CRISPR Therapeutics AG: Form 10-Q for the period ended Sep 30, 2023

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with (i) our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and (ii) our audited consolidated financial statements and related notes and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission, or the SEC, on February 21, 2023. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business and impact and potential impacts on our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including, without limitation, those factors set forth in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2022 and the “Risk Factors” section of subsequent Quarterly Reports on Form 10-Q, our actual results or timing of certain events could differ materially from the results or timing described in, or implied by, these forward-looking statements.

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. Dr. Charpentier and 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 disrupt, delete, correct and insert genes to potentially treat genetically defined diseases and engineer advanced cellular therapies. We believe that our scientific expertise, together with our gene editing approach, may enable an entirely new class of highly effective and potentially curative therapies for patients with both rare and common diseases for whom current biopharmaceutical approaches have had limited success.

We have established a portfolio of therapeutic programs in a broad range of disease areas across four core franchises: hemoglobinopathies, immuno-oncology, regenerative medicine and in vivo approaches. Our most advanced programs target the genetically defined diseases transfusion-dependent beta thalassemia, or TDT, and severe sickle cell disease, or SCD, two hemoglobinopathies with high unmet medical need. We are also progressing several gene-edited allogeneic cell therapy programs, including allogeneic chimeric antigen receptor T cell, or CAR T, candidates for the treatment of hematological and solid tumor cancers, and investigational, allogeneic, gene-edited, immune-evasive, stem cell-derived therapies for the treatment of type 1 diabetes, or T1D. In addition, we are advancing multiple programs leveraging in vivo editing approaches, initially for the treatment and prevention of cardiovascular disease.

Hemoglobinopathies

Exa-cel

Exagamglogene autotemcel, or exa-cel, is an investigational, autologous, ex vivo CRISPR gene-edited hematopoietic stem cell therapy that is being evaluated for the treatment of TDT and severe SCD. Exa-cel is being developed under a joint development and commercialization agreement between us and Vertex under which Vertex leads global development, manufacturing, and commercialization of exa-cel with support from us. Exa-cel is being investigated in multiple ongoing open-label clinical trials that are designed to assess the safety and efficacy of a single dose of exa-cel in patients with TDT or severe SCD, respectively. In addition, patients continue to be enrolled and followed in the CLIMB-131 long-term follow-up clinical trial.

In the United States, exa-cel regulatory submissions for SCD and TDT are under review by the FDA. Exa-cel has been granted RMAT, Fast Track, Orphan Drug, and Rare Pediatric Disease designations by the FDA for the treatment of both TDT and SCD. The FDA has granted Priority Review for SCD and assigned a Prescription Drug User Fee Act, or PDUFA, target action date of December 8, 2023. In addition, the FDA has granted Standard Review for TDT and assigned a PDUFA date of March 30, 2024. In the EU and the United Kingdom, the exa-cel regulatory submissions for SCD and TDT are under review by the European Medicines Agency, or EMA, and the Medicines and Healthcare products Regulatory Agency, or MHRA, respectively. Exa-cel has been granted Orphan Drug Designation from the European Commission, as well as PRIME designation from the EMA for the treatment of both TDT and SCD in the EU. In the United Kingdom, exa-cel has been granted an Innovation Passport under the Innovative Licensing and Access Pathway from the MHRA. A marketing authorization application for exa-cel has also been submitted to the Saudi Food and Drug Authority.

Additional candidates

Building upon exa-cel, we have next-generation efforts in targeted conditioning and in vivo editing of hematopoietic stem cells, either of which could broaden the number of patients that could benefit from our hemoglobinopathies product candidates.

Immuno-Oncology

We believe CRISPR/Cas9 has the potential to create the next generation of CAR T cell therapies that may have an improved product profile compared to current autologous therapies and allow accessibility to broader patient populations. Drawing from the ex vivo gene editing capabilities gained through our lead programs, we are advancing several wholly-owned immuno-oncology cell therapy programs, including allogeneic CAR T programs targeting Cluster of Differentiation 19, or CD19, and Cluster of Differentiation 70, or CD70.

CD19 Candidates

Our CAR T product candidates include CTX110, a healthy donor-derived gene-edited allogeneic CAR T investigational therapy targeting CD19, and CTX112, a next-generation investigational, allogeneic CAR T product candidate targeting CD19, which incorporates additional edits designed to enhance CAR T potency and reduce CAR T exhaustion. Both CTX110 and CTX112 are being investigated in ongoing clinical trials designed to assess the safety and efficacy of the applicable product candidate in adult patients with relapsed or refractory CD19-positive B-cell malignancies who have received at least two prior lines of therapy. CTX110 has been granted RMAT designation by the FDA.

CD70 Candidates

Our CAR T product candidates include CTX130, a healthy donor-derived gene-edited allogeneic CAR T investigational therapy targeting CD70, an antigen expressed on various solid tumors and hematologic malignancies, and CTX131, a next-generation investigational allogeneic CAR T product candidate targeting CD70 in a basket of solid tumors. CTX131 incorporates additional edits designed to enhance CAR T potency and reduce CAR T exhaustion. Both CTX130 and CTX131 are being investigated in ongoing clinical trials. In the case of CTX130, we are evaluating the safety and efficacy of CTX130 for the treatment of relapsed or refractory T or B cell malignancies and in a separate independent clinical trial, the treatment of relapsed or refractory clear cell renal cell carcinoma. In the case of CTX131, we are investigating CTX131 in a clinical trial designed to assess the safety and efficacy of the product candidate in adult patients with relapsed or refractory solid tumors. CTX130 has received Orphan Drug Designation from the FDA for the treatment of T cell lymphoma and RMAT designation for the treatment of Mycosis Fungoides and Sézary Syndrome (MF/SS), subtypes of Cutaneous T cell Lymphoma (CTCL).

Additional candidates

Our CRISPR/Cas9 platform enables us to innovate continuously by incorporating incremental edits into next-generation products. We are advancing several additional investigational CAR T product candidates.

Regenerative Medicine

Regenerative medicine, or the use of stem cells to repair or replace tissue or organ function lost due to disease, damage or age, holds the potential to treat both rare and common diseases. Building upon our ex vivo gene editing expertise, we have expanded our efforts in this field with a focus on allogeneic stem cell-derived therapies gene edited using CRISPR/Cas9 to enable immune evasion, improve cell function, and direct cell fate. Our first major effort in this area is in diabetes, and we and ViaCyte, Inc., or ViaCyte, which was acquired by Vertex in the third quarter of 2022, are advancing a series of programs as part of a strategic collaboration for the discovery, development, and commercialization of gene-edited stem cell therapies for the treatment of diabetes. We believe the combination of ViaCyte’s stem cell capabilities and our gene editing capabilities has the potential to enable a beta-cell replacement product candidate that may deliver durable benefit to patients without requiring concurrent immune suppression.

We have a multi-staged product strategy that leverages our CRISPR/Cas9 platform to advance multiple product candidates incorporating incremental edits designed to increase benefit. Our initial product candidate, VCTX210, is an investigational, allogeneic, gene-edited, immune-evasive, stem cell-derived product candidate for the treatment of type 1 diabetes, or T1D, developed by applying our gene editing technology to ViaCyte’s proprietary stem cell capabilities. VCTX210 has gene edits designed to promote immune evasion and cell fitness. We and ViaCyte are investigating VCTX210 in an ongoing Phase 1 clinical trial that is designed to assess VCTX210’s safety, tolerability, and immune evasion in patients with T1D, and we are in the follow-up stage for this clinical trial. Our next generation product candidate, VCTX211, is an investigational, allogeneic, gene-edited, stem cell-derived product candidate for the treatment of T1D, which incorporates additional gene edits that aim to further enhance cell fitness. In the fourth quarter of 2022, the Clinical Trial Application for VCTX211 was cleared by Health Canada. VCTX211 is being investigated in an ongoing Phase 1/2 clinical trial designed to assess the safety, tolerability and efficacy of VCTX211 in adult patients with T1D.

In Vivo

Our in vivo gene editing strategy focuses on gene disruption and whole gene correction – the two technologies required to address the vast majority of the most prevalent severe monogenic diseases. We have established a leading platform for in vivo gene disruption in the liver and are rapidly advancing a broad portfolio of in vivo programs for both rare and common diseases towards clinical trials. Within the liver, we are pursuing diseases that are amenable to a gene disruption strategy and have well-understood genetic linkages, such as cardiovascular disease, or CVD. Our lead investigational in vivo programs, CTX310 and CTX320, target angiopoietin-related protein 3 (ANGPTL3) and lipoprotein(a) (Lp(a)), respectively, two validated targets for CVD, and we have initiated a Phase 1 clinical trial for CTX310 targeting ANGPTL3. We believe this approach of leveraging existing proofs of concept reduces the challenges associated with delivering CRISPR/Cas9-based therapeutics in vivo. Beyond the liver, for delivery to hematopoietic stem cells, the central nervous system, and other extrahepatic tissues, we are pursuing additional delivery technologies, including adeno-associated virus vectors, or AAV, and further advancements to nanoparticle technology.

CRISPR-X

While we have made significant progress with our current portfolio of programs, we recognize that we need to continue to innovate to unlock the full potential of CRISPR gene editing and bring the potential of transformative therapies to even more patients. In 2022, we launched a new early-stage research team known as CRISPR-X that focuses on innovative research to develop next-generation editing modalities. CRISPR-X focuses on technologies to enable whole gene correction and insertion without requiring homology-directed repair or viral delivery of DNA, such as all-RNA gene correction, non-viral delivery of DNA and novel gene insertion techniques.

Partnerships

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 technologies and/or disease-area expertise. We maintain broad partnerships to develop gene editing-based therapeutics in specific disease areas.

Vertex. We established our initial collaboration agreement in 2015 with Vertex, which focused on TDT, SCD, cystic fibrosis and select additional indications. In December 2017, we entered into a joint development and commercialization agreement with Vertex pursuant to which, among other things, we are co-developing and preparing to co-commercialize exa-cel for TDT and SCD. In April 2021, we and Vertex amended and restated our existing joint development and commercialization agreement. Under the amended and restated agreement, Vertex leads global development, manufacturing, and commercialization of exa-cel with support from us. Net profits and net losses, as applicable, incurred under the amended and restated agreement are allocated 40% to us and 60% to Vertex, subject to certain limitations. In addition, we entered into a strategic collaboration and license agreement with Vertex in June 2019 for the development and commercialization of products for the treatment of Duchenne muscular dystrophy and myotonic dystrophy type 1, and, in March 2023, we entered into a non-exclusive license agreement with Vertex for Vertex to utilize our gene editing technology in diabetes.

ViaCyte. We entered into a research and collaboration agreement in September 2018 with ViaCyte to pursue the discovery, development and commercialization of gene-edited allogeneic stem cell therapies for the treatment of diabetes, and in July 2021, we entered into a joint development and commercialization agreement with ViaCyte, or the ViaCyte JDCA. In connection with entering into the ViaCyte JDCA, our existing research collaboration agreement with ViaCyte expired in accordance with its terms. Under the ViaCyte JDCA, we and ViaCyte are jointly developing and will commercialize product candidates and shared products for use in the treatment of diabetes type 1, diabetes type 2 and insulin dependent/requiring diabetes, or the ViaCyte Collaboration Field, throughout the world. The ViaCyte JDCA includes, among other things, provisions relating to collaboration and program governance, clinical activities for the product candidates and shared products under the agreement and continuing research by the parties in the ViaCyte Collaboration Field. Unless otherwise mutually agreed, research costs incurred by a party will be solely borne by such party. The program expenses, as originally set forth in the research and collaboration agreement, as applicable, incurred through the date of first commercial sale of a shared product will be allocated 60% to us and 40% to ViaCyte. Following first commercial sale of a shared product, such program expenses will be shared equally between us and ViaCyte. Shared product revenues will be shared equally by us and ViaCyte. In the third quarter of 2022, Vertex announced it had acquired ViaCyte and the rights to the ViaCyte Collaboration Field, and in March 2023, we entered into an amendment to the ViaCyte JDCA pursuant to which, among other things, we adjusted certain rights and obligations of the parties thereunder.

Bayer. We entered into an option agreement in the fourth quarter of 2019 with Bayer pursuant to which Bayer has an option to co-develop and co-commercialize two products that we advance for the diagnosis, treatment, or prevention of certain autoimmune disorders, eye disorders, or hemophilia A disorders for a specified period of time, or, under certain circumstances, exclusively license such optioned products.

Other Partnerships. We have entered into a number of additional collaborations and license agreements to support and complement our hematopoietic stem cell, immuno-oncology, regenerative medicine and in vivo programs and platform, including agreements with: Nkarta, Inc. to co-develop and co-commercialize two donor-derived, gene-edited CAR-NK cell product candidates and a product candidate combining NK and T cells; Capsida Biotherapeutics, Inc. to develop in vivo gene editing therapies delivered with engineered AAV vectors for the treatment of amyotrophic lateral sclerosis and Friedreich’s ataxia; Moffitt Cancer Center and Roswell Park Comprehensive Cancer Center to advance autologous CAR T programs against new targets; MaxCyte, Inc. on ex vivo delivery for our hemoglobinopathy and immuno-oncology programs; CureVac AG on optimized mRNA constructs and manufacturing for certain in vivo programs; and KSQ Therapeutics, Inc. on intellectual property for our allogeneic immuno-oncology programs.

Financial Overview

Since our inception in October 2013, we have devoted substantially all of our resources to our research and development efforts, identifying potential product candidates, undertaking drug discovery and preclinical development activities, building and protecting our intellectual property estate, organizing and staffing our company, business planning, raising capital and providing general and administrative support for these operations. To date, we have primarily financed our operations through private placements of our preferred shares, common share issuances, convertible loans and license and collaboration agreements with strategic partners.

While we were in a net income position in certain previous years due to certain payments associated with our collaborations with Vertex, we have a history of recurring losses and expect to continue to incur losses for the foreseeable future. Our net losses may fluctuate significantly from quarter to quarter and year to year. We anticipate that our expenses will increase significantly as we continue our current research programs and development activities; seek to identify additional research programs and additional product candidates; conduct initial drug application supporting preclinical studies and initiate clinical trials for our product candidates; initiate preclinical testing and clinical trials for any other product candidates we identify and develop; seek regulatory approval for our product candidates; maintain, defend, protect and expand our intellectual property estate; further develop our gene editing platform; hire additional research, clinical and scientific personnel; incur facilities costs associated with such personnel growth; develop manufacturing infrastructure and conduct related regulatory validation activities; and incur additional costs associated with operating as a public company.

Revenue Recognition

We have not generated any revenue to date from product sales and do not expect to do so in the near future. There was no revenue recognized for the three months ended September 30, 2023. Revenue recognized for the nine months ended September 30, 2023 was $170.0 million related to our receipt of an upfront payment from Vertex in connection with entering into agreements with Vertex and ViaCyte relating to the research, development, manufacture and commercialization of therapeutic products in the diabetes field in the first quarter of 2023, as well as revenue recognized in the second quarter of 2023 related to a research milestone achieved in the second quarter of 2023. Revenue recognized for the three and nine months ended September 30, 2022 was not material. For additional information about our revenue recognition policy, see Note 2, “Summary of Significant Accounting Policies,” in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 21, 2023, as well as Note 6 of the notes to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

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 and clinical activities on our behalf;
• costs of purchasing lab supplies and non-capital equipment used in our preclinical activities and in manufacturing preclinical and clinical 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.

Our external research and development expenses support our various preclinical and clinical programs, and, as such, we do not break down external research and development expenses further. Our internal research and development expenses consist of payroll and benefits expenses, facilities expense, and other indirect research and development expenses incurred in support of overall research and development activities and, as such, are not allocated to a specific development stage or therapeutic area. 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 IND-enabling studies;
• successful enrollment in, and completion of, clinical trials;
• receipt of marketing approvals from applicable regulatory authorities;
• establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;
• obtaining and maintaining patent and trade secret protection and non-patent exclusivity;
• launching commercial sales of the product, if and when approved, whether alone or in collaboration with others;
• acceptance of the product, if and when approved, by patients, the medical community and third-party payors;
• effectively competing with other therapies and treatment options;
• a continued acceptable safety profile following approval;
• enforcing and defending intellectual property and proprietary rights and claims; and
• achieving desirable medicinal properties for the intended indications.

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

Research and development activities are central to our business model. We expect to continue to incur research and development costs consistent with research and development at companies of our size and stage of development, which may increase in the foreseeable future as our current development programs progress, new programs are added and we continue to prepare regulatory filings. These increases will likely include the costs related to the implementation and expansion of clinical trial sites and related patient enrollment, monitoring, program management and manufacturing expenses for current and future clinical trials.

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, human resources and other general and administrative 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 expect to continue to incur general and administrative expenses consistent with general and administrative functions at research and development companies of our size and stage of development, which may increase in the future to support continued research and development activities, and potential commercialization of our product candidates. In addition, we anticipate ongoing expenses related to the reimbursements of third-party patent related expenses in connection with certain of our in-licensed intellectual property.

Collaboration Expense, Net

Collaboration expense, net, consists of operating expense related to the exa-cel program under our collaboration with Vertex. Under the A&R Vertex JDCA, we have an option to defer our portion of specified costs on the exa-cel program in excess of $110.3 million for the years ended December 31, 2022, 2023 and 2024. In the third quarter of 2023, we exercised our option to defer our portion of specified costs incurred in 2023 for the exa-cel program in excess of $110.3 million. Any deferred amounts are only payable to Vertex as an offset against future profitability of the exa-cel program and the amounts payable are capped at a specified maximum amount per year.

Other Income (Expense), Net

Other income (expense), net consists primarily of interest income earned on investments.

Results of Operations

Comparison of three months ended September 30, 2023 and 2022 (in thousands):

Collaboration Revenue

Collaboration revenue for the three months ended September 30, 2023 and 2022 was not material. Please refer to Note 6 of the notes to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for further information.

Research and Development Expenses

Research and development expenses were $90.7 million for the three months ended September 30, 2023, compared to $116.6 million for the three months ended September 30, 2022. The following table summarizes our research and development expenses for the three months ended September 30, 2023 and 2022, together with the changes in those items in dollars (in thousands):

The decrease of approximately $25.9 million was primarily attributable to $20.6 million of decreased external research and development costs, primarily associated with a decrease in variable external research and manufacturing costs.

General and Administrative Expenses

General and administrative expenses were $18.3 million for the three months ended September 30, 2023, compared to general and administrative expenses of $27.0 million for the three months ended September 30, 2022. The decrease in general and administrative expenses of approximately $8.7 million was primarily attributable to decreased stock-based compensation expense primarily due to an overall decrease in the fair value of equity awards granted in 2022 and into 2023 and decreased intellectual property costs.

Collaboration Expense, Net

Collaboration expense, net, was $23.4 million for the three months ended September 30, 2023, compared to $38.9 million for the three months ended September 30, 2022. The decrease of approximately $15.5 million in collaboration expense, net, was primarily attributable to the timing of when we reached the $110.3 million deferral limit on costs related to the exa-cel program. In the third quarter of 2023, we exercised our option to defer specified costs on the exa-cel program in excess of the deferral limit under the A&R Vertex JDCA. As of September 30, 2023, we have deferred $27.3 million of our share of costs incurred for 2023 under the A&R

Vertex JDCA. These deferred costs will be recognized by us when recoverability of such deferred amounts by Vertex is probable and the amount can be reasonably estimated. As of September 30, 2023, no such deferred amounts have been recognized.

Other Income, Net

Other income was $20.7 million for the three months ended September 30, 2023, compared to $7.3 million of income for the three months ended September 30, 2022. The increase of approximately $13.4 million was primarily due to interest income earned on cash, cash equivalents and marketable securities for the three months ended September 30, 2023.

Comparison of nine months ended September 30, 2023 and 2022 (in thousands):

Collaboration Revenue

Collaboration revenue for the nine months ended September 30, 2023 was $170.0 million due to an upfront payment from Vertex in the first quarter of 2023, as well as a as well as revenue recognized in the second quarter of 2023 from previously constrained variable consideration related to a research milestone which was achieved in the second quarter of 2023. Revenue for the nine months ended September 30, 2022 was not material. Please refer to Note 6 of the notes to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for further information.

Research and Development Expenses

Research and development expenses were $292.2 million for the nine months ended September 30, 2023, compared to $358.1 million for the nine months ended September 30, 2022. The following table summarizes our research and development expenses for the nine months ended September 30, 2023 and 2022, together with the changes in those items in dollars (in thousands):

The decrease of approximately $65.9 million was primarily attributable to the following:

• $50.2 million of decreased external research and development costs, primarily associated with a decrease in variable external research and manufacturing costs;
• $6.3 million of decreased facility-related expenses; and
• $5.4 million of decreased stock-based compensation expenses primarily due to an overall decrease in the fair value of equity awards granted in 2022 and into 2023 and subsequent reduction in stock-based compensation expense incurred.

General and Administrative Expenses

General and administrative expenses were $59.7 million for the nine months ended September 30, 2023, compared to general and administrative expenses of $81.3 million for the nine months ended September 30, 2022. The decrease in general and administrative expenses of approximately $21.6 million was primarily attributable to the following:

• $7.1 million of decreased stock-based compensation expense primarily due to an overall decrease in the fair value of equity awards granted in 2022 and into 2023; and
• $5.6 million of decreased intellectual property costs.

Collaboration Expense, Net

Collaboration expense, net, was $110.3 million for the nine months ended September 30, 2023, compared to $103.4 million for the nine months ended September 30, 2022. The increase of approximately $6.9 million was primarily attributable to increased manufacturing and other pre-commercial costs related to the exa-cel program. In the third quarter of 2023, we exercised our option to defer specified costs on the exa-cel program in excess of $110.3 million under the A&R Vertex JDCA. As of September 30, 2023, we have deferred $27.3 million of our share of costs incurred for 2023 under the A&R Vertex JDCA. These deferred costs will be recognized by us when recoverability of such deferred amounts by Vertex is probable and the amount can be reasonably estimated. As of September 30, 2023, no such deferred amounts have been recognized.

Other Income, Net

Other income was $51.8 million for the nine months ended September 30, 2023, compared to $11.2 million of income for the nine months ended September 30, 2022. The increase of approximately $40.6 million was primarily due to interest income earned on cash, cash equivalents and marketable securities for the nine months ended September 30, 2023.

Liquidity and Capital Resources

We have predominantly incurred losses and cumulative negative cash flows from operations since our inception. As of September 30, 2023, we had $1,739.8 million in cash, cash equivalents and marketable securities, of which approximately $2.2 million was held outside of the United States, and an accumulated deficit of $1,089.0 million. We anticipate that we will continue to incur losses for at least the next several years. We expect to continue to incur research and development costs and general and administrative expenses consistent with costs associated with research and development at companies of our size and stage of development, and, as a result, we will need additional capital to fund our operations, which we may raise through public or private equity or debt financings, strategic collaborations, or other sources.

In August 2019, we entered into the August 2019 Sales Agreement with Jefferies and filed our current prospectus supplement for $419.8 million in July 2021. As of September 30, 2023, we have issued and sold an aggregate of 1.1 million common shares under the current prospectus supplement at an average price of $168.79 per share for aggregate proceeds of $178.8 million, which were net of equity issuance costs of $2.4 million.

Funding Requirements

Our primary uses of capital are, and we expect will continue to be, research and development activities, manufacturing activities, compensation and related expenses, laboratory and related supplies, legal and other regulatory expenses, patent prosecution, filing, defense and intellectual property maintenance costs, and general overhead costs, including costs associated with operating as a public company. We expect to continue to incur operating expenses consistent with costs associated with research and development at companies of our size and stage of development, which may increase in the future to support continued research and development activities and potential commercialization of our product candidates.

Because most of our programs are still in early stages of development and the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the development, manufacture and commercialization of any current or future product candidates, if approved, or whether, or when, we may achieve profitability. Until such time as we can generate substantial product revenues, if ever, we expect to finance our cash needs through a combination of equity financings, debt financings and payments received in connection with our collaboration agreements. We intend to consider opportunities to raise additional funds through the sale of equity or debt securities when market conditions are favorable to us to do so. However, the trading prices for our common shares and other biopharmaceutical companies have been highly volatile. As a result, we may face difficulties raising capital through sales of our common shares or such sales may be on unfavorable terms. In addition, a recession, depression or other sustained adverse market event, including resulting from the continued spread of the coronavirus or the recent failure of certain banks and financial institutions in the United States and globally, could materially and adversely affect our business and the value of our common shares. To the extent that we raise additional capital through the future sale of equity or debt securities, the ownership interests of our shareholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing shareholders. If we raise additional funds through collaboration arrangements in the future, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Outlook

Based on our research and development plans and our timing expectations related to the progress of our programs, we expect our existing cash will enable us to fund our operating expenses and capital expenditures for at least the next 24 months without giving effect to any additional proceeds we may receive under our collaboration with Vertex and any other capital raising transactions we may complete. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we expect. Given our need for additional financing to support the long-term clinical development of our programs, we intend to consider additional financing opportunities when market terms are favorable to us.

Our ability to generate revenue and achieve profitability depends significantly on our success in many areas, including: developing our delivery technologies and our gene editing technology platform; selecting appropriate product candidates to develop; completing research and preclinical and clinical development of selected product candidates; obtaining regulatory approvals and marketing authorizations for product candidates for which we complete clinical trials; developing a sustainable and scalable manufacturing process for product candidates; launching and commercializing product candidates for which we obtain regulatory approvals and marketing authorizations, either directly or with a collaborator or distributor; obtaining market acceptance of our product candidates, if approved; addressing any competing technological and market developments; negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter; maintaining good relationships with our collaborators and licensors; maintaining, defending, protecting and expanding our estate of intellectual property rights, including patents, trade secrets and know-how; and attracting, hiring and retaining qualified personnel.

Cash Flows

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

Operating Activities

Net cash used in operating activities was $164.3 million for the nine months ended September 30, 2023, compared to cash used in operating activities of $382.4 million for the nine months ended September 30, 2022. The decrease in net cash used in operating activities of approximately $218.1 million was primarily driven by a reduction in our net loss position of $296.6 million, from a net loss of $539.6 million for the nine months ended September 30, 2022 to net loss of $243.0 million for the nine months ended September 30, 2023 driven by revenue recognized in the connection with an upfront payment from Vertex in the first quarter of 2023, as well as a payment received for a research milestone achieved from Vertex in the second quarter of 2023. Additionally, non-cash expense decreased by $37.5 million, primarily related to a decrease in stock-based compensation expense and other non-cash items, while net changes of operating assets and liabilities decreased $41.1 million.

Investing Activities

Net cash provided by investing activities for the nine months ended September 30, 2023 was $456.1 million, compared to net cash used in investing activities of $83.1 million for the nine months ended September 30, 2022. The change from a net cash used in investing activities to a net cash provided by investing activities was primarily driven by a net increase in maturities of our marketable securities, offset by a reduction of property and equipment purchases.

Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2023 was $23.7 million, compared with $36.1 million for the nine months ended September 30, 2022. Net cash provided by financing activities for the nine months ended September 30, 2023 and 2022 consisted of option exercise proceeds, net of issuance costs.

Critical Accounting Policies and Significant Judgments and Estimates

This discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with U.S. GAAP. We believe that several accounting policies are important to understanding our historical and future performance. We refer to these policies as critical because these specific areas generally require us to make judgments and estimates about matters that are uncertain at the time we make the estimate, and different estimates—which also would have been reasonable—could have been used. On an ongoing basis, we evaluate our estimates and judgments, including those described in greater detail below. We base our estimates on historical experience and other market-specific or other relevant assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe that our most critical accounting policies are those relating to revenue recognition and equity-based compensation, and there have been no changes to our accounting policies discussed in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 21, 2023.

Recent Accounting Pronouncements

Refer to Note 1 of the notes to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements.

Interest Rate Sensitivity

We are exposed to market risk related to changes in interest rates. As of September 30, 2023, we had cash, cash equivalents and marketable securities of $1,739.8 million, primarily invested in U.S. treasury securities and government agency securities, corporate bonds, commercial paper and money market accounts invested in U.S. government agency securities. Due to the conservative nature of these instruments, we do not believe that we have a material exposure to interest rate risk. If interest rates were to increase or decrease by 1%, the fair value of our investment portfolio would increase or decrease by an immaterial amount.

Foreign Currency Exchange Rate Risk

As a result of our foreign operations, we face exposure to movements in foreign currency exchange rates, primarily the Swiss Franc and British Pound, against the U.S. dollar. The current exposures arise primarily from cash, accounts payable and intercompany receivables and payables. Changes in foreign exchange rates affect our consolidated statement of operations and distort comparisons between periods. To date, foreign currency transaction gains and losses have not been material to our financial statements, and we have not engaged in any foreign currency hedging transactions.

Inflation

Inflation generally affects us by increasing our cost of labor, clinical trial and manufacturing costs. We do not believe that inflation had a material effect on our business, financial condition or results of operations during the three and nine months ended September 30, 2023 and 2022.

Management’s Evaluation of our Disclosure Controls and Procedures

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

As of September 30, 2023, our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934). Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our principal executive officer and principal financial officer have concluded based upon the evaluation described above that, as of September 30, 2023, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

During the quarter ended September 30, 2023, there were no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15(d)-15(f) promulgated under the Securities Exchange Act of 1934, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In addition to the risks described in our Annual Report on Form 10-K and any quarterly report on Form 10-Q, you should carefully consider the other information set forth in this Form 10-Q and the information in our other filings with the SEC, as they could materially affect our business, financial condition or future results of operations. There have been no material changes to the risk factors previously disclosed in Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K and Part II, Item 1A (Risk Factors) of our Quarterly Report on Form 10-Q for the period ended March 31, 2023.