Despite its high-tech approach to treating hereditary diseases and cancers, the gene therapy biotech CRISPR Therapeutics (CRSP +3.59%) had a brutal 2021, with two-thirds of its market capitalization shaved off over the last 12 months. There's no way to sugarcoat it: The market is second-guessing whether the company can bring its portfolio of early-stage medicines through the approval process to reach commercialization.
In my view, this skepticism is healthy, and investors should consider CRISPR to be a risky purchase under the best of conditions, as it's a pioneering business in an especially challenging and much-hyped niche. But I'm still optimistic about CRISPR's potential. In particular, there are three green flags that investors should know about that dramatically increase its chances of future success.
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1. The collaboration with Vertex Pharmaceuticals
One of the best things that a pre-revenue biotech stock can have in its corner is a powerful and more experienced ally to finance drug development and help with navigating the commercialization process.
For CRISPR Therapeutics, that ally is Vertex Pharmaceuticals, which is funding it to finish development of CTX001, a potentially curative gene therapy for both sickle cell disease and transfusion-dependent beta thalassemia.
Per the terms of the arrangement, Vertex paid the biotech $900 million upfront, and it's also on the hook for an additional $200 million in milestone payments. CRISPR Therapeutics will get 40% of the profits from CTX001 (and be responsible for 40% of the costs), assuming that it's approved.
The pair are also collaborating on other projects that haven't been disclosed to the public yet. That's another piece of good news, as it means that Vertex is pleased enough with CRISPR's ongoing work on CTX001 that it's willing to cooperate on earlier-stage programs that are inherently riskier.
2. It has oodles of cash to spend on development
The second green flag for CRISPR Therapeutics is that it has nearly $2.5 billion in cash and equivalents despite lacking any recurring revenue from sales.
With only $491 million in trailing operating expenses, that chunk of change will be a decently long runway for it to get a few of its pipeline projects off the ground and onto the market. Of those operating expenses, about $387 million went toward research and development (R&D), with the remainder going to selling, general, and administrative (SG&A) expenses.
And the company has only $205 million in debt, which will be a breeze to pay off if it eventually gets its therapies commercialized.
Between its relatively slim expenses and light debt load, there aren't any obstacles to funneling all of its resources toward making new medicines and advancing its existing projects. Nor will shareholders need to fear dilution, as there's no need to issue new stock to raise additional capital.
3. Early clinical results look favorable for key programs
The biggest green flag of all for CRISPR Therapeutics is that some of its most advanced pipeline programs, like CTX001, have had success in their phase 1/2 clinical trials.
In June of 2021, CRISPR reported that all of the patients in two trials had responded to treatment with CTX001. The 15 beta thalassemia patients no longer needed transfusions to control their symptoms, and the seven sickle cell disease patients were free of severe vaso-occlusive symptoms in their follow-up appointments. Aside from being tremendously promising for the patients involved, that progress could spur major returns for shareholders if the results are confirmed once the trials conclude.
The same is true for its ongoing phase 1 trial for CTX110, a therapy that aims to treat B cell malignancies. If everything goes according to plan, the biotech will expand the trial in the first quarter of 2022, which would be yet another positive development.
Still, it's important to remember that later clinical trials can temper favorable early-stage results. For now, investors should thus probably consider this last green flag to be provisional in nature -- but that'll make the stock soar all the more if the results are confirmed.
