Vertex Pharmaceuticals (VRTX -0.06%) and CRISPR Therapeutics (CRSP 0.34%) both are approaching a crucial moment in their stories. The biotech companies are awaiting regulatory decisions for exa-cel, their potential blockbuster treatment for blood disorders.
For Vertex, this represents a first step beyond its cystic fibrosis (CF) specialty. For CRISPR, this represents the company's first commercialized product. So, a nod could be big for both companies. The U.S. Food and Drug Administration (FDA) aims to issue a decision on exa-cel for sickle cell disease in December and a decision on the candidate for beta thalassemia in March. Now the question is: Should you buy shares of these innovative biotech companies?
A functional cure for blood disorders
Let's start with a closer look at the blood disorders program. Exa-cel uses CRISPR's gene editing technology to offer a potential functional cure for both sickle cell disease and beta thalassemia. The technique involves cutting DNA at a particular spot so that a natural repair process will take place.
Clinical trials have shown impressive results for both illnesses. In sickle cell, more than 94% of patients have remained free of painful crises typical of the disease for at least a year. And in beta thalassemia, more than 88% spent at least that amount of time without the need for blood transfusions.
If approved, exa-cel could generate $1.7 billion in sales by 2028, according to Evaluate Pharma. Vertex takes 60% of the profits, according to terms of the partnership, leaving CRISPR with 40%.
Let's consider what an approval means for each company. I'll start with Vertex. This biotech has become the global leader in CF, bringing in billions of dollars annually in revenue and profit. But investors are eager to see the company successfully expand beyond this program. Exa-cel could be the big opportunity, even if its contribution to earnings should come in lower than that of the CF products. Vertex's big blockbuster, Trikafta, generated $7.6 billion in sales last year.
So, exa-cel could prove to the investment community that Vertex has what it takes to become a biotech giant, working in various therapeutic areas. Vertex stock already has advanced 22% this year, and this may reflect a potential exa-cel approval. But exa-cel sales and the advancement of other non-CF programs over the next couple of years -- a pain management candidate is in late-stage trials -- could give investors solid reasons to buy Vertex shares. And that could boost the stock over the long term.
A first commercialized product
The success of exa-cel is key for CRISPR too. As mentioned above, exa-cel would be the biotech's first commercialized product. And that means it would allow CRISPR to start generating product revenue, obviously an important step forward.
But there's another reason an approval could be excellent news for CRISPR. Since exa-cel uses CRISPR's gene editing, a regulatory nod may be seen as a vote of confidence in that technology. This is positive because the biotech uses the technique across its pipeline. In fact, CRISPR has another potential product waiting in the wings, an immuno-oncology candidate involved in a trial that could support a regulatory submission.
Does this mean exa-cel makes Vertex and CRISPR buys right now? Well, exa-cel clearly represents a possible catalyst for earnings and share performance down the road. That's positive.
And both companies also offer us other reasons to be enthusiastic. For instance, Vertex already is bringing in billions in earnings and is set to maintain its leadership in CF well into the next decade. And CRISPR's technology could lead to additional key products over time as well as licensing opportunities to add to revenue. (Vertex already has licensed CRISPR's technology for its type 1 diabetes program.).
Is exa-cel regulatory approval priced in?
Both stocks have climbed so far this year. It's possible an exa-cel approval is priced in and that these biotechs won't keep up the pace in the second half of the year. But that's OK. They still have plenty of room to run over time. In spite of gains, Vertex trades at only 23 times forward earnings estimates. And CRISPR trades much lower than past levels -- when we had a whole lot less visibility on the company's future.
Which stock is right for you? That depends on your comfort with risk. If you're a cautious investor, you'll like Vertex because of its solid CF business and track record of blockbuster revenue. If you're more aggressive, you may opt for CRISPR, to get in on this up-and-coming star during its early days.
And if you're middle of the road when it comes to risk, you might want to invest in both of these players: to bet not only on exa-cel, but on the potential of many other possible products down the road.
