CRISPR Therapeutics (CRSP 3.08%) has put itself on the map of the healthcare industry as a serious player in gene editing. Now that it has an approved treatment in Casgevy, there's undoubtedly going to be more of a spotlight on the company.
Gene-therapy treatments are growing in popularity, and for a larger healthcare company that is perhaps looking into getting into the business, it could be more attractive to simply buy CRISPR Therapeutics than to develop its own therapies.
Here's why CRISPR could be an attractive acquisition target, and what it would mean for investors if the company is bought out this year.
NASDAQ: CRSP
Key Data Points
CRISPR's valuation looks low
Although CRISPR's stock received some great news late last year with the approval of Casgevy, a one-time treatment for sickle cell disease it has been developing with Vertex Pharmaceuticals, the stock hasn't exactly been taking off since then.
CRISPR's valuation sits at around $4.8 billion, which seems incredibly low given that at its peak, Casgevy could generate $3.9 billion in annual revenue. The company will share in the profits on Casgevy with Vertex. But with the treatment costing $2.2 million, odds are it should bring in a healthy profit for both businesses.
The two companies are also hoping that it obtains approval as a treatment for transfusion-dependent beta thalassemia. News on that decision should come by the end of March.
Now that CRISPR's business looks to be in much better shape, it should attract a higher valuation, especially since the treatment could give the business a path to profitability. The company has incurred a net loss of $416 million over the past four quarters.
For a potential acquirer, CRISPR's modest valuation could make it a fairly low-cost option to get into the gene-editing business.
The company has an attractive balance sheet
When companies seek out potential acquisitions, the balance sheet is often one place that needs improvement. This is why you might sometimes see a company selling and offloading assets ahead of an acquisition. While an acquirer might like some aspects of the business, it might not want all of them, especially if it means the additional cash from a sale can help in reducing its debt.
In CRISPR's case, the company is well-funded, and it isn't carrying significant obligations on its books. As of Sept. 30, the biotech had cash and marketable securities worth more than $1.7 billion. That's nearly five times the amount of its total liabilities: $359 million.
CRISPR could pay off all of its liabilities, both short and long term, and still have more than $1 billion left in short-term liquid assets. For a potential acquirer, such a strong balance sheet is attractive.
What would a buyout mean for investors?
If a company does end up acquiring the CRISPR this year, there are one of two probable scenarios for investors.
One is that if the deal involves stock, investors can have the opportunity to own shares of a larger business. This can happen if it's an all-stock deal or a mix of cash and stock. If investors receive shares as part of the deal, it allows them to continue to potentially benefit from CRISPR's growth. They could also decide to cash out and sell their shares. But given the volatility of the stock market, the potential profits might not be as lucrative as in an all-cash deal.
If the deal involves cash, then shareholders could be banking on a big payday coming their way. Depending on the premium an acquirer could pay, shareholders might get a much higher return on their investment than if they sold their investment prior to the acquisition.
The downside of an all-cash deal, however, is that investors would have to buy shares of the acquiring company to still profit from CRISPR's growth -- assuming the acquirer is a public company. If it's not possible to invest in the new or merged business, that means long-term investors would effectively see their gains from investing in CRISPR capped.
Should you invest in CRISPR stock today?
CRISPR looks like a fantastic growth stock to invest in. It's a lot less risky now that it has an approved gene therapy in its portfolio, and its strong balance sheet also ensures the company can fund more growth initiatives without worrying that it's going to run out of cash anytime soon. There's some risk with the stock since the company isn't profitable, but the business does appear to be on a more positive trajectory.
Acquisitions can be difficult to predict, but regardless of whether CRISPR gets bought out this year, the stock remains a great buy today.
