CRISPR Therapeutics (NASDAQ:CRSP) is on the right path. CRSP stock has not been.
In January, CRSP touched $220. As I write this, it’s at right about $130.
It’s difficult to tell exactly what has caused such a large pullback (over 40% at this point). Profit-taking is one possible explanation: CRSP stock did have a monster run to those January highs.
At the least, there hasn’t been any news that suggests such a decline. Instead, the news we have is the same news that sent CRSP to its highs to begin with. And as the company’s pipeline continues to develop, I believe that pattern will repeat.
The Potential of Gene Editing
CRISPR Therapeutics is a gene editing company. That sounds scary.
As far as CRISPR Therapeutics goes, it’s not. Certainly, there are significant ethical concerns around the CRISPR (which stands for “Clustered Regularly Interspaced Short Palindromic Repeat”) technology, which was developed in large by CRISPR Therapeutics itself. Notably, a Chinese doctor ignited worldwide attention (and wound up arrested) for creating “designer babies.”
That focus includes treatment of deadly diseases. CRISPR Therapeutics’ most advanced product is CTX001, which aims to treat sickle-cell anemia. Three other candidates rely on CAR-T (chimeric antigen receptor T-cell) technologies, which promise to fight cancer. CRISPR Therapeutics is researching treatments for Duchenne muscular dystrophy and cystic fibrosis as well.
These are all diseases with significant human tolls and often high mortality rates. And if CRISPR’s broader gene editing technology works, the hope is that it will work to at least some degree against all of these diseases.
Can CRISPR Therapeutics Win?
It’s not guaranteed that CRISPR Therapeutics’ technology will work. That’s the nature of biotech — and of biotech stocks.
But the company seems to have an awfully good shot. It is a leader in the field. Its co-founder won the Nobel Prize in Chemistry last year for the development of the CRISPR method.
And early data has been positive. Sickle-cell anemia patients in the CTX001 trial have shown “remarkable progress.” That trial is ongoing and not yet conclusive, certainly. But if efficacy is proven, CTX001 can restore the health of millions of patients worldwide.
An early trial of CTX110, one of the CAR-T therapies, garnered headlines when a patient passed away during the Phase 1 trial. But four of the 11 patients saw significantly positive responses. Here, too, the data remains inconclusive, but we have early indications of efficacy.
All told, there’s real promise across the pipeline. Thanks to equity offerings last year, CRISPR Therapeutics has $1.6 billion in cash. Free cash flow was a burn of a little over $250 million in 2020, meaning the company has six years’ worth of funding on the balance sheet.
CRISPR has time, cash and an impressive pipeline. That’s an excellent combination for a biotech stock, and it’s a big reason why I’m bullish toward CRSP stock.
The Risks and Rewards in CRSP Stock
Now, it’s important to remember: Biotech stocks are inherently risky. That’s the nature of the business, and the nature of the sector. Promising therapies fail. Long-shot efforts succeed.
Successful biotech investors often use a “basket” strategy for precisely this reason. The risks in individual stocks are high; rewards in other winners can compensate for those risks.
So as bullish as I am on CRSP stock, I’m still warning that there are risks here. The early trial results could prove impossible to replicate over larger samples. The underlying gene editing technology may face unforeseen complications. Again, this is biotech; there are a million things that can go wrong.
But for investors who can understand and tolerate the risks, there is a lot that can go right here as well.
After the pullback, CRISPR Therapeutics has a market capitalization around $9.7 billion. Reasonable investors can model varying degrees of upside from there if CTX001, CTX110, and other candidates prove successful. But any model is going to show enormous potential gains.
Again, it’s not an overexaggeration to say that CRISPR Therapeutics can revolutionize medicine. The potential of gene editing is that large. The applications are that broad. CRISPR technology could even play a role in biofuel development.
So if CRISPR Therapeutics can deliver on its potential, the upside to CRSP stock is multiples of its current value. Given strong early results, betting on CRISPR is a bet risk-tolerant investors should consider.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.
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