At the moment, CRISPR Therapeutics (NASDAQ: CRSP) is in a special period that most biotechs never survive to reach. Small groups of patients are now being treated with its first medicine to reach the market, but the biotech has yet to prove that it can deliver its therapy profitably. At the same time, investors looking to buy the stock need to look ahead, at the programs it’s working on today, to assess where it’ll be going in the future, once the rollout of its medicine is complete.
Let’s examine what this company is planning for the future, and figure out whether that makes its stock worth buying or not.
Casgevy and beyond
CRISPR’s first gene therapy, Casgevy, which treats or functionally cures both beta thalassemia and sickle cell disease (SCD), is now approved for sale in the U.S. It’ll be splitting the profits and costs associated with Casgevy with its collaborator, Vertex Pharmaceuticals, which will take a 60% share of the pie. The company is now in the process of setting up treatment centers to administer it. As more eligible patients can access treatment, revenue will continue to roll in. As of now, just 20 patients have started the procedure.
That spells plenty of growth in this biotech’s near future. But its ambitions extend far beyond producing one gene therapy, and that’s where it’s now necessary to look to appreciate the investment thesis for the stock.
CRISPR is in the midst of developing four early to mid-stage cell therapies to treat various cancers. One of these treatments, CTX112, could also be helpful to treat systemic lupus erythematosus (SLE), an autoimmune disease. It’s also advancing two early stage clinical programs seeking to use gene editing to permanently treat or cure cardiovascular diseases, and another early stage program for type 1 diabetes.
The cardiovascular programs are targeted at relatively small patient populations with a very high risk of developing certain illnesses due to hereditary factors. However, the company thinks that in the long run, adapting them for much larger patient populations, perhaps as much as 20% of the adult population, could be possible. In that case, it would be marketing the therapy to otherwise healthy people to lower their lifetime risk of atherosclerotic cardiovascular disease (ASCVD).
While there’s no guarantee that CRISPR will succeed in getting a gene-editing medicine approved for any indication — never mind one for healthy people — the potential upside with its stock would be tremendous.
It may need to tap a credit line soon enough
The next two years may be a bit financially tight for CRISPR Therapeutics, which represents a risk for those who buy the stock now.
As of the second quarter, it has about $484 million in cash, equivalents, and short-term investments on hand. Its trailing 12-month operating losses are quite high, at about $355 million. Therefore, if revenue from Casgevy does not ramp up as quickly as expected, or if its portion of the marginal cost of goods sold (COGS) incurred by making and distributing the therapy do not fall by as much as revenue scales, it will face a cash crunch fairly soon.
It’s a near-certainty that the company will be able to take out a loan at a decent interest rate, or issue new shares of its stock to generate sufficient capital, so that it can continue rolling out Casgevy and funding the most mature programs in its clinical pipeline.
Still, the reality of its financial situation is that it will probably experience cash constraints in the near term, even if things go as planned. On average, Wall Street analysts don’t see it producing net income in 2024 or 2025, and management has not signaled otherwise.
As a result, CRISPR Therapeutics may soon opt to slow down its initiation of new pre-clinical programs, or (perhaps temporarily) shelve programs rather than advancing them into early stage clinical trials. There is a fair chance that investors will experience this as a frustrating period of the stock, leaving it in the doldrums despite frequent reports of relatively good revenue and earnings growth.
Another risk is that its clinical programs with less-than-impressive data could get the ax, rather than a second shot at demonstrating their desired effects, which could send shares tumbling.
Nonetheless, it’s key to remember that this looming choppiness is far more likely to be temporary than permanent. In a worst-case scenario, CRISPR Therapeutics could trim its pipeline and operations to be supported solely by its share of the income from Casgevy. In the most probable scenario, it’ll succeed in getting financing.
Then, at least one of its seven clinical-stage pipeline programs should likely be approved for sale within the next seven years, exposing investors to positive catalysts from favorable clinical data readouts along the way.
With that sunny setup, CRISPR’s stock is an easy buy.
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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CRISPR Therapeutics and Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.
Is CRISPR Therapeutics Stock a Buy? was originally published by The Motley Fool
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