2023-07-25 08:26:45 ET
Summary
- CRISPR Therapeutics is a leading biotech company, currently developing gene-editing techniques to cure hereditary diseases, with promising projects underway.
- The company's Q1 2023 revenue was 100 M USD, derived from R&D collaboration agreements with Vertex Pharmaceuticals, and it has enough assets to cover expenses for the next 9 quarters.
- Despite being fairly valued based on a biotech-DCF model, the company's other projects could prove successful, making CRSP stock significantly undervalued at current share prices.
CRISPR Therapeutics AG ( CRSP ) is a not-so-conservative stock that is fairly valued based on a traditional Biotech Discounted Cash Flow model on its most promising projects. Its other projects might prove to be success catalysts, rendering the firm significantly undervalued at current share prices.
Introduction to Company
CRISPR Therapeutics is a leading biotechnology company, inventing new gene-editing techniques with CRISPR Technology to cure various, often hereditary, diseases. Currently, none of their development projects have been marketed, meaning the company's medicines are still passing clinical trials and gaining approvals. The Swiss-American company was founded by the CRISPR pioneers and Nobel prize winners Emmanuelle Charpentier, Shaun Foy, and Rodger Novak.
Latest Results and Financial Overview
CRISPR Therapeutics recorded Q1 2023 revenue of 100M USD, not from any product sales but from activities related to entering R&D collaboration agreements with Vertex Pharmaceuticals. This resulted in a relatively good Net Income for the quarter of -53.065M USD, meaning the company has burned less cash than the average of the 3 previous quarters, even when adjusting for the 100M USD revenue.
This is partly explained by its decreasing R&D costs, shrinking from the Q1 2022 figure of 118.2M USD to 99.9M USD in Q1 2023 which is a percentage decrease of 15.4% in Quarterly R&D costs. While this is an impressive feat considering the firm's pipeline progress, it is still rational to expect total expenses to rise steadily as the firm develops its R&D projects further.
By utilising the average quarterly Total Expense of 165.48M USD and the company's current assets of 1,907.966M USD and total liabilities of 389.468M USD, the firm has a little more than 9 quarters of runway before running into serious problems with paying its obligations. This means that as a common stock investor in CRISPR Therapeutics, one should not worry about immediately being diluted. Even in case of a large one-off expense, the firm is in a more favorable position to take on new debt instead of issuing new shares with its asset liability ratio of about 5.7.
Latest Pipeline Developments
Q1 2023 was good for CRISPR Therapeutics, as it applied its therapy CTX001, or Exa-cel as it has been renamed, to MAA, meaning its sickle cell disease and beta-thalassemia treatment is now only one step from manufacturing and marketing in the UK and the EU.
According to CRISPR Therapeutics Q1 2023 report, Exa-cel could be ordinated to 30,000 patients in the US and the EU with Sickle cell disease and beta-thalassemia if approved. After this, the potential market could rise to more than 450,000 patients, a 1500% increase from 30,000, with targeted conditioning and in vivo delivery.
Q1 2023 CRISPR Therapeutics Corporate Presentation (Q1 2023 CRISPR Therapeutics Corporate Presentation)
With its recent licensing agreement with Vertex, who is also the owner of ViaCyte, Vertex paid CRISPR Therapeutics 100M USD to speed up its developments of gene-editing based cures for type-1 diabetes which CRISPR also has stakes in through the firms' projects VCTX210, VCTX211, and VCTX212. Both VCTX210 and VCTX212 are in the clinical phases, potentially acting as future positive catalysts.
Valuation
I will first estimate free cash flows adjusted by development risk of 50% and then sum the discounted free cash flows to arrive at a DCF valuation estimate. In order to do this, I look at each pipeline item separately and, thus, only look at those that have reached clinical stages as the other projects are too insignificant for now. Firstly, the Exa-cel treatment for Sickle Cell Disease will, with a Listing Price of 40,000 USD give a Product Net Revenue in excess of 5B USD in 2033 as such:
And for the Exa-cel treatment for Beta-Thalassemia, I estimate the following Revenue Build:
Lastly, for the combination of CTX110 and CTX130, I estimate the following Product Net Revenue:
By summing each year's Product Net Revenues, I have a full revenue estimate to work with. Assumptions are -10% of sales in COGS, -25% of sales in SG&A, and its current R&D burn for the next 3 years. The Depreciation & Amortization is estimated at 3% of sales.
Then, with a discount rate of 8%, a terminal multiple of 10 in the final year, and a probability of success in all 3 lines of 50%, one arrives at an intrinsic value of about 3.5B USD, or a share price of 44 USD, not that far from the market's current valuation of 4.38B USD or about 55 USD per share.
This can be interpreted as the results are expected to come earlier than in 3 years' time or that they place a higher probability of passing clinical trials, or even that a larger price can be demanded. In a scenario with 2 years of R&D instead of 3, the intrinsic value will be above the current market value of about 4.38B USD to about 4.85B USD, indicating 10% undervaluation in such a scenario. Although not an extreme case of undervaluation in such a scenario, it does not account for eventual upside from CRISPR Therapeutics' other pipeline items which might prove successful and thus create further shareholder value.
Conclusion
Currently, CRISPR Therapeutics appears to be fairly valued based on a biotech-DCF model based on assumptions such as success with its pipeline projects Exa-cel, CTX110, and CTX130 in 2-3 years. It is also making good pipeline progress and its finances do not suggest need for shareholder dilution or debt financing in the near future. Having in mind the company's other pipeline projects, the stock can be considered significantly undervalued at current share prices of around 55 USD.
For further details see:
Crispr Therapeutics Has Value Creation Potential