Biotech stocks like CRISPR Therapeutics (NASDAQ:CRSP) are inherently risky, and inherently volatile. CRISPR stock itself, only public for a little over two years, is a good example. CRSP stock went public at $14 — and cleared $70 this year. It’s since fallen over 50% from late May highs.
Part of that volatility simply is the nature of the biotech sector. The endgame for small biotechs in particular usually is either spectacular success or complete failure. Of the 20 biggest U.S. stock gainers this year, 7 are biotechs. Those 7 stocks have average gains of 317%, led by the 464% rise at ProQR Therapeutics (NASDAQ:PRQR).
Of the 14 biggest losers, 6 are biotechs. Those stocks have lost an average of 95.7% of their value. There are tens of other stocks in the space that have declined 80% or more.
Biotechs like CRSP stock only are suited for the highest-risk portion of an investor’s portfolio. And CRISPR stock itself has a few more company-specific risks investors need to mind. Those risks admittedly lead to higher potential reward. But investors in CRSP need to understand what, exactly, they’re getting themselves into — and how this stock could go wrong even after a 50% decline.
The Competitive Risk for CRSP Stock
Unlike many smaller biotech plays, CRISPR Therapeutics isn’t reliant on a single product making it to market. Its lead candidate, CTX001, is targeted at blood disorders sickle-cell anemia and beta-thalessemia. But its efforts to treat those disorders — along with so-called CAR-T therapies the company is developing to fight cancer — are part of an overall “gene editing” technology.
And in that field, CRISPR is far from alone. Intellia Therapeutics (NASDAQ:NTLA) and Editas Medicine (NASDAQ:EDIT) are working on similar CRISPR technologies. (CRISPR stands for “Clustered Regularly Interspaced Short Palindromic Repeat”, and refers to DNA sequences that seem particularly suitable for editing.)
There are positives and negatives in the company’s approach. The lack of reliance on a single drug makes CRISPR stock less of a binary play. But the intense competition means that some success may not be enough — particularly if that success doesn’t come quite quick enough.
The CRISPR Risk
CRISPR is a promising technology, one reason why multiple companies are trying to capitalize on it. But there’s also a still-raging debate as to the dangers of genome editing.
However, that debate is based more on public perception than actual science.
In the scientific world, a single study means little until it can be replicated. There is also a risk when it comes to investor understanding of a study. For example, it was reported in June that when a certain type of cells were edited with CRISPR, it could trigger a natural cellular response that protects cells from cancer. Thus, cells with this mechanism damaged survived and crowded out the cells without it. This left cell lines susceptible to cancer. This doesn’t mean CRISPR causes cancer. This means cancer-fighting mechanisms can undo CRISPR’s work, and in the case of this study, it didn’t work for these specific researchers, using these specific cells.
Meanwhile, some investing outlets reported this as CRISPR may cause cancer or increase cancer risk. And CRSP stock — along with NTLA and EDIT — sold off on the news. You’ll see that the Seeking Alpha story reporting the loss is also perpetuating the problem. This article also brings up a past case of CRISPR stock falling on a headline, without pointing out that Nature later “retracted [the study] to maintain the accuracy of the published record” after problems with its methodology and conclusions were pointed out in multiple other peer-reviewed publications. This gives investors the impression that not only was this past, inaccurate study true, it’s part of a growing number of CRSP issues, which is simply not the case. Scientists called the selloff following this news “absurd.” And if scientists who study these things don’t think a study means the end of CRSP, why should investors?
Could their be risk to the safety of CRISPR technology itself? Of course. But that’s why it’s being studied.
The true risk to CRSP stock however, comes not from safety issues, but from investor perceptions of safety issues and hair-trigger responses to anything slightly negative that comes out about the technology.
The Political Risk to CRISPR Stock
CRISPR technology has made headlines of late for potentially troubling reasons. A Chinese researcher reportedly used gene editing technology in human offspring — which led to a media firestorm, but was condemned by all corners of the scientific community.
CRISPR Therapeutics isn’t working on similar efforts, to be sure. Its early efforts are “ex vivo”, in which cells are removed, treated, and then reintroduced. But the company plans “in vivo” treatments in the future — in which the therapies are applied directly. However, this is very far in the future and would only happen after FDA approval, which requires repeated clinical trials — very different from what happened in the case of the babies born in China.
Even if the fears of “designer babies” raised by the developments in China were well supported (they aren’t), that wouldn’t put an end to CRISPR development. CRISPR isn’t just a possible therapy, its an invaluable research tool already in wide use. However, in terms of “in vivo” treatments, ethical considerations will need to be satisfied, which I believe suggests that CRSP stock, at least theoretically, should be cheaper.
The Rewards for CRSP Stock Holders
All told, investors have to fully understand the risks surrounding CRSP stock. But it’s worth remembering that there are huge risks — especially of volatiliy — but also huge potential rewards. CRISPR Therapeutics is a $1.8 billion company that has the potential — without exaggeration — to revolutionize medicine — both treatment and research. Success for CRISPR as a company suggests massive upside for CRSP stock.
Whether the risks are worth those rewards is tough to decipher. Biotechs are volatile because analyzing biotechs is messy, difficult, business. And when it comes to CRISPR, investors are eager to analyze every bit of news, and quickly.
But CRSP stock is down about 50% — and it does have a pathway to upside with success in its therapies and, most likely, an eventual sale to a larger diversified biotech. That pathway isn’t smooth, however: CRISPR Therapeutics still has a lot to prove.
As of this writing, Vince Martin has no positions in any securities mentioned.