2023-09-20 17:14:28 ET
Summary
- CRISPR Therapeutics has a partnership with Vertex over Exa-Cel, a potentially curative therapy for Sickle Cell Disease and beta thalassemia.
- The FDA will hold an Advisory Committee meeting before the December 8 decision on Exa-Cel's approval.
- CEO Sam Kulkarni aims to grow CRISPR Therapeutics into a $25 billion company, comparing it to the rise of RNA therapeutics giants like Alnylam Therapeutics.
- The CEO is honest and open about the risks and challenges - but Exa-Cel appears to warrant approval and would represent a major step forward for the company.
- In this post I discuss Exa-Cel's MoA and market opportunity, and why CRISPR Therapeutics SP has not broken out of its $40-$60 trading range thanks to its undeservedly low profile.
Investment Overview
I have been long CRISPR Therapeutics ( CRSP ) since late 2021, and have shared several bullish notes with Seeking Alpha readers on the gene therapy specialist - primarily discussing the company's partnership with Vertex ( VRTX ) over Exa-Cel, a potentially curative therapy for Sickle Cell Disease ("SCD") and beta thalassemia ("TDT") that could be approved in SCD as early as December.
In my last note in July I argued that CRISPR Therapeutics's role in this partnership has been overlooked by the market. The company will earn a 40% share of net revenues from Exa-Cel, if approved, and is largely responsible for developing the "CRISPR" - which stands for Clustered, Regularly Interspaced, Short Palindromic Repeats, and Cas9 - an enzyme that can cleave DNA - technology underpinning the autologous (patient, as opposed to donor derived), ex vivo cell therapy.
In this post I will share several key updates about the Exa-Cel opportunity - for example the FDA's decision to hold an Advisory Committee meeting ahead of the December 8 Prescription Drug User Fee Act ("PDUFA") date (the date the FDA announces if the drug has been approved for commercial use, or rejected), and a re-examination of the market opportunity.
Going further, I will discuss some of CRISPR Therapeutic's other opportunities, and also discuss CEO Sam Kulkarni's comments - made during a recent fireside chat at Citi's 18th Annual BioPharma Conference in September - that:
The next part of the journey for the company is how do you become a $25 billion company in the next three to four years?
CEO Kulkarni goes on to compare CRISPR Therapeutics rise to the rise of RNA therapeutics giants e.g. Alnylam Therapeutics ( ALNY ), whose market cap valuation is currently $22bn.
Naturally, if Kulkarni - who recently became the company's Chairman as well as its CEO after the unexpected departure of co-founder Dr. Roger Novak, who had been serving as M.D., President and Chairman of the Board - succeeds in growing CRISPR Therapeutics into a $25bn company, CRISPR's share price gains over the next few years will be astronomical.
On the other hand, ever since CRISPR Therapeutics share price soared to $200, after the company accepted a $900m payment from Vertex in exchange for additional 10% share of Exa-Cel profits, the company's share price performance has been poor - the current traded price is $48, valuing the company at $3.8bn.
In this post I'll weigh up some of the bull and bear argument for and against the company, and provide some of my own thoughts on whether shares can decisively break out of their long-term $40-$60 trading range. First, let's recap, and update, on the Exa-Cel opportunity.
How Exa-Cel Works
Essentially, a patient with SCD or TDT - Transfusion Dependent Beta Thalassemia - begins by undergoing a myeloablative busulfan conditioning regimen, to allow their cells to be harvested and extracted. The cells are taken to a lab, and genetically engineered using CRISPR / Cas9 technology.
The CRISPR part acts as a kind of homing device that can locate specific sections of DNA, and the Cas9 acts like a pair of "genetic scissors" that cleaves and alters the DNA so that it becomes disabled, or repairs itself in the way desired by the therapy. A strand of guide RNA is used to direct CRISPR/Cas9 to the target nucleus.
SCD and TDT sufferers have abnormal hemoglobin proteins that cause red blood cells to become misshapen and obstruct blood vessels, resulting in "severe pain, infections, stroke, overall poor quality of life and early death" (quote taken from CRSP 2022 10K / annual report ).
Exa-Cel targets a gene encoding a protein known as BCL11A, which controls levels of fetal hemoglobin ("HbF"), a substance that is usually only present in newborn infants, although research has shown that patients whose HbF levels persist into adulthood are usually asymptomatic for SCD or TDT. As CRISPR Therapeutics puts it:
Disrupting the BCL11A erythroid specific enhancer reduces BCL11A expression specifically in erythroid lineage cells, thereby upregulating expression of gamma globin and increasing HbF levels.
Once a patient's cells have been edited in this fashion ex vivo - in a laboratory - they are reinfused back into the patient, whose HbF is now heightened, protecting against the painful Vaso-occlusive attacks suffered by SCD patients, and allowing TDT patients to become fully transfusion independent.
The Market Opportunity: "Multi-Billions" Is The Target - And It Ought To Be Achievable
Crispr Therapeutics / Vertex pivotal study data for SCD and TDT is exceptionally good - as I wrote in my last note:
In the pivotal Phase 3 study CLIMB-111, 42 out of 44 patients with Transfusion Dependent Thalassemia ("TDT") were able to stop red blood cell transfusions after a treatment period ranging from 0.8 to 36.2 months, while the other two experienced 75% and 89% reductions in transfusion volumes, and in the pivotal CLIMB-121 study, 31 out of 31 SCD patients were vaso-occlusive episode free with a duration between 2 - 32.3 months (data from a recent CRISPR Therapeutics presentation ).
During its Q223 earnings call, Vertex CEO Reshma Kewalrami noted:
The Exa-Cel EHA results continue to demonstrate transformative, consistent and durable benefit for patients as measured by freedom from severe vaso-occlusive crises for 94% of SCD patients and transfusion independence in 89% of TDT patients. The safety profile was generally consistent with busulfan conditioning and bone marrow transplantation.
In other words, so far as anyone can tell, Exa-Cel works! patients are permanently cured of a lifelong, debilitating disease after a single course of Exa-Cel therapy. With such outstanding results, we might conclude that Exa-Cel's market opportunity is vast, given research suggests the worldwide of incidence of SCD and TDT is 300k and 60k respectively, and total prevalence in the US and Europe 16k and 150k respectively.
It is not quite as simple as that however. The current intensive pre-conditioning regime patients must undergo before cells are extracted restricts the addressable patient population to ~7k TDT patients, and 25k SCD patients, both CRISPR Therapeutics and Vertex believe - at least initially.
Nevertheless, Vertex CEO Kewalramani referred to Exa-Cel as a "multibillion-dollar opportunity in the future" on the company's latest earnings call , and the company says it already has 50 treatment centres ready to administer the therapy in the US, as well as 25 in Europe, is confident that it can secure reimbursement for the 65% of SCD and TDT patients who have Medicaid/Medicare plans, and says it "had high levels of engagement with commercial payers", that account for ~80% of commercial lives.
As I have discussed in previous notes, Vertex and CRISPR Therapeutics' have remained tight-lipped about the potential cost of Exa-Cel, but the independent research agency Institute for Clinical and Economic Review ("ICER") has completed research suggesting that a price of ~$1.5m would be reasonable, given the "one and done" nature of the treatment.
32k patients treated with a therapy costing $1.5m works out at a market opportunity of $48bn, 40% of which (CRISPR Therapeutics' share) would be $19.2bn. Average this out over 10 years and we arrive at ~$1.9bn per annum. Multiply this by a putative forward price to sales ratio of 3x and we arrive at a theoretical market cap valuation for CRISPR Therapeutics of $5.76bn. Finally, divide that figure by the issued share count and we arrive at a target share price of $73 per share - a >50% premium to the current price.
Risks To Market Opportunity - Competition, Lack Of Patient Buy In - Seem Minimal
There are one or two reasons for disputing this price as too high. Firstly, Bluebird Bio has developed its own SCD therapy, lovo-cel, that uses a viral vector technology as opposed to CRISPR/Cas9, has proven practically as effective as Exa-Cel in clinical studies, and has its PDUFA date upcoming on December 20- less than two weeks after Exa-Cel's.
Secondly, the SCD/TDT patient community has not yet had the opportunity to decide if this kind of ex vivo therapy is for them. With plenty of alternative - albeit not curative - therapies available - for example Pfizer ( PFE ) paid $5.4bn to acquire Global Blood Therapeutics and its $200m per annum selling SCD therapy Oxbryta last year, and GBT is developing a next generation therapy - will patients opt for gene therapy, and will insurers reimburse for it?
As I have argued before, Bluebird, beset by financial problems, reporting net income of ~$(2.5bn) in the past four years alone, will surely find it almost impossible to compete with a giant like Vertex in the SCD market. Perhaps the only thing currently in Bluebird's favour is that the FDA has not asked to convene an advisory committee ("AdCom") to discuss the approval of lovo-cel, potentially implying a higher chance of approval.
In terms of patients rejecting the chance to try Exa -Cel , I do think the therapy will take time to grow market share, as a first ever approved CRISPR/Cas9 gene therapy, but if results are as strong in the commercial setting as they were during the clinical trial phase, the pull exerted by a "one and done" curative therapy will surely be strong enough to attract thousands upon thousands of patients.
Further Reasons For Optimism - CEO Kulkarni Speaks - And The Market Should Listen
I mentioned in my intro that the market may be over-looking CRISPR Therapeutics in favour of the more established, $90bn market cap, ~$9bn revenue, highly profitable Vertex. That's understandable, given CRISPR Therapeutics made a net loss of $(650m) last year, but the company is cash rich - reporting near term assets of ~$1.8bn as of Q2'23, and has substantially more to gain, valuation-wise, from the success of Exa-Cel.
CRISPR Therapeutics does not exactly help itself by, for example, neglecting to hold quarterly earnings calls and leaving investors out of the loop, hence it was heartening to hear CEO Kulkarni speak at the Citi conference in September - the day before the news about the departure of co-founder Novak was announced.
For example, Kulkarni spoke at length about the upcoming AdCom for Exa-Cel - which he suggested would be scheduled for late-October - and what subjects may be under discussion. Although not keen to second-guess the FDA, he suggested that durability would be under discussion, arguing that it compared favourably to Bluebird's lentiviral approach.
As opposed to the lentivirus type discussion, there was questions on durability. Our durability seems to be very clear. The bone marrow shows what the cells are once they're edited, they remain at that 80% editing level. The patient benefit from clinical markers are very clear.
Kulkarni also suggested that the commercial push - provided Exa-Cel makes it through the AdCom and is approved in December - would begin slowly - "you can't just hang up the shingles and expect that patients will show up", and that it will take time to persuade insurers of the benefits of the therapy:
You do have a somewhat fragmented payer landscape because you have the commercial payers, but then you have all the state Medicaids that come into play here in addition to CMS overall, so doing all the work around just making sure they understand the therapy, the evidence behind it, but then all the mechanisms are in place would allow us to make sure that there's prioritization and the therapy gets paid for.
Kulkarni also advised that administering Exa-Cel would be a new procedure for hospitals, and patients, to get used to, pointing to "simple things like how do you freeze-thaw the product before you administer" and suggesting:
We need to make sure the patient experience is seamless when they come into the process because you have to collect their cells, manufacture it, let them know how, what's the status is of the manufacturing, when they're going to expect it back and then they can set up a date for when they can actually infuse the patient.
The CEO even commented on the competition - "we wish bluebird well, and we wish -- we want the whole segment to grow very rapidly".
His measured comments will likely provide a lot of comfort to shareholders, in the long-term, even if they did not light a fire under the share price in the short term.
Kulkarni Looks Ahead - Sounds A Bullish Note On Exa-Cel Expansion
Kulkarni frequently hinted at the fact that CRISPR Therapeutics' work is significantly more advanced than most observers believe, but that the company simply "doesn't talk about it much".
Sticking with Exa-Cel for the time being, the CEO suggested that a gentler preconditioning regime could expand the addressable patient population to 50k patients, and that "there'll be more patients willing to raise their hands".
A gentler preconditioning regime could double the revenue opportunity for CRISPR Therapeutics, and push its putative share price well past $100 per share, although Kulkarni suggested it could be 3-4 years before we see "meaningful advances in that direction". In the near term, it should be noted CRISPR Therapeutics is in line for a $200m milestone from Vertex upon Exa-Cel approval.
The Best Of The Rest - Kulkarni Discusses Cell Therapy, Diabetes, In-Vivo
Leaving Exa-Cel aside, it's important to remember that hemoglobinopathies is only one franchise of four the company is targeting, the other three being immuno-oncology, regenerative medicine, and in vivo .
The lead candidate in immuno-oncology is CTX110, which has shown "durable complete remissions with allogeneic CAR-T", according to an investor presentation . No allogeneic - using cells from a donor, as opposed to extracting a patient's own cells - therapy has ever been approved, amid doubts over durability and safety (will the patient's immune system reject the foreign cells?) persist.
This is a point that Kulkarni was happy to acknowledge during the fireside chat - the CEO also admitted that CD19 targeting therapies addressing blood cancers is a "crowded space" - thanks to approvals of autologous cell therapies e.g. Gilead Sciences ( GILD ) Yescarta and Tecartus, and Bristol Myers Squibb's ( BMY ) Abecma and Breyanzi - but he also discussed a next-generation CD-19 targeting therapy, CTX112, which is using additional edits designed to enhance potency and reduce exhaustion. This candidate is progressing through a Phase 1/2 study in B-cell malignancies, with data likely to be shared next year.
Diabetes is another area where CRISPR is partnered with Vertex, thanks to its development of a method of treating diabetes using induced pluripotent stem cells ("IPS"), without requiring immunosuppression by creating "stealth" IPSs. Immunosuppression had held back this field of research - despite its success in treating patients - for decades - now CRISPR Therapeutics is being paid to work on a solution - according to Kulkarni:
We've done a deal 50-50 deal with ViaCyte, so now we're a 50-50 partner with Vertex in this space. Now it turned out that Vertex also had a parallel bed with the same thesis around IPS cells in editing and it acquired a company called Semma, they had a different cell line they were also progressing.
So what we thought was actually it may benefit everyone for us to take our -- license our CRISPR technology to the Semma cell line as well with Vertex and that's what gave us the deals we announced this year, which was in early part of the year, we announced the $100 million or so deal with Vertex.
We had that $70 million milestone coming recently. That was zero milestones, and then we have royalties associated with edited cells from the Semma cell lines. So we have some portion of participation in the Vertex efforts independent of us.
Finally, the holy grail target for any gene therapy focused company is in vivo . In vivo medicines require no preconditioning - they are injected directly into the patient - and they get to work faster, but a successful delivery technique has eluded scientists for generations. With the arrival of Lipid Nanoparticle ("LNP") technology, however, companies are rapidly making advances today, and Kulkarni insists CRISPR is at the forefront of this progress, although "we don't talk about it much".
In vivo delivery of Exa-Cel, for example, would increase its addressable patient population from thousands, to millions, and the liver is another major target for CRISPR. Kulkarni describes CRISPR Therapeutics' LNP platform as "best in class", and believes that CRISPR/Cas9 technology could easily take on and even surpass RNAi technology in the liver, where RNAi technology companies have been focused for decades, with little commercial success to date. The company is targeting a variety of niche indications, as well as lipoprotein A - with a potential addressable market of ~11m patients, according to Kulkarni.
Concluding Thoughts - Acknowledging The Risks - As The CEO Does - CRISPR Therapeutics Remains One Of My Favourite Holdings
The mention of RNAi therapeutics above brings me back to the point made in my intro about CRISPR Therapeutics's CEO Kulkarni's ambitions to turn the company into a $25bn market cap gene therapy specialist held in the same esteem as e.g. Alnylam.
It should be noted that Alnylam rival Ionis Therapeutics ( IONS ) (my note here ) has a market cap of just $6bn, despite successfully commercialising four drugs, and establishing partnerships with several major pharmas with over $20bn in milestones in play in the RNAi space.
There is no question that CRISPR Therapeutics' still has much to prove, and that every shareholder will sleep more comfortably at night once the Exa-Cel AdCom has been successfully negotiated and Exa-Cel approved.
Investors must acknowledge the risk of the FDA uncovering data that undermines the efficacy and safety profile of Exa-Cel, and the fact that represents an entirely new therapeutic approach means the scrutiny will be more intense than ever. Any setbacks will be punished more severely by the market as it will prompt questions around whether the CRISPR/Cas9 thesis can really be implemented into in-human therapeutics.
None of this ultimately changes my view that CRISPR Therapeutics is substantially undervalued, however. There appears to be very little in the Exa-Cel data released to date that hints at problematic durability issues, patient relapses, or unusually high safety concerns. Although you can never rule such an eventuality out, I am expecting Exa-Cel to achieve an historic first approval for a gene therapy.
With partner Vertex handling the commercial launch, CRISPR Therapeutics can enjoy the benefits of negotiating an apparently very good deal with its partner, claiming 40% of all profits on sales. Although the short term market opportunity does not necessarily demand a valuation uptick, long term, this can become an extremely valuable therapy - a fact the market has been very slow to acknowledge.
The validation of the CRISPR/Cas9 approach an approval will bring will likely help the share price break out of its $40-$60 range, and from a commercial perspective, if the sceptics can be won over, Exa-Cel ought to become a blockbuster product, and longer term, if CRISPR Therapeutics work on a gentler conditioning regime pays off, perhaps even a double-digit billion selling product one day. Remember, a European approval could follow hot on the heels of a US approval, and the TDT indication should also be approved in early 2024.
Even if sales ultimately underwhelm and efforts to expand the patient population are slow, however, there is as much value tied up in the company's other three areas of focus - immuno-oncology, diabetes, and in vivo therapies initially focused on the liver - as there is in Exa-Cel alone. The company may be reluctant to discuss progress - a shame for beleaguered shareholders - but the most important thing to consider is whether there is progress, and in my view, after listening to Kulkarni, there is a great deal more progress to look forward to.
Back in 2021 I had become a CRISPR sceptic and a CRISPR Therapeutics sceptic, until listening to a former fireside chat with the CEO in which Kulkarni discussed the functional curing of 15 patients with SCD and TDT. I found this achievement so impressive I brought shares in the company shortly after. I don't regret that decision, even if I am being made to wait for a return on investment. I feel confident it is coming.
For further details see:
CRISPR Therapeutics: CEO Targets $25bn Valuation - Exa-Cel Approval Is First Step