Although CRISPR Therapeutics (NASDAQ: CRSP) reported negligible revenue and a loss for the fourth quarter on Monday, the owners of CRSP stock are taking the results in stride.
The value of the company is in its gene-editing technology, which is a huge advancement in health sciences. From an investing point of view, CRSP is not going to make any revenue, let alone profits, for the foreseeable future. CRSP stock rallied about 25% on Monday after Roche (OTCQX: RHHBY) agreed to buy CRSP’s competitor, Spark Therapeutics (NASDAQ: ONCE)
Spark Bought Out
Roche offered to buy Spark for $114.50 per share in cash for a total price tag of $4.8 billion. This offer is more than double the price at which Spark closed on Friday. The buyout is irrational from a financial point of view because Spark’s losses have mounted, according to its latest financial report. Although its revenue rose about 400% to $64.73 million in Q4, it lost $2.11 a share.
With that backdrop in mind, CRSP’s losses in the quarter will not worry the owners of CRSP stock because, in the wake of the Roche-Spark deal, they will believe that CRSP could also get acquired. So instead of focusing on the company’s financial results, the market may turn its focus to the clinical achievements the firm made in 2018.
2018 Highlights
CRSP, along with its partner Vertex (NASDAQ:VRTX), continued to advance a number of its key programs in 2018. Among the diseases the companies are looking to treat are β-thalassemia, “a blood disorder that reduces the production of hemoglobin,” according to the NIH, and sickle cell disease (SCD). CRSP and VRTX are also working on immuno-oncology.
In the area of hemoglobin disorders, including β-thalassemia and sickle cell disease, CRISPR treated a patient with its CTX001 , a gene-edited stem cell therapy, for the first time, the company announced on Monday.
The patient was treated during a Phase 1/2 study of CTX001 in patients with transfusion-dependent beta thalassemia. At the same time, the companies said they have launched a Phase 1/II trial of patients with severe SCD, and they noted that the first patient with the disease is expected to be infused with CTX001 in the middle of this year. All of the patients participating in both trials will have their own edited hematopoietic stem cells injected into them.
“Patients will initially be monitored to determine when the edited cells begin to produce mature blood cells, a process known as engraftment,” the companies stated.
In the area of Immuno-Oncology, CRISPR will start a trial of CTX110, a CAR-T cell therapy, in the first half of 2019. The company will use its gene-editing technique to target blood cancers that arise from B cells. It is worth noting that a preclinical study of CTX120, CRISPR’s CAR-T cell therapy for the treatment of multiple myeloma, showed durable cytotoxic capacity.. These results gave the company the positive data it needs to continue its study in patients.
Balance Sheet Analysis
Investors absolutely must review at least the cash position of emerging biotechnology companies. Worth noting when evaluating CRISPR is that its healthy cash and cash equivalents of $456.6 million may mean the company will not need to sell stock to raise cash this year.
In Q4, the company spent $28.8 million on R&D, up from $20 million last year. Its R&D spending could increase, depending on the progress of CRISPRs clinical studies.
The Valuation of CRSP Stock
Investors may only guess what CRSP stock is worth. The addressable market that the company is targeting is very large Using a 10-year DCF Revenue Exit model, if the company’s revenue jumps 25% – 100%, CRSP stock is worth over $40 a share.
Seven analysts who cover CRSP stock have an average price target that is over 40% above its recent price of around $37, according to Tipranks.
As of this writing, the author did not hold a position in any of the aforementioned securities.
