective approach. The Company applied the
pract
practical expedient in ASC 606-10-65-1 in identifyiff ng the satisfied and unsatisfied performance obliggations, de
transaction pprice and allocati gng the transaction pprice under the ppractical
revenue recognized under ASC 606 and the prior revenue recognition as a result of the adoption.
pexpedient
.
in ASC 606 There was no significant impactm
on
termining the
g
Identification of thett Contract
Amendment No. 1 and the JDA represented a contract modification to the 2015 Collaboration Agreement. As a result, the 2015
Agreements are combined for accounting purposes and treated as a single arrangement.
F-23
dd
Identificatio
n of Performance Obligations
The Company concluded the following material promises were both capable
a
of being distinct and distinct within the context of
the 2015 Agreements and represented separate performance obligations: (i) the non-exclusive research license; (ii) four material rights
representing the option for up to four exclusive licenses to develop and commercialize the collaboration targets; (iii) a combined
performance obligation representing the co-exclusive research license, and a development and commercialization license to develop
and commercialize hemoglobinopathies and beta-globin targets; and (iv) the performance of R&D Services.
Determination of Transaction Price
The overall transaction price was comprised of: (i) original upfront payment of $75.0 million, (ii) an upfront payment of $7.0
million under the JDA, and (iii) $19.3 million of variable consideration associated with the R&D services.
The Company determined that all other possible variable consideration resulting from milestones and royalties discussed above
was fully constrained as of December 31, 2018 and 2017. The Company will re-evaluate the transaction price in each reporting
period.
Allocation of Transaction Price to Perforff mance Obligations
rr
The selling price of each performance obligation was determined based on the Company’s ESSP. The Company developed the
ESSP for all the performance obligations included in the 2015 Agreements 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 then allocated the transaction price to each
performance obligation on a relative standalone selling price basis.
The ESSP for R&D Services was determined to be $19.3 million. The Company developed the ESSP for the R&D Services
and cost of the services, adjud sted
primarily based on the nature of the services to be performed and estimates of the associated effort
for a reasonable profit margin that would be expected to be realized under similar contracts. The Company allocated $19.3 million of
the transaction price to R&D Services.
ff
The Company’s ESSP for each of the remaining material rights to obtain an exclusive license to develop and commercialize a
single collaboration target are $45.6 million, $38.4 million, $17.3 million and $17.3 million for a total of $118.6 million. ESSPs for
these items were determined based on the probability and present value adjusted cash fl
exclusive licenses, less the price paid to exercise each option. On a relative basis $57.7 million of the transaction price was alloacted
to these material rights.
ows from milestone payments owed for
d
The Company’s ESSP for the co-exclusive research license and the development and commercialization licenses for
hemoglobinopathy and beta-globin targets is $48.9 million. The ESSP for this item was determined based on probability and present
value adjusted cash flows from the equal sharing of projected worldwide net profit.ff ESSP reflects the level of risk and expected
probability of success inherent in the naturett
was allocated to the co-exclusive research license and the development and commercialization licenses for hemoglobinopathy and
beta-globin targets.
of the associated research area. On a relative basis $23.8 million of the transaction price
The Company used a market-based approach to determine the ESSP of the non-exclusive research license of $1.0 million. The
Company determined ESSP by use of comparative data, including in-licensed research agreements negotiated and executed within the
Company. On a relative basis $0.5 million of the transaction price was allocated to the non-exclusive research license.
The aforementioned ESSP’s reflect the level
ff
research area.
of risk and expected probability of success inherent in the nature of the associated
Recognition of Revenue
The Company determined that the non-exclusive research license is symbolic i
m
ntellectual property as Vertex receives value from
over the term of the arrangement. Upon the execution of the JDA, a co-exclusive research, development and
the license through the Company’s ongoing activities, as such, the revenue related to the non-exclusive research license was
recognized ratablya
commercialization license was granted for hemoglobinopathy and beta-globin targets. The Company determined that the revenue
related to these licenses was recognized at a point in time, in which they were delivered at inception of the JDA in December 2017. As
Vertex has material right in its option to obtain four additional exclusive licenses to develop and commercialize four additional
ion targets, the Company determined that consideration allocated to these material rights would be included in the
a
collaborat
transaction price of the exclusive license and recognized at a point in time, upon the exercise of the option by Vertex or expiration. As
the Company has a right to consideration from Vertex in an amount that corresponds directly with the value of the Compam ny’s
performance completed to date for the R&D servirr ces, the Company recognized revenue related to the R&D services as invoiced, in
line with the practical expedient in ASC 606-10-55-18.
F-24
Revenue recognized in connection with the Vertex Agreements
During the years ended December 31, 2019, 2018 and 2017, the Company recognized $289.1 million, $0.6 million and $36.2
million of revenue related to the Vertex Agreements, respectively. The $289.1 million of revenue recognized for the year-ended
December 31, 2019 was comprised of (i) revenue related to the DMD License and DM1 License of $202.4 million, which was
recognized at the point in time in which the licenses were delivered, (ii) revenue related to the Collaboration Target Options material
right of $76.7 million, which was recognized upon the exercise of the Collaboration Target Options by Vertex, (iii) revenue allocated
to the waiving of Vertex’s material right associated with its option to a fourth exclusive license in connection with the Company’s
reacquisition of exclusive rights to the specified target of $6.7 million, which was recognized at the point in time in which the option
was waived, (iv) revenue recognized in connection with DM1 R&D Services of $0.1 million and (v) revenue recognized of $0.1
million related to both research and development services as well as the amortization of the non-exclusive research license under the
2015 Agreements. Additionally, the Company recognized revenue related to a one-time low seven-digit milestone payment upon the
dosing of the second patient in a clinical trial with the initial product ca
a
ndid
revenue recognized in 2018 was comprised of both research and development services as well as the amortization of the non-exclusive
research license under the 2015 Agreements. The $36.2 million of revenue recognized in 2017 was comprised of primarily of (i) $30.3
million allocated to co-exclusive research license and a development and commercialization license to develop and commercialize
each of the hemoglobinopathy and beta-globin targets under ASC 605, which was recognized in connection with the signing of the
JDA in December 20
17 and (ii) research and development services under the 2015 Agreements.
ate in the third quarter of 2019. The $0.6 million in
m
d
As of December 31, 2019 and 2018, there was $0.9 million and $0.1 million of current deferred revenue related to the Vertex
Agreements. As of December 31, 2019 and 2018, there was $11.8 million and $57.8 million of non-current deferred revenue related
the Vertex Agreements. The transaction price allocated to the remaining performance obligations was $12.7 million.
Milestones under the Vertex Agreements
The Company has evaluated the milestones that may be received in connection with the Vertex Agreements. As discussed
above, in connection with the Collaboa
ration Target Options, the Company received $30.0 million in option exercise payments from
Vertex in the fourth quarter of 2019. The Company is eligible to receive up to $410.0 million in additional development, regulatory
and commercial milestones and royalties on net product sales for each of the three collaboration targets that Vertex licensed in the
fourth quarter of 2019. Each milestone is payaa blea
such collaboration target that achieve the relevant milestone event.
ration target, regardless of the number of products directed to
only once per collaboa
In connection with the JDA, the Company received a one-time low seven-digit milestone payment upon the dosing of the second
patient in a clinical trial with the initial product candidate. Revenue was recognized for this milestone in the third quarter of 2019, the
point in time in which the milestone was both probable and achieved.
The Company is eligible to receive potential future payments of up to $825.0 million based upon the successful achievement of
specified research, development, regulatory and commercial milestones for the DMD and DM1 programs. As discussed above, the
first research milestone of $25.0 million was included in the transaction price. This amount is recorded as a contract asset within
prepaid expenses and other current assets on the condensed consolidated balance sheet. The Company is also eligible to receive tiered
royalties on future net sales on any products that may result from this collaboration; however, the Company has the option to forego
the DM1 milestones and royalties to co-develop and co-commercialize all DM1 products globally.
ned as of
With the exception of the first research milestone of $25.0 million, each of the remaining milestones are fully constrai
December 31, 2019. There is uncertainty that the events to obtain the research and developmental milestones will be achieved given
the nature of clinical development and the stage of the CRISPR/Cas9 technology. The remaining research, development and
regulatory milestones will be constrained until it is probable that a significant revenue reversal will not occur. Commercial milestones
and royalties relate predominantly to a license of intellectual property and are determined by sales or usage-based thresholds. The
commercial milestones and royalties are accounted for under the royalty recognition constraint and will be accounted for as
constrained variable consideration. The Company applies the royalty recognition constraint for each commercial milestone and will
not recognize revenue for each until the subsequent sale of a licensed product (achievement of each) occurs.
tt
Accounting Analysisii underdd ASC 808
In connection with the 2019 Agreements, the Company identified the following collaborative elements, which were unchanged
as those identified with the 2015 Agreements and are accounted for under ASC 808: (i) development and commercialization services
for shared products; (ii) R&D Servirr ces for follow-on products; and (iii) committee participation. The related impam ct of the cost sharing
associated with research and development is included in research and development expense. Expenses related to servirr ces perforff med
by the Company are classified as research and development expense. Payments received from Vertex for partial reimbursement of
expenses are recorded as a reduction of research and development expense.
F-25
During the years ended December 31, 2019, 2018 and 2017, the Company recognized $29.2 million, $20.2 million and $9.9
million of research and development expense related to the Vertex Agreements. Research and development expense for 2019, 2018
and 2017 is net of $15.9 million, $13.8 million and $0.0 million of reimbursements from Vertex, respectively.
Accounting Analysisii underdd ASC 730
In connection with the 2019 Vertex Agreements, the Company and Vertex agreed that one of the four remaining options under
the 2015 Agreements, as amended, would not be exercised; instead, the Company will conduct research and development activities for
a specified target. Vertex will have the option to co-develop and co-commercialize the specified target upon IND filing in exchange
for payment of 50% of research and development costs incurred by the Company from the effective
date of the agreement through
IND filing. If Vertex does not exercise its option to do so within a specified time period, Vertex is eligible to receive up to $395.0
million in potential specified research, development, regulatory and commercial milestones and tiered single-digit royalties on future
net sales.
ff
In connection therewith, the Company determined that in order for the Companym
to obtain the right to conduct research and
development activities on the specified target, the Company had waived its right to receive an option exercise payment of $10.0
million from Vertex, which was included as non-cash consideration in the transaction price described above. The Company then
subsequently reacquired its rights to the specified target by waiving payment owed by Vertex of $10.0 million for a license that
represents in-process research and development and therefore, $10.0 million of non-cash consideration was fully expensed upon the
execution of the 2019 Agreements. The Company also determined that research and development services through IND for the
specified target and any payment of future development and commercialization milestones, as well as sales-based milestones and
royalties for the specified target, would be accounted for as research and development costs under ASC 730 and expensed as incurred.
In addition, the Company also determined that should the Company elect its option to co-develop and co-commercialize all DM1
products globally, it will record the option fee as research and development expense upon exercise.
Joint Venture with Bayer Healthcare LLC
Summary
On December 19, 2015, the Company entered into an agreement with Bayer, to establa ish a joint venture to focus on the research
and the development of new therapeutics to cure blood disorders, blindness and congenital heart disease. On February 12, 2016, the
Company and Bayer complm eted the formation of the joint venturet
equity interest in the entity in exchange for their respective contributio
tt
separate service agreement with Casebia, under which the Company agreed to provide compensated research and development
services. Collectively, these agreements are referred to as the “2015 Casebia Agreements.”
entity, Casebia. Bayer and the Company each received a 50%
ns to the entity. At this time, the Company also entered into a
On December 13, 2019, the Company, Bayer and Casebia entered into a series of transactions by which, among other
t
things, the
Company acquirq
joint venturet
Option Agreement”). Collectively, these agreements are referred to as the “2019 Casebia Agreements.”
ed 100% of the partnership interests in Casebia (“Retirement Agreement”), the Compamm ny and Bayer terminated their
(“Joint Venture Termination Agreement”), and the Compam ny and Bayer entered into a new option agreement (the “2019
In connection with the Retirement Agreement, Casebia retired Bayer’s outstanding partnersh
tt
ip interests in exchange for up to
$22.0 million returned from Casebia operating cash less certain estimated interim operating expenses of $6.0 million, which is subject
to potential post-closing adjustments, and the Company acquired 100% of the partnership interests in Casebia.
In connection with entering into the Retirement Agreement, the Compam ny, Bayer and Casebia entered into the Joint Venture
Termination Agreement. In connection therewith, the Company and Bayer agreed to terminate the Joint Venture Agreement from
December 2015. Under the Joint Venture Termination Agreement, Casebia-owned patents will now be co-owned by the Company and
Bayer, subject to certain excl
Termination Agreement, the Company and Bayer
each retained rights to their respective contributed intellectual property.
usive licenses granted therein. Under the Joint Venturet
u
In connection with entering into the Retirement Agreement and the Joint Venturet
Termination Agreement, the Company and
Bayer also entered into the 2019 Option Agreement, under which, among other things, the Company committed to invest a specified
amount in certain research and development activities as described under “Accounting Analysis – Accounting for 2019 Casebia
Agreements”. In addition, Bayer has an option (exercisable during a specified exercise period defined by future events, but in no event
longer than 5 years after
diagnosis, treatmet
elects to co-develop and co-commercialize a product, the parties will negotiate and enter into a co-development and co-
commercialization agreement (a “Co-Commercialization Agreement”) for such product, and Bayer would be responsible for 50% of
the research and development costs incurred by the Company for such product going forward. Bayer would receive 50% of all profits
from sales of such product and would be responsible for 50% of all losses.
nt or prevention of certain autoimmune disorders, eye disorders, or hemophilia A disorders. In the event Bayer
date of the 2019 Option Agreement) to co-develop and co-commercialize two products for the
ff
the effective
ff
F-26
If Bayer elects to exercise its option to co-develop and co-commercialize a product, Bayer will make a one-time $20.0 million
that will become non-refundable once the parties execute a Co-Commercialization
payment (the “Option Payment”) to the Companym
Agreement with respect to such optioned product. The Option Payment is payable only once with respect to the first time Bayer
exercises an option under the 2019 Option Agreement.
In addition, following Bayer’s exercise of its option and/or the execution of a Co-Commercialization Agreement for an optioned
for a period beginning on the effecff
product,
d
month anniversary of such effecff
tive date or during the 90-day negotiation process of such Co-Commercialization Agreement, Bayer
has a right to negotiate an exclusive license to develop and commercialize such optioned product. If Bayer exercises such right, the
parties will enter into an exclusive license agreement for such optioned product on terms mutually agreeable to the parties. Furthet
Option Payment paid for such optioned product would become credited against payments due under such exclusive license or any
other exclusive license entered into in connection with the 2019 Option Agreement.
tive date of such Co-Commercialization Agreement and ending on the earlier of the 3
r, the
Either party may terminate the 2019 Option Agreement upon the other party’s material breach, subju ect to specified notice and
cure provisions. The Company may also terminate the 2019 Option Agreement in the event Bayer commences or participates in any
action or proceeding challenging the validity or enforceability of any Company patent necessary or useful for the research,
development, manufacture or commercialization of a product th
terminate the 2019 Option Agreement upon the Company’s bankruptcy or insolvency, or for convenience at any time, after giving
written notice.
at is the subjeb ct of the 2019 Option Agreement. Bayer may also
d
Accounting Analysis
Accounting for the 2015 Casebia Agreegg mentstt
The Company determined that Casebia was a VIE and concluded that the Compam ny was not the primary beneficiary of the VIE.
As such, the Company did not consolidate Casebia’s results into the consolidated financial statements. Instead, the Company
accounted for its ownership in Casebia as an equity method investment, the value of which was written down to zero immediately
after formation of the joint venturt e. The 2015 Casebia Agreements included components of a customer-vendor relationship as defined
under ASC 606 and collaborative arrangements as defined under ASC 808.
As discussed above, on January 1, 2018, the Company adopted ASC 606 using the modified retrospective approach. There was
no significff ant impact on revenue rec
mm
ognized under ASC 606 and thet
prior revenue recognition as a result of the adoption.
For the years ended December 31, 2019, 2018
ff
m
accordance with ASC 606 was the obligation to perform research
and development services for Casebia. Revenue recognized for
research and development was recognized under the right to invoice practical expedient in ASC 606-10-55-18. This performance
obligation was terminated upon the execution of the 2019 Casebia Agreements.
and 2017, the only element of 2015 Casebia Agreements accounted for in
m
For the years ended December 31, 2019, 2018
and 2017, the only element of the 2015 Casebia Agreements accounted for in
accordance with ASC 808 was the cost sharing activity with Casebia with respect to shared research and technology licenses with
other vendors for which the Company determi
arrangement. Therefore, the related impact of the cost sharing is included in R&D expense. Cost sharing activity ceased with the
execution of the 2019 Casebia Agreements.
rofit sharing arrangement and not a revenue
ned the arrangement was a cost/ptt
r
Loss from Equity Method Investment
During the years ended December 31, 2019, 2018 and 2017, the Company recognized $5.5 million, $4.3 million and $1.8
million, respectively, of stock-based compensation expense related to Casebia employm
ees. Unrecognized equity method losses in
excess of the Company’s equity investment in Casebia was $72.0 million and $45.3 million as of December 31, 2019 and 2018,
respectively. Total net loss of Casebia for the period ending December 13, 2019 (prior to the Company’s consolidation of Casebia)
and the years ended Decemberm 31, 2018 and 2017 was $58.8 million, $52.5 million and $36.2 million, respectively.
Collaboration Revenue
During the years ended December 31, 2019, 2018 and 2017, the Company recognized $0.5 million, $2.5 million and $4.8
million of revenue, respectively, related to the collaboration
19, 2018 and
2017, the Company recognized $0.7 million, $3.8 million and $4.5 million of research and development expense, respectively, in
relation to its performance under the agreement.
with Casebia. During the years ended December 31, 20
m
a
F-27
Collaborative elements
The Company received reimbum rsements of $0.2 million, $0.9 million and $4.4 million for both research and license agreements
during years ended December 31, 2019, 2018 and 2017, respectively, which was recorded as a reduction of R&D expense in the
income statement.
Accounting for the 2019 Casebia Agreementstt
The Company determined that the Retirement Agreement and Joint Venture Termination Agreement resulted in the Company
obtaining a controlling interest in Casebia and should be accounted for as a separate component from the 2019 Option Agreement. In
doing so, the Company allocated the consideration transferred
of $41.0 million (consisting of $16.0 million of assets acquired net of
below, and $25.0 million of cash allocated to the 2019 Option Agreement) between the
the purchase price, as displayed in the tablea
two components using a relative fair value approach. The Company determined the relative fair value related to obtaining a controlling
interest in Casebia was $32.0 million and the relative fair value of the consideration transferred related to the 2019 Option Agreement
was $25.0 million, which is comprised of $20.2 million related to certain research and development activities and $4.8 million related
to certain options as described above.
ff
As a result of the Retirement Agreement, the Company determined that it had obtained a controlling interest in a VIE, for which
it became the primary beneficiary. As such, under ASC 810, Consolidation, the Company accounted for the net assets obtained under
ASC 805, Business Combinations. In accordance therewith, the Company determined the set of acquired assets and assumed liabilities
did not meet the definition of a business, as the Company did not acquire an assemblm ed workforce and thus the Company did not
acquire substa
of producing outputs. As such, no goodwill was recorded. The Company measured the fair
value of the assets and liabilities received, determining the relative fair value was $16.0 million (after paying the $16.0 million for
Bayer’s 50% interest) and recorded the difference between that amount and the Company’s carrying amount, which was zero, as a
income (expense). The relative fair value of the assets and liabilities received (exclusive of the $16.0 million paid
gain within other
from Casebia to Bayer to retire Bayer’s interest in the JV) was determined as follows (in thousands):
ntive processes capaa blea
u
t
t
Fair value
Cash and cash equivalents
Prepaid expenses and other current assets
Property, plant and equipment, net
Operating lease assets
Restricted cash
Accrued expenses and other current liabilities
Operating lease liabilities
Net assets
Amount
6,784
2,565
9,340
11,003
1,226
(3,915)
(11,003)
16,000
$
$
The value of the reacquired rights related to the intellectual property was determined to be insignificant.
The Company determined that the 2019 Option Agreement should be accounted for under ASC 730-20, Research and
x
. This determination was based on the fact that the financial risk associated with the research and development
Development Expense
has been transferred to the Company because repayment of any of the funds provided by Bayer depends solely on the results of the
research and development having a future economic benefit. The Company further de
termined that it had two separate obligations
under the 2019 Option Agreements, which consist of i) research and development services and ii) future delivery of up to two options
for products in defined fieldff
respectively. As the Company has accounted for its obligations as a contract to perform research
respect to the obligation to perform research and de
development expense as the research is performed and, with respect to the future delivery of up to two option for products in defined
fields, at the earlier of option exercise (at or near IND application filing), expiration, or when commercially reasonable efforts to
progress the program have been exhausted.
s. The relative fair value of the obligations was determined to be $20.2 million and $4.8 million,
velopment services the Company will recognize an offset to research and
and development for others, with
ff
ff
t
The Company has recorded $11.0 million in other current liabilities relating to certain research and development obligations to
be satisfied within one year of the balance sheet date and $14.0 million in other long-term liabia lities consisting of the relative fair
value of such obligations to be satisfied beyond one year from the balance sheet date as well as the relative fair value of the options.
Further, the Company det
ermined that Casebia was not significant in accordance with Regulation S-X Rule 3-05 and 3-09.
m
F-28
tt
Collaborat
ion Agreement wi
thi ViaCyte, Inc.
ll
On Septemberm 17, 2018, the Company entered into a research collaboration agreement (“ViaCyte Collaboration Agreement”)
with ViaCyte, Inc. (“ViaCyte”) focused on the discovery, development, and commercialization of gene-edited allogeneic stem cell
therapies for the treatment of diabetes. Under the terms of the ViaCyte Collaboration Agreement, the Company and ViaCyte will
jointly seek to develop an immune-evasive stem cell line as a first step on the path to an allogeneic stem-cell derived producd t. Upon
successful completion of these studies and identification of a product candidate, the parties will jointly assume responsibility forff
further development and commercialization worldwide.
Upon execution of the agreement, ViaCyte was entitled to receive $15.0 million from the Company payable in two installments
either in cash or in common shares at the Company’s option. The agreement includes certain provisions such that in the event ViaCyte
sold shares received from the Company for less than $15.0 million in combined net proceeds, the Company would owe ViaCyte the
deficient amount. In the event ViaCyte sold shares received from the Company for greater than $15.0 million in combined net
proceeds, ViaCyte would owe the Company the surplus amount. On September 24, 20
shares to ViaCyte which had a fair value of $7.5 million. These shares were subsequently sold for $6.9 million, resulting in a deficient
amount of $0.6 million. On Novemberm 15, 2018, the Company issued 214,512 common shares to ViaCyte, which had a fair value of
ly sold for $7.5 million, resulting in a deficient amount of $0.6 million, which was paid in
$8.1 million. These shares were subsequent
cash on December 18, 2018. Of the total consideration paid of $16.2 million, the Company recognized $15.0 million within researcha
and development expense and $1.2 million within other
(expense) income in the statement of operations for the twelve months ended
December 31, 2018.
18, the Company issued 165,636 common
m
u
t
At the time of the agreement, ViaCyte had the option, under certain conditions, to receive an additional $10.0 million from the
Company in the form of a convertible promissory note to be issued at fair value. As of Novemberm 2018, these conditions expired and
the Company is no longer required to provide ViaCyte with additional funding. The ViaCyte Collabora
tion Agreement may remain in
force for up to six years. Under the agreement, each of the parties are obligated to use commercially reasonable effoff
certain research activities under a jointly developed research plan. Each party bears the costs for its respective research obligations.
rts to perform
a
8. Share Capital
The Company had 103.9 million and 90.3 million authorized Common Shares as of December 31, 20
m
19 and 2018, respectively,
with a par value of CHF 0.03 per share. Share Capia tal consisted of the following (in thousands):
Type of Share Capital
Common shares
Common shares
Common shares
Common shares
Conditional Capital
Registered share capital
Authot
rized share capia tal
Conditional share capital - Bonds or similar debt
instrumr
Conditional share capia tal - Employee benefitff plans
ents
Total
As of December 31,
2018
2019
52,268
61,037
17,577
19,246
4,920
18,698
103,901
4,920
15,579
90,344
Included in registered share capia tal are 1,230,729 shares registered, which are held by the Company and its subsidia
u
ries and are
reservedrr
for future issuance for financings.
Common Share Issuances
In October 2016, the Company sold 4.4 million common shares through an initial public offeri
ng (inclusive of shares sold
pursuant to an overallotment option granted to the underwriters in connection with the offering) at a price of $14.00 per share for
proceeds of $53.7 million, which were net of equiq ty issuance costs of $8.3 million. Concurrent with the initial public offering, the
Company sold 2.5 million common shares to Bayer BV in a private placement, at a price of $14.00 per share, resulting in aggregate
net proceeds of $35.0 million.
ff
In January 2018, the Company sold 5.7 million common shares through an underwritten public offering (inclusive of shares sold
pursuant to an overallotment option granted to the underwriters in connection with the offering) at a price of $22.75 per share for
proceeds of $122.6 million, which were net of equity issuance costs of $8.2 million.
In Septemberm 2018, the Comp yany sold 4.2 million common shares thr gough an underwritten public offeri
ff
gng at a pprice of $47.50
per share
per sha
for proceeds of $184.5 mi
p
llion which were net of equity issuance costs of $15.5 million.
,
F-29
In the first quarter of 2019, the Company began to sell securities under an Open Market Sale AgreementSM it entered into with
me to time,
es LLC (“Jefferi
Jefferi
ff
common shares having aggregate gross proceeds of up to $125.0 million. During year ended December 31, 2019, the Company issued
and sold an aggregate of 2.8 million common shares at an average price of $44.38 per share for aggregate proceeds of $120.6 million,
which were net of equity issuance costs of $4.4 million.
es”) in August 2018 (“2018 ATM”), under which the Company was able to offer and sell, from ti
ff
ff
In November 2019, the Company sold 4.9 million common shares through an underwritten public offering (inclusive of shares
sold pursuant to the exercise of the option to purchase additional shares granted to the underwriters in connection with the offering) at
a price of $64.50 per share for proceeds of $294.4 million, which were net of equity issuance costs of $20.7 million.
In addition, in August 2019, following the termination of the 2018 ATM by its terms, the Company entered into a new Open
Market Sale AgreementSM with Jefferies (the “2019 ATM”), under which the Company may offer
common shares having aggregate gross proceeds of up to $200.0 million. The Company has not yet issued or sold any securities under
the 2019 ATM.
and sell, from time to time,
ff
The Common Shares have the following characteristics:
Votingn Rights
The holders of Common Shares are entitled to one vote for each Common Share held at all meetings of shareholders.
Dividends
The holders of Common Shares are entitled to receive dividends, if and when resolved upon by the general meeting of
shareholders based on a respective proposal by the Board of Directors and provided that the Company disposes of sufficient freely
distributable reserves. As of December 31, 2019, no dividends have been declared or paid since the Company’s inception.
ii
Liquidation
The holders of the Common Shares are entitled to share ratablya
in the Company’s assets available for distribution to
shareholders in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or upon the
occurrence of a deemed liquidation event.
9. Equity-based Compensation
Optiott n and Grant Plans
In April 2015, the Company’s shareholders approved the 2015 Stock Option and Grant Plan (the “2015 Plan”) and in July 2016,
t
the Company’s shareholders approved the 2016 Stock Option and Incentive Plan (the “2016 Plan”). In May 2018, the Company’s
shareholders approved the 2018 Stock Option and Incentive Plan (the “2018 Plan,” collectively, the “Plans”). Subsequent to
no further
options were 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-statutory stock options
(“NSOs”), unrestricted stock unit grants, and qualified performance and market-based awards to eligible employm
q
directors, non-employee consultants and other
determined by the Company’s Board of Directors, subjeb ct to the provisions of the Plans. Options granted by the Company typically
vest over four years and have a contractual life of ten years.
key personnel. Terms of the equity awards, including vesting require
ees, officers,
ff
ments, are
u
t
the IPO,
Equity-Based Compensation Exp
tt
ense
The Company recognized stock-based compensation expense totaling $49.5 million, $39.3 million, and $20.6 million during the
years ended December 31, 2019, 2018 and 2017, respectively. Stock‑based compensation expense by classification within the
consolidated statements of operations and comprehensive income (loss) is as follows (in thousands):
Research and development
General and administrative
Loss from equity method investment
Total
Years Ended December 31,
2018
2017
2019
$
$
23,273
20,784
5,467
49,524
$
$
17,557
17,428
4,275
39,260
$
$
8,800
10,073
1,763
20,636
F-30
As of December 31, 2019, there was $96.2 million and $31.9 million of unrecognized compensation expense related to unvested
stock options and restritt cted stock units, respectively, that is expected to be recognized over a weighted-average period of 2.8 and 2.3
years, respectively.
Stock Options
The fair value of each option issued to employees and non-emplm oyees was estimated at the date of grant using the Black-Scholes
option pricing model with the following weighted-average assumptiom ns:
Options granted
Weighted-average exercise price
Weighted-average grant date fair value
Assumptions:
Expected volatility
Expected term (in years)
Risk-free interest rate
Expected dividend yyield
Years Ended December 31,
2019
2,832,784
39.16
24.57
$
$
2018
2,209,597
51.73
33.82
$
$
2017
2,999,847
16.98
11.16
$
$
68.9%
6.0
2.2%
0.0%
71.9%
6.0
2.8%
0.0%
72.5%
6.1
2.0%
0.0%
The following table summarizes stock option activity under the Company’s equiq ty award plans (intrins
tt
ic value in thousands):
Outstanding at December 31, 2018
Granted
Exercised
Cancelled or forfeiff
ted
ding at December 31, 2019
Exercisable at December 31, 2019
Vested and expected to vest at
December 31, 2019
Weighted-
Average
Exercise Price
Weighted-
Average
Remaining
Contractual
Term (years)
Aggregate
Intrinsic
Value
25.42
39.16
14.91
35.35
31.30
24.07
31.30
8.3
$
68,572
8.2
7.4
8.2
$
$
231,554
122,774
231,554
Shares
$
6,689,311
2,832,784
$
(1,180,644) $
(559,014) $
$
7,782,437
$
3,328,398
7,782,437
$
During 2019 and 2018, the Company did not grant awards subjeb ct to performance-based or market-based vesting conditions. As
ct to perforff mance-based vesting conditions were vested, as
of December 31, 2019, options to purchase 883,695 Common Shares subjeu
performance conditions were achieved, and there were 261,888 options to purchase Common Shares subject
vesting conditions outstanding.
to performance-based
u
During 2017, the Company granted 150,000 options with market-based vesting conditions, of which 75% vest at the end of a
three-year service period and 25% vest at the end of a four-year service
years, the market condition was satisfied. Expense for the options is being recognized over the requisite service period. As of
December 31, 2019, none of the stock options had vested.
period. Upon achieving a specified average stock price in prior
rr
The total intrinsic value (the amount by which the fair market value exceeded the exercise price) of stock options exercised
during the year ended December 31, 2019, 2018 and 2017 was $42.2 million, $38.3 million and $12.3 million, respectively.
F-31
Restricted Stock
The following table summarizes the restricted stock activity under the Compam ny’s equity award plans (shares in thousands):
Unvested restricted common shares at
December 31, 2018
Granted
Vested
Cancelled or forfeiff
ted
Unvested restricted common shares at
December 31, 2019
Shares
$
327,342
503,600
(86,758)
(44,650)
699,534
$
Weighted-
Average
Grant Date
Fair Value
36.72
62.11
20.38
44.50
56.53
During the years ended December 31, 2019, 2018 and 2017, the total fair value of restricted stock vested was $3.6 million,
$11.3 million and $8.3 million, respectively.
Award modifications
During the years ended December 31, 2019, 2018 and 2017, the Company modified the terms of certain equity awards held by
departing employm
ees, resulting in $0.1 million, $3.8 million, and $2.2 million of stock-based compensation expense, respectively.
During the year ended December 31, 2019, the Company modified the terms of certain equity awards held by non-employees. The
modifications resulted in $2.9 million in stock-based compensation expense recorded during the period. For the year ended December
31, 2018 and 2017, there were no modification of options held by non-employees.
F-32
10. Net Income (Loss) Per Share Attributable to Common Shareholders
Basic net loss per share is calculated by dividing net 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 attributable to
common shareholders by the weighted-average number of common share equivalents outstanding for the period, including any
dilutive effect
from outstanding stock options and warrants using the treasury stock method.
ff
The following table sets forth the computation of basic and diluted net income (loss) per share for the periods ended (in
thousands, except per share amounts):
Year ended December 31,
2018
2017
2019
Basic net income (loss) per common share calculation:
Net income (loss) attributable to common
shareholders
Net income (loss) attributable to common
shareholders - basic
$
$
66,858
66,858
Basic weighted-average common shares outstanding
Basic net income (loss) per common share
54,392,304
1.23
$
Diluted net income (loss) per common share
calculation:
Net income (loss) attributable to common
shareholders
Net income (loss) attributable to common
shareholders - diluted
$
$
66,858
66,858
$
$
$
$
$
(164,981) $
(68,357)
(164,981) $
(68,357)
47,964,368
(3.44) $
40,057,365
(1.71)
(164,981) $
(68,357)
(164,981) $
(68,357)
Weighted-average shares used to compute basic net
income (loss) per common share
Effect of potentially dilutive securities:
Outstanding options
Unvested restricted common shares
Weighted-average shares used to computem
diluted net
income (loss) per common share
Diluted net income (loss) per common share
54,392,304
47,964,368
40,057,365
2,406,962
133,532
——
——
——
——
56,932,798
1.17
$
47,964,368
$
(3.44) $
40,057,365
(1.71)
The Company did not include the securities in the following table in the computation of the net income (loss) per share
calculations because the effect would have been anti-dilutive during each period:
Outstanding options
Unvested restricted common shares
Total
11. 401(k) Savings Plan
Year ended December 31,
2018
2019
3,789,129
108,625
3,897,754
6,689,311
327,342
7,016,653
2017
6,262,339
157,515
6,419,854
The Company established a defined-contribution savings plan under Section 401(k) of the Internal Revenue Code (the “401(k)
Plan”) in November 2016. The 401(k) Plan covers all employees who meet defined minimumm age and service requirements and allows
participants to defer a portion of their annual compenmm sation on a pretax basis. The Company contributed $1.1 million, $0.6 million and
$0.5 million to the 401(k) Plan for the year ended December 31, 2019, 2018 and 2017, respectively.
F-33
12. 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
foreign parent and where foreign subsidiaries have been established.
Net loss before ta
xeaa see
e
For the years ended December 31, 2019, 2018 and 2017, the income (loss) before provision for income taxes consist of the
following (in thousands):
Years Ended December 31,
2018
2017
2019
Domestic
Foreign
Total
$
$
9,155
58,151
67,306
The (provision for) benefitff
from income taxes consist of the following (in thousands):
$
$
5,966
(170,394)
$ (164,428) $
5,184
(71,792)
(66,608)
Current income taxes:
Federal
State
Foreign
Total current income taxes
Deferred income taxes:
Federal
State
Foreign
Total deferredr
income taxes
Total income tax provision
Years Ended December 31,
2018
2017
2019
$
$
(423) $
(59)
——
(482)
34
——
——
34
(448) $
(416) $
(131)
0
(547)
(6)
——
——
(6)
(553) $
(1,533)
(42)
6
(1,569)
(477)
297
——
(180)
(1,749)
A reconciliation of income tax expense computed at the statutory
t
the years ended December 31, 2019, 2018 and 2017 is as follows:
corporate income tax rate to the effective income tax rate for
Income tax expense at statutory rate
State income tax, net of federal benefit
Nondeductible expenses
Foreign rate differential
Statutory to US GAAP permanent differff ences
Stock-based compensation
Impact of deferred rate change
Research credits
Change in valuation allowance
Effective income tax rate
Years Ended December 31,
2018
2017
2019
9.3%
(2.1)%
(0.1)%
2.0%
0.1%
(2.0%)
(12.2%)
(5.2)%
10.9%
0.7%
9.3%
0.7%
0.0%
(0.4%)
1.0%
1.4%
0.0%
1.8%
(14.1%)
(0.3%)
9.3%
0.3%
0.0%
(2.5%)
1.8%
(2.9%)
0.0%
0.8%
(9.4%)
(2.6%)
The federal statutt ory rate reflects the Switzerland mixed compamm ny service rate.
F-34
Deferred taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement and
income tax purposes. The significant components of the Company’s deferred tax assets are co
ff
mprised of the following (in thousands):
a
Deferred tax assets:
Net operating loss carryforwards
Accruals and reserves
Operating lease liabilities
Deferred Rent
Other deferred tax assets
Stock-based compensation
Deferred revenue
Research credit
Total deferred tax assets
Less valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Depreciation
Operating lease assets
Intangible assets
Other deferred tax liabilities
Total deferred tax liabilities
gLong term deferff
red taxes
Years Ended December 31,
2019
2018
$
$
31,496
2,868
14,214
——
28
5,217
(20)
7,150
60,953
(45,913)
15,040
(3,901)
(11,068)
(40)
(20)
(15,029)
11
$
$
25,418
1,816
——
3,300
51
2,871
3,264
3,322
40,042
(36,208)
3,834
(3,785)
——
(49)
(22)
(3,856)
(22)
The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Based on
the Company’s history of worldwide operating losses, the Company has concluded that it is more-likely-than-not that the benefit of its
U.S. and non-U.S. deferred tax assets will not be realized. Accordingly, as of December 31, 2019 and 2018, the Company has
provided a full valuation allowance against its net deferred tax assets in Switzerland, the United States and the UK for its TRACR
RR
subsidiary. The valuation allowance increased by $9.7 million during 2019, which is primarily attributable to increases in the tax rates
in Switzerland as a result of tax reform beginning January 1, 2020, partially offsff et by 2019 taxable income.
As of December 31, 2019, the Company had available non-U.S. net operating loss carryforwards of $526.1 million of which
$262.3 million relate to Switzerland, $262.3 million relate to the Canton of Zug, and $1.5 million relate to the Company’s wholly-
owned subsidiary in the United Kingdom. The net operating losses generated in Switzerland and the Canton of Zug begin to expire in
2022 and the net operating losses generated in the United Kingdom can be carried forward indefinitely.
rr
As of December 31, 2019, the Company had U.S. domestic federal research and development credit carryforw
rr
ards of $4.4
million which expire in 2039 for federal purposes, which are net of uncertain tax positions of $3.0 million. As of December 31, 20
the Compamm ny had U.S. domestic state research and development credit carryforwards of $3.4 million which begin to expire in 2034,
which are net of uncertain tax positions of $2.2 million.
m
19,
ASC 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statement by
prescribing the minimumm recognition threshold and measurement of a tax position taken or expected to be taken in a tax return.
As of December 31, 2019, the Company had gross unrecognized tax benefits of $5.2 million of which $4.8 million would
ive tax rate if recognized. The Compamm ny will recognize interest and penalties related to uncertain tax
favorably impactm
positions in income tax expense. As of December 31, 20
to uncertain tax positions and no amounts have been recognized in the Company’s consolidated statements of operations and
comprm ehensive loss.
19, 2018 and 2017, the Company had no accrued interest or penalties related
ff
the effect
m
F-35
The aggregate changes in gross unrecognized tax benefits was as follows (in thousands):
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 yyear
Years Ended December 31,
2018
2017
2019
$
$
1,595
2,754
882
——
——
5,231
$
$
354
1,212
29
——
——
1,595
$
$
163
178
13
——
——
354
The Company files income tax returns 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 tax years ending after
December 31, 2015. Research credits generated in prior tax years that are closed for examination may still be adjusted upon future
examination if they have or will be used in a future period. The Company is subjeb ct to income tax examinations by authorities in its
non-U.S. jurisdictions for all years.
ff
13. Selected Quarterly Financial Data (Unaudited)
The following table sets forth the Compamm ny’s quarterly financial data for the two years ended December 31, 2019.
ration revenue
Collaboa
Total operating expenses
(Loss) income from operations
Net (loss) income
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
ration revenue
Collaboa
Total operating expenses
Loss from operations
Net loss
Net loss per share attributable to common shareholders:
Basic
Diluted
Weighted-average common shares outstanding used in net loss
per share attributable to common shareholders:
Basic
Diluted
$
$
$
$
$
$
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2019
$
328
48,751
(48,423)
(48,408)
$
318
55,301
(54,983)
(53,699)
211,928
72,765
139,163
138,423
(0.93) $
(0.93) $
(1.01)
(1.01) $
2.52
2.40
$
$
$
$
$
$
77,016
66,033
10,983
30,542
0.53
0.51
52,093,208
52,093,208
53,188,041
53,188,041
54,829,057
57,598,901
57,395,839
60,233,927
2018
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
1,358
28,355
(26,997)
(28,300)
$
1,088
38,374
(37,286)
(38,380)
563
$
$
49,995
(49,432) $
(50,711) $
115
45,343
(45,228)
(47,590)
(0.62) $
(0.62) $
(0.82) $
(0.82) $
(1.07) $
(1.07) $
(0.92)
(0.92)
45,877,428
45,877,428
46,842,316
46,842,316
47,391,988
47,391,988
51,688,383
51,688,383
F-36
14. Related Party Transactions
Casebia
Prior to the termin
ation of the joint venture, Casebia was a related party under ASC 850, Related Party Disclo
“
re with Bayer Healthcare LLC.”
850”). Refer to Note 7, “Joint Ventu
r
tt
sures (“ASC
Vertex
In the fourth quarter of 2018, upon becoming owners of record of more than 10% of the voting interest of the Company, Vertex
became a related party under ASC 850. As of July 2, 2019, upon becoming owners of record of less than 10% of the voting interest of
the Company, Vertex was no longer a related party under ASC 850. Refer to Note 7, “Agreements with Vertex Pha
rr
Incorporat
ed and certain of its subsidiaries.”
rmaceuticals
“
F-37
BOARD OF DIRECTORS
EXECUTIVE COMMITTEE
CORPORATE HEADQUARTERS
Dr. Samarth Kulkarni
karn
cuti
Chief Executive Officer
Dr. Rodger Novakvak
Founder & President
Dr. Tony Ho
Executive Vice President and
Head of Research and Development
James R. Kasinger
General Counsel
Dr. Lawrence Klein
ffice
Chief Operating Officer
Michael Tomsicekk
Chief Financial Officerc
Baarerstrasse 14
300 Z
6300 Zug
S
Switzerland
US OFFICES
610 Main Street
Cambridge, MA 02139
455 Mission Bay Boulevard South
Mission
San Francisco, CA
San Francisco, CA 94158
UK OFFICES
ou
85 Tottenham Court Road
London
W1T 4QTQT
Chairman, Founder & President
Dr. Samarth Kulkarni
Chief Executive Officer
Dr. Ali Behbahani
General Partner, New Enterprise
Associates
Dr. Bradley Bolzon
Managing Director, Versant Ventures
Dr. Simeon J. George
Chief Executive Officer and President,
S.R. One
John T. Greene
Executive Vice President and Chief
Financial Officer, Discover Financial
Services
Dr. Katherine A. High
Former Co-founder, President and
Head of Research & Development,
Spark Therapeutics
TRANSFER AGENT AND REGISTRAR
INDEPENDENT AUDITORS
LEGAL COUNSEL
American Stock Transfer & Trust
Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
Phone: +1.800.937.5449
www.amstock.com
ANNUAL GENERAL MEETING
Ernst & Young Ltd.
Basel, Switzerland
Boston, MA
der W
Walder Wyss AG
Z
Zurich, Switzerland
itze
Goodwin Procter, LLP
odwi
Boston, MAMA
The Annual General Meeting of Shareholders will be June 11, 2020 at 8:00 A.M. CET at the offices of Walder Wyss Ltd.,
Seefeldstrasse 123, 8008 Zurich, Switzerland. Please read the “Important Notice Regarding COVID-19 (Coronavirus) in
Switzerland” on page 6 of the Notice of Invitation to 2020 Annual General Meeting of Shareholders.
aviru
INVESTOR INFORMATION
Copies of our annual reports on Form 10-K, proxy statements, quarterly reports on Form 10-Q, and current reports on Form 8-K
are available to shareholders upon request without charge. Please visit our website at www.crisprtx.com, send requests by e-mail
to ir@crisprtx.com or send a written request to:
CRISPR Therapeutics, Inc., 610 Main Street, Cambridge, MA 02139, ATTN: Investor Relations
STOCK INFORMATION
Our common shares are traded on the Nasdaq Global Market under the symbol “CRSP”.
FORWARD LOOKING STATEMENTS
This annual report contains “forward-looking statements” which are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995, as amended. The forward-looking statements in this annual report do not constitute
guarantees of future performance. Investors are cautioned that statements in this annual report that are not strictly historical
statements, including, but not limited to, statements concerning: the status of clinical trials, including the safety, efficacy and
clinical progress of our product candidates; the therapeutic value, development, and commercial potential of CRISPR/Cas-9 gene
editing technologies; the integration of Casebia Therapeutics and the expected benefits of our collaborations; and therapies
and the intellectual property protection of our technology and therapies. You are cautioned that forward-looking statements are
inherently uncertain. Such forward-looking statements are subject to a number of risks and uncertainties that could cause actual
results to differ materially from those anticipated, including, without limitation, the risks identified in our annual report on Form
10-K and our other filings with the Securities and Exchange Commission. We assume no obligation to update any forward-looking
information contained in this annual report.
CRISPR Therapeutics AG
Baarerstrasse 14
6300 Zug
Switzerland
www.crisprtx.com