CRISPR Therapeutics (CRSP -3.45%) is a compelling investment because of the potential it has as it works on developing gene-editing therapies that could be game changers and revolutionize the healthcare industry. Widely followed investor Cathie Wood is bullish on the stock; it's one of the top holdings in the Ark Innovation ETF.
But CRISPR remains an unprofitable company without an approved product or treatment that it can count on just yet. Shares of the healthcare stock are down 31% this year because a lot of the hype surrounding CRISPR has faded. Is the stock a better buy now that it's at a lower valuation, or is this still too risky of an investment?
Good news could be coming soon
The excitement around CRISPR is due to the potential for one of its gene-editing treatments, exa-cel, to obtain Food and Drug Administration approval in the not-too-distant future. Working with Vertex Pharmaceuticals, the companies anticipate that they will complete their application for a biologics licensing application for exa-cel by the end of the first quarter of next year.
Exa-cel treats rare blood disorders -- specifically, beta-thalassemia and sickle cell diseases -- and could generate billions in revenue at its peak. CRISPR would get a 40% share of the profits from the treatment.
In the meantime, with just collaboration revenue to rely on and the business incurring significant losses, the company is going to continue burning cash, which adds considerable risk for investors.
CRISPR's cash position adds a bit of safety
For biotech stocks like CRISPR, losses are going to be the norm in their early stages. And over the trailing 12 months, CRISPR has indeed incurred net losses totaling $680.8 million. But what's arguably more important is the cash position, and that's because that can help predict whether the company will need to issue shares and potentially dilute investors, or if it is in a good position to handle its current rate of cash burn.
Over the past four quarters, CRISPR has burned through $468.5 million from its day-to-day operating activities. The positive is that with nearly $1.9 billion in cash and marketable securities on its books as of Sept. 30, it could sustain that level of cash burn for multiple years. This is a good sign for investors, and while the company's share count has risen in recent years, CRISPR hasn't been an ultra-dilutive stock by any means.
Data by YCharts.
Is CRISPR's stock a buy?
If exa-cel obtains approval, it's not probable that CRISPR will become a profitable company shortly afterward. Even if the treatment generated $1 billion in revenue in year one, a 40% share in the profits likely wouldn't be enough to offset the losses that the business is incurring right now. And CRISPR's costs would increase upon approval and the rollout of the treatment.
The approval could, however, drive significant bullish sentiment for the stock and increase confidence in the company's other therapies that aren't as far along as exa-cel. And that's where I could see CRISPR generating massive returns for investors: by becoming a proven success and attracting more growth investors along the way.
If you're comfortable with the risk that CRISPR possesses -- namely, that its losses are likely to continue -- this could make for a good growth stock to buy on the dip.
