If I had to buy one share of any biotech without price restrictions, I would of course prefer the most successful companies in the sector. However, the exercise becomes more complicated if you set a limit of $50 per share; most prominent biotech stocks trade well above that amount.
Those around that level are, disproportionately, relatively small and risky companies whose prospects don’t look so good. Still, at least one biotech company whose shares are under $50 looks like a great buy: CRISPR therapies (NASDAQ: CRSP).
CRISPR Therapeutics simply hasn’t been an investor favorite over the past three and a half years. The share price has fallen 77% since mid-January 2021:
At least two factors led to CRISPR Therapeutics’ poor performance.
First, the company is not profitable. That’s pretty normal for a mid-cap biotech sector, but with rising interest rates, investors wanted to put their money into safer, more profitable investments. Many profitable companies have gone in the wrong direction in recent years.
Second, CRISPR focuses on gene editing. While the technology has the potential to enable treatments for diseases we previously couldn’t cure, it has one major drawback. Ex vivo gene editing drugs are complex to administer; the process takes some time and can only be performed in specialized treatment centers.
Basic finance tells us that the more we extend the timing of the future cash flow we will receive for an asset, the less it is worth today, all else being equal. The process involved in delivering the types of therapies developed by CRISPR Therapeutics extends the timing of their future cash flow compared to simple oral pills.
Many investors see significant risks in investing in the company due to its focus on genetic engineering. An example: Bluebird Bio is a biotech company with three approved gene editing treatments, but its stock continues to perform terribly. The earnings aren’t coming fast enough for investors to change their minds about Bluebird. Will CRISPR Therapeutics face the same fate?
The challenge for CRISPR Therapeutics is threefold. First, it must develop successful therapies; that’s hard enough, but especially so when editing genes. Second, the biotech must fund commercialization efforts until revenues from its treatments cover – and even exceed – associated costs. Third, the country needs to put more money into research and development to create newer drugs.
How is the company doing? On the first front, it received approval last year for Casgevy, a treatment for sickle cell disease and beta-thalassemia (both rare blood diseases). Casgevy was the first approved gene editing drug using the Nobel Prize-winning CRISPR technique.
Although CRISPR Therapeutics looks like an innovative company, like Bluebird, that alone is not enough. Fortunately, management had the foresight to partner with a biotech giant, Vertex Pharmaceuticato develop Casgevy. The partnership significantly reduced the risk associated with CRISPR Therapeutics’ development of the drug. The mid-cap biotech has already received upfront payments from Vertex for a portion of the rights (60%) to Casgevy’s profits.
CRISPR Therapeutics will also benefit from Vertex’s expertise in third-party payer negotiations and its significant industry footprint, which will aid in commercialization and marketing efforts. Moreover, Casgevy has received approval not only in the US, but also in Europe, Saudi Arabia and Bahrain. If CRISPR Therapeutics itself had worked on this program, it would not have earned the Casgevy name so quickly in Europe. And it probably would never have sought approval in the two Middle Eastern countries; together they have a patient population of 23,000 people, more than the US.
With Vertex’s help, CRISPR Therapeutics should manage to sustain commercialization efforts until Casgevy’s revenues start to increase. And with $2.2 million per treatment course in the US, an addressable market of approximately 58,000 patients and little to no competition (especially outside the US), the treatment has blockbuster potential.
As of June 30, CRISPR Therapeutics had $2 billion in cash and equivalents, a significant amount for a company with a market cap of just $4.1 billion.
The biotech has five other promising therapies in development in different areas. In my opinion, the market underestimates the potential of Casgevy and that of the entire CRISPR Therapeutics platform.
At just $50 (or just over $48 as of this writing), it’s hard to find a better biotech stock — especially one that can deliver outsized returns — to buy and hold for a while.
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Prosper Junior Bakiny holds positions at Vertex Pharmaceuticals. The Motley Fool holds positions in and recommends CRISPR Therapeutics and Vertex Pharmaceuticals. The Motley Fool recommends Bluebird Bio. The Motley Fool has a disclosure policy.
The Ultimate Biotech Stock You Can Buy Right Now With $50 was originally published by The Motley Fool
