CRISPR - A Chief Disruptor
In the last company deep dive covering Upstart Holdings, I explained the idea of a disruptor. Essentially, it's a company that comes in and shakes up the formula in a given industry by introducing some new process or product, thereby making all others in their sector catch up to compete. Well, potentially no industry experiences as much constant disruption as biotech. In humanity's ongoing quest to eradicate disease, we've thought up different pills and therapies to prevent, treat or cure a myriad of illnesses. However, there are many that still elude modern medicine, leading to the further need for breakthrough in the field.
That next breakthrough seems to be coming from a small Swiss company who is working on curing ailments not through traditional pills (though they do dabble in those) or holistic remedies, but via the changing of your actual DNA itself. Today, I'm going to dive into CRISPR Therapeutics, the controversial biotech company that's been beaten down 50% from its recent highs. Let's dive in to find out why.
Q3 2021 Revenue: $824,000 (+456.76% YoY)
Q3 2021 Net Income: -$127.15 million (-37.55% YoY)
FY 2020 Revenue: $719,000 (-99.75% YoY)
FY 2020 Net Income: -$348.87 million (-621.80% YoY)
Market Capitalization: $5.76 billion
What Is The Business?
This has a danger of getting extremely complicated really quickly, so I'll try to break it down as easily as possible. CRISPR Therapeutics is a company focused on the commercialization and adoption of the CRISPR-Cas 9 gene editing therapy. This therapy allows for the on-the-fly editing of a living genome by providing new mRNA into the DNA to replicate, essentially providing the body new instructions on what to build and what to destroy. This means that crops could be edited to grow larger, or have inherent anti-pest properties. It could mean new medications that specifically target root causes of disease. But most importantly, it could mean the end of inherited genetic conditions as we know it.
With this technique, CRISPR Therapeutics could look to eradicate genetic issues like MS, Huntington's Disease or even autism. But there are downsides and naysayers, which we'll touch on later. For now, let's take a look at how they got started.
How Did They Get Started?
Sound the klaxon because we have another FEMALE FOUNDER-LED COMPANY. This one was founded by Professor Emmanuelle Charpentier of France. Professor Charpentier is a globe trekker in her career that spans back to the mid-1990's. Critically, in 1997 she moved to New York and studied under Elaine Tuomanen, a key contributor to studying the pneumonia genome and how it evolves and mutates. This research led Charpentier down the path of studying genomic mutation, which leads us to 2011.
In 2011, Charpentier had cracked a new breakthrough in genomic mutation, finding out how a strand of RNA that was not used for coding genetic sequencing ages and changes. After discovering this new mechanism, Charpentier linked up with American biochemist Jennifer Doudna to further her research. Together, they created a new kind of RNA molecule, nicknamed "guide RNA," that can be used to cut out specific genomic sequences and replace them easily, effectively and cheaply at the Cas-9 gap, effectively revolutionizing genetic therapy.
After this research was published, the technology and technique used in Charpentier and Doudna's research was applied to all manner of agriculture, creating more sustainable, albeit GMO, products. The widespread adoption of the technique led the pair to found CRISPR Therapeutics in 2013, and a debut on the public markets in 2016. Normally, I'd end it there, but we have one more critical piece of info that occurred after the public market debut. In 2020, Charpentier and Doudna were awarded the Nobel Prize in Chemistry for their discovery of the Cas-9 method.
The Bull Case
It's Literally Revolutionary
It's worth restating that this company invented an entirely new way to cure diseases. The creation and commercialization of a new type of gene therapy that could potentially eradicate genetic conditions is an impact so large, I really can't quantify it here.
Their Line of Pills Has Promise
An expansion of the CRISPR product line is the CTX001 drug, which was developed in conjunction with Vertex Pharmaceuticals. This drug is specifically targeted to treat Sickle Cell and β-Thalassemia, which reportedly affects 400,000 newborns per year. The total addressable market for this drug is massive, and could provide exponential recurring revenue for years to come should it make it out of clinical trials successfully.
According to Bank of America analyst Geoff Meacham, who has a "buy" rating on the stock, the market is failing to price in CT's upcoming cancer treatment, named "CAR-T" and is currently in clinical trials. We'll talk about that in a minute.
They Have Varied Streams of Products
The company breaks their products down into four main, foundational segments:
Hemoglobinopathies - what I just covered with the CTX001. There are currently two pipeline products in development.
Regenerative Medicine - in common speak, it's "stem cells." They're focused on the regrowing, or regeneration, side of medicine. One product is currently in pipeline.
Oncology - This is what they view as the natural evolution of current cancer treatments. They currently have CAR-T in this segment, along with two other pipeline products.
In-Vivo Applications - this is the approach that uses the Cas-9 approach in a targeted manner to an organ or area of interest. There are currently no pipeline products in progress for this segment.
The Bear Case
They Don't Actually Have a Product Yet
So...all of this so far sounds good in theory. But that's the issue: it's all in theory. CRISPR Therapeutics doesn't actually have a product on the market yet. But despite that, they're still valued at nearly $6 billion at current levels, currently relying on grants, loans and outside investments to generate any sort of revenue to develop a product pipeline. That's because biotech companies are what I like to call "hope and prayer" stocks. They're companies that live and die on new product roll-outs and any news that comes out of clinical trials, of which they currently have five in multi-stage trials. Speaking of which...
They Are Still At The Mercy of Clinical Trials
Remember CAR-T? For all the promise of that product, both in efficacy and TAM, it is also directly responsible for an 18% drop in share price over the month of October. Why? Because the clinical trial results for that product were...not good. Full points to CT for attempting to spin the results positively, but the results were much weaker than expected.
Trials found that the medication only had a 58% overall response rate and 38% complete response rate in lymphoma patients, which led to a string of analyst price target adjustments, commonly for the worse. Stifel's analyst dropped his price target from $139 to $101 based on the results of the trials, maintaining a "hold" rating on the company.
Public Perception Is...Mixed
I'm not going to spend a ton of time on this one, but I do think it's important to note when a company has negative attention with the common folk. In this case, the argument gets metaphysical. The main negative attention this company garners is the criticism that it's "attempting to play god," specifically in the germline editing stream.
Detractors of the technology note that the editing of genes in a living person is fine. It's the editing/implanting of reproductive cells where the ethical lines start to get drawn. Critics note that we are not yet masters of the full genetic code, and meddling with this code can cause downstream effects that we don't know about yet, and they could potentially have a point.
There's also the notion of a more disparate divide between classes that could come out of this, specifically around "designer babies." This is looking quite far down the road, but those in this camp argue that the rich and powerful would be able to eliminate genetic issues/conditions in their unborn children, as well as provide to them genetic advantages like height, strength, etc. This would all be while the lower classes are left out of this process due to potential cost, which could lead to the poor getting poorer due to being outclassed by future superior "super children." It's all very Black Mirror, but naysayers stand by this viewpoint.
The Bottom Line
Long-time readers of this site will notice that this company deep dive is a little...shorter than usual. That's because, outside of the conception of the technology, there isn't that much to write about. This also might be the first company where I have opposed rulings in the short and long-term views. This is a company for swing traders and long-term investors alike, because the volatility of the company based on clinical trials is ridiculous, while the technology is revolutionary and could be a major factor in the medical world in years to come. I also have issues being long on a company in the short term that doesn't actually have any products yet, but is still valued at $6 billion and has to rely on grants and loans for funding.
In the near term, you really can't get a grasp of where this company is going to go. If they have a series of similar clinical trial results like what they had in October, then they're in for some short pain. In the long view, however, I really like this company. I think purely dismissing it from a revenue and margin perspective for the rest of time is a mistake, given how foundational the technology could be in the curing of genetic ailments, as well as the number of potential game-changers currently in pipeline. For me, investing in CRISPR Therapeutics is a long-term winner with a short-term miss.
The following article is for entertainment purposes only, and should not be interpreted as investment advice. The article represents the opinion of the author, so please do your own research. For individual situations, please contact an investment and/or tax professional. The author does not have a financial stake in CRISPR Therapeutics.