Cathie Wood has made a remarkable comeback in 2023 after a disappointing year for her Ark Innovation ETF in 2022. The fund has dramatically outperformed the broader markets this year, as investors flock to buy undervalued tech and biotech stocks.
Nonetheless, some of Wood's biggest holdings still screen as "significantly undervalued," despite their sterling performance through the first seven months of 2023.
The gene-editing pioneer Crispr Therapeutics (CRSP 0.34%), for example, stands out as a potential gold mine for risk-tolerant investors. Here's why I plan on buying more of this incredibly undervalued biotech stock this month.
Crispr Therapeutics: A play on the future of human medicine
As of Aug. 1, Crispr Therapeutics was Ark Innovation's 13th largest holding. Wood's decision to make this gene-editing stock a top Ark Innovation holding is likely rooted in the biotech's steady progress in the clinic and its healthy balance sheet, as well as its broader pipeline of long-term value drivers.
Digging into the details, Crispr Therapeutics is in the process of making history right now. Recently, Crispr and partner Vertex Pharmaceuticals submitted global regulatory filings for their CRISPR/Cas9 gene-edited product candidate exa-cel as a functional cure for sickle-cell disease (SCD) and transfusion-dependent beta-thalassemia (TDT).
The U.S. Food and Drug Administration is expected to make a call on the therapy's SCD indication this December. The agency will subsequently hand down its decision on exa-cel's TDT indication by next March. Wall Street analysts think exa-cel harbors blockbuster sales potential (greater than $1 billion in annual sales), despite SCD and TDT both becoming increasingly competitive settings in recent times.
In addition to exa-cel, Crispr Therapeutics has a rich pipeline of other gene-edited cell therapies that target various types of cancer and chronic diseases. The company is using its CRISPR/Cas9 technology to engineer immune cells that can fight tumors, as well as to create regenerative medicine products that can restore the function of damaged organs. For example, Crispr Therapeutics is collaborating with ViaCyte, a subsidiary of Vertex Pharmaceuticals, to develop beta cell replacement therapies for patients living with diabetes.
Crispr Therapeutics is also exploring the possibility of using gene editing to treat rare and devastating diseases that have few treatment options. Specifically, the biotech is conducting preclinical research on gene-edited therapies for conditions such as amyotrophic lateral sclerosis, Friedreich's ataxia, and hemophilia. These novel therapies could potentially offer life-changing benefits to patients who suffer from these diseases.
Time to buy?
Crispr Therapeutics is currently valued at $4.24 billion. It had a cash position of approximately $2 billion at the end of the most recent quarter, a productive partnership with Vertex, a burgeoning lineup of anticancer cell therapies, and numerous preclinical/early-stage candidates for conditions that qualify as "areas of high unmet medical need." Crispr Therapeutic's platform isn't completely de-risked yet, but one or more regulatory approvals for exa-cel would likely reassure the market that this cutting-edge biotech is indeed legit.
The biotech does come with some unique risk factors, however. To wit, Crispr Therapeutic's platform is logistically burdensome for both payers and prescribers, third-party payers may be slow to offer favorable reimbursement terms for what amounts to a truly novel therapy (assuming exa-cel is indeed approved), and competition in most of its lead therapeutic areas promises to be sturdy, to put it mildly. So in short, there are some very solid reasons behind Crispr's rather meager valuation.
However, the biotech's shares do have a real shot at delivering market-beating returns on capital over the next 10 years or so. The gene editor probably won't hit on most of these high-value indications, but a few successes ought to be more than enough to power Crispr's stock higher over the long term.
Given the biotech's rapid development of exa-cel and ability to attract a top biopharma partner in Vertex, exa-cel is highly unlikely to be Crispr's last clinical success. So with a pipeline chock-full of value and a bargain-basement valuation, this Cathie Wood stock comes across as a "no-brainer" buy right now.
