Gene-editing stocks are favorites for biotech industry speculators thanks to their air of high-tech mystique and their potential to make blockbuster therapies. According to Market Research Future, the global genome editing market will expand at a compound annual growth rate of 18.3% over the next three years. Many investors may be willing to accept higher levels of risk to take advantage of that growth.
While there are a handful of promising gene-editing stocks, only a couple are worth buying today.
Unlike many biotech companies, CRISPR Therapeutics (CRSP) is profitable despite the fact that its most advanced pipeline projects are only in the clinical stage. As a result of its numerous drug development collaborations with Vertex (VRTX), it has the additional distinction of posting trailing-12-month levered free cash flow in excess of $54 million, making it a slightly safer long-term pick for investors than myriad other money-burning clinical-stage biotech companies.
Aside from its substantial collaboration income, CRISPR is a favorable stock for long-term growth because its therapy pipeline is packed with compelling projects. It has three chimeric antigen receptor T-cell therapies in development for oncology applications and four in vivo therapies designed to edit patients' genes directly to cure hereditary diseases. It's thus no surprise that giants like Bayer (BAYR.Y) are interested in working on early-stage programs with CRISPR.
Indeed, in the past 12 months, the company earned revenue of $289 million and spent nearly $200 million of it on research and development (R&D). This impressively large proportion indicates a highly innovative company. In late June, it announced that it was issuing new common stock with the goal of raising $450 million. Its stock surged shortly thereafter.
Given the scale of the R&D expenditures and recent financing, it's probable that CRISPR is highly comfortable with raising additional funding specifically to tackle pressing research issues. This dilutive habit may dissuade a few experienced biotech investors, but it's important to note that the stock has grown 548% in the past five years despite four rounds of new stock offerings. In the same period, CRISPR has also advanced five of its pipeline projects to the clinical stage, initiated five new preclinical programs, forged four new paid development collaborations, and entered into two development-for-licensing agreements.
Editas Medicine (EDIT) is significantly smaller than CRISPR Therapeutics, with a market cap of $2 billion compared with CRISPR's $6.3 billion. While its $24.2 million in trailing-12-month revenue from collaborations don't make it profitable, its year-over-year quarterly revenue growth is 177%, suggesting that it may eventually be profitable without any approved products on the market. In the meantime, Editas is content to issue new stock, which it has done for the past four years, and it's grown its stock price by 80% over the past five.
Editas spent more than $115 million on R&D in the last 12 months, accounting for more than half of its total operating expenses. Like CRISPR, Editas has a roster of large collaborators including Abbvie (ABBV) and Bristol Myers Squibb (BMY). Growing revenues from these collaborations is one of the company's talents, with Abbvie retaining the option to license up to five new eye health programs and Bristol Myers Squibb paying $100 million up front for its immuno-oncology drug discovery contract.
Editas' pipeline has nine therapies in preclinical development and one early-stage clinical project: EDIT-101, an in vivo gene-editing therapy for Leber congenital amaurosis. There are only several thousand patients in the U.S. and Europe with this condition, which causes childhood blindness. The clinical trial for EDIT-101 will be the very first in vivo gene therapy using the much-hyped CRISPR/Cas9 gene-editing system. If the company can demonstrate that in vivo gene editing is safe and effective, it will have a tremendously powerful position in the market, and many collaborators are sure to initiate new revenue-generating agreements with the company.
Advancing in vivo gene therapies such as EDIT-101 is the company's priority. The phase 1 trial is scheduled to begin before the end of the year. While the pandemic has caused a few delays, look for the company to announce the start of dosing for EDIT-101 in the fall, and be prepared for its price to skyrocket if it reports favorable preliminary results.