It's been called the biggest biotech discovery of the century. And one company claims the largest market cap of any biotech focused on this major breakthrough.

The discovery I'm referring to is CRISPR gene editing. There are only three biotechs that specialize in this approach to modifying DNA -- CRISPR Therapeutics (NASDAQ:CRSP), Editas Medicine (NASDAQ: EDIT), and Intellia Therapeutics (NASDAQ: NTLA). The largest of these biotechs in terms of market cap is CRISPR Therapeutics.

Company Name CRISPR Therapeutics
Ticker CRSP
Market Cap* $3 billion
Current Share Price* $65.05
Year-to-Date Return* 177.3%

*As of Jul. 12, 2018. Data source: Yahoo! Finance, YCharts.

How did the biotech rise to the top of the CRISPR gene editing world? Here's the story behind CRISPR Therapeutics and its sizzling stock performance.

Large image of DNA with physician in background pointing at DNA sequence

Image source: Getty Images.

What does CRISPR Therapeutics do? 

CRISPR Therapeutics is a biotech that focuses on developing therapies for serious diseases with few or no effective treatments. The company's goal isn't to just treat these diseases; CRISPR Therapeutics intends to actually cure the diseases using the CRISPR-Cas9 gene-editing method. 

What is CRISPR?

To understand CRISPR Therapeutics' story, you must first grasp the basics of its namesake gene editing technique. CRISPR is an acronym for Clustered Regularly Interspaced Short Palindromic Repeats. The repeats are repetitive sections of DNA, which contains the genetic instructions for creating living organisms. Palindromic means being able to be read the same way forward and backward -- like the word "madam", for example. These short palindromic repetitions of DNA sequence are separated by stretches of spacer DNA, which is a type of DNA that doesn't contain coding for building proteins.

Although CRISPRs were first discovered in bacteria in 1987, it took a few decades before it was found that they could be used in modifying DNA. The oldest gene-editing technique, zinc finger nuclease (ZFN) technology, was developed in the 1990s. ZFN was followed by a similar method known as transcription activator-like effector nuclease (TALEN) in 2009.

By 2010, scientists knew that bacteria were able to use CRISPR-Cas9 to cut the DNA of attacking viruses as a self-defense mechanism. Cas9 was directed to specifically targeted DNA sequences in the virus by guide RNA (ribonucleic acid). The big breakthrough, though, came in 2012 with scientific publications showing that CRISPR-Cas9 could be harnessed by researchers to edit genes.

CRISPR-Cas9 was hailed as the most promising method of gene editing to be developed. Its advantages included significantly lower costs than other approaches and its ease of use.

Three of the pioneers in the use of CRISPR-Cas9 were Emmanuelle Charpentier, Jennifer Doudna, and Feng Zhang. Doudna and Zhang helped launch Editas Medicine in 2013, but Doudna left the following year and joined Intellia Therapeutics. Charpentier took a different path.

CRISPR Therapeutics' early days

On Oct. 31, 2013, Emmanuelle Charpentier, Rodger Novak, and Shaun Foy founded a new Swiss corporation, Inception Genomics AG. Charpentier had worked alongside Novak years earlier as they both conducted post-doctoral research at Rockefeller University. Foy, a venture capitalist, was an old friend of Novak. The new company changed its name in April 2014 to CRISPR Therapeutics, in homage to the gene-editing approach that Charpentier helped discover. 

One of CRISPR Therapeutics first actions was to license the patents applied for by Charpentier. The next big move for the small biotech was to raise additional cash. It was able to do so in April 2014, with a series A investment of $25 million from venture capital firm Versant Ventures.

While CRISPR Therapeutics' roots were in Switzerland -- along with its CEO, Rodger Novak -- it soon became clear that the company needed to establish U.S. operations. In April 2015, CRISPR Therapeutics announced that it had hired Bill Lundberg away from Alexion Pharmaceuticals to lead the creation of a research and development center in Cambridge, Mass. 

That same month, the company conducted another round of financing. CRISPR Therapeutics raised $64 million from several venture capital firms and one big biotech, Celgene

Picking up partners

Although Celgene was a key investor in CRISPR Therapeutics, the two companies didn't forge any development partnerships. It didn't take long for others to express interest, however.

In October 2015, CRISPR Therapeutics and Vertex Pharmaceuticals (NASDAQ: VRTX) announced a collaboration to develop gene-editing therapies. The biotechs stated that their initial focus would be on using CRISPR-Cas9 to treat cystic fibrosis and sickle cell disease. CRISPR Therapeutics received $105 million upfront as part of the deal, consisting of $75 million in cash and a $30 million equity investment by Vertex.

Less than two months later, CRISPR Therapeutics and Bayer (NASDAQOTH: BAYRY) agreed to form a joint venture to use CRISPR-Cas9 gene editing and Bayer's protein engineering expertise to target genetic diseases. The focus of this joint venture, subsequently named Casebia Therapeutics, would be on treating blood disorders, blindness, and congenital heart disease. Bayer also acquired a minority stake in CRISPR Therapeutics as part of the agreement. 

CRISPR Therapeutics didn't just seek out larger partners. In June 2016, the company announced that it was collaborating with privately held Anagenesis Biotechnologies and was licensing the small biotech's Paraxial Mesoderm Multipotent Cells (P2MCs) technology for cell therapy for human muscle diseases, particularly Duchenne muscular dystrophy. 

Initial public offering 

Editas Medicine and Intellia Therapeutics joined the public markets via initial public offerings (IPOs) in the first half of 2016. CRISPR Therapeutics didn't want to be too far behind its primary rivals.

In October 2016, CRISPR Therapeutics announced the pricing of its IPO at $14 per share. Within a few weeks, the biotech stock was up significantly -- the beginning of what would be a very good ride for investors. By the end of 2016, CRISPR Therapeutics' share price was up nearly 44%.

CRISPR Therapeutics' stock performance

Through 2016 and most of 2017, the biotech's historical prices fluctuated between $14 per share and $24 per share. As the chart below shows, though, CRISPR Therapeutics stock really began to take off in 2018. 

CRSP Chart

CRSP data by YCharts

This rapid rise stemmed primarily from good news at the end of 2017. On Dec. 7, 2017, CRISPR Therapeutics announced that it had submitted a Clinical Trial Application (CTA) for gene-editing therapy CTX001 in treating rare genetic blood disease beta-thalassemia. Approval of a CTA is required to begin phase 1 clinical testing of a new therapy in Europe. 

A few days after submitting the CTA, CRISPR Therapeutics presented positive data from preclinical data of CTX001 in treating beta-thalassemia and sickle cell disease at the American Society of Hematology (ASH) Annual Meeting. The biotech was able to successfully edit genes to produce high levels of fetal hemoglobin. Both beta-thalassemia and sickle cell disease are caused by mutations in the HBB gene that provides instructions for making beta-globin, a component of hemoglobin.  

Because of the promise for CTX001, Vertex announced on Dec. 12, 2017, that it had selected the gene therapy as the first to be developed under the two companies' existing collaboration agreement. Soon afterward, CRISPR Therapeutics and Vertex received a go-ahead from the European Medicines Agency to begin the first phase 1/2 clinical study evaluating CTX001 in treating transfusion dependent beta-thalassemia in the second half of 2018.

Challenges and controversies

There have certainly been some bumps along the way for CRISPR Therapeutics. One of the biggest challenges for the biotech relates to intellectual property rights for CRISPR-Cas9.

Remember that there were three scientists that pioneered CRISPR-Cas9 gene-editing research in 2012. The University of California Berkley (UCB), the University of Vienna, and Emmanuelle Charpentier applied for patents based on the research performed by Charpentier and Jennifer Doudna. The Broad Institute, Harvard University, and the Massachusetts Institute of Technology (MIT) applied for patents based primarily on research performed by Feng Zhang.

CRISPR Therapeutics and Intellia Therapeutics allied themselves with the UCB group. Editas Medicine licensed its CRISPR patents from the Broad Institute coalition. As you might expect, with potentially billions of dollars on the line, the two sides ended up fighting over intellectual property rights.

In February 2017, the first patent battle ended. The U.S. Patent and Trademark Office (USPTO) ruled that the Broad Institute's CRISPR-Cas9 patents did not interfere with UCB's patent applications. This was viewed as a major setback for CRISPR Therapeutics and its allies. However, the war over CRISPR-Cas9 patents isn't over. UCB took the case to a federal appeals court.

Several other controversies have also come up related to the safety and efficacy of CRISPR-Cas9. The scientific journal Nature Methods published a study in May 2017 that suggested the use of the gene-editing technique could result in a large number of unexpected mutations. 

This issue, however, was eventually proven to be much ado about nothing. In March 2018, the researchers who authored the original study issued a retraction and published an error correction. Their initial findings were wrong. CRISPR-Cas9 actually was found to be able to edit DNA with precision and without causing off-target mutations.

But before that matter was cleared up, another one had arisen. A paper was published in January 2018 on scientific website bioRxiv that suggested humans might have immune responses to Cas9 that interfere with how CRISPR-Cas9 works.

The problem is that CRISPR-Cas9 is a defensive mechanism used by types of bacteria that have infected people for much of human history. Over the years, people developed immune responses to these bacteria. Although the analysis in the report caused the stocks of CRISPR Therapeutics and its peers to drop initially, they rebounded relatively quickly

For one thing, the research didn't prove that CRISPR-Cas9 wouldn't be effective. More importantly, there are several potential workarounds even if there is a problem with immune responses. As Matthew Porteus, one of the scientific founders of CRISPR Therapeutics, said in an interview with Gizmodo,  "This isn't a roadblock. I think it's a bump." 

Perhaps the most serious issue related to CRISPR-Cas9, though, is that the gene-editing method could cause cancer. In June 2018, two papers published in Nature Medicine reported findings that CRISPR-Cas9 works more effectively in cells that have mutations in the p53 gene. What's worrisome about this is that cells with p53 gene mutations have been linked to higher risks of several types of cancer.

The research only identified the p53 issue when CRISPR-Cas9 is used for gene correction, which involves deleting a DNA sequence and replacing it with a new sequence. The good news for CRISPR Therapeutics is that its lead candidate, CTX001, uses a different approach called gene disruption, which only involves the deletion of a DNA sequence.

However, there's also potentially bad news for the biotech. Several of CRISPR Therapeutics' pipeline candidates rely on gene correction. It's also possible that more research could uncover potential safety issues related to gene disruption.

What's next for CRISPR Therapeutics?

The most pressing issue for CRISPR Therapeutics right now is addressing questions presented by the U.S. Food and Drug Administration (FDA) related to its application to begin a phase 1 clinical study of CTX001 in treating sickle cell disease. On May 30, 2018, CRISPR Therapeutics and Vertex announced that the FDA had placed a clinical hold on the Investigational New Drug Application (IND) for the gene-editing candidate.

At this point, there's no reason to suspect that the FDA's questions won't be able to be satisfactorily addressed. The European clinical study of CTX001 in treating beta-thalassemia is still scheduled to begin this year.

The progress of the European and U.S. clinical studies for CTX001 are the most important factors that will drive CRISPR Therapeutics stock. However, the ongoing patent litigation is another potential catalyst that could be either positive or negative. 

In addition, CRISPR Therapeutics has other research in progress. Below is a full listing of the biotech's pipeline candidates.

Program

Gene editing approach 

Status 

Partner

CTX001: Beta-thalassemia

Ex vivo-disruption Phase 1/2 study starting in 2nd half of 2018 Vertex

CTX001: Sickle cell disease

Ex vivo-disruption IND on FDA clinical hold Vertex

Hurler syndrome (also known as mucopolysaccharidosis type I, or MPS I)

Ex vivo-correction Preclinical research None

Severe combined immunodeficiency (SCID)

Ex vivo-correction Preclinical research Bayer

CTX110: CD-19 positive malignancies

Ex vivo-correction and disruption Planned IND filing by end of 2018 None

CTX120: Anti-BCMA (B-cell maturation antigen) allogeneic chimeric antigen receptor T cell (CAR-T)

Ex vivo-correction and disruption Preclinical research None

CTX130: Anti-CD70 allogeneic chimeric antigen receptor T cell (CAR-T)

Ex vivo-correction and disruption Preclinical research None

Glycogen storage disease Ia (GSD Ia)

In vivo-correction Preclinical research None

Hemophilia

In vivo-correction Preclinical research Bayer

Duchenne muscular dystrophy (DMD)

In vivo-disruption Preclinical research None

Cystic fibrosis

In vivo-correction Preclinical research Vertex

Data source: CRISPR Therapeutics. 

There are several key things to note about CRISPR Therapeutics' pipeline. Most importantly, all of the company's candidates are in very early stages. None has yet advanced to clinical testing, although CTX001 should do so later this year.

The gene editing approach used for each program is also significant. Those programs that use ex vivo (outside of the body) CRISPR-Cas9 gene editing don't face potential immune response issues like the in vivo (inside the body) programs do. Since the DNA sequences are changed outside of the body, there's no immune system to potentially interfere with how CRISPR-Cas9 works. Also, the programs that use gene disruption shouldn't potentially increase the risk of cancer -- at least based on research currently available.

Nearly half of CRISPR Therapeutics' programs have a big partner to help fund development. That's enormously important for a small biotech that doesn't have steady revenue coming in yet.

Is CRISPR Therapeutics a stock to buy?

For many investors, CRISPR Therapeutics stock is too risky to consider at this point. There's no guarantee that its gene-editing therapies will be successful. Several potential issues with CRISPR-Cas9 have been identified, and there could be more. The stock will surely have a bumpy ride as the science behind CRISPR is better fleshed out.

On the other hand, aggressive investors can certainly find quite a bit to like about this biotech stock. CRISPR Therapeutics enjoys a lead in developing gene-editing therapies for beta-thalassemia and sickle cell disease. No other biotechs are currently using CRISPR-based approaches for treating glycogen storage disease Ia and severe combined immunodeficiency. Success in treating just one of the rare diseases targeted by CRISPR Therapeutics could make the stock worth a lot more than its current market cap of around $3 billion. 

Buying this stock is definitely a speculative play. In my view, though, buying a small position in CRISPR Therapeutics could be a good way for investors who aren't afraid to take on considerable risk to bet on the promise of gene editing. It's a bet that has paid off handsomely so far.

Keith Speights owns shares of Celgene, Editas Medicine, and Vertex Pharmaceuticals. The Motley Fool owns shares of and recommends Celgene. The Motley Fool owns shares of CRISPR Therapeutics. The Motley Fool recommends Editas Medicine and Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.