If I had to buy one share of any biotech with no price restriction, I'd naturally gravitate toward the most successful companies in the industry. However, the exercise becomes more complicated if you stipulate a limit of $50 per share; most of the prominent biotech stocks are trading well above that amount.
Those around that level are, disproportionately, relatively small and risky companies whose prospects don't look all that strong. Still, at least one biotech company whose shares are below $50 looks like a great buy: CRISPR Therapeutics(NASDAQ: CRSP).
What happened to CRISPR Therapeutics?
CRISPR Therapeutics simply hasn't been a favorite among investors in the past three-and-a-half years. Its stock is down by 77% since mid-January 2021:
CRSP Chart
At least two factors have led to CRISPR Therapeutics' poor performance.
First, the company isn't profitable. That's pretty normal for a mid-cap biotech, but with rising interest rates, investors wanted to put their money into safer, profitable investments. Plenty of profitable companies have been moving in the wrong direction over the past few years.
Second, CRISPR focuses on gene editing. Although the technology has the potential to unlock treatments for diseases we previously couldn't cure, it has one major drawback. Ex vivo gene-editing medicines are complex to administer -- the process takes a while and can only be done in specialized treatment centers.
Basic finance tells us that the more we lengthen the timing of future cash flow we'll receive for an asset, the less it's worth today, all else being equal. The process involved in administering the kinds of therapies developed by CRISPR Therapeutics lengthens the timing of their future cash flow compared to simple oral pills.
Many investors see significant risks in investing in the company because of its gene-editing focus. Case in point: Bluebird Bio is a biotech company with three approved gene-editing treatments, but its stock continues to perform terribly. Revenue isn't coming fast enough for investors to change their opinion of Bluebird. Is the same fate awaiting CRISPR Therapeutics?
Why the stock is still worth investing in
The challenge for CRISPR Therapeutics is threefold. First, it needs to develop successful therapies; that's hard enough, but especially so in gene editing. Second, the biotech has to fund commercialization efforts until the revenue from its treatments covers -- and exceeds -- the associated expenses. Third, it has to pour more money into research and development to create newer medicines.
How is the company managing? On the first front, it earned approval for Casgevy, a treatment for sickle cell disease and beta-thalassemia (both rare blood diseases), last year. Casgevy was the first approved gene-editing medicine that uses the Nobel Prize-winning CRISPR technique.
Although CRISPR Therapeutics looks like an innovative company, as with Bluebird, that alone is not enough. Thankfully, management had the foresight to partner with a biotech giant, Vertex Pharmaceuticals, to develop Casgevy. The partnership substantially lowered the risk associated with CRISPR Therapeutics' development of the medicine. The mid-cap biotech has already received up-front payments from Vertex for some of the rights (60%) to Casgevy's profits.
CRISPR Therapeutics will also benefit from Vertex's expertise in negotiating with third-party payers and its significant footprints in the industry, which will help with commercialization and marketing efforts. Furthermore, Casgevy has earned approval not just in the U.S. but also in Europe, Saudi Arabia, and Bahrain. Had CRISPR Therapeutics been working on this program by itself, it wouldn't have earned the nod for Casgevy in Europe that fast. And it probably would have never sought approval in the two Middle Eastern countries; combined, they have a target patient population of 23,000 people, more than the U.S. does.
With Vertex's help, CRISPR Therapeutics should succeed in sustaining commercialization efforts until Casgevy's revenue starts ramping up. And at $2.2 million per treatment course in the U.S., an addressable market of about 58,000 patients, and little to no competition to speak of (especially outside the U.S.), 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 capitalization of just $4.1 billion.
The biotech has five other promising therapies in development across various areas. In my view, the market is undervaluing Casgevy's potential and that of CRISPR Therapeutics' entire platform.
For just $50 (or a bit over $48 as of this writing), it's hard to find a better biotech stock -- especially one that could deliver outsized returns -- to buy and hold for a while.
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Prosper Junior Bakiny has positions in Vertex Pharmaceuticals. The Motley Fool has positions in and recommends CRISPR Therapeutics and Vertex Pharmaceuticals. The Motley Fool recommends Bluebird Bio. The Motley Fool has a disclosure policy.
