Gene-editing specialist CRISPR Therapeutics (CRSP 0.34%) has significantly lagged the market over the past year, but there are reasons to be optimistic regarding the company's future. The biotech seems to be nearing approval of exa-cel, a potential treatment for sickle cell disease (SCD) and transfusion-dependent beta-thalassemia (TDT) that it developed with Vertex Pharmaceuticals (VRTX -0.06%).
CRISPR Therapeutics is currently a clinical-stage biotech, so it will be a big deal if it can cross the finish line with exa-cel. But is that enough to make the company's shares a buy? To answer that, let's consider three other questions.
How likely is exa-cel's approval?
Let's discuss two main factors that determine whether regulatory agencies approve medicines. The first and most important is the data the drug produced in clinical trials. The treatment needs to prove safe and effective for the intended patient population. On this front, CRISPR Therapeutics shouldn't have too much to worry about. Exa-cel was effective at treating both SCD and TDT in clinical trials.
For the former, the gene-editing therapy eliminated painful side effects of the disease called vaso-occlusive crises in all 31 patients treated in a clinical trial. Meanwhile, 42 of 44 TDT patients became transfusion independent following treatment, with the remaining two seeing massive decreases in transfusion volume.
And while there were some serious adverse events (SAEs) associated with exa-cel that affected two patients with TDT (and none with SCD), that is to be expected of gene-editing therapies of this type. Moreover, all SAEs have resolved. Given that there are very few ways of treating SCD and TDT, and considering these illnesses are highly burdensome to patients, regulators likely won't want to deny exa-cel's approval for safety reasons unless there are very serious concerns. Rare SAEs that are consistent with therapies of a similar kind don't fall in that category.
A second factor that determines a treatment's approval is the application companies submit to regulatory bodies. There can sometimes be mistakes in these applications that delay approval. The good news here is that even if that happens to CRISPR Therapeutics, it wouldn't mean exa-cel is condemned never to make it to the market.
And while this tends to be more likely with smaller biotechs, CRISPR Therapeutics' collaboration with the much larger Vertex Pharmaceuticals significantly decreases this risk. The two partners have completed regulatory applications in the U.S. and Europe. In my view, there is an excellent chance they will earn the green light by early 2023.
What is exa-cel's market opportunity?
Patients with severe SCD spend between $4 million and $6 million on disease-related expenses over their lives. It's probably a similar story with TDT. Exa-cel should command a high price for that reason and, because as a gene-editing therapy, it is complex to manufacture and administer. CRISPR and Vertex plan to initially target 32,000 SCD and TDT patients in the U.S. and Europe.
Assuming a price of $2 million, that's a $64 billion opportunity. This price tag is by no means outrageous. Last year, Bluebird Bio earned approval for a gene-editing medicine called Zynteglo. The biotech set a price of $2.8 million. But will third-party payers want to cover these expensive medicines? After all, Bluebird exited the European market where Zynteglo had been approved precisely because of its inability to reach deals with third-party payers
Thankfully, CRISPR Therapeutics and Vertex Pharmaceuticals are anticipating this problem and have been discussing the matter with insurance companies and government programs such as Medicaid. The two partners will undoubtedly take into consideration the feedback from these payers in the pricing of exa-cel and in their launch strategy. Even if the cost is lower than $2 million, exa-cel's opportunity should be enormous.
Is CRISPR Therapeutics fairly valued?
It is challenging to value clinical-stage biotech stocks that have no products on the market. But let's assume the $64 billion opportunity for exa-cel is somewhat accurate. CRISPR Therapeutics and Vertex Pharmaceuticals aren't the only players here. In the U.S., they have to compete with Bluebird's Zynteglo and lovo-cel, a potential SCD gene-editing treatment that could earn approval relatively soon.
Vertex could tip the scales in its favor with its bigger pile of cash, which would help in the launch of the therapies. Along with CRISPR Therapeutics, it could grab 50% of this total, so $32 billion. Of course, that may take years. Also, per its agreement with Vertex, CRISPR Therapeutics will keep 40% of the profits associated with exa-cel.
Let's further assume profits of $12 billion, or $4.8 billion for CRISPR Therapeutics. And again, it will take some time to achieve this total. CRISPR Therapeutics' market capitalization is just $3.6 billion right now, and we aren't even considering the company's other programs, some of which look promising. Still, in my view, CRISPR Therapeutics is somewhat fairly valued although its shares will likely jump once exa-cel earns approval.
The sustained revenue it will generate thanks to this medicine should also allow it to push its other programs forward, leading to more important clinical and regulatory wins, thereby sending its stock price higher. In other words, there is some upside for CRISPR Therapeutics in the short term and still more over the mid-term. That, combined with CRISPR Therapeutics' innovative potential, makes the stock a buy.
