Not many stocks are truly capable of generating a 1,000% return on investment within a reasonable time frame. Even so, a fair number of next-generation technology stocks have hit this lofty milestone over the years. In almost every case, the market woefully underestimated the company's core value proposition ahead of a key inflection point. A similar situation might be taking shape presently within the beaten-down gene-editing space.
For example, CRISPR Therapeutics (CRSP -1.35%) has failed to earn a premium valuation despite having a diverse pipeline full of star candidates, a first-rate balance sheet, and a major partnership with Vertex Pharmaceuticals. In an article published late last month, I broke down that gene editor's dynamic risk-to-reward profile, showing that its stock might be incredibly undervalued right now.
Here, I discuss the central investing thesis for its fellow CRISPR/Cas9 gene-editing specialist, Intellia Therapeutics (NTLA -1.67%). This biotech growth stock, too, stands out as a potential hidden gem.
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Intellia Therapeutics: Worth the wait
Intellia's stock is undeniably cheap. Its shares are trading at roughly 3 times its cash and cash equivalents at present, reflecting the fact that the market has placed little to no value on the company's diverse clinical pipeline.
Intellia's lead therapeutic candidates are NTLA-2001 for transthyretin (ATTR) amyloidosis, which it's developing in partnership with Regeneron Pharmaceuticals, and the wholly owned NTLA-2002 for hereditary angioedema. Those two alone are arguably worth a risk-adjusted market cap north of $4 billion right now. Yet Intellia's market cap currently stands at approximately $3.8 billion, despite the company's plans to begin human trials for multiple other early-stage candidates next year.
Why is the market so downbeat on Intellia? The core reason is that the company is still racking up sizable net losses on a quarterly basis ($103 million in the most recent quarter), and it will likely continue to do so for the next few years. It probably won't hit breakeven from a free-cash-flow standpoint until mid-2027, and that's under a best-case scenario. After all, its most advanced candidate, NTLA-2001, still has to pass muster in late-stage trials, get cleared by regulators, and then gain market acceptance by prescribers.
The market's shortsightedness, though, might represent a sizable opportunity for patient investors. The bottom line is that Intellia's gene-editing platform could be worth tens of billions in annual sales by the middle of the next decade. That's a tantalizing value proposition for a company that's barely in mid-cap territory at the time of this writing.
Potential upside
Analysts' average 12-month price target on Intellia is about double where it trades today, so its undervaluation isn't exactly news among Wall Street insiders. Their bull case centers around the forecast that NTLA-2001 and NTLA-2002 will both advance into late-stage testing at some point in 2024, and that the company will fulfill its promise to launch additional human trials for its other early-stage candidates. All of those near-term objectives are achievable.
Longer term, Intellia's stock could turn out to be a bona fide wealth escalator. In the broad sense, gene editing via CRISPR/Cas9 appears poised to become a standard tool for treating genetically based human diseases. This process won't happen overnight, but this technology has made monumental strides in a decade's time. In another decade, pioneers like Intellia ought to benefit enormously from their ability to market effective treatments based on this powerful tool.
Can Intellia stock deliver 10X returns within 10 years? The idea is far from a pipe dream. Intellia, after all, is pursuing a variety of high-value indications with its CRISPR/Cas9 gene-editing platform. As mentioned above, its market cap now is around $3.8 billion. And based on historical valuation trends for companies in the biotech industry, Intellia would likely only have to hit around $4 billion in annual sales to garner a market cap of, say, $34 billion. That's not an outlandish sales target for a company developing potential cures for numerous life-threatening diseases.
