Is CRISPR (CRSP) a Hidden Biotech Gem?

Shares of CRISPR Therapeutics AG (CRSP) have gained more than 40% over the past three months against the industry’s decline of nearly 11%. Moreover, the stock has surged more than 80% over the past month.

The gene-editing stock continues to enjoy accelerated momentum from a key regulatory approval. On November 16, CRISPR Therapeutics and its partner, Vertex Pharmaceuticals Incorporated (VRTX), announced that the United Kingdom-based Medicines and Healthcare Products Regulatory Agency (MHRA) granted conditional market authorization for CASGEVY™.

CASGEVY has been authorized for the treatment of patients 12 years of age and older with sickle cell disease (SCD) with recurrent vaso-occlusive crises (VOCs) or transfusion-dependent beta-thalassemia (TDT), for whom a human leukocyte antigen (HLA) matched related hematopoietic stem cell donor is unavailable. There are nearly 2,000 patients eligible for CASGEVY in the United Kingdom.

This represents the first regulatory authorization of a CRISPR-based gene-editing therapy worldwide and offers a new option for eligible patients waiting for innovative therapies. Notably, this approval made CASGEVY the first approved product in CRISPR Therapeutics’ portfolio.

Further, CRSP and VRTX’s Biologics License Applications (BLAs) seeking approval for exa-cel for treating SCD and TDT indications are currently under review in the U.S.

The U.S. Food and Drug Administration (FDA) granted priority review to the BLA filing for exa-cel in SCD, and the exa-cel filing in TDT indication was accepted for a standard review. A final decision on the BLAs for exa-cel in SCD and TDT indications is anticipated by December 8, 2023 and March 30, 2024, respectively.

In October, an FDA Cellular, Tissue, and Gene Therapies Advisory Committee appeared satisfied with CRISPR/Vertex’s regulatory filing on exa-cel in the SCD indication. This development will likely move the gene therapy closer to gaining potential marketing approval from the agency.

Both the SCD and TDT have significant unmet medical needs. A potential approval for exa-cel in the U.S. will be a major boost for CRSP and will likely drive the stock higher in the upcoming quarters.

Meanwhile, the company is developing CRISPR candidates to create next-generation CAR-T cell therapies for treating hematological and solid-tumor cancers. Clinical trials are ongoing for its CAR-T product candidates, CTX110 and CTX 112, targeting CD10 in B-cell malignancies.

In addition, CRSP is evaluating the safety and efficacy of CTX130 in two ongoing phase I studies for treating various solid tumors like renal cell carcinoma and certain T-cell and hematologic malignancies. VCTX211, an allogeneic, gene-edited, stem cell-derived product candidate for treating Type 1 Diabetes, has been undergoing clinical trial.

A clinical trial has also been initiated for CTX310, targeting angiopoietin-related protein 3 (ANGPTL3).

Let’s discuss several factors that could impact CRSP’s performance in the near term:

Deteriorating Financials

For the third quarter that ended September 30, 2023, CRSP reported nil total revenue, missed the analysts’ estimate of $7.96 million. That compared to revenue of $94 thousand in the same quarter of 2022. The company’s loss from operations came in at $132.41 million. Also, it reported a net loss before income taxes of $111.74 million for the quarter.

Furthermore, CRSP reported a third-quarter net loss of $112.15 million. The company’s net loss per common share came in at $1.41, narrower than the consensus estimate of $1.95.

The company’s cash, cash equivalents, and marketable securities were $1.74 billion as of September 30, 2023, compared to $1.87 billion as of December 31, 2022. The decline in cash of $128.60 million was primarily driven by operating expenses. During the third quarter, CRSP’s operating expenses were $132.41 million.

Unfavorable Analyst Estimates

Analysts expect CRSP’s revenue to significantly increase year-over-year to $104.31 million for the fourth quarter ending December 2023. However, the company is expected to report a loss per share of $0.22 for the ongoing quarter. For the fiscal year 2023, the company’s loss per share is estimated to be $3.46.

Further, CRSP’s revenue for the fiscal year 2024 is expected to decline 46.4% year-over-year to $148.08 million. Street expects the company to report a loss per share of $6.43 over the next year.

Elevated Valuation

In terms of forward EV/Sales, CRSP is currently trading at 15.16x, 370.6% higher than the industry average of 3.22x. The stock’s forward Price/Sales of 20.58x is 464% higher than the industry average of 3.65x. Additionally, CRSP’s forward Price/Book multiple of 3.34 is 40.5% higher than the industry average of 2.44.

Decelerating Profitability

CRSP’s trailing-12-month gross profit margin of negative 201.7% compared to the 56.62% industry average. Moreover, the stock’s trailing-12-month EBITDA margin and net income margin of negative 236.98% and 207.95% compared unfavorably to the respective industry averages of 5.29% and negative 5.75%.

Furthermore, the stock’s trailing-12-month levered FCF margin of negative 119.66% is lower than the industry average of 0.11%. CRSP’s trailing-12-month asset turnover ratio of 0.08x is 80.5% lower than the industry average of 0.39x.

Stiff Competition

Heightened competition remains a significant headwind, with several other biotech companies using the CRISPR/Cas9 gene-editing technology to address several ailments. The main competitors of CRISPR Therapeutics include Verve Therapeutics, Inc. (VERV), eGenesis, Editas Medicine, Inc. (EDIT), Caribou Biosciences, Inc. (CRBU), Intellia Therapeutics, Inc. (NTLA), and Beam Therapeutics Inc. (BEAM).

EDIT, developing its lead pipeline candidate EDIT-301, employs CRISPR gene-editing in a phase I/II study for SCD and TDT indications. A potential approval for the candidate developed by EDIT will likely pose increased competition for CRSP in the future.

Bottom Line

CRSP, one of the first companies formed to use the CRISPR gene editing platform to develop medicines and therapies for treating several rare and common diseases, continues to report losses. While the third-quarter loss was narrower than expected, the company’s revenue missed analysts’ expectations.

Despite its deteriorating fundamentals, shares of CRSP have been surging lately on the news of winning the first-ever regulatory approval for a CRISPR-based gene-editing drug, CASGEVY (exa-cel). Exa-cel is the first therapy to emerge from a strategic partnership between CRSP and VRTX for patients with severe sickle cell disease.

In the upcoming months, the FDA will decide whether to approve exa-cel. And this decision by the FDA will determine the course of the stock.

Given CRSP’s bleak financials, disappointing analyst expectations, low profitability, stretched valuation, and stiff competition, this biotech stock is best avoided now.