CRISPR Therapeutics (CRSP 0.34%) is one of the most innovative biotechs out there, and that means there's no shortage of reasons to consider buying its stock. But much like its peers, it's a high-risk investment until it gets its first medicine out the door and onto the market.
So, is this is a compelling opportunity for your portfolio or a potential source of fool's gold? Let's examine a trio of reasons to buy this stock, and one key reason to consider selling it if you're a holder right now.
1. It's working on some of the most advanced therapies
CRISPR's cell therapies are incredibly sophisticated even though they're still in clinical trials. And in biotech, having a more sophisticated approach is often the only way to ensure that a medicine performs better than the alternatives that are already on the market -- assuming there's a way to treat the target condition with a less-complicated approach at all.
In particular, CRISPR's regenerative medicine pipeline is worth understanding. Derived from pluripotent stem cells, which can be differentiated into a variety of different cell types, its therapies could one day treat conditions like diabetes by giving patients transfusions of the type of cells that are dysfunctional in their disease.
For example, VCTX211, its most advanced clinical-stage diabetes program, features a cell therapy product with a total of six edits to its genome. Three of those edits render the engineered cells undetectable to the patient's immune system, thereby prolonging their working lifetime and guarding against certain serious side effects. The other three edits protect the therapy cells from ambient physiological stressors and detrimental chemical signals, which also help to keep them healthier and more functional at their newly engineered task in the patient's body.
A mere five years ago, creating a therapy cell with more than one edit was incredibly difficult, and 10 years ago it was wholly unthinkable. So this biotech is on the forefront of innovation in its niche. And it won't be slowing down its efforts anytime soon. Add those two thoughts together, and you've got a solid reason to buy the stock.
2. It could have a medicine approved before year-end
CRISPR Therapeutics is aiming for two approvals within the next 12 months. Both would be for its gene therapy exa-cel, which is being developed for both sickle cell disease and beta thalassemia. On Dec. 8, regulators at the Food and Drug Administration (FDA) will vote on whether to approve exa-cel's application for sickle cell disease; on March 30 of next year the agency will take up the issue of whether it's safe and effective for use in beta thalassemia. Both of those decisions are guaranteed to be major catalysts for the stock.
Given that the company's clinical trials have gone off without a hitch so far in both of the desired indications, the odds are that regulators will grant it the green light, though nothing is completely certain. If it does score both approvals, the biotech will start to generate sales revenue for the first time in 2024. That could easily send the stock climbing further. And thus the expected approvals constitute another big reason to buy the stock soon.
3. Its balance sheet is enviably strong
For pre-revenue biotech businesses, the balance sheet is a critical consideration. Biotechs need plenty of cash to pay for research and development (R&D) costs. If they're indebted, it can be quite hard to raise more money without a working product in hand. So shareholders typically bear the brunt of fundraising shortfalls when companies issue more stock, which constitutes a risk.
But not with CRISPR Therapeutics. It doesn't have any long-term debt, and it has more than $344 million in cash plus more than $1.5 billion in short-term investments that are readily convertible into cash. In contrast, for 2022 its R&D expenses were only around $102 million. Therefore, it has more than enough money on hand to continue developing medicines at its current rate.
As a bonus, it has enough capital to acquire promising competitors if it so chooses. While management hasn't seemed to be very interested in that angle so far, that could well change after exa-cel hits the market and starts to make money. And thus the company's strong balance sheet is yet another reason to think about buying this stock.
4. One reason to sell: valuation
The biggest risk associated with CRISPR Therapeutics stock right now is its valuation. With a price-to-earnings (P/E) ratio of 124, it's clear that the market is pricing its shares at a premium with the assumption that exa-cel is going to be commercialized soon. If that doesn't happen, or if there's a delay of some kind, shareholders are going to be in for some pain. And if that prospect scares you, it's reasonable to sell -- though perhaps a bit premature as there's no telling whether the valuation will be more reasonable if revenue starts rolling in.
But it's important to remember that a stock's valuation alone is unlikely to cause a decline. So unless there's a negative catalyst, it's best not to fixate on the high cost for this company's shares right now. It could end up being justified relatively soon.
