Gene editing has attracted a lot of attention in recent years. That's because of the incredible potential if companies can make the technology work in various disease areas. The idea is to cut a genome in a particular location, and add, change, or remove a gene responsible for disease.
CRISPR Therapeutics (CRSP 0.67%) and Intellia Therapeutics (NTLA 3.01%) are two biotech companies making progress in this exciting area. But do they make good investments right now? Let's find out.
A big moment may be around the corner
Adria Cimino (CRISPR): The big moment may be just around the corner for CRISPR Therapeutics. The clinical stage biotech company is developing CTX001, a gene editing treatment for blood disorders beta thalassemia and sickle cell disease with partner Vertex Pharmaceuticals (VRTX 3.16%). This could be a major product for two reasons. First, it's a one-time curative approach. That in and of itself means this potential product could be a game changer. Now here's the second reason. Right now, treatment options for these diseases are extremely limited. So, if CRISPR and Vertex cross the finish line, the victory could be big.
CRISPR already has started to benefit from the CTX001 partnership. Vertex increased its stake in the deal earlier this year. And that meant an upfront payment to CRISPR of $900 million. CRISPR also gets $200 million upon regulatory approval as part of the deal. After that point, CRISPR keeps 40% of the profits. And here's the most exciting news of all: If everything goes well, the companies aim to file for regulatory approval by the end of next year. So, revenue may not be too far away for CRISPR. Farther down the road, we may expect additional products from this biotech player. The company has four other candidates in clinical trials in immuno-oncology and diabetes.
Of course, the risk with biotech companies is that candidates may fail. Anything can happen at any point in clinical trials. It's important to be aware of this before investing. But, if CRISPR is successful down the road, an investment in the shares today may result in significant gains. Especially considering today's share price. It dropped 50% last year. And it's trading about $15 lower than Wall Street's lowest 12-month share price estimate. So, for investors with appetite for risk, CRISPR may make a good buy today.
Intellia is better than Crispr but I'm not buying either one
Taylor Carmichael (Intellia): If you're excited by the potential of gene editing, my suggestion would be to wait for a cheaper price before you buy Intellia. One of the big dangers in biotech investing happens when you get seduced by the science and you ignore the financial realities. It's dangerous buying a biotech company without any FDA approvals.
A few years ago, Bluebird Bio (BLUE 1.84%) was the cat's pajamas. I was amazed that this company was going to make diseases go away. My family bought in at $200 a share, around a $10 billion market cap. And the stock proceeded to lose 90% of its value over the next few years. Ouch.
So my Bluebird fiasco taught me a few biotech lessons.
1. Don't buy a large-cap biotech that doesn't have any FDA approvals yet. Stick to small caps or micro-caps (with a lot of cash) if you want to invest in biotech companies without any drugs on the market.
2. The problem with the one-and-done biotechs is that the companies have to charge very high fees for the one-time treatment to recoup their costs. And the market (or in Europe, the government) scoffs at the high cost and refuses to pay for it. So there's a business model uncertainty on top of the unprofitable biotech uncertainty of making it through the clinical trial gauntlet.
3. Be wary of buying an expensive biotech when it's early in the story and there's only good news. Intellia reported positive phase 1 data this year. That's so early it's not even funny. Sooner or later there will be bad news, and you'll get a cheaper price.
CRISPR has the illusion of being a safe investment, with its 45% profit margins and its 456% revenue growth. Right now its financials consist of selling part of its future to Vertex. Intellia has also sold part of its future, to Regeneron (REGN 2.22%). Intellia's financials are bad, but that's kind of a mirage, as its treatments are advancing in clinical trials.
If you want to make a large investment in gene-editing, I would suggest buying Vertex (in lieu of CRISPR) or Regeneron (instead of Intellia). If there are any clinical flops, your money is still safe. And you have major potential upside as the big pharma partners now own significant rights in these companies. The risk/reward is way nicer, in my opinion.
In particular I'm liking Vertex more and more. With an investment there you get the highly profitable cystic fibrosis drugs. And you have a proxy interest in CRISPR (Vertex has rights in several of their molecules), and you have a proxy interest in Mammoth Bio, Jennifer Doudna's new company. (She's a co-founder of Intellia).
I'm on the sidelines myself, but this science is amazing.
CRISPR or Intellia?
Both companies offer significant potential for gains -- if all goes well. As we've mentioned above, risk is high. CRISPR may be closer than Intellia to bringing a product to market. Here, I'm referring to CTX001 as mentioned above. That's a plus. But, Taylor and I both agree that the safest bet is to invest in one of these companies' bigger partners.