Down 21% This Year, Is CRISPR Therapeutics Stock Still a Buy?
CRISPR Therapeutics' (NASDAQ: CRSP) stock may be down by 21% this year so far, but that doesn't mean you should write it off as a potential investment. The innovative developer of gene therapies is making headway. And its pipeline implies a cornucopia of opportunities for the stock to rise over the coming years, especially if its cardiovascular medicine and oncology programs pan out.
Still, investing in biotech companies isn't for the faint of heart, and even a slightly less risky contender like CRISPR Therapeutics could have a few pitfalls lurking. Let's take a look at where this biotech is going, and whether it could be a good fit for your portfolio this year.
This revenue ramp-up will be dizzyingly quick
In the near term, there's a very clear path for this company to massively increase the size of its top line, and the medium term also offers a high probability of earnings growth. Here's why.
CRISPR Therapeutics' first therapy is called Casgevy. It treats sickle cell disease (SCD) and beta thalassemia, both rare inherited illnesses that affect the function of a person's red blood cells. It has been approved for less than a year in the U.S. and E.U.
Casgevy is a bit complicated to manufacture and administer, so it can only be delivered via authorized treatment centers (ATCs). Setting up those centers takes time, and sales of the treatment will have a hard cap until they're widely distributed. CRISPR Therapeutics' main collaborator on Casgevy, Vertex Pharmaceuticals, is handling setup of the ATCs for now.
Management estimates that more than 166,000 people worldwide could eventually benefit from being treated with Casgevy; this assumes that the two businesses can improve certain time- and resource-intensive aspects of the treatment process, like the pre-treatment chemical conditioning regimen that patients need to undergo. As of mid-July, only 20 patients had started the treatment process, so the target market is still effectively untouched. That will change over the next few years.
Per consensus estimates by Wall Street analysts, CRISPR Therapeutics is expected to bring in nearly $50 million in revenue this year, with just over $288 million in revenue slated for the next fiscal year. But that's just considering the immediately accessible patient population and the impact of deploying more ATCs. A program to actually increase the size of the addressable market via research and development (R&D) work on the conditioning regimen is still in early preclinical testing; assuming it gets finished, it might take a few years to complete.
During that period, there will be wider and wider coverage for patients via local ATCs, and the top line will grow even more. And that's before including the positive impacts of any other pipeline programs that get commercialized, or that advance into late-stage clinical trials.
One of those programs is a clinical-stage gene-editing candidate for atherosclerotic cardiovascular disease (ASCVD) with elevated lipoprotein (a). It could potentially have an addressable market as large as 25% of the global population, if the treatment could be used to reduce cardiac risks in advance of symptomatic illness. Others, like four clinical-stage cell-therapy programs for treating various cancers, could also be quite lucrative despite targeting significantly smaller markets.
And the company has around $2 billion in cash, cash equivalents, and short-term investments on hand as of the second quarter. So even if Casgevy's ramp-up takes longer than anticipated to start producing earnings, shareholders won't be at risk of getting their shares diluted by new stock issuance, which is a positive factor.
The longer-term upside will take some time to unearth
As a biotech stock, CRISPR Therapeutics will still face certain risks for years to come. Depending on your tolerance, those may be sufficient to disqualify it as an investment.
For instance, it could disappoint the market by taking longer than anticipated to generate profits from Casgevy. That would probably not require the company to curtail its ambitions, but it might lower the stock price until operational efficiencies could be realized.
The bigger risks involve failing in clinical trials, which is inevitable on a long enough timescale. As CRISPR Therapeutics is already established with a product on the market, its share price won't be devastated by a late-stage stumble with a clinical trial, but it's hard to imagine that the market wouldn't punish the stock at least a little in the event of a miss. If you're a risk-averse investor, and especially if you may need to sell shares within the next five years or so, this possibility may be a deal-breaker.
For others, however, such an event would be a good opportunity to buy the dip. After all, this biotech has a roadmap to grow its revenue solely by setting up new clinics, which is low-risk in comparison to drug development. Eventually, another of its candidates is likely to succeed, marking the start of a second phase of big growth.
Therefore, don't look at the stock's performance as an indicator of whether it's worth buying. The more you can think based on the long term, the more appealing CRISPR Therapeutics' stock gets.
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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.
Down 21% This Year, Is CRISPR Therapeutics Stock Still a Buy? was originally published by The Motley Fool