Graphic Source: CRISPR Therapeutics, Inc.
Introduction: What is CRISPR Therapeutics, Inc.?
CRISPR Therapeutics (NASDAQ:CRSP) is a gene-editing company focused on the development and versatile application of CRISPR/Cas9 therapeutics, a special brand of therapeutics used for precision genome editing by applying a viral defense mechanism from bacteria to regulate, disrupt, or correct genes related to key diseases. CRSP is currently targeting disease areas, including hemoglobinopathies, oncology, and regenerative medicines.
Founded in 2013 in Switzerland, CRSP has since grown to over 304 employees producing relatively inconsistent revenues ranging from $3M in 2018 to $290M in 2019 with expectations for 2020 at $6.7M. Their lead candidate is CTX001, an investigational autologous gene-edited hematopoietic stem cell therapy developed in partnership with Vertex Pharmaceuticals (NASDAQ:VRTX) for treating transfusion-dependent beta-thalassemia (“TDT”) and severe sickle cell disease (“SCD”).
Products: CRSP’s pipeline consists of 9 therapeutics: 4 in the clinical phase and 5 in the research phase. Of the 4 clinical phase therapeutics, the first targets TDT and SCD (mentioned above: CTX001), while the 3 others fall into immuno-oncology covering: CD19+ malignancies (Product: CTX110), multiple myeloma (CTX120) and solid tumors and hematologic malignancies (CTX130). All immuno-oncology therapeutics are allogeneic CRISPR/Cas9 gene-edited CAR-T cell therapies wholly owned by CRISPR Therapeutics with data updates typically every 6 months.
Customers/market: For CRSP’s clinical phase pipeline, the total estimated 2022 global market potential is $220B with an average market size for each disease of $36.7B growing at an average 15.2% CAGR (median market: $13.3B | CAGR 10.9%). The largest market is Solid Tumors, at a 2022 estimated size of $145B (8.1% CAGR), and the highest CAGR market CAR T/CD19+ market at a 34.5% CAGR. For CTX001, the lead candidate, the target market can be broken down into the TDT market at very roughly $1.8B with a 10.8% CAGR and the SCD market at $4.1B with an 11% CAGR by 2022.
Management: Many are now familiar with co-founder Dr. Emmanuelle Charpentier, who in 2020 under much-debated circumstances co-received the Nobel Prize in Chemistry for her work with developing the CRISPR/Cas9 genetic scissors, the foundation of CRSP’s therapeutics today. In addition to her role now as Scientific Advisory Board Member, CRSP has a variety of other accomplished leaders.
CEO: Dr. Samarth Kulkarni has served as CEO (covering long-term strategy) since December of 2017 when he was promoted from President and Chief Business Officer. Before CRSP, he was a Partner at McKinsey & Company (MCK) co-leading the biotech practice. His specialties are in strategy and operations, and he has a Ph.D. in Bioengineering and Nanotechnology.
Share Price Change under his leadership (Dec. 2017 – Present): 499% | CAGR: ca 71%.
President/Chairman: Dr. Rodger Novak, a co-founder with Charpentier and Shaun Foy in 2013, has served as CEO until 2017 and since, as President (day-to-day operations) and Chairman. Rodger is an experienced biotech/pharma executive having served in leadership positions (primarily covering infectious diseases and related) at Sanofi and Novartis. He co-also founded Nabriva Therapeutics (NASDAQ:NBRV). His specialty is in translating scientific technologies into pharmaceutical products. Before all else, he was a professor of Microbiology at the Vienna BioCenter (Austria).
Other management updates:
- Pablo Cagnoni, CEO of Rubius Therapeutics (RUBY) resigned from the Board of Directors to focus on other commitments. (Feb. 2020)
- Doug Treco, Ph.D. was elected to the Board. He co-founded Ra Pharmaceuticals (RARX) in 2008 and has been their CEO and a member of their Board of Directors since inception. (Feb. 2020)
Strategy: In terms of strategy, CRSP stated they intend to use their scientific expertise, together with their unique platform to bring about a new class of highly active and potentially curative therapies for specialty patients to which biopharmaceutical approaches have limited exposure. CRSP has been investing heavily in its long-term platform.
Additionally, CRSP seems to be taking the lead in most of its partnerships, particularly the ViaCyte partnership evidenced by the structure of their collaboration agreements and payments due to ViaCyte. Investors also saw last year CRSP buying Bayer’s (OTCPK:BAYZF) control of Casebia and expanding their internal clinical pipeline with internal funds (hence the cash stockpile). CRSP is acting as the all-or-nothing winner. It is a unique approach that expresses internal confidence in their technology and financial capabilities.
Financial position: CRSP received new upfront payments from Vertex in 2019 boosting revenues to $290M, which are not expected to be repeat. The estimated decline in 2020 brings revenue to $6.7M (-98%). 2019 was the only year in the company’s history to achieve net income ($67M), whereas the 3-year average net loss is -$56M. For 1H 2020, net losses are already -$149M. CRSP operates with a strong cash cushion of $945M at 1H 2020, enough to cover the -$42M 3-year average CFO+CAPEX expenditures for 22+ years. Total debt as of 1H 2020 is a manageable $50M ($40M in capital leases). Accounts payable are a small $13M.
Investment thesis: Although most of CRSP’s products are years away from revenue-generating outside of milestone payments, the constant updates from clinical trials offer a compelling progress report for the long position. Investors must be willing to pay for the premium that exists currently, but with CRISPR being in the public spotlight, investor interest may increase. The real question remains if they are truly the most advanced CRISPR position, though clearly not discounted. Operational strategy is a key selling point with the new McKinsey-inherited leadership, but science is still the core of any biotech investment. Below will be an expounded analysis of what their therapeutics are, but it seems to be that CRSP has a compelling niche for the long-term investor, given their 7+ years of experience with this new biotechnology. Therefore, with the Vertex partnership, enough cash to keep steady progress, and stable operational-based leadership, CRSP is a “buy”.
Pipeline and partnerships:
CRSP’s pipeline consists of 9 therapeutics: 4 clinical phases and 5 in the research phase. CRSP is supported by 1 strong partnership and 1 weaker partnership including:
Vertex partnership (est. 2015) for clinical analysis of TDT and SCD with a research phase target of cystic fibrosis (“CF”) is based around co-developing CTX001 (since Dec. 2017). The partnership did expand in June 2019 for Duchenne muscular dystrophy (“DMD”) and myotonic dystrophy type 1, which adds further upside potential for CRSP.
In 2015, CRSP received a $75M upfront payment and in 2017 received $7M and, thereafter, a low-seven-digit milestone payment for second patient dosing related to TDT and SCD. Looking forward, CRSP is eligible for up to $420M for further milestones and product-sales royalties.
In 2019, after the new collaboration agreement was established for DMD and myotonic dystrophy type 1 (“DM1”), CRSP has received an upfront payment of $175M with eligible milestone payments up to $825M. Tiered royalties on product sales are also available. The DMD program makes Vertex responsible for R&D, manufacturing, and commercialization. For DM1, CRSP will cover RNA research with Vertex responsible for all other costs. After DM1 IND filing, CRSP retains the option to co-develop/co-commercialize all DM1 products but must forgo milestone payments/royalties and cover 50% of R&D costs incurred by Vertex. Similar amendments were made to the 2015 agreement. In Oct. 2019, Vertex accepted the right to exclusively license the three remaining options granted under their 2015 agreement, resulting in CRSP receiving a $30M 4Q 2019 payment. CRSP also received a milestone $25M payment in 2Q 2020. At 1H 2020, CRSP had $11.8M of non-current deferred revenue related to Vertex.
ViaCyte partnership (est. Sep 2018) for diabetes through gene-edited allogeneic stem cell therapies. A key aspect of this partnership is ViaCyte’s stem cell capabilities and CRSP’s gene-editing capabilities to enable beta-cell replacement without the need for immune system suppression. After successful completion of the studies proving verification of developing the immune-evasive stem cell line, CRSP and ViaCyte will jointly be responsible for further development and commercialization, globally. The partnership entitled ViaCyte to $16.2M in payments for participating which CRSP recognized as $15M in R&D expense and $1.2M in other expenses. The expected partnership term is in force for 5.5+ years and obligates both parties to jointly develop the research plan with each party responsible for their research costs.
Bayer partnership (JV est. 2015) was terminated in 4Q 2019 which included Casebia Therapeutics and focused on treating genetic causes related to bleeding disorders and autoimmune diseases, amongst others. CRSP retained full-ownership of Casebia and Bayer retained the right to co-develop two therapeutics related to autoimmune disorders, eye disorders, and hemophilia A disorders with exclusive licenses; termed the “2019 Option Agreements”.
The clinical phase therapeutics of CRSP will be outlined below.
Graphic Source: CRISPR Therapeutics Investor Presentation (Sep 2020)
Therapeutic 1: CTX001 is CRSP’s lead candidate targeting TDT and severe SCD through an investigational autologous gene-edited hematopoietic stem cell therapy. It is being co-developed by Vertex Pharmaceuticals.
TDT: CTX001 is currently in a Phase 1/2 open-label clinical trial (CLIMB THAL-111) for transfusion-dependent β-thalassemia. The study aims to assess safety and efficacy for single dosages of CTX001 in a 12-35-year-old population with TDT. In 4Q 2019, Vertex & CRSP expanded the TDT patient population to include beta 0/beta 0 subtypes with the first two severe patients indicating successful dosing and engraftment. The study is designed for up 45 patients and aims to follow them for a duration of two years post-infusion with 6-month investor updates. CTX001 has received the Regenerative Medicine Advanced Therapy (“RMAT”), fast-track, and orphan drug designations (+European Commission) by the FDA for treating TDT. Preliminary clinical data was released in 4Q 2019, and in June 2020, their 15 months of follow-up data were also released in the ongoing study.
SCD: CTX001 is also currently in a Phase 1/2 open-label clinical trial (CLIMB SCD-121) for severe sickle cell disease testing safety and efficacy for single dosages of CTX001 in an older patient population than TDT (18-35). Similar to CLIMB THAL-111, the first two patients were treated sequentially then expanded for up to 45 concurrent patients for a 2-year following. CTX001 for SCD has also received the same designations as for TDT with the same data publication dates but in June releasing only 9 months of follow-up data.
- bluebird bio (BLUE) in Jan. 2020 announced the launch of their competing gene-therapy, Zynteglo, for TDT with SCD precedence set in Germany.
- Novartis started trials as well
- It can be difficult to gain a foothold if products are 3-4 years behind competitors (the first 2 movers will capture the market) – CEO of CRSP from the September 2020 Chardan Conference Call
Therapeutic 2: CTX110 is CRSP’s lead candidate amongst their wholly-owned CAR-T therapies, which is a gene-edited allogeneic CAR-T therapy targeting CD19 in CD19+ malignancies cases. It’s currently in a Phase 1 study focused on safety and efficacy (“S&E”) in the treatment of relapsed/refractory B-cell malignancies. The study is designed for up to 131 patients on a multi-dose level.
Therapeutic 3: CTX120 is another gene-edited allogeneic CAR-T therapy but targeting B-cell maturation antigen. CTX120 is in a Phase 1 S&E study for treating relapsed/refractory(“R&R”) multiple myeloma. It is also a multi-center open-label trial but designed for up to 88 patients also on a multi-dose level investigation.
Therapeutic 4: CTX130 is CRSP’s other CAR-T therapy with a target of CD70, the antigen expressed on solid-tumors and hematologic malignancies (study’s target). The treatment is developed around solid-tumors (e.g. renal cell carcinoma) and T/B-cell hematologic malignancies. CRSP is currently running two independent Phase 1 S&E studies for CTX130 treating R&R renal cell carcinoma and other types of lymphoma. The first Phase 1 study, focused on R&R renal cell carcinoma, is a multi-center open-label investigation with an enrollment of up to 95 patients on a multi-dose level, and the second study for various lymphomas is designed for up to 46 patients.
For further analysis of the science and clinical trial updates, see clinical.gov studies linked above, the September 2020 Investor presentation, or the Chardan Conference Call (Sep 2020).
Table Source: Self Created | Data Source: Seeking Alpha – CRSP
Revenue/cash flow: Financially, CRSP is far from stable on any operating metric (other than cash resources), but survived COVID with 80-90% productivity. Revenue is earned from collaboration agreements and their associated milestones. This swayed investors in 2019 when $289M (99.6% of 2019 Revenue) was recognized from the Vertex partnership expansion. This comprised revenue from the DMD and DM1 licenses worth $202M and from Vertex exercising their “Collaboration Target Options” worth $76.7M and a $6.7M payment for Vertex waving their fourth exclusive license. Neither CRSP nor the author expects this to continue in the next 1-2 years on any metric unless new partnerships are formed and upfront payments are made.
CRSP does have $12.6M in unearned revenue accounted for, but only 1M as current. Analysts do expect another $6.5M in revenue 2H 2020, but that only brings the tangible revenue benchmark to $6.7M for the year; however, the focus is on the viability of the therapeutics and not revenue benchmarks. It seems investors in CRSP think the same. New and old investors should focus on the results of clinical trials for the foundation of any investment thesis as accessing the Vertex milestone payments worth up $1.25B is directly the result of the Phase 1/2 CTX001 results and the Pre-IND research phase targeting DMD, DM1, and CF.
Balance sheet composition:
Table Source: Self Created | Data Source: Seeking Alpha – CRSP
Regarding the balance sheet, what stands out for investors is the high cash balance accumulated ($945M), particularly from Vertex, which is sufficient to finance the existing pipeline of 4-core products (3 internal, 1 external) and a few promising research phase therapeutics. The low-unearned revenue ($13M) enlightens investors towards the short term, but with little debt ($50M) and capital leases making up the majority portion ($44M), there isn’t a heavy draw on cash that shouldn’t produce an advancement towards reaching clinical phases. What is worrisome though is the desire for only 2 external partners (1-lead and 1-sub) which may be attributed to the McKinsey style leadership that in the author’s opinion does not foster the right developmental environment and deviates from the biotech norm. This may be a benefit in some investors’ eyes as the rewards will be substantial in 3-7 years, but it is a long-term position an investor must make.
Valuation: Hard to pin-point a price target, but here’s a rough estimate
Table Source: Self Created | Data Source: Seeking Alpha – CRSP
Firstly, any valuation on CRSP at this point is highly speculative, given the inconsistent milestone marks being met and their highly divergent payments with relatively new technology (though bluebird and Novartis are setting precedents). A revenue basis seems the most closely tied to reality and by using 11-14 analyst forecasts, an approximate valuation can be made as above with base-case (+2% upside) being far too conservative due to the reactions investors take upon clinical trial announcements and certainly not enough to lure any biotech investor.
An upside of 311% in an optimistic scenario seems more than compensatory to the risk, given the large cash cushion. However, a premium of 894x Sales is remarkable, but outlandishly inaccurate due to the fluctuations of the revenue position which does not compensate for the high potential of gaining market share in the $220B market their combined therapeutics target. In summary, the author will say that an upside potential exists but is uncertain beyond 30% in the short term (1-2 years).
Upcoming Catalysts (1-12 months):
- CTX001 additional data at end of 2020
- CTX110 early data by end of 2020 with the goal being safety without durability-focus until the later therapeutic level dosages
- CRSP expects to publish new data every 6 months for the next 2 years
In summary, CRSP is in a very unique position with such a large $945M cash cushion and a promising advancement on therapeutic development with cutting-edge technology and 7+years of experience in it, far greater than most enterprising biotechs looking into genome-editing. The partnership with Vertex, a leader in its sphere, does provide substantiation to the technology CRSP is applying, but with only two partnerships, it seems CRSP is either too early to the game or is not moving fast enough. CRSP does face competition, such as bluebird’s TDT gene-therapy; however, what CRSP is building should surpass competition if it can swiftly make it to market compensating investors that must withstand early-clinical phase results risk. CRSP has stated their platforms are worthy of reaching a $100B company status, but the author adds that investors must be patient. There are few companies that the author truly feels uncertain regarding valuing, and CRSP is one of them. Any realistic valuation would greatly underestimate the potential of CRSP, but by averaging the downside and the upside potential, a reasonable price target can be surmised from analyst expectations. Therefore, the author projects CRISPR Therapeutics as a “buy” for the long-term investor with an uncertain 2-year stock price target at $204.63 (+113% upside).
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.