StemCell Therapy

CRISPR Therapeutics (CRSP) has been on my watchlist for a couple of years but the stars never aligned for me to pull the trigger on a buy. Due to some recent updates, I am moving CRSP up to the top of my year-end shopping list and will be stalking an entry point in the coming weeks or months.

I intend to discuss the primary reasons why I have waited for an entry, as well as what has tempted me to start a position. In addition, I discuss some of my leading downside risks associated with this ticker and how I plan to manage my potential position over the next year.

(Image Source: CRISPR)

CRISPR Therapeutics is a leader in gene editing, specifically in the advancement of Clustered Regularly Interspaced Short Palindromic Repeats-CRISPR-associated protein 9 "CRISPR-Cas9". CRISPR-Cas9 is a gene therapy, however, it is a revolutionary technology that intends to edit the deleterious gene. This is executed by altering explicit genomic sequences that should correct the bad gene or to alleviate the symptoms of the disease. Essentially, CRISPR is attempting to create curative gene therapies for both rare and common diseases.

CRISPR's programs can be divided up into ex vivo, where the company edits cells outside of the body and in vivo, the CRISPR-Cas9-based therapeutic targeted directly into the cells inside the body. CRISPR's leading pipeline programs take aim at hemoglobin related genetic disorders such as transfusion-dependent beta-thalassemia "TDT" and severe sickle cell disease "SCD". Both conditions desperately need a curative therapy because the current standard-of-care is insufficient. In addition to gene editing, the company has several gene-edited allogeneic cell therapy programs, including a few CAR-T candidates for hematological and solid tumor cancers. Furthermore, the company is taking gene-editing into regenerative medicines to address Type 1 diabetes, as well as taking on DMD and few other indications (Figure 1).

Figure 1: CRISPR Pipeline (Source: CRSP)

CRISPR-Cas9 for gene editing was co-invented by Dr. Emmanuelle Charpentier, who is one of CRISPR's founding members. The company now has the rights to Dr. Charpentier's CRISPR-Cas9 technologies, as well as some supplementary technology from other in-licensing efforts. What is more, CRISPR has a strong list of partnerships that will maximize CRISPR-Cas9's ability both clinically and commercially.

CRISPR has always been on my radar and I have admittedly traded the ticker a few times. However, I have been very cautious about investing in the company for a few reasons. One of which, is the fact that it is named after the technology associated with the gene therapies. Although there are other types of gene therapies, CRISPR appears to be the "brand" or term the market associates with all things gene therapy. Consequently, any bad news, setback, or regulatory failure in gene therapy has had a negative impact on the ticker. Essentially, CRISPR becomes a punching bag for anything that goes wrong in the industry. CRSP experienced strong selling pressure following Sarepta Therapeutics (SRPT) receiving a CRL for their DMD gene therapy. As a result, the stock fell from just under $50 a share to ~$43 per share in a few days. Of course, the rest of the industry experienced some selling pressure, but it appears CRSP gets the worst of it. As a result, I have been reluctant to commit to CRSP knowing that it will always be a target for shorts.

Another reason why I have passed on CRSP was due to its early pipeline. The company's pipeline is still mostly pre-clinical, so I would have been investing in science and not a mature product portfolio. Although I am happy to invest in an early-stage biotech/pharma company, I wanted to see if the FDA was willing to allow gene-editing therapies to be put into humans considering the controversy associated with the technology.

My last reason for holding off an investment was the valuation. The company's market valuation appeared to have a premium price on it. Admittedly, the company's high-priced valuation was due to its name and the hype around the gene therapy and not from a fundamental perspective. Although I am sold on the technology, I wasn't going to commit to a long-term investment to an early-stage company that is years away from a pivotal trial, regardless of the technology was from one of the co-founders of the CRISPR-Cas9.

In general, I knew the company was too early in the regulatory process and I expected the ticker to be toyed around with by traders and analysts. Therefore, I wanted to save myself from an unwanted rollercoaster ride of an investment.

The company is now a clinical-stage gene-editing company, which eliminates one of the reasons why I decided to hold off on starting a long-term investment. CRISPR's lead product candidate, CTX001, is ex-vivo CRISPR therapy that is being developed in collaboration with Vertex Pharmaceuticals (VRTX) for TDT or severe SCD. CTX001 is essentially a process that requires the company to engineer a patient's hematopoietic stem cells to increase the levels of fetal hemoglobin "HbF" in red blood cells.

Figure 2: CTX001 SCD (Source: CRSP)

The increase of HbF has the potential to assuage the need for transfusions for TDT and SCD patients.

Figure 3: CTX001 HbF (Source: CRSP)

CRISPR Therapeutics is enrolling in both Phase I/II studies of CTX001 in TDT and severe SCD. The company expects preliminary safety and efficacy data before the year-end. So far, the first TDT patient treated with CTX001 remains "transfusion independent, greater than four months following engraftment."

Now that CXT001 is in the clinic, we can expect several catalysts to come from these programs. Again, I did believe in the technology but the market needs to see that the pre-clinical data will transfer into humans. If the data is promising, we can expect an increase in attention from the market and from Street analysts. The company is expecting to report preliminary results for CTX001 by year-end, so I wouldn't mind having some skin-in-the-game ahead of that readout.

Another reason for a buy is the expanding use of the company's CRISPR-Cas9 technology. In addition to gene editing, the CRISPR-Cas9 has the potential to generate next-gen CAR-T therapies that may be superior to the contemporary autologous CAR-T (Figure 4).

Figure 4: CAR-T Highlights (Source: CRSP)

The company has programs including CTX110, a healthy donor-derived gene-edited allogeneic CAR-T therapy targeting CD19. In pre-clinical mouse studies, the company detected that CTX110 extended the survival in CD19-positive xenograft tumors. In addition to CTX110, the company has CTX120 that is targeting BCMA in multiple myeloma and CTX130 that could target both solid tumors and hematologic malignancies.

Figure 3: CTX110 & CTX120 (Source: CRSP)

In preclinical studies both CTX120 and CTX130 were able to record "complete tumor elimination" in their respective targets.

Figure 4: CTX130 (Source: CRSP)

In addition to cell-therapies, CRISPR is using their ex vivo gene-editing in regenerative medicine by using stem cells to restore or exchange damaged or malfunctioning tissue. Their leading regenerative program is diabetes with their partner, ViaCyte Inc (Figure 5).

Figure 5: In Diabetes (Source: CRSP)

CRISPR has other in vivo disease targets that impact the liver, lung and muscle. These will use the company's lipid nanoparticle-based delivery vehicles "LNPs" and AAV vectors to help deliver the genetic material.

Figure 6: Neuro & Liver (Source: CRSP)

Other notable programs include Glycogen Storage Disease Type Ia "GSDIa", DMD and cystic fibrosis.

Admittedly, I have always seen CRISPR as a pure gene-editing company, however, they have a diverse pipeline and the technology to expand it into numerous other indications and areas of therapy. I expect the company will expand on their research efforts, which should increase the pending value of the company and add some catalysts to the calendar.

The company intends to advance their CRISPR-Cas9 therapeutics both autonomously and in strategic partnerships (Figure 7). The company has closed three major partnerships with Vertex, Casebia/Bayer (OTCPK:BAYRY) and ViaCyte. These partnerships not only provide CRISPR with some support, but they confirm that other reputable companies see CRISPR as a leader in this field.

Figure 7: CRSP Partnerships (Source: CRSP)

As the company expands its pipeline, I anticipate an increase in the number of strategic partnerships and deals. In fact, the company recently announced a partnership with KSQ Therapeutics to in-license IP to advance their cell therapy programs.

My final reason for stalking an entry is the improved risk/reward scenario. The stock appears to have lost some momentum and has had a relatively flat 2019. The stock has recently experienced a strong pull-back, yet, the company has made substantial progress in both the pipeline and strategic collaborations.

Figure 8: CRSP Daily (Source: Trendspider)

This recent pull-back has cut the market cap down to ~$2B which I believe is fair considering the long-term outlook for the company.

Figure 9: CRSP Valuation (Source: Seeking Alpha)

Looking at the CRSP's annual revenue estimates (Figure 10), we can see the Street expects the company to have relatively flat revenues for the next couple of years and will start to experience strong revenue growth in the second half of the next decade. This rapid growth is expected to drop the forward price-to-sales ratio below 1x at some point in 2027. The sector's average price-to-sales is about 5x, so that would equal ~$13B market cap in 2027.

Figure 10: CRSP Annual Revenue Estimates (Source: Seeking Alpha)

I understand this is years away, but I expect these estimates to only improve as the company continues to add pipeline programs and other strategic partnerships. Indeed, I could wait another year or two to further reduce my risk and cost for time. However, I don't want to be left out of this ticker if the company starts reporting curative results in multiple programs. What would happen if the company demonstrates the potential to cure Type 1 diabetes? Do you think it will be trading at a $2B market cap? What about if they cure cystic fibrosis? Sickle Cell? Eliminate renal cancer with an autologous CAR-T therapy? I believe the company would be undervalued at $2B even if they only cured one of these indications. Assuming the company has at least one winner in their current pipeline, I have to say the current risk/reward is enticing enough for me to start a speculative position.

I believe the biggest threat to CRISPR comes from the impressive competition from other gene therapy companies and institutions. These include companies that are working on CRISPR-Cas9 technology such as Intellia Therapeutics (NTLA) and most notably Editas Medicine (EDIT). Other gene-editing companies such as bluebird bio (BLUE), Sangamo Therapeutics (SGMO), Cellectis (CLLS), Precision BioSciences (DTIL), and Allogene Therapeutics (ALLO) use other gene-editing platforms. There is a multitude of gene therapy companies that I didn't mention, but I think you get my point. Some of these companies are not in the same league as CRISPR, however, I believe CRISPR's biggest threat is something that is currently in a theoretical stage or perhaps hasn't been thought of yet. As gene therapy products begin to hit the market and start dethroning current standard-of-care therapies, I expect big pharma to start devoting a larger percentage of their R&D to gene therapies. As a result, more universities and institutions will start pioneering new CRISPR tech and perhaps another level of gene editing. If they are successful, they will most likely dethrone CRISPR-Cas9 as cutting-edge technology.

CRISPR is a developmental biotech company, so of course, the financials will be an issue until the company has a product on the market. At the end of Q2, the company had $427.9M in the bank. The company's R&D expenses were $39.5M for Q2, which led to a net loss of $53.7M. Usually, I would consider $428M to be a strong cash position for pre-revenue biotech, but I don't think we are seeing peak cash-burn. The company has several programs that haven't even hit the clinic yet, so we can expect that cash position to melt rapidly in the coming years. In fact, the company recently secured a $200M at-the-market sale of common stock, so we should expect the company to tap the market when they need to. Even then, investors need to accept the strong possibility the company will execute secondary offerings in the future.

CRISPR Therapeutics has evolved over the past couple of years and so has my view of a potential investment. The company's premium name brought a premium price, which generated a substantial amount of attention from traders who have created detached or arbitrary valuations for the ticker. Now, the company has moved into the clinic and will be generating data that could reveal curative level results for dreadful diseases and conditions. If CRISPR is able to gain regulatory approval, the product could replace the current standard-of-care for the indication and eventually dominate as patients demand a cure, rather than dealing with a lifetime of medications or procedures.

Due to this potential, I am moving CRSP up to the top of my shopping list as we close out 2019. I expect many of the speculative biotech names to experience end-of-the-year tax selling, so I am going to keep a close eye on the charts to see if I can get a nice discount to establish a large position. In the meantime, I rely on the chart's technicals to find an entry. Returning to figure 8, we can see the stock has returned to its previous trading range after a month of selling pressure. If the share price is able to hold this area over the next couple of weeks, I will look to click the buy button on a low volume day. If the stock breaks below $35, I will most likely hold off on a buy until the end of the year. Once I have established a position, I will look to add to my position following data readouts with a goal to have a full-sized position by the end of 2021.

Disclosure: I am/we are long SRPT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am also long BLUE.

Excerpt from:
CRISPR Therapeutics: At The Top Of My Shopping List - Seeking Alpha

This entry was posted on October 24, 2019 at 8:44 am and is filed under Stem Cell Negative. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed. |