Quite often in stock markets, companies that offer something novel and unique attract speculators. So, when Crispr Therapeutics AG (NASDAQ:CRSP) quadrupled from 52-week lows, investors naturally questioned its valuation against its prospects.
CRSP stock has two positive catalysts at this time. First, the government has a “Right to Try” bill that will make unproven drugs more accessible to the terminally ill seeking novel treatments. Second, Crispr is leading the gene-based medicines for serious disease.
Fundamentally, the company’s high valuation could limit any more near-term upside, though. The company is still developing drugs in the lab, but it doesn’t have a product ready for treating people.
What Does Crispr Do?
Crispr has a technology that disrupts, deletes, and corrects faulty drugs. The company posted a few positive studies in non-human subjects that show promise. The company will start testing CTCX001 in hemoglobinopathies this year. The CAR-T platform will advance gene editing in a clinical setting.
Financially, Crispr has plenty of cash ($341.8 million) that, if combined with revenue from its intellectual property, assures the company won’t need to sell shares to raise cash.
Crispr broadened its pipeline potential by partnering with Bayer through a 50% ownership in Casebia, which brings in $265 million funding from Bayer. In all, the company has $341.8 million in cash (as of March 31, 2018). Yet the price multiple on CRSP stock could scare investors away.
Trading at over six times its book value, CRSP stock will lose money this year ($1.63 a share) and next (negative $3.04 EPS). Investors grew more nervous after the company, along with its partner Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX), disclosed that the FDA placed a clinical hold on its IND (Investigational New Drug) application for CTX001.
Until the two companies answer certain FDA questions, the trial start date for the drug designed to treat sickle cell disease will be pushed to the second half of 2018. With more volatility coming to CRSP stock, fundamental investors may debate the long-term merits of the company’s potential in treating diseases against its sky-high valuations.
As markets tug the stock in all directions, investors may consider Sangamo Therapeutics, Inc. (NASDAQ:SGMO) instead. SGMO stock is valued at just two times book. The company also has plenty of cash for the next few years, with approximately $600 million in its coffers. Sangamo also has strong partnerships. For example, Kite, the oncology unit of Gilead Sciences, Inc. (NASDAQ:GILD), brought in $150 million and around $216 million in net proceeds through its follow-on equity offering in April.
Diversified Pipeline
Crispr still has a broad and attractive pipeline in the areas of hematopoietic, immuno-oncology, and liver. It is also working on in-vivo programs for cystic fibrosis and Duchenne muscular dystrophy. None of the diseases Crispr is targeting are simple: the diseases are caused by gene mutations in some cases. Sickle cell disease is caused by a mutation in the b-globin gene. Morbidity rates are high and the cost of patient care is high. If its gene-editing process is successful, Crispr will ultimately cut the costs of care for patients suffering from the diseases.
CAR-T Challenges and Rewards
Crispr’s CAR-T is a transformative treatment for cancer patients. If it proves to work reasonably well, then the market potential looks attractive. Furthermore, autologous CAR-T has its challenges. Results vary from patient to patient, the cost of manufacturing the product is expensive and the company faces commercial challenges in bespoke therapy.
Crispr’s gene-edit allogenic approach, through CTX101, introduces multiplex editing in a single step. The product is off the shelf, so it is easily accessible. Manufacturing costs are lower and the product is immediately available.
The Bottom Line on CRSP Stock
Of the 8 price targets Wall Street has on CRSP stock, the average is $69.31. Crunching the future revenue in a Discounted Cash Flow – Revenue Multiples model, Crispr’s fair value is in the range of $46-$66.57.
Source: finbox.io
The average fair value of $55.40 implies a downside of 25%. This already assumes a flexible revenue exit multiple of 5-9, plus revenue growing between 50% to 250% over the next five years. When such assumptions are generous, risks of downside are high should the company fail to achieve solid sales in that time frame.
As of this writing, Chris Lau did not hold a position in any of the aforementioned securities.
