Every day, Wall Street analysts upgrade some stocks, downgrade others, and "initiate coverage" on a few more. But do these analysts even know what they're talking about? Today, we're taking one high-profile Wall Street pick and putting it under the microscope...
CRISPR could change the world -- and Piper Jaffray is placing its bet on the company that took the name of this revolutionary gene-editing tool for its own: CRISPR Therapeutics (CRSP -0.56%).
This morning, Piper announced it is initiating coverage of Swiss genetics company CRISPR Therapeutics with an overweight rating and a $30 price target (shares currently cost less than $20). It's far from a sure bet, but for investors who won't balk at a big gamble on a potentially even bigger payday, it's a bet that could pay off.
Here are three things that you need to know.
1. CRSPR and the competition
As my fellow Fool and biotech enthusiast Keith Speights explained back in August, there are currently three medical start-ups leading the way to using "clustered regularly interspaced short palindromic repeats" (yielding the acronym CRISPR) to treat genetic diseases such as cancer and sickle cell anemia.
CRISPR Therapeutics is the company that Piper Jaffray is betting on to win the race, using technology licensed from a University of California, Berkeley, patent for "CRISPR-Cas9" gene editing. A second gene-editing company licensing from the same patent is Intellia (NTLA 1.68%), favored by (among others) Jefferies & Co., which rated it a buy back in June.
The third big name in the field -- and the biggest by market cap -- is Editas Medicine (EDIT 4.67%), which Barclays Capital endorsed in a September overweight rating. Unlike CRISPR Therapeutics and Intellia, Editas is working off of a patent from the Broad Institute -- which is currently in litigation with Berkeley over who, exactly, discovered this technology first.
2. Why all the litigation?
It's high-stakes litigation, too. As Keith described this past summer, "Gene editing, particularly with the advent of CRISPR-Cas9, has caused an upheaval in the biological world." CRISPR's ability to snip out strands of unwanted DNA and replace them with more benign, or even beneficial genetic code, holds the potential to do everything from making oranges sweeter to improving crop yields to rendering mosquitoes incapable of carrying Zika.
If approved for human trials, it could even cure diseases caused by genetic mutation. In short: CRISPR could be the "silver bullet" that kills cancer.
3. Why buy CRISPR Therapeutics and not the others?
So why does Piper Jaffray prefer CRISPR Therapeutics over its gene-editing rivals? As explained in a note on StreetInsider.com (requires subscription) today, the day is rapidly approaching in which someone will conduct a "First-in-man" trial of CRISPR technology to cure a genetic disease. We're not there yet, but Piper expects to see CRISPR Therapeutics file an Investigational New Drug (IND) application with the Food and Drug Administration before the end of 2018. That development could catapult CRISPR Therapeutics stock to new heights in the new year.
In the meantime, CRISPR Therapeutics customer Vertex Pharmaceuticals signed an exclusive deal "to Co-Develop and Co-Commercialize [CRISPR Therapeutics' ] CTX001 as CRISPR/Cas9 Gene Edited Treatment for Sickle Cell Disease and [Beta]-Thalassemia" earlier this month. This deal will supplement the roughly $250 in cash that CRISPR Therapeutics has on hand with the $1.8 billion war chest at Vertex to help finance the treatment's development and approval.
Granted, rivals have their own biotech alliances in hand. Editas has teamed up with Juno Therapeutics for example, to explore ways to bolster an immune system's ability to fight cancer cells. Intellia is allied with Regeneron Pharmaceuticals to use CRISPR tech for in vivo therapeutic development. But even so, one company's success with CRISPR does not necessarily imply the others' failure. As Keith rightly points out, "All of them" -- CRISPR, Editas, and Intellia, too -- "could achieve significant success."
The most important thing for investors to remember
Let me qualify that statement, though, with one word: They could achieve significant success...eventually.
Right now, each of these three is too small to name any one of them a winner. Both CRISPR Therapeutics and Editas Medicine, for example, boast trailing revenue streams of about $11 million -- and no profits. Intellia is a bit farther along in the money race, with trailing-12-month revenue of $25 million. That being said, all three companies sport market capitalizations many times their revenue streams: $784 million for Intellia, $816 million at CRISPR Therapeutics, and $1.2 billion for Editas.
Whether these valuations will ultimately be justified will depend on how well the companies' development of actual, useful therapies proceeds. And that's an answer we will get...eventually.