SS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission file number:
(Exact name of Registrant as specified in its charter)
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Not Applicable |
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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Not Applicable |
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(Address of principal executive offices) |
(zip code) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Trading Symbol |
Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large Accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES
As of April 24, 2020, there were
Throughout this Quarterly Report on Form 10-Q, the “Company,” “CRISPR,” “CRISPR Therapeutics,” “we,” “us,” and “our,” except where the context requires otherwise, refer to CRISPR Therapeutics AG and its consolidated subsidiaries.
“CRISPR Therapeutics” is a registered trademark of CRISPR Therapeutics AG. The trademarks for “CTX001 TM ,” “CTX110 TM ,” “CTX120 TM ,” and “CTX130 TM ” are pending in the United States and the trademark for “CRISPR Therapeutics” is pending in the European Union, Switzerland and the United Kingdom. Other brands, logos, names and trademarks contained in this Quarterly Report on Form 10-Q are the property of their respective owners. Solely for convenience, trademarks, service marks and trade names referred to in this Quarterly Report on Form 10-Q may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights to these trademarks, service marks and trade names.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q 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 words. Forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
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potential impacts due to the coronavirus pandemic such as delays, interruptions or other adverse effects to clinical trials, delays in regulatory review, manufacturing and supply chain interruptions, adverse effects on healthcare systems and disruption of the global economy, and the overall impact of the coronavirus pandemic on our business, financial condition and results of operations; |
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the safety, efficacy and clinical progress of our various clinical programs including those for CTX001 TM , CTX110 TM , CTX120 TM and CTX130 TM ; |
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the status of clinical trials, development timelines and discussions with regulatory authorities related to product candidates under development by us and our collaborators; |
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the initiation, timing, progress and results of our preclinical studies and clinical trials, including our ongoing clinical trials and any planned clinical trials for CTX001, CTX110, CTX120 and CTX130, and our research and development programs, including delays or disruptions in clinical trials, non-clinical experiments and investigational new drug application-enabling studies; |
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our ability to advance product candidates into, and successfully complete, clinical trials; |
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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; |
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our ability to obtain funding for our operations and the sufficiency of our cash resources; and |
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the therapeutic value, development, and commercial potential of CRISPR/Cas9 gene-editing technologies and therapies. |
Any forward-looking statements in this Quarterly Report on Form 10-Q 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 implied by the forward-looking statements. Factors that could cause 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 II, Item 1A of this Quarterly Report on Form 10-Q, if any, our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on February 12, 2020, and in other SEC filings. You should not rely upon forward-looking statements as predictions of future events. Such forward-looking statements speak only as of the date of this report. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make or enter into.
You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results, performance or achievements may be materially different from what we expect. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.
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, public conference 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 that the information we post on social media could be deemed to be material information. Therefore, we encourage investors, the media, and others interested in our company to review the information we post on the social media channels listed on our investor relations website.
Index
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
CRISPR Therapeutics AG
Condensed Consolidated Balance Sheets
(unaudited, in thousands, except share and per share data)
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As of |
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March 31, |
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December 31, |
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2020 |
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2019 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Intangible assets, net |
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Restricted cash |
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Operating lease assets |
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Other non-current assets |
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Total assets |
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$ |
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$ |
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Liabilities and shareholders’ equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses |
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Deferred revenue, current |
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Accrued tax liabilities |
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Operating lease liabilities |
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Other current liabilities |
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Total current liabilities |
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Deferred revenue, non-current |
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Operating lease liabilities, net of current portion |
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Other non-current liabilities |
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Total liabilities |
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Commitments and contingencies, see Note 4 |
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Shareholders’ equity: |
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Common shares, CHF
March 31, 2020 and December 31, 2019, respectively,
issued at March 31, 2020 and December 31, 2019, respectively
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Treasury shares, at cost,
2019, respectively. |
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(
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(
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Additional paid-in capital |
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Accumulated deficit |
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(
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(
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Accumulated other comprehensive (loss) income |
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(
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Total shareholders' equity |
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Total liabilities and shareholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
CRISPR Therapeutics AG
Condensed Consolidated Statements of Operations and Comprehensive Loss
(unaudited, in thousands, except share and per share data)
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Three Months Ended |
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March 31, |
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2020 |
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2019 |
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Collaboration revenue (1) |
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$ |
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$ |
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Operating expenses: |
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Research and development (2) |
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General and administrative |
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Total operating expenses |
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Loss from operations |
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(
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(
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Other income (expense): |
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Loss from equity method investment |
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- |
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(
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Other income, net |
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Total other income, net |
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Net loss before income taxes |
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(
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(
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Provision for income taxes |
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(
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(
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Net loss |
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(
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(
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Foreign currency translation adjustment |
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(
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Comprehensive loss |
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$ |
(
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$ |
(
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Net loss per share attributable to common shareholders—basic and diluted |
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$ |
(
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$ |
(
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Weighted-average common shares outstanding used in net loss per share attributable to common shareholders—basic and diluted |
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(1)
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$ |
— |
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$ |
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(2)
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$ |
— |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
CRISPR Therapeutics AG
Consolidated Statements of Shareholders’ Equity
(In thousands, except share and per share data)
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Common Shares |
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Treasury Shares |
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Shares |
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CHF
Par Value |
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Shares |
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Amount, at cost |
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Additional Paid-in Capital |
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Accumulated Deficit |
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Accumulated Other Comprehensive Income (Loss) |
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Total Shareholders’ Equity |
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Balance at December 31, 2018 |
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(
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(
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(
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Issuance of common shares, net of issuance costs of $
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— |
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— |
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— |
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— |
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— |
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Vesting of restricted shares |
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— |
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— |
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— |
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— |
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— |
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Exercise of vested options |
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— |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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— |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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(
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— |
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(
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Balance at March 31, 2019 |
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$ |
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$ |
(
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$ |
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$ |
(
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$ |
- |
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$ |
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Balance at December 31, 2019 |
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(
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(
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Vesting of restricted shares |
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— |
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— |
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— |
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— |
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— |
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— |
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- |
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Exercise of vested options |
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— |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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— |
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Issuance of common shares related to license agreement |
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— |
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(
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— |
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— |
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— |
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Other comprehensive loss |
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— |
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— |
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— |
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— |
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— |
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— |
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(
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(
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Net loss |
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— |
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— |
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— |
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— |
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— |
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(
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— |
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(
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Balance at March 31, 2020 |
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$ |
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$ |
(
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$ |
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$ |
(
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$ |
(
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
CRISPR Therapeutics AG
Condensed Consolidated Statements of Cash Flows
(unaudited, in thousands)
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Three Months Ended March 31, |
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2020 |
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2019 |
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Operating activities: |
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Net loss |
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$ |
(
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$ |
(
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Reconciliation of net loss to net cash used in operating activities: |
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Depreciation and amortization |
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Equity-based compensation |
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Loss from equity method investment |
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- |
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Other expense, non-cash |
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- |
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Changes in: |
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Accounts receivable |
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(
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(
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Prepaid expenses and other assets |
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(
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Accounts payable and accrued expenses |
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(
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) |
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(
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Deferred revenue |
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(
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(
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Operating lease assets and liabilities |
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— |
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Other liabilities, net |
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(
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(
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Net cash used in operating activities |
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(
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(
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Investing activities: |
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Purchase of property and equipment |
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(
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(
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Net cash used in investing activities |
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(
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(
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Financing activities: |
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Proceeds from issuance of common shares, net of issuance costs |
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- |
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Proceeds from exercise of options, net of issuance costs |
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Net cash provided by financing activities |
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Effect of exchange rate changes on cash |
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(
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Decrease in cash |
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(
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(
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Cash, cash equivalents and restricted cash, beginning of period |
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Cash, cash equivalents and restricted cash, end of period |
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$ |
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$ |
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Supplemental disclosure of non-cash investing and financing activities |
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Property and equipment purchases in accounts payable and accrued expenses |
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$ |
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$ |
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Equity issuance costs in accounts payable and accrued expenses |
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$ |
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$ |
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As of March 31, |
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Reconciliation to amounts within the condensed consolidated balance sheets |
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2020 |
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2019 |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Cash, cash equivalents and restricted cash at end of period |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
C RISPR Therapeutics AG
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements are unaudited and have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America, or GAAP.
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.
Prior to December 13, 2019, the Company accounted for its
The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year. These interim financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2019, which are contained in the 2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission, or the SEC, on February 12, 2020.
Use of Estimates
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, equity-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. Changes in estimates are reflected in reported results in the period in which they become known.
Significant Accounting Policies
The significant accounting policies used in preparation of these condensed consolidated financial statements for the three months ended March 31, 2020 are consistent with those discussed in Note 2 to the consolidated financial statements in the Company’s 2019 Annual Report on Form 10-K filed with the SEC on February 12, 2020, except with respect to the Company’s policy on credit losses noted within the “Recently adopted accounting standards” section below.
Recently Adopted Accounting Standards
Credit Losses
On January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Statements , or ASC 326. 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 available-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 Instruments-Overall , applied on an instrument-by-instrument basis for eligible instruments. The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost. The adoption of ASU 2016-13 did not have a material impact on the Company’s financial position or results of operations upon adoption.
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2. Property and Equipment, net
Property and equipment, net, consists of the following (in thousands):
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As of |
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March 31, |
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December 31, |
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2020 |
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2019 |
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Computer equipment |
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$ |
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$ |
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Furniture, fixtures and other |
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Laboratory equipment |
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Leasehold improvements |
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Construction work in process |
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Total property and equipment, gross |
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Accumulated depreciation |
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(
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) |
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(
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) |
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Total property and equipment, net |
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$ |
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$ |
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Depreciation expense for the three months ended March 31, 2020 and 2019 was $
3. Accrued Expenses
Accrued expenses consist of the following (in thousands):
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As of |
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March 31, |
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December 31, |
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2020 |
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2019 |
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Payroll and employee-related costs |
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$ |
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$ |
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Research costs |
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Licensing fees |
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— |
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Professional fees |
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Intellectual property costs |
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Accrued property and equipment |
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Other |
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Total |
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$ |
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$ |
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4. Commitments and Contingencies
Future Lease Commitments
The Company has entered into certain leasing commitments, for which, right of use assets and right of use liabilities are not reflected on the consolidated balance sheet as the leases have not yet commenced.
In November 2019, the Company, together with one of its partners, committed to making payments to a clinical manufacturing organization under a lease arrangement. The lease arrangement is expected to commence in the second half of 2020, at which time an upfront payment of $
Litigation
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, employment 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 subsidiaries.
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Letters of Credit
As of March 31, 2020, the Company had restricted cash of $
Research, License and Intellectual Property Agreements
The Company has engaged several research institutions and companies to identify new delivery strategies and applications of the Company’s gene-editing technology. The Company is also a party to a number of research license agreements which require significant upfront payments and may be required to make 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 agreements that require upfront payments for the future performance of services.
In association with these agreements, on a product-by-product basis, the counterparties are eligible to receive up to low eight-digit potential payments upon specified research, development and regulatory milestones. In addition, on a product-by-product basis, 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 counterparties are also eligible to receive low single-digit royalties on future net sales.
Under certain circumstances and if certain contingent future events occur, Vertex Pharmaceuticals Incorporated and certain of its subsidiaries, or Vertex, is eligible to receive up to $
5. Significant Contracts
Agreements with Vertex Pharmaceuticals Incorporated and certain of its subsidiaries
Summary
On October 26, 2015, the Company entered into a strategic collaboration, option and license agreement, or the 2015 Collaboration Agreement, with Vertex. The 2015 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 of human disease.
On December 12, 2017, the Company and Vertex entered into Amendment No. 1 to the 2015 Collaboration Agreement, or Amendment No. 1, and the Joint Development Agreement, or the JDA. Amendment No. 1, among other things, modified certain 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 Collaboration Agreement, including the expiration terms.
In connection with the 2015 Collaboration Agreement, Vertex made a nonrefundable upfront payment of $
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In June 2019, the Company and Vertex entered into a series of agreements, which closed on July 23, 2019, including a strategic collaboration and license agreement, or the 2019 Collaboration Agreement, for the development and commercialization of products for the treatment of Duchenne muscular dystrophy, or DMD, and myotonic dystrophy type 1, or DM1. Under the terms of the 2019 Collaboration Agreement, the Company received an upfront, nonrefundable payment of $
In connection with the execution of the 2019 Collaboration Agreement, the Company and Vertex entered into a second amendment to the 2015 Collaboration Agreement, or Amendment No. 2. Among other things, Amendment No. 2 modified certain definitions and provisions of the 2015 Collaboration Agreement to make them consistent with the 2019 Collaboration Agreement and set forth the number and identity of the collaboration targets under the 2015 Collaboration Agreement. The Company and Vertex agreed that
In October 2019, Vertex exercised the remaining
Accounting for the Vertex Agreements
The 2015 Collaboration Agreement, Amendment No. 1, and JDA are collectively the “2015 Agreements” and the 2019 Collaboration Agreement and Amendment No. 2. are collectively the “2019 Agreements.” The 2015 Collaboration Agreement, 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, Revenue from Contracts with Customers , or ASC 606, collaborative arrangements as defined under ASC 808, Collaborative Agreements , or ASC 808, and research and development costs as defined under ASC 730, Research and Development , or ASC 730.
Accounting Analysis Under ASC 606
Accounting for the 2019 Agreements
Identification of the Contract
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.
Identification 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, or DMD License; (ii) an exclusive license for worldwide rights for DM1 gene editing products, or DM1 License; (iii) the performance of specified guide RNA research for DM1, or DM1 R&D Services; (iv) a material right representing the option to obtain a co-exclusive development and commercialization license for a specified target, or Specified Target Option; (v) three material rights representing the option for up to three exclusive licenses to develop and commercialize the collaboration targets, or 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.
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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 $
The Company determined that all other possible variable consideration resulting from milestones and royalties discussed above was fully constrained as of March 31, 2020. The Company will re-evaluate the transaction price in each reporting period.
Allocation of Transaction Price to Performance Obligations
The selling price of each performance obligation was determined based on the Company’s estimated standalone selling price, or the ESSP. The Company developed the ESSP for all the performance obligations included in the Vertex 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 the DMD License and DM1 License was determined to be $
The ESSP for the Specified Target Option material right was determined to be $
The ESSP for each of the three Collaboration Target Option material rights was determined to be $
The aforementioned ESSPs reflect the level of risk and expected probability of success inherent in the nature of the associated research area.
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 $
The ESSP for the DM1 R&D Services was determined to be $
Recognition of Revenue
The Company determined that the DMD License and DM1 License represent functional intellectual property, as the intellectual property provides Vertex with the ability 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.
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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 specified target was recognized at the point in time in which the option was waived, on the effective date of the 2019 Agreements.
The Company concluded that the Specified Target Option and Collaboration Target Options were 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 Collaboration Target Options, which occurred in the fourth quarter of 2019. Revenue related to the Specified Target Option will be recognized at the point in time in which the option is exercised.
The Company recognizes revenue related to the DM1 R&D Services over time as the services are rendered, which is expected to be over an 18-month period from the effective date of the 2019 Agreements.
Accounting for the 2015 Agreements (prior to the execution of the 2019 Agreements)
On January 1, 2018, the Company adopted ASC 606 using the modified retrospective approach. The Company applied the practical expedient in ASC 606-10-65-1 in identifying the satisfied and unsatisfied performance obligations, determining the transaction price and allocating the transaction price under the practical expedient in ASC 606 . There was no significant impact on revenue recognized under ASC 606 and the prior revenue recognition as a result of the adoption.
Identification of the 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.
Identification of Performance Obligations
The Company concluded the following material promises were both capable 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 $
The Company determined that all other possible variable consideration resulting from milestones and royalties discussed above was fully constrained at the time of the transaction.
Allocation of Transaction Price to Performance Obligations
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 $
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 $
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The Company’s ESSP for the co-exclusive research license and the development and commercialization licenses for hemoglobinopathy and beta-globin targets is $
The Company used a market-based approach to determine the ESSP of the non-exclusive research license of $
The aforementioned ESSPs reflect the level of risk and expected probability of success inherent in the nature of the associated research area.
Recognition of Revenue
The Company determined that the non-exclusive research license is symbolic intellectual property as Vertex receives value from the license through the Company’s ongoing activities, and, as such, the revenue related to the non-exclusive research license was recognized ratably over the term of the arrangement. Upon the execution of the JDA, a co-exclusive research, development and 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 the material right in its option to obtain four additional exclusive licenses to develop and commercialize four additional collaboration targets, the Company determined that consideration allocated to these material rights would be included in the 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 Company’s performance completed to date for the R&D services, the Company recognized revenue related to the R&D services as invoiced, in line with the practical expedient in ASC 606-10-55-18.
Revenue recognized in connection with the Vertex Agreements
Revenue recognized under the 2019 Agreements and revenue recognized under the 2015 Agreements for the three months ended March 31, 2020 and 2019, respectively, was not material.
As of March 31, 2020, there was $
Milestones under the Vertex Agreements
The Company has evaluated the milestones that may be received in connection with the Vertex Agreements. As discussed above, the Company is eligible to receive up to $
The Company is eligible to receive potential future payments of up to $
Each of the remaining milestones are fully constrained as of March 31, 2020. 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.
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Accounting Analysis under 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 Services for follow-on products; and (iii) committee participation. The related impact of the cost sharing associated with research and development is included in research and development expense. Expenses related to services performed 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.
During the three months ended March 31, 2020 and 2019, the Company recognized $
Accounting Analysis under ASC 730
In connection with the 2019 Vertex Agreements, the Company and Vertex agreed that
In connection therew