CRSP - Vertex And CRISPR Therapeutics: Historic Exa-cel Approval Why Market Is Nonplussed

2023-12-08 20:06:38 ET

Summary

• The FDA has granted approval to a CRISPR-based gene editing therapy for the first time in history, validating the approach.
• The therapy, called Casgevy, is approved to treat Sickle Cell Disease after showing positive results in clinical trials, functionally curing patients.
• Despite the approval, the stock prices of CRISPR Therapeutics AG and Vertex Pharmaceuticals Incorporated did not surge today, possibly due to concerns about market potential and competition from another approved therapy.
• The market has been long-term bearish on CRISPR/Cas9 and may be waiting for commercial validation, now that clinical validation has been achieved.
• Today was an historic day for the gene therapy field, and a disappointing one for Vertex / CRISPR Therapeutics shareholders, but Casgevy ought to prove the doubters wrong in time.

Investment Overview Historic Approval Validates CRISPR Gene Editing Approach

News broke this afternoon that the Food and Drug Agency ("FDA") has granted approval to a CRISPR-based gene editing therapy for the first time in history. It is an historic achievement for both Vertex Pharmaceuticals Incorporated ( VRTX ) and CRISPR Therapeutics AG ( CRSP ), the two companies who first agreed to partner together on developing CRISPR-based therapies in 2015.

Exa-cel - which is indicated to treat Sickle Cell Disease, and will be branded as Casgevy, was approved based on the results of its pivotal CLIMB-121 study, which showed that 16 out of 17 patients treated with the cell therapy achieved the primary endpoint of freedom from vaso-occlusive crises ("VOCs") for at least 12 consecutive months. The mean duration of VOC-free was 18.7 months, with a maximum of 36.5 months. 17/17 (100%) achieved the key secondary endpoint of being free from hospitalizations related to VOCs for at least 12 consecutive months.

Sickle Cell Disease - which disproportionately affects people of African descent - is described as follows in Vertex / CRISPR Therapeutics press release announcing today's approval :

SCD is an inherited blood disorder that affects the red blood cells, which are essential for carrying oxygen to all organs and tissues of the body. SCD causes severe pain, organ damage and shortened life span due to misshapen or “sickled” red blood cells.

The clinical hallmark of SCD is VOCs, which are caused by blockages of blood vessels by sickled red blood cells and result in severe and debilitating pain that can happen anywhere in the body at any time.

SCD requires a lifetime of treatment and results in a reduced life expectancy. In the U.S., the median age of death for patients living with SCD is approximately 45 years

The press release also describes the mechanism of action of Casgevy as follows:

CASGEVY is a genome-edited cellular therapy consisting of autologous CD34+ hematopoietic stem cells ((HSCS)) edited by CRISPR/Cas9 technology at the erythroid-specific enhancer region of the BCL11A gene. CASGEVY is intended for one time administration via a hematopoietic stem cell transplant procedure where the patient’s own CD34+ cells are modified to reduce BCL11A expression in erythroid lineage cells, leading to increased fetal hemoglobin (HbF) production. HbF is the form of the oxygen-carrying hemoglobin that is naturally present during fetal development, which then switches to the adult form of hemoglobin after birth.

CRISPR/Cas9 gene editing technology was first discovered as a mechanism that protects bacteria against viral infections by the scientists Dr. Emannuelle Charpentier and Jennifer Doudna, and its adaption into a something akin to a pair of "genetic scissors" that can be used to make cuts and edits in selected double-stranded DNA, ensured they were awarded the Nobel Prize for Chemistry in 2020.

An Advisory Committee convened by the FDA at the end of October brought together a panel of experts to discuss whether there may be any lingering safety concerns that may cause the FDA to deny approval of exa-cel. Members of the Cellular, Tissue, and Gene Therapies Advisory Committee discussed whether "off-target" editing of cells could lead to unintended multiplications of mutated genes, which could be a contributing factor to a patients developing a condition such as leukemia, for example.

The committee's conclusion is that while it may be impossible to completely rule out the prospect that CRISPR/Cas9 could lead to oncogenic driver mutations, the chances were remote enough that it can be "safely" concluded that the benefits of exa-cel outweigh the risks. One panelist commented that "we don’t want to let perfect be the enemy of the good."

Relatively Safe, Effective, Transformative - But Market Unmoved?

With Casgevy having produced outstanding results in its pivotal study in SCD, and its safety profile endorsed by an FDA Advisory Committee, and confirmed in the CLIMB-121 study, in which there were no serious adverse events ("SAEs") considered related to exa-cel, shareholders of CRISPR Therapeutics and Vertex may have expected the stocks to be surging today.

Intriguingly, however, this has not been the case. At Market close today, Vertex stock was down 1% for the day, with shares priced at $350, valuing the company at $90bn. CRISPR Therapeutics stock ended the day priced at $64.5, down 8% for the day, providing a market cap valuation of $5.13bn.

In fairness to CRISPR Therapeutics, its stock price has risen from a low of ~$39 prior to the AdCom, in late October, to $71, prior to the news of Casgevy's approval - but it is still hard to explain why the stock is not soaring post approval, given it was by no means a foregone conclusion.

In the case of Vertex, the company may be forecasting for ~$10bn of revenues in 2023, but all of its revenues come from a single source, being its Cystic Fibrosis ("CF") franchise, therefore a historic approval for a CRISPR gene editing therapy adds valuable diversification to the company's portfolio, not to mention a potential "blockbuster" (<$1bn per annum) revenue opportunity.

In their joint press release , CRISPR Therapeutics and Vertex state that "approximately 16,000 patients with SCD" will be eligible for treatment with casgevy, which has a list price of $2.2m, according to sources, which implies a maximum market opportunity of >$35bn.

In reality, it may be highly unlikely that the two companies can reach that number of patients, or persuade insurance companies to reimburse for treatment with Casgevy, despite the fact that it offers a "one and done" therapy which makes its total cost substantially lower than providing a lifetime of care to a SCD patient.

There are other concerns, such as the preconditioning regime that patients must undergo before their bone marrow cells can be harvested for ex-vivo engineering, and again before they are reintroduced. CRISPR and Vertex call this a mobilization medicine, and it is comparable to a round of chemotherapy - in fact, any patients undergoing therapy with Casgevy will likely spend months in hospital, under constant supervision, and many may not be prepared to undergo such a regime.

An Initially Small Market Opportunity - But Significance of First CRISPR Approval Should Not Be Underestimated

If we consider that Vertex and CRISPR Therapeutics are able to treat half of the eligible patient population - 8k patients - over a 10-year period, earning 75% of the full list price of $2.2m, this translates to an annual revenue opportunity of $1.32bn.

Considering that, by the terms of the agreement between the two companies, Vertex earns 60% of revenues on net sales, and Crispr 40%, we can speculate that Vertex may earn ~$800k per annum from Casgevy over the next decade, and CRISPR Therapeutics ~$525k per annum.

Arguably, that may not be a significant enough opportunity to support a bull run on CRISPR Therapeutics stock, or Vertex stock, although I would argue to the contrary that the significance of the approval, the validation of the two companies' technology and approach, and the opportunity to keep developing the therapy, and other therapies besides, would add several billion to each companies valuation. As I noted in a November post on CRISPR Therapeutics:

CRISPR Therapeutics is already working on easing the preconditioning burden for exa-cel patients, opening up the therapy to perhaps as many as 100k SCD patients, and an in-vivo approach - a game-changer that could make exa-cel available to a patient pool of >350k patients.

It should not be forgotten, also, that if exa-cel is approved in SCD in December, it is highly likely to be approved in TDT a few months later, increasing the initial addressable patient population by a further ~7k.

There is a lot of work to be done to soften the preconditioning regime for SCD patients, let alone design an effective in-vivo version of Casgevy, but progress with CRISPR/Cas9 editing - particularly by these two companies - has already surpassed expectations, and therefore it would be no surprise to see these modifications arrive sooner rather than later, and not just in SCD, but across numerous fields of medicine, using allogeneic (donor derived cells, as oppose to patient derived) cell therapies, including some of the largest markets and indications in oncology and immunology.

Another Reason The Market Was Unmoved Today - Rival Bluebird's Early Approval

Another factor for the market's less than enthusiastic reception of the Casgevy approval news may have been the fact that the FDA also chose to approved to another cell therapy to treat Sickle Cell Disease today.

The FDA was set to make a decision on approval of bluebird bio, Inc.'s ( BLUE ) lovo-cel gene therapy, which uses bluebird's proprietary lentiviral vector approach as opposed to CRISPR/Cas9, on December 22nd, but bizarrely decided to announce that it was approving the therapy on the same day as announcing the approval for Casgevy. bluebird's therapy will be marketed and sold as Lyfgenia.

Bluebird's pivotal study data is arguably as good as Casgevy's - according to sciencedirect.com :

Of 33 evaluable patients (ie, ?18 months follow-up and ?4 VOEs in the 2 years before enrollment), 30 (90.9%) and 32 (97.0%) had complete resolution of Vaso Occlusive Episodes ("VOEs") and severe VOEs during the 6-18 months post infusion, vs a median (range) of 3.5 (1.5-16.5) and 3.0 (0.5-13.0) events/year in the 2 years before enrollment.

From a more pragmatic perspective, however, it is difficult to understand why the market would view the Lyfgenia approval as a reason not to celebrate the Casgevy approval. Lyfgenia will come with a list price of $3.1m , bluebird has announced, nearly $1m more than Casgevy. While Vertex has vast cash resources and an established sales and marketing infrastructure, bluebird reported a Q3 cash position of just $227m, and its 2 approved therapies generated <$25m across the first three quarters of 2023.

The company does not have the reach or the resources to present a credible challenge to Vertex in commercial markets - and besides, arguably, the patient pool is large enough to support two competing therapies. Bluebird stock fell 40% today on news of its pricing strategy, despite the unexpected approval of Lyfgenia.

Concluding Thoughts - The Market May Simply Not "Get" CRISPR Yet, Or Understand That It Is Here To Stay

The market's response to the historic approval of Casgevy - sending CRISPR Therapeutics stock down by >8%, with Vertex stock barely budging, is as surprising as its dumping of bluebird stock on news of its therapies high list price (which can likely be adjusted).

Perhaps there are some pragmatic explanations as to why, however. The restricted patient pool due to the harsh preconditioning regimes patients must undergo, the high costs of the therapies, the lack of treatment centers capable of administering the therapies, and a reluctance on the part of health insurers to pay the list price.

With that said, none of these objections are unresolvable - preconditioning regimes may well be with undergoing given the opportunity to live a comparatively pain-free life without any need for further therapy, and they may well improve over time, opening up the patient pool. Once insurers understand the "one and done" nature of gene therapy, they may well see the benefit of paying a higher one-off fee.

Patients may well see other patients successfully undergo treatment and be prepared to try it themselves, and likewise physicians may be emboldened by the success of other physicians. Treatment centers will be constructed so long as the demand continues to outstrip the supply.

The market does not appear to have taken any of these considerations into account, and in some ways this does not surprise me. My view is that it has been long-term bearish on CRISPR/Cas9, and is not yet fully cognizant that it has arrived as a therapeutic option, and is here to say.

CRISPR Therapeutics' share price has rarely been rewarded as it should be, based on its enormous potential, with the market constantly seeking validation - a positive FDA outcome, a substantial investment from Vertex - before turning bullish on the company.

As far as Vertex is concerned, investors may not believe that Casgevy will make a material difference to its top line revenues, remaining more focused on its Cystic Fibrosis franchise. Once again, however, I would call that take shortsighted. Vertex has struggled to diversify away from CF, but now it has done so with a breakthrough therapy in a disease area of high unmet need.

Shareholders of either CRISPR Therapeutics or Vertex, and possibly even bluebird, should not be too disappointed with the lack of a spike today. The market may have to wait until sees "blockbuster" revenues rolling in for Casgevy, but that is entirely possible, even likely, and, therefore, now is the time to keep the faith. Today was an historic day for CRISPR/Cas9, even if the market opted not to celebrate.

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