If you're a biotech investor, you've probably heard of both Recursion Pharmaceuticals (RXRX -7.57%) and CRISPR Therapeutics, (CRSP -3.19%) two of the most followed biotechs this year. Both companies could one day lead the sector thanks to their innovative pipeline programs and attractiveness to collaborators.
However, both stocks have had a rough go of it lately, falling sharply over the past 12 months even as the overall stock market has gained. So which has a better chance of going on to recover and reward its investors now?
Recursion: The stock is flying, but its future is less clear
Recursion is near the start of its growth story. In case you're not familiar, its business has three segments, but only two have any chance of yielding revenue in the near term.
The company's artificial intelligence (AI)-enabled drug discovery platform aims to empower biopharmas like itself to decrease their research and development (R&D) costs and timelines by helping them to pick the best leads to investigate, hopefully saving them time and money in the process. It's teaming up with Nvidia to refine its platform, picking up a $50 million equity investment in the process.
That should make its research services division a more appealing collaborator, driving more collaborations and revenue, and it'll also make its corpus of data and its AI technologies more attractive for potential licensees, which is the company's third segment. And it's via those collaborations and those licensing fees that the biotech hopes to keep the lights on while it develops its own therapy candidates.
But because of how early-stage its pipeline is, it won't be bringing in any sales for quite some time. It only brought in $11 million in the second quarter. So far, it hasn't experienced many takers looking to license its data or its platform. Still, it has plenty of support from moneyed collaborators like Roche and Bayer, so it has time to build up and demonstrate the power of its platform.
One challenge with this stock is that it's risky. Its clinical trials may fail. Even if it succeeds in getting a drug to market, the fact that most of its programs aim to treat rare diseases means that it could still struggle to become profitable.
CRISPR: A strong balance sheet and near-term catalysts
Much like Recursion Pharmaceuticals, CRISPR Therapeutics develops medicines to treat rare illnesses. Its lead candidate, a cell therapy called exa-cel, is currently under regulatory review for its safety and efficacy in treating both sickle cell disease (SCD) and beta thalassemia, a pair of rare blood diseases. By the close of the first quarter of 2024, it could have approvals in hand for both indications, which would mean that it'd be reporting significant revenue from sales of the drug by the start of the next quarter afterward.
Also like Recursion, its collaborator Vertex Pharmaceuticals positions it strongly for success with exa-cel as well as with its other programs, not to mention leaving it with a favorable balance sheet. Collaborations are also how it managed to generate $100 million in revenue in its fiscal Q1 of 2023.
If exa-cel gets approved for both of its possible indications, there is a very good chance that the biotech will not need to raise additional capital in the form of new debt for years to come. And that'll remain true even if it takes more than a year or so for sales to ramp up to the point that the company is profitable, as it currently has nearly $2 billion in cash, marketable securities, and equivalents.
CRISPR is also exposed to the risk of its clinical trials failing. If regulators rebuff one or both of its attempts at commercializing exa-cel, it'll be bad for the stock, though the company has more than enough money to try to troubleshoot and come back for another attempt. There is also a significant risk that competitors like Bluebird Bio will succeed in their attempts to contest both of exa-cel's markets, thereby putting pressure on margins.
Nonetheless, overall CRISPR Therapeutics is more likely to be the better growth stock in the near term, because it actually has a chance of posting big growth from sales of its medicine, unlike Recursion. There's nothing wrong with Recursion per se, it's just that there's not much evidence that its research services and licensing segments are going to be able to drive top-line growth, never mind profits. In a year or so, that could change, so don't write it off just yet.