CRISPR Therapeutics Deserves its Lofty Valuation Even with Conservative Forecasts

CRISPR Therapeutics (CRSP), based in Switzerland, commands a lofty valuation when assessing near-term metrics, but the profit opportunity is considerable. The company is leading the way in gene therapy with a functional cure for SCD and TDT and, as the company moves to commercialization, investors are rightly weighing the potential adoption of the treatment. Personally, I’m bullish on the stock, and I believe that slow but steady patient adoption could eventually lead to billions of dollars of annual revenue from its first commercially available treatment.

CRISPR’s Recent Stock Underperformance

While I’m bullish on CRSP, let’s start by looking at the stock’s underperformance in 2024. Shares in CRISPR Therapeutics (the company was named after the gene-editing process it uses) have retreated from their 52-week high of around $91. In the run-up to the high, the stock momentum can be traced to the approval of CASGEVY, the company’s gene-editing therapy for Sickle Cell Disease (SCD) and Beta Thalassemia.

The approvals, which came first from the U.K. and then the FDA in the United States, weren’t just a milestone for CRISPR Therapeutics but the global medical community as a whole. CASGEVY, along with Bluebird Bio’s (BLUE) Lyfgenia, are the world’s first cell-based gene therapies. 

The stock market’s attention has now shifted to commercialization. So far investors been informed that 35 of a targeted 75 CASGEVY treatment centers are authorized, and that just 20 patients had seen their cells collected, which is the first stage of the treatment. 

Having followed this stock for some time, I’ve developed a conservatively optimistic take on the company, its technology, and the adoption of gene-editing therapies. At the current share price, and despite the forward price-to-sales ratio of 72.4x, I believe the stock is attractively valued. 

CRISPR’s Addressable Market 

SCD affects approximately 100,000 people in the United States, with more than 90% being non-Hispanic Black or African American. Globally, while estimates vary, it’s thought that somewhere between 20 and 25 million people suffer from SCD. It’s an incredibly cruel illness, where genetic mutations cause red blood cells to turn a sickle shape that can clump together causing blockages. These blockages, called vaso-occlusive episodes, range in severity of pain and duration. 

Many people suffer from a more acute form of the illness, causing regular hospitalization and necessitating blood transfusions. The life expectancy of those suffering from SCD is 20 years less than the average in the U.S.

The average cost of treating SCD during the lifetime of a patient is £1.7 million, but presumably, this could be much higher for those with the most severe forms of SCD. Notably, there are intangible costs including the mental toll of regular hospital visits. 

CASGEVY has also been approved for the treatment of beta thalassemia. It is estimated that approximately 1,300 people in the U.S. live with the most severe form of transfusion-dependent beta-thalassemia (TDT). Many more are thought to have the illness outside of the U.S. The lifetime cost of treating TDT is thought to be £5.7 million. 

CRISPR Faces Uptake Challenges

Despite the number of sufferers, there is plenty of debate as to how many people will elect to proceed with this treatment given the cost, the demanding nature of the therapy, and the length (only five years) of trials, which are ongoing. Nonetheless, I’m optimistic on the prospects.

Trial data has been very promising. In the latest trial data for SCD, 36 out of 39 evaluable patients were free from VOCs (Vaso-occlusive crisis) for at least 12 consecutive months, aligning with previous primary endpoint data. The mean VOC-free duration was 27.9 months, with a maximum of 54.8 months. Additionally, 38 out of 39 patients with at least 16 months of follow-up were free from VOC-related hospitalizations for at least 12 consecutive months, consistent with key secondary endpoint data.

For TDT, 49 out of 52 evaluable patients were transfusion-independent for at least 12 consecutive months, with a mean weighted hemoglobin of at least 9 g/dL, matching previous primary endpoint data. The mean duration of transfusion independence was 31 months, with a maximum of 59.4 months. All TDT patients with at least 16 months of follow-up were transfusion-free. 

However, it’s worth recognizing that CASGEVY is highly demanding on patients. The process can be physically, emotionally, and mentally challenging for patients, and includes a period of stem cell harvesting, chemotherapy to eliminate faulty stem cells, transfusion, and a final period of monitoring to ensure the body accepts the new cells and recovers. 

CRISPR’s Possible Uptake

Because of this demanding therapy processing, treatment uptake may be limited to those with TDT and the most severe forms of SCD. But what could this demand look like hypothetically?

Let’s conservatively estimate that 20% of U.S. patients initially might be eligible and willing to undergo the treatment. This gives us a United States potential SCD patient pool of 20,000 and a much smaller one for TDT. The treatment currently costs $2.2 million. Assuming 20,000 patients and $2.2 million per treatment, we can calculate an estimated $44 billion in potential revenue for the U.S. market alone. 

However, it’s crucial to note that this revenue would be spread out over many years. The treatment process is complex and time-consuming, involving cell collection, editing, and re-infusion. Additionally, healthcare systems and insurance companies need time to adapt to covering such expensive treatments. Interestingly, the global SCD opportunity is potentially much larger than just the U.S., but currently all treatment centers appear to be in the United States. 

Leading the Pack, But There is Competition

While I’m bullish on CRSP’s potential, there’s also the matter of competition. Bluebird Bio’s therapy is more expensive and is broadly considered to have a less favorable safety profile. However, Bluebird could still grab some market share. Beam Therapeutics (BEAM) is also trialing its SCD therapy using base editing – a potential progression on CRISPR techniques, but it may not be marketable for some years.

It’s worth noting that Vertex (VRTX) will receive 60% of the program profits, having funded 60% of the costs. So regardless of competition, CRISPR Therapeutics will not be alone in reaping financial reward for any successes.

CRISPR’s Pipeline Beyond CASGEVY

It’s important to recognize that CASGEVY is only the start. CRISPR Therapeutics has an extensive pipeline — arguably the most advanced in the sector — with therapies targeting a diverse array of genetic disorders, including cancers. That supports my bullish view for the company and stock.

These therapies could represent significant commercial opportunities, but it’s worth recognizing that, from a technological standpoint, treating other genetic disorders could prove more challenging than SCD. That’s because SCD is caused by a single gene mutation, making it relatively straightforward to target with gene therapy approaches. Moreover, SCD affects blood cells, which are relatively easy to access, modify, and reintroduce into the body. 

CRISPR Therapeutics has about $2 billion in cash and short-term investments, and is debt-free. Its cash burn rate has been decreasing, with the company having spent $169 million in the last year, down 55% from the previous period. This suggests a sizeable runaway, but perhaps does not adequately reflect the non-linear nature of development and commercialization costs. 

Do Analysts Rate CRSP a Buy?

Current forecasts point to just $55.6m in revenue for CRISPR in 2024, but the top-line estimates increase by nearly fivefold in 2025, and eventually up to $5.5 billion by 2030. That figure is the consensus from 11 analysts. This actually infers something in the region of 6,200 patients being treated with CASGEVY in 2030.

Forecasts suggest that CRISPR Therapeutics’ income statement will reach break-even in 2027. Then, by 2030, it is expected that the company will achieve earnings per share (EPS) of $22.8, inferring a forward price-to-earnings ratio of about ~2x at today’s stock price.

On TipRanks, CRSP comes in as a Moderate Buy based on 10 Buys, six Holds, and two Sell ratings assigned by analysts in the past three months. The average CRISPR Therapeutics stock price target is $73.65, implying more than 60% potential upside.

The Bottom Line on CRISPR Therapeutics

CRISPR trades with a significant discount to its average share price target, and I think that speaks to the firm’s technological primacy, strong pipeline, and advantageous commercial partnership with pharma giant Vertex. While it’s never easy to assess fair value for a pre-sales company in a nascent or emerging space, I believe conservative estimates for the adoption of CASGEVY, coupled with a highly innovative pipeline, point to a potential opportunity for investors.

Disclosure