The biotech recently became a commercial-stage company.
Gene editing, in which researchers manipulate patients’ genetic code to treat genetic illnesses, has been around for a couple of decades. But it has made incredible progress in the past five years. CRISPR Therapeutics (CRSP -6.82%), a mid-cap biotech, has proven to be one of the more exciting players in this promising area.
The company’s progress has not delivered strong returns in the past half-decade — CRISPR Therapeutics has underperformed the market in this period. That said, there is a lot to like about the biotech. In fact, it could potentially be a millionaire-maker stock. Here’s why.
Innovation pays off
Companies that turn their shareholders into millionaires don’t do so overnight. It takes years — or decades — of solid performances. Some biotech companies have been able to pull that off. One thing in common was their ability to develop breakthrough medicines fairly regularly, at least by the industry’s standards, which might be once every five to 10 years.
Drugs that go on to generate more than $1 billion in annual sales are, in fact, a rare breed — and CRISPR Therapeutics will need to produce several in the coming years to become a millionaire-maker. It’s already well on its way. The company was formed in 2013, had its initial public offering (IPO) in 2016, and last year, earned approval for Casgevy, a gene-editing treatment for two blood-related disorders: sickle cell disease and transfusion-dependent beta-thalassemia.
Casgevy, developed with the collaboration of Vertex Pharmaceuticals, unquestionably has blockbuster potential. Its price in the U.S. is $2.2 million. Its total addressable market includes about 35,000 patients in the U.S. and Europe and an additional 23,000 in Saudi Arabia and Bahrain, where it is also approved. Furthermore, though it will face competition from Bluebird Bio in the U.S., there are no competing gene-editing therapies in Europe and the Middle East.
It took CRISPR Therapeutics about 10 years after it was created to earn approval for Casgevy, which is the first CRISPR-based gene-editing therapy to earn the green light. The next breakthrough shouldn’t take that long; the company now has far more experience than it did 11 years ago.
It also has more funds, and five products in clinical trials. These include a pair of potential cancer treatments, two more therapies being investigated to treat various cardiovascular diseases, and one being developed as a potential therapy for type 1 diabetes. CRISPR Therapeutics has several more candidates in preclinical testing, not to mention a world of potential opportunities.
There are more than 7,000 rare diseases that affect between 25 million and 30 million Americans. CRISPR Therapeutics’ goal is to develop transformative gene-editing therapies, especially where there is a vast need — so there’s no shortage of potential targets.
CRSP Total Return Level data by YCharts.
There are no certainties
CRISPR Therapeutics shares have crushed the market since its IPO, delivering an exceptional compound annual growth rate (CAGR) of 20.1%. A lot has changed since then. The company is now a more mature, mid-cap biotech with a market cap of $4.79 billion, and it’s harder to produce such returns at these levels; it will only get even more challenging. Also, the market is less welcoming to unprofitable growth-oriented stocks than it was in 2016 for a variety of reasons, including changes in economic circumstances (such as higher interest rates).
It’s unlikely that CRISPR Therapeutics will produce a CAGR above 20% in the next decade, but it doesn’t need to for it to become a millionaire-maker. The company could pull it off by leading its current programs through the clinical and regulatory maze that awaits before they can earn approval. The biotech should also turn a profit in the next five years or so — and maintain solid revenue and earnings growth after that — largely thanks to the windfall from Casgevy. And, of course, its pipeline should produce brand-new and exciting investigational gene-editing therapies.
If CRISPR Therapeutics can do enough of these things, millionaire-maker status is well within its reach. However, there are also plenty of risks to consider, including the potential failure of its leading pipeline candidates.
So, what should investors do? In my view, CRISPR Therapeutics’ shares are worth buying and holding onto for a while. Its innovative abilities and pipeline make it an exciting long-term option. Still, I’d suggest initiating a relatively small position, as a lot could go wrong with the company. There’s unquestionably massive, millionaire-making upside potential here. But there’s plenty of downside potential too.
Prosper Junior Bakiny has positions in Vertex Pharmaceuticals. The Motley Fool has positions in and recommends CRISPR Therapeutics and Vertex Pharmaceuticals. The Motley Fool recommends Bluebird Bio. The Motley Fool has a disclosure policy.