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Investment Thesis
The field of gene therapies and gene editing technology is the field of the future, but it is still in its infancy. CRISPR Therapeutics (NASDAQ:CRSP) has been a pioneer in this field, where scientists, for the first time ever, could be able to cure diseases and illnesses such as diabetes, hemophilia, cancer, and sickle cell disease. Diseases with genetic and systemic issues could possibly be cured with these advanced gene therapies. But, there have been no real cases of mass adoptions of gene therapies or use of gene editing technology in any market. However, with the field of cell and gene therapies expected to reach $80 billion by 2029, it’s a compelling investment opportunity. If there is one company that is set up for an explosion in this field, it is CRISPR Therapeutics.
They have $1.75 billion in cash and cash equivalents on the books, with very little debt, at $241 million. They have the cash to fund their R&D, and they do. R&D is consistently their largest expense, with the fruits of their labor showing in approvals. They have little to no revenue or earnings to speak of, but that’s to be expected from a company with no current products. Their competitive advantage in scientific achievements and their promising signs of execution and follow through is an impressive combination that surpasses its early competitors. CRISPR Therapeutics has a strong pipeline of unique advanced pioneering treatments, promising early execution, a boatload of cash, and strong partnerships with existing pharmaceutical giants. I think CRISPR Therapeutics is a “Buy” and could be a powerful addition to your portfolio, with the caveat that you’re in for the long run. Things will probably get worse before they get better, but as they say: “Rome wasn’t built in a day.” So, keep in mind your risk tolerance and the timeline of your portfolio and investments before investing.
Company Overview
CRISPR Therapeutics AG is a gene therapy and gene editing company headquartered in Zug, Switzerland. The company focuses on using Clustered Regularly Interspaced Short Palindromic Repeats (CRISPR) and CRISPR associated protein 9 (Cas9) technologies to develop gene based medicines for serious illnesses. This CRISPR and Cas9 technology is a groundbreaking new field in biotechnology that allows scientists to edit and change specific sequences in a DNA genome. CRISPR are what they call the actual sequences of DNA, and Cas9 is the enzyme that allows scientists to unwind and remove said sequences of DNA. Scientists can then use non-homologous end joining and homologous recombination to introduce sequences of DNA into the genome.
CRISPR Therapeutics AG was founded in 2013 by Dr. Emmanuelle Charpentier, who was one of the two scientists that were jointly awarded the Nobel Peace Prize in Chemistry in 2020 for their discovery and development of the CRISPR-CAS9 mechanism. Since its inception, CRISPR Therapeutics has been pushing the boundaries on the possibilities of modern medicine, with some promising results.
CRISPR Therapeutics and Vertex Pharmaceuticals (NASDAQ:VRTX) have recently made headlines for the approval of their novel gene therapy, called Casgevy, or exa-cel, by the FDA and UK Regulators. This approval marks the first time a CRISPR-CAS9 mechanism medicine has been approved for human use. Casgevy is a one-time therapy that is meant to treat patients who suffer from sickle-cell disease (SCD). Casgevy can also treat patients with transfusion-dependent beta thalassemia but has not yet received FDA approval for that treatment. They also have drugs in development for blood diseases, cancers, diabetes and other serious illnesses, however none are close to market release.
Casgevy (Exa-Cel)
With the recent approval of Casgevy for the treatment of patients with sickle-cell disease (SCD), CRISPR Therapeutics finally has its first product coming to markets. Although they are still awaiting EU approval and approval for transfusion-dependent beta thalassemia, this will be a good trial run to see if gene therapies are really ready for larger scale adoptions and uses. Casgevy itself is a one-of-a-kind treatment. It’s a one-time medication that will basically cure a blood disease that’s been endemic in humans for millennia. If all goes well, this could truly be the pioneer that CRISPR Therapeutics and other gene therapy companies need to show the power and possibilities of gene therapies.
It’s important to know that CRISPR Therapeutics created this in collaboration with Vertex Pharmaceuticals, and therefore will split the profits. All costs and profits of Casgevy will be split 60/40 with Vertex receiving the larger portion. Casgevy is an expensive and very capital intensive treatment, with the treatment costing around $2.2 million and only being available at certain treatment centers in a few countries and regions, with most in the United States. It is expected that only around 25,000-30,000 people with severe SCD will be in reach of these treatment centers, globally. Now, how many of those people will be able to afford the treatment or want this treatment is another story. Insurance companies might be willing to pay for this treatment, or part of it, if given evidence that this will lower that person’s cost of coverage permanently. However, the cost of having SCD over a lifetime is estimated at $1.7 million, so we will have to see how insurance companies handle Casgevy, and the precedent it could set for gene therapies. There is also the time cost, as this treatment will take months of work before hospitalization and treatment, with the patient also required to recover in the hospital for 4-6 weeks after treatment. The treatment is an intense and expensive experience and many could want to continue with the cheaper and less invasive route of their current medicine. Still, let’s say 10,000 people worldwide get the treatment at the current price, that’s $22 billion in revenue, $8.8 billion of which will go to CRISPR Therapeutics.
In terms of competition, fellow biotech company bluebird bio, Inc. (NASDQ:BLUE) simultaneously received approval from the FDA for their own SCD gene therapy, called Lyfgenia. However, Lyfgenia has been priced at $3.1 million and comes with a warning for risk of blood cancer, as two patients developed acute myelogenous leukemia after the treatment and died. The company has since denied the treatment causing the cancer, but even so, the risk and the higher cost alone does not give Lyfgenia much of a fighting chance against Casgevy. But, bluebird has eased some pricing concerns by agreeing to an outcomes based reimbursement deal with an undisclosed insurance carrier that covers over 100 million people in the US. However, that deal only offers rebates to people who are hospitalized because of a vaso-occlusion episode, which are supposed to be solved via Lyfgenia treatment. It is also worth noting that bluebird bio not nearly as well funded as CRISPR Therapeutics, with only $174 million in cash on the books, and a total debt of more than $300 million. This extra funding in CRISPR Therapeutics could prove crucial when it comes to advertising, marketing, and discounting of the rival therapies. JPMorgan estimates that both Casgevy and Lyfgenia will have similar post-discount net prices through contracting with treatment centers. That being said, I still expect Casgevy to have a competitive advantage in this market, as it is better funded, currently cheaper, and has no controversy involving causing cancer.
Other Drugs
Although Casgevy already sounds like a miracle treatment, CRISPR Therapeutics has a few more treatments up the pipeline that are equally as ambitious but are in earlier clinical stages. CRISPR Therapeutics other’s drugs in their pipeline can be split into three categories: Immuno-Oncology, Regenerative Medicine, and In-Vivo Approaches.
Immuno-Oncology is a subset of cancer treatment that attempts to use the body’s own immune system to prevent, control, and eliminate cancer cells. CRISPR Therapeutics is working on a few drugs within this category, but two, CTX112 and CTX131, are currently in clinical trials with expansion of these trials coming in 2024. These treatments involve the design and creation of T cells, using CRISPR-CAS9 technology, called CAR T cells, which can target and eliminate cancer cells. These cells already exist, but CRISPR Therapeutics is attempting to create “super soldier” CAR T cells of sorts, by using CRISPR-CAS9 technology to increase potency and reduce exhaustion. These can potentially treat cancers and autoimmune disorders by being able to create T-cells that target only cancerous or problematic cells. Both of these are wholly owned by CRISPR Therapeutics.
Regenerative Medicine can be defined as replacing or “regenerating” human cells, tissues or organs to restore or establish normal function. Both of CRISPR Therapeutics’ products in this field are treatments for diabetes, both of which are also in clinical trials. This treatment involves the use of stem cells and CRISPR-CAS9 technology to create pancreatic cells that can enable someone to produce their own insulin, without the need for immunosuppression. This essentially could be a cure for insulin requiring Type I and Type II diabetes. VCTX210 is the base product, with VCTX211 being a treatment that includes additional gene edits to further cell fitness. Both of these are done in a collaboration of CRISPR Therapeutics and ViaCyte, a Vertex subsidiary. Under the contract, CRISPR Therapeutics were given $100 million upfront for non-exclusive rights to VCTX210 and VCTX211, possibly $230 million in R&D milestones, and unspecified royalties on the final product.
In-Vivo Approaches are treatments that involve treatments within the body of the patient, as opposed to being created in a test tube and injected into the patient later. CRISPR Therapeutics advanced testing in this field majorly consists of two products, CTX310 and CTX320, which are designed to reduce the likelihood of cardiovascular disease. CTX310 and CTX320 are treatments that use lipid nanoparticle (LNP) delivery of CAS9 protein mRNA and gRNA to the liver, in order to reduce the expression of certain proteins, specifically ANGPTL3 and lipoprotein(a). Studies have shown that elevated levels of those proteins as an independent risk factor of atherosclerosis and related cardiovascular diseases. These are both wholly owned by CRISPR Therapeutics.
There are other drugs, most notably a collaboration with Bayer for a hemophilia treatment, but this and all others are still in research stages and are years away from clinical tests.
Valuation & Financials
Now, there is no valuation or projection of CRISPR Therapeutics that would really be fair, as the industry is so new, and the technology is so pioneering that we’ve literally never seen it before. Revenue projections obviously exist, but there are none that can swear to any degree of accuracy, and it is waste of time to attempt to cobble together projections at this time.
That being said, the financials that we have of the company are still great, in spite of the fact that they have almost no revenue and heavy R&D spending. As I stated in the thesis, they have $1.7 billion in cash and cash equivalents on the book, with only $241 million in debt. However, we’ll have to sit tight and wait for more financials in order to get a true gauge on the valuation.
Risks
There are many unknowns when it comes to mainstream adoption, insurance, and how that can result in profit. We are yet to see how the public reacts to the logistics of the treatment, and if people who suffer from the disease are willing to grin and bear it as they cannot afford certain aspects of the treatment, whether that’s time or money. The invasiveness and intensity of the treatments can also spook some folks. Some people would rather pop a daily pill forever and not think more of it, then push their body to extreme lengths for a shorter amount of time. Hopefully the post-discount net price of the treatment can be more affordable and attractive for the public, and most importantly, insurance companies.
Insurance companies can honestly decide to make or break these products and the industry if the prices remain as high as they are now. Many current health plans do not cover gene therapies, and/or impose restrictions on how many patients who qualify can be given treatment in a year. Hopefully costs can be driven lower as the technology advances and the company becomes more efficient, and the financial incentive for insurance companies to pay for a one time cure rather than a reoccurring treatment is there.
We also do not know how the rollout of Casgevy will go on the CRISPR Therapeutics side, and if the infrastructure or logistics are there to make something of this opportunity. Given the specialized nature of the treatment, it will take time and effort to construct and maintain operational facilities that can intake patients. Even if these centers are operational and can intake patients, the patient turnover will probably be low. Obviously when wanting to maximize profits, efficiency is key. However, when you are doing something for the first time it is hardly ever efficient. This again could be an opportunity to set a strong precedent for the gene therapies that follow.
Their main financial risk is that a few of their drugs are not wholly owned and require them to split profits with other entities and/or only receive royalties on the final product. This includes Casgevy, which is a 60/40 split with Vertex, VCTX211 and 210, and their collaboration with Bayer among others. This could be a huge challenge for company longevity if the mainstream adoption is not widespread and revenues are fewer and far between. However, the potential for revenues here is still astounding, and if insurance companies are brought into the fold to increase accessibility, the sky can be the limit. CRSPR Therapeutics just needs to make sure that they get their slice of the pie and don’t get pushed out by other companies, namely Vertex. This can also be a problem when it comes to the price action of the stock, particularly in these early stages. The hype around the stock can oftentimes be indicative of the magnitude of the scientific achievements of the company and not the magnitude of actual revenues, which can lead to volatile price action. Beliefs of traders change a lot faster than the revenues of companies. However, the dissolution of that risk comes from a long term play where we assume the volatility decreases over time as the company matures.
Conclusion
I am generally a value-driven investor, and although value plays don’t always work, it is nice to be able to use projections to estimate fair values. However, I am also an investor who has a lot of time left to invest. Time is my greatest ally when it comes to a stock like CRISPR Therapeutics. I can afford the risks of CRISPR Therapeutics in the short term because I believe in it and have time to wait. That is why again I caution you not to invest unless you understand the risks involved in the short term.
Gene therapies and genetic editing is one of the last and largest frontiers in the health field, and the inclusion of these therapies into our lives is inevitable. The question is, is it now? This I do not know. However I do know that this company has a strong pipeline of world-class cutting edge treatments, promising early execution, a boatload of cash, strong partnerships with existing pharmaceutical giants, the confidence of its investors, and is in one of the fastest growing industries in the world. As long as you have enough time to wait it out if need be, I give this stock a “Buy” and think it could be a golden goose for your portfolio.
