With its share price off by 11% over the past 12 months, CRISPR Therapeutics (CRSP 0.31%) may be down, but it's far from being out. The biotech's efforts to develop gene therapies for conditions like sickle cell disease are continuing, and there's reason to believe that success could be on the horizon. In fact, a handful of catalysts could help revive the stock.
Here's why last year's stock price declines simply won't matter in the long run.
The reason for the dip
There are a few factors that drove CRISPR Therapeutics' stock to fall over the last year, none of which were the results of any stumbles by the company or issues with its clinical trials.
First, 2022 was an awful year for most growth stocks. The Vanguard Growth ETF fell by 33% while the wider S&P 500 ended the year down by 19%. As inflation ran high, the Federal Reserve started a series of interest rate hikes to get it back in check. That made it more expensive for businesses to borrow money, and the share prices of unprofitable businesses and clinical-stage biotechs like CRISPR were generally hit quite hard as those companies are likely to need to borrow additional funds.
The second factor is closely related to the first one. Shares of gene-editing companies like CRISPR, Editas Medicine, Beam Therapeutics, and Intellia Therapeutics all fell even more steeply than the broader biotech sector did, as measured by the SPDR S&P Biotech ETF.
As you can see, CRISPR Therapeutics fared much better than its peers, which is likely because its pipeline has late-stage programs that have a good shot at being commercialized soon. The others exclusively have early-stage programs. In short, biotechs were out of fashion with investors last year, and gene-editing biotechs were even more out of fashion.
Finally, Bluebird Bio contributed to CRISPR's slump in 2022 by succeeding with its bid to commercialize its therapy Zynteglo, which is a gene therapy intended to treat transfusion-dependent beta-thalassemia. CRISPR is currently working to get regulatory approval for its own gene therapy for beta-thalassemia (which it developed in conjunction with Vertex Pharmaceuticals), but Bluebird's product will have a head start when it comes to securing market share. And that'll doubtlessly be a headwind for CRISPR's revenue growth, assuming its treatment is also approved for sale.
Why it's still worth buying
Regardless of Bluebird's first-mover advantage in the market for beta-thalassemia treatments, smart investors know that CRISPR Therapeutics is positioned to survive the near term and thrive in the medium term.
It has $1.9 billion in cash and equivalents on hand, and its trailing 12-month cash burn was $509 million. That means that if it doesn't start generating revenue sooner, it could still continue with its clinical trials and pipeline development activities at their current intensity for at least three more years before it would need to think about raising money or slashing costs. And there's a good chance that the biotech will be realizing revenue from sales of a treatment well before that time.
Per management, its regulatory filings for the approval of exa-cel, its sickle cell disease and beta-thalassemia therapy, should be done before the end of Q1. While CRISPR will need to split the proceeds of any exa-cel sales with Vertex, commercializing the treatment would probably enable the company to become self-funding, which would alleviate the pressure of running out of money and also dramatically reduce the riskiness of an investment. That transition would be huge for shareholders.
Beyond that, it's in early clinical trials with three immuno-oncology programs that could one day treat lymphomas and solid tumors. Reporting favorable safety or efficacy results from those trials could easily catalyze higher stock prices, though unfavorable results could have the opposite effect. But with a product on the market, clinical trial stumbles wouldn't be nearly as painful for shareholders.
In sum, CRISPR Therapeutics is a great candidate for buying the dip. While it has a deck that's stacked with catalysts and plenty of cash on its books, the gyrations of the market over the last year have left the stock trading at a discount. But remember that for the moment, it's still a highly risky biotech that hasn't become self-sustaining, so don't bet the farm on its shares.
