On May 10, Cathie Wood's ARK Innovation ETF (ARKK 1.32%) made two sales of CRISPR Therapeutics (CRSP 4.48%) stock, dumping more than 249,500 shares. Given that the biotech looks to be on the cusp of commercializing its first medicine, the timing of Wood's move might seem a bit strange. Why trim her position right now, when holding on for just a bit longer could lead to dramatically larger gains?
As it turns out, there's probably a good reason why Wood sold her shares. And regardless of what she did, there are also a couple of good reasons why you should consider buying a few to call your own. Let's explore both of these issues to see if it'd make more sense for you to follow Wood's lead or to do the opposite.
NASDAQ: CRSP
Key Data Points
Why Cathie Wood sold
In case you're out of the loop, CRISPR Therapeutics is a clinical-stage biotech company that's using the CRISPR-Cas9 gene editing system that it's named after to create treatments for hereditary hematologic disorders, cancers, and even diabetes.
Its lead program, exa-cel, is currently being reviewed by regulators at the U.S. Food and Drug Administration (FDA), and if it gets approved, it will be used to treat both sickle cell disease and beta thalassemia, a pair of hereditary blood disorders. That means regulators will weigh in on whether to approve it for sale sometime around or before April 2024.
If exa-cel gets the green light, it'll hit the market as a functional cure for the two conditions it's seeking indications to treat. Thanks to that and its collaboration with the biopharma power player Vertex Pharmaceuticals, the business has a high probability of achieving commercial success with exa-cel. Wall Street analysts are already calling for it to bring in an average of $264.8 million in sales during 2024.
As of first-quarter 2023, CRISPR Therapeutics had $100 million in revenue from collaborations, which isn't repeatable, so registering pretty much any volume of revenue from sales of its medicine will result in massive growth. So why would Cathie Wood decide to sell right now, of all times?
NYSEMKT: ARKK
Key Data Points
First, even after the sales, CRISPR Therapeutics makes up about 3.4% of Wood's ARK ETF, which has an 8.7% stake in the biotech that's worth $423.9 million. So the ARK ETF still has a large position in the company.
Furthermore, despite Wood's pair of large sales, she was actually buying it on a weekly basis in April of this year, making eight purchases. And since its shares are up by 26% in the last three months, it's very likely that Wood made those sales to pocket some short-term gains. You probably shouldn't copy her trade unless you're aching to incur a capital gains tax burden (or register a loss to avoid taxation on other income), as it's clear Wood still has conviction that the stock is worth owning.
It's not as risky to invest as it used to be
Buying CRISPR Therapeutics stock right now means getting exposed to a few upcoming catalysts, which are more likely to be positive in nature than negative.
The biggest of those catalysts is the possibility of exa-cel getting approved next year, which would send the stock skyward if it happens. But before that, regulators could approve the biotech's application for a priority review of its exa-cel filing. That would cut the time to the final ruling by around four months, and it'd also signal to investors that regulators are broadly aligned with the company's idea about how much its therapy could be life-changing for patients.
Another catalyst could be when CRISPR reports its first quarter of exa-cel sales data, assuming it's approved. While there are plenty of projections about how much demand there's likely to be, there's nothing quite as tangible and market-moving as the actual revenue figures.
Of course, underperforming expectations is a significant risk to its share price, as is the chance of receiving a rebuke from regulators. But because the company is starting from essentially zero revenue, the effect of missing high expectations may not be as much as it might be with a more established business. And since it has plenty of programs in its pipeline, even a last-mile stumble with exa-cel is unlikely to be the end of the road.
Therefore, if you're in the market for a growth stock that's a bit less risky than the average biotech stock, and a lot less risky than just a year or two ago, CRISPR Therapeutics is a solid choice. Just don't get spooked out of your position if Cathie Wood decides to take some profits again.
