Investors looking for stocks that can make dramatic gains fairly quickly got what they wanted from CRISPR Therapeutics (CRSP 0.34%) this year. The stock is up more than 60% in 2023 after the company earned Food and Drug Administration (FDA) approval for its first treatment, Casgevy.
CRISPR Therapeutics is transitioning into a commercial-stage company. But new drug launches can be unpredictable, and Casgevy, which it developed with partner Vertex Pharmaceuticals (VRTX -0.06%), will be breaking a lot of new ground. After watching the stock rocket higher, investors are right to wonder if the gene-editing pioneer still has fuel in the tank for further gains, and if its shares are a smart buy right now.
Why CRISPR Therapeutics stock soared
On Dec. 8, the FDA approved Casgevy as a treatment for sickle cell disease. That condition occurs when individuals inherit from both parents faulty copies of the gene responsible for telling the body how to make hemoglobin, the protein in red blood cells that carries oxygen.
Faulty hemoglobin causes red blood cells to form a telltale sickle shape, and these misshapen cells cause extremely painful vaso-occlusive crises when they jam up tiny blood vessels. Casgevy is essentially a vial of a patient's own stem cells that have been genetically altered to correctly produce fetal hemoglobin permanently.
Plenty of circulating fetal hemoglobin appears to do the trick. The FDA approved Casgevy because during a clinical trial, 29 out of 31 evaluable patients went at least 12 months without experiencing a single vaso-occlusive crisis.
Reasons to buy
There are an estimated 16,000 people with sickle cell disease in the U.S. eligible for Casgevy who require a lot of monitoring and hospitalization in response to vaso-occlusive events. Despite an eye-popping list price of $2.2 million for a single administration of Casgevy, you could argue that it's a deal that health plan sponsors won't want to pass up. As CRISPR Therapeutics notes, the lifetime costs for managing sickle cell disease in a patient who has frequent vaso-occlusive events are estimated at between $4 million and $6 million.
First drug launches are highly unpredictable, but CRISPR Therapeutics' partner, Vertex Pharmaceuticals is highly skilled at selling high-priced therapies to patients with rare inherited diseases. The company's cystic fibrosis drugs are expected to generate $9.85 billion in sales this year.
Casgevy is the first treatment to emerge from CRISPR Therapeutics' pipeline, but it probably won't be the last. The company has two off-the-shelf cancer therapies in clinical trials.
It's also developing regenerative treatments for people with diabetes. Treatment with VCTX210 helped patients with type 1 diabetes produce insulin from new beta cells in their pancreas. Unfortunately, keeping their immune systems from attacking those new beta cells requires too much immunosuppression to make this candidate a viable treatment option. VCTX211 is an improved version that could alleviate the need for immunosuppression. CRISPR Therapeutics and Vertex are testing it in a clinical trial at the moment.
Image source: Getty Images.
Reasons to remain cautious
Health plan sponsors are accustomed to a pay-as-you-go model for drugs. Asking them to pay for long-term benefits up front is still a challenge that keeps sales of once-and-done treatments somewhat muted. Investors expecting more than $1 billion in annual sales of Casgevy within a few years of its launch will most likely be disappointed.
Also, Casgevy isn't the only new once-and-done gene therapy for sickle cell disease patients. On the same day it approved Casgevy, the FDA also approved Lyfgenia from Bluebird Bio (BLUE 1.13%).
Lyfgenia is also made from a patient's stem cells that have been altered to produce a properly functioning version of hemoglobin. I'd argue that Casgevy's clinical trial data is slightly better than Lyfgenia's. They're close enough, though, that they will compete for the same limited population of people born with hemoglobin issues.
A buy for some but not all
Casgevy's approval triggered a $200 million milestone payment from its development and marketing partner, but further cash flows are hard to predict. Vertex Pharmaceuticals will record sales and expenses associated with Casgevy, then set aside a 40% share of net profits or losses for CRISPR Therapeutics.
Expectations for CRISPR Therapeutics' are already high. The company boasts a $5.2 billion market cap, but that could come crashing down if Casgevy's launch isn't a successful one.
CRISPR Therapeutics finished September with about $1.7 billion in cash and marketable securities on its books after burning through $234 million in the first nine months of 2023.
With Casgevy sales likely to remain muted, investors can expect the company's large cash cushion to keep shrinking. Successes in oncology and diabetes could lead to market-beating gains from this stock down the road, but those are long shots. If your risk tolerance isn't sky high, buying this stock at its currently inflated valuation isn't a great idea.
