S-1/A 1 d183927ds1a.htm S-1/A S-1/A
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As filed with the Securities and Exchange Commission on October 7, 2016

Registration No. 333-213577

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

AMENDMENT NO. 1

TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

CRISPR THERAPEUTICS AG

(Exact name of Registrant as specified in its Charter)

 

Switzerland   2836   Not Applicable

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

CRISPR Therapeutics AG

Aeschenvorstadt 36

4051 Basel

Switzerland

+41 61 228 7800

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

C T Corporation System

111 Eighth Avenue

New York, NY 10011

(212) 894-8800

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Copies to:

Mitchell S. Bloom   Patrick O’Brien
Robert E. Puopolo   Paul Kinsella
Seo Salimi   Ropes & Gray LLP

Goodwin Procter LLP

  Prudential Tower

100 Northern Avenue

  800 Boylston Street

Boston, MA 02210

  Boston, MA 02199

(617) 570-1000

  (617) 951-7000

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

 

CALCULATION OF REGISTRATION FEE

Title of each class of

securities to be registered

  Amount to be
registered(1)
 

Proposed

maximum

offering price

per share(2)

  Proposed
maximum
aggregate
offering price(2)
  Amount of
registration fee(3)(4)

 

Common shares, nominal value CHF 0.03 per share

  5,405,000   $17.00   $91,885,000   $10,649.48

 

(1)   Includes 705,000 common shares that the underwriters have the option to purchase.
(2)   Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended.
(3)   Calculated pursuant to Rule 457(a) under the Securities Act of 1933, as amended, based on an estimate of the proposed maximum aggregate offering price.
(4)   A registration fee of $9,063.00 was previously paid in connection with the Registration Statement, and the additional amount of $1,586.48 is being paid herewith.

 

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine.

 

 

 


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION DATED OCTOBER 7, 2016

 

PRELIMINARY PROSPECTUS

 

LOGO

 

4,700,000 Shares

 

CRISPR Therapeutics AG

 

Common Shares

 

 

 

 

This is the initial public offering of our common shares. We are selling 4,700,000 common shares. We currently expect the initial public offering price to be between $15.00 and $17.00 per common share.

 

We have granted the underwriters an option to purchase up to 705,000 additional common shares to cover over-allotments.

 

We have applied to have our common shares listed on the NASDAQ Global Market under the symbol “CRSP.”

 

We are an “emerging growth company” as defined under the federal securities laws and, as such, will be subject to reduced public company reporting requirements. See “Prospectus Summary—Implications of Being an Emerging Growth Company.”

 

 

 

Investing in our common shares involves risks. See “Risk Factors” beginning on page 11.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

     Per Share      Total  

Public Offering Price

   $                    $                

Underwriting Discounts and Commissions(1)

   $         $     

Proceeds to CRISPR Therapeutics AG (before expenses)

   $         $     

 

(l)   See “Underwriting” beginning on page 198 for additional information regarding total underwriter compensation.

 

Bayer Global Investments B.V., an existing shareholder and an affiliate of Bayer HealthCare LLC, our joint venture partner, has agreed to purchase from us concurrently with this offering in a private placement $35 million of our common shares at a price per share equal to the initial public offering price. See “Concurrent Private Placement.”

 

 

 

The underwriters expect to deliver the shares to purchasers on or about                 , 2016 through the book-entry facilities of The Depository Trust Company.

 

 

 

Citigroup   Piper Jaffray   Barclays
  Guggenheim Securities  

 

 

 

                , 2016.


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TABLE OF CONTENTS

 

     Page  

Summary

     1   

The Offering

     7   

Summary Consolidated Financial Data

     9   

Risk Factors

     11   

Cautionary Statement Regarding Forward-Looking Statements

     60   

Market and Industry Data

     62   

Use of Proceeds

     63   

Dividend Policy

     65   

Capitalization

     66   

Dilution

     68   

Exchange Rates

     70   

Selected Consolidated Financial Data

     71   

Management’s Discussion and Analysis of Financial Condition And Results of Operations

     73   

Business

     90   

Management

     133   

Executive and Director Compensation

     142   

Principal Shareholders

     155   

Certain Relationships and Related Party Transactions

     159   

Description of Share Capital and Articles of Association

     165   

Comparison of Swiss Law and Delaware Law

     177   

Common Shares Eligible for Future Sale

     185   

Taxation

     188   

Underwriting

     198   

Concurrent Private Placement

     205   

Legal Matters

     206   

Experts

     206   

Enforcement of Judgments

     207   

Where You Can Find More Information

     208   

 

 

 

We are organized under the laws of Switzerland and our registered office and domicile is located in Basel, Switzerland. Moreover, certain of our directors and executive officers are not residents of the United States, and all or a substantial portion of the assets of such persons are located outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon us or upon such persons or to enforce against them judgments obtained in U.S. courts, including judgments in actions predicated upon the civil liability provisions of the federal securities laws of the United States. We have been advised by our Swiss counsel that there is doubt as to the enforceability in Switzerland of original actions, or of actions for enforcement of judgments of U.S. courts of civil liabilities to the extent solely predicated upon the federal and state securities laws of the United States. See “Enforcement of Judgments” for additional information.

 

 

 

Unless otherwise indicated or the context otherwise requires, all references in this prospectus to “CRISPR,” the “Company,” “we,” “our,” “ours,” “us” or similar terms refer to CRISPR Therapeutics AG and its consolidated subsidiaries.

 

 

 

We own various trademark and unregistered trademarks, including CRISPR and our corporate logo. All other trade names, trademarks and service marks of other companies appearing in this prospectus are the property of their respective owners. Solely for convenience, the trademarks and trade names in this prospectus may be

 

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referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend to use or display other companies’ trademarks and trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

 

 

 

Our consolidated financial statements are presented in U.S. dollars in accordance with U.S. generally accepted accounting principles. In addition, we prepare statutory accounts in Swiss Francs in accordance with Swiss statutory law. The Swiss statutory accounting principles may materially differ from U.S. generally accepted accounting principles. The terms “dollar,” “USD” or “$” refer to U.S. dollars and the term “Swiss Franc” and “CHF” refer to the legal currency of Switzerland, unless otherwise indicated.

 

 

 

You should rely only on the information contained in this prospectus or in any free writing prospectus prepared by us or on our behalf. We and the underwriters have not authorized anyone to provide any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we may have referred you. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you.

 

Neither we nor the underwriters are making an offer to sell the common shares in any jurisdiction where the offer or sale is not permitted. This offering is being made in the United States and elsewhere solely on the basis of the information contained in this prospectus. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus, regardless of the time of delivery of this prospectus or any sale of the common shares. Our business, financial condition, results of operations and prospects may have changed since the date on the front cover of this prospectus. Information contained on our website is not a part of this prospectus. You are required to inform yourselves about, and to observe any restrictions relating to, this offering and the distribution of this prospectus outside of the United States.

 

 

 

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SUMMARY

 

This summary highlights information contained elsewhere in this prospectus. This summary may not contain all the information that may be important to you, and we urge you to read this entire prospectus carefully, including the “Risk Factors,” “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections and our consolidated financial statements, including the notes thereto, included elsewhere in this prospectus, before deciding to invest in our common shares.

 

Our Business

 

Overview

 

We are a leading gene editing company focused on the development of CRISPR/Cas9-based therapeutics. CRISPR/Cas9 is a revolutionary technology for gene editing, the process of precisely altering specific sequences of 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 treat a broad set of rare and common diseases by disrupting, correcting or regulating the disease related genes. We believe that our scientific expertise, together with our approach, may enable an entirely new class of highly active and potentially curative treatments for patients for whom current biopharmaceutical approaches have had limited success.

 

We are pursuing a two-pronged product development strategy using both ex vivo and in vivo approaches. Our most advanced programs in hemoglobinopathies use an ex vivo approach, whereby cells are harvested from a patient, treated with a CRISPR/Cas9-based therapeutic and reintroduced into the patient. Beyond these lead programs, we are pursuing a number of additional ex vivo applications, as well as select in vivo applications whereby the CRISPR/Cas9 therapeutic is delivered directly to target cells within the human body. Our initial in vivo applications will leverage well-established delivery technologies for gene-based therapeutics.

 

Given the numerous potential therapeutic applications for CRISPR/Cas9, we have partnered strategically to broaden the indications we can pursue and accelerate development of programs by accessing specific disease-area expertise. We have established a joint venture with Bayer AG and its subsidiaries in which we hold a 50% interest, and a collaboration agreement with Vertex Pharmaceuticals Incorporated, which together will provide over $400 million, subject to certain conditions, inclusive of estimated spending on funded programs, as well as access to distinctive capabilities, for the development of CRISPR/Cas9 gene editing product candidates. We have assembled a team with extensive experience in drug discovery and clinical development to successfully bring CRISPR/Cas9-based therapeutics to patients. We believe our highly experienced team, product development strategy, partnerships and intellectual property position us as a leader in the development of CRISPR/Cas9-based therapeutics.

 

Our Strategy

 

Our mission is to create transformative gene-based medicines for serious human diseases. Key components of our strategy to enable us to achieve this mission include:

 

   

Focus on the Hematopoietic System Through Ex Vivo Approaches.

 

   

  Rapidly Advance Our Two Lead Programs in Hemoglobinopathies, Sickle Cell Disease   and Beta-Thalassemia.

 

   

  Apply our Hematopoietic Gene Editing Capabilities in Other Indications.

 

 

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Pursue Select Indications Requiring In Vivo Approaches.

 

   

 Target the Liver Using Readily Available Delivery Technologies.

 

   

 Optimize Delivery Technologies to Target Select In Vivo Indications Outside the Liver.

 

   

Continue to Foster and Strategically Leverage Our Collaborations with Bayer and Vertex.

 

   

Advance our Leading Position in the Field of Gene Editing.

 

Our Pipeline

 

We have established a portfolio of programs by selecting disease targets based on a number of criteria, including high unmet medical need, advantages of CRISPR/Cas9 relative to alternative approaches, technical feasibility and the time required to advance the product candidate into and through clinical trials. We have initiated programs in three primary areas: (i) ex vivo programs involving gene editing of hematopoietic cells,

(ii) in vivo programs targeting the liver and (iii) additional in vivo programs targeting other organ systems, such as muscle and lung. The following table summarizes the current status of our product development pipeline:

 

LOGO

 

Ex Vivo Hematopoietic Programs

 

We are primarily utilizing ex vivo approaches to treat diseases related to the hematopoietic system, which is the system of organs and tissues, such as bone marrow, the spleen and lymph nodes, involved in the production of blood. When a suitable donor can be found, many of the hematopoietic system diseases we are targeting are treated with allogeneic hematopoietic stem cell transplants, or allo-HSCT. Patients who undergo allo-HSCT face a high risk of complications such as infections related to immunosuppression, transplant rejection and graft-versus-host disease.

 

 

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Our Lead Programs—Hemoglobinopathies

 

Hemoglobinopathies are a diverse group of inherited blood disorders that result from variations in the synthesis or structure of hemoglobin. Our lead programs in hemoglobinopathies aim to develop a single, potentially transformative CRISPR/Cas9-based therapy to treat both beta-thalassemia and sickle cell disease, or SCD. These diseases are caused by mutations in the gene encoding the beta globin protein. A number of factors make these attractive lead indications, including: (i) high unmet medical need, (ii) compelling market potential, (iii) well understood genetics and (iv) the ability to employ an ex vivo gene disruption strategy.

 

Beta-thalassemia is caused by mutations that give rise to insufficient expression of the beta globin protein, resulting in anemia requiring regular blood transfusions. SCD is an inherited disorder caused by a mutation in the beta globin gene resulting in abnormal red blood cells, which obstruct blood vessels, resulting in a variety of severe symptoms and early mortality. The total worldwide annual incidence of beta-thalassemia and SCD is estimated to be 60,000 and 300,000 births, respectively.

 

Our therapeutic approach to treating these diseases employs gene editing to upregulate the expression of the gamma globin protein, a hemoglobin subunit that is commonly present only in newborn infants. Hemoglobinopathy patients who maintain high levels of gamma globin throughout their life are asymptomatic or have mild diseases. We believe our ex vivo gene editing approach, utilizing the patient’s own cells, will provide better safety and efficacy than all currently available treatments.

 

Other Hematopoietic Programs

 

There are numerous diseases that are potentially treatable through ex vivo gene editing of the hematopoietic system. We plan to apply the capabilities we are developing in hemoglobinopathies to treat other diseases. We have launched programs in two such diseases, severe combined immunodeficiency disease, or SCID, and Hurler syndrome, a genetic metabolic disorder. In addition, we are utilizing our ex vivo gene editing expertise to advance our efforts in cell therapies for immuno-oncology applications.

 

In Vivo Programs

 

We are pursuing a number of in vivo indications in parallel with our ex vivo programs, which will involve delivery of CRISPR/Cas9 therapeutics directly to target tissues within the human body. Our initial in vivo applications will target the liver, leveraging well-established delivery technologies. We intend to customize and use these delivery technologies for programs in hemophilia and genetic diseases of liver metabolism, including Glycogen Storage Disease Ia, or GSDIa.

 

We intend to optimize delivery technologies to target select in vivo indications outside the liver such as Duchenne muscular dystrophy and cystic fibrosis. We believe that our CRISPR/Cas9 gene editing technology is well suited to address these diseases, both of which have significant patient populations with high unmet medical need. We are working internally, as well as through third-party collaborations, to optimize viral and non-viral delivery technologies for use in these diseases.

 

Further Unlocking the Potential of Our CRISPR/Cas9 Platform

 

We are also working to optimize our CRISPR/Cas9 platform. Our key areas of focus are:

 

   

Optimizing the Cas9 Protein: Reduce the size and potential immunogenicity of the Cas9 protein while improving specificity and efficiency.

 

   

Guide RNA Selection: Combine bioinformatics and experimental assays to identify guide RNAs with high efficiency and no off-target cutting.

 

 

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Delivery of CRISPR/Cas9 to Target Cells: Develop next-generation delivery technologies to access additional organ systems.

 

   

Efficiency of Correction: Achieve high efficiency of correction across all cell types and enable new therapeutic strategies.

 

   

Cellular Engineering: Improve the ex vivo cell collection, manipulation and administration process for a variety of stem cell types.

 

Risks Associated with Our Business

 

Our business is subject to a number of risks of which you should be aware before making an investment decision. These risks are discussed more fully in the “Risk Factors” section of this prospectus immediately following this prospectus summary. These risks include the following:

 

    We have incurred significant operating losses since our inception and anticipate that we will incur continued losses for the foreseeable future and we have never generated revenue from product sales and may never be profitable.

 

    We are very early in our development efforts. All of our product candidates are still in preclinical development and it will be many years before we or our collaborators commercialize a product, if ever.

 

    Our CRISPR/Cas9 gene editing product candidates are based on a new gene editing technology, which makes it difficult to predict the time and cost of development and of subsequently obtaining regulatory approval, if at all. There have only been a limited number of clinical trials of product candidates based on gene editing technology and no gene editing products have been approved in the United States or in the European Union.

 

    The FDA, the NIH and the EMA have demonstrated caution in their regulation of gene therapy treatments, and ethical and legal concerns about gene therapy and genetic testing may result in additional regulations or restrictions on the development and commercialization of our product candidates, which may be difficult to predict.

 

    Positive results from early preclinical studies of our product candidates are not necessarily predictive of the results of later preclinical studies and any future clinical trials of our product candidates. If we cannot replicate the positive results from our earlier preclinical studies of our product candidates in our later preclinical studies and future clinical trials, we may be unable to successfully develop, obtain regulatory approval for and commercialize our product candidates.

 

    Gene editing products are novel and may be complex and difficult to manufacture. We could experience manufacturing problems that result in delays in the development or commercialization of our product candidates or otherwise harm our business.

 

    Adverse public perception of gene editing and cellular therapy products may negatively impact demand for, or regulatory approval of, our product candidates.

 

    The commercial success of any of our product candidates will depend upon its degree of market acceptance by physicians, patients, third-party payors and others in the medical community.

 

    We face significant competition in an environment of rapid technological change and the possibility that our competitors may achieve regulatory approval before us or develop therapies that are more advanced or effective than ours, which may harm our business and financial condition, and our ability to successfully market or commercialize our product candidates.

 

 

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    Our collaborators and strategic partners may control aspects of our clinical trials, which could result in delays and other obstacles in the commercialization of our proposed products and materially harm our results of operations.

 

    If we are unable to adequately protect our proprietary technology or obtain and maintain patent protection for the products we develop and for our technology and product candidates, or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize products and technology similar or identical to ours, and our ability to successfully commercialize any product candidates we may develop, and our technology may be adversely affected.

 

    Some of our in-licensed patent applications are subject to priority disputes and Inventorship disputes, including an active interference proceeding with The Broad Institute, Massachusetts Institute of Technology, President and Fellows of Harvard College in front of the United States Patent and Trademark Office. In addition, our owned and in-licensed patents and other intellectual property may be subject to further priority disputes or to inventorship disputes and similar proceedings. If we or our licensors are unsuccessful in any of these proceedings, we may be required to obtain licenses from third parties, which may not be available on commercially reasonable terms or at all, or to cease the development, manufacture, and commercialization of one or more of the product candidates we may develop, which could have a material adverse impact on our business.

 

    The intellectual property landscape around gene editing technology, including CRISPR/Cas9, is highly dynamic, and third parties may initiate legal proceedings alleging that the patents that we in-license or own are invalid or that we are infringing, misappropriating, or otherwise violating their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.

 

    Our status as a Swiss corporation means that our shareholders enjoy certain rights that may limit our flexibility to raise capital, issue dividends and otherwise manage ongoing capital needs.

 

Concurrent Private Placement

 

Bayer Global Investments B.V., or Bayer BV, an existing shareholder and an affiliate of Bayer HealthCare LLC, our joint venture partner, has agreed to purchase from us concurrently with this offering in a private placement $35 million of our common shares at a price per share equal to the initial public offering price. See “Concurrent Private Placement.”

 

Series B Private Placement

 

In May 2015, we issued an aggregate of 4,519,016 Series B Preferred Shares at a purchase price of CHF 6.20 per share for gross proceeds of approximately CHF 28.0 million. In June 2016, we completed an additional private placement of Series B Preferred Shares, or the Series B Private Placement Extension. An aggregate of 2,834,252 Series B Preferred Shares were issued to certain new and existing investors at a purchase price of $13.43 per share for gross proceeds of approximately $38.1 million.

 

Corporate Information

 

We were incorporated as a Swiss stock corporation (Aktiengesellschaft) on October 31, 2013 under the name Inception Genomics AG. We changed our name to CRISPR Therapeutics AG on April 28, 2014. Our principal executive offices are located at Aeschenvorstadt 36, 4051 Basel, Switzerland and our telephone number is + 41 61 228 7800. Our website is www.crisprtx.com. Our website and the information contained therein or connected thereto are not incorporated into this prospectus or the registration statement of which it forms a part.

 

 

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Implications of Being an Emerging Growth Company

 

We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:

 

   

a requirement to have only two years of audited financial statements in addition to any required interim financial statements and correspondingly reduced disclosure in the Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure in the registration statement of which this prospectus forms a part;

 

   

reduced disclosure about our executive compensation arrangements; and

 

   

an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Section 404 of the Sarbanes-Oxley Act of 2002.

 

We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company upon the earliest to occur of (i) the last day of the fiscal year in which we have more than $1.0 billion in annual revenue; (ii) the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates; (iii) the issuance, in any three-year period, by our Company of more than $1.0 billion in non-convertible debt securities; and (iv) the last day of the fiscal year ending after the fifth anniversary of this offering. We may choose to take advantage of some but not all of these reduced burdens. For example, Section 107 of the JOBS Act provides that an emerging growth company can use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. However, we have irrevocably elected not to avail ourselves of the extended transition period for complying with new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

 

 

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THE OFFERING

 

Common shares offered by us

4,700,000 shares

 

Concurrent Private Placement

Bayer BV has agreed to purchase from us concurrently with this offering in a private placement $35 million of our common shares at a price per share equal to the initial public offering price, or 2,187,500 shares, assuming an initial public offering price of $16.00 per common share, which is the midpoint of the price range set forth on the cover page of this prospectus. We will receive the full proceeds from the sale and will not pay any underwriting discounts or commissions with respect to the common shares that are sold in the private placement. The sale of these common shares to Bayer BV will not be registered under the Securities Act of 1933, as amended, and these common shares will be subject to a 180-day lock-up agreement with the underwriters in this offering. We refer to the private placement of these common shares as the concurrent private placement.

 

Common shares to be outstanding immediately after this offering and the concurrent private placement

39,748,134 shares

 

Over-allotment option

705,000 shares

 

Use of proceeds

We estimate that the net proceeds to us from this offering, excluding the proceeds from the concurrent private placement, will be approximately $66.2 million, or approximately $76.7 million if the underwriters exercise their over-allotment option to purchase additional common shares in full, assuming an initial public offering price of $16.00 per common share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Our proceeds from the sale of common shares in the concurrent private placement will be approximately $35.0 million. We intend to use the net proceeds from this offering and the concurrent private placement to advance the development of our hemoglobinopathy programs, progress additional pipeline candidates, further optimize our CRISPR/Cas9 platform and for manufacturing, working capital and general corporate purposes. See “Use of Proceeds” for a more complete description of the intended use of proceeds from this offering and the concurrent private placement.

 

Risk factors

See “Risk Factors” and the other information included in this prospectus for a discussion of factors you should consider before deciding to invest in our common shares.

 

Directed Share Program

At our request, the underwriters have reserved up to 5% of the common shares for sale at the initial public offering price to persons

 

 

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who are directors, officers or employees, or who are otherwise associated with us through a directed share program. The number of common shares available for sale to the general public will be reduced by the number of directed shares purchased by participants in the program. Any directed shares not purchased will be offered by the underwriters to the general public on the same basis as all other shares offered. Individuals who purchase shares in the directed share program will be subject to the 180-day lock-up restrictions described in the “Underwriting” section of this prospectus. We have agreed to indemnify the underwriters against certain liabilities and expenses, including liabilities under the Securities Act, in connection with the sales of the directed shares.

 

Proposed NASDAQ Global Market symbol

“CRSP”

 

The number of our common shares to be outstanding after this offering and the concurrent private placement is based on 32,532,617 common shares outstanding as of June 30, 2016, including 134,047 issued but unvested restricted shares, but excludes:

 

   

2,709,572 of our common shares issuable upon the exercise of options outstanding under our 2015 Stock Option and Grant Plan, or the 2015 Stock Option Plan, as of June 30, 2016 at a weighted-average exercise price of $4.14 per common share;

 

   

7,271,779 of our common shares reserved for future issuance under our 2016 Stock Option and Incentive Plan, or the 2016 Stock Option Plan, which will become effective immediately prior to the completion of this offering; and

 

   

413,226 common shares reserved for issuance under our 2016 Employee Stock Purchase Plan, or ESPP, which will become effective immediately prior to the completion of this offering.

 

Unless otherwise indicated, all information contained in this prospectus reflects the completion of a 3 1/3-for-one share split and assumes:

 

   

no issuance of any common shares reserved for future issuance under our 2016 Stock Option Plan or exercise of the options outstanding under our 2015 Stock Option Plan;

 

   

the conversion of all 27,135,884 of our outstanding preferred shares into common shares on a one-for-one basis immediately prior to the closing of this offering;

 

   

the issuance of 328,017 common shares to Dr. Emmanuelle Charpentier immediately prior to the closing of this offering pursuant to a call option agreement, dated March 20, 2015, between us and Dr. Emmanuelle Charpentier, or the Call Option Agreement;

 

   

the filing and effectiveness of our amended articles of association and creation of authorized and conditional share capital of 31,724,612 common shares upon closing of this offering;

 

   

the issuance and sale by us in the concurrent private placement of 2,187,500 common shares to Bayer BV, assuming an initial public offering price of $16.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus; and

 

   

no exercise of the underwriters’ over-allotment option to purchase up to 705,000 additional common shares.

 

 

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SUMMARY CONSOLIDATED FINANCIAL DATA

 

The following summary consolidated historical financial data should be read in conjunction with “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, including the notes thereto, included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future and results of interim periods are not necessarily indicative of results for the entire year or any other interim period.

 

The summary consolidated income statement data for and as of the years ended December 31, 2015 and 2014 are derived from our audited consolidated financial statements included elsewhere in this prospectus. The consolidated statements of operations data for the six months ended June 30, 2015 and 2016 and the consolidated balance sheet data as of June 30, 2016 have been derived from our unaudited interim financial statements included elsewhere in this prospectus and have been prepared on the same basis as the audited financial statements. In the opinion of management, the unaudited data reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial information in those statements.

 

We maintain our books and records in, and our audited consolidated financial statements are prepared and presented in accordance with, U.S. generally accepted accounting principles.

 

     Year Ended
December 31,
    Six Months Ended
June  30,
 
     2014     2015     2015     2016  
     (in thousands, except
share and per share
amounts)
    (in thousands, except
share and per share
amounts)
 

Statement of Operations Data:

        

Collaboration revenue

   $ —        $ 247      $ —        $ 1,271   

Operating expenses:

        

Research and development

     1,513        12,573        2,650        14,614   

General and administrative

     5,114        13,403        4,711        14,867   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     6,627        25,976        7,361        29,481   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (6,627     (25,729     (7,361     (28,210

Other (expense) income, net

     (236     (92     (43     2,680   

Benefit from (provision for) income taxes

     63        (7     216        (76
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (6,800     (25,828     (7,188     (25,606
  

 

 

   

 

 

   

 

 

   

 

 

 

Foreign currency translation adjustment

     (2     (6     2        (17
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss

   $ (6,802   $ (25,834   $ (7,186   $ (25,623
  

 

 

   

 

 

   

 

 

   

 

 

 

Reconciliation of net loss to net loss attributable to common stockholders:

        

Net loss

   $ (6,800   $ (25,828   $ (7,188   $ (25,606

Loss attributable to noncontrolling interest

     536        325        308        10   

Loss on extinguishment of redeemable convertible preferred shares

     (745     —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

   $ (7,009   $ (25,503   $ (6,880   $ (25,596
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common stockholders, basic and diluted

   $ (1.97   $ (5.06   $ (1.52   $ (4.66
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average common shares outstanding, basic and diluted(1)

     3,559,985        5,037,404        4,538,595        5,488,467   
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro-forma net loss per share, basic and diluted (unaudited)

     $ (1.26     $ (0.87
    

 

 

     

 

 

 

Pro-forma weighted-average common shares outstanding, basic and diluted (unaudited)

       20,241,365          29,297,808   
    

 

 

     

 

 

 

 

(1)   See Note 2 in the notes to our annual and interim consolidated financial statements, respectively, appearing at the end of this prospectus for a description of the method used to calculate basic and diluted net loss per share and pro forma basic and diluted net loss per share.

 

 

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The table below presents our balance sheet data at June 30, 2016:

 

   

on an actual basis;

 

   

on a pro forma basis to give effect to:

 

  (i)   the conversion of all 27,135,884 of our outstanding preferred shares into common shares on a one-for-one basis immediately prior to the closing of this offering;

 

  (ii)   the issuance of 328,017 common shares to Dr. Emmanuelle Charpentier immediately prior to the closing of this offering pursuant to the Call Option Agreement; and

 

  (iii)   the filing and effectiveness of our amended and restated articles of association and creation of authorized share capital of 31,724,612 common shares upon closing of this offering.

 

   

on a pro forma as adjusted basis to further reflect:

 

  (i)   the receipt of the estimated net proceeds from the sale of 4,700,000 common shares in this offering at an assumed initial public offering price of $16.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us; and

 

  (ii)   the issuance and sale by us in the concurrent private placement of 2,187,500 common shares to Bayer BV, assuming an initial public offering price of $16.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus.

 

     As of December 31, 2015     As of June 30, 2016  
     Actual     Actual     Pro Forma      Pro Forma
As Adjusted(1)
 
     (in thousands)     (in thousands)               

Balance Sheet Data:

         

Cash

   $ 155,961      $ 246,849        246,849         348,644   

Working capital

     146,685        168,560        168,560         271,867   

Total assets

     159,423        293,059        293,059         392,733   

Redeemable convertible preferred shares

     64,521        185,565        —           —     

Total shareholders’ (deficit) equity

     (29,124     (50,224     135,341         236,527   
(1)   A $1.00 increase (decrease) in the assumed initial public offering price of $16.00 per share would increase (decrease) each of the pro forma as adjusted additional paid in capital and total shareholders’ equity by approximately $4.4 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Each increase (decrease) of 1,000,000 in the number of shares offered by us would increase (decrease) pro forma additional paid in capital and total shareholders’ equity and capitalization by $14.9 million, assuming an initial public offering price of $16.00 per share, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

 

 

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RISK FACTORS

 

Investing in our common shares involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this prospectus and any related free writing prospectus, including our consolidated financial statements and the related notes thereto and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding whether to invest in our common shares. The occurrence of any of the events or developments described below could harm our business, financial condition, results of operations and growth prospects. In such an event, the market price of our common shares could decline and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations

 

Risks Related to Our Financial Position and Need for Additional Capital

 

We Have Incurred Significant Operating Losses Since Our Inception And Anticipate That We Will Incur Continued Losses For The Foreseeable Future.

 

We have funded our operations to date through proceeds from sales of preferred shares, convertible securities and payments received in connection with our joint venture with Bayer HealthCare LLC, or Bayer Healthcare, and collaboration agreement with Vertex Pharmaceuticals, Incorporated, or Vertex. Since inception, we have incurred significant operating losses. Our net loss was $6.8 million and $25.8 million for the years ended December 31, 2014 and 2015, respectively, and $25.6 for the six months ended June 30, 2016. As of June 30, 2016, we had an accumulated deficit of $59.5 million. We expect to continue to incur significant expenses and operating losses over the next several years and for the foreseeable future. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our shareholders’ deficit and working capital. We anticipate that our expenses will increase substantially if and as we:

 

   

continue our current research programs and our preclinical development of product candidates from our current research programs;

 

   

seek to identify additional research programs and additional product candidates;

 

   

initiate preclinical studies and clinical trials for any product candidates we identify and choose to develop;

 

   

maintain, expand and protect our intellectual property portfolio;

 

   

seek marketing approvals for any of our product candidates that successfully complete clinical trials;

 

   

further develop our gene editing technology;

 

   

hire additional clinical, quality control and scientific personnel;

 

   

add operational, financial and management information systems and personnel, including personnel to support our product candidate development;

 

   

acquire or in-license other technologies;

 

   

ultimately establish a sales, marketing, and distribution infrastructure to commercialize any products for which we may obtain marketing approval; and

 

   

operate as a public company.

 

As a result, we expect to continue to incur significant and increasing operating losses for the foreseeable future. Because of the numerous risks and uncertainties associated with developing gene editing product candidates, we are unable to predict the extent of any future losses or when we will become profitable, if at all. Even if we do become profitable, we may not be able to sustain or increase our profitability on a quarterly or annual basis.

 

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We Have Never Generated Revenue From Product Sales And May Never Be Profitable.

 

To date, we have not generated any revenue from our programs and product candidates and do not expect to generate any revenue from the sale of our product candidates in the near future, if ever. We will not generate significant product revenue unless and until we, or our partners, obtain marketing approval of, and begin to sell one or more of our product candidates. Our ability to generate product revenue depends on a number of factors, including, but not limited to:

 

   

identifying product candidates and completing research and preclinical and clinical development of any product candidates we may identify;

 

   

seeking and obtaining regulatory and marketing approvals for any of our product candidates for which we complete clinical trials;

 

   

launching and commercializing any of our product candidates for which we obtain regulatory approval by establishing a sales force, marketing and distribution infrastructure or, alternatively, collaborating with a commercialization partner;

 

   

qualifying for adequate coverage and reimbursement by government and third-party payors for any of our product candidates for which we obtain regulatory and marketing approval;

 

   

developing, maintaining and enhancing a sustainable, scalable, reproducible, and transferable manufacturing process for the product candidates we may develop;

 

   

establishing and maintaining supply chain and manufacturing relationships with third parties that can provide adequate products and services, in both amount and quality, to support clinical development and the market demand for any of our product candidates for which we obtain regulatory and marketing approval;

 

   

obtaining market acceptance of any product candidates we may develop as viable treatment options;

 

   

addressing competing technological and market developments;

 

   

negotiating favorable terms in any collaboration, licensing, or other arrangements into which we may enter and performing our obligations in such collaborations;

 

   

maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets, and know-how;

 

   

avoiding and defending against third-party interference or infringement claims;

 

   

attracting, hiring, and retaining qualified personnel; and

 

   

implementing internal systems and infrastructure, as needed.

 

Even if one or more of the product candidates we may develop is approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product candidate. Our expenses could increase beyond expectations if we are required by the U.S. Food and Drug Administration, or the FDA, the European Medicines Agency, or the EMA, or other regulatory authorities to perform clinical and other studies in addition to those that we anticipate. Even if we are able to generate revenues from the sale of any approved products, we may not become profitable and may need to obtain additional funding to continue operations.

 

Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our Company and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the value of our Company also could cause you to lose all or part of your investment.

 

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Even If We Consummate This Offering And The Concurrent Private Placement With Bayer Global Investments B.V., or Bayer BV, We Will Need To Raise Substantial Additional Funding, Which Will Dilute Our Shareholders. If We Are Unable To Raise Capital When Needed, We Would Be Forced To Delay, Reduce Or Eliminate Some Of Our Product Development Programs Or Commercialization Efforts.

 

The development of gene editing product candidates is capital intensive. We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of, initiate preclinical studies and clinical trials for and seek marketing approval for our product candidates. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution to the extent that such sales, marketing, manufacturing and distribution are not the responsibility of Bayer BV or Vertex, or other future collaborators. We may also need to raise additional funds sooner if we choose to pursue additional indications or geographies for our product candidates or otherwise expand more rapidly than we presently anticipate. Furthermore, upon the closing of this offering, we expect to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate certain of our research and development programs or future commercialization efforts.

 

As of June 30, 2016, we had cash of approximately $246.8 million. We expect that the net proceeds from this offering and the concurrent private placement, together with our existing cash and cash equivalents, and anticipated research support under our joint venture with Bayer BV and collaboration agreement with Vertex, will enable us to fund our operating expenses and capital expenditure requirements for at least the next 24 months.

 

Our future capital requirements will depend on, and could increase significantly as a result of, many factors, including:

 

   

the scope, progress, results and costs of drug discovery, preclinical development, laboratory testing and clinical trials for our product candidates;

 

   

the scope, prioritization and number of our research and development programs;

 

   

the costs, timing and outcome of regulatory review of our product candidates;

 

   

the costs of establishing and maintaining a supply chain for the development and manufacture of our product candidates;

 

   

the success of our current collaborations;

 

   

our ability to establish and maintain additional collaborations on favorable terms, if at all;

 

   

the achievement of milestones or occurrence of other developments that trigger payments under any additional collaboration agreements we obtain;

 

   

the extent to which we are obligated to reimburse, or entitled to reimbursement of, clinical trial costs under future collaboration agreements, if any;

 

   

the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;

 

   

the extent to which we acquire or in-license other product candidates and technologies;

 

   

the costs of establishing or contracting for manufacturing capabilities if we obtain regulatory approvals to manufacture our product candidates;

 

   

the costs of establishing or contracting for sales and marketing capabilities if we obtain regulatory approvals to market our product candidates; and

 

   

our ability to establish and maintain healthcare coverage and adequate reimbursement.

 

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Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates. We cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing may adversely affect the holdings or the rights of our shareholders and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our shares to decline. The sale of additional equity or convertible securities would dilute all of our shareholders and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a shareholder. The incurrence of indebtedness would result in increased fixed payment obligations and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. We could also be required to seek funds through arrangements with collaborators or otherwise at an earlier stage than otherwise would be desirable and we may be required to relinquish rights to some of our technologies or product candidates or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our business, operating results and prospects.

 

If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of any product candidate, or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial condition and results of operations.

 

We Have A Very Limited Operating History, Which May Make It Difficult To Evaluate Our Technology And Product Development Capabilities And Predict Our Future Performance.

 

We are very early in our development efforts and all of our lead programs are still in the discovery stage. We were formed in October 2013, have no products approved for commercial sale and have not generated any revenue from product sales. Our ability to generate product revenue or profits, which we do not expect will occur for many years, if ever, will depend heavily on the successful development and eventual commercialization of our product candidates, which may never occur. We may never be able to develop or commercialize a marketable product.

 

Each of our programs will require additional discovery research and then preclinical and clinical development, regulatory approval in multiple jurisdictions, obtaining manufacturing supply, capacity and expertise, building of a commercial organization, substantial investment and significant marketing efforts before we generate any revenue from product sales. In addition, our product candidates must be approved for marketing by the FDA or certain other foreign regulatory agencies, including the EMA, before we may commercialize any product.

 

Our limited operating history, particularly in light of the rapidly evolving gene editing field, may make it difficult to evaluate our technology and industry and predict our future performance. Our very short history as an operating company makes any assessment of our future success or viability subject to significant uncertainty. We will encounter risks and difficulties frequently experienced by very early stage companies in rapidly evolving fields. If we do not address these risks successfully, our business will suffer.

 

Our Ability To Use Tax Loss Carryforwards In Switzerland May Be Limited.

 

As of December 31, 2015, we reported tax loss carry forwards from inception through 2015 for purposes of Swiss federal direct taxes in the aggregate amount of CHF 22.0 million. Due to the expected mixed company status (in case the advance tax ruling with respect to the mixed company status will be accepted) the tax losses at cantonal level amount to CHF 4.1 million. These tax losses could be available to offset future taxable income. If not used, these tax losses will expire seven years after the year in which they were incurred. Due to our limited income, there is a high risk that the tax loss carry forwards will expire partly or entirely.

 

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Risks Related to Our Business, Technology and Industry

 

We Are Very Early In Our Development Efforts. All Of Our Product Candidates Are Still In Preclinical Development And It Will Be Many Years Before We Or Our Collaborators Commercialize A Product Candidate, If Ever. If We Are Unable To Advance Our Product Candidates To Clinical Development, Obtain Regulatory Approval And Ultimately Commercialize Our Product Candidates, Or Experience Significant Delays In Doing So, Our Business Will Be Materially Harmed.

 

We are very early in our development efforts and have focused our research and development efforts to date on our Clustered Regularly Interspaced Short Palindromic Repeats (CRISPR) Associated protein-9 nuclease, or CRISPR/Cas9, gene editing technology, identifying our initial targeted disease indications and our initial product candidates. Our future success depends heavily on the successful development of our CRISPR/Cas9 gene editing product candidates. Currently, all of our product candidates are in preclinical development. We have also only recently begun development activities for a product candidate for the treatment of beta-thalassemia and sickle cell disease in connection with our collaboration with Vertex and have not yet identified a lead product candidate. We have invested substantially all of our efforts and financial resources in the identification and preclinical development of our current product candidates. Our ability to generate product revenue, which we do not expect will occur for many years, if ever, will depend heavily on the successful development and eventual commercialization of our product candidates, which may never occur. For example, our research programs, including those subject to our joint venture with Bayer Healthcare and collaboration agreement with Vertex, may fail to identify potential product candidates for clinical development for a number of reasons. Our research methodology may be unsuccessful in identifying potential product candidates, or our potential product candidates may be shown to have harmful side effects or may have other characteristics that may make the products impractical to manufacture, unmarketable, or unlikely to receive marketing approval. We currently generate no revenue from sales of any product and we may never be able to develop or commercialize a marketable product.

 

We plan to file our clinical trial applications, or CTAs, to begin our first clinical trial for our hemoglobinopathy program targeting beta-thalassemia in late 2017 and for our hemoglobinopathy program targeting sickle cell disease in early 2018. In each case, the filing is subject to the identification and selection of guide RNA with acceptable efficiency. Commencing this clinical trial, and any other clinical trials we may initiate, is also subject to acceptance by the FDA of our Investigational New Drug application, or IND, and finalizing the trial design based on discussions with the FDA and other regulatory authorities, including the NIH. In the event that the FDA requires us to complete additional preclinical studies or we are required to satisfy other FDA requests, the start of our first clinical trial for our hemoglobinopathy programs or any of our other programs may be delayed. Even after we receive and incorporate guidance from these regulatory authorities, the FDA or other regulatory authorities could disagree that we have satisfied their requirements to commence our clinical trial or change their position on the acceptability of our trial design or the clinical endpoints selected, which may require us to complete additional preclinical studies or clinical trials or impose stricter approval conditions than we currently expect.

 

Our product candidates will require additional preclinical and clinical development, regulatory and marketing approval in multiple jurisdictions, obtaining manufacturing supply, capacity and expertise, building of a commercial organization, substantial investment and significant marketing efforts before we generate any revenue from product sales. In addition, our product development programs must be approved for marketing by the FDA, or certain other foreign regulatory agencies, including the EMA, before we may commercialize our product candidates.

 

The success of our product candidates will depend on several factors, including the following:

 

   

successful information of product candidates in our development programs;

 

   

successful completion of preclinical studies;

 

   

sufficiency of our financial and other resources to complete the necessary preclinical studies and clinical trials;

 

   

ability to develop safe and effective delivery mechanisms for our in vivo therapeutic programs;

 

   

ability to identify optimal RNA sequences to guide genomic editing;

 

   

entry into collaborations to further the development of our product candidates;

 

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a positive recommendation of the Recombinant DNA Advisory Committee of the U.S. National Institutes of Health, or NIH;

 

   

approval of INDs for our product candidates to commence clinical trials;

 

   

successful enrollment in, and completion of, preclinical studies and clinical trials;

 

   

successful data from our clinical program that supports an acceptable risk-benefit profile of our product candidates in the intended populations;

 

   

receipt of regulatory and marketing approvals from applicable regulatory authorities;

 

   

establishment of arrangements with third-party manufacturers for clinical supply and commercial manufacturing and, where applicable, commercial manufacturing capabilities;

 

   

successful development of our internal manufacturing processes and transfer to larger-scale facilities operated by either a contract manufacturing organization, or CMO, or by us;

 

   

establishment and maintenance of patent and trade secret protection or regulatory exclusivity for our product candidates;

 

   

commercial launch of our product candidates, if and when approved, whether alone or in collaboration with others;

 

   

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

 

   

effective competition with other therapies and treatment options;

 

   

establishment and maintenance of healthcare coverage and adequate reimbursement;

 

   

enforcement and defense of intellectual property rights and claims;

 

   

maintenance of a continued acceptable safety profile of the product candidates following approval; and

 

   

achieving desirable medicinal properties for the intended indications.

 

Additionally, because our technology involves gene editing across multiple cell and tissue types, we are subject to many of the challenges and risks that gene therapies face, including:

 

   

regulatory requirements governing gene and cell therapy products have changed frequently and may continue to change in the future; to date, no products that involve the genetic modification of patient cells have been approved in the United States and only one gene therapy product has been approved in the European Union;

 

   

improper insertion of a gene sequence into a patient’s chromosome could lead to lymphoma, leukemia or other cancers, or other aberrantly functioning cells; and

 

   

the FDA recommends a follow-up observation period of 15 years or longer for all patients who receive treatment using gene therapies, and we may need to adopt such an observation period for our product candidates.

 

If we do not succeed in one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize our product candidates, which would materially harm our business. If we do not receive regulatory approvals for our product candidates, we may not be able to continue our operations.

 

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Our CRISPR/Cas9 Gene Editing Product Candidates Are Based On A New Gene Editing Technology, Which Makes It Difficult To Predict The Time And Cost Of Development And Of Subsequently Obtaining Regulatory Approval, If At All. There Have Only Been A Limited Number Of Clinical Trials Of Product Candidates Based On Gene Editing Technology And No Gene Editing Products Have Been Approved In The United States Or In The European Union.

 

CRISPR/Cas9 gene editing technology is relatively new and no products based on CRISPR/Cas9 or other similar gene editing technologies have been approved in the United States or the European Union and only a limited number of clinical trials of products based on gene editing technologies have been commenced, and none have been completed. As such it is difficult to accurately predict the developmental challenges we may incur for our product candidates as they proceed through product discovery or identification, preclinical studies and clinical trials. In addition, because our programs are all in the research or preclinical stage, we have not yet been able to assess safety in humans, and there may be long-term effects from treatment with any of our future product candidates that we cannot predict at this time. Any product candidates we may develop will act at the level of DNA, and, because animal DNA differs from human DNA, testing of our product candidates in animal models may not be predictive of the results we observe in human clinical trials of our product candidates for either safety or efficacy. Also, animal models may not exist for some of the diseases we choose to pursue in our programs. As a result of these factors, it is more difficult for us to predict the time and cost of product candidate development, and we cannot predict whether the application of our gene editing technology, or any similar or competitive gene editing technologies, will result in the identification, development, and regulatory approval of any products. There can be no assurance that any development problems we experience in the future related to our gene editing technology or any of our research programs will not cause significant delays or unanticipated costs, or that such development problems can be solved. Any of these factors may prevent us from completing our preclinical studies or any clinical trials that we may initiate or commercializing any product candidates we may develop on a timely or profitable basis, if at all.

 

The clinical trial requirements of the FDA, the EMA and other regulatory authorities and the criteria these regulators use to determine the safety and efficacy of a product candidate vary substantially according to the type, complexity, novelty and intended use and market of the product candidate. No products based on gene editing technologies have been approved by regulators. As a result, the regulatory approval process for product candidates such as ours is uncertain and may be more expensive and take longer than the approval process for product candidates based on other, better known or more extensively studied technologies. It is difficult to determine how long it will take or how much it will cost to obtain regulatory approvals for our product candidates in either the United States or the European Union or how long it will take to commercialize our product candidates. Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary to bring a potential product candidate to market could decrease our ability to generate sufficient product revenue, and our business, financial condition, results of operations and prospects may be harmed.

 

The FDA, The NIH And The EMA Have Demonstrated Caution In Their Regulation Of Gene Therapy Treatments, And Ethical And Legal Concerns About Gene Therapy And Genetic Testing May Result In Additional Regulations Or Restrictions On The Development And Commercialization Of Our Product Candidates, Which May Be Difficult To Predict.

 

The FDA, NIH and the EMA have each expressed interest in further regulating biotechnology, including gene therapy and genetic testing. For example, the EMA advocates a risk-based approach to the development of a gene therapy product. Agencies at both the federal and state level in the United States, as well as U.S. congressional committees and foreign governments, have also expressed interest in further regulating the biotechnology industry. Such action may delay or prevent commercialization of some or all of our product candidates. Within the broader genome product field, only one gene therapy product, uniQure N.V.’s Glybera, has received marketing authorization from the European Commission, and no gene therapy products have received marketing approval in the United States.

 

Regulatory requirements in the United States and abroad governing gene therapy products have changed frequently and may continue to change in the future. The FDA established the Office of Cellular, Tissue and

 

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Gene Therapies within its Center for Biologics Evaluation and Research to consolidate the review of gene therapy and related products, and established the Cellular, Tissue and Gene Therapies Advisory Committee to advise this review. Prior to submitting an IND, our human clinical trials are subject to review by the NIH Office of Biotechnology Activities, or OBA, Recombinant DNA Advisory Committee, or the RAC. Following an initial review, RAC members make a recommendation as to whether the protocol raises important scientific, safety, medical, ethical or social issues that warrant in-depth discussion at the RAC’s quarterly meetings. Even though the FDA decides whether individual gene therapy protocols may proceed under an IND, the RAC’s recommendations are shared with the FDA and the RAC public review process, if undertaken, can delay the initiation of a clinical trial, even if the FDA has reviewed the trial design and details and has not objected to its initiation or has notified the sponsor that the study may begin. Conversely, the FDA can put an IND on a clinical hold even if the RAC has provided a favorable review or has recommended against an in-depth, public review. Moreover, under guidelines published by the NIH, patient enrollment in our future gene editing clinical trials cannot begin until the investigator for such clinical trial has received a letter from the OBA indicating that the RAC review process has been completed; and Institutional Biosafety Committee, or IBC, approval as well as all other applicable regulatory authorizations have been obtained. In addition to the government regulators, the IBC and institutional review board, or IRB, of each institution at which we conduct clinical trials of our product candidates, or a central IRB if appropriate, would need to review the proposed clinical trial to assess the safety of the trial. In addition, adverse developments in clinical trials of gene therapy products conducted by others may cause the FDA or other oversight bodies to change the requirements for approval of any of our product candidates. Similarly, the EMA governs the development of gene therapies in the European Union and may issue new guidelines concerning the development and marketing authorization for gene therapy products and require that we comply with these new guidelines.

 

These regulatory review agencies and committees and the new requirements or guidelines they promulgate may lengthen the regulatory review process, require us to perform additional studies or trials, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of our product candidates or lead to significant post-approval limitations or restrictions. As we advance our product candidates, we will be required to consult with these regulatory agencies and committees and comply with applicable requirements and guidelines. If we fail to do so, we may be required to delay or discontinue development of such product candidates. These additional processes may result in a review and approval process that is longer than we otherwise would have expected. Delays as a result of an increased or lengthier regulatory approval process or further restrictions on the development of our product candidates can be costly and could negatively impact our or our collaborators’ ability to complete clinical trials and commercialize our current and future product candidates in a timely manner, if at all.

 

If Any Of The Product Candidates We May Develop Or The Delivery Modes We Rely On Cause Undesirable Side Effects, It Could Delay Or Prevent Their Regulatory Approval, Limit The Commercial Potential Or Result In Significant Negative Consequences Following Any Potential Marketing Approval.

 

Product candidates we may develop may be associated with undesirable side effects, unexpected characteristics or other serious adverse events, including off-target cuts of DNA, or the introduction of cuts in DNA at locations other than the target sequence. These off-target cuts could lead to disruption of a gene or a genetic regulatory sequence at an unintended site in the DNA, or, in those instances where we also provide a segment of DNA to serve as a repair template, it is possible that following off-target cut events, DNA from such repair template could be integrated into the genome at an unintended site, potentially disrupting another important gene or genomic element. There also is the potential risk of delayed adverse events following exposure to gene editing therapy due to persistent biologic activity of the genetic material or other components of products used to carry the genetic material. Possible adverse side effects that could occur with treatment with gene editing products include an immunologic reaction after administration which could substantially limit the effectiveness of the treatment. If our CRISPR/Cas9 gene editing technology demonstrates a similar effect, we may decide or be required to halt or delay preclinical development or clinical development of our product candidates. In addition to serious adverse events or side effects caused by any product candidate we may develop, the administration process or related procedures also can cause undesirable side effects. If any such events occur, our clinical trials could be suspended or terminated.

 

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If in the future we are unable to demonstrate that such adverse events were caused by factors other than our product candidate, the FDA, EMA or other comparable foreign regulatory authorities could order us to cease further clinical studies of, or deny approval of, any product candidates we are able to develop for any or all targeted indications. Even if we are able to demonstrate that all future serious adverse events are not product-related, such occurrences could affect patient recruitment or the ability of enrolled patients to complete the trial. Moreover, if we elect, or are required, to delay, suspend or terminate any clinical trial of any product candidate we may develop, the commercial prospects of such product candidates may be harmed and our ability to generate product revenues from any of these product candidates may be delayed or eliminated. Any of these occurrences may harm our ability to identify and develop product candidates, and may harm our business, financial condition, result of operations and prospects significantly.

 

Additionally, if we successfully develop a product candidate and it receives marketing approval, the FDA could require us to adopt a Risk Evaluation and Mitigation Strategy, or REMS, to ensure that the benefits of treatment with such product candidate outweighs the risks for each potential patient, which may include, among other things, a medication guide outlining the risks of the product for distribution to patients, a communication plan to health care practitioners, extensive patient monitoring, or distribution systems and processes that are highly controlled, restrictive, and more costly than what is typical for the industry. Furthermore, if we or others later identify undesirable side effects caused by any product candidate that we to develop, several potentially significant negative consequences could result, including:

 

   

regulatory authorities may revoke licenses or suspend, vary or withdraw approvals of such product candidate;

 

   

regulatory authorities may require additional warnings on the label;

 

   

we may be required to change the way a product candidate is administered or conduct additional clinical trials;

 

   

we could be sued and held liable for harm caused to patients; and

 

   

our reputation may suffer.

 

Any of these events could prevent us from achieving or maintaining market acceptance of our CRISPR/Cas9 technology and any product candidates we may identify and develop and could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

If We Experience Delays Or Difficulties In The Enrollment Of Patients In Clinical Trials, Our Receipt Of Necessary Regulatory Approvals Could Be Delayed Or Prevented.

 

We or our collaborators may not be able to initiate or continue clinical trials for any product candidates we identify or develop if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or analogous regulatory authorities outside the United States, or as needed to provide appropriate statistical power for a given trial. Enrollment may be particularly challenging for any rare genetically defined diseases we may target in the future. In addition, if patients are unwilling to participate in our gene editing trials because of negative publicity from adverse events related to the biotechnology, gene therapy or gene editing fields, competitive clinical trials for similar patient populations, clinical trials in competing products, or for other reasons, the timeline for recruiting patients, conducting studies and obtaining regulatory approval of any product candidates we may develop may be delayed. Moreover, some of our competitors may have ongoing clinical trials for product candidates that would treat the same indications as any product candidates we may develop, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’ product candidates.

 

Patient enrollment is also affected by other factors, including:

 

   

severity of the disease under investigation;

 

 

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size of the patient population and process for identifying subjects;

 

   

design of the trial protocol;

 

   

availability and efficacy of approved medications for the disease under investigation;

 

   

availability of genetic testing for potential patients;

 

   

ability to obtain and maintain subject consent;

 

   

risk that enrolled subjects will drop out before completion of the trial;

 

   

eligibility and exclusion criteria for the trial in question;

 

   

perceived risks and benefits of the product candidate under trial;

 

   

perceived risks and benefits of gene editing and cellular therapies as therapeutic approaches;

 

   

efforts to facilitate timely enrollment in clinical trials;

 

   

patient referral practices of physicians;

 

   

ability to monitor patients adequately during and after treatment; and

 

   

proximity and availability of clinical trial sites for prospective patients.

 

Enrollment delays in our clinical trials may result in increased development costs for any product candidates we may develop, which would cause the value of our Company to decline and limit our ability to obtain additional financing. If we or our collaborators have difficulty enrolling a sufficient number of patients to conduct our clinical trials as planned, we may need to delay, limit, or terminate ongoing or planned clinical trials, any of which would have an adverse effect on our business, financial condition, results of operations, and prospects.

 

Positive Results From Early Preclinical Studies Of Our Product Candidates Are Not Necessarily Predictive Of The Results Of Later Preclinical Studies And Any Future Clinical Trials Of Our Product Candidates. If We Cannot Replicate The Positive Results From Our Earlier Preclinical Studies Of Our Product Candidates In Our Later Preclinical Studies And Future Clinical Trials, We May Be Unable To Successfully Develop, Obtain Regulatory Approval For And Commercialize Our Product Candidates.

 

Any positive results from our preclinical studies of our product candidates may not necessarily be predictive of the results from required later preclinical studies and clinical trials. Similarly, even if we are able to complete our planned preclinical studies or any future clinical trials of our product candidates according to our current development timeline, the positive results from such preclinical studies and clinical trials of our product candidates may not be replicated in subsequent preclinical studies or clinical trial results.

 

Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in early-stage development and we cannot be certain that we will not face similar setbacks. These setbacks have been caused by, among other things, preclinical findings made while clinical trials were underway or safety or efficacy observations made in preclinical studies and clinical trials, including previously unreported adverse events. Moreover, non-clinical and clinical data are often susceptible to varying interpretations and analyses and many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials nonetheless failed to obtain FDA or EMA approval.

 

Even If We Complete The Necessary Preclinical Studies And Clinical Trials, The Marketing Approval Process Is Expensive, Time-Consuming, And Uncertain And May Prevent Us From Obtaining Approvals For The Commercialization Of Any Product Candidates We May Develop. If We Are Not Able To Obtain,

 

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Or If There Are Delays In Obtaining, Required Regulatory Approvals, We Will Not Be Able To Commercialize, Or Will Be Delayed In Commercializing, Product Candidates We May Develop, And Our Ability To Generate Revenue Will Be Materially Impaired.

 

Any product candidates we may develop and the activities associated with their development and commercialization, including their design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale, and distribution, are subject to comprehensive regulation by the FDA and other regulatory authorities in the United States and by comparable authorities in other countries. Failure to obtain marketing approval for a product candidate will prevent us from commercializing the product candidate in a given jurisdiction. We have not received approval or clearance to market any product candidates from regulatory authorities in any jurisdiction and it is possible that none of our product candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval or clearance. We have only limited experience in filing and supporting the applications necessary to gain marketing approvals and expect to rely on third-party contract research organizations, or CROs, or regulatory consultants to assist us in this process. Securing regulatory approval requires the submission of extensive preclinical and clinical data and supporting information to the various regulatory authorities for each therapeutic indication to establish the biologic product candidate’s safety, purity, efficacy and potency. Securing regulatory approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the relevant regulatory authority. Any product candidates we develop may not be effective, may be only moderately effective, or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining marketing approval or prevent or limit commercial use.

 

The process of obtaining marketing approvals, both in the United States and abroad, is expensive, may take many years if additional clinical trials are required, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity, and novelty of the product candidates involved. Changes in marketing approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted product application, may cause delays in the approval or rejection of an application. The FDA and comparable authorities in other countries have substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit, or prevent marketing approval of a product candidate. Any marketing approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable.

 

If we experience delays in obtaining approval or if we fail to obtain approval of any product candidates we may develop, the commercial prospects for those product candidates may be harmed, and our ability to generate revenues will be materially impaired.

 

We May Never Obtain FDA Approval For Any Of Our Product Candidates In The United States, And Even If We Do, We May Never Obtain Approval For Or Commercialize Any Of Our Product Candidates In Any Other Jurisdiction, Which Would Limit Our Ability To Realize Their Full Market Potential.

 

In order to eventually market any of our product candidates in any particular foreign jurisdiction, we must establish and comply with numerous and varying regulatory requirements on a jurisdiction-by-jurisdiction basis regarding safety and efficacy. Approval by the FDA in the United States, if obtained, does not ensure approval by regulatory authorities in other countries or jurisdictions. In addition, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not guarantee regulatory approval in any other country. Approval processes vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking foreign regulatory approval could result in difficulties and costs for us and require additional preclinical studies or clinical trials which could be costly and time-consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our products in those countries. The foreign regulatory approval process involves all of the risks associated with FDA approval. We do not have any product candidates approved

 

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for sale in any jurisdiction, including international markets, and we do not have experience in obtaining regulatory approval in international markets. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, or if regulatory approvals in international markets are delayed, our target market will be reduced and our ability to realize the full market potential of our products will be unrealized.

 

Gene editing Products Are Novel And May Be Complex And Difficult To Manufacture. We Could Experience Manufacturing Problems That Result In Delays In The Development Or Commercialization Of Our Product Candidates Or Otherwise Harm Our Business.

 

The manufacturing process used to produce CRISPR/Cas9-based product candidates may be complex, as they are novel and have not been validated for clinical and commercial production. Several factors could cause production interruptions, including equipment malfunctions, facility contamination, raw material shortages or contamination, natural disasters, disruption in utility services, human error or disruptions in the operations of our suppliers.

 

Our product candidates will require processing steps that are more complex than those required for most small molecule drugs. Moreover, unlike small molecules, the physical and chemical properties of biologics generally cannot be fully characterized. As a result, assays of the finished product may not be sufficient to ensure that the product will perform in the intended manner. Accordingly, we will employ multiple steps to control the manufacturing process to assure that the process works and the product candidate is made strictly and consistently in compliance with the process. Problems with the manufacturing process, even minor deviations from the normal process, could result in product defects or manufacturing failures that result in lot failures, product recalls, product liability claims or insufficient inventory. We may encounter problems achieving adequate quantities and quality of clinical grade materials that meet FDA, the EMA or other applicable standards or specifications with consistent and acceptable production yields and costs.

 

In addition, the FDA, the EMA and other foreign regulatory authorities may require us to submit samples of any lot of any approved product together with the protocols showing the results of applicable tests at any time. Under some circumstances, the FDA, the EMA or other foreign regulatory authorities may require that we not distribute a lot until the relevant agency authorizes its release. Slight deviations in the manufacturing process, including those affecting quality attributes and stability, may result in unacceptable changes in the product that could result in lot failures or product recalls. Lot failures or product recalls could cause us to delay product launches or clinical trials, which could be costly to us and otherwise harm our business, financial condition, results of operations and prospects. Problems in our manufacturing process could restrict our ability to meet market demand for our products.

 

We also may encounter problems hiring and retaining the experienced scientific, quality-control and manufacturing personnel needed to operate our manufacturing processes, which could result in delays in production or difficulties in maintaining compliance with applicable regulatory requirements. Any problems in our manufacturing process or facilities could make us a less attractive collaborator for potential partners, including larger pharmaceutical companies and academic research institutions, which could limit our access to additional attractive development programs.

 

Adverse Public Perception Of Gene Editing And Cellular Therapy Products May Negatively Impact Demand For, Or Regulatory Approval Of, Our Product Candidates.

 

Our product candidates involve editing the human genome. The clinical and commercial success of our product candidates will depend in part on public acceptance of the use of gene editing therapies for the prevention or treatment of human diseases. Public attitudes may be influenced by claims that gene editing is unsafe, unethical, or immoral, and, consequently, our products may not gain the acceptance of the public or the medical community. Negative public reaction to gene therapy in general could result in greater government regulation and stricter labeling requirements of gene editing products, including any of our product candidates,

 

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and could cause a decrease in the demand for any products we may develop. Adverse public attitudes may adversely impact our ability to enroll clinical trials. Moreover, our success will depend upon physicians prescribing, and their patients being willing to receive, treatments that involve the use of product candidates we may develop in lieu of, or in addition to, existing treatments with which they are already familiar and for which greater clinical data may be available.

 

If, In The Future, We Are Unable To Establish Sales And Marketing Capabilities Or Enter Into Agreements With Third Parties To Sell And Market Products Based On Our Technologies, We May Not Be Successful In Commercializing Our Products If And When Any Products Candidates Are Approved And We May Not Be Able To Generate Any Revenue.

 

We do not currently have a sales or marketing infrastructure and, as a company, have no experience in the sale, marketing or distribution of therapeutic products. To achieve commercial success for any approved product candidate for which we retain sales and marketing responsibilities, we must build our sales, marketing, managerial and other non-technical capabilities or make arrangements with third parties to perform these services. In the future, we may choose to build a focused sales and marketing infrastructure to sell, or participate in sales activities with our collaborators for, some of our product candidates if and when they are approved.

 

There are risks involved with both establishing our own sales and marketing capabilities and entering into arrangements with third parties to perform these services. For example, recruiting and training a sales force is expensive and time consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.

 

Factors that may inhibit our efforts to commercialize our product candidates on our own include:

 

   

our inability to recruit, train and retain adequate numbers of effective sales and marketing personnel;

 

   

the inability of sales personnel to obtain access to physicians or persuade adequate numbers of physicians to prescribe any future product that we may develop;

 

   

the lack of complementary treatments to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and

 

   

unforeseen costs and expenses associated with creating an independent sales and marketing organization.

 

If we enter into arrangements with third parties to perform sales, marketing and distribution services, our product revenue or the profitability to us from these revenue streams is likely to be lower than if we were to market and sell any product candidates that we develop ourselves. In addition, we may not be successful in entering into arrangements with third parties to sell and market our product candidates or may be unable to do so on terms that are favorable to us. We likely will have little control over such third parties and any of them may fail to devote the necessary resources and attention to sell and market our product candidates effectively. If we do not establish sales and marketing capabilities successfully, either on our own or in collaboration with third parties, we may not be successful in commercializing our product candidates. Further, our business, results of operations, financial condition and prospects will be materially adversely affected.

 

In particular, gene editing technology is subject to public debate and heightened regulatory scrutiny due to ethical concerns relating to the application of gene editing technology to human embryos or the human germline. For example, in April 2015, Chinese scientists reported on their attempts to edit the genome of human embryos to modify the gene for hemoglobin beta. This is the gene in which a mutation occurs in patients with the inherited blood disorder beta-thalassemia. Although this research was purposefully conducted in embryos that were not viable, the work prompted calls for a moratorium or other types of restrictions on gene editing of human eggs, sperm, and embryos. The Alliance for Regenerative Medicine in Washington has called for a voluntary moratorium on the use of gene editing technologies, including CRISPR/Cas9, in research that involved altering

 

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human embryos or human germline cells. Similarly, the NIH has announced that it would not fund any use of gene editing technologies in human embryos, noting that there are multiple existing legislative and regulatory prohibitions against such work, including the Dickey-Wicker Amendment, which prohibits the use of appropriated funds for the creation of human embryos for research purposes or for research in which human embryos are destroyed. Laws in the United Kingdom prohibit genetically modified embryos from being implanted into women, but embryos can be altered in research labs under license from the Human Fertilisation and Embryology Authority. Research on embryos is more tightly controlled in many other European countries.

 

Although we do not use our technologies to edit human embryos or the human germline, such public debate about the use of gene editing technologies in human embryos and heightened regulatory scrutiny could prevent or delay our development of product candidates. More restrictive government regulations or negative public opinion would have a negative effect on our business or financial condition and may delay or impair our development and commercialization of product candidates or demand for any products we may develop. Adverse events in our preclinical studies or clinical trials or those of our competitors or of academic researchers utilizing gene editing technologies, even if not ultimately attributable to product candidates we may identify and develop, and the resulting publicity could result in increased governmental regulation, unfavorable public perception, potential regulatory delays in the testing or approval of potential product candidates we may identify and develop, stricter labeling requirements for those product candidates that are approved, and a decrease in demand for any such product candidates.

 

Even If We, Or Any Collaborators We May Have, Obtain Marketing Approvals For Any Product Candidates We Develop, The Terms Of Approvals And Ongoing Regulation Of Our Products Could Require The Substantial Expenditure Of Resources And May Limit How We, Or They, Manufacture And Market Our Products, Which Could Materially Impair Our Ability To Generate Revenue.

 

Any product candidate for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data, labeling, advertising, and promotional activities for such product, will be subject to continual requirements of and review by the FDA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, current Good Manufacturing Practice, or cGMP, requirements relating to quality control, quality assurance and corresponding maintenance of records and documents and requirements regarding recordkeeping. Even if marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product. The FDA also may place other conditions on approvals including the requirement for a REMS to assure the safe use of the product. If the FDA concludes a REMS is needed, the sponsor of the Biologics License Application, or BLA, must submit a proposed REMS before it can obtain approval. A REMS could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools.

 

Accordingly, assuming we, or any collaborators we may have, receive marketing approval for one or more product candidates we develop, we, and such collaborators, and our and their contract manufacturers will continue to expend time, money, and effort in all areas of regulatory compliance, including manufacturing, production, product surveillance, and quality control. If we and such collaborators are not able to comply with post-approval regulatory requirements, we and such collaborators could have the marketing approvals for our products withdrawn by regulatory authorities and our, or such collaborators’, ability to market any future products could be limited, which could adversely affect our ability to achieve or sustain profitability. Further, the cost of compliance with post-approval regulations may have a negative effect on our business, operating results, financial condition, and prospects.

 

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Any Product Candidate For Which We Obtain Marketing Approval Could Be Subject To Restrictions Or Withdrawal From The Market, And We May Be Subject To Substantial Penalties If We Fail To Comply With Regulatory Requirements Or If We Experience Unanticipated Problems With Our Products, When And If Any Of Them Are Approved.

 

The FDA and other regulatory agencies closely regulate the post-approval marketing and promotion of biologics to ensure that they are marketed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA and other regulatory agencies impose stringent restrictions on manufacturers’ communications regarding off-label use, and if we do not market our products for their approved indications, we may be subject to enforcement action for off-label marketing by the FDA and other federal and state enforcement agencies, including the Department of Justice. Violation of the Federal Food, Drug, and Cosmetic Act and other statutes, including the False Claims Act, relating to the promotion and advertising of prescription products may also lead to investigations or allegations of violations of federal and state health care fraud and abuse laws and state consumer protection laws.

 

In addition, later discovery of previously unknown problems with a product candidate, including adverse events of unanticipated severity or frequency, or with our manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:

 

   

restrictions on such products, manufacturers, or manufacturing processes;

 

   

restrictions on the labeling or marketing of a product;

 

   

restrictions on the distribution or use of a product;

 

   

requirements to conduct post-marketing clinical trials;

 

   

receipt of warning or untitled letters;

 

   

restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory biologic recalls;

 

   

refusal to approve pending applications or supplements to approved applications that we submit;

 

   

fines, restitution, or disgorgement of profits or revenue;

 

   

suspension or withdrawal of marketing approvals or revocation of biologics licenses;

 

   

suspension of any ongoing clinical trials;

 

   

refusal to permit the import or export of our products;

 

   

product seizure or detention; and

 

   

injunctions or the imposition of civil or criminal penalties.

 

The FDA’s policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability.

 

Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. The occurrence of any event or penalty described above may also inhibit our ability to commercialize any product candidates we may develop and adversely affect our business, financial condition, results of operations, and prospects.

 

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The Commercial Success Of Any Of Our Product Candidates Will Depend Upon Its Degree Of Market Acceptance By Physicians, Patients, Third-party Payors And Others In The Medical Community.

 

Ethical, social and legal concerns about gene therapy could result in additional regulations restricting or prohibiting our products. Even with the requisite approvals from FDA in the United States, the EMA in the European Union and other regulatory authorities internationally, the commercial success of our product candidates will depend, in part, on the acceptance of physicians, patients and health care payors of gene therapy products in general, and our product candidates in particular, as medically necessary, cost-effective and safe. Any product that we commercialize may not gain acceptance by physicians, patients, health care payors and others in the medical community. The degree of market acceptance of gene therapy products and, in particular, our product candidates, if approved for commercial sale, will depend on several factors, including:

 

   

the efficacy, durability and safety of such product candidates as demonstrated in any future clinical trials;

 

   

the potential and perceived advantages of product candidates over alternative treatments;

 

   

the cost of treatment relative to alternative treatments;

 

   

the clinical indications for which the product candidate is approved by FDA or the EMA;

 

   

patient awareness of, and willingness to seek, genotyping;

 

   

the willingness of physicians to prescribe new therapies;

 

   

the willingness of the target patient population to try new therapies;

 

   

the prevalence and severity of any side effects;

 

   

product labeling or product insert requirements of FDA, the EMA or other regulatory authorities, including any limitations or warnings contained in a product’s approved labeling;

 

   

relative convenience and ease of administration;

 

   

the strength of marketing and distribution support;

 

   

the timing of market introduction of competitive products;

 

   

publicity concerning our products or competing products and treatments; and

 

   

sufficient third-party payor coverage and reimbursement.

 

Even if a potential product displays a favorable efficacy and safety profile in preclinical studies and future clinical trials, market acceptance of the product will not be fully known until after it is launched. If our product candidates do not achieve an adequate level of acceptance following regulatory approval, if ever, we may not generate significant product revenue and may not become profitable.

 

We May Expend Our Limited Resources To Pursue A Particular Product Candidate Or Indication And Fail To Capitalize On Product Candidates Or Indications That May Be More Profitable Or For Which There Is A Greater Likelihood Of Success.

 

We have limited financial and managerial resources. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to timely capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate.

 

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We Face Significant Competition In An Environment Of Rapid Technological Change And The Possibility That Our Competitors May Achieve Regulatory Approval Before Us Or Develop Therapies That Are More Advanced Or Effective Than Ours, Which May Harm Our Business And Financial Condition, And Our Ability To Successfully Market Or Commercialize Our Product Candidates.

 

The biotechnology and pharmaceutical industries, including the gene therapy field, are characterized by rapidly changing technologies, significant competition and a strong emphasis on intellectual property. We face substantial competition from many different sources, including large and specialty pharmaceutical and biotechnology companies, academic research institutions, government agencies and public and private research institutions, some or all of which may have greater access to capital or resources than we do.

 

We are aware of several companies focused on developing gene editing in various indications using CRISPR/Cas9 gene editing technology, including Intellia Therapeutics, Inc. and Editas Medicine, Inc., or Editas. There can be no certainty that other gene editing technologies will not be considered better or more attractive than our technology for the development of products. For example, researchers, including Feng Zhang, Ph.D., one of the founders of Editas recently announced the discovery of a CRISPR system involving a different protein, Cpf1, which can also edit human DNA. These researchers have asserted that Cpf1 may work better than Cas9 in some cases. Cas9 may be determined to be less attractive than Cpf1 or other CRISPR proteins that have yet to be discovered.

 

There are additional companies developing therapies using additional gene editing technologies, including transcription activator-like effector nucleases (TALENs), meganucleases and zinc finger nucleases (ZFNs). These companies include bluebird bio, Cellectis, Poseida Therapeutics, Precision Biosciences, and Sangamo Biosciences. Additional companies developing gene therapy products include Abeona Therapeutics, Avalanche Biotechnologies, Dimension Therapeutics, REGENXBIO, Spark Therapeutics and uniQure. In addition to competition from other gene editing therapies or gene therapies, any product we may develop may also face competition from other types of therapies, such as small molecule, antibody or protein therapies. In addition, new scientific discoveries may cause CRISPR/Cas9 technology, or gene editing as a whole, to be considered an inferior form of therapy.

 

Many of our current or potential competitors, either alone or with their collaboration partners, have significantly greater financial resources and expertise in research and development, manufacturing, preclinical studies, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical, biotechnology, and gene therapy industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient, or are less expensive than any products that we may develop or that would render any products that we may develop obsolete or non-competitive. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. Additionally, technologies developed by our competitors may render our potential product candidates uneconomical or obsolete, and we may not be successful in marketing any product candidates we may develop against competitors.

 

In addition, as a result of the expiration or successful challenge of our patent rights, we could face more litigation with respect to the validity and/or scope of patents relating to our competitors’ products and our patents may not be sufficient to prevent our competitors from commercializing competing products. The availability of our competitors’ products could limit the demand, and the price we are able to charge, for any products that we may develop and commercialize.

 

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To become and remain profitable, we must develop and eventually commercialize product candidates with significant market potential, which will require us to be successful in a range of challenging activities. These activities can include completing preclinical studies and clinical trials of our product candidates, obtaining marketing approval for these product candidates, manufacturing, marketing and selling those products that are approved and satisfying any post marketing requirements. We may never succeed in any or all of these activities and, even if we do, we may never generate revenues that are significant or large enough to achieve profitability. If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our Company and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the value of our Company also could cause you to lose all or part of your investment.

 

Even If We Are Able To Commercialize Any Product Candidates, Such Products May Become Subject To Unfavorable Pricing Regulations, Third-party Reimbursement Practices, Or Healthcare Reform Initiatives, Which Would Harm Our Business.

 

The regulations that govern marketing approvals, pricing, and reimbursement for new biologic products vary widely from country to country. In the United States, recently enacted legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries require approval of the sale price of a product before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay our commercial launch of the product, possibly for lengthy time periods, and negatively impact the revenues we are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if any product candidates we may develop obtain marketing approval.

 

Our ability to commercialize any products successfully also will depend in part on the extent to which reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers, and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. We cannot be sure that reimbursement will be available for any product that we commercialize and, if reimbursement is available, the level of reimbursement. Reimbursement may impact the demand for, or the price of, any product candidate for which we obtain marketing approval. If reimbursement is not available or is available only to limited levels, we may not be able to successfully commercialize any product candidate for which we obtain marketing approval.

 

There may be significant delays in obtaining reimbursement for newly approved products, and coverage may be more limited than the purposes for which the product is approved by the FDA or similar regulatory authorities outside the United States. Moreover, eligibility for reimbursement does not imply that any product will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale, and distribution. Interim reimbursement levels for new products, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the product and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost products and may be incorporated into existing payments for other services. Net prices for products may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of products from countries where they may be sold at lower prices than in the United States. Third-party payors often rely upon Medicare coverage policy and payment

 

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limitations in setting their own reimbursement policies. Our inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors for any approved products we may develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products, and our overall financial condition.

 

Risks Related to Our Relationships with Third Parties

 

If Conflicts Arise Between Us And Our Collaborators Or Strategic Partners, These Parties May Act In A Manner Adverse To Us And Could Limit Our Ability To Implement Our Strategies.

 

If conflicts arise between our corporate or academic collaborators or strategic partners and us, the other party may act in a manner adverse to us and could limit our ability to implement our strategies. Some of our academic collaborators and strategic partners are conducting multiple product development efforts within each area that is the subject of the collaboration with us. Our collaborators or strategic partners, however, may develop, either alone or with others, products in related fields that are competitive with the products or potential products that are the subject of these collaborations. Competing products, either developed by the collaborators or strategic partners or to which the collaborators or strategic partners have rights, may result in the withdrawal of partner support for our product candidates.

 

Some of our collaborators or strategic partners could also become our competitors in the future. Our collaborators or strategic partners could develop competing products, preclude us from entering into collaborations with their competitors, fail to obtain timely regulatory approvals, terminate their agreements with us prematurely, or fail to devote sufficient resources to the development and commercialization of products. Any of these developments could harm our product development efforts.

 

Our Collaborators And Strategic Partners May Control Aspects Of Our Clinical Trials, Which Could Result In Delays And Other Obstacles In The Commercialization Of Our Proposed Products And Materially Harm Our Results Of Operations.

 

For some programs, we will depend on third party collaborators and strategic partners to design and conduct our clinical trials. As a result, we may not be able to conduct these programs in the manner or on the time schedule we currently contemplate, which may negatively impact our business operations. In addition, if any of these collaborators or strategic partners withdraw support for our programs or proposed products or otherwise impair their development, our business could be negatively affected.

 

In October 2015, we entered into a four-year collaboration agreement with Vertex to research, develop and commercialize new treatments aimed at the underlying genetic causes of human diseases, including beta-thalassemia and sickle cell. In addition, in December 2015, we entered into an agreement with Bayer Healthcare LLC, or Bayer, to create a joint venture to discover and commercialize therapeutics for the treatment of blood disorders, blindness and heart disease in addition to select indications related to other sensory organs, metabolic diseases and autoimmune diseases based on our CRISPR/Cas9 gene editing technology.

 

We and Bayer each hold a 50% interest in the joint venture and each have two designees on the management board. As such, we cannot control all aspects of the clinical development and commercialization of any product candidate developed by the joint venture. Similarly, under our collaboration agreement with Vertex, Vertex has sole authority to select genetic targets to pursue and we will not have control over the development of any product candidates. Our lack of control over the clinical development in our agreements with Bayer and Vertex could cause delays or other difficulties in the development and commercialization of product candidates, which may prevent completion of intended IND filings in a timely fashion, if at all.

 

In addition, the termination of our agreement with Vertex would prevent us from receiving any milestone, royalty payments and other benefits under that agreement. The termination of our joint venture with Bayer would prevent us from participating in the profits of the joint venture. Either development would have a materially adverse effect on our results of operations.

 

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Our Collaborators Or Strategic Partners May Decide To Adopt Alternative Technologies Or May Be Unable To Develop Commercially Viable Products With Our Technology, Which Would Negatively Impact Our Revenues And Our Strategy To Develop These Products.

 

Our collaborators or strategic partners may adopt alternative technologies, which could decrease the marketability of our CRISPR/Cas9 gene editing technology. Additionally, because our current or future collaborators or strategic partners are likely to be working on more than one development project, they could choose to shift their resources to projects other than those they are working on with us. If they do so, this would delay our ability to test our technology and would delay or terminate the development of potential products based on our CRISPR/Cas9 gene editing technology. Further, our collaborators and strategic partners may elect not to develop products arising out of our collaborative and strategic partnering arrangements or to devote sufficient resources to the development, manufacturing, marketing or sale of these products. The failure to develop and commercialize a product candidate pursuant to our agreements with our current or future collaborators would prevent us from receiving future milestone and royalty payments which would negatively impact our revenues.

 

We May Seek To Establish Additional Collaborations And, If We Are Not Able To Establish Them On Commercially Reasonable Terms, We May Have To Alter Our Development And Commercialization Plans.

 

Our product candidate development programs and the potential commercialization of our product candidates will require substantial additional cash to fund expenses. For some of our product candidates, we may decide to collaborate with additional pharmaceutical and biotechnology companies for the development and potential commercialization of those product candidates.

 

We face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for any additional collaborations will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by FDA or similar regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing drugs, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge and industry and market conditions generally. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our product candidate. The terms of any additional collaborations or other arrangements that we may establish may not be favorable to us.

 

We may also be restricted under existing collaboration agreements from entering into future agreements on certain terms with potential collaborators. For example, we have granted exclusive rights to Vertex for certain genetic targets, and during the term of the collaboration agreement, we will be restricted from granting rights to other parties to use our CRISPR/Cas9 technology to pursue therapies that address these genetic targets. Similarly, pursuant to our joint venture agreement with Bayer, during the term of the joint venture, and for a specified period after the termination of the joint venture, we will be prohibited from developing products that use our CRISPR/Cas9 technology in specified fields that would compete with the joint venture and Bayer, respectively. The non-competition provisions in each of these agreements could limit our ability to enter into strategic collaborations with future collaborators.

 

We may not be able to negotiate additional collaborations on a timely basis, on acceptable terms, or at all. Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators. If we are unable to negotiate and enter into new collaborations, we may have to curtail the development of the product candidate for which we are seeking to collaborate, reduce or delay its development program or one or more of our other development programs, delay

 

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its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our product candidates or bring them to market and generate product revenue.

 

We May Rely On Third Parties To Conduct Our Preclinical Studies And Any Future Clinical Trials For Our Product Candidates. If These Third Parties Do Not Successfully Carry Out Their Contractual Duties, Comply With Regulatory Requirements Or Meet Expected Deadlines, We May Not Be Able To Obtain Regulatory Approval For Or Commercialize Our Product Candidates And Our Business Could Be Substantially Harmed.

 

We may rely on medical institutions, clinical investigators, contract laboratories and other third parties, such as CROs, to conduct preclinical studies and future clinical trials for our product candidates. Nevertheless, we will be responsible for ensuring that each of our preclinical studies and clinical trials is conducted in accordance with the applicable protocol, legal and regulatory requirements and scientific standards and our reliance on CROs will not relieve us of our regulatory responsibilities. For example, we will remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires us to comply with regulations, commonly referred to as Good Clinical Practices, or GCPs, for conducting, recording, and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity, and confidentiality of trial participants are protected. We also are required to register ongoing clinical trials and post the results of completed clinical trials on a government-sponsored database, ClinicalTrials.gov, within certain timeframes. Failure to do so can result in fines, adverse publicity, and civil and criminal sanctions. For any violations of laws and regulations during the conduct of our preclinical studies and clinical trials, we could be subject to warning letters or enforcement action that may include civil penalties up to and including criminal prosecution.

 

We and our CROs will be required to comply with regulations, including GCPs, for conducting, monitoring, recording and reporting the results of preclinical studies and clinical trials to ensure that the data and results are scientifically credible and accurate and that the trial patients are adequately informed, among other things, of the potential risks of participating in clinical trials and their rights are protected. These regulations are enforced by FDA, the Competent Authorities of the Member States of the European Economic Area and comparable foreign regulatory authorities for any drugs in clinical development. The FDA enforces GCP regulations through periodic inspections of clinical trial sponsors, principal investigators and trial sites. If we or our CROs fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that, upon inspection, the FDA will determine that any of our future clinical trials will comply with GCPs. In addition, our future clinical trials must be conducted with product candidates produced in accordance with the requirements in cGMP regulations. Our failure or the failure of our CROs to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process and could also subject us to enforcement action.

 

Although we intend to design the clinical trials for our product candidates, CROs will conduct all of the clinical trials. As a result, many important aspects of our development programs, including their conduct and timing, will be outside of our direct control. Our reliance on third parties to conduct future preclinical studies and clinical trials will also result in less direct control over the management of data developed through preclinical studies and clinical trials than would be the case if we were relying entirely upon our own staff. Communicating with outside parties can also be challenging, potentially leading to mistakes as well as difficulties in coordinating activities. Outside parties may:

 

   

have staffing difficulties;

 

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fail to comply with contractual obligations;

 

   

experience regulatory compliance issues;

 

   

undergo changes in priorities or become financially distressed; or

 

   

form relationships with other entities, some of which may be our competitors.

 

These factors may materially adversely affect the willingness or ability of third parties to conduct our preclinical studies and clinical trials and may subject us to unexpected cost increases that are beyond our control. If the CROs do not perform preclinical studies and future clinical trials in a satisfactory manner, breach their obligations to us or fail to comply with regulatory requirements, the development, regulatory approval and commercialization of our product candidates may be delayed, we may not be able to obtain regulatory approval and commercialize our product candidates, or our development programs may be materially and irreversibly harmed. If we are unable to rely on preclinical and clinical data collected by our CROs, we could be required to repeat, extend the duration of, or increase the size of any clinical trials we conduct and this could significantly delay commercialization and require significantly greater expenditures.

 

We Expect To Rely On Third Parties To Manufacture Our Clinical Product Supplies, And We Intend To Rely On Third Parties For At Least A Portion Of The Manufacturing Process Of Our Product Candidates, If Approved. Our Business Could Be Harmed If The Third Parties Fail To Provide Us With Sufficient Quantities Of Product Inputs Or Fail To Do So At Acceptable Quality Levels Or Prices.

 

We do not currently own any facility that may be used as our clinical-scale manufacturing and processing facility and must eventually rely on outside vendors to manufacture supplies and process our product candidates. We have not yet caused any product candidates to be manufactured or processed on a commercial scale and may not be able to do so for any of our product candidates. We will make changes as we work to optimize the manufacturing process, and we cannot be sure that even minor changes in the process will result in therapies that are safe and effective.

 

The facilities used by our contract manufacturers to manufacture our product candidates must be approved by the FDA or other foreign regulatory agencies pursuant to inspections that will be conducted after we submit an application to the FDA or other foreign regulatory agencies. We will not control the manufacturing process of, and will be completely dependent on, our contract manufacturing partners for compliance with regulatory requirements, known as cGMP requirements, for manufacture of our product candidates. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or other regulatory authorities, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. In addition, we have no control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved.

 

Our Relationships With Healthcare Providers, Physicians, And Third-party Payors Will Be Subject To Applicable Anti-kickback, Fraud And Abuse And Other Healthcare Laws And Regulations, Which Could Expose Us To Criminal Sanctions, Civil Penalties, Exclusion From Government Healthcare Programs, Contractual Damages, Reputational Harm And Diminished Profits And Future Earnings.

 

Although we do not currently have any drugs on the market, once we begin commercializing our product candidates, if ever, we will be subject to additional healthcare statutory and regulatory requirements and enforcement by the federal government and the states and foreign governments in which we conduct our business.

 

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Healthcare providers, physicians and third-party payors play a primary role in the recommendation and prescription of any product candidates that we may develop for which we obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell, and distribute our product candidates for which we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations include the following:

 

   

the federal Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order, or recommendation of, any good or service, for which payment may be made under a state or Federal healthcare program, such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. Violation of the statute may give rise to criminal and/or civil penalties;

 

   

the federal civil and criminal false claims laws, including the civil False Claims Act, impose criminal and civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for, among other things, knowingly presenting, or causing to be presented, to the federal government, claims for payment or approval from Medicare, Medicaid, or other government payors that are false, fictitious or fraudulent or knowingly making, using or causing to be made or used a false record or statement to avoid, decrease or conceal an obligation to pay money to the federal government, with potential liability including mandatory treble damages and significant per-claim penalties, currently set at $5,500 to $11,000 per false claim. In addition, the government may assert that a claim including items and services resulting from a violation of the federal Anti-Kickback Statute constitutes a false of fraudulent claim for purposes of the False Claims Act;

 

   

the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as further amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their implementing regulations which impose certain requirements on covered entities, including healthcare providers, health plans and healthcare clearing houses, as well as their business associates that perform certain services with respect to safeguarding the privacy, security and transmission of individually identifiable health information that constitutes protected health information, including mandatory contractual terms and restrictions on the use and/or disclosure of such information without appropriate authorization;

 

   

the federal false statements statute prohibits knowingly and willfully falsifying, concealing, or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items, or services; similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

 

   

the federal physician payment transparency requirements, sometimes referred to as the “Sunshine Act” under the Affordable Care Act, require manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program to report to the Department of Health and Human Services information related to physician payments and other transfers of value to physicians and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate family members and applicable group purchasing organizations; and

 

   

analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to healthcare items or services that are reimbursed by non-governmental third-party payors, including private insurers.

 

Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of

 

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such laws. If our operations are found to be in violation of any of the laws described above or any other government regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from participation in government health care programs, such as Medicare and Medicaid, imprisonment, and the curtailment or restructuring of our operations, any of which could adversely affect our business, financial condition, results of operations, and prospects.

 

The provision of benefits or advantages to physicians to induce or encourage the prescription, recommendation, endorsement, purchase, supply, order, or use of medicinal products is prohibited in the European Union. The provision of benefits or advantages to physicians is also governed by the national anti-bribery laws of European Union Member States, such as the UK Bribery Act 2010. Infringement of these laws could result in substantial fines and imprisonment.

 

Payments made to physicians in certain European Union Member States must be publicly disclosed. Moreover, agreements with physicians often must be the subject of prior notification and approval by the physician’s employer, his or her competent professional organization, and/or the regulatory authorities of the individual European Union Member States. These requirements are provided in the national laws, industry codes, or professional codes of conduct applicable in the European Union Member States. Failure to comply with these requirements could result in reputational risk, public reprimands, administrative penalties, fines, or imprisonment.

 

Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations, or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations, including anticipated activities to be conducted by our sales team, are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal, and administrative penalties, damages, fines, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities with whom we expect to do business are found to be not in compliance with applicable laws, they may be subject to criminal, civil, or administrative sanctions, including exclusions from government funded healthcare programs. Liabilities they incur pursuant to these laws could result in significant costs or an interruption in operations, which could have a material adverse effect on our business, financial condition, results of operations, and prospects.

 

Risks Related to Employee Matters, Managing Growth and Other Risks Related to Our Business

 

Our Future Success Depends On Our Ability To Retain Key Executives And To Attract, Retain And Motivate Qualified Personnel.

 

We are highly dependent on the research and development, clinical, commercial and business development expertise of Dr. Rodger Novak, our President and Chief Executive Officer, Dr. Sven Ante (Bill) Lundberg, our Chief Scientific Officer, Dr. Samarth Kulkarni, our Chief Business Officer, as well as the other principal members of our management, scientific and clinical team. Although we have entered into employment letter agreements with our executive officers, each of them may terminate their employment with us at any time. We do not maintain “key person” insurance for any of our executives or other employees. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. The loss of the services of our executive officers or other key employees or consultants could impede the achievement of our research, development and commercialization objectives and seriously harm our ability to successfully implement our business strategy. If we are unable to retain high quality personnel, our ability to pursue our growth strategy will be limited.

 

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We will also need to recruit and retain qualified scientific and clinical personnel as we advance the development of our product candidates and product pipeline. We may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. Failure to succeed in clinical trials may make it more challenging to recruit and retain qualified scientific personnel.

 

In addition, being organized in Switzerland may restrict our ability to attract, motivate and retain the required level of qualified personnel. In Switzerland, new legislation affecting public companies has been passed that, among other things, (i) imposes an annual binding shareholders’ “say on pay” vote with respect to the compensation of executive management, including executive officers and the board of directors; (ii) prohibits severance, advances, transaction premiums and similar payments to executive officers and directors; and (iii) requires companies to specify various compensation-related matters in their articles of association, thus requiring them to be approved by a shareholders’ vote.

 

We Will Need To Develop And Expand Our Company, And We May Encounter Difficulties In Managing This Development And Expansion, Which Could Disrupt Our Operations.

 

As of September 2, 2016, we had 77 full-time employees and, in connection with becoming a public company, we expect to increase our number of employees and the scope of our operations. To manage our anticipated development and expansion, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Also, our management may need to divert a disproportionate amount of its attention away from its day-to-day activities and devote a substantial amount of time to managing these development activities. Due to our limited resources, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. This may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. The physical expansion of our operations may lead to significant costs and may divert financial resources from other projects, such as the development of our product candidates. If our management is unable to effectively manage our expected development and expansion, our expenses may increase more than expected, our ability to generate or increase our revenue could be reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize our product candidates, if approved, and compete effectively will depend, in part, on our ability to effectively manage the future development and expansion of our Company.

 

Our Employees, Principal Investigators, Consultants And Commercial Partners May Engage In Misconduct Or Other Improper Activities, Including Non-compliance With Regulatory Standards And Requirements And Insider Trading.

 

We are exposed to the risk of fraud or other misconduct by our employees, consultants, and commercial partners, and, if we commence clinical trials, our principal investigators. Misconduct by these parties could include intentional failures to comply with FDA regulations or the regulations applicable in the European Union and other jurisdictions, provide accurate information to the FDA, the European Commission, and other regulatory authorities, comply with healthcare fraud and abuse laws and regulations in the United States and abroad, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs, and other business arrangements. Such misconduct also could involve the improper use of information obtained in the course of clinical trials or interactions with the FDA or other regulatory authorities, which could result in regulatory sanctions and cause serious harm to our reputation. We intend to adopt, prior to the completion of this offering, a code of conduct applicable to all of our employees, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may

 

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not be effective in controlling unknown or unmanaged risks or losses or in protecting us from government investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. Additionally, we are subject to the risk that a person could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, financial condition, results of operations, and prospects, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

 

If We Fail To Comply With Environmental, Health And Safety Laws And Regulations, We Could Become Subject To Fines Or Penalties Or Incur Costs That Could Harm Our Business.

 

We will become subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations will involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also may produce hazardous waste products. We generally anticipate contracting with third parties for the disposal of these materials and wastes. We will not be able to eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from any use by us of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations.

 

Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological or hazardous materials.

 

In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Our failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

 

Product Liability Lawsuits Against Us Could Cause Us To Incur Substantial Liabilities And Could Limit Commercialization Of Any Product Candidates That We May Develop.

 

We will face an inherent risk of product liability exposure related to the testing of our product candidates in human clinical trials and will face an even greater risk if we commercially sell any product candidates that we may develop. If we cannot successfully defend ourselves against claims that our product candidates caused injuries, we could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

 

   

decreased demand for any product candidates that we may develop;

 

   

injury to our reputation and significant negative media attention;

 

   

withdrawal of clinical trial participants;

 

   

significant costs to defend the related litigation;

 

   

substantial monetary awards to trial participants or patients;

 

   

loss of revenue; and

 

   

the inability to commercialize any product candidates that we may develop.

 

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Although we maintain product liability insurance coverage, it may not be adequate to cover all liabilities that we may incur. We anticipate that we will need to increase our insurance coverage when we begin clinical trials and if we successfully commercialize any product candidate. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.

 

If We Fail To Establish And Maintain Proper And Effective Internal Control Over Financial Reporting, Our Operating Results And Our Ability To Operate Our Business Could Be Harmed.

 

Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. In connection with this offering, we intend to begin the process of documenting, reviewing and improving our internal controls and procedures for compliance with Section 404 of the Sarbanes-Oxley Act of 2002, or SOX, which will require annual management assessment of the effectiveness of our internal control over financial reporting. We have begun recruiting additional finance and accounting personnel with certain skill sets that we will need as a public company.

 

Implementing any appropriate changes to our internal controls may distract our officers and employees, entail substantial costs to modify our existing processes and take significant time to complete. These changes may not, however, be effective in maintaining the adequacy of our internal controls, and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements on a timely basis, could increase our operating costs and harm our business. In addition, investors’ perceptions that our internal controls are inadequate or that we are unable to produce accurate financial statements on a timely basis may harm our common share price and make it more difficult for us to effectively market and sell our service to new and existing customers.

 

Our Internal Computer Systems, Or Those Of Our Collaborators Or Other Contractors Or Consultants, May Fail Or Suffer Security Breaches, Which Could Result In A Material Disruption Of Our Product Development Programs.

 

Our internal computer systems and those of our current and any future collaborators and other contractors or consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any such material system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a disruption of our development programs and our business operations, whether due to a loss of our trade secrets or other proprietary information or other similar disruptions. For example, the loss of clinical trial data from future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability, our competitive position could be harmed and the further development and commercialization of our product candidates could be delayed.

 

Our Business Is Subject To Economic, Political, Regulatory And Other Risks Associated With International Operations.

 

Our business is subject to risks associated with conducting business internationally. We and a number of our suppliers and collaborative and clinical study relationships are located outside the United States. Accordingly, our future results could be harmed by a variety of factors, including:

 

   

economic weakness, including inflation, or political instability in particular non-U.S. economies and markets;

 

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differing regulatory requirements for drug approvals in non-U.S. countries;

 

   

potentially reduced protection for intellectual property rights;

 

   

difficulties in compliance with non-U.S. laws and regulations;

 

   

changes in non-U.S. regulations and customs, tariffs and trade barriers;

 

   

changes in non-U.S. currency exchange rates and currency controls;

 

   

changes in a specific country’s or region’s political or economic environment;

 

   

trade protection measures, import or export licensing requirements or other restrictive actions by U.S. or non-U.S. governments;

 

   

negative consequences from changes in tax laws;

 

   

compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;

 

   

workforce uncertainty in countries where labor unrest is more common than in the United States;

 

   

difficulties associated with staffing and managing international operations, including differing labor relations;

 

   

production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and

 

   

business interruptions resulting from geo-political actions, including war and terrorism, or natural disasters including floods and fires.

 

Risks Related to Intellectual Property

 

If We Are Unable To Adequately Protect Our Proprietary Technology Or Obtain And Maintain Patent Protection For The Products We Develop And For Our Technology And Product Candidates, Or If The Scope Of The Patent Protection Obtained Is Not Sufficiently Broad, Our Competitors Could Develop And Commercialize Products And Technology Similar Or Identical To Ours, And Our Ability To Successfully Commercialize Any Product Candidates We May Develop, And Our Technology May Be Adversely Affected.

 

Our success depends in large part on our ability to obtain and maintain proprietary or intellectual property protection in the United States and other countries with respect to our CRISPR/Cas9 platform technology and any proprietary product candidates and technology we develop. Currently, no patents covering our CRISPR/Cas9 platform or product candidates have been issued to us in the United States and one of the patent applications we have licensed that may cover our platform is the subject of an interference proceeding at the United States Patent and Trademark Office, or USPTO, which is discussed below. We seek to protect our proprietary position by in-licensing intellectual property to cover our platform technology and filing patent applications in the United States and abroad related to our technologies and product candidates that are important to our business. We also rely on trade secrets, know-how and continuing technological innovation to develop and maintain our proprietary and intellectual property position. If we or our licensors are unable to obtain or maintain patent protection with respect to our CRISPR/Cas9 platform technology and any proprietary products and technology we develop, our business, financial condition, results of operations and prospects could be materially harmed.

 

The scope of patent protection that will be available to us in the United States and in other countries is uncertain. Changes in either the patent laws or their interpretation in the United States and other countries may diminish our ability to protect our inventions, obtain, maintain and enforce our intellectual property rights and, more generally, could affect the value of our intellectual property or narrow the scope of our owned and licensed patents. With respect to both in-licensed and owned intellectual property, we cannot predict whether the patent applications we and our licensors are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued patents will provide sufficient protection from competitors, or if any such patents will be found invalid, unenforceable or not infringed if challenged by our competitors.

 

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The patent prosecution process is expensive, time-consuming, and complex, and we may not be able to file, prosecute, maintain, enforce, or license all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output in time to obtain patent protection. Although we enter into non-disclosure and confidentiality agreements with parties who have access to confidential or patentable aspects of our research and development output, such as our employees, corporate collaborators, outside scientific collaborators, CROs, contract manufacturers, consultants advisors, and other third parties, any of these parties may breach the agreements and disclose such output before a patent application is filed, thereby jeopardizing our ability to seek patent protection. In addition, publications of discoveries in the scientific literature often lag behind the actual discoveries and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot know with any degree of certainty whether the inventors of our licensed patents and applications were the first to make the inventions claimed in our owned or any licensed patents or pending patent applications, or that we were the first to file for patent protection of such inventions.

 

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions, and has been the subject of much litigation in recent years. As a result, the issuance, scope, validity, enforceability, and commercial value of our patent rights are highly uncertain. Our pending and future patent applications may not result in patents being issued which protect our technology or product candidates or which effectively prevent others from commercializing competitive technologies and product candidates.

 

Moreover, the coverage claimed in a patent application can be significantly reduced before the patent is issued, and its scope can be reinterpreted after issuance. Even if patent applications we license or own currently or in the future issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors or other third parties from competing with us, or otherwise provide us with any competitive advantage. Any patents that we hold or in-license may be challenged, narrowed, circumvented, or invalidated by third parties. Consequently, we do not know whether any of our platform advances and product candidates will be protectable or remain protected by valid and enforceable patents. Our competitors or other third parties may be able to circumvent our patents by developing similar or alternative technologies or products in a non-infringing manner. For example, we are aware that third parties have suggested the use of the CRISPR technology in conjunction with a protein other than Cas9. Our owned and in-licensed patents may not cover such technology. If our competitors commercialize the CRISPR technology in conjunction with a protein other than Cas9, our business, financial condition, results of operations, and prospects could be materially adversely affected.

 

The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability and our patents may be challenged in the courts or patent offices in the United States and abroad. We may be subject to a third party preissuance submission of prior art to the USPTO or other patent office abroad or become involved in opposition, derivation, revocation, reexamination, post-grant review and inter partes review, or interference proceedings, or litigation challenging our patent rights or the patent rights of others. Indeed, certain of our fundamental intellectual property has been subject to third party observations outside the United States and interference proceedings within the United States. Competitors may claim that they invented the inventions claimed in such issued patents or patent applications prior to our inventors, or may have filed patent applications before our inventors did. A competitor may also claim that our products and services infringe its patents and that we therefore cannot practice our technology as claimed under our patent applications, if issued. An adverse determination in any such claim may result in our inability to manufacture or commercialize products without infringing third-party patent rights. Competitors may also contest our patents, if issued, by showing that the invention was not patent-eligible, was not novel, was obvious or that the patent claims failed any other requirement for patentability. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights or allow third parties to commercialize our technology or products and compete directly with us, without payment to us. Moreover, we, or one of our licensors, may have to participate in additional interference proceedings declared by the USPTO to determine priority of invention or in post-grant challenge proceedings, such as oppositions in a foreign patent office, that challenge priority of

 

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invention or other features of patentability. Such challenges may result in loss of patent rights, loss of exclusivity or freedom to operate, or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and product candidates. Such proceedings also may result in substantial cost and require significant time from our scientists and management, even if the eventual outcome is favorable to us. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates.

 

We Are Required To Pay Royalties Under Our License Agreements With Third-party Licensors, And We Must Use Commercially Reasonable Diligence Efforts And Meet Milestones To Maintain Our License Rights.

 

Under our in-license agreements, including our in-license agreements with Dr. Emmanuelle Charpentier, we will be required to pay royalties based on our revenues from sales of our products utilizing the licensed technologies and these royalty payments could adversely affect the overall profitability for us of any products that we may seek to commercialize. Under each of our in-license agreements with, Dr. Charpentier, we have an obligation to use commercially reasonable efforts to develop and obtain regulatory approval to market a licensed therapeutic product. Our in-license agreements with Dr. Charpentier also include an obligation to file a U.S. Investigational New Drug application (or its equivalent in a major market country) by April 2021 and an obligation to file a U.S. Investigational New Drug application (or its equivalent in a major market country) by April 2024. We may not be successful in meeting these obligations in the future on a timely basis or at all. Our failure to meet these obligations may give Dr. Charpentier the right to terminate our license rights. We will need to outsource and rely on third parties for many aspects of the clinical development of the products covered under our license agreements. Delay or failure by these third parties could adversely affect our ability to meet our diligence obligations and the continuation of our license agreements with third-party licensors.

 

Some Of Our In-licensed Patent Applications Are Subject To Priority Disputes And Inventorship Disputes, Including An Active Interference Proceeding With The Broad Institute, Massachusetts Institute of Technology, President And Fellows of Harvard College, In Front Of The United States Patent And Trademark Office. In Addition, Our Owned And In-Licensed Patents And Other Intellectual Property May Be Subject To Further Priority Disputes Or To Inventorship Disputes And Similar Proceedings. If We Or Our Licensors Are Unsuccessful In Any Of These Proceedings, We May Be Required To Obtain Licenses From Third Parties, Which May Not Be Available On Commercially Reasonable Terms Or At All, Or To Cease The Development, Manufacture, And Commercialization Of One Or More Of The Product Candidates We May Develop, Which Could Have A Material Adverse Impact On Our Business.

 

In January 2016, at our request, the USPTO declared an interference between one of the pending U.S. patent applications we licensed from Dr. Emmanuelle Charpentier and twelve issued U.S. patents, and subsequently added one U.S. patent application, owned jointly by the Broad Institute and Massachusetts Institute of Technology and, in some instances, the President and Fellows of Harvard College, collectively referred to as the Broad. An interference is a proceeding conducted at the USPTO by the Patent Trial and Appeal Board, or PTAB, to determine which party was the first to invent subject matter claimed by both of these parties. There are currently two parties to this interference. Because our application was filed first, the USPTO designated Dr. Charpentier, the Regents of the University of California, or California, and the University of Vienna, or Vienna, collectively as “Senior Party” and designated Broad as “Junior Party.” Following motions by the parties and, potentially, a determination regarding which of the two parties was the first to invent, the PTAB might conclude that the contested subject matter is not patentable to the Senior Party and is patentable to the Junior Party, which in this case could preclude our U.S. patent applications from issuing as patents, in which case the proceedings would result in our losing the right to protect core innovations and our freedom to practice our core gene editing technology. If that happens, it would materially harm our business. Other outcomes could be more favorable to us. They include a determination that the contested subject matter is patentable to the Senior Party

 

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and not patentable to the Junior Party, which in this case could result in the cancellation of some or all of Broad’s claims. Intermediate outcomes could also occur, including a determination that the contested subject matter is not patentable to either party, or that the interference should be dismissed. Either party can appeal an adverse decision to the U.S. Court of Appeals for the Federal Circuit. In any case, it may be years before there is a final determination on priority. Pursuant to the terms of the license agreement with Dr. Charpentier, we are responsible for covering or reimbursing Dr. Charpentier’s patent prosecution defense and related costs associated with our in-licensed technology.

 

Furthermore, we may be involved in further interference proceedings or other disputes in the future. For example, ToolGen Inc., or ToolGen, filed Suggestions of Interference in the USPTO on April 13, 2015, and December 3, 2015, suggesting that they believe some of the claims in pending U.S. applications owned by ToolGen (U.S. Serial No. 14/685,568 and U.S. Serial No. 14/685,510, respectively) interfere with certain claims in five of the Broad patents currently involved in the interference with Dr. Emmanuelle Charpentier, California and Vienna. The USPTO may, in the future, declare an interference between our patent application and one or more ToolGen patent applications. We are also aware of additional third parties that have pending patent applications relating to CRISPR technologies, which similarly may or may not lead to further interference proceedings. For example, Rockefeller University has filed a continuation application (U.S. Serial No. 14/324,960) of an application filed by the Broad, but which names Rockefeller’s employee Luciano Marraffini as co-inventor of CRISPR/Cas9 technology; Vilnius University has filed applications in the United States and abroad (published internationally as WO2013/141680 and WO2013/142578), Harvard University has filed applications in the United States and abroad (published internationally as WO2014/099744), and Sigma-Aldrich has filed applications in the United States and abroad (published internationally as WO2014/089290), each claiming aspects of CRISPR/Cas9 technology based on applications claiming priority to provisional filings in 2012. Numerous other filings are based on provisional applications filed after 2012.

 

Both Broad and Toolgen have filed international counterparts of their U.S. applications, some of which were granted in Europe and/or other foreign jurisdictions. We and third parties have initiated opposition proceedings against some of these grants, and we may in the future oppose other grants to these or other applicants. Similarly, our intellectual property may in the future become involved in opposition proceedings in Europe or other foreign jurisdictions.

 

If we or our licensors are unsuccessful in any interference proceedings or other priority or validity disputes (including any patent oppositions) to which we or they are subject or become subject to, we may lose valuable intellectual property rights through the loss or narrowing of one or more of our patent applications. If we or our licensors are unsuccessful in any interference proceeding or other dispute, we may be required to seek to obtain and maintain licenses from third parties, including parties involved in any such interference proceedings or other disputes. These third parties would be under no obligation to grant to us any such license and such licenses may not be available on commercially reasonable terms or at all, or may be non-exclusive. If we are unable to obtain and maintain such licenses, we and our partners may need to cease the practice of our core gene editing, and the development, manufacture, and commercialization of one or more of the product candidates we may develop. The loss of exclusivity or the narrowing of our patent claims could limit our ability to stop others from using or commercializing similar or identical technology and products. Any of the foregoing could result in a material adverse effect on our business, financial condition, results of operations, or prospects. If we are unsuccessful in the interference proceedings with Broad, we and our partners may be blocked from commercializing any products based on our core gene editing technology. Even if we are successful in an interference proceeding or other similar disputes, it could result in substantial costs and be a distraction to management and other employees.

 

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The Intellectual Property That Protects Our Core Gene editing Technology Is Jointly Owned, And Our License Is From Only One Of The Joint Owners, Materially Limiting Our Rights In The United States And Abroad.

 

The family of patent applications we have in-licensed from Dr. Emmanuelle Charpentier is the foundational patent protection for our core gene editing technology. However, that family includes other named inventors who assigned their rights either to California or to Vienna. As such, the intellectual property is currently co-owned by Dr. Charpentier, California, and Vienna. Although we have in-licensed Dr. Charpentier’s rights to the intellectual property, we do not have a license to California or Vienna’s rights to the intellectual property. As explained more fully below, that leaves us in a position of holding only non-exclusive rights to the patent rights that protect our core gene editing technology.

 

In the absence of an agreement among co-owners, jointly owned patent rights are subject to default rules pertaining to the rights and obligations of joint owners, which vary by jurisdiction, and in some countries we may not even have valid non-exclusive rights to that technology. For example, some countries, in particular European countries, require the consent of all joint owners to exploit, license or assign jointly owned patents. We did not receive consents from California or Vienna before entering into our license agreements with Dr. Emmanuelle Charpentier. Accordingly, unless and until we receive such consents, our license agreements may not be recognized in those countries requiring co-owner consent to a license. In countries where our license is not recognized, we may be subject to claims of patent infringement by California and/or Vienna to the extent that we are doing business in those countries or choose to do business there in the future. Even in countries that do not require co-owner consent to a license, we may be prohibited from exploiting the intellectual property, or we may be required to pay certain monies to California or Vienna to account for our exploitation of the intellectual property in those countries. As a result, in the absence of an agreement with California and Vienna, there may be countries in which we are unable to do business, or unable to do business on commercially reasonable terms, which could impact our commercialization plans and the willingness of strategic partners and other third parties to do business with us.

 

In the United States, each co-owner has the freedom to license and exploit the technology. As a result, we do not have exclusive access to any intellectual property rights that Dr. Emmanuelle Charpentier co-owns with another entity, such as California and Vienna. Our license with Dr. Charpentier is therefore non-exclusive with respect to such co-owned rights. Furthermore, in the United States each co-owner is required to be joined as a party to any claim or action we may wish to bring to enforce those patent rights. Moreover, in the United States, non-exclusive licenses have no standing to bring a patent infringement action before a court. Therefore, for the patents owned with California and Vienna we have no ability to pursue third party infringement claims without cooperation of California and Vienna and potentially their licensees. If we are unable to enforce our core patent rights licensed from Dr. Charpentier, we may be unable to prevent third parties from competing with us and may be unable to persuade companies to sublicense our technology, either of which could have a material adverse effect on our business.

 

If We Experience Disputes With The Third Parties That We In-license Intellectual Property Rights From, We Could Lose License Rights That Are Important To Our Business.

 

We license our foundational intellectual property from a third party, and we expect to continue to in-license additional third-party intellectual property rights as we expand our CRISPR/Cas9 gene-editing technology. Disputes may arise with the third parties from whom we license our intellectual property rights from for a variety of reasons, including:

 

   

the scope of rights granted under the license agreement and other interpretation-related issues;

 

   

the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;

 

   

the sublicensing of patent and other rights under our collaborative development relationships and obligations associated with sublicensing;

 

   

our diligence obligations under the license agreement and what activities satisfy those diligence obligations;

 

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the inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners; and

 

   

the priority of invention of patented technology.

 

In addition, the agreements under which we currently license intellectual property or technology from third parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations, or may conflict in such a way that puts us in breach of one or more agreements, which would make us suspectible to lengthy and expensive disputes with one or more of our licensing partners. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our financial or other obligations under the relevant agreement, either of which could have a material adverse effect on our business, financial condition, results of operations, and prospects. Moreover, if disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on commercially acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates, which could have a material adverse effect on our business, financial conditions, results of operations, and prospects.

 

We May Not Be Successful In Obtaining Necessary Rights To Any Product Candidates We May Develop Through Acquisitions And In-licenses.

 

We currently have rights to intellectual property, through in-licenses from third parties, to identify and develop product candidates. Many pharmaceutical companies, biotechnology companies, and academic institutions are competing with us in the field of gene-editing technology and filing patent applications potentially relevant to our business. For example, we are aware of several third party patent applications that, if issued, may be construed to cover our CRISPR/Cas9 technology and product candidates. In order to avoid infringing these third party patents, we may find it necessary or prudent to obtain licenses from such third party intellectual property holders. We may also require licenses from third parties for certain modified or improved components of CRISPR/Cas9 technology, such as modified nucleic acids, as well as non-CRISPR/Cas9 technologies such as delivery methods that we are evaluating for use with product candidates we may develop. In addition, with respect to any patents we co-own with third parties, we may require licenses to such co-owners’ interest to such patents. However, we may be unable to secure such licenses or otherwise acquire or in-license any compositions, methods of use, processes, or other intellectual property rights from third parties that we identify as necessary for product candidates we may develop and CRISPR/Cas9 technology. The licensing or acquisition of third party intellectual property rights is a competitive area, and several more established companies may pursue strategies to license or acquire third party intellectual property rights that we may consider attractive or necessary. These established companies may have a competitive advantage over us due to their size, capital resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third party intellectual property rights on terms that would allow us to make an appropriate return on our investment or at all. If we are unable to successfully obtain rights to required third party intellectual property rights or maintain the existing intellectual property rights we have, we may have to abandon development of the relevant program or product candidate, or discontinue the practice of our core CRISPR/Cas9 gene-editing technology, which could have a material adverse effect on our business, financial condition, results of operations, and prospects.

 

Issued Patents Covering Our Technology And Product Candidates Could Be Found Invalid Or Unenforceable If Challenged In Court.

 

If we or one of our licensors initiated legal proceedings against a third party to enforce a patent covering a product candidate we may develop or our technology, including CRISPR/Cas9, the defendant could counterclaim that such patent is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, or non-enablement.

 

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Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. Third parties have raised challenges to the validity of certain of our in-licensed patent applications, such as our in-licensed CRISPR/Cas9 patent applications in the context of third party observations filed in Europe, and may in the future raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Mechanisms for challenging the validity of patents in patent offices include re-examination, post-grant review, inter partes review, interference proceedings, derivation proceedings, and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings). Such proceedings could result in the loss of our patent applications or patents, or their narrowing in such a way that they no longer cover our technology or platform, or any product candidates that we may develop. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art. If a third party were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our technology or platform, or any product candidates that we may develop. Such a loss of patent protection would have a material adverse impact on our business, financial condition, results of operations, and prospects.

 

The Intellectual Property Landscape Around Gene-Editing Technology, Including CRISPR/Cas9, Is Highly Dynamic, And Third Parties May Initiate And Prevail In Legal Proceedings Alleging That The Patents That We In-License Or Own Are Invalid Or That We Are Infringing, Misappropriating, Or Otherwise Violating Their Intellectual Property Rights, The Outcome Of Which Would Be Uncertain And Could Have A Material Adverse Effect On The Success Of Our Business.

 

The field of gene editing, especially in the area of CRISPR/Cas9 technology, is still in its infancy, and no such products have reached the market. Due to the intense research and development that is taking place by several companies, including us and our competitors, in this field, the intellectual property landscape is in flux, and it may remain uncertain for the coming years. There may be significant intellectual property related litigation and proceedings, in addition to the ongoing interference proceedings, relating to our owned and in-licensed, and other third party, intellectual property and proprietary rights in the future.

 

Our commercial success depends upon our ability and the ability of our collaborators to develop, manufacture, market, and sell any product candidates that we may develop and use our proprietary technologies without infringing, misappropriating, or otherwise violating the intellectual property and proprietary rights of third parties. The biotechnology and pharmaceutical industries are characterized by extensive litigation regarding patents and other intellectual property rights. We are subject to and may in the future become party to, or threatened with, adversarial proceedings or litigation regarding intellectual property rights with respect to our technology and any product candidates we may develop, including re-examination interference proceedings, post-grant review, inter partes review, and derivation proceedings before the USPTO and similar proceedings in foreign jurisdictions such as oppositions before the European Patent Office. Third parties, including parties involved in ongoing interference proceedings, may assert infringement claims against us based on existing patents or patents that may be granted in the future, regardless of their merit. We are aware of certain third party patents and patent applications including, for example, the Broad patents involved in the current interference proceeding described above that may be asserted to encompass our CRISPR/Cas9 technology. If we are unable to prove that these patents are invalid and we are not able to obtain or maintain a license on commercially reasonable terms, such third parties could potentially assert infringement claims against us, which could have a material adverse effect on the conduct of our business. If we are found to infringe such third party patents, we and our partners may be required to pay damages, cease commercialization of the infringing technology, including our core CRISPR/Cas9 gene-editing technology, or obtain a license from such third parties, which may not be available on commercially reasonable terms or at all. Additionally we have not performed any freedom-to-operate analysis on specific product candidates at this stage to identify potential infringement risks. A proper analysis of that type will not be feasible until specific product candidates are designed.

 

Even if we believe third-party intellectual property claims are without merit, there is no assurance that a court would find in our favor on questions of infringement, validity, enforceability, ownership, or priority. A

 

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court of competent jurisdiction could hold that these third party patents are valid, enforceable, and infringed, which could materially and adversely affect our ability to commercialize any product candidates we may develop and any other product candidates or technologies covered by the asserted third party patents. In order to successfully challenge the validity of any such U.S. patent in federal court, we would need to overcome a presumption of validity. As this burden is a high one requiring us to present clear and convincing evidence as to the invalidity of any such U.S. patent claim, there is no assurance that a court of competent jurisdiction would invalidate the claims of any such U.S. patent. If we are found to infringe a third party’s intellectual property rights, and we are unsuccessful in demonstrating that such patents are invalid or unenforceable, we could be required to obtain a license from such third party to continue developing, manufacturing, and marketing any product candidates we may develop and our technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors and other third parties access to the same technologies licensed to us, and it could require us to make substantial licensing and royalty payments. We also could be forced, including by court order, to cease developing, manufacturing, and commercializing the infringing technology or product candidates. In addition, we could be found liable for significant monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed a patent or other intellectual property right. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar material adverse effect on our business, financial condition, results of operations, and prospects.

 

Intellectual Property Litigation Could Cause Us To Spend Substantial Resources And Distract Our Personnel From Their Normal Responsibilities.

 

Litigation or other legal proceedings relating to intellectual property claims, with or without merit, is unpredictable and generally expensive and time-consuming and is likely to divert significant resources from our core business, including distracting our technical and management personnel from their normal responsibilities and generally harm our business. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation in certain countries, including the United States, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common shares. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities.

 

We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing or misappropriating or successfully challenging our intellectual property rights. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.

 

Obtaining And Maintaining Our Patent Protection Depends On Compliance With Various Procedural, Document Submission, Fee Payment, And Other Requirements Imposed By Government Patent Agencies And Our Patent Protection Could Be Reduced Or Eliminated For Non-compliance With These Requirements.

 

Periodic maintenance fees, renewal fees, annuity fees and various other government fees on patents and applications will be due to be paid to the USPTO and various government patent agencies outside of the United States over the lifetime of our owned or licensed patents and applications. In certain circumstances, we rely on our licensing partners to pay these fees due to U.S. and non-U.S. patent agencies. The USPTO and various non-U.S. government agencies require compliance with several procedural, documentary, fee payment, and other similar provisions during the patent application process. In addition, periodic maintenance fees on issued patents

 

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often must be paid to the USPTO and foreign patent agencies over the lifetime of the patent. We are also dependent on our licensors to take the necessary action to comply with these requirements with respect to our licensed intellectual property. In some cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. There are situations, however, in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in a partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we or our licensors fail to maintain the patents and patent applications covering our product candidates, we may not be able to stop a competitor from marketing drugs that are the same as or similar to our product candidates, which would have a material adverse effect on our business.

 

Some Intellectual Property Which We Have In-licensed May Have Been Discovered Through Government Funded Programs And Thus May Be Subject To Federal Regulations Such As “march-in” Rights, Certain Reporting Requirements And A Preference For U.S.-based Manufacturers. Compliance With Such Regulations May Limit Our Exclusive Rights, And Limit Our Ability To Contract With Non-U.S. Manufacturers.

 

The intellectual property rights to which we have in-licensed under Dr. Emmanuelle Charpentier’s joint interest are co-owned by California, which has indicated that the invention was made under Grant No. GM081879 awarded by the National Institute of Health. These rights are therefore subject to certain federal regulations. The U.S. government has certain rights pursuant to the Bayh-Dole Act of 1980, or Bayh-Dole Act, to patents covering government rights in certain inventions developed under a government-funded program. These rights include a non-exclusive, non-transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the U.S. government has the right to require us to grant exclusive, partially exclusive, or non-exclusive licenses to any of these inventions to a third party if it determines that: (i) adequate steps have not been taken to commercialize the invention; (ii) government action is necessary to meet public health or safety needs; or (iii) government action is necessary to meet requirements for public use under federal regulations, also referred to as “march-in rights.” The U.S. government also has the right to take title to these inventions if we, or the applicable contractor, fail to disclose the invention to the government and fail to file an application to register the intellectual property within specified time limits. Intellectual property generated under a government funded program is also subject to certain reporting requirements, compliance with which may require us or the applicable contractor to expend substantial resources. In addition, the U.S. government requires that any products embodying the subject invention or produced through the use of the subject invention be manufactured substantially in the United States. The manufacturing preference requirement can be waived if the owner of the intellectual property can show that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United States or that under the circumstances domestic manufacture is not commercially feasible. This preference for U.S. manufacturers may limit our ability to contract with non-U.S. product manufacturers for products covered by such intellectual property. To the extent any of our current or future patents covering inventions is generated through the use of U.S. government funding, the provisions of the Bayh-Dole Act may similarly apply.

 

We May Not Be Able To Protect Our Intellectual Property And Proprietary Rights Throughout The World.

 

Filing, prosecuting and defending patents on our product candidates in all countries throughout the world would be prohibitively expensive. The requirements for patentability may differ in certain countries, particularly in developing countries. Moreover, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual property laws. Additionally, the patent laws of some foreign countries do not afford intellectual property protection to the same extent as the laws of the United States. For example, unlike patent law in the United States, the patent law in Europe and many other jurisdictions precludes the patentability of methods of treatment of the human body and imposes substantial restrictions on the scope of claims it will grant if broader than specifically disclosed embodiments.

 

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Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not pursued and obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection but enforcement is not as strong as that in the United States. These products may compete with our product candidates, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets, and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our intellectual property and proprietary rights generally. Proceedings to enforce our intellectual property and proprietary rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly, could put our patent applications at risk of not issuing, and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property and proprietary rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

 

Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If we or any of our licensors is forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position may be impaired, and our business, financial condition, results of operations, and prospects may be adversely affected. Patent protection must ultimately be sought on a country-by-country basis, which is an expensive and time-consuming process with uncertain outcomes. Accordingly, we may choose not to seek patent protection in certain countries, and we will not have the benefit of patent protection in such countries.

 

Changes To The Patent Law In The United States And Other Jurisdictions Could Diminish The Value Of Patents In General, Thereby Impairing Our Ability To Protect Our Product Candidates.

 

As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involves both technological and legal complexity and is therefore costly, time consuming and inherently uncertain. Recent patent reform legislation in the United States and other countries, including the Leahy-Smith America Invents Act, or Leahy-Smith Act, signed into law on September 16, 2011, could increase those uncertainties and costs. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted, redefine prior art and provide more efficient and cost-effective avenues for competitors to challenge the validity of patents. In addition, the Leahy-Smith Act has transformed the U.S. patent system into a “first to file” system. The first-to-file provisions, however, only became effective on March 16, 2013. Accordingly, it is not yet clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could make it more difficult to obtain patent protection for our inventions and increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could harm our business, results of operations and financial condition.

 

The U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. For example, in Association for Molecular Pathology v. Myriad Genetics, Inc., the Supreme Court ruled that a “naturally occurring DNA segment is a product of nature and not patent eligible merely because it has been

 

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isolated,” and invalidated Myriad Genetics’s claims on the isolated BRCA1 and BRCA2 genes. Certain claims of our patents relate to CRISPR/Cas9 gene-editing technology as well as guide components that are directed to naturally occurring DNA sequences. To the extent that such claims are deemed to be directed to natural products, or to lack an inventive concept above and beyond an isolated natural product, a court may decide the claims are invalid under Myriad. Additionally, there have been recent proposals for additional changes to the patent laws of the United States and other countries that, if adopted, could impact our ability to obtain patent protection for our proprietary technology or our ability to enforce our proprietary technology. Depending on future actions by the U.S. Congress, the U.S. courts, the USPTO and the relevant law-making bodies in other countries, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future. Europe’s planned Unified Patent Court, scheduled to begin in 2017, may particularly present uncertainties for our ability to protect and enforce our patent rights against competitors in Europe. While that new court is being implemented to provide more certainty and efficiency to patent enforcement throughout Europe, it will also provide our competitors with a new forum to use to centrally revoke our European patents. It will be several years before we will understand the scope of patent rights that will be recognized and the strength of patent remedies that will be provided by that court. We will have the right to opt our patents out of that system over the first seven years of the court, but doing so may preclude us from realizing the benefits of the new unified court.

 

If We Are Unable To Protect The Confidentiality Of Our Trade Secrets, Our Business And Competitive Position Would Be Harmed.

 

In addition to seeking patents for some of our technology and product candidates, we also rely on trade secrets and confidentiality agreements to protect our unpatented know-how, technology, and other proprietary information and to maintain our competitive position. Trade secrets and know-how can be difficult to protect. In particular, we anticipate that with respect to our technology platform, these trade secrets and know-how will over time be disseminated within the industry through independent development, the publication of journal articles describing the methodology, and the movement of personnel from academic to industry scientific positions.

 

We seek to protect these trade secrets and other proprietary technology, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, CROs, contract manufacturers, consultants, advisors, and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants. We cannot guarantee that we have entered into such agreements with each party that may have or have had access to our trade secrets or proprietary technology and processes. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive, and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor or other third party, we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor or other third party, our competitive position would be materially and adversely harmed.

 

If We Do Not Obtain Patent Term Extension And Data Exclusivity For Any Product Candidates We May Develop, Our Business May Be Materially Harmed.

 

Depending upon the timing, duration and specifics of any FDA marketing approval of any product candidates we may develop, one or more of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Action of 1984, or Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent extension term of up to five years as compensation for patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term

 

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of a patent beyond a total of 14 years from the date of product approval, only one patent may be extended and only those claims covering the approved drug, a method for using it, or a method for manufacturing it may be extended. However, we may not be granted an extension because of, for example, failing to exercise due diligence during the testing phase or regulatory review process, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents, or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain patent term extension or term of any such extension is less than we request, we will be unable to rely on our patent position to forestall the marketing of competing products following our patent expiration, and our business, financial condition, results of operations, and prospects could be materially harmed.

 

Intellectual Property Rights Do Not Necessarily Address All Potential Threats.

 

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations and may not adequately protect our business or permit us to maintain our competitive advantage. For example:

 

   

others may be able to make gene therapy products that are similar to any product candidates we may develop or utilize similar gene therapy technology but that are not covered by the claims of the patents that we license or may own in the future;

 

   

we, or our license partners or current or future collaborators, might not have been the first to make the inventions covered by the issued patent or pending patent application that we license or may own in the future;

 

   

we, or our license partners or current or future collaborators, might not have been the first to file patent applications covering certain of our or their inventions;

 

   

others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our owned or licensed intellectual property rights;

 

   

it is possible that our pending licensed patent applications or those that we may own in the future will not lead to issued patents;

 

   

issued patents that we hold rights to may be held invalid or unenforceable, including as a result of legal challenges by our competitors;

 

   

our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;

 

   

we may not develop additional proprietary technologies that are patentable;

 

   

the patents of others may harm our business; and

 

   

we may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third party may subsequently file a patent covering such intellectual property.

 

Should any of these events occur, they could have a material adverse effect on our business, financial condition, results of operations, and prospects.

 

We May Be Subject To Claims That Our Employees, Consultants, Or Advisors Have Wrongfully Used Or Disclosed Alleged Trade Secrets Of Their Current Or Former Employers Or Claims Asserting Ownership Of What We Regard As Our Own Intellectual Property.

 

Many of our employees, consultants, and advisors are currently or were previously employed at universities or other biotechnology or pharmaceutical companies. Although we try to ensure that our employees, consultants, and advisors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these individuals have used or disclosed intellectual property, including trade secrets

 

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or other proprietary information, of any such individual’s current or former employer. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

 

In addition, while it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own. The assignment of intellectual property rights may not be self-executing, or the assignment agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property. Such claims could have a material adverse effect on our business, financial condition, results of operations, and prospects.

 

Risks Related to This Offering and Ownership of Our Common Shares

 

If You Purchase Our Common Shares In This Offering, You Will Incur Immediate And Substantial Dilution In The Book Value Of Your Shares.

 

You will suffer immediate and substantial dilution in the net tangible book value of our common shares you purchase in this offering. Assuming an initial public offering price of $16.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, after giving effect to this offering and the concurrent private placement, purchasers of common shares in this offering will experience immediate dilution of $10.06 per share in net tangible book value of our common shares. In addition, after giving effect to this offering and the concurrent private placement, investors purchasing common shares in this offering will contribute 24.3% of the total amount invested by shareholders since inception but will only own 11.8% of the common shares outstanding. In the past, we issued options and other securities to acquire common shares at prices significantly below the initial public offering price. To the extent these outstanding securities are ultimately exercised, investors purchasing common shares in this offering will sustain further dilution. See “Dilution” for a more detailed description of the dilution to new investors in the offering.

 

We Have Broad Discretion In How We Use The Proceeds Of This Offering And The Concurrent Private Placement And May Not Use These Proceeds Effectively, Which Could Affect Our Results Of Operations And Cause Our Common Share Price To Decline.

 

We will have considerable discretion in the application of the net proceeds of this offering and the concurrent private placement. We anticipate that we will use the net proceeds from this offering to advance the development of our hemoglobinpathy programs and to progress additional pipeline candidates and to further optimize our CRISPR/Cas9 gene editing platform and delivery technologies as well as for manufacturing, working capital and general corporate purposes, which may include funding for the hiring of additional personnel, capital expenditures and the costs of operating as a public company. As a result, investors will be relying upon management’s judgment with only limited information about our specific intentions for the use of the balance of the net proceeds of this offering and the concurrent private placement. We may use the net proceeds for purposes that do not yield a significant return or any return at all for our shareholders. In addition, pending their use, we may invest the net proceeds from this offering and the concurrent private placement in a manner that does not produce income or that loses value.

 

We Will Incur Increased Costs As A Result Of Operating As A Public Company And Our Management Will Be Required To Devote Substantial Time To New Compliance Initiatives And Corporate Governance Practices.

 

As a public company, and particularly after we are no longer an “emerging growth company,” we will incur significant legal, accounting and other expenses that we did not incur as a private company. SOX, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of The NASDAQ Global

 

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Market, and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. We expect that we will need to hire additional accounting, finance, and other personnel in connection with our becoming, and our efforts to comply with the requirements of being, a public company, and our management and other personnel will need to devote a substantial amount of time towards maintaining compliance with these requirements. These requirements will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that the rules and regulations applicable to us as a public company may make it more difficult and more expensive for us to obtain director and officer liability insurance, which could make it more difficult for us to attract and retain qualified members of our board of directors. Furthermore, in anticipation of becoming a public company, we will need to adopt additional internal controls and disclosure controls and procedures and bear all of the internal and external costs of preparing and distributing periodic public reports in compliance with our obligation under the securities laws. We are currently evaluating these rules and regulations and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

 

Pursuant to SOX Section 404, we will be required to furnish a report by our management on our internal control over financial reporting, including an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with SOX Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants, adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented, and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective as required by SOX Section 404. If we identify one or more material weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.

 

The Market Price Of Our Common Shares May Be Volatile And Fluctuate Substantially, Which Could Result In Substantial Losses For Investors Purchasing Shares In This Offering.

 

The initial public offering price for our common shares will be determined through negotiations with the underwriters. This initial public offering price may vary from the market price of our common shares after the offering. As a result, you may not be able to sell your common shares at or above the initial public offering price. Some of the factors that may cause the market price of our common shares to fluctuate include:

 

   

the success of existing or new competitive products or technologies;

 

   

the timing and results of any product candidates that we may develop;

 

   

commencement or termination of collaborations for our product development and research programs;

 

   

failure or discontinuation of any of our product development and research programs;

 

   

results of preclinical studies, clinical trials, or regulatory approvals of product candidates of our competitors, or announcements about new research programs or product candidates of our competitors;

 

   

developments or changing views regarding the use of genomic products, including those that involve gene editing;

 

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regulatory or legal developments in the United States and other countries;

 

   

developments or disputes concerning patent applications, issued patents, or other proprietary rights;

 

   

the recruitment or departure of key personnel;

 

   

the level of expenses related to any of our research programs, clinical development programs, or product candidates that we may develop;

 

   

the results of our efforts to discover, develop, acquire or in-license additional product candidates or products;

 

   

actual or anticipated changes in estimates as to financial results, development timelines, or recommendations by securities analysts;

 

   

announcement or expectation of additional financing efforts;

 

   

sales of our common shares by us, our insiders, or other shareholders;

 

   

expiration of market stand-off or lock-up agreement;

 

   

variations in our financial results or those of companies that are perceived to be similar to us;

 

   

changes in estimates or recommendations by securities analysts, if any, that cover our common shares;

 

   

changes in the structure of healthcare payment systems;

 

   

market conditions in the pharmaceutical and biotechnology sectors;

 

   

general economic, industry and market conditions; and

 

   

the other factors described in this “Risk Factors” section.

 

In recent years, the stock market in general, and the market for pharmaceutical and biotechnology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to changes in the operating performance of the companies whose stock is experiencing those price and volume fluctuations. Broad market and industry factors may seriously affect the market price of our common shares, regardless of our actual operating performance. These fluctuations may be even more pronounced in the trading market for our common shares shortly following this offering. Following periods of such volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. Because of the potential volatility of our common share price, we may become the target of securities litigation in the future. Securities litigation could result in substantial costs and divert management’s attention and resources from our business.

 

An Active Trading Market For Our Common Shares May Not Develop And You May Not Be Able To Resell Your Shares At Or Above The Initial Public Offering Price.

 

Prior to this offering, there has been no public market for shares of our common shares. Although we anticipate that our common shares will be approved for listing on NASDAQ, an active trading market for our shares may never develop or be sustained following this offering. The initial public offering price of our common shares will be determined through negotiations between us and the underwriters. This initial public offering price may not be indicative of the market price of our common shares after this offering. If a market for our common shares does not develop or is not sustained, it may be difficult for you to sell your common shares at an attractive price or at all. We cannot predict the prices at which our common shares will trade. It is possible that in one or more future periods our results of operations may be below the expectations of public market analysts and investors, and, as a result of these and other factors, the price of our common shares may fall.

 

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If Securities Analysts Do Not Publish Research Or Reports About Our Business Or If They Publish Negative Evaluations Of Our Common Shares, The Price Of Our Common Shares Could Decline.

 

The trading market for our common shares will rely in part on the research and reports that industry or financial analysts publish about us or our business. We may never obtain research coverage by industry or financial analysts. If no or few analysts commence coverage of us, the trading price of our common shares would likely decrease. Even if we do obtain analyst coverage, if one or more of the analysts covering our business downgrade their evaluations of our common shares, the price of our common shares could decline. If one or more of these analysts cease to cover our common shares, we could lose visibility in the market for our common shares, which in turn could cause our common share price to decline.

 

Sales Of A Substantial Number Of Our Common Shares In The Public Market Could Cause Our Share Price To Fall.

 

If our existing shareholders sell, or indicate an intention to sell, substantial amounts of our common shares in the public market after the lock-up and other legal restrictions on resale discussed in this prospectus lapse, the market price of our common shares could decline. Based upon the number of common shares, on an as-converted basis, outstanding as of June 30, 2016, upon the completion of this offering and the concurrent private placement, we will have outstanding a total of 39,748,134 common shares, assuming no exercise of the underwriters’ option to purchase an additional shares. Of these shares, as of the date of this prospectus, approximately 4,700,000 common shares, plus any shares sold upon exercise of the underwriters’ option to purchase additional shares, will be freely tradable, without restriction, in the public market immediately following this offering, assuming that current shareholders do not purchase shares in this offering. The representatives of the underwriters, however, may, in their sole discretion, permit our officers, directors and other shareholders who are subject to these lock-up agreements to sell shares prior to the expiration of the lock-up agreements.

 

The lock-up agreements pertaining to this offering will expire 180 days from the date of this prospectus. After the lock-up agreements expire, based upon the number of common shares, on an as-converted basis, outstanding as of June 30, 2016, and after giving effect to the issuance of 328,017 shares pursuant to the Call Option and the issuance of an assumed 2,187,500 shares to Bayer in the concurrent private placement, up to an additional 34,424,030 common shares will be eligible for sale in the public market, approximately 53% of which shares are held by directors, executive officers and other affiliates and will be subject to certain limitations of Rule 144 under the Securities Act of 1933, as amended, or the Securities Act.

 

Upon completion of this offering and the concurrent private placement, 2,709,572 common shares that are either subject to outstanding options or reserved for future issuance under our equity incentive plans will become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules, the lock-up agreements and Rule 144 and Rule 701 under the Securities Act. If these additional common shares are sold, or if it is perceived that they will be sold, in the public market, the market price of our common shares could decline.

 

After this offering and the concurrent private placement, the holders of approximately 27,135,884 common shares will be entitled to rights with respect to the registration of their shares under the Securities Act, subject to the lock-up agreements described above. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares purchased by affiliates. Any sales of securities by these shareholders could have a material adverse effect on the market our common shares.

 

Participants In Our Directed Share Program Must Hold Their Shares For A Minimum Of 180 Days Following The Date Of This Prospectus And Accordingly Will Be Subject To Market Risks Not Imposed On Other Investors In The Offering.

 

At our request, the underwriters have reserved up to 5% of the common shares for sale at the initial public offering price to persons who are directors, officers or employees, or who are otherwise associated with us through a directed share program. Purchasers of these shares have agreed that, for a period of 180 days from the

 

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date of this prospectus, they will not, subject to certain exceptions, dispose of or hedge any shares or any securities convertible into or exchangeable for our common shares with respect to shares purchased in the program. As a result of such restriction, such purchasers will face risks not faced by other investors who have the right to sell their shares at any time following the offering. These risks include the market risk of holding our common shares during the period that such restrictions are in effect. In addition, the price of our common shares may be adversely affected following expiration of the lock-up period if there is an increase in the number of shares for sale in the market.

 

We Are An “Emerging Growth Company,” And The Reduced Disclosure Requirements Applicable To Emerging Growth Companies May Make Our Common Shares Less Attractive To Investors.

 

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. We will remain an emerging growth company until the earlier of (i) the last day of the fiscal year in which we have total annual gross revenue of $1 billion or more; (ii) the last day of the fiscal year following the fifth anniversary of the date of the completion of this offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission, which means the market value of our common shares that is held by non-affiliates exceeds $700 million as of the prior June 30th. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:

 

   

not being required to comply with the auditor attestation requirements of Section 404 of SOX;

 

   

not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;

 

   

being permitted to present only two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure in this prospectus;

 

   

reduced disclosure obligations regarding executive compensation; and

 

   

exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

 

We may choose to take advantage of some, but not all, of the available exemptions. We have taken advantage of reduced reporting burdens in this prospectus. In particular, we have provided only two years of audited financial statements and have not included all of the executive compensation information that would be required if we were not an emerging growth company. We cannot predict whether investors will find our common shares less attractive if we rely on these exemptions. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and our common share price may be more volatile.

 

In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

 

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Our Executive Officers, Directors, Principal Shareholders And Their Affiliates Will Continue To Exercise Significant Influence Over Our Company After This Offering, Which Will Limit Your Ability To Influence Corporate Matters And Could Delay Or Prevent A Change In Corporate Control.

 

Certain principal shareholders and their affiliated entities as well as members of our executive team and board of directors owned approximately 84% of our common shares as of September 2, 2016, and we expect that upon completion of this offering and the concurrent private placement, will hold approximately 75% of our common shares. In addition, these shareholders may further increase their ownership in our Company pursuant to the directed share program. At our request, the underwriters have reserved 5% of the common shares for sale at the initial public offering price to persons who are directors, officers or employees, or individuals who are otherwise associated with us through a directed share program. Depending on the level of attendance at our general meetings of shareholders, these shareholders may be in a position to determine the outcome of decisions taken at any such general meeting. Any shareholder or group of shareholders controlling more than 50% of the shares represented at our general meetings of shareholders may control any shareholder resolution requiring an absolute majority of the shares represented, including the election of members to the board of directors of our Company, certain decisions relating to our capital structure, the approval of certain significant corporate transactions and certain amendments to our articles of association. To the extent that the interests of these shareholders may differ from the interests of our other shareholders, the latter may be disadvantaged by any action that these shareholders may seek to pursue. Among other consequences, this concentration of ownership may have the effect of delaying or preventing a change in control and might therefore negatively affect the market price of our common shares.

 

See “Principal Shareholders” in this prospectus for more information regarding the ownership of our outstanding common shares by our executive officers, directors, principal shareholders and their affiliates.

 

We Do Not Expect To Pay Dividends In The Foreseeable Future.

 

We have not paid any dividends since our incorporation. Even if future operations lead to significant levels of distributable profits, we currently intend that any earnings will be reinvested in our business and that dividends will not be paid until we have an established revenue stream to support continuing dividends. The proposal to pay future dividends to shareholders will in addition effectively be at the discretion of our board of directors and shareholders after taking into account various factors including our business prospects, cash requirements, financial performance and new product development. In addition, payment of future dividends is subject to certain limitations pursuant to Swiss law or by our articles of association. See “Description of Share Capital and Articles of Association.” Accordingly, investors cannot rely on dividend income from our common shares and any returns on an investment in our common shares will likely depend entirely upon any future appreciation in the price of our common shares. Dividends paid on our common shares are subject to Swiss federal withholding tax, except if paid out of reserves from capital contributions (“Kapitaleinlagen”). See “Taxation—Swiss Tax Considerations” for a summary of certain Swiss tax consequences regarding dividends distributed to holders of our common shares.

 

We Are A Swiss Corporation. The Rights Of Our Shareholders May Be Different From The Rights Of Shareholders In Companies Governed By The Laws Of U.S. Jurisdictions.

 

We are a Swiss corporation. Our corporate affairs are governed by our articles of association and by Swiss law. The rights of our shareholders and the responsibilities of members of our board of directors may be different from the rights and obligations of shareholders and directors of companies governed by the laws of U.S. jurisdictions. In the performance of its duties, our board of directors is required by Swiss law to consider the interests of our Company, our shareholders and our employees with due observation of the principles of reasonableness and fairness. It is possible that the board of directors will consider interests that are different from, or in addition to, your interests as a shareholder. Swiss corporate law limits the ability of our shareholders to challenge resolutions made or other actions taken by our board of directors in court. Our shareholders generally are not permitted to file a suit to reverse a decision or an action taken by our board of directors but are instead only permitted to seek damages for breaches of the duty of care and loyalty. As a matter of Swiss law, shareholder claims against a member of our

 

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board of directors for breach of the duty of care and loyalty would have to be brought in Basel, Switzerland, or where the relevant member of our board of directors is domiciled. In addition, under Swiss law, any claims by our shareholders against us must be brought exclusively in Basel, Switzerland. See “Description of Share Capital and Articles of Association” and “Comparison of Swiss Law and Delaware Law.”

 

We Will Need A Shareholders’ Resolution Regarding The Authorized Share Capital Increase, Which If Obtained, Could Be Blocked.

 

Prior to this offering, we will need to obtain a shareholder resolution for the increase in authorized share capital increase. Even if we get this approval, as with all share capital increases in Switzerland, the registration of the capital increase in the commercial register of the Canton of Basel-Stadt may be blocked by a shareholder and the underlying shareholders’ resolution may be challenged within two months after such shareholders’ meeting and, therefore, prevent or delay the completion of this offering.

 

Our Common Shares Are Issued Under The Laws Of Switzerland, Which May Not Protect Investors In A Similar Fashion Afforded By Incorporation In A U.S. State.

 

We are organized under the laws of Switzerland. A further summary of applicable Swiss company law is contained in this prospectus under “Description of Share Capital and Articles of Association” and “Comparison of Swiss Law and Delaware Law.” However, there can be no assurance that Swiss law will not change in the future or that it will serve to protect investors in a similar fashion afforded under corporate law principles in the U.S., which could adversely affect the rights of investors.

 

Our Status As A Swiss Corporation May Limit Our Flexibility With Respect To Certain Aspects Of Capital Management And May Cause Us To Be Unable To Make Distributions Without Subjecting Our Shareholders To Swiss Withholding Tax.

 

Swiss law allows our shareholders to authorize share capital that can be issued by the board of directors without additional shareholder approval. This authorization is limited to 50% of the existing registered share capital and must be renewed by the shareholders every two years. Additionally, subject to specified exceptions, Swiss law grants preemptive rights to existing shareholders to subscribe to any new issuance of shares. Swiss law also does not provide as much flexibility in the various terms that can attach to different classes of shares as the laws of some other jurisdictions. Swiss law also reserves for approval by shareholders certain corporate actions over which a board of directors would have authority in some other jurisdictions. For example, dividends must be approved by shareholders. These Swiss law requirements relating to our capital management may limit our flexibility, and situations may arise where greater flexibility would have provided substantial benefits to our shareholders.

 

Under Swiss law, a Swiss corporation may pay dividends only if the corporation has sufficient distributable profits from previous fiscal years, or if the corporation has distributable reserves, each as evidenced by its audited statutory balance sheet, and after allocations to reserves required by Swiss law and our articles of association have been deducted. Freely distributable reserves are generally booked either as “free reserves” or as “capital contributions” (Kapitaleinlagen, contributions received from shareholders) in the “reserve from capital contributions.” Distributions may be made out of registered share capital—the aggregate par value of a company’s registered shares—only by way of a capital reduction. We will not be able to pay dividends or make other distributions to shareholders on a Swiss withholding tax-free basis in excess of our aggregate qualifying contributions and registered share capital unless we increase our share capital or our reserves from capital contributions. We would also be able to pay dividends out of distributable profits or freely distributable reserves, but such dividends would be subject to Swiss withholding taxes. There can be no assurance that we will have sufficient distributable profits, free reserves, reserves from capital contributions or registered share capital to pay a dividend or effect a capital reduction, that our shareholders will approve dividends or capital reductions proposed by us or that we will be able to meet the other legal requirements for dividend payments or distributions as a result of capital reductions.

 

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Generally, Swiss withholding tax of 35% is due on dividends and similar distributions to our shareholders, regardless of the place of residency of the shareholder, unless the distribution is made to shareholders out of (i) a reduction of registered share capital or (ii) assuming certain conditions are met, qualifying capital contribution reserves, as further described under “Taxation—Swiss Tax Considerations—Swiss Federal Withholding Tax”. A U.S. holder that qualifies for benefits under the Convention between the United States of America and Switzerland for the Avoidance of Double Taxation with Respect to Taxes on Income, or the U.S.-Swiss Treaty, may apply for a refund of the tax withheld in excess of the 15% treaty rate (or in excess of the 5% reduced treaty rate for qualifying corporate shareholders with at least 10% participation in our voting shares, or for a full refund in the case of qualified pension funds). There can be no assurance that we will have sufficient qualifying capital contribution reserves to pay dividends free from Swiss withholding tax, or that Swiss withholding rules will not be changed in the future. In addition, we cannot provide assurance that the current Swiss law with respect to distributions out of qualifying capital contribution reserves will not be changed or that a change in Swiss law will not adversely affect us or our shareholders, in particular as a result of distributions out of qualifying capital contribution reserves becoming subject to additional corporate law or other restrictions. There are currently motions pending in the Swiss Parliament that may limit the distribution of qualifying capital contributions. In addition, over the long term, the amount of registered share capital available to us for registered share capital reductions or qualifying capital contributions available to us to pay out as distributions is limited. If we are unable to make a distribution through a reduction in par value or out of qualifying capital contributions, we may not be able to make distributions without subjecting our shareholders to Swiss withholding taxes.

 

Under present Swiss tax laws, repurchases of shares for the purposes of cancellation are treated as a partial liquidation subject to 35% Swiss withholding tax on the difference between the repurchase price and the par value except, since January 1, 2011, to the extent attributable to qualifying capital contributions (Kapitaleinlagen) if any, and to the extent that, the repurchase of shares is out of retained earnings or other taxable reserves, the Swiss withholding becomes due. No partial liquidation treatment applies and no withholding tax is triggered if the shares are not repurchased for cancellation but held by the Company as treasury shares. However, should the Company not resell such treasury shares within six years, the withholding tax becomes due at the end of the six year period.

 

You May Be Subject To Adverse U.S. Federal Income Tax Consequences If We Are Classified As A Controlled Foreign Corporation.

 

Each “Ten Percent Shareholder” (as defined below) in a non-U.S. corporation that is classified as a “controlled foreign corporation,” or a CFC, for United States federal income tax purposes generally is required to include in income for U.S. federal tax purposes such Ten Percent Shareholder’s pro rata share of the CFC’s “Subpart F income” and investment of earnings in U.S. property, even if the CFC has made no distributions to its shareholders. Subpart F income generally includes dividends, interest, rents and royalties, gains from the sale of securities and income from certain transactions with related parties. In addition, a Ten Percent Shareholder that realizes gain from the sale or exchange of shares in a CFC may be required to classify a portion of such gain as dividend income rather than capital gain. A non-U.S. corporation generally will be classified as a CFC for United States federal income tax purposes if Ten Percent Shareholders own, directly or indirectly, more than 50% of either the total combined voting power of all classes of stock of such corporation entitled to vote or of the total value of the stock of such corporation. A “Ten Percent Shareholder” is a United States person (as defined by the U.S. Internal Revenue Code of 1986, as amended (the “Code”)) who owns or is considered to own 10% or more of the total combined voting power of all classes of stock entitled to vote of such corporation. The determination of CFC status is complex and includes attribution rules, the application of which is not entirely certain.

 

We believe that we were a CFC for the taxable year ended December 31, 2015; however, our CFC status for the current taxable year is uncertain and we may be a CFC for the current taxable year or a following year. It is possible that, following this offering, a shareholder treated as a U.S. person for U.S. federal income tax purposes will acquire, directly or indirectly, enough shares to be treated as a Ten Percent Shareholder. We also believe that immediately following this offering we may have certain shareholders that will be Ten Percent Shareholders for

 

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United States federal income tax purposes. U.S. holders should consult their own tax advisors with respect to the potential adverse U.S. tax consequences of becoming a Ten Percent Shareholder in a CFC. If we are classified as both a CFC and a PFIC, we generally will not be treated as a PFIC with respect to those U.S. holders that meet the definition of a Ten Percent Shareholder during the period in which we are a CFC.

 

Our U.S. Shareholders May Suffer Adverse Tax Consequences If We Are Characterized As A Passive Foreign Investment Company.

 

Generally, if, for any taxable year, at least 75% of our gross income is passive income, or at least 50% of the value of our assets is attributable to assets that produce passive income or are held for the production of passive income, including cash, we would be characterized as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. For purposes of these tests, passive income includes dividends, interest, and gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business. If we are characterized as a PFIC, U.S. holders of our common shares may suffer adverse tax consequences, including having gains realized on the sale of the common shares treated as ordinary income, rather than capital gain, the loss of the preferential rate applicable to dividends received on the common shares by individuals who are U.S. holders, and having interest charges apply to distributions by us and the proceeds of sales of the common shares. See “Material U.S. Federal Income Tax Considerations to U.S. Holders—Passive Foreign Investment Company Considerations.”

 

Our status as a PFIC will depend on the composition of our income and the composition and value of our assets (which, assuming we were a non-publicly traded CFC for the year being tested for purposes of the PFIC rules, must be measured by the adjusted tax basis of our assets or, if we were a publicly traded CFC or not a CFC for such year, the total value of our assets may be determined in part by reference to the quarterly market value of our common shares, which may be volatile) from time to time. Our status may also depend, in part, on how, and how quickly, we utilize the cash proceeds from this offering in our business. Based on our belief that we were a CFC for the 2015 taxable year (and thus are required to determine our PFIC status for 2015 under the asset test by reference to the adjusted tax basis of our assets), we believe we were a PFIC for the 2015 taxable year and we may be a PFIC with respect to the 2016 taxable year. However, our status as a PFIC is a fact-intensive determination made on an annual basis and we cannot provide any assurances regarding our PFIC status for any past, current or future taxable years.

 

We intend to determine our PFIC status at the end of each taxable year and to satisfy any applicable recordkeeping and reporting requirements that apply to a qualified electing fund, or QEF, and will endeavor to provide to you, for each taxable year that we determine we are a PFIC, the information that is necessary for you to make a QEF election with respect to us (and any of our subsidiaries which are lower-tier PFICs). We may elect to provide such information on our website. However, there can be no assurances that we will make the necessary information available to you with respect to any lower-tier PFICs (as discussed below under “Material U.S. Federal Income Tax Considerations to U.S. Holders—Passive Foreign Investment Company Considerations”). You are urged to consult your own tax advisors regarding the availability, and advisability, of, and procedure for making, a QEF election, including, with respect to any lower-tier PFICs.

 

U.S. Shareholders May Not Be Able To Obtain Judgments Or Enforce Civil Liabilities Against Us Or Our Executive Officers Or Members Of Our Board Of Directors.

 

We are organized under the laws of Switzerland and our registered office and domicile is located in Basel, Switzerland. Moreover, certain of our directors and executive officers and a number of directors of each of our subsidiaries are not residents of the United States, and all or a substantial portion of the assets of such persons are located outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon us or upon such persons or to enforce against them judgments obtained in U.S. courts, including judgments in actions predicated upon the civil liability provisions of the federal securities laws

 

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of the United States. We have been advised by our Swiss counsel that there is doubt as to the enforceability in Switzerland of original actions, or in actions for enforcement of judgments of U.S. courts, of civil liabilities to the extent solely predicated upon the federal and state securities laws of the United States. Original actions against persons in Switzerland based solely upon the U.S. federal or state securities laws are governed, among other things, by the principles set forth in the Swiss Federal Act on Private International Law. This statute provides that the application of provisions of non-Swiss law by the courts in Switzerland shall be precluded if the result is incompatible with Swiss public policy. Also, mandatory provisions of Swiss law may be applicable regardless of any other law that would otherwise apply.

 

Switzerland and the United States do not have a treaty providing for reciprocal recognition and enforcement of judgments in civil and commercial matters. The recognition and enforcement of a judgment of the courts of the United States in Switzerland is governed by the principles set forth in the Swiss Federal Act on Private International Law. This statute provides in principle that a judgment rendered by a non-Swiss court may be enforced in Switzerland only if:

 

   

the non-Swiss court had jurisdiction pursuant to the Swiss Federal Act on Private International Law;

 

   

the judgment of such non-Swiss court has become final and non-appealable;

 

   

the judgment does not contravene Swiss public policy;

 

   

the court procedures and the service of documents leading to the judgment were in accordance with the due process of law; and

 

   

no proceeding involving the same position and the same subject matter was first brought in Switzerland, or adjudicated in Switzerland, or was earlier adjudicated in a third state and this decision is recognizable in Switzerland.

 

Our Status As A Swiss Corporation Means That Our Shareholders Enjoy Certain Rights That May Limit Our Flexibility To Raise Capital, Issue Dividends And Otherwise Manage Ongoing Capital Needs.

 

Swiss law reserves for approval by shareholders certain corporate actions over which a board of directors would have authority in some other jurisdictions. For example, the payment of dividends and cancellation of treasury shares must be approved by shareholders. Swiss law also requires that our shareholders themselves resolve to, or authorize our board of directors to, increase our share capital. While our shareholders may authorize share capital that can be issued by our board of directors without additional shareholder approval, Swiss law limits this authorization to 50% of the issued share capital at the time of the authorization. The authorization, furthermore, has a limited duration of up to two years and must be renewed by the shareholders from time to time thereafter in order to be available for raising capital. Additionally, subject to specified exceptions, including exceptions explicitly described in our articles of association, Swiss law grants pre-emptive rights to existing shareholders to subscribe for new issuances of shares. Swiss law also does not provide as much flexibility in the various rights and regulations that can attach to different categories of shares as do the laws of some other jurisdictions, such as in the United States. These Swiss law requirements relating to our capital management may limit our flexibility, and situations may arise where greater flexibility would have provided benefits to our shareholders. See “Description of Share Capital and Articles of Association” and “Comparison of Swiss Law and Delaware Law.”

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains statements that constitute forward-looking statements. All statements other than statements of historical facts contained in this prospectus, including statements regarding our future results of operations and financial position, business strategy, product candidates, product pipeline, and planned preclinical and clinical studies, regulatory approvals, research and development costs, timing and likelihood of success, as well as plans and objectives of management for future operations are forward-looking statements. Many of the forward-looking statements contained in this prospectus can be identified by the use of forward-looking words such as “anticipate,” “believe,” “could,” “expect,” “should,” “plan,” “intend,” “estimate,” “will” and “potential,” among others.

 

Forward-looking statements appear in a number of places in this prospectus and include, but are not limited to, statements regarding our plans, intent, belief or current expectations. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. Such statements are subject to risks and uncertainties, and actual results may differ materially from those expressed or implied in the forward-looking statements due to various factors, including, but not limited to, those identified under the section entitled “Risk Factors” in this prospectus. These risks and uncertainties include factors relating to:

 

   

the initiation, cost, timing, progress and results of our research and development activities, preclinical studies and future clinical trials;

 

   

our ability to create a pipeline of product candidates;

 

   

our ability to advance any product candidate into, and successfully complete clinical trials;

 

   

our ability to obtain and maintain regulatory approval of our future product candidates, and any related restrictions, limitations and/or warnings in the label of an approved product candidate;

 

   

our ability to obtain funding for our operations;

 

   

our plans to research, develop and commercialize our future product candidates;

 

   

the success of our joint venture with Bayer HealthCare LLC and our collaboration with Vertex Pharmaceuticals, Incorporated;

 

   

our ability to obtain and maintain intellectual property protection for our future product candidates;

 

   

the size and growth potential of the markets for our future product candidates, and our ability to serve those markets;

 

   

our ability to successfully commercialize our current and future product candidates;

 

   

the rate and degree of market acceptance of our current and future product candidates;

 

   

regulatory developments in the United States and foreign countries;

 

   

developments relating to gene-editing technologies including CRISPR/Cas9;

 

   

the success of competing therapies that are or become available;

 

   

our ability to retain key scientific or management personnel;

 

   

our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately;

 

   

our use of the proceeds from this offering and the concurrent private placement; and

 

   

the accuracy of our estimates regarding expenses, future revenues, capital requirements and need for additional financing.

 

We caution you that the foregoing list may not contain all of the forward-looking statements made in this prospectus.

 

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You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this prospectus primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. These forward-looking statements speak only as of the date of this prospectus and are subject to a number of risks, uncertainties and assumptions described under the sections in this prospectus entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this prospectus. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risks and uncertainties may emerge from time to time, and it is impossible for management to predict all risks and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise. The forward-looking statements contained in this prospectus are excluded from the safe harbor protection provided by the Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act.

 

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MARKET AND INDUSTRY DATA

 

This prospectus contains industry, market and competitive position data that are based on industry publications and studies conducted by third parties as well as our own internal estimates and research. These industry publications and third-party studies generally state that the information that they contain has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. We are responsible for all of the disclosure contained in this prospectus, and we believe these industry publications and third-party research, surveys and studies are reliable.

 

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USE OF PROCEEDS

 

We estimate that the net proceeds from the sale of common shares in this offering, excluding the concurrent private placement, will be approximately $66.2 million at an assumed initial public offering price of $16.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise their over-allotment option in full, we estimate that the net proceeds will be approximately $76.7 million, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

 

Each $1.00 increase (decrease) in the assumed initial public offering price of $16.00 per share would increase (decrease) our net proceeds by $4.4 million, assuming the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. An increase (decrease) of 1,000,000 in the number of shares we are offering would increase (decrease) the net proceeds to us from this offering, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, by approximately $14.9 million, assuming the assumed initial public offering price stays the same.

 

Bayer Global Investments B.V. has agreed to purchase from us concurrently with this offering in a private placement $35 million of our common shares at a price per share equal to the initial public offering price. See “Concurrent Private Placement.”

 

We are undertaking this offering in order to access the public capital markets, to increase our liquidity and to support continued development of our research programs. We intend to use the net proceeds of this offering and the concurrent private placement, together with our existing cash and cash equivalents, as follows:

 

   

approximately $20.0 million to advance the development of our hemoglobinopathy programs;

 

   

approximately $40.0 million to progress additional pipeline candidates;

 

   

approximately $10.0 million to further optimize our CRISPR/Cas9 gene editing platform and develop delivery technologies; and

 

   

the remainder, if any, for manufacturing, working capital and general corporate purposes.

 

However, due to the uncertainties inherent in the product development process, it is difficult to estimate with certainty the exact amounts of the net proceeds from this offering and the concurrent private placement that may be used for the above purposes. The amount and timing of our actual expenditures will depend upon numerous factors, including the results of our research and development efforts, the timing and success of our ongoing preclinical studies or preclinical studies we may commence in the future and the timing of regulatory submissions. As a result, our management will have broad discretion over the use of the net proceeds from this offering and the concurrent private placement, and investors will be relying on our judgment regarding the application of the net proceeds. In addition, we might decide to postpone or not pursue certain preclinical activities if the net proceeds from this offering and the concurrent private placement and our other sources of cash are less than expected.

 

Although it is difficult to predict future liquidity requirements, we believe that the net proceeds from this offering and the concurrent private placement, along with our existing cash and cash equivalents, together with interest thereon, will be sufficient to fund our operations for at least the next 24 months.

 

We believe opportunities may exist from time to time to expand our current business through acquisitions or in-licenses of complementary companies or technologies. While we have no current agreements, commitments or understandings for any specific acquisitions or in-licenses at this time, we may use a portion of the net proceeds for these purposes.

 

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Pending the use of the proceeds from this offering and the concurrent private placement, we intend to invest the net proceeds in interest-bearing, investment-grade securities, certificates of deposit or direct or guaranteed obligations of the U.S. and Swiss governments.

 

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DIVIDEND POLICY

 

We have never declared or paid cash dividends on our capital stock. We intend to retain all available funds and any future earnings, if any, to fund the development and expansion of our business and we do not anticipate paying any cash dividends in the foreseeable future. Any future determination related to dividend policy will be made at the discretion of our board of directors.

 

Under Swiss law, any dividend must be proposed by our board of directors and approved by our shareholders. In addition, our auditors must confirm that the dividend proposal of our board of directors conforms to Swiss statutory law and our articles of association. A Swiss corporation may pay dividends only if it has sufficient distributable profits brought forward from the previous business years (“Gewinnvortrag”) or if it has distributable reserves (“freie Reserven”), each as evidenced by its audited standalone statutory balance sheet prepared pursuant to Swiss law and after allocations to reserves required by Swiss law and its articles of association have been deducted. Distributable reserves are generally booked either as “free reserves” (“freie Reserven”) or as “reserve from capital contributions” (“Kapitaleinlagereserven”). Distributions out of issued share capital, which is the aggregate nominal value of a corporation’s issued shares, may be made only by way of a share capital reduction. See “Description of Share Capital and Articles of Association.”

 

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CAPITALIZATION

 

The following table sets forth our cash and total capitalization as of June 30, 2016 on:

 

   

an actual basis;

 

   

a pro forma basis to give effect to:

 

  (i)   the conversion of all 27,135,884 of our outstanding preferred shares into common shares on a one-for-one basis immediately prior to the closing of this offering;

 

  (ii)   the issuance of 328,017 common shares to Dr. Emmanuelle Charpentier immediately prior to the closing of this offering pursuant to the Call Option Agreement;

 

  (iii)   the filing and effectiveness of our amended and restated articles of association and creation of authorized and conditional share capital of 31,724,612 common shares upon closing of this offering; and

 

   

a pro forma as adjusted basis to further reflect:

 

  (i)   the receipt of the estimated net proceeds from the sale of 4,700,000 common shares in this offering at an assumed initial public offering price of $16.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us; and

 

  (ii)   the issuance and sale by us in the concurrent private placement of 2,187,500 common shares to Bayer Global Investments B.V., assuming an initial public offering price of $16.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus.

 

Actual data as of June 30, 2016 in the table below is derived from our unaudited consolidated financial statements. The pro forma data included in the table below is also unaudited. The pro forma as adjusted information below is illustrative only, and our capitalization following the completion of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read this table in conjunction with “Use of Proceeds,” “Selected Consolidated Financial and Other Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and related notes included elsewhere in this prospectus.

 

     As of June 30, 2016  
     Actual     Pro Forma     Pro Forma  As
Adjusted(1)
 
     (in thousands, except share and per share data)  

Cash

     246,849        246,849        348,644   

Redeemable convertible preferred shares (Series A-1, Series A-2, Series A-3, Series B), CHF 0.03 par value; 27,135,884 shares authorized, issued, and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

     185,565        —          —     

Stockholders’ (deficit) equity:

      

Common shares, CHF 0.03 par value; 5,387,986 shares authorized and issued, and 5,262,686 shares outstanding, actual; 32,851,887 shares authorized and issued, and 32,726,587 shares outstanding, pro forma; 70,977,463 shares authorized, 39,748,134 shares issued and outstanding, pro forma as adjusted

     173        997        1,204   

Treasury shares, at cost, no shares at December 31, 2014 and 2015, and 274,140 shares at June 30, 2016 (unaudited) and pro forma (unaudited)

     —          —          —     

Additional paid-in capital

     9,167        194,085        295,064   

Accumulated deficit

     (59,502     (59,716     (59,716

Total shareholders’ (deficit) equity

     (50,224     135,341        236,527   

Total capitalization

     135,341        135,341        236,527   

 

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(1)   A $1.00 increase (decrease) in the assumed initial public offering price of $16.00 per share would increase (decrease) each of pro forma as adjusted cash and cash equivalents, additional paid-in capital, total capitalization and total shareholders’ equity by $4.4 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Each increase (decrease) of 1,000,000 in the number of shares offered by us would increase (decrease) pro forma as adjusted cash and cash equivalents, additional paid-in capital, total shareholders’ equity and capitalization by $14.9 million, assuming an initial public offering price of $16.00 per share, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

 

The number of common shares in the table above excludes:

 

   

2,709,572 of our common shares issuable upon the exercise of options outstanding under our 2015 Stock Option Plan as of June 30, 2016 at a weighted-average exercise price of $4.14 per common share;

 

   

7,271,779 of our common shares reserved for future issuance under our 2016 Stock Option Plan, which will become effective immediately prior to the completion of this offering; and

 

   

413,226 common shares reserved for issuance under our 2016 Employee Stock Purchase Plan, or ESPP, which will become effective immediately prior to the completion of this offering.

 

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DILUTION

 

If you invest in our common shares, your interest will be diluted to the extent of the difference between the initial public offering price per share and the pro forma as adjusted net tangible book value per share of our common shares immediately after this offering.

 

Net tangible book value is determined by dividing our total tangible assets less our total liabilities by the number of our common shares outstanding. Our historical net tangible book value as of June 30, 2016 was $132.8 million, or $24.61, per common share. Our pro forma net tangible book value as of June 30, 2016, before giving effect to this offering and the concurrent private placement, was $132.8 million, or $4.04 per common share, based on the total number of our common shares outstanding as of June 30, 2016, after giving effect to (i) the conversion of all 27,135,884 of our preferred shares outstanding as of June 30, 2016 into common shares on a one-for-one basis immediately prior to the closing of this offering and (ii) the issuance of 328,017 common shares to Dr. Emmanuelle Charpentier immediately prior to the closing of this offering pursuant to the Call Option Agreement.

 

Dilution per share to new investors represents the difference between the amount per share paid by purchasers of common shares in this offering and the pro forma as adjusted net tangible book value per common share immediately after completion of this offering and the concurrent private placement. After giving effect to our sale of 4,700,000 common shares in this offering and 2,187,500 common shares in the concurrent private placement, both at an assumed initial public offering price of $16.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of June 30, 2016 would have been $236.1 million, or $5.94 per share. This represents an immediate increase in as adjusted net tangible book value of $1.90 per share to existing shareholders and an immediate dilution of $10.06 per share to investors participating in this offering, as illustrated in the following table:

 

Assumed initial public offering price per share

     $ 16.00   

Historical net tangible book value per share at June 30, 2016

   $ 24.61     

Decrease per share attributable to pro forma adjustments

     (20.57  
  

 

 

   

Pro forma net tangible book value per share at June 30, 2016

     4.04     

Increase in pro forma net tangible book value attributable to this offering and the concurrent private placement

     1.90     
  

 

 

   

Pro forma as adjusted net tangible book value per share after this offering and the concurrent private placement

       5.94   
    

 

 

 

Dilution per share to investors participating in this offering

     $ 10.06   
    

 

 

 

 

Each $1.00 increase (decrease) in the assumed initial public offering price of $16.00 per share would increase (decrease) our pro forma as adjusted net tangible book value by approximately $4.4 million, or approximately $0.11 per share, and the dilution per share to investors in this offering by approximately $0.89 per share, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. An increase of 1,000,000 shares in the number of shares offered by us would increase our pro forma as adjusted net tangible book value by approximately $14.9 million, or approximately $0.22 per share, and decrease the pro forma dilution per share to investors in this offering by approximately $0.22 per share, assuming an initial public offering price of $16.00 per share, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. A decrease of 1,000,000 shares in the number of shares offered by us would decrease our pro forma as adjusted net tangible book value by approximately $14.9 million, or approximately $0.23 per share, and increase the pro forma dilution per share to investors in this offering by approximately $0.23 per share, assuming an initial public offering price of $16.00 per share, after deducting the underwriting discounts and commissions and

 

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estimated offering expenses payable by us. The pro forma as adjusted information discussed above is illustrative only and will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing.

 

If the underwriters’ over-allotment option is exercised in full, the pro forma as adjusted net tangible book value per share after this offering would be $6.10 per share, the increase in pro forma as adjusted net tangible book value per share to existing shareholders would be $0.16 per share and the decrease in the dilution to new investors purchasing shares in this offering would be $0.16 per share.

 

The following table shows, at June 30, 2016, on a pro forma as adjusted basis, after giving effect to the pro forma adjustments described above, the number of common shares purchased from us, the total consideration paid to us and the average price paid per share by existing shareholders and by new investors purchasing common shares in this offering and the concurrent private placement at an assumed initial public offering price of $16.00 per share, before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

     Total Shares     Total Consideration     Average Price
per Share
 
      Number      Percent     Amount      Percent    

Existing shareholders before this offering

     32,860,634         82.7   $ 198,845,461         64.4   $ 6.05   

Concurrent private placement investor

     2,187,500         5.5     35,000,000         11.3     16.00   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Investors participating in this offering

     4,700,000         11.8     75,200,000         24.3     16.00   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

     39,748,134         100.0   $ 309,045,461         100.0   $ 7.78   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

Each $1.00 increase (decrease) in the assumed initial public offering price of $16.00 per share, would increase (decrease) the total consideration paid to us by new investors and total consideration paid to us by all shareholders by $4.4 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. An increase (decrease) of 1,000,000 shares in the number of shares offered by us would increase (decrease) the total consideration paid to us by new investors and total consideration paid to us by all shareholders by approximately $14.9 million, assuming an initial public offering price of $16.00 per share, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

 

The calculations above are based on (i) 32,532,617 shares outstanding as of June 30, 2016, including 134,047 issued but unvested restricted shares, and (ii) after giving effect to the pro forma transactions, but exclude:

 

   

2,709,572 of our common shares issuable upon the exercise of options outstanding under our 2015 Stock Option Plan as of June 30, 2016 at a weighted-average exercise price of $4.14 per common share;

 

   

7,271,779 of our common shares reserved for future issuance under our 2016 Stock Option Plan, which will become effective immediately prior to the completion of this offering; and

 

   

413,226 common shares reserved for issuance under our 2016 Employee Stock Purchase Plan, or ESPP, which will become effective immediately prior to the completion of this offering.

 

To the extent that any outstanding options are exercised, new options are issued under our share-based compensation plans or we issue additional common shares in the future, there will be further dilution to investors participating in this offering.

 

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EXCHANGE RATES

 

The following table sets forth, for the periods indicated, the high, low, average and period-end exchange rates for the purchase of U.S. dollars expressed in CHF per U.S. dollar. The average rate is calculated by using the average of the U.S. Federal Reserve Bank’s reported exchange rates on each day during a monthly period and on the last day of each month during an annual period. On September 23, 2016, the exchange rate as reported by the U.S. Federal Reserve Bank was CHF 0.9702 to USD $1.00. In this prospectus, translations from CHF to U.S. dollars were made at the rate of 1.0017 to USD $1.00, the official exchange rate quoted as of December 31, 2015 by the U.S. Federal Reserve Bank.

 

     Period-end      Average for
Period
     Low      High  
     (CHF per U.S. dollar)  

Years Ended December 31:

        

2011

     0.9374         0.8802         0.7296         0.9755   

2012

     0.9155         0.9331         0.8949         0.9957   

2013

     0.8904         0.9241         0.8856         0.9814   

2014

     0.9934         0.9195         0.8712         0.9934   

2015

     1.0017         0.9654         0.8488         1.0305   

Months Ended:

        

January 31, 2016

     1.0226         1.0082         0.9972         1.0226   

February 29, 2016

     0.9960         0.9920         0.9706         1.0202   

March 31, 2016

     0.9583         0.9811         0.9583         0.9994   

April 30, 2016

     0.9598         0.9634         0.9537         0.9774   

May 31, 2016

     0.9697         0.9611         0.9541         0.9697   

June 30, 2016

     0.9792         0.9695         0.9566         0.9902   

July 31, 2016

     0.9690         0.9830         0.9690         0.9936   

August 31, 2016

     0.9830         0.9713         0.9576         0.9838   

September 30, 2016

     0.9702         0.9745         0.9655         0.9798   

 

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SELECTED CONSOLIDATED FINANCIAL DATA

 

The following tables summarize our consolidated financial data as of the dates and for the periods indicated. The consolidated statements of operations data for the years ended December 31, 2014 and 2015 and the consolidated balance sheet data as of December 31, 2015 are derived from our audited consolidated financial statements included elsewhere in this prospectus. The consolidated statements of operations data for the six months ended June 30, 2015 and 2016 and the consolidated balance sheet data as of June 30, 2016 have been derived from our unaudited interim financial statements included elsewhere in this prospectus and have been prepared on the same basis as the audited financial statements. In the opinion of management, the unaudited data reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial information in those statements.

 

Our historical results are not necessarily indicative of the results that may be expected in the future. Our interim consolidated financial results for the periods presented are not necessarily indicative of results for a full year or for any subsequent interim period. The following selected financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements included elsewhere in this prospectus.

 

    Year Ended December 31,     Six Months Ended June 30,  
            2014                     2015                     2015                     2016          
   

(in thousands, except share
and per share amounts)

    (in thousands, except share
and per share amounts)
 

Statement of Operations Data:

       

Collaboration revenue

  $ —        $ 247      $ —        $ 1,271   

Operating expenses:

       

Research and development

    1,513        12,573        2,650        14,614   

General and administrative

    5,114        13,403        4,711        14,867   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    6,627        25,976        7,361        29,481   
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

    (6,627     (25,729     (7,361     (28,210

Other (expense) income, net

    (236     (92     (43     2,680   

Benefit from (provision for) income taxes

    63        (7     216        (76
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (6,800     (25,828     (7,188     (25,606
 

 

 

   

 

 

   

 

 

   

 

 

 

Foreign currency translation adjustment

    (2     (6     2        (17
 

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss

  $ (6,802   $ (25,834   $ (7,186   $ (25,623
 

 

 

   

 

 

   

 

 

   

 

 

 

Reconciliation of net loss to net loss attributable to common shareholders:

       

Net loss

  $ (6,800   $ (25,828     (7,188     (25,606

Loss attributable to noncontrolling interest

    536        325        308        10   

Loss on extinguishment of redeemable convertible preferred shares

    (745     —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common shareholders

  $ (7,009   $ (25,503   $ (6,880   $ (25,596
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common shareholders, basic and diluted

  $ (1.97   $ (5.06   $ (1.52   $ (4.66
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average common shares outstanding, basic and diluted(1)

    3,559,985        5,037,404        4,538,595        5,488,467   
 

 

 

   

 

 

   

 

 

   

 

 

 

Pro-forma net loss per share, basic and diluted (unaudited)

    $ (1.26     $ (0.87
   

 

 

     

 

 

 

Pro-forma weighted-average common shares outstanding, basic and diluted (unaudited)

      20,241,365          29,297,808   
   

 

 

     

 

 

 

 

(1)   See Note 2 in the notes to our annual and interim consolidated financial statements appearing at the end of this prospectus for a description of the method used to calculate basic and diluted net loss per share and pro forma basic and diluted net loss per share.

 

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     As of December 31,
2015
    As of June 30,
2016
 
     Actual     Actual  
     (in thousands)     (in thousands)  

Balance Sheet Data:

    

Cash

   $ 155,961      $ 246,849   

Working capital

     146,685        168,560   

Total assets

     159,423        293,059   

Redeemable convertible preferred shares

     64,521        185,565   

Total shareholders’ deficit

     (29,124     (50,224

 

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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 together with our consolidated financial statements and related notes and other financial information appearing elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this prospectus, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

 

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 the disease. We believe that our scientific expertise, together with our approach, may enable an entirely new class of highly active and potentially curative treatments for patients for whom current biopharmaceutical approaches have had limited success.

 

We are pursuing a two-pronged strategy using both ex vivo and in vivo approaches in our product development programs. Our most advanced programs in hemoglobinopathies use an ex vivo approach, whereby cells are harvested from a patient, treated with a CRISPR/Cas9-based therapeutic and reintroduced into the patient. Beyond these lead programs, we are pursuing a number of additional ex vivo applications, as well as select in vivo applications whereby the CRISPR/Cas9 therapeutic is delivered directly to target cells within the human body. Our initial in vivo applications will leverage well-established delivery technologies for gene based therapeutics.

 

Since our inception in October 2013, we have devoted substantially all of our resources to initiating the conduct of our research and development efforts, identifying potential product candidates, undertaking drug discovery and preclinical development activities, building and protecting our intellectual property portfolio, organizing and staffing our company, business planning, raising capital, and providing general and administrative support for these operations. To date, we have primarily financed our operations through private placements of our preferred shares, convertible loans and collaboration agreements with strategic partners. From our inception through June 30, 2016, we raised an aggregate of $293.4 million, of which $125.2 million consisted of gross proceeds from private placements of our preferred shares, $73.2 million from the issuance of convertible loans, $75.0 million from an upfront payment under our collaboration with Vertex Pharmaceuticals, Incorporated, or Vertex, and $20.0 million from a technology access fee related to our license of technology to our joint venture with Bayer HealthCare LLC, or Bayer HealthCare.

 

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, 2016, we had $246.8 million in cash and an accumulated deficit of $59.5 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; initiate preclinical testing and clinical trials for any product

 

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candidates we identify and develop, maintain, expand and protect our intellectual property portfolio, including in the ongoing interference proceeding with respect to certain of our in-licensed intellectual property; 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 and Joint Venture Agreement

 

In October 2015, we entered into a strategic research collaboration agreement with Vertex focused on the development of CRISPR/Cas9-based therapies. Under the terms of our agreement, we received an upfront, nonrefundable payment of $75.0 million and $30.0 million in convertible loan proceeds.

 

In December 2015, we entered into an agreement, the JV Agreement, with Bayer HealthCare to create a joint venture, Casebia Therapeutics LLP, the JV, to discover, develop and commercialize new breakthrough therapeutics to cure blood disorders, blindness and heart disease. We and Bayer HealthCare each have a 50% interest in the JV. Under the JV Agreement, Bayer HealthCare will make available its protein engineering expertise and relevant disease know-how and we will contribute our proprietary CRISPR/Cas9 gene editing technology and intellectual property. Bayer HealthCare will also provide up to $300.0 million in research and development investments to the JV over the first five years, subject to specified conditions.

 

In connection with the JV Agreement, the JV is required to pay us an aggregate amount of $35 million technology access fee, consisting of an upfront payment of $20 million, which was paid at the closing of the JV Agreement in March 2016, and another payment of $15 million when we obtain specified intellectual property rights relating to our CRISPR/Cas9 technology outside of the United States. In January 2016, we also issued a convertible loan to Bayer Global Investments B.V., or 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. In connection with the JV Agreement, Bayer BV also agreed to purchase $35.0 million of our common shares in a private placement upon the successful completion of an initial public offering of our common shares at the price paid by other investors in the initial public offering.

 

The JV is led by Dr. Axel Bouchon, Head of the Bayer Life Science Center, on an interim basis as general manager, while Dr. Rodger Novak, our Chief Executive Officer, is the interim chairman of the management board of the JV.

 

Financial Overview

 

Revenue

 

To date, we have not generated any revenue from product sales and do not expect to do so in the near future. During the year ended December 31, 2015 and six months ended June 30, 2016, we recognized $0.2 million and $1.3 million, respectively, of revenue related to our collaboration agreement with Vertex. As of June 30, 2016, we had not received any milestone or royalty payments under the Vertex collaboration agreement. For additional information about our revenue recognition policy, see the “Critical Accounting Policies and Estimates—Revenue.”

 

For the foreseeable future, we expect substantially all of our revenue to be generated from our collaboration with Vertex, our joint venture with Bayer HealthCare and any other collaboration agreements we may enter into.

 

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;

 

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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.

 

Research and development costs are expensed as incurred. Nonrefundable advance payments for research and development goods or services to be received in the future are 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 Investigational New Drug-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 we may 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 collaboration with Vertex, we do not track research and development costs on a program-by-program basis. We plan to track research and development costs for individual development programs when we identify a product candidate from the program that we believe we can advance into clinical trials. We incurred $0.3 million and $3.3 million of research and development expense during the year ended December 31, 2015 and the six months ended June 30, 2016, respectively, related to the collaboration with Vertex.

 

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.

 

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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. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants, lawyers and accountants, among other expenses. We also anticipate increased expenses related to the reimbursements of third-party patent related expenses in connection with the ongoing interference proceeding with respect to certain of our in-licensed intellectual property. Additionally, we anticipate increased costs associated with being a public company, including expenses related to services associated with maintaining compliance with exchange listing and Securities and Exchange Commission, or the SEC, requirements, insurance costs and investor relations costs.

 

Results of Operations

 

Comparison of the Six Months Ended June 30, 2015 and 2016

 

The following table summarizes our results of operations for the six months ended June 30, 2015 and 2016, together with the dollar change in those items:

 

     Six Months Ended
June 30,
    Period-to-
Period  Change
 
     2015     2016    
     (in thousands of dollars)        

Collaboration revenue

   $ —        $ 1,271      $ 1,271   

Operating expenses:

      

Research and development

     2,650        14,614        11,964   

General and administrative

     4,711        14,867        10,156   
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     7,361        29,481        22,120   
  

 

 

   

 

 

   

 

 

 

Loss from operations

     (7,361     (28,210     (20,849

Other (expense) income, net

     (43     2,680        2,723   
  

 

 

   

 

 

   

 

 

 

Net loss before benefit from income taxes

     (7,404     (25,530     (18,126
  

 

 

   

 

 

   

 

 

 

Benefit from (provision for) income taxes

     216        (76     (292
  

 

 

   

 

 

   

 

 

 

Net loss

   $ (7,188   $ (25,606   $ (18,418
  

 

 

   

 

 

   

 

 

 

 

Collaboration Revenue

 

We recognized collaboration revenue during the six months ended June 30, 2016 of $1.3 million, related to our collaboration agreement with Vertex. We did not record any revenue during the six months ended June 30, 2015.

 

Research and Development Expenses

 

Research and development expenses increased by $12.0 million to $14.6 million for the six months ended June 30, 2016, from $2.7 million for the six months ended June 30, 2015. The increase in research and development expenses was primarily attributable to an increase in employee costs of $4.6 million associated with

 

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salaries, benefits and equity-based compensation expenses from hiring additional personnel, an increase in variable R&D program costs of $2.6 million, an increase in facilities expense of $4.1 million, principally associated with the establishment in February 2015 of our research and development center in Cambridge, Massachusetts, and an increase in licensing fees and related payments of $0.3 million.

 

General and Administrative Expenses

 

General and administrative expenses increased by $10.2 million to $14.9 million for the six months ended June 30, 2016, from $4.7 million for the six months ended June 30, 2015. The increase in general and administrative expenses was primarily attributable to increased employee costs of $3.6 million, associated with salaries, benefits and equity-based compensation expenses from hiring additional personnel, increased consulting and professional fees of $2.0 million, and increased intellectual property costs of $2.0 million, including third-party costs to procure the issuance of patents in jurisdictions outside the United States and costs related to the ongoing interference proceedings with respect to certain of our in-licensed intellectual property, and an increase in other general and administrative expenses of $2.5 million, of which $1.9 million related to the Company’s advanced pay settlement liability.

 

Other (Expense) Income, Net

 

Other (expense) income, net increased by $2.7 million for the six months ended June 30, 2016 due to a gain on extinguishment of convertible loans of $11.5 million, offset by an increase in the loss from equity method investment of $0.7 million, and an increase in interest expense on the convertible loans of $8.0 million.

 

Comparison of the Years Ended December 31, 2014 and 2015

 

The following table summarizes our results of operations for the years ended December 31, 2014 and 2015, together with the dollar change in those items:

 

     Year Ended
December 31,
    Period-to-
Period Change
 
     2014     2015    
     (in thousands of dollars)        

Collaboration revenue

   $ —        $ 247      $ 247   

Operating expenses:

      

Research and development

     1,513        12,573        11,060   

General and administrative

     5,114        13,403        8,289   
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     6,627        25,976        19,349   
  

 

 

   

 

 

   

 

 

 

Loss from operations

     (6,627     (25,729     (19,102

Other expense, net

     (236     (92     144   
  

 

 

   

 

 

   

 

 

 

Net loss before benefit from income taxes

     (6,863     (25,821     (18,958
  

 

 

   

 

 

   

 

 

 

Benefit from (provision for) income taxes .

     63        (7     (70
  

 

 

   

 

 

   

 

 

 

Net loss

   $ (6,800   $ (25,828   $ (19,028
  

 

 

   

 

 

   

 

 

 

 

Collaboration Revenue

 

We recognized collaboration revenue during the year ended December 31, 2015 of $0.2 million, related to our collaboration agreement with Vertex. We did not record any revenue during the year ended December 31, 2014.

 

Research and Development Expenses

 

Research and development expenses increased by $11.1 million to $12.6 million for the year ended December 31, 2015, from $1.5 million for the year ended December 31, 2014. The increase in research and

 

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development expenses was primarily attributable to an increase in employee costs of $4.8 million associated with salaries, benefits and equity-based compensation expenses from hiring additional personnel, an increase in professional service expense of $2.0 million, an increase in facilities expense of $2.3 million, principally associated with the establishment in February 2015 of our research and development center in Cambridge, Massachusetts, and an increase in licensing fees and related payments of $1.4 million.

 

General and Administrative Expenses

 

General and administrative expenses increased by $8.3 million to $13.4 million for the year ended December 31, 2015, from $5.1 million for the year ended December 31, 2014. The increase in general and administrative expenses was primarily attributable to increase in employee costs of $1.9 million associated with salaries, benefits and equity-based compensation expenses from hiring additional senior personnel, increased consulting and professional fees of $3.2 million, including directors’ fees, audit and accounting fees, and consultant fees; and increased intellectual property costs of $1.9 million, including third-party costs to procure the issuance of patents in jurisdictions outside the United States and costs related to the ongoing interference proceedings with respect to our in-licensed intellectual property.

 

Other Expense, Net

 

Other expense, net decreased by $0.1 million for the year ended December 31, 2015 due to a decrease in the loss on foreign currency remeasurement of $0.2 million, offset by an increase in non-cash interest expense related to the convertible loans of $0.1 million.

 

Liquidity and Capital Resources

 

Overview

 

From our inception through June 30, 2016, we raised an aggregate of $293.4 million, of which $125.2 million consisted of gross proceeds from private placements of preferred shares, $73.2 million from the issuance of convertible loans, an up-front payment under our collaboration agreement with Vertex of $75.0 million and a technology access fee from our joint venture with Bayer HealthCare of $20.0 million.

 

As of June 30, 2016, we had $246.8 million in cash, of which approximately $242.2 million was held outside of the United States.

 

Preferred Share Financing

 

In October 2013, we issued 440,001 Series A-1 Preferred Shares for CHF 1.14 ($1.28) per share, resulting in gross proceeds of CHF 0.5 million ($0.6 million). Pursuant to the terms of the Shareholders’ Agreement between us and the holders of the Series A-1 Preferred Shares, the holders of the Series A-1 Preferred Shares had the right to purchase an additional 1,315,790 Series A-1 Preferred Shares at CHF 1.14 ($1.28) per share, or the Series A-1 Tranche Rights. In connection with the issuance of the Series A-2 Preferred Shares, the Series A-1 Tranche Rights were terminated without exercise in April 2014.

 

In April 2014, the Company issued 3,120,001 Series A-2 Preferred Shares in exchange for CHF 3.05 ($3.47) per share whereby CHF 1.45 ($1.65) per share was received upon issuance resulting in gross proceeds of CHF 4.5 million ($5.1 million) and the balance of CHF 1.60 ($1.82) per share was callable by our Board of Directors upon the occurrence of certain conditions. In February 2015, our Board of Directors called the remaining amounts to be invested under the Series A-2 Agreement resulting in additional gross proceeds of CHF 5.0 million ($5.3 million).

 

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In April 2015, we issued 10,758,006 Series A-3 Preferred Shares in exchange for $4.24 per share whereby $2.12 per share was received upon issuance, resulting in gross proceeds of $22.8 million, and the balance of $2.12 per share was due upon the occurrence of certain milestones. As of December 31, 2015, none of the milestones had occurred and we had an outstanding subscription receivable of $22.8 million related to the Series A-3 Preferred Shares. In May 2016, our Board of Directors determined that the milestones had been achieved and called the remaining $22.8 million. Gross proceeds of $22.8 million were received in May 2016.

 

In May 2015, we issued 4,519,016 Series B Preferred Shares in exchange for CHF 6.20 ($6.74) per share resulting in gross proceeds of CHF 28.0 million ($30.5 million).

 

In January 2016, we issued 5,464,608 Series B Preferred Shares upon conversion of $38.4 million of convertible loans plus accrued interest with Vertex and certain existing shareholders and $35.0 million of convertible loans with Bayer BV at a conversion price of $13.43 per share.

 

In June 2016, the Company issued 2,834,252 Series B Preferred Shares in exchange for $13.43 per share resulting in gross proceeds of $38.1 million.

 

Convertible Loan Financings

 

On October 26, 2015, we entered into a Convertible Loan Agreement with Vertex and certain existing shareholders, or the Convertible Loan, under which we could borrow up to $40.0 million. The Convertible Loan accrued interest at 2.5% per annum and had an initial maturity date of April 26, 2016, subject to acceleration upon the occurrence of certain conditions stated in the Convertible Loan. On various dates between November 23, 2015 and December 7, 2015, we issued the Convertible Loan in exchange for aggregate net proceeds of $38.2 million. On January 29, 2016, all of the outstanding principal plus accrued interest under the Convertible Loan was automatically converted into 2,859,278 Series B Preferred Shares at a conversion price of $13.43 per share.

 

Concurrent with the execution of the JV Agreement, we entered into a Convertible Loan Agreement with Bayer BV for $35.0 million. The Bayer Convertible Loan accrued interest at 2.0% per annum and matured on January 29, 2016. Simultaneous with the issuance of the loan on January 29, 2016, the outstanding principal under the Bayer Convertible Loan was automatically converted into 2,605,330 Series B Preferred Shares at a conversion price of $13.43 per share.

 

Funding Requirements

 

Our primary uses of capital are, and we expect will continue to be, research and development services, 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 as we begin in 2017 to occupy our new office and laboratory facility. In addition, upon the closing of this offering, we expect to incur additional costs associated with operating as a public company.

 

Because our research programs are still in preclinical 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 future product candidates or whether, or when, we may achieve profitability. Until such time as we can generate substantial product revenues, if ever, we expect to finance our cash needs through a combination of equity or debt financings and collaboration arrangements. We are entitled to technology access fees and research payments under our collaboration with Vertex and the JV. Additionally, we are eligible to earn payments, in each case, on a per-product basis under the JV Agreement and our collaboration with Vertex. Except for these sources of funding, upon completion of this offering, we will not have any committed external source of liquidity. To the extent that we raise additional capital through the future sale of equity or debt securities, the ownership interest of our shareholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely 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

 

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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 that the net proceeds from this offering, including the proceeds from the Series B Private Placement Extension and concurrent private placement with Bayer BV, together with 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 collaboration agreement with Vertex and the JV. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we expect.

 

Our ability to generate revenue and achieve profitability depends significantly on our success in many areas, including: developing our delivery technologies and our CRISPR/Cas9 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; 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 portfolio of intellectual property rights, including patents, trade secrets and know-how; and attracting, hiring and retaining qualified personnel.

 

Cash Flows

 

Comparison of the Six Months Ended June 30, 2015 and 2016

 

The following table provides information regarding our cash flows for the six months ended June 30, 2015 and 2016:

 

     Six Months Ended
June 30,
 
     2015     2016  
     (in thousands)  

Net cash used in operating activities

   $ (4,263   $ (23,618

Net cash (used in) provided by investing activities

     (102     18,621   

Net cash provided by financing activities

     58,251        95,925   

Effect of exchange rate changes on cash

     (160     (40
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

   $ 53,726      $ 90,888   
  

 

 

   

 

 

 

 

Net Cash Used in Operating Activities

 

Net cash used in operating activities was $23.6 million for the six months ended June 30, 2016 and consisted primarily of net loss of $25.6 million adjusted for non-cash items (including equity-based compensation expense of $4.5 million, non-cash interest expense of $8.1 million and depreciation and amortization expense of $0.3 million, a gain on extinguishment of the Vertex convertible loan of $11.5 million, and loss from equity method investment of $0.7 million), an increase in prepaid expenses and other current assets of $2.6 million, and an increase in accounts receivable of $1.0 million, partially offset by an increase in accounts payable and accrued expenses of $5.0 million, deferred revenue of $0.7 million, and deferred rent of $0.2 million.

 

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Net cash used in operating activities was $4.3 million for the six months ended June 30, 2015 and consisted primarily of a net loss of $7.2 million adjusted for non-cash items (including equity-based compensation expense of $1.5 million), along with an increase in prepaid expenses and other assets of $0.5 million, offset by an increase in accounts payable and accrued expenses of $2.3 million.

 

Net Cash (Used in) Provided by Investing Activities

 

Net cash provided by investing activities was $18.6 million during the six months ended June 30, 2016, compared to $0.1 million used in the six months ended June 30, 2015. Net cash provided by investing activities during the six months ended June 30, 2016 consisted of proceeds of $20.0 million from the contribution of intellectual property to Casebia LLP, offset by contributions to Casebia LLP of $0.1 million, and the purchase of property and equipment of $1.3 million primarily associated with the commencement of internal research and development. We expect purchases of property and equipment to continue to increase in each of 2016 and 2017 as we build-out and outfit the office and laboratory space we expect to occupy beginning in 2017.

 

Net Cash Provided by Financing Activities

 

Net cash provided by financing activities was $95.9 million for the six months ended June 30, 2016, compared to $58.3 million for the six months ended June 30, 2015. The cash provided by financing activities for the six months ended June 30, 2016 consisted of net proceeds of $35.0 million from the Bayer Convertible Loan, which was immediately converted into 2,605,330 Series B Preferred Shares, $22.8 million upon receipt of the Series A-3 subscription receivable and $38.1 million of gross proceeds from the issuance of Series B Preferred Shares in June 2016. The cash provided by financing activities for the six months ended June 30, 2015 primarily consisted of net proceeds of $58.3 million from the receipt of the subscription receivable for the Series A-2 Preferred Shares, proceeds from Series A-3 Preferred Shares, and proceeds from Series B Preferred Shares.

 

Comparison of the Years Ended December 31, 2014 and 2015

 

The following table provides information regarding our cash flows for the years ended December 31, 2014 and 2015:

 

     Year Ended
December 31,
 
     2014     2015  
     (in thousands)  

Net cash (used in) provided by operating activities

   $ (4,793   $ 59,428   

Net cash used in investing activities

     —          (1,154

Net cash provided by financing activities

     5,123        96,733   

Effect of exchange rate changes on cash

     254        9   
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

   $ 584      $ 155,016   
  

 

 

   

 

 

 

 

Net Cash (Used in) Provided by Operating Activities

 

Net cash provided by operating activities was $59.4 million for the year ended December 31, 2015 and consisted primarily of an increase in deferred revenue of $75.1 million from upfront payments received in connection with the collaboration agreement with Vertex along with an increase in accounts payable and accrued expenses of $7.7 million, partially offset by net loss of $25.8 million adjusted for non-cash items (including equity-based compensation expense of $3.7 million, non-cash interest expense of $0.1 million and depreciation and amortization expense of $0.1 million), an increase in prepaid expenses and other current assets of $1.0 million, and an increase in restricted cash to secure letters of credit related to our facility lease in Cambridge, Massachusetts, of $0.7 million.

 

Net cash used in operating activities was $4.8 million for the year ended December 31, 2014 and consisted primarily of a net loss of $6.8 million adjusted for non-cash items (including equity-based compensation expense of $0.7 million, amortization expense of $38,000 and foreign currency remeasurement loss of $0.3 million), along with an increase in accounts payable and accrued expenses of $1.6 million.

 

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Net Cash Used in Investing Activities

 

Net cash used in investing activities was $1.2 million during the year ended December 31, 2015, compared to $0 during the year ended December 31, 2014, which resulted solely from the purchase of property and equipment primarily associated with the commencement of internal research and development operations in Cambridge, Massachusetts. We expect purchases of property and equipment to continue to increase in each of 2016 and 2017 as we build-out and outfit the office and laboratory space we expect to occupy beginning in 2017.

 

Net Cash Provided by Financing Activities

 

Net cash provided by financing activities was $96.7 million for the year ended December 31, 2015,

compared to $5.1 million for the year ended December 31, 2014. The cash provided by financing activities for the year ended December 31, 2015 primarily consisted of net proceeds of $5.3 million related to a subscription receivable for Series A-2 Preferred Shares, $22.9 million from the issuance of Series A-3 Preferred Shares, $30.5 million from the issuance of Series B Preferred Shares and $38.2 million from the issuance of a convertible loan with Vertex and certain existing shareholders. The cash provided by financing activities for the year ended December 31, 2014 primarily consisted of net proceeds of $5.1 million from the issuance of Series A-2 Preferred Shares.

 

Contractual Obligations

 

The following table summarizes our significant contractual obligations as of December 31, 2015:

 

     Payments due by period  
     Total      Less than
1 Year
     1 - 3 Years      3 - 5 Years      More
than 5
Years
 
     (in thousands of dollars)  

Operating lease obligations(1)

   $ 8,600       $ 1,291       $ 2,722       $ 2,887       $ 1,700   

Licensing agreement(2)

     130         26         52         52         —     

Sponsored research agreements

     1,795         1,230         565         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual cash obligations

   $ 10,525       $ 2,547       $ 3,339       $ 2,939       $ 1,700   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)   Represents future minimum lease payments under our non-cancelable operating leases. The minimum lease payments above do not include any related common area maintenance charges or real estate taxes.
(2)   Represents perpetual licensing and patent assignment agreement with one of our founders. As the agreement end date is undetermined, we have not included an amount for the “More than 5 Years” criteria.

 

The table above does not include $56.5 million related to two leases for office and laboratory space entered into subsequent to December 31, 2015. Additionally, the table above does not include potential milestone fees, sublicense fees, royalty fees, licensing maintenance fees, and reimbursement of patent maintenance costs that we may be required to pay under agreements we have entered into to license intellectual property. We have not included such potential milestone royalty obligations in the table above because they are contingent upon the occurrence of future events and the timing and likelihood of such potential obligations are not known with certainty. We have not included our obligation to pay patent prosecution filing and maintenance costs for intellectual property licensed from Dr. Emmanuelle Charpentier as such costs cannot be reliably estimated until incurred. For further information regarding these agreements and amounts that could become payable in the future under these agreements, please see the section of this prospectus titled “Business—License Agreements.”

 

We enter into agreements in the normal course of business with vendors for preclinical research studies and other services and products for operating purposes. We have not included these payments in the table of contractual obligations above since the contracts are cancelable at any time by us, generally upon 30 days prior written notice to the vendor, and therefore we believe that our non-cancelable obligations under these agreements are not material.

 

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In May 2016, we entered into an agreement to sublease office and laboratory space in Cambridge, Massachusetts, for an initial term of ten years with an option to extend the lease for an additional five years. Our contractual obligation related to lease payments over the term of the sublease is approximately $56.2 million commencing in February 2017.

 

We have engaged several research institutions to identify new delivery strategies and applications of the CRISPR/Cas9 technology. As a result of these efforts, we have agreed to sponsor three research programs during 2016, with one of these continuing through 2018.

 

Off-Balance Sheet Arrangements

 

We did not have during the periods presented, and we do not currently 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. generally accepted accounting principles. We believe that several accounting policies are important to understanding our historical and future performance. We refer to these policies as critical because these specific areas generally require us to make judgments and estimates about matters that are uncertain at the time we make the estimate, and different estimates—which also would have been reasonable—could have been used. On an ongoing basis, we evaluate our estimates and judgments, including those described in greater detail below. We base our estimates on historical experience and other market-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.

 

While our significant accounting policies are described in more detail in the notes to our financial statements included elsewhere in this prospectus, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our financial condition and results of operations.

 

Revenue

 

We recognize revenue for each unit of accounting when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the seller’s price to the buyer is fixed or determinable and (iv) collectability is reasonably assured.

 

The terms of our collaboration and license agreements contain multiple deliverables, which include licenses to CRISPR/Cas9-based therapeutic products directed to specific targets, referred to as exclusive licenses, as well as research and development activities to be performed by us on behalf of the collaboration partner related to the licensed targets. Payments that we may receive under these agreements include nonrefundable technology access fees, payments for research activities, payments based upon the achievement of specified milestones and royalties on any resulting net product sales.

 

Multiple Element Arrangements

 

We evaluate multiple-element arrangements to determine (i) the deliverables included in the arrangement and (ii) whether the individual deliverables represent separate units of accounting or whether they must be accounted for as a combined unit of accounting. When deliverables are separable, consideration received is allocated to the separate units of accounting based on the relative selling price method and the appropriate revenue recognition principles are applied to each unit. When we determine that an arrangement should be

 

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accounted for as a single unit of accounting, we must determine the period over which the performance obligations will be performed and revenue will be recognized. This evaluation requires us to make judgments about the individual deliverables and whether such deliverables are separable from the other aspects of the contractual relationship. Deliverables are considered separate units of accounting provided that (i) the delivered item has value to the customer on a standalone basis and (ii) the arrangement includes a general right of return with respect to the delivered item, delivery or performance of the undelivered item is considered probable and substantially in our control. In assessing whether an item has standalone value, we consider factors such as the research, development, manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. In addition, we consider whether the collaboration partner can use any other deliverable for its intended purpose without the receipt of the remaining deliverable, whether the value of the deliverable is dependent on the undelivered item, and whether there are other vendors that can provide the undelivered items.

 

The consideration received under an arrangement that is fixed or determinable is then allocated among the separate units of accounting based on the relative selling prices of the separate units of accounting. We determine the selling price of a unit of accounting within each arrangement using (i) vendor-specific objective evidence of selling price, if available; (ii) third-party evidence of selling price if vendor-specific objective evidence is not available; or (iii) best estimate of selling price, if neither vendor-specific objective evidence nor third-party evidence is available. Determining the best estimate of selling price for a unit of accounting requires significant judgment. In developing the best estimate of selling price for a unit of accounting, we consider applicable market conditions and relevant entity-specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated costs. We validate the best estimate of selling price for units of accounting by evaluating whether changes in the key assumptions used to determine the best estimate of selling price will have a significant effect on the allocation of arrangement consideration between multiple units of accounting.

 

We recognize arrangement consideration allocated to each unit of accounting when all of the revenue recognition criteria are satisfied for that particular unit of accounting. In the event that a deliverable does not represent a separate unit of accounting, we recognize revenue from the combined unit of accounting over the contractual or estimated performance period for the undelivered items, which is typically the term of our research and development obligations. If there is no discernible pattern of performance or objectively measurable performance measures do not exist, then we recognize revenue under the arrangement on a straight-line basis over the period we are expected to complete our performance obligations. Conversely, if the pattern of performance over which the service is provided to the customer can be determined and objectively measurable performance measures exist, then we recognize revenue under the arrangement using the proportional performance method. Revenue recognized is limited to the lesser of the cumulative amount of payments received or the cumulative amount of revenue earned, as determined using the straight-line method or proportional performance method, as applicable, as of the period ending date.

 

Significant management judgment is required in determining the level of effort required under an arrangement and the period over which we are expected to complete our performance obligations under an arrangement. Steering committee services that are not inconsequential or perfunctory and that are determined to be performance obligations are combined with other research services or performance obligations required under an arrangement, if any, in determining the level of effort required in an arrangement and the period over which we expect to complete our aggregate performance obligations.

 

Recognition of Milestones and Royalties

 

Our collaboration and license agreements include contingent milestone payments related to specific development, regulatory and sales-based milestones. Development and regulatory milestones are typically payable when a product candidate initiates or advances in clinical trial phases, upon submission for marketing approval with regulatory authorities, and upon receipt of actual marketing approvals for a therapeutic or for additional indications. Sales-based milestones are typically payable when annual sales reach specified levels.

 

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We evaluate whether each milestone is substantive and at risk to both parties on the basis of the contingent nature of the milestone. This evaluation includes an assessment of whether: (i) the consideration is commensurate with either our performance to achieve the milestone or the enhancement of the value of the delivered item as a result of a specific outcome resulting from our performance to achieve the milestone, (ii) the consideration relates solely to past performance and (iii) the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement. We evaluate factors such as the scientific, clinical, regulatory, commercial and other risks that must be overcome to achieve the particular milestone and the level of effort and investment required to achieve the particular milestone in making this assessment. There is considerable judgment involved in determining whether a milestone satisfies all of the criteria required to conclude that a milestone is substantive. We will recognize revenue in its entirety upon successful accomplishment of any substantive milestones, assuming all other revenue recognition criteria are met. Milestones that are not considered substantive are recognized as earned if there are no remaining performance obligations or over the remaining period of performance, with a cumulative catch-up being recognized for the elapsed portion of the period of performance, assuming all other revenue recognition criteria are met.

 

Nonrefundable research, development and regulatory milestones that are expected to be achieved as a result of our efforts during the period of our performance obligations under the collaboration and license agreements are generally considered to be substantive and are recognized as revenue upon the achievement of the milestone, assuming all other revenue recognition criteria are met. If not considered to be substantive, revenue from achievement of milestones is initially deferred and recognized over the remaining term of our performance obligations. Milestones that are not considered substantive because we do not contribute effort to their achievement are recognized as revenue upon achievement, assuming all other revenue recognition criteria are met, as there are no undelivered elements remaining and no continuing performance obligations on our part.

 

Amounts received prior to satisfying the revenue recognition criteria listed above are recorded as deferred revenue in the accompanying balance sheets. Although we follow detailed guidelines in measuring revenue, certain judgments affect the application of our revenue policy. For example, in connection with our existing collaboration agreement, we have recorded on the balance sheet short-term and long-term deferred revenue based on our best estimate of when such revenue will be recognized. However, this estimate is based on our current research plan and, if our research plan should change in the future, we may recognize a different amount of deferred revenue over the following 12-month period.

 

The estimate of deferred revenue also reflects management’s estimate of the periods of our involvement in the collaboration. Our primary performance obligations under this collaboration consist of research and development services. In certain instances, the timing of satisfying these obligations can be difficult to estimate. Accordingly, our estimates may change in the future. Such changes to estimates would result in a change in prospective revenue recognition amounts. If these estimates and judgments change over the course of our collaborative agreement, it may affect the timing and amount of revenue that we will recognize and record in future periods.

 

Variable Interest Entities

 

We review each legal entity formed by parties related to the Company to determine whether or not the entity is a Variable Interest Entity, or VIE, in accordance with FASB ASC Topic 810, Consolidation. If the entity is a VIE, we assesses whether or not we are the primary beneficiary of that VIE based on a number of factors, including (i) which party has the power to direct the activities that most significantly affect the VIE’s economic performance, (ii) the parties’ contractual rights and responsibilities pursuant to any contractual agreements and (iii) which party has the obligation to absorb losses or the right to receive benefits from the VIE. If we determine that we are the primary beneficiary of a VIE, we treat the VIE as a business combination and consolidate the financial statements of the VIE into our consolidated financial statements at the time that determination is made. On a quarterly basis, we evaluate whether it continues to be the primary beneficiary of any consolidated VIEs. If we determine that we are no longer the primary beneficiary of a consolidated VIE, or no longer have a variable interest in the VIE, we deconsolidate the VIE in the period that the determination is made.

 

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If we determine that we are the primary beneficiary of a VIE that meets the definition of a business, we measure the assets, liabilities and non-controlling interests of the newly consolidated entity at fair value in accordance with FASB ASC Topic 805, Business Combinations on the date we become the primary beneficiary.

 

For the years ended December 31, 2014 and 2015, and the six months ended June 30, 2015 and 2016, we consolidated the financial statements of TRACR Hematology, Limited, or TRACR, into our consolidated financial statements as a VIE. See Note 4 to the consolidated financial statements for further details relating to the consolidation of TRACR as a VIE.

 

Equity-Based Compensation

 

We measure equity-based awards to employees and members of the board of directors based on the grant- date fair value of those awards and recognize equity-based compensation expense, net of estimated forfeitures, on a straight-line basis over the requisite service period which is generally the vesting period of the award. In developing a forfeiture rate estimate, we considered our historical experience with pre-vesting forfeitures for service-based awards. We estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates.

 

We measure equity-based awards to consultants and non-employees based on the fair value on the grant date. Compensation expense is recognized over the period during which services are rendered by such consultants and non-employees until completed. At the end of each financial reporting period prior to completion of such services, the fair value of these awards is remeasured using the then-current fair value of the award.

 

We classify equity-based compensation expense in our consolidated statement of operations in the same manner in which the award recipient’s salary and related costs are classified or in which the award recipient’s service payments are classified.

 

Our restricted share awards are subject to contingent repurchase features which allows the Company to repurchase unvested shares if certain contingent events outside of the control of the Company occur. At no time during 2014, 2015, or the six months ended June 30, 2016 were these events deemed probable of occurring, and as such, the awards are not subject to liability accounting.

 

Determination of Fair Value of Common Shares on Grant Dates

 

As there has been no public market for our equity instruments to date, the estimated fair value of our common shares has been determined by our board of directors as of the grant date, with input from management, considering our most recently available third-party valuations of common shares and our board of directors’ assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant. These third party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. Our common share valuations were prepared using either an option-pricing method, or OPM, or a probability-weighted expected return method, or PWERM, which used a combination of market approaches and an income approach to estimate our enterprise value. The OPM treats common securities and preferred securities as call options on the total equity value of a company, with exercise prices based on the value thresholds at which the allocation among the various holders of a company’s securities changes. Under this method, the common shares have value only if the funds available for distribution to members are expected to exceed the value of the preferred security liquidation preference at the time of the liquidity event, such as a strategic sale or a merger. The PWERM is a scenario-based methodology that estimates the fair value of common shares based upon an analysis of future values for the company, assuming various outcomes. The common share values are based on the probability-weighted present value of expected future investment returns considering each of the possible outcomes available as well as the rights of each class of common and preferred securities. The future value of the common shares under each outcome is discounted back to the valuation date at an

 

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appropriate risk-adjusted discount rate and probability weighted to arrive at an indication of value for the common shares. These third-party valuations were performed at various dates, which resulted in the following valuations of our common shares:

 

Valuation Date

   Fair Value of
Common Shares
 

November 5, 2013

   $ 0.40   

April 14, 2014

   $ 1.52   

April 15, 2015

   $ 2.07   

September 10, 2015

   $ 3.91   

November 4, 2015

   $ 5.60   

December 17, 2015

   $ 5.74   

March 2, 2016

   $ 5.83   

June 3, 2016

   $ 12.65   

 

In addition to considering the results of these third-party valuations, our board of directors considered various objective and subjective factors to determine the fair value of our common shares as of each grant date, including:

 

   

the prices of our preferred shares sold to or exchanged between outside investors in arm’s length transactions, and the rights, preferences and privileges of our preferred shares as compared to those of our common shares, including the liquidation preferences of our preferred shares;

 

   

the progress of our research and development efforts, including the status of preclinical studies for our product candidates;

 

   

the lack of liquidity of our equity as a private company;

 

   

our stage of development and business strategy and the material risks related to our business and industry;

 

   

the achievement of enterprise milestones, including entering into collaboration agreements;

 

   

the valuation of publicly traded companies in the life sciences and biotechnology sectors, as well as recently completed mergers and acquisitions of peer companies;

 

   

any external market conditions affecting the biotechnology industry, and trends within the biotechnology industry;

 

   

the likelihood of achieving a liquidity event for the holders of our common shares, such as an initial public offering, or IPO, or a sale of our company, given prevailing market conditions; and

 

   

the analysis of IPOs and the market performance of similar companies in the biopharmaceutical industry.

 

The assumptions underlying these valuations represent management’s best estimates, which involve inherent uncertainties and the application of management judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our equity-based compensation expense could be materially different.

 

Following the closing of this offering, the fair value of our common shares will be determined based on the quoted market price.

 

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Equity-based Award Grants

 

The following table summarizes by grant date the number of restricted common shares and common shares issuable upon exercise of options granted between January 1, 2015 and June 30, 2016, the per share purchase or exercise prices, the fair value of the common shares on the grant dates, and the estimated fair value per share utilized to calculate equity-based compensation expense.

 

Grant Date

   Share Pool    Type of Award   Number of
Shares
    Purchase
or
Exercise
Price per
Share
    Fair
Value of
Common
Shares on
Grant
Date(1)
    Retrospective
Fair Values of
Common
Shares on
Grant Date(2)
    Estimated
Fair Values
Per Share of
Awards on
Grant Date
 

April 1, 2015

   Crispr AG    Common Shares     852,846      $ —        $ 1.87      $ 2.09      $ 2.09   

April 1, 2015

   Crispr AG    Restricted Share Awards     656,031      $ —        $ 1.87      $ 2.09      $ 2.09   

May 7, 2015

   2015 Option Plan    Options     62,810      $ 1.97      $ 1.97      $ 2.20      $ 1.54   

September 10, 2015

   Fay Corp.    Restricted Share Awards     759,204      $ —        $ 1.85      $ 3.91      $ 3.91   

September 10, 2015

   2015 Option Plan    Restricted Share Awards     134,047      $ 1.85      $ 1.85      $ 3.91      $ 2.07   

September 10, 2015

   2015 Option Plan    Options     1,640,593      $ 1.85      $ 1.85      $ 3.91      $ 3.06-3.49   

November 4, 2015

   2015 Option Plan    Options     194,919      $ 5.60      $ 5.60      $ 5.60      $ 3.81   

December 17, 2015

   2015 Option Plan    Options     41,664      $ 5.74      $ 5.74      $ 5.74      $ 3.91   

December 17, 2015

   2015 Option Plan    Restricted Share Awards     8,747      $ —        $ 5.74      $ 5.74      $ 5.74   

March 2, 2016

   2015 Option Plan    Options     444,922      $ 5.83     $ 5.83      $ 5.83      $ 3.92   

June 3, 2016

   2015 Option Plan    Options     327,330      $ 12.65      $ 12.65      $ 12.65      $ 8.57   

June 3, 2016

   Fay Corp. &
Founders
   Common Shares     290,400        —        $ 12.65      $ 12.65      $ 12.65   

 

(1)   Represents the determination by our board of directors of the fair value of our common shares on the date of grant, taking into consideration the various objective and subjective factors described below.
(2)   The fair value of common shares at the grant date was adjusted in connection with a retrospective fair value assessment for financial reporting purposes.

 

Equity-based compensation expense totaled approximately $0.7 million, $3.7 million, $1.5 million and $4.5 million for the years ended December 31, 2014 and 2015 and the six months ended June 30, 2015 and 2016, respectively. As of December 31, 2015 and June 30, 2016, we had $4.3 million and $7.5 million, respectively, of unrecognized compensation expense related to stock option awards, which are expected to be recognized over weighted-average remaining vesting periods of approximately 3.3 years and 3.2 years, respectively. As of December 31, 2015 and June 30, 2016, we had $4.7 million and $7.6 million, respectively, of unrecognized compensation expense related to restricted share awards, which are expected to be recognized over weighted- average remaining vesting periods of approximately 2.6 years and 2.0 years, respectively. We expect the impact of our equity-based compensation expense for restricted shares and options to purchase common shares granted to employees and non-employees to grow in future periods due to the potential increases in the value of our common shares and headcount.

 

JOBS Act

 

In April 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. Section 107 of the JOBS Act provides that an “emerging growth company,” or an EGC, can take advantage of the extended transition period for complying with new or revised accounting standards. Thus, an EGC can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

 

We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements under the JOBS Act. Subject to certain conditions, as an EGC, we intend to rely on certain of these exemptions, including exemptions from the requirement to provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act, SOX, and

 

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from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an EGC until the earlier of: (i) the last day of the fiscal year in which we have total annual gross revenues of $1 billion or more, (ii) the last day of the fiscal year following the fifth anniversary of the date of the completion of this offering, (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

 

Recent Accounting Pronouncements

 

Refer to Note 2, “Summary of Significant Accounting Policies,” in the accompanying notes to the consolidated financial statements for a discussion of recent accounting pronouncements. There were no new accounting pronouncements adopted during 2015 that had a material effect on our financial statements.

 

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.

 

Taxation

 

We are subject to corporate taxation in Switzerland.

 

We are also entitled under Swiss laws to carry forward any losses incurred for a period of seven years and can offset our losses carried forward against future profits. As of December 31, 2015, we reported tax loss carry forwards from inception through 2015 for purposes of Swiss federal direct taxes in the aggregate amount of CHF 22.0 million. Due to the expected mixed company status (in case the advance tax ruling with respect to the mixed company status will be accepted) the tax losses at cantonal level amount to CHF 4.1 million. These tax losses could be available to offset future taxable income. If not used, these tax losses will expire seven years after the year in which they were incurred. Due to our limited income, there is a high risk that the tax loss carry forwards will expire partly or entirely.

 

The corporate profit tax rate in the Canton of Basel-Stadt where we are domiciled amounts (federal and cantonal) currently to a maximum of 27% before tax (taxes are deductible). We applied for a tax privilege as a mixed company for the years 2014 and 2015, and this application is pending. The Cantonal corporate profit tax rate for mixed companies is between 8% and 14% (federal and cantonal). The Canton does from time to time amend the level of taxation levied on corporations and there is no certainty that the tax rate currently in effect will not change in the future. For example, the government of the Canton Basel-Stadt is currently proposing to lower the cantonal corporate tax rate to 6.5% if the proposed corporate tax reform III is enacted. Corporate tax reform III would also abolish the mixed company privilege within a period of two years and corporate tax rates will be adapted. This proposal, if enacted, would result in a corporate tax rate of around 13% (federal and cantonal).

 

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BUSINESS

 

You should read the following discussion together with our consolidated financial statements and related notes and other financial information appearing in this prospectus. Some of the information contained in this discussion or set forth elsewhere in this prospectus includes forward-looking statements that involve risks and uncertainties. You should review the sections of this prospectus captioned “Risk Factors” and “Special Note Regarding Forward-Looking Statements” for a discussion of important factors that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

 

Overview

 

We are a leading gene editing company focused on the development of CRISPR/Cas9-based therapeutics. CRISPR/Cas9 stands for Clustered, Regularly Interspaced Short Palindromic Repeats (CRISPR) Associated protein-9 and is a revolutionary technology for gene editing, the process of precisely altering specific sequences of genomic DNA. We are applying this technology to treat a broad set of rare and common diseases by disrupting, correcting or regulating disease-related genes. We believe that our scientific expertise, together with our approach, may enable an entirely new class of highly effective and potentially curative treatments for patients for whom current biopharmaceutical approaches have had limited success. Our most advanced programs target beta-thalassemia and sickle cell disease, two hemoglobinopathies that have high unmet medical need.

 

The use of CRISPR/Cas9 for gene editing was derived from a naturally occurring viral defense mechanism in bacteria and has been described by leading scientific journals as a breakthrough technology. The application of CRISPR/Cas9 for gene editing was co-invented by one of our scientific founders, Dr. Emmanuelle Charpentier, a director of the Max Planck Institute for Infection Biology in Berlin. Dr. Charpentier and her collaborators published work elucidating the mechanism by which the Cas9 endonuclease, a key component of CRISPR/Cas9, can be programmed to cut double-stranded DNA at specific locations. We have acquired rights to the foundational intellectual property encompassing CRISPR/Cas9 and related technologies from Dr. Charpentier, and continue to strengthen our intellectual property estate through our own research and additional in-licensing efforts, furthering our leadership in the development of CRISPR/Cas9-based therapeutics.

 

Our product development and partnership strategies are designed to exploit the full potential of the CRISPR/Cas9 platform while maximizing the probability of successfully developing our product candidates. We are pursuing a two-pronged product development strategy utilizing both ex vivo and in vivo approaches. Our most advanced programs use an ex vivo approach, whereby cells are harvested from a patient, treated with a CRISPR/Cas9-based therapeutic and reintroduced. We believe that an ex vivo approach is less technically challenging than an in vivo approach. We have chosen to conduct our lead programs in hemoglobinopathies given the relative ease of editing genes ex vivo, the significant unmet medical need associated with beta-thalassemia and sickle cell disease and the well-understood genetics of these diseases. Beyond these lead programs, we are pursuing a number of additional ex vivo applications, as well as select in vivo applications, whereby the CRISPR/Cas9 product candidate is delivered directly to target cells within the human body. Our initial in vivo applications will leverage well-established delivery technologies for gene-based therapeutics.

 

Given the numerous potential therapeutic applications for CRISPR/Cas9, we have partnered strategically to broaden the indications we can pursue and accelerate development of programs by accessing specific disease-area expertise. In particular, we established a joint venture with Bayer AG and its subsidiaries, or Bayer, in which we have a 50% interest, and a collaboration agreement with Vertex Pharmaceuticals Incorporated, or Vertex, in order to pursue specific indications where these companies have outstanding and distinctive capabilities. The significant resource commitments by our partners underscore the potential of our platform, as well as their dedication to developing transformative CRISPR/Cas9-based treatments.

 

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Our mission is to create transformative gene-based medicines for serious human diseases. We believe that our highly experienced team, together with our scientific expertise, product development strategy, partnerships and intellectual property position us as a leader in the development of CRISPR/Cas9-based therapeutics.

 

Our Team

 

We have assembled a management team with years of highly relevant experience to enable the development of our gene editing platform and the advancement of our product candidates. This team has extensive expertise in drug discovery and development, clinical and regulatory strategy, as well as business strategy and operations. Some of our key team members include:

 

   

Rodger Novak, M.D., our Co-Founder and Chief Executive Officer, who brings over a decade of extensive preclinical and clinical development experience from his previous biopharma roles. His prior positions include Global Head of Anti-Infectives Research and Development at Sanofi, co-founder and Chief Operating Officer of Nabriva Therapeutics AG, Deputy Head of the Sandoz GmbH Antibiotic Research Institute, and his role as a Professor of Microbiology at the Vienna Biocenter in Austria.

 

   

Sven Ante (Bill) Lundberg, M.D., our Chief Scientific Officer, who brings wide-ranging expertise across all phases of drug development from his more than 15 years of experience in the life sciences industry. These include his most recent position as the Vice President and Head of Translational Medicine at Alexion Pharmaceuticals Inc., where he was responsible for all research and development efforts, from discovery to clinical proof-of-concept, and previous leadership positions at Taligen Therapeutics, Inc., Wyeth and Genzyme Corporation.

 

   

Samarth Kulkarni, Ph.D., our Chief Business Officer, previously a Partner at McKinsey & Company where he co-led the biotechnology practice and advised leading biopharmaceuticals companies on strategic and business development matters.

 

Our management team is actively advised by a five-member scientific advisory board, which includes our co-founder, Dr. Emmanuelle Charpentier. We have assembled a team of advisors with know-how in complementary disciplines necessary for the development of our CRISPR/Cas9 product candidates. Our advisors are considered renowned leaders in delivery technologies, mechanisms of DNA repair, stem cell engineering, gene silencing and CRISPR/Cas9 gene editing. Our scientific advisory board regularly meets with the senior members of our research and development teams, including our Chief Scientific Officer, to provide insight and advice on our research and development efforts. In addition, we regularly consult with individual members of our scientific advisory board on matters pertaining to their respective areas of expertise. We believe that our advisory board’s expertise is a pivotal asset for our product development efforts.

 

Our Strategy

 

Our objective is to be a leader in the development of novel CRISPR/Cas9-based therapeutics, and to create transformative treatments for unaddressed or under-addressed human diseases. Key components of our strategy include:

 

   

Focus on the Hematopoietic System Through Ex Vivo Approaches.

 

   

Rapidly Advance Lead Programs in Hemoglobinopathies.    Our hemoglobinopathy programs employ an ex vivo gene editing strategy, supported by well-understood genetics and target patient populations with a high unmet medical need, making these programs suitable for rapid advancement through clinical development. We plan to file our clinical trial applications, or CTAs, to begin our first clinical trial for our hemoglobinopathy program targeting beta-thalassemia in late 2017 and for our hemoglobinopathy program targeting sickle cell disease in early 2018. In each case, the filing is subject to the identification and selection of guide RNA with acceptable efficiency.

 

   

Apply Our Hematopoietic Gene Editing Capabilities in Other Indications.    There are numerous diseases that are potentially treatable through ex vivo gene editing of the

 

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hematopoietic system. We plan to apply the capabilities we are developing in hemoglobinopathies to treat other diseases. We have launched programs in two such diseases, severe combined immunodeficiency disease, or SCID, and Hurler syndrome, a genetic metabolic disorder. In addition, we are utilizing our ex vivo gene editing expertise to advance our efforts in cell therapies for immuno-oncology applications.

 

   

Pursue Select Indications Requiring In Vivo Approaches.

 

   

Target the Liver Using Readily Available Delivery Technologies.    Clinically-validated viral and non-viral approaches for delivery of gene-based therapeutics to the liver are available today and we believe they are suitable for use in CRISPR/Cas9 product candidates. We intend to customize and use these delivery technologies for programs in hemophilia and genetic diseases of liver metabolism, including Glycogen Storage Disease Ia, or GSDIa. We are developing these programs in parallel with our ex vivo therapeutic candidates.

 

   

Optimize Delivery Technologies to Target Select In Vivo Indications Outside the Liver.    We intend to pursue select in vivo programs targeting diseases such as Duchenne muscular dystrophy and cystic fibrosis, both of which have significant patient populations with high unmet medical need and, we believe, are well suited for our CRISPR/Cas9 gene editing platform. We are working internally, as well as through third-party collaborations, to optimize viral and non-viral delivery technologies for use in these diseases.

 

   

Continue to Foster and Strategically Leverage Our Collaborations with Bayer and Vertex.

 

   

Our collaborations will allow us to pursue additional indications by utilizing the extensive disease-area expertise and resources of our collaborators. Our joint venture with Bayer HealthCare LLC, or Bayer HealthCare, leverages their expertise in disease areas such as hemophilia and ophthalmology, as well as validated disease models and access to key opinion leaders. We are targeting cystic fibrosis with Vertex, which brings leading drug development capabilities and clinical relationships for this disease.

 

   

Advance our Leading Position in the Field of Gene Editing.

 

   

We are continually investing in the enhancement of our CRISPR/Cas9 platform. Through our investments, we seek to optimize the various components, such as the Cas9 protein, gene correction and repair mechanisms and CRISPR/Cas9 delivery vehicles. We will invest both internally and through our existing and potential future collaborations to advance our technology.

 

Gene Editing Background

 

There are thousands of diseases caused by aberrant DNA sequences. Traditional small molecule and biologic therapies have had limited success in treating many of these diseases because they fail to address the underlying genetic causes. Newer approaches such as RNA therapeutics and viral gene therapy more directly target the genes related to disease, but each has clear limitations. RNA-based therapies, such as mRNA and siRNA, face challenges with repeat dosing and related toxicities. Non-integrating viral gene therapy platforms, such as adeno-associated virus, or AAV, may have limited durability because they do not permanently change the genome and have limited efficacy upon re-administration due to resulting immune responses. Integrating viral gene therapy platforms, such as lentivirus, permanently alter the genome but do so randomly, which leads to the potential for undesirable mutations. Additionally, cells may recognize the transduced genes as foreign and respond by reducing their expression, limiting their efficacy. Thus, while our understanding of genetic diseases has increased tremendously since the mapping of the human genome, our ability to treat them effectively has been limited.

 

We believe gene editing has the potential to enable a next generation of therapeutics and provide curative solutions to many genetic diseases through precise gene modification. The process of gene editing involves precisely altering DNA sequences within the genomes of cells using enzymes to cut the DNA at specific locations. After a cut is made, natural cellular processes repair the DNA to either silence or correct undesirable

 

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sequences, potentially reversing their negative effects. Importantly, because the genome itself is modified in this process, the change is permanent in the patient.

 

Earlier generation gene-editing technologies, such as zinc finger nucleases (ZFNs), transcriptor-activator like effector nucleases (TALENs) and meganucleases, rely on engineered protein-DNA interactions. While these systems were an important first step to demonstrate the potential of gene editing, their development has been challenging in practice due to the complexity of engineering protein-DNA interactions. In contrast, CRISPR/Cas9 is guided by RNA-DNA interactions, which are more predictable and straightforward to engineer and apply.

 

The CRISPR/Cas9 Technology

 

CRISPR/Cas9 evolved as a naturally occurring defense mechanism that protects bacteria against viral infections. Dr. Emmanuelle Charpentier and her collaborators elucidated this mechanism and developed ways to adapt and simplify it for use in gene editing. The CRISPR/Cas9 technology they described consists of three basic components: CRISPR-Associated protein 9, or Cas9, CRISPR RNA, or crRNA, and trans-activating CRISPR RNA, or tracrRNA. Cas9, in combination with these two RNA molecules, is described as “molecular scissors” that can make specific cuts in double-stranded DNA.

 

Dr. Emmanuelle Charpentier and her collaborators simplified the system for use in gene editing by combining the crRNA and tracrRNA into a single RNA molecule called a guide RNA. The guide RNA binds to Cas9 and can be programmed to direct the Cas9 enzyme to a specific DNA sequence based on Watson-Crick base pairing rules. The CRISPR/Cas9 technology can be used to make cuts in DNA at specific sites of targeted genes, providing a powerful tool for developing gene editing based therapeutics.

 

Once the DNA is cut, the cell uses naturally occurring DNA repair mechanisms to rejoin the cut ends. If a new DNA template with the correct sequence has been delivered to the cell prior to the time the DNA is cut, it will be incorporated, leading to a correction of the targeted gene, which we refer to as gene correction. Alternatively, if no DNA template is present, the cell will rejoin the two cut ends in a way that will likely lead to the disruption and inactivation of the gene, which we refer to as gene disruption.

 

CRISPR/Cas9 can also be adapted to regulate the activity of an existing gene without modifying the actual DNA sequence, which we refer to as gene regulation. This is accomplished using a catalytically inactive form of the Cas9 enzyme that can be directed to bind specific DNA sequences without cutting. By linking this inactive Cas9 to proteins that regulate gene function, the activity of specific genes can be either up or downregulated.

 

CRISPR/Cas9 gene editing

 

LOGO

 

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We believe that CRISPR/Cas9 is a versatile technology that can be used to either disrupt, correct or regulate genes. We intend to take advantage of the versatility and modularity of the CRISPR/Cas9 system to adapt and rapidly customize individual components for specific disease applications. Consequently, we believe that CRISPR/Cas9 may form the basis of a new class of therapeutics with the potential to treat a large number of both rare and common diseases.

 

Our Approach to CRISPR/Cas9 Portfolio Development

 

We have established a portfolio of programs by selecting disease targets based on a number of criteria, including high unmet medical need, advantages of CRISPR/Cas9 relative to alternative approaches, technical feasibility and the time required to advance the product candidate into and through clinical trials. For CRISPR/Cas9-based therapeutics, technical feasibility is primarily determined by the delivery modality and by the editing strategy required to treat the disease. The diagram below illustrates this spectrum of therapeutic applications, beginning with ex vivo delivery and gene disruption, progressing to in vivo organ systems and more sophisticated gene regulation strategies.

 

Strategic Progression of Our CRISPR/Cas9-Based Therapeutic Applications

 

LOGO

 

We have initiated programs in three primary areas: (i) ex vivo programs involving gene editing of hematopoietic cells, (ii) in vivo programs targeting the liver and (iii) additional in vivo programs targeting other organ systems such as muscle and lung. By focusing our most advanced programs in ex vivo applications we believe we can mitigate technical and clinical risk, while also developing in vivo programs in parallel to fully realize the potential of our platform.

 

Strategic Partnerships and Collaborations

 

We intend to develop CRISPR/Cas9-based therapeutics both independently and in collaboration with current and potential future corporate partners. We have established collaborations with Bayer and Vertex which will provide over $400 million, subject to certain conditions, inclusive of estimated spending on funded

 

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programs, which will be used to advance the programs included in these partnerships. These significant commitments will allow us to broaden our development portfolio, as well as invest in technology enhancements and delivery technologies. As part of these collaborations, Bayer and Vertex made equity investments of $35 million and $30 million, respectively, which we believe strengthen their commitments to the growth of our company. We believe that the resources committed by Bayer and Vertex illustrate the potential of our CRISPR/Cas9 gene editing technology.

 

Under our agreement with Bayer HealthCare, we established Casebia Therapeutics LLP, or Casebia, a joint venture in which we and Bayer HealthCare are equal owners. We and Bayer intend for Casebia to largely focus on more challenging in vivo therapeutic areas in larger patient populations, and to invest resources in optimizing the platform and delivery technologies for in vivo delivery. Through our agreement, we will have access to technology enhancements developed or obtained by Casebia for the benefit of our other wholly owned programs.

 

Our agreement with Vertex is a two-part collaboration. We have retained co-development and co-commercialization rights for the hemoglobinopathies program. We have also granted Vertex an option to license certain programs, with the potential to receive milestone payments and royalties.

 

Our Pipeline

 

The following table summarizes the current status of our product development pipeline:

 

LOGO

 

Ex Vivo Hematopoietic Program

 

Background

 

We are primarily utilizing ex vivo approaches to treat diseases related to the hematopoietic system, which is the system of organs and tissues, such as bone marrow, the spleen and lymph nodes, involved in the production of blood. Today, many of the hematopoietic system diseases we are targeting are treated with allogeneic hematopoietic stem cell transplants, or allo-HSCT. In performing allo-HSCT, physicians replace a patient’s

 

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blood-forming cells that contain the defective gene with cells obtained from a different person that contain the normal gene. Unfortunately, not all patients are able to be matched with suitable donors. Patients who do undergo allo-HSCT face a high risk of complications such as infections related to immunosuppression, transplant rejection and graft-versus-host disease, where immune cells in the transplanted tissue (the graft) recognize the recipient (the host) as “foreign” and begin to attack the host’s cells.

 

In contrast to allo-HSCT, our approach harvests stem cells directly from the patient, edits the defective gene ex vivo, and reintroduces those same cells back into the patient. We believe this ex vivo gene editing approach, which uses the patient’s own cells, will provide better safety and efficacy than allo-HSCT.

 

Our Lead Programs—Hemoglobinopathies

 

Our lead programs aim to develop a single, potentially transformative CRISPR/Cas9-based therapy to treat both beta-thalassemia and sickle cell disease, or SCD. These diseases are caused by specific mutations of the beta globin gene. Beta globin is an essential component of hemoglobin, a protein in red blood cells that delivers oxygen and removes carbon dioxide throughout the body. A number of factors make these attractive lead indications, including: (i) high unmet medical need, (ii) compelling market potential, (iii) well-understood genetics and (iv) the ability to employ an ex vivo gene disruption strategy.

 

Beta-thalassemia

 

Overview

 

Beta-thalassemia is a blood disorder that is associated with a reduction in the production of hemoglobin. This disease is caused by mutations that give rise to the insufficient expression of the beta globin protein, which can lead to symptoms related to not only the lack of hemoglobin, but also as result of the buildup of unpaired alpha globin proteins in red blood cells. The severity of symptoms associated with beta-thalassemia varies depending on the levels of functional beta globin present in the blood cells. In the most severe cases, described as beta-thalassemia major, functional beta globin is either completely absent or reduced, resulting in severe anemia. While chronic blood transfusions can be effective at addressing symptoms, they often lead to iron overload, progressive heart and liver failure, and eventually death. Patients with mild forms of beta-thalassemia may experience some mild anemia or even be asymptomatic.

 

The total worldwide incidence of beta-thalassemia is estimated to be 60,000 births annually, the total prevalence in the United States and the European Union is estimated to be approximately 19,000 and there are over 200,000 people worldwide who are alive and registered as receiving treatment for the disease.

 

Limitations of current treatment options

 

The most common treatment for beta-thalassemia is chronic blood transfusions. Patients typically receive transfusions every two to four weeks and chronic administration of blood often leads to elevated levels of iron in the body and can cause organ damage over a relatively short period of time. Patients are often given iron chelators, or medicines to reduce iron levels in the blood, which are associated with their own significant toxicities. Low adherence to this burdensome regime often results in death by 30 years of age for patients with transfusion-dependent beta-thalassemia. The only potentially curative therapy for this disease is allo-HSCT, but few patients elect to have this procedure given its associated morbidity and mortality. In developing countries, where chronic transfusions are not available, most patients die in early childhood. We believe that our therapeutic approach could offer a potentially curative and safe treatment for this devastating disease.

 

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Sickle Cell Disease

 

Overview

 

Sickle cell disease is an inherited disorder of red blood cells resulting from a mutation in the beta globin gene that causes abnormal red blood cell function. Under conditions of low oxygen concentration, the abnormal hemoglobin proteins aggregate within the red blood cells causing them to become sickled in shape and inflexible. These sickled cells obstruct blood vessels, restricting blood flow to organs, ultimately resulting in anemia, severe pain, infections, stroke, overall poor quality of life and early death.

 

The worldwide incidence of SCD is estimated to be 300,000 births annually and there are 20 million to 25 million people worldwide with the disease. In the United States, the total prevalence is estimated to be 100,000 individuals.

 

Limitations of current treatment options

 

As with beta-thalassemia, in regions where access to modern medical care is available, standard treatment for SCD involves chronic blood transfusions, which has the same associated risks of iron overload and toxicities associated with chelation therapy. Allo-HSCT is a second potential treatment option. While allo-HSCT provides the only potentially curative therapeutic path for SCD, it is often avoided given the significant risk of transplant-related morbidity and mortality in these patients.

 

Our Gene Editing Approach

 

Our therapeutic approach to treating beta-thalassemia and SCD employs gene editing to upregulate the expression of the gamma globin protein, a hemoglobin subunit that is commonly present only in newborn infants. Hemoglobin that contains gamma globin instead of beta globin protein is referred to as fetal hemoglobin, or HbF. In most individuals HbF disappears in infancy as gamma globin is replaced by beta globin through naturally occurring suppression of the gamma globin gene. The symptoms of beta-thalassemia and SCD typically do not manifest until several months after birth, when the levels of HbF have declined considerably. Some patients with beta-thalassemia or SCD have elevated levels of HbF that persist into adulthood, a condition known as hereditary persistence of fetal hemoglobin, or HPFH. Patients with HPFH are often asymptomatic, or experience much milder forms of disease. This protective HPFH condition has been shown to result from specific changes to the DNA in the cell, either in the region of the globin genes or in certain genetic regulatory elements that control the expression levels of the globin genes.

 

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Relationship between level of HbF and morbidity in beta-thalassemia

 

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We are using our CRISPR/Cas9 platform to mimic the same DNA sequence changes that occur naturally in HPFH patients. We plan to isolate patients’ hematopoietic stem cells, which differentiate into red blood cells, treat these cells ex vivo with a CRISPR/Cas9 product candidate to edit their DNA to upregulate the expression of the gamma globin protein and reintroduce the edited cells back into the patients. We believe that the genetically modified stem cells will give rise to red blood cells that contain HbF and significantly reduce the severity of the symptoms associated with these two diseases.

 

An alternative CRISPR/Cas9 approach to treating hemoglobinopathies would be to correct the mutated beta globin gene. We have chosen the HbF upregulation strategy as our initial approach given the relative technical simplicity of the gene deletion strategy involved, ability of this strategy to counteract a wide variety of different beta globin mutations, and the absence of symptoms in patients with high HbF levels.

 

We believe our CRISPR/Cas9 gene editing strategy may have significant advantages over other gene therapies in development for the treatment of hemoglobinopathies. For example, lentivirus-based treatments involve a random integration of one or more copies of the globin gene throughout the genome. The expression levels of the newly introduced gene can vary depending on the exact location of the DNA in the genome, leading to inconsistent and variable levels of expression. In addition, with each random integration, a mutation may be created, which may have an associated safety concern, including the potential to cause cancer.

 

Preclinical Data

 

We are progressing toward initiating clinical trials for our hemoglobinopathy programs. The first step in this process involves selecting the specific gene editing strategy and RNA guides we will use in our product candidates. We are applying our high-throughput target evaluation process to test a number of these approaches, and ultimately select RNA guides with the highest editing rate of the globin genes and the greatest effect on HbF expression. Using our high-throughput guide screening platform, we have been able to identify guide RNAs that allow editing of hematopoietic stem cells at specific locations in the genome with greater than 90% efficiency.

 

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In addition to selecting guide RNAs with the highest cutting activity, we also screen our guide RNAs for off-target effects, or the introduction of cuts in DNA at locations other than the target sequence. To do this, we use bioinformatics to predict the most likely sites of off-target cuts, then test for cuts at these locations. The example guide RNA analysis shown below illustrates that we are able to identify guide RNAs that cut very efficiently at the target sites but show no off-target activity above control levels, even at sites where off-target activity is most likely to occur. We also test our lead candidates for any unlikely off-target effects using genome sequencing before advancing them for use as therapeutics.

 

Example guide RNA analysis

 

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There are multiple naturally occurring genetic variants that lead to HPFH and which could form the basis of our product candidate. We have used CRISPR/Cas9 to recreate a number of these variants and tested their ability to upregulate HbF. The figure below shows the level of HbF upregulation, as measured by ratio of gamma globin to alpha globin mRNA, resulting from the recreation of five different genetic variants in hematopoietic stem cells using CRISPR/Cas9. Additionally, we have measured the level of gamma globin protein produced in these variants, to confirm the upregulation of HbF. We believe that at least two of these, named “Target A” and “Target B”, may result in potentially curative levels of HbF if successfully introduced to patients with beta-thalassemia and SCD.

 

Ability of different gene targets to drive HbF production

 

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                    Vertical lines in each bar show the mean ± standard error from multiple experiments.

 

To date, we have identified guide RNAs that perform the desired gene edits with very high efficiency, result in high levels of HbF production in cells and show no detectable evidence of off-target effects. As we continue to advance our hemoglobinopathies programs to the clinic, we are in the process of evaluating the ability of edited hematopoietic stem cells to engraft and persist in mice. These studies will also assess the ability of the edited cells to home the marrow and differentiate. Before entering clinical trials we will also perform longer-term studies in mice to ensure there are no undesirable consequences caused by the gene edited cells.

 

Hurler Syndrome

 

Hurler syndrome is a type of mucopolysaccharide disease caused by a defective IDUA gene. The IDUA gene is responsible for encoding alpha-L-iduronidase, an enzyme that breaks down large molecules called glycosaminoglycans, or GAGs, in the lysosomes of cells. A defective IDUA gene results in a lack of alpha-L-iduroindase which leads to an accumulation of GAGs and results in cellular dysfunction and severe clinical abnormalities. Patients with Hurler syndrome have a broad spectrum of clinical problems including skeletal abnormalities, enlarged livers and spleens, and severe intellectual disability due to a lack of this enzyme in the brain. Most patients experience a decline in intellectual development and often lose both vision and hearing as the disease progresses. Without treatment, the average age at death is five years, and nearly all patients die by the age of ten. The worldwide incidence of Hurler syndrome is approximately one in 100,000 births.

 

There are two common approaches to treating mucopolysaccharide diseases: enzyme replacement therapy and allo-HSCT. Enzyme replacement therapy, or ERT, does not adequately address the symptoms of Hurler

 

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syndrome because it cannot cross the blood-brain barrier to address the severe neurologic symptoms associated with this disease. While allo-HSCT can be effective in treating the disease, it is associated with significant morbidity and mortality, and not all patients are able to find suitable donors. Even when a match is found, the delay between diagnosis and treatment often results in significant irreversible disease progression. Our approach is to introduce a functional copy of the IDUA gene into a patient’s own hematopoietic cells using ex vivo CRISPR/Cas9 gene editing, before returning them to the patient. We believe that using a patient’s own cells rather than those from a donor will eliminate a potentially lengthy search for an appropriate donor, allowing us to intervene at an earlier point and avoid the significant risks associated with allo-HSCT.

 

Severe Combined Immunodeficiency Disease

 

Severe combined immunodeficiency disease, or SCID, is a disease in which the patient’s immune system is compromised and cannot fight off infections. These patients are identified early in life because they often suffer from recurrent severe respiratory infections, which can be life-threatening in the absence of a functioning immune system. There are multiple underlying causes of SCID, and in one particularly severe form, a gene called RAG1 is mutated. Mutations in RAG1, a gene that plays a critical role in the process of antibody generation, prevent normal development of the patient’s immune system, resulting in an absence of B-cells, a type of white blood cell. The worldwide incidence of SCID is estimated to be one in 58,000 births, with the RAG1 mutation associated form accounting for approximately 15% of patients.

 

Currently, the only curative therapy for this potentially fatal disorder is allo-HSCT, which carries a high risk of complications. Gene therapies for SCID insert copies of a replacement gene randomly into the genome, potentially resulting in unwanted mutations. The risks associated with this type of gene therapy were underscored in a clinical trial for another variant of SCID in which five out of twenty patients developed leukemia. We believe that the precise correction of the RAG1 gene with CRISPR/Cas9 will bring benefit to these patients while minimizing the risk of leukemia associated with gene therapy. Considering corrected cells proliferate faster than non-corrected cells, we believe that a small number of corrected cells reintroduced into the patient could provide a therapeutic benefit and in time, compensate for the defective cells. With our ex vivo approach, we believe we can attain sufficient levels of correction to generate the desired therapeutic benefit. Our Casebia joint venture with Bayer HealthCare will lead development of our SCID program, and leverage Bayer HealthCare’s expertise in hematologic disorders.

 

Future Development Opportunities

 

Engineered Cell Therapies For Cancer Immunotherapy

 

Over the past several years, interest in the oncology community has centered on immunotherapy, or treatments that harness a patient’s own immune system to attack cancer cells. Engineered cell therapy is one such immunotherapy approach, in which immune system cells such as T-cells and natural killer, or NK, cells are genetically modified to enable them to recognize and attack tumor cells.

 

Engineered cell therapy has demonstrated encouraging clinical results and shown the potential to become an entirely new class of oncology therapeutics; however, realizing this full potential will require overcoming some key challenges. Most engineered cell therapies in development require unique products to be created for each patient treated, using conventional techniques. This approach to drug development is both inefficient and cost-prohibitive. Additionally, these versions of engineered cell therapies appear limited in their ability to treat solid tumors. These products have also demonstrated sub-optimal safety profiles, including overstimulation of the immune system, occasionally resulting in death.

 

We are utilizing CRISPR/Cas9 to create an “off-the-shelf” cell therapy product candidate, overcoming the inefficiency and cost of creating a unique product for each patient. In addition to delivering a gene for an engineered receptor to target the tumor, creating such a product would require simultaneous disruption of several genes in order to prevent off-target immune responses. We have initial results demonstrating that this type of

 

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“multiplexed” editing can be achieved with high efficiency using CRISPR/Cas9. We are also using our platform to make other improvements such as disruption checkpoint inhibitor genes to overcome solid tumor suppression, and disrupting other genes to improve the safety profile.

 

We expect that the cellular engineering strategies that are ultimately successful in cancer immunotherapy will involve multiple genetic modifications, an application for which we believe CRISPR/Cas9 will play a central role. While other gene editing platforms could potentially be used for these purposes, CRISPR/Cas9 is particularly well-suited for multiplexed editing, which is the modification of multiple genes within a single cell. Current gene editing techniques that require different protein enzymes for each genetic modification may be limited in the number of edits they can make concurrently. In contrast, CRISPR/Cas9 can efficiently make multiple edits using a single Cas9 protein and multiple small guide RNA molecules. The example below demonstrates the ability of CRISPR/Cas9 technology to edit two different genes in human primary T-cells with an efficiency rate similar to that of editing just one gene.

 

Multiplexed editing of human primary T-cells using CRISPR/Cas9

 

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Vertical lines in each bar show the mean ± standard error from multiple experiments.

 

In Vivo Programs

 

In parallel with our ex vivo programs, we are pursuing a number of in vivo indications which will involve delivery of CRISPR/Cas9 product candidates directly to tissues within the human body. Our initial in vivo applications will target the liver, leveraging well-established delivery technologies. We have also begun optimizing delivery systems to target other organ systems, including musculoskeletal and pulmonary.

 

Liver Diseases

 

We have selected liver diseases as our initial in vivo targets because delivery of nucleic acid therapies into the liver has been clinically established and validated delivery technologies are now available, including, but not

 

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limited to, lipid nanoparticle based delivery vehicles, or LNPs, and AAVs. We believe this proof of concept reduces the challenges associated with delivering CRISPR/Cas9-based therapeutics in vivo to the liver.

 

Within the liver we are pursuing diseases that have well understood genetic linkages, and have begun preclinical development for multiple indications including glycogen storage disease Ia, or GSDIa, and hemophilia. In both of these indications, evidence suggests that correction of the mutant gene in only a small percentage of liver cells may have a significant therapeutic effect, which makes the gene correction strategy feasible in these indications.

 

Glycogen Storage Disease Ia

 

Overview

 

GSDIa, also known as Von Gierke disease, is an autosomal recessive inborn error of glucose metabolism caused by a mutation in the G6PC gene, which encodes the glucose-6-phosphatase protein, or G6Pase. In patients with GSDIa, the lack of G6Pase prevents the release of glucose from the liver, resulting in accumulation of a large chain form of glucose known as glycogen. The inability of patients with GSDIa to regulate glucose levels leads to hypoglycemia, or low blood glucose, and high levels of lactic acid when patients are not eating, requiring patients to adhere to burdensome dietary regimes. GSDIa patients also face long-term risks such as growth delay, neuropathy and kidney stones. Additionally, due to the accumulation of glycogen in the liver, 70% to 80% of patients over 25 years of age will develop hepatocellular adenomas, a type of non-cancerous growth in the liver, of which approximately 10% will progress to hepatocellular carcinoma, a potentially fatal liver cancer. There are approximately 1,000 new cases of GSDIa per year worldwide.

 

Limitations of Current Treatment Options

 

There are currently no disease-modifying treatment options for patients with GSDIa. Any disruption in carbohydrate delivery may lead to low blood sugar levels, which can cause life-threatening consequences including seizure, coma and death. To minimize the risk of acute complications, patients are required to adhere to highly burdensome, life long dietary regimens such as overnight administration of uncooked cornstarch or a slow-release carbohydrate product such as Glycosade. These regimens have a high rate of non-compliance, leading to increased risk of serious long-term complications.

 

Our Gene Editing Approach

 

We are developing a CRISPR/Cas9 product candidate to correct the mutation in GSDIa patients. Animal model experiments have demonstrated that the addition of functional copies of the G6PC gene is capable of correcting the deficiency of G6Pase protein in GSDIa and that as little as 3% of normal levels of G6Pase can restore the equilibrium of glucose and glycogen in the bloodstream and liver. Our approach is to correct the G6PC gene directly in its native location. We believe this direct gene correction will result in appropriate expression of the G6Pase protein. Other methods rely on adding copies of the gene through viral delivery methods, which we believe may lead to overexpression of the G6Pase protein and ineffective control of glucose levels.

 

Hemophilia

 

Overview

 

Hemophilia is an X-linked recessive genetic disease primarily present in male children. Our initial hemophilia program targets hemophilia B, which results from a deficiency in factor IX, an enzyme produced in the liver. Factor IX is part of the blood coagulation system, which enables blood to form clots in response to injury and bleeding. A lack of factor IX leads to an increased risk of bleeding, either spontaneously or in response to injury.

 

Patients with severe forms of the disease are first diagnosed at infancy, as witnessed through prolonged bleeding from simple medical procedures or through excessive bruising from simple falls. These patients have frequent spontaneous bleeding into joints and muscles, which can lead to edema, inflammation and debilitating

 

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pain. Patients with mild forms of the disease typically present as normal, and diagnosis usually follows surgery or trauma. The worldwide prevalence of hemophilia B patients is estimated to be 28,000, including over 4,000 in the United States. About half of hemophilia B cases are classified as severe based on levels of factor IX activity that are less than 1% of normal.

 

Limitations of Current Treatment Options

 

The standard of care for symptomatic patients with hemophilia B involves enzyme replacement with recombinant factor IX. Exogenous factor IX protein is administered both as a prophylaxis and during acute bleeding episodes. While considered effective, factor IX replacement therapies are invasive, inconvenient and non-curative. Until recently, hemophilia B therapy required weekly intravenous injections or infusions. While administration frequency has improved in recent years, key drawbacks of protein therapy, including fluctuations in factor IX levels, remain a significant pitfall of enzyme replacement therapies.

 

Our Gene Editing Approach

 

We believe that hemophilia B symptoms can be dramatically reduced with only a moderate restoration in factor IX activity. It has been shown that patients with more than 5% of normal factor IX activity have milder forms of the disease and may not present symptoms in the absence of trauma or surgery. This observation implies that in patients with severe forms of the disease, restoration of factor IX activity to a level of 5% or more of normal may be clinically meaningful.

 

The correction of a mutant factor IX gene with CRISPR/Cas9 leverages endogenous regulation via correction of the gene at its native location within the genome. As a result, we believe it may represent a superior way to treat hemophilia B patients, relative to other gene therapy approaches that insert the correct gene at a random location in the genome. Our hemophilia program will be developed within the Casebia joint venture, leveraging Bayer’s expertise in this disease area together with our gene editing expertise.

 

Other Organs

 

We intend to pursue select in vivo programs targeting diseases of other organ systems such as Duchenne muscular dystrophy, or DMD, and cystic fibrosis, which have significant patient populations with high unmet medical needs, and we believe are well suited for a CRISPR/Cas9 gene editing system. For cystic fibrosis, or CF, we are working with Vertex, a global leader with extensive disease area expertise. We are working internally as well as through third-party collaborations to optimize viral and non-viral delivery technologies to overcome the delivery challenges to these organ systems.

 

Duchenne Muscular Dystrophy

 

Overview

 

Duchenne muscular dystrophy is an X-linked recessive genetic disease caused by a mutation in the dystrophin gene, which results in a lack of the dystrophin protein, a protein that plays a key structural role in muscle fiber function. The absence of dystrophin in muscle cells leads to significant cell damage and ultimately causes muscle cell death and fibrosis. DMD is characterized by muscle degeneration, loss of mobility and premature death, and is among the most prevalent severe genetic diseases, occurring in one in 3,300 male births worldwide. There is also a related form of muscular dystrophy called Becker muscular dystrophy, or BMD, which is also caused by mutations in the dystrophin gene. However, unlike DMD, the mutations in BMD result in the loss of certain exons or regions of the gene, and can lead to an abnormal version of dystrophin that retains some function. As a result, BMD patients have milder symptoms than DMD patients.

 

There is currently one approved disease-modifying therapy in the United States for the treatment of DMD in patients who have a confirmed mutation of the dystrophin gene amenable to exon 51 skipping, which affects

 

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about 13% of the population with DMD. There is currently no approved disease-modifying therapies in the United States for the treatment of BMD. Our gene-based therapeutic approach in development to treat DMD involves the use of oligonucleotides to promote exon skipping over the mutations that otherwise would result in truncated dystrophin synthesis. While exon skipping has demonstrated promising results in limited settings, larger clinical trials of this approach have suggested only modest efficacy. In addition, delivering sufficient levels of oligonucleotides requires repeated administration and presents challenges to treating DMD.

 

Our Gene Editing Approach

 

We are pursuing multiple approaches to developing therapies for DMD. Our first approach is to deliver CRISPR/Cas9 directly to muscle cells in patients to delete the defective exons in the dystrophin gene. The goal of this approach is to allow the gene to regain some functional capacity and produce enough dystrophin protein to diminish the more severe symptoms of DMD to resemble the milder form of the disease known as BMD. We believe that currently available technology is capable of delivering the CRISPR/Cas9 into muscle cells, and together with the relatively high efficiency of exon deletion using the CRISPR/Cas9 system, we will be able to move this program into clinical testing.

 

We also plan to develop an ex vivo cell therapy product candidate for DMD. We will derive stem cells from patient tissues and modify them ex vivo using our CRISPR/Cas9 technology to correct the disease causing mutations. These corrected stem cells will then be differentiated into muscle precursor cells and reintroduced into patient tissues. Once administered to the patients, we believe that the cells will divide and provide the patient with properly functioning muscle fibers with corrected copies of the dystrophin gene.

 

In parallel, we are performing in vitro experiments to test the principle of dystrophin gene correction which could potentially be curative. Prior studies in mice and humans have indicated that dystrophin levels as low as 4 to 15% of normal are sufficient to ameliorate symptoms, suggesting that even a partial restoration of dystrophin levels would be therapeutically beneficial.

 

Cystic Fibrosis

 

Cystic fibrosis is a progressive disease caused by mutations in the cystic fibrosis transmembrane regulator, or CFTR, gene resulting in the loss or reduced function of the CFTR protein. Although there are several different mutations associated with CF, approximately 70% of CF patients have the same mutation at codon 508 of the CFTR gene. Patients with CF develop thick mucus in vital organs, particularly in the lungs, pancreas and gastrointestinal tract. As a result, CF patients experience chronic severe respiratory infections, chronic lung inflammation, poor absorption of nutrients, progressive respiratory failure and early mortality.

 

CF is an orphan disease that affects an estimated 70,000 to 100,000 patients worldwide, with a majority in the United States and Europe. The median age of death from CF in the United States in 2014 was 29 years, with most deaths resulting from respiratory failure. CF patients require lifelong treatment with multiple daily medications and hours of self-care. They often require frequent hospitalizations and sometimes even lung transplantation, which can prolong survival but is not curative.

 

Studies have shown that as little as 10% of normal CFTR function can ameliorate disease symptoms. Our approach is focused on using our CRISPR/Cas9 technology to correct the mutation at codon 508. Together with our collaboration partner Vertex, we believe that we will be able to deliver CRISPR/Cas9 to the lung and correct this mutation sufficiently to improve symptoms in patients with CF.

 

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Further Unlocking the Potential of Our CRISPR/Cas9 Platform

 

We are working to optimize our CRISPR/Cas9 platform. Our key areas of focus are described below.

 

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Optimization of the Cas9 Protein

 

The Cas9 nucleases found in nature are highly efficient and specific. We believe that for many gene-editing applications, the naturally occurring Cas9 variants have all the properties required to support an effective therapeutic. However, we also see potential in certain disease areas and organ systems where modified versions of Cas9 may be more effective, and we are working internally and through our external collaborations to develop these.

 

Our research and development efforts seek to enhance a number of characteristics of Cas9, including size, specificity, immunogenecity and ability to support different types of editing strategies. We believe that the process of optimizing these different parameters may yield a number of effective Cas9 versions with different properties, each of which may be best suited to a certain disease area or type of genetic editing.

 

Guide RNA Selection

 

Selecting the sequence for guide RNAs is a critical step in the process of designing our product candidates. Once we have chosen a gene editing strategy, we seek to identify guide RNAs that will perform the desired edit with high efficiency and with extremely low off-target cutting. While computational models can predict efficiency and off-target effects with reasonable accuracy, we believe that a combination of computation and experimental approaches is necessary to reliably select the best possible guide RNAs.

 

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We are building a guide RNA selection process that combines bioinformatics and experimental assays to enable the screening of over 10,000 guide RNAs in each experiment. This process starts with proprietary bioinformatics algorithms that select a large pool of guide RNAs that are predicted to have desired properties. These guides are then tested for target site cutting efficiency using a high-throughput screening platform in a model cell line. The most efficient guides are then put through two screening processes for possible off-target effects. First, bioinformatics algorithms are used to identify the 10 to 20 sites in the genome that are most likely to show off-target effects, and these sites are examined through high-throughput assays for empirical off-target cutting. Second, whole genome sequencing is performed to identify any potential off-target cutting, even at unpredicted locations. Finally, a small subset of guides with the highest efficiency and lowest off-target potential are tested in the cell type of therapeutic interest before choosing a lead guide or guides for our program.

 

Delivery

 

Delivery of CRISPR/Cas9 into cells is a critical step to ensure that the therapeutic will be effective. We can deliver our Cas9 in the form of protein, DNA or RNA, allowing us to tailor the delivery format to the target tissue. For our ex vivo programs, we are using both protein and mRNA forms of Cas9 delivered via electroporation, which is the process of using a pulse of electricity to briefly open the pores of the cell membrane. For in vivo delivery to cells and organs in the patient we are evaluating and testing a variety of technologies that include LNPs and AAVs, as well as other delivery methods, before selecting the specific versions for use in our product candidates. We have not yet selected an LNP or AAV technology for in-licensing opportunities. In addition, we are collaborating externally to develop next-generation delivery technologies that will allow us to access organ systems that are less accessible today. Some of this activity may be done through our Casebia joint venture with Bayer HealthCare which provides us access to supporting technologies such as delivery vehicles.

 

Correction

 

While gene correction is achievable today using CRISPR/Cas9, it is more difficult and has lower efficacy than the more straightforward gene disruption strategy. Our initial gene correction programs target diseases in which therapeutic efficacy can be achieved through correction of only a small percentage of cells, while other potential indications may require correction of a significantly higher percentage of cells. We are working with our collaborators to increase the efficiency of gene correction in order to facilitate the potential treatment of these additional indications.

 

A central focus of our development efforts is to optimize the correction rates in cell types where rates of correction are typically low. Some of this optimization is being done internally, to test the influence of different parameters of the CRISPR/Cas9 system on correction efficiency. In addition, we are advised by Dr. Stephen Elledge, Professor of Genetics at Harvard Medical School, who is an expert in DNA damage and repair, to explore ways to optimize the cellular processes involved in the correction process. We are also collaborating more broadly with leaders in the DNA repair field, to explore other approaches to optimize correction rates.

 

Cellular Engineering

 

Many ex vivo applications of our technology use a strategy of editing stem cells ex vivo which, when returned to the patient, differentiate into a variety of different cell types. For certain stem cell types, especially hematopoietic cells, there are well-established procedures to support this strategy. For others, these procedures are more nascent and require further development. A critical focus for us is to improve the efficacy, efficiency and safety of the ex vivo cell collection, manipulation and administration process for a variety of stem cell types. We are evaluating technologies to improve mobilization of a patient’s stem cells, to maintain viability of the harvested cells, and to improve the ability of these cells to engraft into a patient’s body. Both in our own laboratories and through our academic partnerships, we intend to perform additional research to optimize these parameters for each organ system.

 

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Intellectual Property

 

We strive to protect and enhance the proprietary technologies that we believe are important to our business by seeking patents to cover our platform technology, which consists of the in-licensed inte