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Here's Why CRISPR Therapeutics AG Fell as Much as 10.8% Today

By Maxx Chatsko - Sep 21, 2018 at 4:32PM

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The CRISPR gene editing pioneer announced a share offering to pad the balance sheet.

What happened

Shares of CRISPR Therapeutics ( CRSP -8.80% ) fell nearly 11% today after the company announced a share offering to boost its cash balance as it embarks on its first clinical trials. The gene editing pioneer will offer up to 4.84 million shares of common stock at $47.50 apiece. That could bring in gross proceeds of more than $230 million, albeit at the cost of increasing the number of shares outstanding by approximately 10%. 

While investors know that CRISPR Therapeutics exited the first half of 2018 with $320 million in cash and cash equivalents -- the second-highest tally among the three major CRISPR stocks -- the share offering is a smart move for multiple reasons.

As of 3:30 p.m. EDT on Friday, the stock had settled to a 9.2% loss.

A chart drawn on a chalkboard with a steady rise and then a sudden decline.

Image source: Getty Images.

So what

Why is the share offering a positive development? For starters, clinical trials are expensive. CRISPR Therapeutics and partner Vertex Pharmaceuticals recently began the first-ever U.S.-based clinical trials for a CRISPR gene editing therapeutic. The pipeline's lead drug candidate, CTX001, is being evaluated as a potential treatment for the blood disorder beta thalassemia. It's also expected to enter clinical trials weighing its potential against sickle cell anemia before the end of 2018.

Additionally, given the high stakes of CRISPR gene editing technology (peer Editas Medicine hopes to one day develop a similar treatment against the same blood disorders), capital will be key to advancing trials and addressing any potential shortfalls as quickly as possible.

It's also worth noting that the share offering is well timed. As of Thursday's market close, CRISPR Therapeutics stock had soared over 100% since the beginning of the year. In other words, the company would have needed to offer twice as many shares to raise the same amount of cash if it pulled the trigger on Jan. 1. It's wise to take advantage of its premium market value. 

Now what

Today's drop in share price is nothing for investors to panic over. Mr. Market is simply adjusting the stock price to account for the roughly 10% dilution of common stock, but CRISPR Therapeutics will have roughly the same market cap as it did the day before. Plus, it now has ample cash on hand to advance its lead drug candidate in trials around the world, and begin working on graduating its next clinic-ready assets from pre-clinical studies.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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