Thesis
CRISPR Therapeutics (CRSP) is a high-risk, high-reward investment prospect. In my view, the market has mispriced the probability of CRISPR Therapeutics successfully utilizing the CRISPR/CAS9 platform across multiple disease states. In the most optimistic scenarios, the company could be worth several hundred billion dollars. The company is raising significant amounts of capital, which will allow it to invest across multiple disease states. I view this development extremely positively, as it comes on the heels of positive data from CTX001 and indicates the company is looking to solidify its lead in bringing CRISPR/CAS9 products to market. I am extremely bullish on the shares in the long run.
CRISPR Therapeutics was co-founded by Dr. Emmanuelle Charpentier together with Rodger Novak and Shaun Foy. In fact, Charpentier is generally credited with discovering how CRISPR/CAS9 could be applied for gene-editing purposes (along with colleague Jennifer Doudna). Currently, the company trying to apply the breakthrough gene-editing technology it's founder developed into the following disease states (per August 2020 Investor Presentation):
Hemoglobinopathies: This category includes various genetic diseases that affect the production of hemoglobin. Currently, the company has begun enrolling patients in Phase 1 trials for patients with beta-thalassemia and sickle cell disease. Both of these trials are in collaboration with Vertex Pharmaceutical (NASDAQ:VRTX) and will use the CTX001 treatment.
Immuno-oncology: This category includes drugs being developed to repurpose the human immune system in order to fight cancer. Currently, the company is developing three allogeneic CAR-T therapies for this purpose, which are enrolling patients now.
Regenerative Medicine: The company is currently researching a potential cure for Type 1 diabetes in partnership with Viacyte.
In vivo approaches: This category includes disease states, where gene-editing therapies could be applied. Currently, the company is researching cures for Glycogen Storage Disease, Duchenne Muscular Dystrophy, Myotonic Dystrophy Type 1, and Cystic Fibrosis. Finally, the company has also noted it is working on additional undisclosed early-stage programs in partnership with Vertex and Bayer (OTCPK:BAYZF).
Source: August 2020 Investor Presentation
CRISPR Therapeutics pipeline appears both immature and aggressive. No therapy has progressed past a Phase 1 trial, and the company is already expanding into some of the most complex disease states. While this lack of specialization certainly presents execution risks, I believe the pipeline is well crafted. The company is expanding into diseases with larger patient population, which presents a more lucrative opportunity for therapy development. Furthermore, the company is diversifying how CRISPR/CAS9 technology will be utilized to create a therapy, as demonstrated by the difference between its CTX001 therapy, and its allogeneic CAR-T therapies.
Before moving onto the early data points, we have on efficacy, if you need a refresher on the technology, I highly recommend the ARK Invest White Paper on CRISPR. Their in-depth research coherently makes the case for why CRISPR is a superior gene-editing platform compared to existing approaches like ZFNs and TALENs.
The company currently has several data points back from its CTX001 ex vivo treatment, and the results are nothing short of stunning. For the two first Beta-Thalassemia patients treated, both are transfusion independent 5 months & 15 months after a CTX001 infusion. For reference, patient 1 averaged 34 units of packed red blood cell transfusions per year before the CTX001 infusion. Meanwhile, patient 2 required 61 units of packed red blood cell transfusions per year. For Sickle-Cell Disease, their first patient was experiencing seven vaso-occlusive crises and five packed red blood cell transfusions per year on average. After the CTX001 infusion, the patient has been vaso-occlusive crises free for nine months with zero red blood cell transfusions.
It is worth mentioning just how life-changing this therapy has already been for these patients. One beta-thalassemia patient was 19-year-old women with anemia, a low quality of life who needed multiple monthly transfusions. The disease was damaging her vital organs, and landing her trips into the hospital that was putting her life at risk. Since CTX001, these effects have subsided. The Sickle-Cell Disease patient, Victoria Gray, is a mother of three whose life was constantly put at risk from vaso-occlusive events. While scientists were initially hoping to increase her fetal hemoglobin to 20% of her total hemoglobin level, CTX001 increased that level to 46%. Additionally, a biopsy of her bone marrow cells showed that 81% of the cells contained the edited DNA, which would allow her body to maintain the higher fetal hemoglobin levels for a sustained period of time. Data aside, the patient's interview with NPR may summarize the results best, "It's wonderful. It's the change I've been waiting on my whole life".
Despite the success, there are concerns about the treatment that are yet to be addressed: 1) Is the treatment durable? The first Beta-thalassemia patient is transfusion independent after 15 months, but just how long will this effect last into the future? When the company begins to dose more patients, will they experience similar long-lasting results? The company will need to monitor its patients for a longer period of time to prove their therapies durability. 2) Is the treatment consistent? One of the chief concerns regarding gene editing is the accuracy and consistency with which companies can actually edit a patient's genome. Part of this concern is related to the actual technological process of the edit, and in that regard, CRISPR/CAS9 system is believed to be a consistent editor of DNA in cells. Additionally, a less publicized facet of the consistency concern stems from the ability to manufacture these complex treatments. In this regard, CRSIPR is one step ahead of the competition by launching a state-of-the-art manufacturing facility in Framingham, MA to support its programs.
I have been a long-time believer in gene-editing and the CRISPR platform, but I truly never anticipated CRISPR Therapeutics could release initial data this positive. I believe the company has an effective cure on its hands.
The company's Immuno-oncology ambitions rest heavily on the use of allogeneic CAR-T therapies. CRISPR Therapeutics believes that allogeneic therapies can be safely created and administered to patients, and offer greater treatment potential for patients as compared to autologous therapies. In short, autologous therapies use the patient's own cells, which are then edited and used for treatment, while allogeneic therapies use a single-source of cells that are not derived from the patient.
The companies first trial using its proprietary allogeneic CAR-T platform uses CTX110 for the treatment of CD19+ B-cell malignancies. Even though the trial is still enrolling patients, the company expects to report some top-line data for CT110 by the end of 2020. Although this readout will occur relatively soon, I think it will provide an important update on how mature the companies platform in immuno-oncology truly is. Unfortunately, due to the relatively complex nature of this disease and the treatment itself, I am not expecting the same type of blockbuster results we saw in Hemoglobinopathies, but I still expect a successful readout.
As it relates to CTX120 for the treatment of multiple myeloma and CTX130 for the treatment of solid tumors like renal cell carcinoma, the only data available is from testing on mice. However, it is worth noting that in both cases, all five mice treated with the appropriate infusion for their xenograft cancer were found to be completely cancer free. The graph below shows the observed progression for CTX120.
The company's main regenerative medicine therapy will be looking to treat Type 1 diabetes. The approach will utilize CRISPR/CAS9 to edit pluripotent stem cells for beta cell replacement, which will enable the new pancreatic cells to secrete insulin. The therapy will actually seek to leverage the technology it has developed for its allogeneic CAR-T platform in order to cure the disease. At this point, the company is still in the research stage with its partner Viacyte, so it will be quite a while before any substantial data comes from this work. Additionally, snuck into a recent press release, CRISPR announced that it is partnering with UHN, Canada's largest research hospital, in order to utilize gene-editing technology in order to turn stem cells into hepatocytes. This indicates that CRISPR is looking to extend its regenerative medicine franchise into liver diseases, which could potentially treat a large variety of patient populations
The therapies cited above are considered ex vivo treatments, as outside cells are edited and infused into the patient for treatment. In vivo therapies would directly edit the cells inside a person. This type of therapy presents higher risks and greater technological challenges for execution. Thus, as it relates to CRISPR's in vivo pipeline, I believe these therapies will need a significantly longer period of maturation until these products can successfully come to market. For the purposes of this analysis, I believe it is important to note that management is researching how to best bring these drugs to fruition, but CRISPR/CAS9 may not be the right technology to do that. Despite this risk, CEO Samarth Kulkarni has stated that he expects CRISPR Therapeutics to purchase and adapt to new technologies as they are developed, ensuring that the company will remain at the forefront of the gene-editing revolution.
CRISPR finished Q2 2020 on solid financial footing. Cash and Cash equivalents ended June 30, 2020 at $945M compared to $890M on March 30th, an increase of $55M. Financing provided $89M in cash, while a milestone payment from Vertex provided another $25M. Q2 2020 R&D expenses totaled $59M while G&A expenses were $21M, which combined for a net loss of $79.7M. With almost $1B of cash in the bank, enough to cover two years of operations, you may feel that CRISPR Therapeutics is a cash-rich company. Well, management would disagree, because on June 30th they announced another secondary share offering to raise ~$455M at $70 a share.
In my view, the capital raise is extremely prudent. Samarth expects gene-edited products to compose 30% of the global pharmaceutical market within 12 years, as stated at the William Blair Biotech Focus Conference. This implies a market opportunity of hundreds of billions of dollars, of which no company has become the global leader. This is a unique opportunity to become the market leader in pharmaceuticals and I believe CRISPR Therapeutics should raise and spend as much capital as necessary in order to capture this market. Secondly, management is once again raising capital at all-time high share prices, which I believe demonstrates a conservative management philosophy that will continue to serve shareholders well into the future.
CRISPR Therapeutics can be essentially considered a pre-revenue company, and will not have any commercial products for several years. However, for the sake of propriety, it is worth noting the potential market opportunity for a successful treatment. As noted in the company's 2019 annual report, there are estimated to be 200,000 people worldwide who are alive and registered as receiving treatment for Beta-Thalassemia, of which approximately 19,000 live in the US or Europe. Additionally, another 60,000 are born with the disease annually. For Sickle-Cell Disease, there are estimated to be 20-25 million people worldwide with the disease, of which 100,000 reside in the United States. Additionally, another 300,000 are born with the disease annually. Meanwhile, as Ark Invest noted in their white paper, the market for CAR-T therapies is expected to grow to over $100B annually. These market opportunities are exceptionally large, and this could allow CRISPR Therapeutics to generate billions of dollars annually from its lead therapies in Phase 1 trials today.
Meanwhile, from an operational standpoint, I believe CRISPR appears to be allocating its resources efficiently. Take a look at its operating expenses over the past five years. While General and Administrative costs were outpacing actual R&D when the company first started, management is now spending three times as much money on R&D as G&A. I am highly encouraged by this development, because as an investor, I want the capital being raised to be spent on value creation, not overhead. Finally, it is also worth noting that the company ended 2019 with just over 300 employees, but currently has 53 open positions. This indicates the company is hiring for massive growth, which will help it execute on its diverse array of disease programs.
CRISPR Therapeutics is my best high-risk, long-term investment idea. The initial CTX001 data has been incredible, the company is capitalizing on a surging share price, and investing heavily across multiple disease programs. CRISPR Therapeutics' current market cap is $6.3B, but any number of bullish scenario's involving multiple successful products could create a company valued in the hundreds of billions. This presents an opportunity with significant asymmetric upside for the share price if an investor is willing to take the risk.
It is also worth noting for the purposes of this article that there are several other similar companies operating in this segment of gene-editing technology, such as Editas Medicine (EDIT), Intellia Therapeutics (NTLA), and Beam Therapeutics (BEAM). While CRISPR Therapeutics is generally regarded as the leader of this group, I am, in general, bullish on these other companies for two reasons: (1) I believe the bull case on CRISPR Therapeutics to be chiefly driven by the technological platform, which these other companies are also working to mature (2) I believe these shares will act as a hedge to single-stock risk, where the technological platform may succeed, but not necessarily with CRISPR's management or pipeline of products.
Source: August 2020 Investor Presentation
Disclosure: I am/we are long CRSP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I am long CRSP, EDIT, NTLA, and BEAM. I have been acquiring shares since 2017 in CRSP, and intend to continue gradually purchasing more shares. I am not an expert, and this is not financial advice.
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Crispr Therapeutics: My #1 High-Risk Investment Idea - Seeking Alpha
