Quarterly Report (10-q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

☐	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: 001-37923

CRISPR THERAPEUTICS AG

(Exact name of Registrant as specified in its charter)

Switzerland	Not Applicable
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

Baarerstrasse 14 6300 Zug, Switzerland	Not Applicable
(Address of principal executive offices)	(zip code)

+41 (0)41 561 32 77

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Shares, CHF 0.03 par value	CRSP	NASDAQ Stock Market LLC

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.

Large Accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

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 ☐ NO ☒

As of July 25, 2019, there were 54,662,539 shares of registrant’s common shares outstanding.

Index


	Page Number
PART I: FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (unaudited)

Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018	2

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2019 and 2018	3

Condensed Consolidated Statements of Shareholders’ Equity for the three and six months ended June 30, 2019 and 2018	4

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018	5

Notes to Condensed Consolidated Financial Statements	6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3. Quantitative and Qualitative Disclosures about Market Risk	25

Item 4. Controls and Procedures	25

PART II: OTHER INFORMATION

Item 1. Legal Proceedings	25

Item 6. Exhibits	26

SIGNATURES	27

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

CRISPR Therapeutics AG

Condensed Consolidated Balance Sheets

(unaudited, in thousands, except share and per share data)

	As of
	June 30,			December 31,
	2019			2018
Assets
Current assets:
Cash and cash equivalents	$	427,885		$	456,649
Accounts receivable, including related party amounts of $321 and $88 as of June 30, 2019 and December 31, 2018, respectively		321			88
Prepaid expenses and other current assets, including related party amounts of $3,318 and $3,417 as of June 30, 2019 and December 31, 2018, respectively		10,267			9,658
Total current assets		438,473			466,395
Property and equipment, net		20,156			18,500
Intangible assets, net		262			289
Restricted cash		3,915			3,163
Operating lease assets		30,770			—
Other non-current assets		669			669
Total assets	$	494,245		$	489,016
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	7,143		$	5,069
Accrued expenses, including related party amounts of $3,312 and $1,700 as of June 30, 2019 and December 31, 2018, respectively		18,628			20,852
Accrued tax liabilities		542			402
Deferred rent		—			1,202
Operating lease liabilities		4,880			—
Other current liabilities		219			221
Total current liabilities		31,412			27,746
Deferred revenue non-current, including related party amounts of $57,730 and $57,780 as of June 30, 2019 and December 31, 2018, respectively		57,730			57,780
Deferred rent non-current		—			11,052
Operating lease liabilities, net of current portion		37,200			—
Other non-current liabilities		220			243
Total liabilities		126,562			96,821
Commitments and contingencies, see Note 4
Shareholders’ equity:
Common shares, CHF 0.03 par value, 55,445,241 and 52,183,139 shares authorized at June 30, 2019 and December 31, 2018, respectively, 53,756,046 and 52,160,798 shares issued at June 30, 2019 and December 31, 2018, respectively, 53,499,057 and 51,852,862 shares outstanding at June 30, 2019 and December 31, 2018, respectively, 23,948,128 and 20,498,996 shares in conditional capital at June 30, 2019 and December 31, 2018, respectively.		1,630			1,584
Treasury shares, at cost, 256,989 and 307,936 shares at June 30, 2019 and December 31, 2018, respectively		(57	)		(57	)
Additional paid-in capital		759,796			682,245
Accumulated deficit		(393,676	)		(291,569	)
Accumulated other comprehensive loss		(10	)		(8	)
Total shareholders' equity		367,683			392,195
Total liabilities and shareholders’ equity	$	494,245		$	489,016

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

CRISPR Therapeutics AG

Condensed Consolidated Statements of Operations and Comprehensive Loss

(unaudited, in thousands, except share and per share data)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
Collaboration revenue (1)	$	318		$	1,088		$	646		$	2,446
Operating expenses:
Research and development (2)		39,533			25,633			73,355			45,152
General and administrative		15,768			12,741			30,697			21,577
Total operating expenses		55,301			38,374			104,052			66,729
Loss from operations		(54,983	)		(37,286	)		(103,406	)		(64,283	)
Other income (expense):
Loss from equity method investment		(1,012	)		(1,153	)		(2,037	)		(2,244	)
Other income (expense), net		2,381			155			3,506			29
Total other income (expense), net		1,369			(998	)		1,469			(2,215	)
Net loss before income taxes		(53,614	)		(38,284	)		(101,937	)		(66,498	)
Provision for income taxes		(85	)		(96	)		(170	)		(182	)
Net loss		(53,699	)		(38,380	)		(102,107	)		(66,680	)
Foreign currency translation adjustment		(10	)		(21	)		(2	)		(9	)
Comprehensive loss	$	(53,709	)	$	(38,401	)	$	(102,109	)	$	(66,689	)
Reconciliation of net loss to net loss attributable to common shareholders:
Net loss	$	(53,699	)	$	(38,380	)	$	(102,107	)	$	(66,680	)
Net loss per share attributable to common shareholders—basic and diluted	$	(1.01	)	$	(0.82	)	$	(1.94	)	$	(1.44	)
Weighted-average common shares outstanding used in net loss per share attributable to common shareholders—basic and diluted		53,188,041			46,842,316			52,643,649			46,362,538

(1) Including the following revenue from a related party, see Notes 6 & 11:	$	318		$	881		$	646		$	1,963
(2) Including the following research and development expense with a related party, see Notes 6 & 11:	$	6,870		$	1,246		$	14,459		$	2,352

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

CRISPR Therapeutics AG

Consolidated Statements of Shareholders’ Equity

(In thousands, except share and per share data)

	Common Shares				Treasury Shares											Accumulated
	Shares		CHF 0.03 Par Value		Shares			Amount, at cost			Additional Paid-in Capital		Accumulated Deficit			Other Comprehensive Income (Loss)			Total Shareholders’ Equity
Balance at December 31, 2017		40,592,248		1,240		444,873			—			312,018		(125,440	)		14			187,832
Cumulative effect of ASC 606 adoption		—		—		—			—			—		(1,148	)		—			(1,148	)
Issuance of common shares, net of issuance costs of $8.2 million		5,750,000		174		—			—			122,423		—			—			122,597
Vesting of restricted shares		10,042		—		—			—			13		—			—			13
Exercise of vested options		328,525		9		(6,253	)		—			2,647		—			—			2,656
Stock-based compensation expense		—		—		—			—			6,673		—			—			6,673
Other comprehensive loss		—		—		—			—			—		—			12			12
Net loss		—		—		—			—			—		(28,300	)		—			(28,300	)
Balance at March 31, 2018		46,680,815	$	1,423		438,620		$	—		$	443,774	$	(154,888	)	$	26		$	290,335
Issuance of common shares, net of issuance costs of $0.0M		—		—		—			—			—		—			—			-
Vesting of restricted shares		10,043		1		—			—			13		—			—			14
Exercise of vested options		380,977		11		(29,259	)		(50	)		3,768		—			—			3,729
Stock-based compensation expense		—		—		—			—			9,477		—			—			9,477
Other Comprehensive loss		—		—		—			—			—		—			(21	)		(21	)
Net loss		—		—		—			—			—		(38,380	)		—			(38,380	)
Balance at June 30, 2018		47,071,835	$	1,435		409,361		$	(50	)	$	457,032	$	(193,268	)	$	5		$	265,154

Balance at December 31, 2018		51,852,862		1,584		307,936			(57	)		682,245		(291,569	)		(8	)		392,195
Issuance of common shares, net of issuance costs of $1.2 million		631,580		—		—			—			23,472		—			—			23,472
Vesting of restricted shares		9,288		—		—			—			15		—			—			15
Exercise of vested options		141,915		5		—			—			1,827		—			—			1,832
Stock-based compensation expense		—		—		—			—			10,696		—			—			10,696
Other comprehensive loss		—		—		—			—			—		—			8			8
Net loss		—		—		—			—			—		(48,408	)		—			(48,408	)
Balance at March 31, 2019		52,635,645		1,589		307,936			(57	)		718,255		(339,977	)		—			379,810
Issuance of common shares, net of issuance costs of $1.3 million		732,108		40		(47,297	)		—			28,074		—			—			28,114
Vesting of restricted shares		12,317		1		—			—			15		—			—			16
Exercise of vested options		118,987		—		(3,650	)		—			1,254		—			—			1,254
Stock-based compensation expense		—		—		—			—			12,198		—			—			12,198
Other comprehensive loss		—		—		—			—					—			(10	)		(10	)
Net loss		—		—		—			—					(53,699	)		—			(53,699	)
Balance at June 30, 2019		53,499,057		1,630		256,989			(57	)		759,796		(393,676	)		(10	)		367,683

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

CRISPR Therapeutics AG

Condensed Consolidated Statements of Cash Flows

(unaudited, in thousands)

	Six Months Ended June 30,
	2019			2018
Operating activities:
Net loss	$	(102,107	)	$	(66,680	)
Reconciliation of net loss to net cash used in operating activities:
Depreciation and amortization		2,010			1,691
Equity-based compensation		20,857			13,906
Loss from equity method investment		2,037			2,244
Other income, non-cash		—			(169	)
Changes in:
Accounts receivable		(233	)		1,682
Prepaid expenses and other assets		(1,399	)		(3,804	)
Accounts payable and accrued expenses		(849	)		3,764
Deferred revenue		(50	)		(244	)
Deferred rent		—			(381	)
Operating lease assets and liabilities		(391	)		—
Other liabilities, net		6			88
Net cash used in operating activities		(80,119	)		(47,903	)
Investing activities:
Purchase of property and equipment		(3,271	)		(1,078	)
Net cash used in investing activities		(3,271	)		(1,078	)
Financing activities:
Proceeds from issuance of common shares, net of issuance costs		52,294			122,597
Proceeds from exercise of options		3,086			6,433
Repurchase of treasury shares		—			(50	)
Net cash provided by financing activities		55,380			128,980
Effect of exchange rate changes on cash		(2	)		(9	)
(Decrease) increase in cash		(28,012	)		79,990
Cash, cash equivalents and restricted cash, beginning of period		459,812			242,912
Cash, cash equivalents and restricted cash, end of period	$	431,800		$	322,902
Supplemental disclosure of non-cash investing and financing activities
Property and equipment purchases in accounts payable and accrued expenses	$	702		$	125
Equity issuance costs in accounts payable and accrued expenses	$	477		$	—

	As of June 30,
Reconciliation to amounts within the condensed consolidated balance sheets	2019		2018
Cash and cash equivalents	$	427,885	$	319,737
Restricted cash		3,915		3,165
Cash, cash equivalents and restricted cash at end of period		431,800		322,902

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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 (“GAAP”).

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The Company views its operations and manages its business in one operating segment, which is the business of discovering, developing and commercializing therapies derived from or incorporating genome-editing technology. Certain information and footnote disclosures normally included in the Company’s annual financial statements have been condensed or omitted. These interim financial statements, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of the financial position and results of operations for the three and six month interim periods ended June 30, 2019 and 2018.

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, 2018, which are contained in the 2018 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 25, 2019.

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. Significant estimates in these consolidated financial statements have been made in connection with the calculation of revenues, research and development expenses and equity-based compensation expense. The Company bases its estimates on historical experience and various other assumptions, including, in certain circumstances, future projections that management believes to be reasonable. Actual results could differ from those estimates. 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 and six months ended June 30, 2019 are consistent with those discussed in Note 2 to the consolidated financial statements in the Company’s 2018 Annual Report on Form 10-K filed with the SEC on February 25, 2019, except with respect to the Company’s lease accounting policy noted within the “Recently adopted accounting standards” section below.

Recently Adopted Accounting Standards

The Company adopted ASC 842, Leases (“ASC 842”), using the required modified retrospective approach, effective January 1, 2019. The Company chose to apply the transition provisions as of the period of adoption. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which, among other things, allowed the Company to carry forward the historical lease classification. In addition, the Company elected the practical expedient not to apply the recognition requirements 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 permits 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 components as a single lease component. The adoption of the new standard resulted in the recording net lease assets and lease liabilities of $26.1 million and $37.6 million, respectively, as of January 1, 2019. The difference between the additional lease assets and lease liabilities 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 impact on our net loss or cash flows.

Impact of Adopting ASC 842 on the Financial Statements

	January 1, 2019 Prior to ASC 842 Adoption		ASC 842 Adjustment			January 1, 2019 As Adjusted
Consolidated Balance Sheet Data (in thousands):
Prepaid expenses and other current assets ⁽¹⁾	$	9,658	$	(553	)	$	9,105
Operating lease assets ⁽²⁾	$	—	$	26,087		$	26,087
Deferred rent ⁽³⁾⁽⁴⁾	$	1,026	$	(1,026	)	$	—
Deferred rent non-current ⁽³⁾	$	11,052	$	(11,052	)	$	—
Operating lease liabilities ⁽⁵⁾	$	—	$	4,930		$	4,930
Non-current operating lease liabilities ⁽⁵⁾	$	—	$	32,682		$	32,682

(1) Represents reclassification of prepaid rent to operating lease assets.
(2) Represents capitalization of operating lease assets and reclassification of equipment licenses from prepaid 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 January 1, 2019.
(5) Represents recognition of operating lease liabilities.

2. Property and Equipment, net

Property and equipment, net, consists of the following (in thousands):

	As of
	June 30,			December 31,
	2019			2018
Computer equipment	$	585		$	443
Furniture, fixtures and other		2,555			2,453
Laboratory equipment		10,157			8,964
Leasehold improvements		14,937			13,776
Construction work in process		1,280			239
Total property and equipment, gross		29,514			25,875
Accumulated depreciation		(9,358	)		(7,375	)
Total property and equipment, net	$	20,156		$	18,500

Depreciation expense for the three and six months ended June 30, 2019 was $1.0 million and $2.0 million, respectively. Depreciation expense for the three and six months ended June 30, 2018 was $0.9 million and $1.7 million, respectively.

3. Accrued Expenses

Accrued expenses consist of the following (in thousands):

	As of
	June 30,		December 31,
	2019		2018
Payroll and employee-related costs	$	5,604	$	7,321
Research costs		9,266		7,973
Licensing fees		—		625
Professional fees		2,096		1,848
Intellectual property costs		1,164		2,193
Accrued property and equipment		387		294
Other		111		598
Total	$	18,628	$	20,852

4. Commitments and Contingencies

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.

As disclosed in its Current Report on Form 8-K filed with the SEC on June 26, 2019, on June 25, 2019, the Company received notification that the United States Patent and Trademark Office initiated an interference proceeding at the Patent Trial and Appeal Board (the “PTAB”) between certain pending U.S. patent applications co-owned by the University of California, the University of Vienna and Dr. Emmanuelle Charpentier (collectively, the “CVC Group”) and certain patents and a patent application currently owned by the Broad Institute and Massachusetts Institute of Technology and, in some instances, the President and Fellows of Harvard College (individually and collectively, the “Broad”), all of which are related to the single guide format of CRISPR/Cas9 genome editing technology in eukaryotic cells. The Company has an exclusive worldwide license in the field of human therapeutics to Dr. Charpentier’s rights as a co-owner of the CVC Group portfolio. Specifically, the PTAB has declared Patent Interference No. 106,115 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; and 16/136,175, 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.

Letters of Credit

As of June 30, 2019, the Company had restricted cash of $3.9 million representing letters of credit securing the Company’s obligations under certain leased facilities in Cambridge, Massachusetts, as well as certain credit card arrangements. The letters of credit are secured by cash held in a restricted depository account. The cash deposit is recorded in restricted cash in the accompanying consolidated balance sheet as of June 30, 2019.

Research Agreements

The Company has engaged several research institutions and companies to identify new delivery strategies and applications of its gene-editing technology. The Company is also a party to a number of research license agreements which require significant upfront payments, future royalty payments and potential milestone payments from time to time, as well as intellectual property agreements, which require maintenance and milestone payments from time to time. In association with these agreements, the Company has committed to making payments of $1.7 million and $2.1 million in 2019 and 2020, respectively. For the three and six months ended June 30, 2019, the Company paid $0.5 million and $2.2 million, respectively, related to these research agreements.

The Company is also a party to a number of manufacturing agreements that require upfront payments for the future performance of services. In connection with these agreements, the Company paid $2.8 million in upfront payments, which were recorded as prepaid expenses as of June 30, 2019. The Company will amortize the prepaid balance as services are performed.

5. Leases

In June 2015, the Company entered into a lease agreement for the lease of approximately 19,817 square feet of research facility space with a commencement date of November 15, 2015 (the “2015 Lease”). The lease expires in February 2022. 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.

In May 2016, the Company entered into a sublease agreement for its primary office and research facility in Cambridge, Massachusetts, with a commencement date of December 23, 2016 (the “2016 Sublease”). The sublease expires in December 2026, and the Company has an option to extend the term of 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 option.

In May 2019, the Company entered into a lease agreement for the lease of approximately 15,877 square feet of office facility space with a commencement date of June 1, 2019 (the “2019 Lease”). The lease expires in November 2026, and the Company has an option to extend the term of the lease for an additional five-year period based on certain conditions within the Company’s control. The 2019 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 liability. The right-of-use asset and corresponding lease liability does not include the additional five-year period under the option.

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 within its manufacturing contracts which are not recorded on the Company’s balance sheet in accordance with the practical expedient elected.

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 adoption of ASC 842 includes 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.

•

Incremental borrowing rate : As the discount rates in the Company’s lease are not implicit, 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.

The following table summarizes the lease assets and liabilities as of June 30, 2019 (in thousands):

	As of June 30, 2019
Assets
Operating lease assets	$	30,770
Total lease assets		30,770
Liabilities
Current
Operating lease liabilities		4,880
Non-current
Operating lease liabilities, net of current portion		37,200
Total lease liabilities	$	42,080

The following table summarizes operating lease costs included in research and development and general and administrative expense, as well as sublease income for the three and six months ended June 30, 2019 (in thousands):

	Three months ended June 30, 2019		Six months ended June 30, 2019
Operating lease costs	$	1,904	$	3,726
Short-term lease costs		1,123		2,261
Variable lease costs		683		1,413
Sublease income		—		(525	)
Net lease cost	$	3,710	$	6,875

The following table summarizes the maturity of undiscounted payments due under lease liabilities and the present value of those liabilities as of June 30, 2019 (in thousands):

	Total
2019	$	4,419
2020		8,566
2021		8,507
2022		7,345
2023		7,362
Thereafter		23,254
Total	$	59,453
Present value adjustment		(17,373	)
Present value of lease liabilities	$	42,080

The following table summarizes the lease term and discount rate as of June 30, 2019:

	As of June 30, 2019
Weighted-average remaining lease term (years)
Operating leases		7.0
Weighted-average discount rate
Operating leases		9.8	%

The following table summarizes the cash paid for amounts included in the measurement of lease liabilities for the six months ended June 30, 2019 (in thousands):

	Six months ended June 30,
	2019
Cash paid for amounts included in the measurement of lease liabilities	$	3,940
Operating cash flows from operating leases	$	3,940

6. Significant Contracts

Collaboration Agreement with and Joint Development Agreement with Vertex Pharmaceuticals Incorporated and certain of its subsidiaries

Summary of Agreement

On October 26, 2015, the Company entered into a strategic collaboration, option and license agreement (the “2015 Collaboration Agreement”) with Vertex Pharmaceuticals Incorporated and certain of its subsidiaries (“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 (“Amendment No. 1”) and the Joint Development Agreement (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 $75.0 million. Under the 2015 Collaboration Agreement, Vertex will 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 hemoglobinopathy and beta-globin targets. As such, for potential hemoglobinopathy treatments, including treatments for sickle cell disease, the Company and Vertex will share equally all research and development costs and worldwide revenues. For other targets that Vertex elects to license, Vertex will lead development and global commercialization activities. For each of up to four remaining targets that Vertex elects to license, the Company has the potential to receive up to $420.0 million in development, regulatory and commercial milestones and royalties on net product sales.

In connection with the JDA, the Company received a $7.0 million up-front payment from Vertex and is eligible for 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 the Company and Vertex.

Accounting for the 2015 Collaboration Agreement, Amendment No. 1 and JDA

The arrangements include components of a customer-vendor relationship and collaborative arrangements as defined under ASC 808, Collaborative Arrangements . The Company applies the guidance of ASC 606, Revenue from Contracts with Customers (“ASC 606”) by analogy to the vendor-customer performance obligations of the 2015 Collaboration Agreement and the performance obligations of the JDA subject to ASC 606 as outlined below. The Company applies the guidance of ASC 808 to those elements in which there is a collaboration relationship in which both parties share equally in the risks and rewards of the research and development as outlined below.

Accounting Analysis Under ASC 606

As the overall arrangement was modified in December 2017, the Company elected a practical expedient within ASC 606 that allowed entities to reflect the aggregate effect of all contract modifications when identifying the satisfied and unsatisfied performance obligations for contracts that were modified prior to the adoption of ASC 606. As of the December 2017 contract modification date, the Company concluded the arrangement contained the following 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 research and development (“R&D Services”).

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 performance obligations included in the 2015 Collaboration Agreement and JDA 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 ESSP for material rights was determined based on the incremental discount given to Vertex based on the ESSP of the four remaining exclusive licenses and the exercise price paid at the time of exercise.

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 recognizes revenue related to the R&D Services as invoiced, in line with the practical expedient in ASC 606-10-55-18.

The 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 R&D Services revenue is recognized as invoiced and specifically allocated to the R&D Services performance obligation. The remaining transaction price of $82.0 million was allocated among the performance obligations using the relative selling price method as follows: (i) a non-exclusive research license: $0.5 million; (ii) a material right to discounts for exclusive licenses for up to four Collaboration Targets: $22.2 million, $18.7 million, $8.4 million and $8.4 million for a total of $57.7 million; and (iii) co-exclusive development and commercialization licenses for hemoglobinopathy and beta-globin targets identified in the JDA and co-exclusive research license for the follow-on products: $23.8 million.

The Company recognized $0.1 million and $0.2 million of revenue related to the collaboration with Vertex for the three and six months ended June 30, 2019, respectively. The Company recognized $0.2 million and $0.4 million of revenue related to the collaboration with Vertex for the three and six months ended June 30, 2018. As of June 30, 2019, there was $57.7 million of non-current deferred revenue related to the collaboration with Vertex compared to $57.8 as of December 31, 2018. The transaction price allocated to the remaining performance obligations is $57.8 million. The remaining performance obligations will be recognized as follows: four material rights to obtain an exclusive commercialization and development license at a point in time, upon exercise; and the non-exclusive research license ratably over/within the remaining research term. As of June 30, 2019, the remaining amount to be recognized for the non-exclusive research license is not significant. R&D Services are recognized as invoiced under the practical expedient and, as such, are not disclosed within the remaining performance obligation balance.

Milestones under the 2015 Collaboration Agreement

The Company evaluated the milestones that may be received in connection with the 2015 Collaboration Agreement and JDA. The first potential milestone the Company will be entitled to receive is the milestone in the JDA to receive a one-time low seven-digit milestone payment upon the dosing of a second patient in a clinical trial with the initial shared product and was fully constrained as of

June 30, 2019 . T he remaining milestones are predominately related to the development and commercialization of a product resulting from the arrangement and are payable with respect to each selected exclusive license which have yet to be exercised and are not currently included in the determination of the transaction price. Each milestone is payable only once per collaboration target, regardless of the number of products directed to such collaboration target that achieve the relevant milestone event. There are nine remaining clinical development and regulatory approval milestones which may trigger proceeds of up to $ 90.0 million and $ 235.0 million, respectively, for each selected exclusive license, and two commercial milestones which may trigger proceeds of up to $ 75.0 million for each selected exclusive license (which, when combined with the $ 10.0 million due upon exercise of the exclusive option and the $ 10.0 million development milestone associated with an Investigational New Drug- enabling application, total $ 420.0 million for each selected Exclusive License), as follows:

Developmental Milestone Events

Initiation of the first Clinical Trial of a Product;

Establishment of Proof of Concept for a Product;

Initiation of the first Phase 3 Clinical Trial of a Product;

Acceptance of Approval Application by the U.S. Food and Drug Administration for a Product;

Acceptance of Approval Application by the European Medicines Agency for a Product;

Acceptance of Approval Application by a Regulatory Authority in Japan for a Product;

Marketing Approval in the U.S. for a Product;

Marketing Approval in the EU for a Product; and

Marketing Approval in Japan for a Product.

Commercial Milestone Events

Annual Net Sales for Products with respect to a Collaboration Target exceed $500 million; and

Annual Net Sales for Products with respect to a Collaboration Target exceed $1.0 billion.

There is uncertainty that the events to obtain the developmental milestones will be achieved given the nature of clinical development and the stage of the CRISPR/Cas9 technology. Upon exercise of the exclusive license options, developmental milestones will be constrained until the Company is sure 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.

Accounting Analysis under ASC 808

The Company identified the following collaborative elements which 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.

The Company recognized $6.6 million and $13.7 million of research and development expense related to the collaboration with Vertex for the three and six months ended June 30, 2019, respectively. The Company recognized $0.2 million and $0.4 million of research and development expense related to the collaboration with Vertex for the three and six months ended June 30, 2018, respectively. Research and development expense for the three and six months ended June 30, 2019 was net of $3.3 million and $7.8 million of reimbursements from Vertex, respectively. Research and development expense for the three and six months ended June 30, 2018 was net of $3.7 million and $6.9 million of reimbursements from Vertex, respectively.

Joint Venture with Bayer Healthcare LLC

On December 19, 2015, the Company entered into an agreement with Bayer Healthcare LLC and its subsidiaries (“Bayer”), to establish a joint venture to focus on the research the development of new therapeutics to cure blood disorders, blindness and congenital heart disease. On February 12, 2016, the Company and Bayer completed the formation of the joint venture entity, Casebia Therapeutics LLP (“Casebia”). Bayer and the Company each received a 50% equity interest in the entity in exchange for their respective contributions to the entity. The Company contributed $0.1 million in cash and licensed its proprietary CRISPR/Cas9 gene editing technology and intellectual property for selected disease indications. Bayer contributed its protein engineering expertise and relevant disease know-how. Under the agreement, Casebia paid the Company $35.0 million in exchange for a worldwide, exclusive license to commercialize the Company’s gene-editing technology specifically for the indications covered by the license. There are no milestone, royalties or other payments due to the Company under this aspect of the agreement. The Company also entered into a separate services agreement with Casebia, under which the Company agreed to provide compensated research and development services.

During 2016, the Company recorded an equity method investment of $36.5 million equal to the fair value of the Company’s interest in Casebia and subsequently recorded unrealized equity method losses for the same amount. The Company has no further contractual obligations to provide cash financing to Casebia and accordingly, no additional losses have been recorded beyond the initial equity amount. Casebia’s net losses were $18.1 million and $32.3 million for the three and six months ended June 30, 2019, respectively. Casebia’s net losses were $13.5 million and $25.8 million for the three and six months ended June 30, 2018, respectively. Unrecognized equity method losses in excess of the Company’s equity investment in Casebia were $60.5 million and $45.3 million as of June 30, 2019 and December 31, 2018, respectively.

The remaining performance obligations include research and development services, which are recorded as revenue under ASC 606 and cost sharing activities with Casebia related to shared research and technology licenses are accounted for as a cost/profit sharing arrangement under ASC 808, with the related impact of the cost sharing included as research and development expense. During the three and six months ended June 30, 2019, the Company recognized $0.2 million and $0.4 million of revenue, respectively, related to the collaboration with Casebia. During the three and six months ended June 30, 2018, the Company recognized $0.9 million and $2.0 million of revenue, respectively, related to the collaboration with Casebia. During the three and six months ended June 30, 2019, the Company recognized $0.2 million and $0.7 million, respectively, of research and development expense related to the collaboration with Casebia. During the three and six months ended June 30, 2018, the Company recognized $1.2 million and $2.4 million, respectively, of research and development expense related to the collaboration with Casebia. During the three and six months ended June 30, 2019, the Company recognized a loss from equity method investment of $1.0 million and $2.0 million, respectively, related to stock-based compensation expense for Casebia employees. During the three and six months ended June 30, 2018, the Company recognized a loss from equity method investment of $1.2 million and $2.2 million, respectively, related to stock-based compensation expense for Casebia employees.

7. Share Capital

The Company had 55,445,241 authorized common shares as of June 30, 2019, with a par value of CHF 0.03 per share. Included in the authorized common shares as of June 30, 2019 are 5,586 shares of unvested restricted stock awards, 256,989 treasury shares which are legally outstanding but not considered outstanding for accounting purposes and 1,683,609 shares registered and reserved for future issuance. The Company had conditional capital reserved for future issuance of 19,028,428 common shares for employee benefit plans and 4,919,700 common shares for debt instruments as of June 30, 2019. Under Swiss law, authorized share capital consisted of 25,134,003 common shares as of June 30, 2019.

At-the-Market Offering

In August 2018, the Company entered into an Open Market Sale Agreement ^SM with Jefferies LLC (“Jefferies”), under which Jefferies may offer and sell, from time to time, common shares having aggregate gross proceeds of up to $125.0 million. In the first quarter of 2019, the Company began to issue and sell securities under this sales agreement. During the three and six months ended June 30, 2019, the Company sold 732,108 and 1,363,688 common shares, respectively, for net cash proceeds of $28.5 million and $52.5 million, respectively, after deducting commission fees of $0.8 million and $1.6 million, respectively. In addition, the Company paid approximately $0.2 million in stamp taxes related to the securities issued and sold during the three- and six-month period ended June 30, 2019 and accrued an additional $0.5 million for stamp taxes as of June 30, 2019. The Company sold an additional 1,124,952 common shares under this agreement subsequent to June 30, 2019 through July 29, 2019, resulting in net cash proceeds of approximately $52.8 million, after deducting commission fees of approximately $1.2 million.

8. Stock-based Compensation

During the three and six months ended June 30, 2019 and 2018, the Company recognized the following stock-based compensation expense (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Research and development	$	5,913	$	5,167	$	10,875	$	8,083
General and administrative		5,273		3,157		9,982		5,823
Loss from equity method investment		1,012		1,153		2,037		2,244
Total	$	12,198	$	9,477	$	22,894	$	16,150

Stock option activity

The following table summarizes stock option activity for the six months ended June 30, 2019 (intrinsic value in thousands):

	Stock Options			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at December 31, 2018		6,689,311		$	25.42		8.3	$	68,572
Granted		1,948,773		$	36.05
Exercised		(263,700	)	$	12.23
Cancelled or forfeited		(178,518	)	$	33.48
Outstanding at June 30, 2019		8,195,866		$	28.19		8.3	$	167,076
Exercisable at June 30, 2019		3,198,255		$	19.51		7.5	$	91,777
Vested and expected to vest at June 30, 2019		8,195,866		$	28.19		8.3	$	167,076

The Company estimated the fair value of each stock option award using the Black-Scholes option-pricing model based on the following assumptions:

	Six Months Ended June 30,
	2019			2018
Assumptions
Weighted-average expected volatility		69.3	%		72.2	%
Expected term (in years)		6.0			6.0
Risk-free interest rate		2.5	%		2.7	%
Expected dividend yield		0.0	%		0.0	%

As of June 30, 2019, total unrecognized compensation expense related to stock options was $104.3 million which the Company expects to recognize over a remaining weighted-average period of 2.9 years.

In May 2018, the Company modified the terms of certain options held by a departing employee. The modification resulted in $2.2 million in stock-based compensation expense recorded during the period.

Restricted s tock activity

The following table summarizes restricted stock activity for the six months ended June 30, 2019:

	Restricted Stock			Weighted- Average Grant Date Fair Value
Unvested balance as of December 31, 2018		327,342		$	36.72
Granted		49,000			33.30
Vested		(24,339	)		14.96
Cancelled or forfeited		(14,000	)		38.33
Unvested balance as of June 30, 2019		338,003		$	37.72

As of June 30, 2019, total unrecognized compensation expense related to unvested restricted common shares was $8.0 million which the Company expects to recognize over a remaining weighted-average vesting period of 1.35 years.

9. Net 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.

The following common share equivalents, presented on an as-converted basis, were excluded from the calculation of net loss per share for the periods presented due to their anti-dilutive effect (in common share equivalent shares):

	As of
	June 30, 2019		June 30, 2018
Outstanding options		8,195,866		6,617,181
Unvested restricted common shares		338,003		169,930
Total		8,533,869		6,787,111

10. Income Taxes

During the three and six months ended June 30, 2019, the Company recorded an income tax provision of $0.1 million and $0.2 million, respectively, representing an effective tax rate of -0.2% and -0.2%, respectively. During the three and six months ended June 30, 2018, the Company recorded an income tax provision of $0.1 million and $0.2 million, respectively, representing an effective tax rate of -0.3% and -0.3%, respectively. The income tax provision is primarily attributable to the year-to-date pre-tax income earned by the Company’s U.S. subsidiary. The difference in the statutory tax rate and effective tax rate is primarily a result of the jurisdictional mix of earnings and losses that are not benefited. The Company maintains a valuation allowance against certain deferred tax assets that are not more-likely-than-not realizable. As a result, the Company has not recognized a tax benefit related to losses generated in Switzerland in the current periods.

11. Related Party Transactions

In the fourth quarter of 2018, upon becoming an owner of record of more than 10% of the voting interest of the Company, Vertex became a related party under ASC 850, Related party disclosures . Refer to Note 6, “Collaboration Agreement with and Joint Development Agreement with Vertex Pharmaceuticals Incorporated and certain of its subsidiaries ” and “ Joint Venture with Bayer Healthcare LLC ” for discussion of transactions with Casebia and Vertex, related parties.

12. Subsequent Events

In June 2019, the Company and Vertex entered into a series of agreements, which closed on July 23, 2019. The Company entered into a strategic collaboration and license agreement (the “2019 Collaboration Agreement”) with Vertex for the development and commercialization of products for the treatment of Duchenne Muscular Dystrophy (“DMD”) and Myotonic Dystrophy Type 1 (“DM1”). Under the terms of the 2019 Collaboration Agreement, the Company received an upfront, nonrefundable payment of $175 million. In addition, the Company is eligible to receive potential future payments of up to $825 million based upon the successful

achievement of specified research, development, regulatory and commercial milestones for the DMD and DM1 programs. T he 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 and Vertex will share research costs for specified guide RNA research to be conducted by the Company, and Vertex is responsible for all other research, development, manufacturing and commercialization costs. Upon Investigational New Drug application filing, the Company has the option to forego the DM1 milestones and royalties to co-develop and co-commercialize all DM1 products globally .

In connection with the execution of the 2019 Collaboration Agreement, the Company and Vertex entered into a second amendment to the 2015 Collaboration Agreement (“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 final number 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 Collaboration Agreement, 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 and if Vertex does not exercise its option to do so within a specified time period, Vertex is eligible to receive potential specified research, development, regulatory and commercial milestones and tiered single-digit royalties on future net sales.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with (i) our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and (ii) our audited consolidated financial statements and related notes and management’s discussion and analysis of financial condition and results of operations included in our annual report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission (“SEC”) on February 25, 2019. This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). These statements are often identified by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “will,” “would” or the negative or plural of these words or similar expressions or variations. These forward-looking statements, include, but are not limited to, statements about:

•

the safety, efficacy and clinical progress of our various clinical programs including CTX001® and CTX110 ^TM ;

•

the status of clinical trials, development timelines and discussions with regulatory authorities related to product candidates under development by us and our collaborators;

•

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;

•

the sufficiency of our cash resources; and

•

the therapeutic value, development, and commercial potential of CRISPR/Cas9 gene editing technologies and therapies.

Such forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause 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, and in other SEC filings. You should not rely upon forward-looking statements as predictions of future events. Furthermore, such forward-looking statements speak only as of the date of this report. 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.

Overview

We are a leading gene editing company focused on the development of CRISPR/Cas9-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 Charpentier, who, along with her collaborators, published work elucidating how CRISPR/Cas9, a naturally occurring viral defense mechanism found in bacteria, can be adapted for use in gene editing. We are applying this technology to potentially treat a broad set of rare and common diseases by disrupting, correcting or regulating the genes related to such diseases. We believe that our scientific expertise, together with our approach, may enable an entirely new class of highly active and potentially curative therapies for patients for whom current biopharmaceutical approaches have had limited success.

Since our inception in October 2013, we have devoted substantially all of our resources to our research and development efforts, identifying potential product candidates, undertaking drug discovery and preclinical development activities, building and protecting 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.

We have established a portfolio of therapeutic programs across a broad range of disease areas including hemoglobinopathies, oncology, regenerative medicine and rare diseases. We have begun clinical trials in the United States and Europe for CTX001, which is an investigational, autologous, gene-edited hematopoietic stem cell therapy for the treatment of transfusion-dependent beta thalassemia (“TDT”) and severe sickle cell disease. Additionally, we are developing our own portfolio of CAR-T cell product candidates based on our gene-editing technology. Earlier this year, the U.S. Food and Drug Administration (the “FDA”) approved our Investigational New Drug (“IND”) application for CTX110, our wholly-owned allogeneic CAR-T cell therapy targeting CD19+

malignancies. Additionally, we have clinical trial applications approved in various countries to conduct a Phase 1/2 trial of CTX110 and are currently enrolling patients.

All of our revenue to date has been collaboration revenue. We have incurred significant net operating losses in every year since our inception and expect to continue to incur net operating losses for the foreseeable future. As of June 30, 2019, we had $427.9 million in cash and cash equivalents and an accumulated deficit of $393.7 million. We expect to continue to incur significant 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 product candidates; initiate preclinical testing and clinical trials for any other product candidates we identify and develop; maintain, expand and protect our intellectual property estate; further develop our gene editing platform; hire additional research, clinical and scientific personnel; and incur additional costs associated with operating as a public company.

Collaboration Agreement, Joint Development and Commercialization Agreement- Vertex (CTX001)

In October 2015, we entered into a strategic research collaboration agreement (the “2015 Collaboration Agreement”) with Vertex Pharmaceuticals Incorporated and certain of its subsidiaries (“Vertex”) focused on the development of CRISPR/Cas9-based therapies. Under the terms of the 2015 Collaboration Agreement, we received an upfront, nonrefundable payment of $75.0 million and $30.0 million in convertible loan proceeds.

In December 2017, we entered into the Joint Development Agreement (“JDA”) with Vertex for the development and commercialization of CTX001. The initial focus of the JDA centers on developing CTX001 for transfusion-dependent beta thalassemia (“TDT”) and severe sickle cell disease (“SCD”). CTX001 is an investigational autologous gene-edited hematopoietic stem cell therapy for patients suffering from severe hemoglobinopathies. The net profits and net losses, as applicable, incurred under the JDA will be shared equally between us and Vertex.

In December 2017, we and Vertex entered into an amendment to the 2015 Collaboration Agreement (“Amendment No. 1”). 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 of the 2015 Collaboration Agreement.

In June 2019, we and Vertex entered into a second amendment to the 2015 Collaboration Agreement (“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 strategic collaboration and license agreement (the “2019 Collaboration Agreement”) and set forth the final number and identity of the collaboration targets under the 2015 Collaboration Agreement. We and Vertex agreed that one of the four remaining options under the 2015 Collaboration Agreement, as amended, would not be exercised; instead, we will conduct research and development activities for a specified target. Vertex will have the option to co-develop and co-commercialize the specified target and if Vertex does not exercise its option to do so within a specified time period, Vertex is eligible to receive potential specified research, development, regulatory and commercial milestones and tiered single-digit royalties on future net sales. Amendment No. 2 was not effective until after regulatory review, which occurred in July 2019.

We and Vertex are planning to conduct clinical trials for CTX001 in multiple countries for both beta thalassemia and severe sickle cell disease and we and Vertex continue to work closely with various global regulatory authorities in these and other countries.

We and Vertex are investigating CTX001 in a Phase 1/2 open-label clinical trial designed to assess the safety and efficacy of a single dose of CTX001 in patients ages 18 to 35 with TDT, non-beta zero/beta zero subtypes. The first two patients in the trial will be treated sequentially and, pending data from these initial two patients, the trial will open for broader concurrent enrollment. The first patient has been treated with CTX001 in this trial. The trial is currently being conducted at multiple clinical trial sites in Canada and Europe. In addition, we and Vertex expanded the IND for CTX001 to include TDT. CTX001 was granted Fast Track Designation by the FDA for the treatment of TDT in April 2019. On July 29, 2019, we announced that the first patient treated with CTX001 in a Phase 1/2 clinical study of patients with TDT remains transfusion independent, greater than four months following engraftment.

We and Vertex are also investigating CTX001 in a Phase 1/2 open-label clinical trial 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 TDT, the first two patients in the trial will be treated sequentially and, pending data from these initial two patients, the trial will open for broader concurrent enrollment. The first patient has been treated with CTX001 in this trial. The trial is currently being conducted at clinical trial sites in the United States.

CTX001 was granted Fast Track Designation by the FDA for the treatment of SCD. In addition, we and Vertex have obtained approvals of Clinical Trial Applications for CTX001 for severe SCD in Canada and additional countries in Europe.

Strategic Collaboration and License Agreement – Vertex (DMD and DM1)

In June 2019, we entered into the 2019 Collaboration Agreement with Vertex for the development and commercialization of products for the treatment of Duchenne Muscular Dystrophy (“DMD”) and Myotonic Dystrophy Type 1 (“DM1”). Under the terms of the 2019 Collaboration Agreement, we received an upfront, nonrefundable payment of $175.0 million. Additionally, under the terms of the 2019 Collaboration Agreement, we have an option, exercisable during a specified exercise period, to co-develop and co-commercialize products for the treatment of DM1. The 2019 Collaboration Agreement was not effective until after regulatory review, which occurred in July 2019.

Joint Venture Agreement- Casebia

In December 2015, we entered into an agreement (the “JV Agreement”) with Bayer HealthCare LLC (“Bayer”) and its subsidiaries to create a joint venture, Casebia Therapeutics LLP (“Casebia” or the “JV”) 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. We and Bayer each have a 50% interest in the JV. Under the JV Agreement, Bayer is making available its protein engineering expertise and relevant disease know-how and we are contributing our proprietary CRISPR/Cas9 gene editing technology and intellectual property. Bayer will also provide up to $300.0 million in research and development investments to the JV over the first five years, subject to specified conditions.

In connection with the JV Agreement, the JV was required to pay us an aggregate amount of $35.0 million technology access fee, consisting of an upfront payment of $20.0 million, which was paid at the closing of the JV Agreement in March 2016, and another payment of $15.0 million for specified intellectual property rights relating to our CRISPR/Cas9 technology outside of the United States, which was paid in December 2016. In January 2016, we also issued the Bayer Convertible Loan to Bayer BV for gross proceeds of $35.0 million which was immediately converted to Series B Preferred Shares at a conversion price of $13.43 per share. Concurrent with our initial public offering in October 2016, we issued and sold 2,500,000 common shares to Bayer BV, at the public offering price of $14.00 per share resulting in aggregate net proceeds of $35.0 million.

Financial Overview

Revenue

We have not generated any revenue to date from product sales and do not expect to do so in the near future. During the three and six months ended June 30, 2019, we recognized $0.3 million and $0.6 million of revenue related to our collaboration arrangements with Vertex and Casebia, respectively. During the three and six months ended June 30, 2018, we recognized $1.1 million and $2.4 million, respectively, of revenue related to our collaboration agreements with Vertex and Casebia. As of June 30, 2019, we had not received any milestone or royalty payments under any of the Vertex collaboration agreements. For additional information about our revenue recognition policy, see Note 2 “Summary of Significant Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on February 25, 2019.

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for our research activities, including our product discovery efforts 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 and development and preclinical activities on our behalf;

•

costs of purchasing lab supplies and non-capital equipment used in our preclinical activities and in manufacturing preclinical study materials;

•

consultant fees;

•

facility costs, including rent, depreciation and maintenance expenses; and

•

fees and other payments related to acquiring and maintaining licenses under our third-party licensing agreements.

R esearch and development costs are expensed as incurred. Nonrefundable advance payments for research and development goods or services to be received in the future are deferred and capitalized. The capitalized amounts are expensed as the related goods 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:

•

successful completion of preclinical studies and IND-enabling studies;

•

successful enrollment in, and completion of, clinical trials;

•

receipt of marketing approvals from applicable regulatory authorities;

•

establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;

•

obtaining and maintaining patent and trade secret protection and non-patent exclusivity;

•

launching commercial sales of the product, if and when approved, whether alone or in collaboration with others;

•

acceptance of the product, if and when approved, by patients, the medical community and third-party payors;

•

effectively competing with other therapies and treatment options;

•

a continued acceptable safety profile following approval;

•

enforcing and defending intellectual property and proprietary rights and claims; and

•

achieving desirable medicinal properties for the intended indications.

A change in the outcome of any of these variables with respect to the development of any product candidates or the subsequent commercialization of any product candidates we may successfully develop could significantly change the costs, timing and viability associated with the development of that product candidate.

Except for activities we perform in connection with our collaborations with Vertex and Casebia, we do not track research and development costs on a program-by-program basis.

Research and development activities are central to our business model. We expect research and development costs to increase significantly for the foreseeable future as our current development programs progress and new programs are added.

General and Administrative Expenses

General and administrative expenses consist primarily of employee related expenses, including salaries, benefits, and equity-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.

We anticipate that our general and administrative expenses will increase in the future to support continued research and development activities, potential commercialization of our product candidates and increased costs of operating as a public company. We anticipate increased costs associated with being a public company, including expenses related to services associated with maintaining compliance with exchange listing and SEC requirements, insurance costs and investor relations costs, the hiring of additional personnel and fees to outside consultants, lawyers and accountants, among other expenses. We also anticipate increased expenses related to the reimbursements of third-party patent related expenses in connection with certain of our in-licensed intellectual property.

Results of Operations

Comparison of three months ended June 30, 2019 and 2018 (in thousands):

	Three Months Ended June 30,						Period to Period
	2019			2018			Change
Collaboration revenue	$	318		$	1,088		$	(770	)
Operating expenses:
Research and development		39,533			25,633			13,900
General and administrative		15,768			12,741			3,027
Total operating expenses		55,301			38,374			16,927
Loss from operations		(54,983	)		(37,286	)		(17,697	)
Other income (expense), net		1,369			(998	)		2,367
Net loss before income taxes		(53,614	)		(38,284	)		(15,330	)
Provision for income taxes		(85	)		(96	)		11
Net loss	$	(53,699	)	$	(38,380	)	$	(15,319	)

Collaboration Revenue

Collaboration revenue for the three months ended June 30, 2019 was $0.3 million, compared to $1.1 million for the three months ended June 30, 2018. The decrease of approximately $0.8 million was primarily attributable to a decrease in research conducted under the JV Agreement with Casebia. Please refer to Note 6 in the accompanying financial statements for further information.

Research and Development Expenses

Research and development expenses were $39.5 million for the three months ended June 30, 2019, compared to $25.6 million for the three months ended June 30, 2018. The increase of approximately $13.9 million was primarily attributable to the following:

•

$4.4 million of increased employee compensation, benefit and other headcount related expenses, of which $0.7 million is increased stock-based compensation expense, primarily due to an increase in headcount to support overall growth;

•

$5.3 million of increased variable research and development costs and license fees; and

•

$3.0 million of increased facility-related expenses.

General and Administrative Expenses

General and administrative expenses were $15.8 million for the three months ended June 30, 2019, compared to $12.7 million for the three months ended June 30, 2018. The increase of approximately $3.0 million was primarily attributable to $2.7 million of increased employee compensation, benefit and other headcount related expenses, of which $2.2 million is stock-based compensation expense, primarily due to an increase in headcount to support overall growth.

Other Income (Expense), Net

Other income was $1.4 million for the three months ended June 30, 2019, compared to $1.0 million of expense for the three months ended June 30, 2018. The change was primarily due to interest income earned on cash and cash equivalents for the three months ended June 30, 2019.

Comparison of six months ended June 30, 2019 and 2018 (in thousands):

	Six Months Ended June 30,						Period to Period
	2019			2018			Change
	(in thousands)
Collaboration revenue	$	646		$	2,446		$	(1,800	)
Operating expenses:
Research and development		73,355			45,152			28,203
General and administrative		30,697			21,577			9,120
Total operating expenses		104,052			66,729			37,323
Loss from operations		(103,406	)		(64,283	)		(39,123	)
Other (expense) income, net		1,469			(2,215	)		3,684
Net loss before income taxes		(101,937	)		(66,498	)		(35,439	)
Provision for income taxes		(170	)		(182	)		12
Net loss	$	(102,107	)	$	(66,680	)	$	(35,427	)

Collaboration Revenue

Collaboration revenue for the six months ended June 30, 2019 was $0.6 million, compared to $2.4 million for the six months ended June 30, 2018. The decrease of approximately $1.8 million was primarily attributable to a decrease in research conducted under the JV Agreement with Casebia. Please refer to Note 6 in the accompanying financial statements for further information.

Research and Development Expenses

Research and development expenses were $73.4 million for the six months ended June 30, 2019, compared to $45.2 million for the six months ended June 30, 2018. The increase of approximately $28.2 million was primarily attributable to the following:

•

$10.2 million of increased employee compensation, benefit, and other headcount related expenses, of which $2.8 million is increased stock-based compensation expense, primarily due to an increase in headcount to support overall growth;

•

$10.2 million of increased variable research and development costs and license fees;

•

$1.9 million of increased professional and consulting fees; and

•

$4.9 million of increased facility-related expenses.

General and Administrative Expenses

General and administrative expenses were $30.7 million for the six months ended June 30, 2019, compared to $21.6 million for the six months ended June 30, 2018. The increase of approximately $9.1 million was primarily attributable to the following:

•

$5.6 million of increased employee compensation, benefit, and other headcount related expenses, of which $4.2 million is stock-based compensation expense, primarily due to an increase in headcount to support overall growth; and,

•

$3.0 million of increased legal, professional and consulting fees.

Other Income (Expense), Net

Other income was $1.5 million for the six months ended June 30, 2019, compared to $2.2 million of expense for the six months ended June 30, 2018. The change was primarily due to interest income earned on cash and cash equivalents for the six months ended June 30, 2019.

Liquidity and Capital Resources

As of June 30, 2019, we had cash and cash equivalents of approximately $427.9 million of which approximately $421.6 million was held outside of the United States. In August 2018, we entered into an Open Market Sale Agreement ^SM with Jefferies LLC (“Jefferies”), under which Jefferies may offer and sell, from time to time, common shares having aggregate gross proceeds of up to $125.0 million. In the first quarter of 2019, we began to issue and sell securities under this sales agreement. During the three and six months ended June 30, 2019, we sold 732,108 and 1,363,688 common shares, respectively, for net cash proceeds of $28.5 million and

$52.5 million, respectively, after deducting commission fees of $0.8 million and $1.6 million, respectively. In addition, we paid approximately $0. 2 million in stamp taxes related to the securities issued and sold during the six months ended June 30, 2019 and accrued an additional $0.5 million for stamp taxes as of June 30, 2019 . We sold an additional 1,124,952 common shares under this agreement subsequent to June 30, 2019 through July 29, 2019, resulting in net cash proceeds of approximately $ 52.8 million , after deducting commission fees of $ 1.2 million.

Funding Requirements

Our primary uses of capital are, and we expect will continue to be, research and development activities, compensation and related expenses, laboratory and related supplies, legal and other regulatory expenses, patent prosecution filing and maintenance costs for our licensed intellectual property and general overhead costs. We expect our expenses to increase compared to prior periods in connection with our ongoing activities, particularly as we continue research and development and preclinical activities and initiate preclinical studies to support initial drug applications. In addition, we expect to incur additional costs associated with operating as a public company.

Because our research programs are still in early stages of development and the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of any current or future product candidates, if approved, or whether, or when, we may achieve profitability. Until such time as we can generate substantial product revenues, if ever, we expect to finance our cash needs through a combination of equity, debt financings and payments received in connection with our collaboration agreements. We are entitled to research payments under our collaboration with Vertex. Additionally, we are eligible to earn payments, in each case, on a per-product basis under the JV Agreement with Bayer for Casebia and our collaboration with Vertex. Except for these sources 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 capital 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 that adversely affect the rights of our existing shareholders. If we raise additional funds through collaboration arrangements in the future, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

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 expenditures for at least the next 24 months without giving effect to any additional proceeds we may receive under our 2015 Collaboration Agreement and JDA with Vertex and the agreements related to Casebia 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 the long-term clinical development of our programs, we intend to consider additional financing opportunities when market terms are favorable to us.

Our ability to generate revenue and achieve profitability 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; completing 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 scalable manufacturing process for product candidates; launching and commercializing product candidates for which we obtain regulatory approvals and marketing authorizations, either directly or with a collaborator or distributor; obtaining market acceptance of our product candidates, if approved; addressing any competing technological and market developments; negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter; maintaining good relationships with our collaborators and 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.

Cash Flows

The following table provides information regarding our cash flows for each of the periods below (in thousands):

	Six Months Ended June 30,						Period to Period
	2019			2018			Change
Net cash used in operating activities	$	(80,119	)	$	(47,903	)	$	(32,216	)
Net cash used in investing activities		(3,271	)		(1,078	)		(2,193	)
Net cash provided by financing activities		55,380			128,980			(73,600	)
Effect of exchange rate changes on cash		(2	)		(9	)		7
Net (decrease) increase in cash	$	(28,012	)	$	79,990		$	(108,002	)

Net Cash Used in Operating Activities

Net cash used in operating activities was $80.1 million for the six months ended June 30, 2019, compared to $47.9 million for the six months ended June 30, 2018. The $32.2 million increase in cash used in operating activities was due to the increase in net loss during this period of $35.4 million, which was driven by increased spending on our clinical and pre-clinical stage programs and increased payroll and payroll-related expenses to support overall growth.

Net Cash Used in Investing Activities

Net cash used in investing activities for the six months ended June 30, 2019 was $3.3 million, compared to $1.1 million for the six months ended June 30, 2018. The net cash used in investing activities for the six months ended June 30, 2019 consisted primarily of purchases of property and equipment.

Net Cash Provided by Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2019 was $55.4 million, compared with $129.0 million for the six months ended June 30, 2018. The net cash provided by financing activities for the six months ended June 30, 2019 consisted of proceeds from the issuance of common shares in connection with the Open Market Sale Agreement ^SM , which resulted in $52.3 million of net cash proceeds, after deducting $1.6 million in commissions and $0.2 million in stamp taxes, as well as the exercise of stock options.

Contractual Obligations

The disclosure of our contractual obligations and commitments was reported in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on February 25, 2019. There have been no material changes from the contractual commitments and obligations previously disclosed in our Annual Report on Form 10-K other than the changes described in Note 5 and Note 12 to the accompanying financial statements.

Off-Balance Sheet Arrangements

As of June 30, 2019, we do not have any off-balance sheet arrangements as defined under applicable SEC rules.

Critical Accounting Policies and Significant Judgments and Estimates

This discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with U.S. GAAP. 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-specific or other relevant assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the 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.

We believe that our most critical accounting policies are those relating to revenue recognition, variable interest entities and equity-based compensation, and there have been no changes to our accounting policies discussed in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on February 25, 2019 .

Recent Accounting Pronouncements

Refer to Note 1, “Basis of Presentation and Significant Accounting Policies,” in the accompanying notes to the consolidated financial statements for a discussion of recent accounting pronouncements.

Item 3. Qualitative and Quantitative Disclosures about Market Risk

Foreign Exchange Market 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 our consolidated statement of operations and distort comparisons 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.

Item 4. Controls and Procedures.

Management’s Evaluation of our Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities and Exchange Act of 1934 is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

As of June 30, 2019, our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934). Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our principal executive officer and principal financial officer have concluded based upon the evaluation described above that, as of June 30, 2019, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

During the quarter ended June 30, 2019, there were no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15(d)-15(f) promulgated under the Securities Exchange Act of 1934, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

In the ordinary course of business, we are 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 these proceedings and claims cannot be predicted with certainty, we are not party to any legal or arbitration proceedings that may have significant effects on our financial position. We are not a party to any material proceedings in which any director, member of executive management or affiliate of ours is either a party adverse to us or our subsidiaries or has a material interest adverse to us or our subsidiaries.

As disclosed in our Current Report on Form 8-K filed with the Securities and Exchange Commission on June 26, 2019, on June 25, 2019, we received notification that the United States Patent and Trademark Office initiated an interference proceeding at the Patent Trial and Appeal Board (the “PTAB”) between certain pending U.S. patent applications co-owned by the University of California, the University of Vienna and Dr. Emmanuelle Charpentier (collectively, the “CVC Group”) and certain patents and a patent application currently owned by the Broad Institute and Massachusetts Institute of Technology and, in some instances, the President and Fellows of Harvard College (individually and collectively, the “Broad”), all of which are related to the single guide format of CRISPR/Cas9 genome editing technology in eukaryotic cells. CRISPR Therapeutics has an exclusive worldwide license in the field of human

therapeutics to Dr. Charpentier’s rights as a co-owner of the CVC Group portfolio. Specifically, the PTAB has declared Patent Interference No. 106,115 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; and 16/136,175, 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.

Item 6. Exhibits

The exhibits filed as part of this Quarterly Report on Form 10-Q are set forth in the Exhibit Index below.

Exhibit Number		Description of Document

10.1†		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.

10.2†		Strategic Collaboration and License Agreement dated June 6, 2019, between CRISPR Therapeutics AG and Vertex Pharmaceuticals Incorporated.

31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH		XBRL Taxonomy Extension Schema Document.

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB		XBRL Taxonomy Extension Label Linkbase Document.

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

The certification attached as Exhibit 32.1 that accompany this Quarterly Report on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of CRISPR Therapeutics AG under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-Q, irrespective of any general incorporation language contained in such filing.

†	Confidential portions of this exhibit have been omitted.

SIGNATURES

Pursuant to the requirements 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.

	CRISPR Therapeutics AG

Dated: July 29, 2019	By:	/s/ Samarth Kulkarni
		Samarth Kulkarni
		Chief Executive Officer
		(Principal Executive Officer)

Dated: July 29, 2019	By:	/s/ Michael Tomsicek
		Michael Tomsicek
		Chief Financial Officer
		(Principal Financial Officer)

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