2023-06-16 17:33:55 ET
Summary
- Crispr Therapeutics and Vertex have now had their Biologics License Application for Exa-cel accepted by the FDA - a decision date is expected in December for Sickle Cell Disease.
- This is the conclusion of a long development path - proving that this breakthrough CRISPR/Cas9 based drug can work, is safe, and offers a permanent cure.
- The market has been fairly lukewarm on Crispr stock - shares trade ~$59 when they once traded <$190, valuing the company closer to $20bn than its current market cap of ~$4.5bn.
- Admittedly, the commercial opportunity in play is uncertain, due to pricing issues, a rival therapy, and an uncertain patient population.
- Nevertheless, Exa-cel is near guaranteed to drive blockbuster (>$1bn per annum) revenues in my view, with significant expansion opportunities, and there's more to come from Crispr's pipeline. Crispr stock is arguably worth three figures.
Investment Overview - Gene Therapy Pioneer In Sight Of Historic First Approval
For a long time, Crispr Therapeutics ( CRSP ) and partner Vertex ( VRTX ) - the former headquartered in Zug, Switzerland, and the latter in Boston, Massachusetts - have been dangling the prospect of a historic first approval for a Crispr-based gene therapy.
CRISPR/Cas9 is a naturally occurring viral defense mechanism found in bacteria, which can be adapted for use in gene editing. I have discussed the mechanism of action ("MoA") of CRISPR/Cas9 in previous posts, including back in April , hence in this post I plan to cover mainly the Exa-Cel Sickle Cell Disease ("SCD") Transfusion Dependent Beta Thalassemia ("TDT") opportunity in detail, although it should be noted that Crispr Therapeutics pipeline extends into three other areas, being immuno-oncology - allogeneic (donor derived) and autologous (patients derived) CAR-T therapies - regenerative medicine i.e. diabetes, and in vivo - liver and rare diseases. There's a rich pipeline behind Exa-cel that will generate more excitement once a first CRISPR/Cas9 therapy is approved.
Exa-Cel - How Does It Work? What Does It Treat?
This month, Crispr Therapeutics and Vertex announced that the FDA had accepted their Biologics License Application ("BLA") for "investigational treatment exagamglogene autotemcel, " or Exa-Cel for short. According to a press release :
The FDA has granted Priority Review for SCD and Standard Review for TDT and assigned Prescription Drug User Fee Act (PDUFA) target action dates of Dec. 8, 2023, and March 30, 2024, respectively. Updated data from the pivotal trials supporting the regulatory submissions will be presented at the Annual European Hematology Association Congress on June 11, 2023.
The December decision date means that, if approved, Exa-Cel will almost certainly be the first CRISPR/Cas9 gene editing Therapy to secure an approval, and would represent a historic moment.
A large number of cellular and gene therapy products have been approved by the FDA - 29 in total, according to the agency's own list - but the Crispr approach is considered to have some key advantages - it's more precise, more likely to locate its target, less likely to produce off-target toxicity - such as clonal expansion, oncogenic transformation, variegated transgene expression, and transcriptional silencing - and can be used to make multiple gene edits.
The below slide - taken from the EHA presentation mentioned in the press release - explains how Exa-Cel treats SCD / TDT.
Exa-cel mechanism of action (CRISPR / Vertex EHA presentation)
Both Sickle Cell Disease ("SCD") and beta thalassemia restrict the production of hemoglobin, causing life-long suffering, characterized by fatigue, painful vaso-occlusive episodes ("VOCs"), and often more serious complications.
Fetal hemoglobin ("HbF") contains a gamma globin instead of beta globin protein and is usually only expressed in infants, and usually disappears several months after a person is born. But patients whose HbF persists into adulthood typically experience much milder forms of SCD and TDT, or are completely asymptomatic.
Exa-cel is able to suppress the BCL11A gene that itself suppresses HbF a few months after a patient is born, meaning patient's levels of HbF begin to re-appear, meaning patients may no longer experience the painful side effects of SCD and TDT, and may no longer require regular blood transfusions - the traditional way in which the diseases are currently treated.
Exa-Cel - Proof Of Concept and Phase 3 Success
To prove that Exa-cel is safe and effective, Crispr Therapeutics has followed the same path as any other drug in development - first of all, pre-clinical data is used to secure an investigational new drug ("IND") approval from the FDA.
If an IND is successfully secured (allowing in-human clinical studies to begin), a Phase 1 clinical study is used to establish that the drug is safe, and find an appropriate dose. If successful, a Phase 2 is then initiated to establish Proof of Concept ("PoC"), re-evaluate the safety, and examine the efficacy of the drug, and finally, a Phase 3 study - in an expanded patient population - is used, in Crispr Therapeutics words (source: 10K submission 2022):
... to evaluate the overall benefit-risk relationship of the drug and to provide an adequate basis for physician labeling...
Ex-vivo cell engineering - which is the type of therapy that Exa-Cel is - means that a patient's (autologous therapy), or donor's (allogeneic, or "off the shelf") stem cells must be harvested, and engineered in a lab, or "central manufacturing unit" and then infused back into the patient.
In Exa-Cel's case, this is an autologous therapy and the process of harvesting, engineering, and then reintroducing the cells is a lengthy one as shown above. The conditioning chemotherapy that patients are required to undergo prior to Exa-cel infusion is generally safe and effective, but not without risks of side effects. Many patients may feel uncomfortable going through such a process
With that said, the results obtained by Crispr Therapeutics in its Phase 3 are compellingly good. The Phase 3 trial primary endpoint in SCD was proportion of participants transfusion independent for 12 consecutive months while maintaining a weighted average hemoglobin ?9 g/dL ("TI12"), assessed beginning 60 days after the last RBC transfusion, and for TDT, proportion of participants free of severe VOCs for ?12 consecutive months ("VF12"), also assessed starting 60 days after last RBC transfusion.
As we can see below, both studies met primary, and secondary endpoints.
The significance of the study results should not be underestimated - these 24 of 27 patients in the TDT arm who were transfusion independent for 12 consecutive months, and the 16/17 SCD patients who experienced no severe Vaso Occlusive Crises (a painful inflammatory response to tissues being deprived of oxygen), may well have been "functionally," or permanently cured of their disease, and could be transfusion / VOC free for the rest of their lives.
There are other therapies available to treat SCD, as shown below (Source: Mayoclinic.org )
Last year, Pfizer paid $5.4bn to acquire Global Blood Therapeutics, which markets and sells Oxbryta, which earned $195m of revenues in 2021, and $127m in H122, but has been forecast to achieve $1.5bn in peak annual sales around 2028. Novartis markets and sells Adakveo, which earned $194m of revenues in 2022.
Exa-Cel - The Market Opportunity
If the pharmaceutical industry had complete faith in the ability of CRISPR/Cas9 and Exa-cel to dominate the SCD and TDT markets for years to come then it seems highly unlikely Pfizer would have completed its acquisition of GBT - which has other non-gene therapy SCD drugs in its development pipeline.
One company that seems to have strong faith in Exa-cel however is Vertex - Crispr's long-term development partner for Exa-cel. A Cystic Fibrosis ("CF") giant, with revenues of $8.9bn last year from a franchise which totally dominates the CF industry, Vertex has long faced criticism for its inability to diversify away from a single industry.
The company (my March '23 note for Seeking Alpha here ) has made a promise to launch five new drugs in five years, however, into fields such as pain management, kidney disease, and further down the line, diabetes - but first on the list is Exa-cel and SCD and TDT. Vertex' CEO Reshma Kewalramani told analysts on the company's Q123 earnings call :
Exa-cel holds the potential to be the first CRISPR-based gene editing treatment to be approved, as well as the promise to be a one-time functional cure for these diseases. This is our most advanced program outside of CF and we expect exa-cel to be our next commercial launch.
In 2021, Vertex famously paid CRISPR Therapeutics $900m to increase its share of net sales of Exa-cel, if approved, to 60%, from 50%. On the Q123 earnings call, Vertex' Chief Operating Officer Stuart Arbuckle told analysts that Vertex estimated the initial patient pool for Exa-cel to be ~32,000. He went on to say that:
Survey data from sickle cell and beta thalassemia patients indicate that more than a quarter strongly believe genetic therapy is the right choice for them. Of the balance, the vast majority want to learn more about future treatment options through their own research and through the lived experience is of exa-cel patients and their treating physicians.
With providers, we've learned there is a clear recognition of the differences between various genetic therapy approaches and a strong preference for gene edited therapies like exa-cel over gene insertion approaches using lentivirus. Our market research suggests that approximately 70% of providers prefer a gene editing approach over other gene therapy mechanisms.
The second paragraph is important because Crispr and Vertex are not the only company likely to have an SCD gene therapy offering a permanent fix in 2023. Remarkably, bluebird bio ( BLUE ) has submitted its own BLA to the FDA requesting approval for Lovo-cel, with a priority review, meaning the review period would be shortened from 10 months, to six months. The FDA has not yet accepted it, but bluebird's data is almost as strong as Crispr / Vertex - 96% (31/32) of patients had complete resolution of sVOEs within the 24-month follow-up compared with 3.5 events per year in the 2 years prior to study enrollment.
Is Exa-Cel Only Worth ~$5bn it total sales to Crispr?
bluebird's studies were initially halted due to suggestions of "persistent, nontransfusion-dependent anemia," but ultimately bluebird believes it has satisfied the FDA that the therapy is safe. bluebird is in financial dire straits however, meaning it will struggle to compete with the combined marketing capabilities of Crispr / Vertex - whose respective cash positions were $1.8bn, and $10.8bn as of Q123, compared to bluebird's $180m (although the company recently filed for a $350m mixed shelf).
If we do the math, however, we can summarize the potential market opportunity as follows. As I mentioned in my last note:
The independent research agency Institute for Clinical and Economic Review ("ICER") has speculated that exa-cel, and bluebird bio's ((BLUE)) rival therapy Lovo-Cel, which also is a "one and done" gene therapy, albeit one that uses a viral vector delivery approach as opposed to Crispr/Cas9, could be priced as high as $1.9m - after discounts and rebates are applied - and still be cost effective.
Let's therefore take the figure of 32k, and multiply it by 30% - to represent the survey data suggesting more than a quarter of patients would be interested in the therapy - 9.6k patients. Let's assume that 70% of these patients opt for Exa-cel over Lovo-cel (assuming both are approved) - 6,720 patients. Let's multiply that by the recommended list price for the drug of $1.9m - $12.8bn. And finally, let's multiply that by 40% - Crispr's share of sales - $5bn.
With Exa-cel being a "one and done" therapy, once a patient has received the treatment, theoretically they will never return to the treatment table, so the pool of treatable patients will shrink. Additionally, reimbursement must be secured, i.e. health insurers need to be persuaded to include the therapy on their lists of drugs they will cover for patients.
That could be a potential stumbling block - because insurers may look at the price of Exa-cel - perhaps $2m of more - and then look at the price of e.g. Adakveo - ~$7k per annum, or Oxbryta - ~$11k per annum - and conclude that the gene therapies are too expensive. Apparently, Adakveo patients experience ~1.63 VOC's per annum, compared to a patient on placebo - 2.98x per annum. One or two VOCs per annum is clearly too many, but will insurers see it that way?
Vertex argues that the total lifetime costs of caring for a patient with SCD works out at >$4m, making a one-time payment of ~$2m a very good deal, which also works out far better for the patient. Vertex CFO Arbuckle claims that:
We are working with insurers to ensure broad access for the approximately 35% of sickle cell disease and transfusion-dependent thalassemia patients who are commercially insured.
Now to government payers. Approximately 45% of severe sickle cell disease patients in the U.S. are insured by Medicaid.
If we "guesstimate" 80% of patients are fully insured, then do we need to reduce Crispr's earning potential from the drug by an additional 20% as those who are not insured are highly unlikely to buy the therapy themselves. So, a $4bn opportunity?
In my last note I averaged out my total estimated revenue figure over 10 years, and back then I came up with the much higher figure of $1.2bn per annum, which would fully justify the company's current $4.6bn valuation. But what about $400m per annum, and a price to sales ratio of <10x? Is that enough to make the bull case for Crispr?
Concluding Thoughts - This Is Why I Still Like Crispr Therapeutics Stock At Current Price
The above - admittedly ballpark - calculations certainly give Crispr investors some food for thought. As momentous as a (likely) December approval would be, has the market opportunity been overhyped? I don't think so, for the following reasons.
I certainly believe employers would want the employees they insure to undergo this therapy, given the positive effect such a therapy would have on their lives - and productivity. I also think Medicaid and Medicare will likely embrace Exa-cel - here is Arbuckle on the earnings call again:
We recognize that a critical element for adoption is ensuring a separate payment for the exa-cel therapy in addition to the reimbursement already in place for the transplant procedure costs. Encouragingly, many states are already providing access to cell and gene therapies with separate payment policies for the procedure and the therapy, and we continue to engage with state agencies around payment models ahead of the launch.
Reimbursement already is in place for one part of the process, so Vertex / Crispr are halfway there already. Additionally, Arbuckle mentions a "a CMS demonstration project called the Cell and Gene Therapy or CGT access model," with a budget of $10bn to invest in better access to care for SCD patients.
The entire process around Exa-cel administration is admittedly long and arduous, but given it is a one-time treatment, wouldn't patients be more than willing to undergo short term pain for lifetime gain?
Another area is pricing. Again, because Exa-Cel administration is long and arduous, and cell engineering is an expensive process, the drug arguably needs a very high list price to ensure it pays for itself and offers some profit for the companies that developed it. But take, for example, Bristol Myers Squibb's CAR-T cell therapy Abecma, which apparently has a list price of ~$500k. The process around administering an autologous CAR-T cell therapy is similar to administering Exa-cel, which suggests to me that Vertex / Crispr could cut the mooted list price in half - and capture a much larger patient population.
You might argue but the patient pool is only ~32,000, and some analyst research has uncovered a much smaller potential population of 5-10k patients after discussions with prescribing physicians - but when this was put to Vertex CEO Kewalramani, she pointed out that there are actually 150k SCD patients in the US and Europe. Not all are severe cases, but Vertex and Crispr are both working towards easing the burden of preconditioning, which is admittedly high, as shown below by the Phase 3 safety data.
Exa-cel P3 study safety findings (CRISPR / Vertex presentation)
Crispr has frequently referred to its patient pool rising from 32k, to >160k SCD and TDT patients combined when "targeted" conditioning replaces current standard of care conditioning, and if the two companies can make the therapy work in vivo - we would be talking about a patient pool of ~450k, a much cheaper price point, and a truly revolutionary therapy.
Based on The Above, Is Crispr Therapeutics A Buy, Sell, or Hold?
I continue to view Crispr Therapeutics as a "Strong Buy". Since my last bullish note on the company at the end of April, the stock has risen in value by >20%. In this note I have been more realistic about the market opportunity, and the hurdles faced by both Vertex and Crispr, but when you're talking about an opportunity in the billions of dollars - as I believe is almost certainly the case with Exa-cel - and a functional cure, validating an approach with as much potential as Crispr gene editing clearly has - investors have no reasons to panic, and plenty of reasons for optimism.
Crispr shares have hit highs of >$190 in the past - which translates to a market cap of nearly $20bn, or >4x more than today's valuation. Yes, a fully commercialized pharma typically trades at ~5x sales, not 10x as per my forecast, but an experimental pharma with a large and diverse pipeline of opportunities can trade at 50x sales without necessarily looking overvalued. Pharma investing is, after all, all about "jam tomorrow."
Looking longer term, and factoring in cash of >$1bn, the opportunity to expand the addressable market in SCD / TDT with Exa-cel 2.0 and 3.0, the validation of the technology, the other pipeline assets, and a powerful partner in Vertex, these intangibles make it possible - in my view - for Crispr stock to recapture a price >$100 in due course. It may be a bumpy ride, but I expect to Exa-cel to one day drive blockbuster (>$1bn per annum) sales.
For context, another drug developing - Alnylam ( ALNY ), in the field of RNA-interference, drove just over $1bn sales last year, making a >$1bn net loss. Its market cap valuation? $25.1bn.
For further details see:
Crispr Therapeutics: Breaking Down The Historic Exa-Cel Opportunity